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09/19/2015

For the week 9/14-9/18

[Posted 10:30 PM, Friday]

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Edition 858

Washington and Wall Street

Early in the week the Street was literally split 50/50 on whether or not the Federal Reserve would finally raise interest rates on Thursday following its latest Open Market Committee meeting, but once again, savers got screwed as Chair Janet Yellen and her band of merry pranksters opted to keep rates at zero.

In a statement, the FOMC said: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”

The Fed offered it still planned on raising rates this year, with 13 of the 17 members of the committee predicting the Fed would hike by at least 0.25 percentage and six predicting an even larger increase, but the FOMC is scheduled to meet just in October and December the rest of 2015 and much of the verbiage, including from Chair Yellen in her press conference, certainly seems to leave October off the table.

The Fed is convinced labor market conditions have nearly returned to normal, with the unemployment rate now projected to fall to 4.8 percent, when we’re already at 5.1 percent.

The statement read: “The labor market continues to improve, with solid job gains and declining unemployment.”

But the Fed also lowered its forecast for fed funds (the benchmark rate), reaching 2.6 percent by the end of 2017. In June they had predicted it would hit 2.9 percent.

The key is the estimate for inflation, which was reduced to just 1.7 percent in 2016 and 1.9 percent end of 2017, the Fed’s target being 2 percent.

The increased market turmoil around the globe that has the Fed so tied up in knots was precipitated in large part by the crash in the Chinese equity market amid concern that economy was slowing far more rapidly than once thought.

On the other hand, it was back in 2012 that the Fed announced it would keep rates at zero until the unemployment rate fell below 6.5 percent and here we are at 5.1!

Clearly the Fed is worried about crushing a recovery that it believes it has had everything to do with, while the headwinds from overseas have created renewed uncertainty for the committee.

The thing is if the Fed wants to move this year, just what is going to change in regards to the global picture to warrant a rate hike if you follow their line of thinking? There is too little time to know much more about China, or the impact of what promises to be greater uncertainty following Sunday’s Greek election, or, seriously, any negative economic implications from Europe’s migrant crisis (and now, suddenly Russia in Syria, which admittedly wasn’t remotely on the Fed’s radar).

The fact is the U.S. economy is doing just fine and it’s not as if we are tipping into deflation, plus the Fed previously said it did not have to actually see a 2 percent inflation rate to act. But now that seems to be the magic number and this week’s release of the core consumer price index for August showed prices, ex-food and energy, up 1.8 percent year over year. While this is but one of the Fed’s inflation barometers, that seems like 2 percent to me, plus we’ve recently seen better news on the wage front. But what the hell do I know.

We have lived in an uncertain world for years and years, and that’s not changing for probably decades to come! If this is the Fed’s concern, then just come out and say, ‘We’re holding rates at zero until hell freezes over.’

In her press conference, Chair Yellen said of the debate inside the FOMC: “An argument can be made for a rise in interest rates at this time.” But she said officials decided to hold off “in light of the heightened uncertainties abroad” and the prospect of low inflation for a longer period. The Fed wants “a little bit more time” to make sure the U.S. economic outlook hasn’t fundamentally shifted, she said.

Editorial / Wall Street Journal

“So much for liftoff. Despite months of feeding market expectations, the Federal Reserve’s Open Market Committee decided not to raise interest rates off near-zero even six years into an economic expansion. The question now is whether the Fed will ever raise rates before the next recession.

“ ‘The economy has been performing well,’ said Fed Chair Janet Yellen in her post-FOMC meeting press conference. Yet the economy apparently isn’t growing well enough that it can survive a mere 25 basis point increase in short-term rates. This has become the endless pattern of the zero-interest-rate (Zirp) era, in which central bankers say their policies are either working so well that they must continue or not working well enough so they must continue.

“Ms. Yellen cited Fed concern over ‘global economic and financial developments,’ including the strong dollar and slower growth overseas, as well as a U.S. inflation rate that remains below the Fed’s 2% annual target. She said most FOMC members still think conditions will be ripe for a rate increase before the end of the year, but four of them have now pushed their forecast into 2016.

“This too is the post-crisis negative feedback loop. The Fed predicts a stronger economy and rising inflation next year, but somehow they never arrive. And sure enough, the Fed’s governors and bank presidents on Thursday again downgraded their median economic projections for real GDP growth in 2016 (2.3%), 2017 (2.2%) and even 2018 (2%)....

“All of the market and media fretting of recent weeks turned out to be melodrama. For the Fed, and central bankers nearly everywhere in the developed world, monetary policy is stuck on zero.”

Alas, some real drama returned Friday, Mr. Wall Street Journal Editorial Board.

A few other economic notes on the week:

The OECD cut its global growth target for 2015 to 3.0% from 3.1%, and 2016 from 3.8% to 3.6%. The U.S. growth forecast for 2015 was increased from 2.0% to 2.4%.

The OECD raised the eurozone outlook to 1.6% from 1.5% this year, while Brazil’s contraction is now expected to be 2.8%.

August housing starts in the U.S. came in as expected, while other metrics such as permits and the number of homes under construction are at their best levels since 2008.

August retail sales were up 0.2%, which while a tick less than expected was still a positive and fuel for those thinking the Fed would hike rates two days later, while August industrial production was down 0.4%, worse than expected.

On the Washington front, there are now less than two weeks to go before Congress must come up with a new budget (zero percent chance), or continuing resolution (CR), to fund the government and the spat over Planned Parenthood still threatens to muck things up as House Speaker John Boehner told reporters Thursday there wasn’t a lot of progress in averting a shutdown. Those seeking to strip funds from the women’s reproductive health service are holding firm.

Boehner is trying to prevent Republicans from being blamed for a shutdown as they were with the 16-day partial government closure in October 2013, and he’s attempting to avoid a fight over his own status as speaker.

In the Senate, Majority Leader Mitch McConnell warned the conservatives’ strategy to defund Planned Parenthood won’t work because President Obama has threatened to veto any such move. The Kentucky Republican told reporters, “I’m not in favor of exercises of futility. We need to deal with the world we have.”

Finally, this coming week is going to be one of the more interesting ones in recent memory, with Chinese President Xi Jinping’s state visit to Washington (more like a tension convention), the Pope’s trip to New York, Washington and Philadelphia (after he spends the weekend in Cuba), and all manner of characters speaking before the U.N. General Assembly, including Russian President Vladimir Putin.

Whatever you do, avoid New York City at all costs. It will be a freakin’ mess.

Europe and Asia

With the migrant issue continuing to hold center stage in Europe, it is easy to forget there is another Greek election on Sunday and there seems little doubt the result will be inconclusive, with Syriza and New Democracy in a dead heat, according to the final polls, which could result in renewed market turmoil; the two parties incapable of forming a coalition.

Charles Dallara, who negotiated the second Greek bailout in 2012 that critics have argued was too harsh, said the third bailout was a missed opportunity to reduce claims on the Greek economy and push harder for more fundamental restructuring that is necessary to jumpstart the economy.

But when it comes to the election, Dallara told the Sydney Morning Herald that volatility will return because “despite all of the drama and the turmoil of the summer, very little was fundamentally resolved.”

“This is an economy riddled with inefficiencies and distortions. It almost needs a remake from the ground up,” he said.”

There is another big vote coming up in Europe, as Catalans go to the polls on Sept. 27 in what is being billed as a quasi-referendum on independence from the central government in Madrid. The pro-independence bloc, led by Catalan president Artur (sic) Mas, seems poised to win a narrow majority of seats in the next Catalan parliament, which Mas says would give a sufficient mandate to prepare the ground for separation from Spain, though the government in Madrid has said in no way would they tolerate such a move.

As for the migrant crisis, Eurostat reported on Friday that the number of first time asylum seekers who applied for protection in the European Union surged 85 percent in the second quarter versus a year earlier, spelling out the gravity of the situation when you consider the huge waves that are coming through in this the third quarter.

One third of applicants were either Syrians or Afghans. 

This week the crisis continued to explode as a record 9,400 rushed into Hungary on Monday, prior to the sealing of the border with Serbia. Over 175,000 have crossed into Hungary alone this year.

So the migrants then went from Serbia into Croatia, causing massive chaos in that country. By Friday, Croatia said it would take no more and that while the migrants would receive emergency aid, they had to leave. For their part, Serbians had been exhibiting great tolerance and empathy, but this is changing rapidly. Violence has been erupting at border crossings. Some have been killed. Hungary, which had quickly erected a 109-mile fence on its border with Serbia, was frantically attempting to do the same with its Croatian border.

Austria introduced border controls, Germany, for a time, halted train traffic from Austria. 12,200 entered Munich last Saturday! No wonder the Bavarian government is fuming at German Chancellor Angela Merkel, who is accused of encouraging the throngs to come to Germany. This nation took in a total of 40,000 overall last weekend. The government is now attempting to turn away any migrants from the Balkans, but of course everyone is claiming to be Syrian, as I wrote would be the case two weeks ago. They are just throwing away their documents before entering Germany, or Hungary before then.

But the German government is now looking to slash cash benefits and speed asylum procedures to begin to discourage the throngs and to catch those filing false claims and phony paperwork.

The original European Union plan to relocate 160,000 was cut to only 40,000, to then be divvied up among EU nations. But this is farcical given the reality of the numbers. Plus Czech Republic, Slovakia, Hungary and Poland oppose compulsory refugee quotas, claiming they are being bullied by Germany and its lackeys, such as European Commission president Jean-Claude Juncker, who is seen doing Germany’s bidding in trying to force member states to take the refugees currently in Italy and Greece. [Germany counters the four countries receive a lot of aid from their wealthier brethren and it’s time to step up.]

An emergency EU summit was called for September 23. 500,000 migrants have crossed into the EU thus far in 2015 compared with 280,000 in all of 2014. Germany’s vice chancellor said he now expects 1 million to enter his country alone this year.

For its part the U.N. estimates 1 million more people will be displaced in Syria the rest of the year, with many of these eventually finding their way to Europe.

Editorial / Washington Post

“The European Union is failing to live up to its fundamental values and commitment to human rights in its response to a wave of refugees from Syria and elsewhere. Instead, it is allowing its policy to be hijacked by one of its smallest members, Hungary, whose prime minister is acting on a hateful ideology more in keeping with the Europe of the 1930s than that of the 21st century....

“Right-wing Prime Minister Viktor Orban, who has long cast himself as an opponent of Western liberalism, has been painfully clear about why he is pursuing these abhorrent policies. It is not because the wealthy European Union cannot find room for several hundred thousand refugees, when poor countries such as Lebanon and Jordan are taking in millions. Clearly, it can; Germany alone has said it can resettle up to 800,000. Nor is it because the fleeing Syrians have connections to terrorist organizations – most are secular members of the country’s former middle class, or members of minority sects.

“Rather, Mr. Orban says openly that their aim is to protect Christian Europe from a wave of Muslims. He says, ‘Hungarians must make every effort for the defense of their freedom, their culture and their customs.’ And not only Hungary: Mr. Orban opposes allowing Muslim migrants into any other part of Europe, which is why he blocks the border even though most of those seeking to cross have no intention of remaining in his country.

“It is with reason that Austria’s leader has compared Mr. Orban’s stance to that of European fascists during ‘the darkest period of our continent.’ Said Chancellor Werner Faymann: ‘To divide human rights by religions is intolerable.’ Yet thanks to Hungary’s position astride one of the main routes followed by the refugees into Europe, Mr. Orban’s doctrine is rapidly becoming Europe’s de facto policy.”

The above was posted on the Washington Post site Wednesday evening. By Friday, as noted earlier, Germany was realizing it couldn’t continue with its existing asylum policy. Even last weekend, German Interior Minister Thomas de Maiziere signaled his nation was reaching capacity.

“We can’t allow refugees to freely choose where they want to stay – that’s not the case anywhere in the world,” he said in an interview with a German newspaper. [New York Times]

I’m on record with sympathizing, to a certain extent, with Hungary. But it’s complicated. I am half Slovak and I once visited a cousin in the country, in what was part of a life-changing trip at the age of 15. I try to put myself in their shoes instead of just accepting some of the liberal pabulum that is being put out there.

Editorial / The Economist

“Since the 9/11 attacks on America, and terrorist murders in Europe, relations with Muslim minorities have become strained. Yet compassion towards needy Muslims is part of the antidote to a hateful jihadist ideology. By contrast, millions of brutalized Syrians left to fester on Europe’s fringe would be a source of extremism that will not respect any border.”

Gideon Rachman / Financial Times

“For the first time in decades, some of the fundamental achievements and tenets of the EU are under threat. These include the single currency, open borders, free movement of labor and the notion that membership is forever.

“Rather than rising to these challenges, the EU is creaking under the strain. Its 28 members are arguing bitterly and seem incapable of framing effective responses to their common problems.

“These arguments are also taking place against an ominous backdrop. Large parts of the EU remain sunk in a semi-depression with high unemployment and unsustainable public finances.

“The problems of an imploding Middle East are crowding in on Europe, in the form of hundreds of thousands of refugees. And the political fringes are on the rise – with the latest evidence being the election of a far-left Eurosceptic candidate to lead Britain’s Labour party. [Ed. more on this below.]

“With a sense of crisis mounting and the EU unable to respond, countries will be increasingly inclined to act unilaterally or even – in the case of Britain – leave the bloc altogether....

“Question marks over open borders will easily shade into wider issues about access to welfare systems and labor markets. That is because EU countries are realizing that – in a border-free single market – a unilateral change of asylum rules by Germany has implications for the immigration policies of all member states. Once migrants get citizenship in one EU country, they have the right to move to any other, to work there and to claim benefits. But if free movement of people and labor come into question, so does the EU’s single market – its central achievement....

“The trouble is that the EU’s complex and unwieldy decision-making processes make it extremely hard to respond quickly and coherently to a crisis – as the migrant issue illustrates.

“For people of my generation, one of the central political themes of the past 40 years has been the steady advance of the European project. It is hard (and alarming) to imagine all that going into reverse. But Europe’s turbulent history is littered with examples of empires, monarchies and alliances that rose to greatness and then collapsed. The organization that the EU sometimes reminds me of at the moment is the League of Nations – a high-minded body, committed to international cooperation and the rule of law – that was eventually swept aside by international events that it could not cope with.”

---

A few economic notes:

Eurozone industrial production was up 0.6% in July after two months of contraction amid the Greek crisis.

Inflation in the U.K. for the month of August was unchanged on an annualized basis, not good, while the CPI in Italy was up 0.4% ann. for the month, with Germany’s annualized rate up just 0.1%.

And with the Fed’s dovish stance, and talk of further monetary stimulus in Europe, sovereign debt in Europe rallied strongly on Friday, with the yield on the German 10-year bund falling to 0.66% from 0.78% the prior day, France’s 10-year fell to 1.03% from 1.16%, Italy’s from 1.90% to 1.76% and Spain’s from 2.09% to 1.94%; again, all those moves in one day.

---

In China, it was another week of immense volatility in equity markets, with the Shanghai Composite finishing down 3.2%, even after a 4.9% rise on Wednesday as the government seemingly manipulated the market, but didn’t always do a good job of it.

Separately, fixed asset investment for the first 8 months of the year is up just 10.9%, the weakest pace in nearly 15 years, according to the National Bureau of Statistics, while factory output was up 6.1% in August, year-over-year, less than forecast, though retail sales rose 10.8% in the month, beating forecasts.

Home prices rose a fourth consecutive month in August, up 0.3% from the previous month, according to the stats folks.

Prices in Beijing are up 3% from a year earlier, while Shanghai’s rose 5.6% yoy.

The Ministry of Finance announced government spending jumped over 25% in August from a year earlier as Beijing tried to reenergize the economy.

For the first 8 months of the year, fiscal spending is up 14.8%. Spending on education rose 15.8%, healthcare 19.5%, and clean energy technology 22.7%.

Over the same 8 months, fiscal revenues rose 7.4%. A bit of an imbalance between the two. Ergo, debt continues to explode.

Street Bytes

--Stocks finished mixed, with the Dow Jones falling 0.3% to 16384, while the S&P 500 lost 0.2% and Nasdaq gained 0.1%. But the Dow dropped 290 points on Friday due to the Fed’s inaction and renewed concerns over global growth as a result.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.68% 10-yr. 2.13% 30-yr. 2.94%

As alluded to above, the August CPI was down 0.1%, up 0.1% ex-food and energy, but up 0.2% year-over-year, up 1.8% on core.

Earlier in the week, when it appeared the Fed may hike rates on Thursday, the yield on the 2-year surged above 0.80%, the highest since April 2011, before falling back when the Fed failed to act.

--General Motors agreed to pay $900 million as part of a Justice Department investigation into its handling of the ignition-switch defect that has been blamed for more than 120 deaths.

Federal prosecutors charged GM with “engaging in a scheme to conceal a deadly safety defect” from regulators, though this and other charges could be dismissed down the road if GM fixes its recall processes. The Feds may still prosecute individual GM employees, but U.S. Attorney Preet Bharara said it’s difficult to do so because one or more individuals might have had only partial knowledge of a bureaucratic process that led to tragedy.

GM engineers, attorneys and mid-level executives failed to fix the defect for more than a decade and “willfully and knowingly did falsify, conceal and cover up” the facts by making “fictitious and fraudulent statements” about the deadly flaw, prosecutors said in a court filing.

Separately, GM extended settlement offers to up to 1,385 additional victims of the defect. Coupled with a shareholder lawsuit over its handling of the matter, GM has taken a $575 million charge on its earnings.

Many victims’ families are not happy with all the above because GM employees continue to escape prosecution. [Nathan Bomey and Kevin McCoy / USA TODAY]

--Friday, Volkswagen was accused by the Environmental Protection Agency of using software that “cheats” pollution testing in nearly 500,000 recent model VWs and Audis by circumventing emission standards in its diesel cars; a violation of the Clean Air Act.

All 500,000 will eventually have to be recalled and the German automaker will have to change the emissions systems at its own expense, regulators said. It could also face a mammoth fine of up to $35,500 per car.

--FedEx cut its forecast for the year to May 2016 due to rising costs and weak demand. As a bellwether for the global economy, this is rather significant. Founder and CEO Fred Smith said the company “is performing solidly given weaker-than-expected economic conditions, especially in manufacturing and global trade.”

Revenue for the quarter was up 5 percent, though U.S. domestic package volumes grew just 1 percent. FedEx international volumes rose 4 to 5 percent.

--Meanwhile, United Parcel Service Inc. plans to hire about the same number of holiday season workers this year as in 2014, about 95,000 temporary employees based on “initial volume forecasts from customers” for the period that starts in November and lasts through January.

Target Inc. also said this week it would be hiring 70,000 seasonal workers, in line with the past two years.

--Anheuser-Busch InBev, the world’s largest brewer, is exploring a takeover of rival SABMiller in a deal that would create a $275bn company responsible for about one in three beers produced globally. A tie-up of these two would rank as one of the six largest corporate takeovers in history.

The drivers of the possible deal are the founders of 3G Capital, the Brazilian private equity group that has been buying up U.S. food companies including Heinz, Kraft and Burger King (with support from Warren Buffett).

AB InBev, SAB and two other brewers, Heineken and Carlsberg, produce half the world’s beer.

AB InBev makes Stella Artois, Budweiser and Corona, while SABMiller has a near-30 percent share of the U.S. beer market through MillerCoors, its joint venture with Molson Coors. Both AB InBev and SAB have substantial exposures to the Chinese market.

Antitrust experts say SAB would be forced to dispose of its stake in MillerCoors. But bottom line, there is a long ways to go with this one, if it comes about at all.

--Separately, MillerCoors said Monday it will shut one of its eight U.S. breweries and warned its sales volumes will likely continue to decline for “the next few years” as more Americans opt for craft beers. Over 500 employees at its brewery in Eden, N.C. will lose their jobs over the next 12 months. Production will be shifted to its Shenandoah, Va., facility, which also happens to be the brewer’s most modern facility.

As Jimmy Stewart said in the movie “Shenandoah,” “Ah ah ah now it concerns us.”

--Hewlett-Packard, which is in the midst of splitting into two separate entities, announced it will cut as many as 33,000 more jobs as CEO Meg Whitman continues to attempt to restructure the business for the changing technology market.

Hewlett Packard Enterprise will supply businesses with high-end technology, and HP Inc. will sell personal computers and printers, with the two new entities emerging in November. Hewlett-Packard had 302,000 workers at the end of October 2014, down from a peak of 350,000 in 2011.

25-30,000 of the job cuts will take place in Hewlett Packard Enterprise, while HP Inc. will experience 3,300 in reductions over three years.

--Oracle Corp.’s revenue for the first quarter ended Aug. 31 fell to $8.45 billion from $8.60 billion a year earlier, less than forecast and hurt in part by the strong dollar, as well as a customer shift to lower-margin cloud-based software from traditional packaged product. Earnings came in a penny better than expected.

Total cloud revenues were $611 million, up 29% in U.S. dollars. Sales of new software licenses, a key metric for insight into how well the company can sell new products and services to first-time customers and existing ones, declined 16 percent. 

As analyst Kevin Buttigieg of MKM Partners, who has a neutral rating on the stock, put it, “If licenses are going down and people are feeling that it’s not being made up for by billings on the cloud side, they’ll view that as maybe Oracle is growing in the cloud but other cloud providers are growing at Oracle’s license expense.”

Oracle is late to the cloud game, where competitors such as Salesforce.com and Workday have a substantial head start. The company also issued so-so guidance for the current quarter and the shares fell on the news. 

--Apple said it expects first-weekend sales of its new iPhone 6S will exceed last year’s debut of 10m units, after seeing “very strong” preorders, but this year the iPhone 6S and 6S Plus will be available in China the opening-weekend, which wasn’t the case last year, so it’s unclear just how strong demand is in the U.S.

--I’ve been negative on Alibaba for a number of reasons since day one, including some comments in recent weeks. Last weekend, Barron’s said in a report the stock could decline up to 50%.

“History certainly isn’t on Alibaba’s side. Widely hyped Chinese IPOs like Alibaba often flame out like supernovas as growth rates and profit margins suddenly decline.”

That said, the shares hung in there this week at $65, though this is $3 below the IPO price of exactly one year ago.

--European telecommunications and cable company Altice is acquiring New York cable operator Cablevision for $17.7 billion, including debt. Netherlands-based Altice has been aggressively expanding in the U.S., having previously acquired Suddenlink, a cable company based in St. Louis, in May.

Cablevision is controlled by the Dolan family of Madison Square Garden fame. Altice’s founder, Patrick Drahi, has operations in France, Portugal, Belgium, Switzerland, Israel and elsewhere.

--OPEC trimmed estimates for supplies from outside the group in 2016. “There are signs that U.S. production has started to respond to reduced investment and activity,” OPEC said in its monthly market report. “Indeed, all eyes are on how quickly U.S. production falls.”

Supplies from non-OPEC nations such as the U.S., Canada, Russia and Brazil will still increase by 160,000 barrels a day to 57.6 million in 2016.

--General Electric Co. is moving 500 jobs to France, Hungary and China after Congress halted funding of the U.S. Export-Import Bank, which provided credit assistance to GE’s international customers.

The Ex-Im bank provides loans, credit guarantees and insurance to aid sales by companies such as Boeing and GE, but congressional Republicans say the bank helps only a few large corporations that don’t need government assistance.

--Household wealth in the U.S. climbed in the second quarter, 0.8 percent from the previous three months to $85.7 trillion, with rising property values being the prime boost.

--The number of people without health insurance dropped last year by 8.8 million to 33 million, while median household income in the United States was basically unchanged at $53,660, as reported by the Census Bureau. There was also no meaningful change in the official poverty rate – 14.8 percent.

The median income figure is 6.5% less than 2007!

--As part of a health kick, Target is giving all 300,000 of its employees basic activity trackers from Fitbit Inc., as well as giving employees discounts on fruits and vegetables.

Shares in Fitbit soared in response with Target now representing one of its largest accounts.

--Like many of you, I have become a fan of DraftKings, initially playing its golf tournaments and now the weekly football deal (just the $3 contests). It’s fun. Also infuriating at times, but since I’m already writing on the sports for that other column I do, just an extension for me.

The two leaders in the nascent fantasy-sports business, FanDuel being the other, as you’ve noticed are spending wildly on advertising. DraftKings has spent more than $80 million on national airtime since Aug. 1, almost three times what the company made in total revenue last year.

Both sites are valued at more than $1 billion, with backing from media and sports conglomerates that view them as ways to hook new viewers and keep them watching sports. FanDuel has signed sponsorship deals with the NBA and 16 NFL teams, and is being boosted by investors that include NBC Sports, Google and Comcast.

DraftKings has inked deals with ESPN, Fox Sports and MLB, the NHL and soccer, as well as a dozen NFL teams. [Drew Harwell / Washington Post]

But now Congress wants to get involved. To be continued....

--Mark R. passed along a note from his firm’s daily fixed income update that the City of Ferguson (Mo.) had its debt downgraded by Moody’s seven notches, with the ratings agency citing the social unrest and costs associated with events of the past two years. Moody’s warned the city could be insolvent by 2017.

--Facebook CEO Mark Zuckerberg said the company is going to be introducing a “dislike” button.

“You don’t want to go through the process of sharing some moment that was important to you during your day and have someone down-vote it,” said the t-shirt wearing CEO. “(But) not every moment is a good moment, and if you are sharing something that is sad, whether it’s something in current events, like the refugee crisis that touches you, or if a family member passed away, then it may not feel comfortable to like that post.”

Good point. If North Korea launched a bottle rocket at us, I can’t imagine anyone here ‘liking’ that.

But not all Facebook users want a dislike button. One user commented to the New York Times, “There is already enough hate on Facebook and social media.”

Foreign Affairs

Syria/ISIS/Iraq: Russia has begun to aggressively step up military support to the Syrian government, with daily flights into an air base near the coastal city of Latakia, President Bashar al-Assad’s Alawite stronghold. At least 500 Russian troops are already there, while satellite imagery shows the Russians building barracks that would house at least 1,500. Russian tanks are being flown in. At Russia’s naval base at the Syrian coastal city of Tartus, ships are bringing heavy armaments. Friday, word came in the Russians had moved fighter jets there. Defense Secretary Ash Carter spoke to his Russian counterpart today.

There is growing concern that American planes operating in Syria will end up confronting Russian pilots, or that Russian airstrikes could target rebels the U.S. is supporting.

A Pentagon spokesman said, “We welcome Russia participating in the global anti-ISIL efforts, but to do that via the Assad regime is unhelpful and potentially destabilizing.”

On Tuesday, President Vladimir Putin defended Russian military assistance to Syria’s embattled government, saying, “We provide and will continue to provide the necessary military technology assistance and urge other nations to join in. It’s obvious that without the Syrian authorities and the military playing an active role, without the Syrian army fighting Islamic State ‘on the ground,’ it’s impossible to drive terrorists from this country and from the region as a whole.”

On the issue of the refugees and whether Russia is contributing to the influx, Putin said, “If Russia had not supported Syria, the situation in the country would have been worse than in Libya, and the refugee flow would have been even greater.” [Alexander Zavis / Los Angeles Times]

The Assad regime controls only about a fifth of the country, though it is home to most of the country’s population, including Damascus.

If Putin continues to increase his support for Assad, then its felt the Saudis will step up their support for the rebels fighting Assad.

General Lloyd Austin, commander of U.S. Central Command, told a Senate hearing on Wednesday the Pentagon was still trying to figure out what Putin is up to. Austin also conceded that the U.S. had trained “four or five” soldiers to take on ISIS. If that wasn’t bad enough, the general also had to acknowledge the Pentagon’s inspector-general had opened an inquiry into allegations that senior military officers under Austin’s direct control had manipulated intelligence about the war against ISIS to show the effort was going better than it has. Gen. Austin apparently still has the confidence of President Obama.

Syrian warplanes carried out a number of rare airstrikes on the Islamic State-held city of Raqqa, including helicopters dropping barrel bombs on a busy market place, killing at least 17, according to activists.

Raqqa is the self-declared capital of the Islamic State group’s self-styled caliphate.

Charles Krauthammer / Washington Post

“Once again, President Obama and his foreign policy team are stumped. Why is Vladimir Putin pouring troops and weaponry into Syria? After all, as Secretary of State John Kerry has thrice told his Russian counterpart, Sergei Lavrov, it is only making things worse.

“But worse for whom? For the additional thousands of civilians who will die or flee as a result of the inevitably intensified fighting. True, and I’m sure Lavrov is as moved by their plight as by the 8,000 killed in Russia’s splendid little Ukrainian adventure.

“Kerry and Obama are serially surprised because they cannot fathom the hard men in the Kremlin. Yet Putin’s objectives in Syria are blindingly obvious:

“ 1. To assert Russia’s influence in the Middle East and make it the dominant outside power. Putin’s highest ambition is to avenge and reverse Russia’s humiliating loss of superpower status a quarter-century ago. Understanding this does not come easily to an American president who for seven years has been assiduously curating America’s decline abroad.

“ 2. To sustain Russia’s major and long-standing Arab ally. Ever since Anwar Sadat kicked the Soviets out of Egypt in 1972, Syria’s Assads have been Russia’s principal asset in the Middle East.

“ 3. To expand the reach of Russia’s own military. It has a naval base at Tartus, its only such one outside of Russia. It has an airfield near Latakia, now being expanded....

“ 4. To push out the Americans. For Putin, geopolitics is a zero-sum game: Russia up, America down. He is demonstrating whom you can rely on in this very tough neighborhood. Obama has given short shrift to the Kurds, shafted U.S. allies with the Iran deal and abandoned the Anbar Sunnis who helped us win the surge. Meanwhile, Putin risks putting Russian boots on the ground to rescue his Syrian allies.

“Obama says Bashar al-Assad has to go, draws a red line on chemical weapons – and does nothing.  Russia acts on behalf of a desperate ally. Whom do you want in your corner?

“ 5. To re-legitimize post-Crimea Russia by making it indispensable in Syria. It’s a neat two-cushion shot. At the United Nations next week, Putin will offer Russia as a core member of a new anti-Islamic State coalition. Obama’s Potemkin war – with its phantom local troops (our $500 million training program has yielded five fighters so far) and flaccid air campaign – is flailing badly. What Putin is proposing is that Russia, Iran and Hizbullah spearhead the anti-jihadist fight....

“And there is a bonus. The cleverest part of the Putin gambit is its unstated cure for Europe’s refugee crisis.

“Wracked by guilt and fear, the Europeans have no idea what to do. Putin offers a way out: No war, no refugees. Stop the Syrian civil war and not only do they stop flooding into Europe, those already there go back home to Syria.

“Putin says, settle the war with my client in place – the Assad regime joined by a few ‘healthy’ opposition forces – and I solve your refugee nightmare.

“You almost have to admire the cynicism. After all, what’s driving the refugees is the war and what’s driving the war is Iran and Russia. They provide the materiel, the funds and now, increasingly, the troops that fuel the fighting. The arsonist plays fireman.”

Yaroslav Trofimov / Wall Street Journal

“The Syrian refugee crisis overwhelming Europe has shattered the illusion, often used to justify inaction, that in the modern world there is such a thing as a distant war in a faraway land.

“Over the past four years, 250,000 Syrians have died, most of them killed by the Assad regime against which the West has refused to intervene. More than half of the population has been forced to flee their homes, with four million refugees pouring first into neighboring Turkey, Lebanon and Jordan – and now many of them to Europe.

“As Europe’s frontiers have collapsed, millions more are likely to follow suit, overland or by sea. This has already turned Syria from thorny foreign-policy issue into a full-blown domestic emergency that threatens the cohesion and social peace of the European Union and lays bare the costs of the West’s policy of nonintervention against the regime.”

Benny Avni / New York Post

“Obama’s right in his assessment that Syrian President Bashar al-Assad’s presence is a huge problem there – along with ISIS – and that Assad needs to go away. After all, the Syrian strongman and his Hizbullah and Iranian allies have killed many more Syrians in the deadly 4-year war than ISIS ever did.

“And Putin’s wrong when he calls on the world to ignore Assad’s transgressions and those of his backers and, indeed, get behind him, so he can defeat ISIS. After all, Assad is merely playing footsie with ISIS while aiming most of his fire-power at any decent alternative to his throne.

“But being morally right in what you say but never acting to back it up with meaningful deeds isn’t much better than being flat-out evil yourself....

“Actually, we started ceding Syria to Putin three years ago, when Assad first violated Obama’s famous red line. Averse to any use of military force and too busy conducting secret negotiations with Damascus’ Iranian benefactors, Obama overruled Pentagon plans to punish Assad for using chemical weapons.

“Instead, Putin proposed a scheme that seemed perfect then: Assad would forego chemical weapons for good, and all America had to do was finance a complex and unprecedented UN-backed plan to oversee the process.

“Since then Assad’s helicopters have dropped tons of chlorine gas to terrorize entire Syrian cities. And now ISIS too arms itself with mustard gas to complete the horrors....

“Long ago Putin concluded that by expanding his dominance across the globe he can overcome Russia’s economic and political weaknesses. Then he saw America’s weakness – and went all in.

“Now he’s taking over a region that, back in the 1980s, America snatched from Putin’s Soviet Union and then dominated.

“The next president will likely realize that by swearing off any use of American military might we cede the world stage to the likes of Putin. And that we and the world are worse off as a result.”

Editorial / Wall Street Journal

“Russian intervention will not defeat the Islamic State. But it might save the Assad regime, while giving Moscow a new sphere of influence in the Middle East. It will also reinforce the lesson – for Mr. Putin and other autocrats – that the U.S. under Mr. Obama is a pushover and that now is the time to seize their chances.

“As for the U.S., Russia’s intervention is another strategic debacle that could have been avoided if Washington had intervened years ago, when Islamic State didn’t exist and we still had credible moderate allies in the country. Had the anti-interventionist wing of the GOP followed John McCain’s and Lindsey Graham’s advice to act forcefully at the start of the uprising, they wouldn’t now be fretting about the Syrian refugees now swamping Europe.

“The best option now for the U.S. would be to work with Turkey, Israel and Jordan to establish no-fly zones along their respective borders with Syria.”

Yup, as I was saying three years ago....

Pope Francis weighed in on ISIS this week, telling a Portuguese radio station, “The truth is that just [250] miles from Sicily there is an incredibly cruel terrorist group.  So there is a danger of infiltration, this is true,” in warning ISIS terrorists could sneak into Europe by blending in with the wave of refugees.

ISIS has threatened Rome and vowed to plant the black flag of its self-declared caliphate on the roof of St. Peter’s Basilica, so the pope was asked if he thought that the Vatican and Rome were potential targets.

“Yes, nobody said Rome would be immune to this threat. But you can take precautions.”

Finally, in Iraq...From Andrew Tilghman / Army Times

“Nearly three months after the fall of Ramadi, the American-backed effort by the Iraqi army to retake the provincial capital from Islamic State group militants is moving slowly and fueling concerns that the Iraqis are not up to the task.

“ ‘I don’t think there is any stomach to retake Ramadi right now and suffer the kind of casualties that such a battle would incur,’ said retired Army Col. Peter Mansoor, who served in Iraq in 2007 and 2008 as executive officer to retired Army Gen. David Petraeus, who lead the war effort at that time....

“Others say the Iraqi army suffers from a debilitating lack of manpower and has never restored its force structure after the mass desertions in 2014 following the Islamic State’s initial advance into Iraq.”

Iran: Supreme Leader Ayatollah Khamenei warned that if the U.S. should start a war with Iran, America will be “humiliated.”

In a propaganda video posted to his Twitter account, the video subtitle reads: “We neither welcome nor begin war. They must know that should any war break out, one who will emerge humiliated out of it will be invading and criminal America.”

This comes a week after Khamenei tweeted that the Jewish state won’t exist in 25 years.

Meanwhile, debate in Congress over the nuclear deal simply petered out. But some in the Senate are working on follow-on legislation that could at least make clear if Iran is caught attempting to build a bomb, Congress would support immediate military action. As the Washington Post editorialized:

“One trigger could be verification that Tehran is producing highly enriched uranium; another would be the resumption of work on warhead designs and materials. Such a statement by Congress could not be binding, but it would tell Iran and U.S. allies in the region that the nuclear deal has not taken the U.S. military option off the table....

“Legislation can also mandate new U.S. support for Israel. A 10-year security agreement, due to expire within three years, could be renewed and expanded; Congress could support the delivery to Israel of the Massive Ordnance Penetrator, a bomb developed to destroy an Iranian nuclear facility buried under a mountain.

“The greatest risks of the nuclear accord are that Iran will seek a bomb in spite of the constraints it accepted and that it will escalate its attempt to establish hegemony over the Middle East by force. While Congress can’t now overturn the deal, it can pragmatically address both of these threats.”

Michael Goodwin / New York Post

“The deal is essentially a nonaggression pact with Iran, a form of appeasement that renders unfair any further comparisons to Neville Chamberlain. At least Hitler promised peace at the 1938 Munich conference after the British leader engineered a German annexation of parts of Czechoslovakia.

“Iran’s supreme leader doesn’t bother to pretend he wants peace. On the contrary, he vows that the nuclear agreement will have zero impact on the policies of the world’s largest state sponsor of terrorism.

“Ayatollah Khamenei, who repeatedly declares that Israel will be ‘eliminated,’ wrote just before the Senate vote that, ‘God willing, there will be no Zionist regime in 25 years.’

“And he made it clear that Iran, which has militias and terror proxies in Lebanon, Syria, Iraq and Yemen, and supports Hamas and Hizbullah, would not be changing its stripes, writing: ‘During this period, the spirit of fighting, heroism and jihad will keep you worried every moment.’...

“We, along with other so-called great powers, are unilaterally declaring peace while our adversary repeats its declaration of war against us and Israel.

“Even Iranian ‘moderates’ openly tell their allies that the $100 billion they will get from the deal will help them carry out Khamenei’s terrorist agenda....

“The Iranians are honest about their plans. Our leaders are dishonest when they insist we can safely disregard the rhetoric. We’ve been down this road before, thinking it a joke when Osama bin Laden declared war on us in the 1990s.”

Turkey: Clashes between Kurdish militants and Turkish forces and security personnel continue to escalate, with the death toll for police and soldiers now exceeding 100, while hundreds of militants have been killed since a cease-fire collapsed in July. It is the worst violence Turkey has seen in two decades and comes ahead of a contentious election in November. Clashes between Turks and Kurds are now the norm in the capital of Ankara, which is unheard of. President Erdogan has promised the fight will go on until “not one terrorist is left.” [Daily Star]

Egypt: What a debacle. Egyptian troops opened fire on a group of tourists in Egypt’s southwestern desert after armed forces mistakenly took them for terrorists. At least 12 were killed with eight of them being Mexican. Mexico immediately demanded an investigation and a government spokesman said the tour company involved “did not have permits and did not inform authorities.” The tourists were bombed from the air.

China: U.S. experts analyzing satellite photographs say China appears to be building a third airstrip in contested territory in the South China Sea, specifically on one of the artificial islands it has been creating in the Spratly archipelago. All three will be long enough to accommodate most Chinese military aircraft. In early August Wang Yi, China’s foreign minister, said reclamation work on the islands had been completed, but the focus was now on building infrastructure.

Meanwhile, ahead of President Xi’s state visit, China’s top security official, Meng Jianzhu, led a delegation that held four days of discussions with U.S. counterparts, with Meng claiming both sides reached an “important consensus” on the explosive issue of cybersecurity.

The Chinese delegation had meetings with FBI Director James Comey, among others, and Meng said “China’s position on opposing hacking and stealing commercial secrets online is resolute.” China would punish anyone who hacked from within China’s borders or stole corporate secrets. You can stop laughing. [Jun Mai / South China Morning Post]

For his part, President Obama has been more aggressive on the topic, saying the other day, “We have been very clear to the Chinese that there are certain practices that they are engaging in, that we know are emanating from China and are not acceptable....there comes a point at which we consider this a core national security threat and will treat it as such.” [AFP]

Separately, Xi and Obama will also probably have the topic of Taiwan on the agenda, with the island holding a crucial presidential election in January, at which point an independence-leaning opposition party (Democratic Progressive Party) is expected to roll over the ruling, mainland-friendly Kuomintang Party. China is not going to be happy when the DPP takes control and the rhetoric on both sides could heat up quickly.

North Korea: The official news agency declared on Tuesday that its main nuclear complex at Yongbyon was operating and it was working to improve the “quality and quantity” of its weapons which it could use against the United States at “any time.”

North Korea vowed in 2013 to restart all nuclear facilities, including the main reactor at Yongbyon that had been shuttered.

The director of the atomic agency was quoted as saying: “If the U.S. and other hostile forces persistently seek their reckless hostile policy towards the DPRK [Democratic People’s Republic of Korea] and behave mischievously, the DPRK is fully ready to cope with them with nuclear weapons any time.”

Pyongyang is preparing to test a long-range missile that it hopes one day can reach the U.S., though it will claim it’s a satellite. This bears watching.

Leader Kim Jong Un has observed what Iran is gaining from its nuclear deal with the U.S. and he’s clearly angling for negotiations with Washington.

Japan: As I’m going to post, Japan’s upper chamber of Parliament early Saturday, Tokyo time, approved controversial bills allowing the country’s military to engage in overseas combat in limited circumstances. The 148-90 vote ends seven decades of pacifism. The lower chamber had passed the bills in July. This has been a major goal of Prime Minister Shinzo Abe and is welcomed by the U.S. Japans needs to beef up its military to counter China and North Korea.

Afghanistan: Once again the Taliban stormed a key jail and freed more than 350 prisoners, the third time since 2008 that hundreds of Taliban inmates escaped from an Afghan prison. As of this writing, only a handful of the 350 had been recaptured. In Pakistan, a Taliban attack on a Pakistani military base on the outskirts of Peshawar killed 29, including 16 worshipers gunned down when the militants stormed a mosque inside the compound during prayers. What bastards. The other 13 were air force and army personnel, while the government says 13 attackers were killed. The military had been stepping up operations against the Taliban in recent months after an attack on a Peshawar school last December killed 150.

Australia: Malcolm Turnbull is the new prime minister, having unseated Tony Abbott in a party coup amid a rebellion. But with federal elections due next year, Turnbull’s ruling Liberal-National coalition is headed for defeat, according to the latest polls.

The economy is a big issue here, with fears of Australia’s first recession in 24 years, owing largely to China’s slowing economy.

I’m having trouble keeping track of all the different governments in Australia. I think this is the fifth change at the top in five years. Turnbull is a former investment banker.

Abbott was done in in no small part because of his attitude on issues such as same-sex marriage (which he is opposed to) and resistance to ambitious measures to combat climate change. Turnbull is more of a moderate but not favored by the hard line elements of the coalition. He has previously favored aggressive carbon emissions laws.

Britain: The Labour Party elected a new leader, radical leftist Jeremy Corbyn, and there is a real danger in this move. As the Wall Street Journal editorializes:

“We are living through an era of bitter, and usually justified, disillusion with political establishments. In Europe, that establishment trumpeted a new era of multicultural transnational technocracy but hasn’t delivered sustained economic growth or low unemployment for nearly four decades. In the U.S. Barack Obama has presided over a feeble recovery while relying on obedient Democrats and a pliant media to jam through his domestic and foreign policy agendas over broad popular objections.

“The response to this political highhandedness on both sides of the Atlantic is rage: the rage of people who sense that they aren’t even being paid lip service by a political class that is as indifferent to public opinion as it is unaccountable to the law.

“These are the people flocking to the banners of Donald Trump and Bernie Sanders, Marine Le Pen and Jeremy Corbyn – leaders who, either through the consistency of their views or the toughness of their persona, suggest a kind of incorruptibility. They can’t be bought. They’ll never change. They are authentic and pure. What else do you need to govern a country?

“Such are the leaders who are coming to the fore in an era in which the worst ideas of the past – protectionism, punitive taxation, isolationism, opposition to immigration, hostility to finance, hatred of Jews in both its anti-Semitic and anti-Zionist variants – are making a political comeback in ways that defy old ideological categories....

“Mr. Corbyn’s opposition to membership in the EU is only somewhat more latent than Ms. Le Pen’s.

“All this ought to unsettle anyone who cares seriously about the health of the West. A single bad election or even primary result in Britain, France, Italy, Spain or the U.S. could tip us into an unmoored – and unhinged – reality. What happens when President Trump meets Prime Minister Corbyn? ‘You’re Fired’ is not an option....

“It would be nice to think that democracies always manage to recover their common sense and moral balance. Maybe so, but if Mr. Corbyn’s election teaches anything it is that we also have to recover our wisdom. Liberal democracies that fail to educate the public about the institutions, methods and values by which they are sustained put themselves at risk.”

Editorial / Washington Post:

”Mr. Corbyn espouses a foreign policy whose guiding principle is to oppose the United States and Israel by all means. It has led him to label as ‘friends’ such disparate political forces as Hamas, Hizbullah and the populist government of Venezuela and to accept funding from organizations designated by the U.S. government as terrorist groups. Mr. Corbyn endorsed the Iraqi insurgents who fought U.S. troops and equated the Islamic State’s overrunning of Iraqi cities with the 2004 U.S. offensive in Fallujah. He said that Washington, rather than Moscow, is to blame for the civil war in Ukraine. In an interview with Iran’s state television channel, he called the U.S. raid that killed Osama bin Laden a ‘tragedy.’....

 “Those who favor the strategic partnership between Britain and the United States can only hope that Labour’s new leader is not the voice of an emerging generation but the last gasp of an old one.”

This is the same party that produced Tony Blair. The most Blairite candidate in the Labour party vote last week received just 4 percent. Not a good sign.

Sudan: A fuel tanker overturned, people rushed to the vehicle to siphon fuel, a warning shot from soldiers struck the tanker, the tanker exploded, and, poof! 170 were killed.

Random Musings

--Demetri Sevastopulo / Financial Times

“Jeb Bush smoked marijuana as a young man and wants to put Margaret Thatcher on the $10 bill. Ben Carson would place his mother on the note, while Donald Trump, who wants his Secret Service code name to be ‘Humble,’ would prefer to see his daughter there....

“With 14 months until the 2016 election, the second Republican presidential debate at the Ronald Reagan Library on Wednesday provided very few clues about whether Mr. Trump will remain the party’s frontrunner or whether any of his 15 remaining rivals will start to gain ground on the Teflon contender.

“Analysts have been stumped by a race that has seen the brash, politically incorrect tycoon catapulted to the front of the Republican field. But some experts sensed a crack in his armor that was exploited by Carly Fiorina, the former Hewlett-Packard boss....

“ ‘Fiorina was my big winner,’ said Larry Sabato, a veteran political analyst at the University of Virginia. ‘She showed that she should have been on the [main] stage at the first debate, and her steely, articulate answers have nearly guaranteed she’ll be on the stage from now on.’

“Ahead of the debate in California, all eyes were on Mr. Trump whose lead in the polls and bombastic rhetoric were expected to spark more attacks from his rivals. Ms. Fiorina stepped up to the task by attacking Mr. Trump over comments in Rolling Stone that she would never be elected because of ‘that face.’

“ ‘Women all over this country heard very clearly what Mr. Trump said,’ Ms. Fiorina declared, prompting Mr. Trump to respond patronizingly that ‘she has a very beautiful face and she’s a beautiful woman.’....

“Tony Fratto, a former Republican White House spokesman who supports Mr. Bush, agreed that Ms. Fiorina had a ‘very strong night’ by appearing ‘serious and articulate’ on the main stage. ‘Trump needs to keep the circus going with new antics or outrageous remarks, but he looked tired,’ added Mr. Fratto. ‘He had nothing new, and I think it’s going to hurt him.’

“Mr. Sabato was less sure about what impact Ms. Fiorina’s performance would have on the Trump campaign, which has defied gravity despite an endless stream of controversial comments that would doom any other candidate. ‘The grassroots like him in part because he doesn’t follow a script, plus the establishment...dislikes Trump. The grassroots hates the party establishment. But we’ll see.’”

John Podhoretz / New York Post

“So the question after the second Republican debate is this: Will it take a week for Carly Fiorina to sit atop the GOP polls, or will it take two weeks? Because after Wednesday night’s debate, it’s going to happen.

“People have been wondering for a while what event was going to slow down or reverse the rise of Donald Trump, since his candidacy appeared to glide through the potholes that have caused others like him and before him to crash and burn.

“Well, the momentum shift against Trump happened all at once – when Carly Fiorina pointedly refused to complain to him directly about his remarks criticizing her face and instead suggested what he had done was an insult far broader than the shot at her....

“That was not the only moment in which Fiorina took control of the debate. At almost any moment that she managed to seize time to speak...she knocked it out of the park....

“The debate showed almost every candidate at his or her best.

“In particular, Marco Rubio again demonstrated his supreme fluency on foreign affairs and his ability to discuss immigration in a serious and capacious manner. Ted Cruz was sensational in his criticisms of the Iran deal. Scott Walker turned Trump’s effort to attack his governorship in Wisconsin to his own advantage by demonstrating Trump’s lies about his tenure point by point.

“And Chris Christie was so fluent, it made you wonder what might have been had Bridgegate not staggered him.

“The losers were the Big Three – the poll leaders, Trump and Carson, and most especially Jeb Bush....

“Bush, the former Florida governor, has been declining precipitously over the past six weeks, and despite the length and breadth of the debate, he made no case whatever for himself as a leader or the inspiring purpose of his candidacy....

“As for Trump, I could well be wrong – everybody has been – but whatever fairy dust has been allowing his candidacy to defy gravity seemed to dissipate.”

Jennifer Rubin / Washington Post

“Donald Trump finally met his match in Carly Fiorina. In a smashing performance that will earn her poll points, campaign donations and praise from Republicans, she went after Trump with surgical precision in the second GOP debate. She jabbed him for his casino bankruptcies. Pivoting off a Jeb Bush answer, she recalled Trump’s derogatory remark about her face: ‘Women all over this country heard very clearly what Mr. Trump said.’ With sly put downs (‘You know, I think Mr. Trump is a wonderful entertainer. He’s been terrific at that business’) and showing her superior knowledge of foreign policy, she gave Republicans a more viable and sophisticated outsider. She interjected some humanity in recalling her experience of losing a daughter to addiction. Her passionate denunciation of Planned Parenthood was a standout moment as was her closing statement, a crisply delivered ode to human potential....

“Trump was repeatedly on defense, coming up short in face-offs against Fiorina and regurgitating lines (get great people!) that already seem stale.”

Sen. Lindsay Graham won the happy hour debate, urging more bipartisanship and noting that Ronald Reagan drank with Democratic House Speaker Tip O’Neill. “That’s the first thing I’m going to do as president – we’re going to drink more.”

--So the post-debate polls will be coming out next week, but for the record, there were a slew of them in the run-up to Wednesday’s excitement.

In a CBS/New York Times national survey, 27% of Republicans surveyed picked Donald Trump, with Ben Carson at 23%, a dramatic rise for Carson who was at just 6% in July in the same poll. [Trump rose from 24% in July.]

On the Democratic side, Hillary Clinton’s lead over Sen. Bernie Sanders is just 20 points, 47% to 27%.

In a CBS News Battleground tracker:

Trump leads among likely Republican caucusgoers in Iowa with 29%. Carson has 20% and Ted Cruz is third at 10%. Jeb Bush polled just 3%.

In New Hampshire, among likely Republican primary voters, Trump received a whopping 40% to Carson’s 12% and John Kasich’s 9%. Carly Fiorina was at 8%, Bush at 6%, tied with Rand Paul.

In South Carolina, Trump polled 36% to Carson’s 21%, with Cruz in third but at only 6%. [Bush and native son, Sen. Lindsey Graham, at 5%.]

In a Monmouth University poll of New Hampshire primary voters, Trump received 28%, Carson 17% and Kasich 11%. [Cruz 8%, Fiorini 7%, Bush 7%.]

In the CBS/YouGov Battleground survey on the Democratic side, Sanders leads Clinton by 10 points in Iowa (43-33) and 22 points in New Hampshire (52-30), but Clinton leads in South Carolina 46-23 (Biden 22% here).

In a Washington Post/ABC News national poll, there was some dire news for Hillary Clinton. Where 71% of Democratic-leaning female voters said in July that they expected to vote for Clinton, only 42% do now...a fall of 29% in eight weeks.

Overall support for Clinton declined to 42% from 63%, with Sanders at 24% and Joe Biden 21%.

On the Republican side, Trump leads Carson 33% to 20%. Bush was third at 8%, Rubio and Cruz at 7% each.

Trump trails Clinton just 46-43 in a hypothetical matchup.

--As for the New Hampshire town hall question/comment Trump received on Obama, Thursday, that gained a ton of press today, I’m waiting 24 hours. If appropriate I’ll comment next time. Trump hasn’t said anything today and I want to hear him first.

--For the record, the Republican debate was the highest rated program on CNN ever, 23 million viewers.

--While Republicans need to do better among Hispanics at the voting booth, thus concern over Donald Trump’s anti-immigration comments, it is interesting that in the 2014 midterm elections, only 27% of eligible Latinos voted, compared with 46% of whites and 41% of African Americans, according to U.S. census data.

So while there is talk of how important the growing Latino population is in America, as Kate Linthicum of the Los Angeles Times reported, “it’s nowhere near as big as it could be.”

--As reported by the Los Angeles Times’ Howard Blume, the achievement gap between black and Latino students in California widened significantly when compared with their white and Asian peers.

Under new tests based on learning goals for each grade (Common Core) as adopted by 42 states, on the subject of math, “69% of Asian students (in Calif.) achieved the state targets compared to 49% of whites, 21% of Latinos and 16% of blacks.”

In the L.A. Unified district, 67% of Asian students met state targets in English, compared to 61% of whites, 27% of Latinos and 24% of black students.

--In a paper published in the journal Nature Climate Change, scientists estimate that the recent Sierra Nevada snowpack was the lowest it has been in more than 500 years. [Los Angeles Times]

The Sierras supply California with roughly a third of its water, but this could change in a big way this coming winter with the strengthening El Nino.

--A report prepared by the World Wildlife Fund and the Zoological Society of London concludes populations of marine mammals, birds, fish and reptiles have declined by 49% since 1970. Some species that people rely on for food, such as tuna and mackerel, are down 74%.

“Human activity has severely damaged the ocean by catching fish faster than they can reproduce while also destroying their nurseries,” said Marco Lambertini, head of WWF International.

The report adds that sea cucumbers – consumed as a luxury food throughout Asia – have seen their numbers fall 98% in the Galapagos and 94% in the Red Sea over just the past few years. [BBC News]

--After the Ashley Madison website was hit by a data breach, a group of decoding hobbyists known as CynoSure Prime decoded more than 11 million passwords and the top one so far is 123456. Others in the top five were 12345, password, DEFAULT, and 123456789. “123456” has been the most popular password uncovered in data breaches during the past two years. [Andrea Peterson / Washington Post]

---

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

God bless America.
---

Gold closed at $1137
Oil $44.68

Returns for the week 9/14-9/18

Dow Jones -0.3% [16384]
S&P 500 -0.2% [1958]
S&P MidCap -0.1%
Russell 2000 +0.5%
Nasdaq +0.1% [4827]

Returns for the period 1/1/15-9/18/15

Dow Jones -8.1%
S&P 500 -4.9%
S&P MidCap -2.7%
Russell 2000 -3.4%
Nasdaq +1.9%

Bulls 26.8
Bears 26.8 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

09/19/2015

For the week 9/14-9/18

[Posted 10:30 PM, Friday]

Note: If you haven’t already done so, click on the gofundme link above, or send a check to PO Box 990, New Providence, NJ 07974. I can’t expand without your support, and without expansion I won’t be able to unlock the value contained in much of the work produced here for over 16 ½ years.

Edition 858

Washington and Wall Street

Early in the week the Street was literally split 50/50 on whether or not the Federal Reserve would finally raise interest rates on Thursday following its latest Open Market Committee meeting, but once again, savers got screwed as Chair Janet Yellen and her band of merry pranksters opted to keep rates at zero.

In a statement, the FOMC said: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”

The Fed offered it still planned on raising rates this year, with 13 of the 17 members of the committee predicting the Fed would hike by at least 0.25 percentage and six predicting an even larger increase, but the FOMC is scheduled to meet just in October and December the rest of 2015 and much of the verbiage, including from Chair Yellen in her press conference, certainly seems to leave October off the table.

The Fed is convinced labor market conditions have nearly returned to normal, with the unemployment rate now projected to fall to 4.8 percent, when we’re already at 5.1 percent.

The statement read: “The labor market continues to improve, with solid job gains and declining unemployment.”

But the Fed also lowered its forecast for fed funds (the benchmark rate), reaching 2.6 percent by the end of 2017. In June they had predicted it would hit 2.9 percent.

The key is the estimate for inflation, which was reduced to just 1.7 percent in 2016 and 1.9 percent end of 2017, the Fed’s target being 2 percent.

The increased market turmoil around the globe that has the Fed so tied up in knots was precipitated in large part by the crash in the Chinese equity market amid concern that economy was slowing far more rapidly than once thought.

On the other hand, it was back in 2012 that the Fed announced it would keep rates at zero until the unemployment rate fell below 6.5 percent and here we are at 5.1!

Clearly the Fed is worried about crushing a recovery that it believes it has had everything to do with, while the headwinds from overseas have created renewed uncertainty for the committee.

The thing is if the Fed wants to move this year, just what is going to change in regards to the global picture to warrant a rate hike if you follow their line of thinking? There is too little time to know much more about China, or the impact of what promises to be greater uncertainty following Sunday’s Greek election, or, seriously, any negative economic implications from Europe’s migrant crisis (and now, suddenly Russia in Syria, which admittedly wasn’t remotely on the Fed’s radar).

The fact is the U.S. economy is doing just fine and it’s not as if we are tipping into deflation, plus the Fed previously said it did not have to actually see a 2 percent inflation rate to act. But now that seems to be the magic number and this week’s release of the core consumer price index for August showed prices, ex-food and energy, up 1.8 percent year over year. While this is but one of the Fed’s inflation barometers, that seems like 2 percent to me, plus we’ve recently seen better news on the wage front. But what the hell do I know.

We have lived in an uncertain world for years and years, and that’s not changing for probably decades to come! If this is the Fed’s concern, then just come out and say, ‘We’re holding rates at zero until hell freezes over.’

In her press conference, Chair Yellen said of the debate inside the FOMC: “An argument can be made for a rise in interest rates at this time.” But she said officials decided to hold off “in light of the heightened uncertainties abroad” and the prospect of low inflation for a longer period. The Fed wants “a little bit more time” to make sure the U.S. economic outlook hasn’t fundamentally shifted, she said.

Editorial / Wall Street Journal

“So much for liftoff. Despite months of feeding market expectations, the Federal Reserve’s Open Market Committee decided not to raise interest rates off near-zero even six years into an economic expansion. The question now is whether the Fed will ever raise rates before the next recession.

“ ‘The economy has been performing well,’ said Fed Chair Janet Yellen in her post-FOMC meeting press conference. Yet the economy apparently isn’t growing well enough that it can survive a mere 25 basis point increase in short-term rates. This has become the endless pattern of the zero-interest-rate (Zirp) era, in which central bankers say their policies are either working so well that they must continue or not working well enough so they must continue.

“Ms. Yellen cited Fed concern over ‘global economic and financial developments,’ including the strong dollar and slower growth overseas, as well as a U.S. inflation rate that remains below the Fed’s 2% annual target. She said most FOMC members still think conditions will be ripe for a rate increase before the end of the year, but four of them have now pushed their forecast into 2016.

“This too is the post-crisis negative feedback loop. The Fed predicts a stronger economy and rising inflation next year, but somehow they never arrive. And sure enough, the Fed’s governors and bank presidents on Thursday again downgraded their median economic projections for real GDP growth in 2016 (2.3%), 2017 (2.2%) and even 2018 (2%)....

“All of the market and media fretting of recent weeks turned out to be melodrama. For the Fed, and central bankers nearly everywhere in the developed world, monetary policy is stuck on zero.”

Alas, some real drama returned Friday, Mr. Wall Street Journal Editorial Board.

A few other economic notes on the week:

The OECD cut its global growth target for 2015 to 3.0% from 3.1%, and 2016 from 3.8% to 3.6%. The U.S. growth forecast for 2015 was increased from 2.0% to 2.4%.

The OECD raised the eurozone outlook to 1.6% from 1.5% this year, while Brazil’s contraction is now expected to be 2.8%.

August housing starts in the U.S. came in as expected, while other metrics such as permits and the number of homes under construction are at their best levels since 2008.

August retail sales were up 0.2%, which while a tick less than expected was still a positive and fuel for those thinking the Fed would hike rates two days later, while August industrial production was down 0.4%, worse than expected.

On the Washington front, there are now less than two weeks to go before Congress must come up with a new budget (zero percent chance), or continuing resolution (CR), to fund the government and the spat over Planned Parenthood still threatens to muck things up as House Speaker John Boehner told reporters Thursday there wasn’t a lot of progress in averting a shutdown. Those seeking to strip funds from the women’s reproductive health service are holding firm.

Boehner is trying to prevent Republicans from being blamed for a shutdown as they were with the 16-day partial government closure in October 2013, and he’s attempting to avoid a fight over his own status as speaker.

In the Senate, Majority Leader Mitch McConnell warned the conservatives’ strategy to defund Planned Parenthood won’t work because President Obama has threatened to veto any such move. The Kentucky Republican told reporters, “I’m not in favor of exercises of futility. We need to deal with the world we have.”

Finally, this coming week is going to be one of the more interesting ones in recent memory, with Chinese President Xi Jinping’s state visit to Washington (more like a tension convention), the Pope’s trip to New York, Washington and Philadelphia (after he spends the weekend in Cuba), and all manner of characters speaking before the U.N. General Assembly, including Russian President Vladimir Putin.

Whatever you do, avoid New York City at all costs. It will be a freakin’ mess.

Europe and Asia

With the migrant issue continuing to hold center stage in Europe, it is easy to forget there is another Greek election on Sunday and there seems little doubt the result will be inconclusive, with Syriza and New Democracy in a dead heat, according to the final polls, which could result in renewed market turmoil; the two parties incapable of forming a coalition.

Charles Dallara, who negotiated the second Greek bailout in 2012 that critics have argued was too harsh, said the third bailout was a missed opportunity to reduce claims on the Greek economy and push harder for more fundamental restructuring that is necessary to jumpstart the economy.

But when it comes to the election, Dallara told the Sydney Morning Herald that volatility will return because “despite all of the drama and the turmoil of the summer, very little was fundamentally resolved.”

“This is an economy riddled with inefficiencies and distortions. It almost needs a remake from the ground up,” he said.”

There is another big vote coming up in Europe, as Catalans go to the polls on Sept. 27 in what is being billed as a quasi-referendum on independence from the central government in Madrid. The pro-independence bloc, led by Catalan president Artur (sic) Mas, seems poised to win a narrow majority of seats in the next Catalan parliament, which Mas says would give a sufficient mandate to prepare the ground for separation from Spain, though the government in Madrid has said in no way would they tolerate such a move.

As for the migrant crisis, Eurostat reported on Friday that the number of first time asylum seekers who applied for protection in the European Union surged 85 percent in the second quarter versus a year earlier, spelling out the gravity of the situation when you consider the huge waves that are coming through in this the third quarter.

One third of applicants were either Syrians or Afghans. 

This week the crisis continued to explode as a record 9,400 rushed into Hungary on Monday, prior to the sealing of the border with Serbia. Over 175,000 have crossed into Hungary alone this year.

So the migrants then went from Serbia into Croatia, causing massive chaos in that country. By Friday, Croatia said it would take no more and that while the migrants would receive emergency aid, they had to leave. For their part, Serbians had been exhibiting great tolerance and empathy, but this is changing rapidly. Violence has been erupting at border crossings. Some have been killed. Hungary, which had quickly erected a 109-mile fence on its border with Serbia, was frantically attempting to do the same with its Croatian border.

Austria introduced border controls, Germany, for a time, halted train traffic from Austria. 12,200 entered Munich last Saturday! No wonder the Bavarian government is fuming at German Chancellor Angela Merkel, who is accused of encouraging the throngs to come to Germany. This nation took in a total of 40,000 overall last weekend. The government is now attempting to turn away any migrants from the Balkans, but of course everyone is claiming to be Syrian, as I wrote would be the case two weeks ago. They are just throwing away their documents before entering Germany, or Hungary before then.

But the German government is now looking to slash cash benefits and speed asylum procedures to begin to discourage the throngs and to catch those filing false claims and phony paperwork.

The original European Union plan to relocate 160,000 was cut to only 40,000, to then be divvied up among EU nations. But this is farcical given the reality of the numbers. Plus Czech Republic, Slovakia, Hungary and Poland oppose compulsory refugee quotas, claiming they are being bullied by Germany and its lackeys, such as European Commission president Jean-Claude Juncker, who is seen doing Germany’s bidding in trying to force member states to take the refugees currently in Italy and Greece. [Germany counters the four countries receive a lot of aid from their wealthier brethren and it’s time to step up.]

An emergency EU summit was called for September 23. 500,000 migrants have crossed into the EU thus far in 2015 compared with 280,000 in all of 2014. Germany’s vice chancellor said he now expects 1 million to enter his country alone this year.

For its part the U.N. estimates 1 million more people will be displaced in Syria the rest of the year, with many of these eventually finding their way to Europe.

Editorial / Washington Post

“The European Union is failing to live up to its fundamental values and commitment to human rights in its response to a wave of refugees from Syria and elsewhere. Instead, it is allowing its policy to be hijacked by one of its smallest members, Hungary, whose prime minister is acting on a hateful ideology more in keeping with the Europe of the 1930s than that of the 21st century....

“Right-wing Prime Minister Viktor Orban, who has long cast himself as an opponent of Western liberalism, has been painfully clear about why he is pursuing these abhorrent policies. It is not because the wealthy European Union cannot find room for several hundred thousand refugees, when poor countries such as Lebanon and Jordan are taking in millions. Clearly, it can; Germany alone has said it can resettle up to 800,000. Nor is it because the fleeing Syrians have connections to terrorist organizations – most are secular members of the country’s former middle class, or members of minority sects.

“Rather, Mr. Orban says openly that their aim is to protect Christian Europe from a wave of Muslims. He says, ‘Hungarians must make every effort for the defense of their freedom, their culture and their customs.’ And not only Hungary: Mr. Orban opposes allowing Muslim migrants into any other part of Europe, which is why he blocks the border even though most of those seeking to cross have no intention of remaining in his country.

“It is with reason that Austria’s leader has compared Mr. Orban’s stance to that of European fascists during ‘the darkest period of our continent.’ Said Chancellor Werner Faymann: ‘To divide human rights by religions is intolerable.’ Yet thanks to Hungary’s position astride one of the main routes followed by the refugees into Europe, Mr. Orban’s doctrine is rapidly becoming Europe’s de facto policy.”

The above was posted on the Washington Post site Wednesday evening. By Friday, as noted earlier, Germany was realizing it couldn’t continue with its existing asylum policy. Even last weekend, German Interior Minister Thomas de Maiziere signaled his nation was reaching capacity.

“We can’t allow refugees to freely choose where they want to stay – that’s not the case anywhere in the world,” he said in an interview with a German newspaper. [New York Times]

I’m on record with sympathizing, to a certain extent, with Hungary. But it’s complicated. I am half Slovak and I once visited a cousin in the country, in what was part of a life-changing trip at the age of 15. I try to put myself in their shoes instead of just accepting some of the liberal pabulum that is being put out there.

Editorial / The Economist

“Since the 9/11 attacks on America, and terrorist murders in Europe, relations with Muslim minorities have become strained. Yet compassion towards needy Muslims is part of the antidote to a hateful jihadist ideology. By contrast, millions of brutalized Syrians left to fester on Europe’s fringe would be a source of extremism that will not respect any border.”

Gideon Rachman / Financial Times

“For the first time in decades, some of the fundamental achievements and tenets of the EU are under threat. These include the single currency, open borders, free movement of labor and the notion that membership is forever.

“Rather than rising to these challenges, the EU is creaking under the strain. Its 28 members are arguing bitterly and seem incapable of framing effective responses to their common problems.

“These arguments are also taking place against an ominous backdrop. Large parts of the EU remain sunk in a semi-depression with high unemployment and unsustainable public finances.

“The problems of an imploding Middle East are crowding in on Europe, in the form of hundreds of thousands of refugees. And the political fringes are on the rise – with the latest evidence being the election of a far-left Eurosceptic candidate to lead Britain’s Labour party. [Ed. more on this below.]

“With a sense of crisis mounting and the EU unable to respond, countries will be increasingly inclined to act unilaterally or even – in the case of Britain – leave the bloc altogether....

“Question marks over open borders will easily shade into wider issues about access to welfare systems and labor markets. That is because EU countries are realizing that – in a border-free single market – a unilateral change of asylum rules by Germany has implications for the immigration policies of all member states. Once migrants get citizenship in one EU country, they have the right to move to any other, to work there and to claim benefits. But if free movement of people and labor come into question, so does the EU’s single market – its central achievement....

“The trouble is that the EU’s complex and unwieldy decision-making processes make it extremely hard to respond quickly and coherently to a crisis – as the migrant issue illustrates.

“For people of my generation, one of the central political themes of the past 40 years has been the steady advance of the European project. It is hard (and alarming) to imagine all that going into reverse. But Europe’s turbulent history is littered with examples of empires, monarchies and alliances that rose to greatness and then collapsed. The organization that the EU sometimes reminds me of at the moment is the League of Nations – a high-minded body, committed to international cooperation and the rule of law – that was eventually swept aside by international events that it could not cope with.”

---

A few economic notes:

Eurozone industrial production was up 0.6% in July after two months of contraction amid the Greek crisis.

Inflation in the U.K. for the month of August was unchanged on an annualized basis, not good, while the CPI in Italy was up 0.4% ann. for the month, with Germany’s annualized rate up just 0.1%.

And with the Fed’s dovish stance, and talk of further monetary stimulus in Europe, sovereign debt in Europe rallied strongly on Friday, with the yield on the German 10-year bund falling to 0.66% from 0.78% the prior day, France’s 10-year fell to 1.03% from 1.16%, Italy’s from 1.90% to 1.76% and Spain’s from 2.09% to 1.94%; again, all those moves in one day.

---

In China, it was another week of immense volatility in equity markets, with the Shanghai Composite finishing down 3.2%, even after a 4.9% rise on Wednesday as the government seemingly manipulated the market, but didn’t always do a good job of it.

Separately, fixed asset investment for the first 8 months of the year is up just 10.9%, the weakest pace in nearly 15 years, according to the National Bureau of Statistics, while factory output was up 6.1% in August, year-over-year, less than forecast, though retail sales rose 10.8% in the month, beating forecasts.

Home prices rose a fourth consecutive month in August, up 0.3% from the previous month, according to the stats folks.

Prices in Beijing are up 3% from a year earlier, while Shanghai’s rose 5.6% yoy.

The Ministry of Finance announced government spending jumped over 25% in August from a year earlier as Beijing tried to reenergize the economy.

For the first 8 months of the year, fiscal spending is up 14.8%. Spending on education rose 15.8%, healthcare 19.5%, and clean energy technology 22.7%.

Over the same 8 months, fiscal revenues rose 7.4%. A bit of an imbalance between the two. Ergo, debt continues to explode.

Street Bytes

--Stocks finished mixed, with the Dow Jones falling 0.3% to 16384, while the S&P 500 lost 0.2% and Nasdaq gained 0.1%. But the Dow dropped 290 points on Friday due to the Fed’s inaction and renewed concerns over global growth as a result.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.68% 10-yr. 2.13% 30-yr. 2.94%

As alluded to above, the August CPI was down 0.1%, up 0.1% ex-food and energy, but up 0.2% year-over-year, up 1.8% on core.

Earlier in the week, when it appeared the Fed may hike rates on Thursday, the yield on the 2-year surged above 0.80%, the highest since April 2011, before falling back when the Fed failed to act.

--General Motors agreed to pay $900 million as part of a Justice Department investigation into its handling of the ignition-switch defect that has been blamed for more than 120 deaths.

Federal prosecutors charged GM with “engaging in a scheme to conceal a deadly safety defect” from regulators, though this and other charges could be dismissed down the road if GM fixes its recall processes. The Feds may still prosecute individual GM employees, but U.S. Attorney Preet Bharara said it’s difficult to do so because one or more individuals might have had only partial knowledge of a bureaucratic process that led to tragedy.

GM engineers, attorneys and mid-level executives failed to fix the defect for more than a decade and “willfully and knowingly did falsify, conceal and cover up” the facts by making “fictitious and fraudulent statements” about the deadly flaw, prosecutors said in a court filing.

Separately, GM extended settlement offers to up to 1,385 additional victims of the defect. Coupled with a shareholder lawsuit over its handling of the matter, GM has taken a $575 million charge on its earnings.

Many victims’ families are not happy with all the above because GM employees continue to escape prosecution. [Nathan Bomey and Kevin McCoy / USA TODAY]

--Friday, Volkswagen was accused by the Environmental Protection Agency of using software that “cheats” pollution testing in nearly 500,000 recent model VWs and Audis by circumventing emission standards in its diesel cars; a violation of the Clean Air Act.

All 500,000 will eventually have to be recalled and the German automaker will have to change the emissions systems at its own expense, regulators said. It could also face a mammoth fine of up to $35,500 per car.

--FedEx cut its forecast for the year to May 2016 due to rising costs and weak demand. As a bellwether for the global economy, this is rather significant. Founder and CEO Fred Smith said the company “is performing solidly given weaker-than-expected economic conditions, especially in manufacturing and global trade.”

Revenue for the quarter was up 5 percent, though U.S. domestic package volumes grew just 1 percent. FedEx international volumes rose 4 to 5 percent.

--Meanwhile, United Parcel Service Inc. plans to hire about the same number of holiday season workers this year as in 2014, about 95,000 temporary employees based on “initial volume forecasts from customers” for the period that starts in November and lasts through January.

Target Inc. also said this week it would be hiring 70,000 seasonal workers, in line with the past two years.

--Anheuser-Busch InBev, the world’s largest brewer, is exploring a takeover of rival SABMiller in a deal that would create a $275bn company responsible for about one in three beers produced globally. A tie-up of these two would rank as one of the six largest corporate takeovers in history.

The drivers of the possible deal are the founders of 3G Capital, the Brazilian private equity group that has been buying up U.S. food companies including Heinz, Kraft and Burger King (with support from Warren Buffett).

AB InBev, SAB and two other brewers, Heineken and Carlsberg, produce half the world’s beer.

AB InBev makes Stella Artois, Budweiser and Corona, while SABMiller has a near-30 percent share of the U.S. beer market through MillerCoors, its joint venture with Molson Coors. Both AB InBev and SAB have substantial exposures to the Chinese market.

Antitrust experts say SAB would be forced to dispose of its stake in MillerCoors. But bottom line, there is a long ways to go with this one, if it comes about at all.

--Separately, MillerCoors said Monday it will shut one of its eight U.S. breweries and warned its sales volumes will likely continue to decline for “the next few years” as more Americans opt for craft beers. Over 500 employees at its brewery in Eden, N.C. will lose their jobs over the next 12 months. Production will be shifted to its Shenandoah, Va., facility, which also happens to be the brewer’s most modern facility.

As Jimmy Stewart said in the movie “Shenandoah,” “Ah ah ah now it concerns us.”

--Hewlett-Packard, which is in the midst of splitting into two separate entities, announced it will cut as many as 33,000 more jobs as CEO Meg Whitman continues to attempt to restructure the business for the changing technology market.

Hewlett Packard Enterprise will supply businesses with high-end technology, and HP Inc. will sell personal computers and printers, with the two new entities emerging in November. Hewlett-Packard had 302,000 workers at the end of October 2014, down from a peak of 350,000 in 2011.

25-30,000 of the job cuts will take place in Hewlett Packard Enterprise, while HP Inc. will experience 3,300 in reductions over three years.

--Oracle Corp.’s revenue for the first quarter ended Aug. 31 fell to $8.45 billion from $8.60 billion a year earlier, less than forecast and hurt in part by the strong dollar, as well as a customer shift to lower-margin cloud-based software from traditional packaged product. Earnings came in a penny better than expected.

Total cloud revenues were $611 million, up 29% in U.S. dollars. Sales of new software licenses, a key metric for insight into how well the company can sell new products and services to first-time customers and existing ones, declined 16 percent. 

As analyst Kevin Buttigieg of MKM Partners, who has a neutral rating on the stock, put it, “If licenses are going down and people are feeling that it’s not being made up for by billings on the cloud side, they’ll view that as maybe Oracle is growing in the cloud but other cloud providers are growing at Oracle’s license expense.”

Oracle is late to the cloud game, where competitors such as Salesforce.com and Workday have a substantial head start. The company also issued so-so guidance for the current quarter and the shares fell on the news. 

--Apple said it expects first-weekend sales of its new iPhone 6S will exceed last year’s debut of 10m units, after seeing “very strong” preorders, but this year the iPhone 6S and 6S Plus will be available in China the opening-weekend, which wasn’t the case last year, so it’s unclear just how strong demand is in the U.S.

--I’ve been negative on Alibaba for a number of reasons since day one, including some comments in recent weeks. Last weekend, Barron’s said in a report the stock could decline up to 50%.

“History certainly isn’t on Alibaba’s side. Widely hyped Chinese IPOs like Alibaba often flame out like supernovas as growth rates and profit margins suddenly decline.”

That said, the shares hung in there this week at $65, though this is $3 below the IPO price of exactly one year ago.

--European telecommunications and cable company Altice is acquiring New York cable operator Cablevision for $17.7 billion, including debt. Netherlands-based Altice has been aggressively expanding in the U.S., having previously acquired Suddenlink, a cable company based in St. Louis, in May.

Cablevision is controlled by the Dolan family of Madison Square Garden fame. Altice’s founder, Patrick Drahi, has operations in France, Portugal, Belgium, Switzerland, Israel and elsewhere.

--OPEC trimmed estimates for supplies from outside the group in 2016. “There are signs that U.S. production has started to respond to reduced investment and activity,” OPEC said in its monthly market report. “Indeed, all eyes are on how quickly U.S. production falls.”

Supplies from non-OPEC nations such as the U.S., Canada, Russia and Brazil will still increase by 160,000 barrels a day to 57.6 million in 2016.

--General Electric Co. is moving 500 jobs to France, Hungary and China after Congress halted funding of the U.S. Export-Import Bank, which provided credit assistance to GE’s international customers.

The Ex-Im bank provides loans, credit guarantees and insurance to aid sales by companies such as Boeing and GE, but congressional Republicans say the bank helps only a few large corporations that don’t need government assistance.

--Household wealth in the U.S. climbed in the second quarter, 0.8 percent from the previous three months to $85.7 trillion, with rising property values being the prime boost.

--The number of people without health insurance dropped last year by 8.8 million to 33 million, while median household income in the United States was basically unchanged at $53,660, as reported by the Census Bureau. There was also no meaningful change in the official poverty rate – 14.8 percent.

The median income figure is 6.5% less than 2007!

--As part of a health kick, Target is giving all 300,000 of its employees basic activity trackers from Fitbit Inc., as well as giving employees discounts on fruits and vegetables.

Shares in Fitbit soared in response with Target now representing one of its largest accounts.

--Like many of you, I have become a fan of DraftKings, initially playing its golf tournaments and now the weekly football deal (just the $3 contests). It’s fun. Also infuriating at times, but since I’m already writing on the sports for that other column I do, just an extension for me.

The two leaders in the nascent fantasy-sports business, FanDuel being the other, as you’ve noticed are spending wildly on advertising. DraftKings has spent more than $80 million on national airtime since Aug. 1, almost three times what the company made in total revenue last year.

Both sites are valued at more than $1 billion, with backing from media and sports conglomerates that view them as ways to hook new viewers and keep them watching sports. FanDuel has signed sponsorship deals with the NBA and 16 NFL teams, and is being boosted by investors that include NBC Sports, Google and Comcast.

DraftKings has inked deals with ESPN, Fox Sports and MLB, the NHL and soccer, as well as a dozen NFL teams. [Drew Harwell / Washington Post]

But now Congress wants to get involved. To be continued....

--Mark R. passed along a note from his firm’s daily fixed income update that the City of Ferguson (Mo.) had its debt downgraded by Moody’s seven notches, with the ratings agency citing the social unrest and costs associated with events of the past two years. Moody’s warned the city could be insolvent by 2017.

--Facebook CEO Mark Zuckerberg said the company is going to be introducing a “dislike” button.

“You don’t want to go through the process of sharing some moment that was important to you during your day and have someone down-vote it,” said the t-shirt wearing CEO. “(But) not every moment is a good moment, and if you are sharing something that is sad, whether it’s something in current events, like the refugee crisis that touches you, or if a family member passed away, then it may not feel comfortable to like that post.”

Good point. If North Korea launched a bottle rocket at us, I can’t imagine anyone here ‘liking’ that.

But not all Facebook users want a dislike button. One user commented to the New York Times, “There is already enough hate on Facebook and social media.”

Foreign Affairs

Syria/ISIS/Iraq: Russia has begun to aggressively step up military support to the Syrian government, with daily flights into an air base near the coastal city of Latakia, President Bashar al-Assad’s Alawite stronghold. At least 500 Russian troops are already there, while satellite imagery shows the Russians building barracks that would house at least 1,500. Russian tanks are being flown in. At Russia’s naval base at the Syrian coastal city of Tartus, ships are bringing heavy armaments. Friday, word came in the Russians had moved fighter jets there. Defense Secretary Ash Carter spoke to his Russian counterpart today.

There is growing concern that American planes operating in Syria will end up confronting Russian pilots, or that Russian airstrikes could target rebels the U.S. is supporting.

A Pentagon spokesman said, “We welcome Russia participating in the global anti-ISIL efforts, but to do that via the Assad regime is unhelpful and potentially destabilizing.”

On Tuesday, President Vladimir Putin defended Russian military assistance to Syria’s embattled government, saying, “We provide and will continue to provide the necessary military technology assistance and urge other nations to join in. It’s obvious that without the Syrian authorities and the military playing an active role, without the Syrian army fighting Islamic State ‘on the ground,’ it’s impossible to drive terrorists from this country and from the region as a whole.”

On the issue of the refugees and whether Russia is contributing to the influx, Putin said, “If Russia had not supported Syria, the situation in the country would have been worse than in Libya, and the refugee flow would have been even greater.” [Alexander Zavis / Los Angeles Times]

The Assad regime controls only about a fifth of the country, though it is home to most of the country’s population, including Damascus.

If Putin continues to increase his support for Assad, then its felt the Saudis will step up their support for the rebels fighting Assad.

General Lloyd Austin, commander of U.S. Central Command, told a Senate hearing on Wednesday the Pentagon was still trying to figure out what Putin is up to. Austin also conceded that the U.S. had trained “four or five” soldiers to take on ISIS. If that wasn’t bad enough, the general also had to acknowledge the Pentagon’s inspector-general had opened an inquiry into allegations that senior military officers under Austin’s direct control had manipulated intelligence about the war against ISIS to show the effort was going better than it has. Gen. Austin apparently still has the confidence of President Obama.

Syrian warplanes carried out a number of rare airstrikes on the Islamic State-held city of Raqqa, including helicopters dropping barrel bombs on a busy market place, killing at least 17, according to activists.

Raqqa is the self-declared capital of the Islamic State group’s self-styled caliphate.

Charles Krauthammer / Washington Post

“Once again, President Obama and his foreign policy team are stumped. Why is Vladimir Putin pouring troops and weaponry into Syria? After all, as Secretary of State John Kerry has thrice told his Russian counterpart, Sergei Lavrov, it is only making things worse.

“But worse for whom? For the additional thousands of civilians who will die or flee as a result of the inevitably intensified fighting. True, and I’m sure Lavrov is as moved by their plight as by the 8,000 killed in Russia’s splendid little Ukrainian adventure.

“Kerry and Obama are serially surprised because they cannot fathom the hard men in the Kremlin. Yet Putin’s objectives in Syria are blindingly obvious:

“ 1. To assert Russia’s influence in the Middle East and make it the dominant outside power. Putin’s highest ambition is to avenge and reverse Russia’s humiliating loss of superpower status a quarter-century ago. Understanding this does not come easily to an American president who for seven years has been assiduously curating America’s decline abroad.

“ 2. To sustain Russia’s major and long-standing Arab ally. Ever since Anwar Sadat kicked the Soviets out of Egypt in 1972, Syria’s Assads have been Russia’s principal asset in the Middle East.

“ 3. To expand the reach of Russia’s own military. It has a naval base at Tartus, its only such one outside of Russia. It has an airfield near Latakia, now being expanded....

“ 4. To push out the Americans. For Putin, geopolitics is a zero-sum game: Russia up, America down. He is demonstrating whom you can rely on in this very tough neighborhood. Obama has given short shrift to the Kurds, shafted U.S. allies with the Iran deal and abandoned the Anbar Sunnis who helped us win the surge. Meanwhile, Putin risks putting Russian boots on the ground to rescue his Syrian allies.

“Obama says Bashar al-Assad has to go, draws a red line on chemical weapons – and does nothing.  Russia acts on behalf of a desperate ally. Whom do you want in your corner?

“ 5. To re-legitimize post-Crimea Russia by making it indispensable in Syria. It’s a neat two-cushion shot. At the United Nations next week, Putin will offer Russia as a core member of a new anti-Islamic State coalition. Obama’s Potemkin war – with its phantom local troops (our $500 million training program has yielded five fighters so far) and flaccid air campaign – is flailing badly. What Putin is proposing is that Russia, Iran and Hizbullah spearhead the anti-jihadist fight....

“And there is a bonus. The cleverest part of the Putin gambit is its unstated cure for Europe’s refugee crisis.

“Wracked by guilt and fear, the Europeans have no idea what to do. Putin offers a way out: No war, no refugees. Stop the Syrian civil war and not only do they stop flooding into Europe, those already there go back home to Syria.

“Putin says, settle the war with my client in place – the Assad regime joined by a few ‘healthy’ opposition forces – and I solve your refugee nightmare.

“You almost have to admire the cynicism. After all, what’s driving the refugees is the war and what’s driving the war is Iran and Russia. They provide the materiel, the funds and now, increasingly, the troops that fuel the fighting. The arsonist plays fireman.”

Yaroslav Trofimov / Wall Street Journal

“The Syrian refugee crisis overwhelming Europe has shattered the illusion, often used to justify inaction, that in the modern world there is such a thing as a distant war in a faraway land.

“Over the past four years, 250,000 Syrians have died, most of them killed by the Assad regime against which the West has refused to intervene. More than half of the population has been forced to flee their homes, with four million refugees pouring first into neighboring Turkey, Lebanon and Jordan – and now many of them to Europe.

“As Europe’s frontiers have collapsed, millions more are likely to follow suit, overland or by sea. This has already turned Syria from thorny foreign-policy issue into a full-blown domestic emergency that threatens the cohesion and social peace of the European Union and lays bare the costs of the West’s policy of nonintervention against the regime.”

Benny Avni / New York Post

“Obama’s right in his assessment that Syrian President Bashar al-Assad’s presence is a huge problem there – along with ISIS – and that Assad needs to go away. After all, the Syrian strongman and his Hizbullah and Iranian allies have killed many more Syrians in the deadly 4-year war than ISIS ever did.

“And Putin’s wrong when he calls on the world to ignore Assad’s transgressions and those of his backers and, indeed, get behind him, so he can defeat ISIS. After all, Assad is merely playing footsie with ISIS while aiming most of his fire-power at any decent alternative to his throne.

“But being morally right in what you say but never acting to back it up with meaningful deeds isn’t much better than being flat-out evil yourself....

“Actually, we started ceding Syria to Putin three years ago, when Assad first violated Obama’s famous red line. Averse to any use of military force and too busy conducting secret negotiations with Damascus’ Iranian benefactors, Obama overruled Pentagon plans to punish Assad for using chemical weapons.

“Instead, Putin proposed a scheme that seemed perfect then: Assad would forego chemical weapons for good, and all America had to do was finance a complex and unprecedented UN-backed plan to oversee the process.

“Since then Assad’s helicopters have dropped tons of chlorine gas to terrorize entire Syrian cities. And now ISIS too arms itself with mustard gas to complete the horrors....

“Long ago Putin concluded that by expanding his dominance across the globe he can overcome Russia’s economic and political weaknesses. Then he saw America’s weakness – and went all in.

“Now he’s taking over a region that, back in the 1980s, America snatched from Putin’s Soviet Union and then dominated.

“The next president will likely realize that by swearing off any use of American military might we cede the world stage to the likes of Putin. And that we and the world are worse off as a result.”

Editorial / Wall Street Journal

“Russian intervention will not defeat the Islamic State. But it might save the Assad regime, while giving Moscow a new sphere of influence in the Middle East. It will also reinforce the lesson – for Mr. Putin and other autocrats – that the U.S. under Mr. Obama is a pushover and that now is the time to seize their chances.

“As for the U.S., Russia’s intervention is another strategic debacle that could have been avoided if Washington had intervened years ago, when Islamic State didn’t exist and we still had credible moderate allies in the country. Had the anti-interventionist wing of the GOP followed John McCain’s and Lindsey Graham’s advice to act forcefully at the start of the uprising, they wouldn’t now be fretting about the Syrian refugees now swamping Europe.

“The best option now for the U.S. would be to work with Turkey, Israel and Jordan to establish no-fly zones along their respective borders with Syria.”

Yup, as I was saying three years ago....

Pope Francis weighed in on ISIS this week, telling a Portuguese radio station, “The truth is that just [250] miles from Sicily there is an incredibly cruel terrorist group.  So there is a danger of infiltration, this is true,” in warning ISIS terrorists could sneak into Europe by blending in with the wave of refugees.

ISIS has threatened Rome and vowed to plant the black flag of its self-declared caliphate on the roof of St. Peter’s Basilica, so the pope was asked if he thought that the Vatican and Rome were potential targets.

“Yes, nobody said Rome would be immune to this threat. But you can take precautions.”

Finally, in Iraq...From Andrew Tilghman / Army Times

“Nearly three months after the fall of Ramadi, the American-backed effort by the Iraqi army to retake the provincial capital from Islamic State group militants is moving slowly and fueling concerns that the Iraqis are not up to the task.

“ ‘I don’t think there is any stomach to retake Ramadi right now and suffer the kind of casualties that such a battle would incur,’ said retired Army Col. Peter Mansoor, who served in Iraq in 2007 and 2008 as executive officer to retired Army Gen. David Petraeus, who lead the war effort at that time....

“Others say the Iraqi army suffers from a debilitating lack of manpower and has never restored its force structure after the mass desertions in 2014 following the Islamic State’s initial advance into Iraq.”

Iran: Supreme Leader Ayatollah Khamenei warned that if the U.S. should start a war with Iran, America will be “humiliated.”

In a propaganda video posted to his Twitter account, the video subtitle reads: “We neither welcome nor begin war. They must know that should any war break out, one who will emerge humiliated out of it will be invading and criminal America.”

This comes a week after Khamenei tweeted that the Jewish state won’t exist in 25 years.

Meanwhile, debate in Congress over the nuclear deal simply petered out. But some in the Senate are working on follow-on legislation that could at least make clear if Iran is caught attempting to build a bomb, Congress would support immediate military action. As the Washington Post editorialized:

“One trigger could be verification that Tehran is producing highly enriched uranium; another would be the resumption of work on warhead designs and materials. Such a statement by Congress could not be binding, but it would tell Iran and U.S. allies in the region that the nuclear deal has not taken the U.S. military option off the table....

“Legislation can also mandate new U.S. support for Israel. A 10-year security agreement, due to expire within three years, could be renewed and expanded; Congress could support the delivery to Israel of the Massive Ordnance Penetrator, a bomb developed to destroy an Iranian nuclear facility buried under a mountain.

“The greatest risks of the nuclear accord are that Iran will seek a bomb in spite of the constraints it accepted and that it will escalate its attempt to establish hegemony over the Middle East by force. While Congress can’t now overturn the deal, it can pragmatically address both of these threats.”

Michael Goodwin / New York Post

“The deal is essentially a nonaggression pact with Iran, a form of appeasement that renders unfair any further comparisons to Neville Chamberlain. At least Hitler promised peace at the 1938 Munich conference after the British leader engineered a German annexation of parts of Czechoslovakia.

“Iran’s supreme leader doesn’t bother to pretend he wants peace. On the contrary, he vows that the nuclear agreement will have zero impact on the policies of the world’s largest state sponsor of terrorism.

“Ayatollah Khamenei, who repeatedly declares that Israel will be ‘eliminated,’ wrote just before the Senate vote that, ‘God willing, there will be no Zionist regime in 25 years.’

“And he made it clear that Iran, which has militias and terror proxies in Lebanon, Syria, Iraq and Yemen, and supports Hamas and Hizbullah, would not be changing its stripes, writing: ‘During this period, the spirit of fighting, heroism and jihad will keep you worried every moment.’...

“We, along with other so-called great powers, are unilaterally declaring peace while our adversary repeats its declaration of war against us and Israel.

“Even Iranian ‘moderates’ openly tell their allies that the $100 billion they will get from the deal will help them carry out Khamenei’s terrorist agenda....

“The Iranians are honest about their plans. Our leaders are dishonest when they insist we can safely disregard the rhetoric. We’ve been down this road before, thinking it a joke when Osama bin Laden declared war on us in the 1990s.”

Turkey: Clashes between Kurdish militants and Turkish forces and security personnel continue to escalate, with the death toll for police and soldiers now exceeding 100, while hundreds of militants have been killed since a cease-fire collapsed in July. It is the worst violence Turkey has seen in two decades and comes ahead of a contentious election in November. Clashes between Turks and Kurds are now the norm in the capital of Ankara, which is unheard of. President Erdogan has promised the fight will go on until “not one terrorist is left.” [Daily Star]

Egypt: What a debacle. Egyptian troops opened fire on a group of tourists in Egypt’s southwestern desert after armed forces mistakenly took them for terrorists. At least 12 were killed with eight of them being Mexican. Mexico immediately demanded an investigation and a government spokesman said the tour company involved “did not have permits and did not inform authorities.” The tourists were bombed from the air.

China: U.S. experts analyzing satellite photographs say China appears to be building a third airstrip in contested territory in the South China Sea, specifically on one of the artificial islands it has been creating in the Spratly archipelago. All three will be long enough to accommodate most Chinese military aircraft. In early August Wang Yi, China’s foreign minister, said reclamation work on the islands had been completed, but the focus was now on building infrastructure.

Meanwhile, ahead of President Xi’s state visit, China’s top security official, Meng Jianzhu, led a delegation that held four days of discussions with U.S. counterparts, with Meng claiming both sides reached an “important consensus” on the explosive issue of cybersecurity.

The Chinese delegation had meetings with FBI Director James Comey, among others, and Meng said “China’s position on opposing hacking and stealing commercial secrets online is resolute.” China would punish anyone who hacked from within China’s borders or stole corporate secrets. You can stop laughing. [Jun Mai / South China Morning Post]

For his part, President Obama has been more aggressive on the topic, saying the other day, “We have been very clear to the Chinese that there are certain practices that they are engaging in, that we know are emanating from China and are not acceptable....there comes a point at which we consider this a core national security threat and will treat it as such.” [AFP]

Separately, Xi and Obama will also probably have the topic of Taiwan on the agenda, with the island holding a crucial presidential election in January, at which point an independence-leaning opposition party (Democratic Progressive Party) is expected to roll over the ruling, mainland-friendly Kuomintang Party. China is not going to be happy when the DPP takes control and the rhetoric on both sides could heat up quickly.

North Korea: The official news agency declared on Tuesday that its main nuclear complex at Yongbyon was operating and it was working to improve the “quality and quantity” of its weapons which it could use against the United States at “any time.”

North Korea vowed in 2013 to restart all nuclear facilities, including the main reactor at Yongbyon that had been shuttered.

The director of the atomic agency was quoted as saying: “If the U.S. and other hostile forces persistently seek their reckless hostile policy towards the DPRK [Democratic People’s Republic of Korea] and behave mischievously, the DPRK is fully ready to cope with them with nuclear weapons any time.”

Pyongyang is preparing to test a long-range missile that it hopes one day can reach the U.S., though it will claim it’s a satellite. This bears watching.

Leader Kim Jong Un has observed what Iran is gaining from its nuclear deal with the U.S. and he’s clearly angling for negotiations with Washington.

Japan: As I’m going to post, Japan’s upper chamber of Parliament early Saturday, Tokyo time, approved controversial bills allowing the country’s military to engage in overseas combat in limited circumstances. The 148-90 vote ends seven decades of pacifism. The lower chamber had passed the bills in July. This has been a major goal of Prime Minister Shinzo Abe and is welcomed by the U.S. Japans needs to beef up its military to counter China and North Korea.

Afghanistan: Once again the Taliban stormed a key jail and freed more than 350 prisoners, the third time since 2008 that hundreds of Taliban inmates escaped from an Afghan prison. As of this writing, only a handful of the 350 had been recaptured. In Pakistan, a Taliban attack on a Pakistani military base on the outskirts of Peshawar killed 29, including 16 worshipers gunned down when the militants stormed a mosque inside the compound during prayers. What bastards. The other 13 were air force and army personnel, while the government says 13 attackers were killed. The military had been stepping up operations against the Taliban in recent months after an attack on a Peshawar school last December killed 150.

Australia: Malcolm Turnbull is the new prime minister, having unseated Tony Abbott in a party coup amid a rebellion. But with federal elections due next year, Turnbull’s ruling Liberal-National coalition is headed for defeat, according to the latest polls.

The economy is a big issue here, with fears of Australia’s first recession in 24 years, owing largely to China’s slowing economy.

I’m having trouble keeping track of all the different governments in Australia. I think this is the fifth change at the top in five years. Turnbull is a former investment banker.

Abbott was done in in no small part because of his attitude on issues such as same-sex marriage (which he is opposed to) and resistance to ambitious measures to combat climate change. Turnbull is more of a moderate but not favored by the hard line elements of the coalition. He has previously favored aggressive carbon emissions laws.

Britain: The Labour Party elected a new leader, radical leftist Jeremy Corbyn, and there is a real danger in this move. As the Wall Street Journal editorializes:

“We are living through an era of bitter, and usually justified, disillusion with political establishments. In Europe, that establishment trumpeted a new era of multicultural transnational technocracy but hasn’t delivered sustained economic growth or low unemployment for nearly four decades. In the U.S. Barack Obama has presided over a feeble recovery while relying on obedient Democrats and a pliant media to jam through his domestic and foreign policy agendas over broad popular objections.

“The response to this political highhandedness on both sides of the Atlantic is rage: the rage of people who sense that they aren’t even being paid lip service by a political class that is as indifferent to public opinion as it is unaccountable to the law.

“These are the people flocking to the banners of Donald Trump and Bernie Sanders, Marine Le Pen and Jeremy Corbyn – leaders who, either through the consistency of their views or the toughness of their persona, suggest a kind of incorruptibility. They can’t be bought. They’ll never change. They are authentic and pure. What else do you need to govern a country?

“Such are the leaders who are coming to the fore in an era in which the worst ideas of the past – protectionism, punitive taxation, isolationism, opposition to immigration, hostility to finance, hatred of Jews in both its anti-Semitic and anti-Zionist variants – are making a political comeback in ways that defy old ideological categories....

“Mr. Corbyn’s opposition to membership in the EU is only somewhat more latent than Ms. Le Pen’s.

“All this ought to unsettle anyone who cares seriously about the health of the West. A single bad election or even primary result in Britain, France, Italy, Spain or the U.S. could tip us into an unmoored – and unhinged – reality. What happens when President Trump meets Prime Minister Corbyn? ‘You’re Fired’ is not an option....

“It would be nice to think that democracies always manage to recover their common sense and moral balance. Maybe so, but if Mr. Corbyn’s election teaches anything it is that we also have to recover our wisdom. Liberal democracies that fail to educate the public about the institutions, methods and values by which they are sustained put themselves at risk.”

Editorial / Washington Post:

”Mr. Corbyn espouses a foreign policy whose guiding principle is to oppose the United States and Israel by all means. It has led him to label as ‘friends’ such disparate political forces as Hamas, Hizbullah and the populist government of Venezuela and to accept funding from organizations designated by the U.S. government as terrorist groups. Mr. Corbyn endorsed the Iraqi insurgents who fought U.S. troops and equated the Islamic State’s overrunning of Iraqi cities with the 2004 U.S. offensive in Fallujah. He said that Washington, rather than Moscow, is to blame for the civil war in Ukraine. In an interview with Iran’s state television channel, he called the U.S. raid that killed Osama bin Laden a ‘tragedy.’....

 “Those who favor the strategic partnership between Britain and the United States can only hope that Labour’s new leader is not the voice of an emerging generation but the last gasp of an old one.”

This is the same party that produced Tony Blair. The most Blairite candidate in the Labour party vote last week received just 4 percent. Not a good sign.

Sudan: A fuel tanker overturned, people rushed to the vehicle to siphon fuel, a warning shot from soldiers struck the tanker, the tanker exploded, and, poof! 170 were killed.

Random Musings

--Demetri Sevastopulo / Financial Times

“Jeb Bush smoked marijuana as a young man and wants to put Margaret Thatcher on the $10 bill. Ben Carson would place his mother on the note, while Donald Trump, who wants his Secret Service code name to be ‘Humble,’ would prefer to see his daughter there....

“With 14 months until the 2016 election, the second Republican presidential debate at the Ronald Reagan Library on Wednesday provided very few clues about whether Mr. Trump will remain the party’s frontrunner or whether any of his 15 remaining rivals will start to gain ground on the Teflon contender.

“Analysts have been stumped by a race that has seen the brash, politically incorrect tycoon catapulted to the front of the Republican field. But some experts sensed a crack in his armor that was exploited by Carly Fiorina, the former Hewlett-Packard boss....

“ ‘Fiorina was my big winner,’ said Larry Sabato, a veteran political analyst at the University of Virginia. ‘She showed that she should have been on the [main] stage at the first debate, and her steely, articulate answers have nearly guaranteed she’ll be on the stage from now on.’

“Ahead of the debate in California, all eyes were on Mr. Trump whose lead in the polls and bombastic rhetoric were expected to spark more attacks from his rivals. Ms. Fiorina stepped up to the task by attacking Mr. Trump over comments in Rolling Stone that she would never be elected because of ‘that face.’

“ ‘Women all over this country heard very clearly what Mr. Trump said,’ Ms. Fiorina declared, prompting Mr. Trump to respond patronizingly that ‘she has a very beautiful face and she’s a beautiful woman.’....

“Tony Fratto, a former Republican White House spokesman who supports Mr. Bush, agreed that Ms. Fiorina had a ‘very strong night’ by appearing ‘serious and articulate’ on the main stage. ‘Trump needs to keep the circus going with new antics or outrageous remarks, but he looked tired,’ added Mr. Fratto. ‘He had nothing new, and I think it’s going to hurt him.’

“Mr. Sabato was less sure about what impact Ms. Fiorina’s performance would have on the Trump campaign, which has defied gravity despite an endless stream of controversial comments that would doom any other candidate. ‘The grassroots like him in part because he doesn’t follow a script, plus the establishment...dislikes Trump. The grassroots hates the party establishment. But we’ll see.’”

John Podhoretz / New York Post

“So the question after the second Republican debate is this: Will it take a week for Carly Fiorina to sit atop the GOP polls, or will it take two weeks? Because after Wednesday night’s debate, it’s going to happen.

“People have been wondering for a while what event was going to slow down or reverse the rise of Donald Trump, since his candidacy appeared to glide through the potholes that have caused others like him and before him to crash and burn.

“Well, the momentum shift against Trump happened all at once – when Carly Fiorina pointedly refused to complain to him directly about his remarks criticizing her face and instead suggested what he had done was an insult far broader than the shot at her....

“That was not the only moment in which Fiorina took control of the debate. At almost any moment that she managed to seize time to speak...she knocked it out of the park....

“The debate showed almost every candidate at his or her best.

“In particular, Marco Rubio again demonstrated his supreme fluency on foreign affairs and his ability to discuss immigration in a serious and capacious manner. Ted Cruz was sensational in his criticisms of the Iran deal. Scott Walker turned Trump’s effort to attack his governorship in Wisconsin to his own advantage by demonstrating Trump’s lies about his tenure point by point.

“And Chris Christie was so fluent, it made you wonder what might have been had Bridgegate not staggered him.

“The losers were the Big Three – the poll leaders, Trump and Carson, and most especially Jeb Bush....

“Bush, the former Florida governor, has been declining precipitously over the past six weeks, and despite the length and breadth of the debate, he made no case whatever for himself as a leader or the inspiring purpose of his candidacy....

“As for Trump, I could well be wrong – everybody has been – but whatever fairy dust has been allowing his candidacy to defy gravity seemed to dissipate.”

Jennifer Rubin / Washington Post

“Donald Trump finally met his match in Carly Fiorina. In a smashing performance that will earn her poll points, campaign donations and praise from Republicans, she went after Trump with surgical precision in the second GOP debate. She jabbed him for his casino bankruptcies. Pivoting off a Jeb Bush answer, she recalled Trump’s derogatory remark about her face: ‘Women all over this country heard very clearly what Mr. Trump said.’ With sly put downs (‘You know, I think Mr. Trump is a wonderful entertainer. He’s been terrific at that business’) and showing her superior knowledge of foreign policy, she gave Republicans a more viable and sophisticated outsider. She interjected some humanity in recalling her experience of losing a daughter to addiction. Her passionate denunciation of Planned Parenthood was a standout moment as was her closing statement, a crisply delivered ode to human potential....

“Trump was repeatedly on defense, coming up short in face-offs against Fiorina and regurgitating lines (get great people!) that already seem stale.”

Sen. Lindsay Graham won the happy hour debate, urging more bipartisanship and noting that Ronald Reagan drank with Democratic House Speaker Tip O’Neill. “That’s the first thing I’m going to do as president – we’re going to drink more.”

--So the post-debate polls will be coming out next week, but for the record, there were a slew of them in the run-up to Wednesday’s excitement.

In a CBS/New York Times national survey, 27% of Republicans surveyed picked Donald Trump, with Ben Carson at 23%, a dramatic rise for Carson who was at just 6% in July in the same poll. [Trump rose from 24% in July.]

On the Democratic side, Hillary Clinton’s lead over Sen. Bernie Sanders is just 20 points, 47% to 27%.

In a CBS News Battleground tracker:

Trump leads among likely Republican caucusgoers in Iowa with 29%. Carson has 20% and Ted Cruz is third at 10%. Jeb Bush polled just 3%.

In New Hampshire, among likely Republican primary voters, Trump received a whopping 40% to Carson’s 12% and John Kasich’s 9%. Carly Fiorina was at 8%, Bush at 6%, tied with Rand Paul.

In South Carolina, Trump polled 36% to Carson’s 21%, with Cruz in third but at only 6%. [Bush and native son, Sen. Lindsey Graham, at 5%.]

In a Monmouth University poll of New Hampshire primary voters, Trump received 28%, Carson 17% and Kasich 11%. [Cruz 8%, Fiorini 7%, Bush 7%.]

In the CBS/YouGov Battleground survey on the Democratic side, Sanders leads Clinton by 10 points in Iowa (43-33) and 22 points in New Hampshire (52-30), but Clinton leads in South Carolina 46-23 (Biden 22% here).

In a Washington Post/ABC News national poll, there was some dire news for Hillary Clinton. Where 71% of Democratic-leaning female voters said in July that they expected to vote for Clinton, only 42% do now...a fall of 29% in eight weeks.

Overall support for Clinton declined to 42% from 63%, with Sanders at 24% and Joe Biden 21%.

On the Republican side, Trump leads Carson 33% to 20%. Bush was third at 8%, Rubio and Cruz at 7% each.

Trump trails Clinton just 46-43 in a hypothetical matchup.

--As for the New Hampshire town hall question/comment Trump received on Obama, Thursday, that gained a ton of press today, I’m waiting 24 hours. If appropriate I’ll comment next time. Trump hasn’t said anything today and I want to hear him first.

--For the record, the Republican debate was the highest rated program on CNN ever, 23 million viewers.

--While Republicans need to do better among Hispanics at the voting booth, thus concern over Donald Trump’s anti-immigration comments, it is interesting that in the 2014 midterm elections, only 27% of eligible Latinos voted, compared with 46% of whites and 41% of African Americans, according to U.S. census data.

So while there is talk of how important the growing Latino population is in America, as Kate Linthicum of the Los Angeles Times reported, “it’s nowhere near as big as it could be.”

--As reported by the Los Angeles Times’ Howard Blume, the achievement gap between black and Latino students in California widened significantly when compared with their white and Asian peers.

Under new tests based on learning goals for each grade (Common Core) as adopted by 42 states, on the subject of math, “69% of Asian students (in Calif.) achieved the state targets compared to 49% of whites, 21% of Latinos and 16% of blacks.”

In the L.A. Unified district, 67% of Asian students met state targets in English, compared to 61% of whites, 27% of Latinos and 24% of black students.

--In a paper published in the journal Nature Climate Change, scientists estimate that the recent Sierra Nevada snowpack was the lowest it has been in more than 500 years. [Los Angeles Times]

The Sierras supply California with roughly a third of its water, but this could change in a big way this coming winter with the strengthening El Nino.

--A report prepared by the World Wildlife Fund and the Zoological Society of London concludes populations of marine mammals, birds, fish and reptiles have declined by 49% since 1970. Some species that people rely on for food, such as tuna and mackerel, are down 74%.

“Human activity has severely damaged the ocean by catching fish faster than they can reproduce while also destroying their nurseries,” said Marco Lambertini, head of WWF International.

The report adds that sea cucumbers – consumed as a luxury food throughout Asia – have seen their numbers fall 98% in the Galapagos and 94% in the Red Sea over just the past few years. [BBC News]

--After the Ashley Madison website was hit by a data breach, a group of decoding hobbyists known as CynoSure Prime decoded more than 11 million passwords and the top one so far is 123456. Others in the top five were 12345, password, DEFAULT, and 123456789. “123456” has been the most popular password uncovered in data breaches during the past two years. [Andrea Peterson / Washington Post]

---

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

God bless America.
---

Gold closed at $1137
Oil $44.68

Returns for the week 9/14-9/18

Dow Jones -0.3% [16384]
S&P 500 -0.2% [1958]
S&P MidCap -0.1%
Russell 2000 +0.5%
Nasdaq +0.1% [4827]

Returns for the period 1/1/15-9/18/15

Dow Jones -8.1%
S&P 500 -4.9%
S&P MidCap -2.7%
Russell 2000 -3.4%
Nasdaq +1.9%

Bulls 26.8
Bears 26.8 [Source: Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore