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06/06/2015

For the week 6/1-6/5

[Posted 10:00 PM ET, Friday]

Edition 843

Washington and Wall Street

The head of the International Monetary Fund, Christine Lagarde, is said to be close to Federal Reserve Chair Janet Yellen, and this week Lagarde’s organization said conditions were still not right for the Fed to raise rates for the first time in almost a decade.

As part of the IMF’s annual review of the state of the U.S. economy, the IMF said it sees growth of 2.5 percent this year despite a contraction in the first quarter. “The underpinnings for continued growth and job creation remain in place,” fund economists wrote. The issues of the first quarter, such as the effects of a strong dollar, “unfavorable weather,” a West Coast port strike and a sharp contraction in investment in the oil sector all amounted to “a temporary drag but not a long-lasting brake on growth.”

But the IMF was urging the Fed to wait for “greater signs of wage or price inflation than are currently evident.”

“Based on the mission’s macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016,” the IMF wrote, adding they did not see inflation reaching the Fed’s 2 percent target until 2017.

“Raising rates too soon could trigger a greater-than-expected tightening of financial conditions or a bout of financial instability, causing the economy to stall. This would likely force the Fed to reverse direction, moving rates back down toward zero with potential costs to credibility,” the IMF economists wrote.

“Given the balance in the likelihood and severity of these risks, as well as the significant uncertainty around inflation prospects, the degree of slack and the neutral policy rate, there is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident.”

The IMF said among the risks was the strong dollar that was weighing on U.S. growth, job creation and inflation. [Shawn Donnan / Financial Times]

That was Thursday. But then on Friday, the jobs report for May was released and non-farm payrolls rose 280,000, much higher than expected, with another 32,000 net added for March and April than initially reported.

Most importantly, average hourly earnings rose 0.3% and are now running 2.3% higher than a year ago, the best pace in years. This is what I’ve been forecasting for a long time...that wage growth would begin to accelerate, leaving the Fed with its pants down.

Noted economist Ian Shepherdson of Pantheon Macroeconomics said in a note to clients: “Hourly earnings are on the move, and, over the past 30 years, nothing has been more closely correlated with Fed action than wage gains. If the June employment report is as strong as this one, a July hike can’t be ruled out.”

Well, so much for the IMF and the hopes of Christine Lagarde. If not July, certainly the now-much-talked-about September hike appears to be a certainty.

As for the other economic data released this week, it was mixed. April personal income rose 0.4%, but consumption was unchanged. The ISM manufacturing index was better than expected at 54.0, but the service sector reading was less than forecast at 55.7, down from April’s 57.8 and the lowest since April 2014.

April construction spending was better than expected, up 2.2%, but factory orders for the month fell 0.4%.

Then again, U.S. auto sales, as noted below, were at their best annualized pace in the month of May since late 2005.

The Fed in its latest assessment of the economy, the so-called Beige Book, said regional surveys from across the country suggested “overall economic activity expanded” from early April to late May. “Outlooks among respondents were generally optimistic.”

Barring an accident in the eurozone over Greece, which is very possible, the Fed will act in September. But we should know by end of June with Greece’s next drop-dead date.

[Just a few other tidbits on the employment report. The jobless rate ticked up to 5.5% and U6, the measure of underemployment, remained unchanged at 10.8%. The labor-force participation rate edged up to 62.9% from 62.8%, a sign of progress but still near the record lows of the late 1970s.]

And since I’ve been noting the Atlanta Fed’s GDPNow indicator, its forecast for Q2 growth in the U.S. is now up to 1.1%, though the consensus remains 2% to 3%.

Finally, the Organization for Economic Cooperation and Development (OECD) think-tank cut its U.S. growth forecast to just 2% this year and 2.8% next year – down from its November forecast of 3.1% and 3%, respectively, owing to the awful first quarter.

The OECD calls for global growth of 3.1% in 2015, down from an earlier forecasted 3.7%, with 3.8% the new outlook for 2016.

The outlook for China is just 6.8% in 2015, 6.7% in 2016, while the OECD sees eurozone growth of 1.4% this year, after 0.9% in 2014.

Europe and Asia

I wrote last week that the IMF had offered Greece the option to “bundle” their four debt payments to the IMF in the month of June, 1.6bn euro, and pay it off by the end of the month if it chose to do so, allowable under the rules, and that Greece would take them up on this. So I was surprised how few earlier this week seemed to be aware of this option as they thought Friday, June 4, was the real deadline for Greece and its first payment of 300m. Well it wasn’t.

But talks between Greece and its creditors are going nowhere and Prime Minister Alexis Tsipras rejected demands for more austerity to receive a final chunk of bailout money. In a call with German Chancellor Angela Merkel and French President Francois Hollande on Thursday night, Tsipras said a list of demands hammered out earlier by officials from the IMF and the euro area can’t be the basis for a deal, according to a Greek official, as told to the BBC. Euro finance ministers now say they want an agreement by June 14, or Greece can kiss away any thought of the desperately needed 7.2bn euro in aid it is still eligible for.

The delay of the payment, while allowed, is nonetheless an escalation of the confrontation and stocks in Greece cratered 5% on Friday. Yields on Greek 2-year paper soared to 25%.

Then Friday night, Tsipras addressed his parliament, describing the EU-IMF lenders’ plan as a “bad moment for Europe” and a “bad negotiating trick.”

He accused Greece’s lenders of massively backtracking on measures agreed to in recent months, and of failing to see the need for an end to austerity.

“The strangulation of a country is a matter of moral order which conflicts with the founding principles of Europe,” said the prime minister.

Tsipras said the aim of any deal should be “for a solution and not to...humiliate a whole people.”

In a poll conducted June 3-4, 50% of Greeks said the Syriza-led government should abandon its so-called red lines if creditors don’t accept them in order to have an agreement, while a strong majority, 74%, want to remain in the euro. [newsit.gr]

Should Tsipras be forced to accept creditors terms, he likely would have to call new elections because of opposition from within his own party.

Earlier in the week, Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area finance ministers’ group, said the two sides remain far apart.

“As long as it doesn’t meet economic conditions, we can’t come to an agreement. It’s not right to think that we can meet half way....

“You can change the content of the package, you can make other priorities, but the total package – as we agreed with the former government – is that the budget must be in order.”

Germany’s Vice Chancellor, Sigmar Gabriel, warned Greece’s exit from the eurozone would have “gigantic consequences.’

“The political consequences of a Greek bankruptcy in the eurozone would of course be gigantic. I think a lot of people have the impression that we’re better off without Greece in the eurozone.

“The truth is that if we break the first piece out of the European house, Europe would be in a different state.”

Fitch ratings agency said the risk Greece misses its larger IMF payment at the end of the month cannot be discounted. Also, if no agreement is reached in the coming weeks, the European Central Bank could restrict assistance to Greece’s banks, through the Emergency Liquidity Assistance (ELA) facility, which would lead to capital controls to stave off a full-blown bank run, which is already basically under way. 

Meanwhile, there was a slew of economic data in the eurozone this week, some of it unsettling to the markets, the moves fanned by ECB President Mario Draghi’s remarks on Wednesday as the central bank held the line on rates. Draghi said markets should get used to periods of volatility, which won’t affect monetary-policy decisions, but this sparked a sharp bond-market selloff when he added the ECB’s quantitative easing (QE), stimulus program of 1 trillion euro ($1.11 trillion) is working to bolster economic output in the eurozone. “Reaching our objectives is conditional on the full implementation of our monetary-policy stance,” meaning he wasn’t planning on quitting the program early, as some believe he’ll have to if the numbers keep improving.

Traders took it all to mean higher yields and the 10-year German bund yield had back-to-back massive 17 basis point updrafts (0.34% in two days), the biggest one-day rout since October 2000, and biggest two-day since 1998. [Also worst week since 1998.]

The German bund traded over 1.00% this week, before closing at 0.84%...which is a massive percentage move off the 0.05% closing low of less than two months ago (April 17) after the ECB’s adoption of QE, and last Friday’s 0.49%.

Other 10-year paper was crushed this week.

France...0.79% (5/29) to 1.16% (6/5)
Italy 1.84% to 2.23%
Spain 1.83% to 2.21%
Portugal 2.53% to 2.92%

And to repeat myself, for Draghi to say QE has worked is a bit strange. The yield on Italy’s 10-year has risen from 1.31%, the day before QE launched, to 2.23%. Spain’s from 1.29% to 2.21%.

Yes, the big move down in rates was in anticipation of QE, but still.

Meanwhile, the Euro Stoxx 600 index (their version of the S&P 500), fell 2.7% this week and is down 4.6% in two weeks over the dual uncertainty of volatility in the bond market and Greece.

As for the data, what spooked the markets most was a report from Eurostats that inflation in the eurozone in May was at a 0.3% annualized pace, which while still well below the ECB’s 2% target is a significant improvement from prior months. In January, inflation was at an annualized pace of -0.6%, ergo, deflation. April’s rate came in unchanged. Further, the core rate for May was 0.9%. If the trend continues, there will be further carnage in the euro bond pits.

Markit released readings on manufacturing and services for the euro-area and the final May composite figure for both was 53.6 vs. 53.9 in April, with services at 53.8 (54.1April) and manufacturing at 52.5 (52.0 April).

On the manufacturing side, Germany was at 51.1 (reminder...50 being the dividing line between growth and contraction), a 3-month low; Spain was 55.8, a 97-mo. high; Netherlands 55.5, 17-mo. high; Italy 54.8, 49-mo. high; France 49.4, 12-mo. high.

But Greece’s manufacturing PMI was only 48.0, a further sign of renewed recession.

Eurostats reported April retail trade in the eurozone rose 0.7% vs. March, up 2.2% year over year.

And then you had the unemployment readings for the euro-area, also courtesy of Eurostats. The overall rate was 11.1% in April, down from 11.2% in March and 11.7% April 2014, which is hardly an improvement over this time.

Individually, Spain is at 22.7% (24.9% 4/14); France 10.5% (10.1% 4/14, though the government said the current unemployment rate is 10.3%); Germany 4.7%; Italy 12.4% (12.5% 4/14) and Ireland 9.7% (11.8% 4/14).

But here again, Greece is still at 25.4% (February) and it has a youth rate of 50.1%. The youth rate in Spain is still 49.6% (slight improvement from 53.1% a year earlier), while Italy’s youth jobless rate is 40.9% (43.3) and Portugal’s 31.2% (36.4).

Chris Williamson, Chief Economist at Markit:

“The Eurozone recovery lost some of the wind from its sails in May, with growth of output and new orders both slowing to three-month lows.

“The weak euro is boosting manufacturing and households are benefitting from lower inflation, but the region’s high unemployment continues to limit spending on goods and services. Heightened uncertainty surrounding the Greek debt crisis is also acting as a brake on growth....

“Oil prices need to remain low and any escalation of the Greek crisis could rapidly derail the recovery.”

The ECB is forecasting eurozone growth of 1.5% in 2015, 1.9% in 2016, and 2% in 2017.

Germany’s Bundesbank said it sees growth in that country of 1.7% this year, 1.8% in 2016. Back in December, it was calling for just 1% GDP growth in 2015. April factory orders surged 1.4% over March.

In non-euro UK, home-price growth is definitely cooling, and a reading on the service sector, while still growing at 56.5, is nonetheless a comedown from April’s 59.5.

Turning to Asia...HSBC’s reading on China’s service economy for May was 53.5 vs. 52.9 in April, but manufacturing was at 49.2 vs. 48.9. The government’s official manufacturing PMI was 50.2, while non-manufacturing came in at 53.2.

Commenting on China’s services and composite PMI data, Annabel Fiddes, Economist at Markit, said:

“Latest China PMI data saw a strong service performance offset a deteriorating outlook at manufacturers, leading to a modest rise in overall business activity. Furthermore, service providers saw the strongest upturn in new business for three years in May, which supported sharper growth of activity and employment. In contrast, manufacturing companies continued to trim their payroll numbers as both output and new orders contracted over the month.

“Overall, growth momentum appears relatively weak...further stimulus measures may be required to keep up with an annual GDP growth target of 7%.”

As for the Shanghai Composite stock index, after a 6.5% swoon on May 28, it has recovered and then some to finish above 5000, a 7-year high, despite some clampdowns on margin trading. This is going to end badly.

In Japan, HSBC’s manufacturing PMI for May was 50.9 vs. 49.9 in April, while the reading on the service sector was 51.5 vs. 51.3 the prior month.

Street Bytes

--The three major stock indexes finished down on the week, though Nasdaq lost only two points to 5068. The Dow Jones fell 0.9% to 17849 and is now well off its all-time high of 18312, while the S&P 500 lost 0.7%.

For the S&P, it is the sixth straight week of less than a 1% move, the longest stretch of calm since May 1994 (Bloomberg).

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.71% 10-yr. 2.41% 30-yr. 3.11%

Just as in Europe bonds were crushed, with the yield on the 10-year now at its highest level since Oct. 6, which is doing a number on the 30-year fixed mortgage rate. There is a rush to lock in deals so the housing stats could be a little distorted coming up.

--Global bond traders lost their shirts these past few weeks (unless they were short) amid the rout in the fixed-income markets.  Again, it’s not the actual yields, it’s the percentage moves and the speed of it all. Put some leverage on top of this and you’re asking for trouble.

More than $2 billion was pulled from eurozone bond funds over the past six weeks, but that was prior to this week’s bloodbath.

--Interesting piece in Bloomberg:

“There’s a new whale in the corporate-bond market.

“Apple Inc., Oracle Corp. and the other tech giants hoarding half a trillion dollars in cash have joined the ranks of the biggest buyers of the debt, often snapping up as much as half of some bond issues, according to five people with knowledge of the transactions.

“The companies are muscling into a market traditionally dominated by big bond funds including PIMCO, BlackRock, Vanguard Group and Fidelity Investments. They’re honing in on one of the asset managers’ favorite ways to juice returns, particularly as the Federal Reserve holds short-term interest rates near zero for a seventh year....

“Apple, Oracle, Google Inc. and seven of their biggest peers now have in excess of $500 billion of cash and marketable securities, up more than three-fold since 2008, according to data compiled by Bloomberg. The problem is much of it is stuck overseas. Bringing it home would mean subjecting it to U.S. repatriation taxes, so they invest it in the bond market....

“The trend is cutting into traditional investors’ access to new issues.”

Most of the investments, generally in the two- to three-year maturity range, are in the financial sector, though the likes of Apple have also targeted companies such as Exxon Mobil and Wal-Mart.

But large concentrations on the part of Apple and Oracle, for example, could mean even more volatility if market conditions lead them to suddenly dump their positions and do something else with their cash.

--May saw the smallest rate of withdrawals for the PIMCO Total Return Fund, $2.7bn, with assets under management falling to $107.3bn.

Upon the announcement of Bill Gross’ departure last September, investors pulled $27.5bn out the following October.

--U.S. automakers had their best month since July 2005, as light vehicle sales rose to 1.63m in May, according to WardsAuto. The annualized pace of 17.7m vehicles bested Wall Street’s expectations.

General Motors’ sales rose 3% in the month (to its best May levels since 2007) and Fiat Chrysler’s increased 4%, while Toyota’s were down 0.3% and Ford’s were off 1.3%, the latter blaming supply constraints.

Honda’s increased 1.3%, Nissan’s were down 0.8%, but VW’s rose 8%.

General Motors accounted for 18 percent of overall sales, with Ford at 15.1 percent and Toyota 14.9.

Importantly, Kelley Blue Book estimates transaction prices for the industry grew 4.3% to $33,363 a vehicle compared with last year.

--OPEC opted to hold the line on production levels at 30 million barrels per day. Investors had been worried the cartel might increase supply, so the price of crude was slumping heading into the meeting. 

--Demand for U.S. wheat has been falling, due partly to competition from the likes of Russia and Romania, while American farmers are on track to produce 3% more than last year, according to the Agriculture Department.

And while heavy rains battered the crop in some areas, the forecast going forward looks good.

--Egg prices are soaring as the worst bird flu outbreak in U.S. history sweeps through the Midwest, leaving tens of millions of egg-laying hens dead in its wake. The wholesale price for a carton of a dozen eggs has more than doubled over the past month from $1.19 to a record high of $2.62, according to commodities research firm Urner Barry, which has been tracking the industry since 1858.

About 35 million hens, or 10 percent of the country’s flock, have been wiped out.

Some fast-food restaurant chains have been cutting back on breakfast hours due to dwindling supply.

--After weeks of rumors, Intel Corp. announced it was purchasing smaller chip maker Altera Corp. for $16.7 billion in cash. The previous week, Avago Technologies Ltd. agreed to buy Broadcom Corp. for $37 billion in the largest merger on record in the tech industry.

--T-Mobile and Dish Network are in merger talks, T-Mobile being the nation’s fourth-largest wireless carrier.

--The Environmental Protection Agency has concluded after studying the matter that there is no evidence hydraulic fracturing or “fracking,” has caused “widespread” pollution of drinking water in the U.S.

The EPA said fracking (the technique used to produce shale oil and gas) had contaminated some drinking water, but that the number of cases were “small relative to the number of hydraulically fractured wells.”

Both proponents and opponents drew their own conclusions from the 998-page study.

--Californians used 13.5% less water in April compared to the same month in 2013 in response to Gov. Jerry Brown’s mandate, the State Water Resources Board reported this week.

The goal, per Brown’s executive order, is to achieve a 25% urban water-use reduction, but April’s figure is a big step, seeing as how the prior three months saw minimal compliance.

--Awhile back you may recall a “60 Minutes” story on rare-earth minerals, the kind of stuff that goes into items ranging from cellphones and batteries to military hardware, and it featured a company, Molycorp Inc., the only U.S. miner of the elements.

Molycorp, which missed a $32.5 million loan payment this week, has been struggling mightily and will be filing for chapter 11 bankruptcy, according to reports, in order to reduce its $1.7 billion debt load. The company is yet another victim of China, which controls the vast supply of rare earths and has been flooding the market, causing prices to crash.

At one point in 2011, at the peak of the bubble in rare earths, Molycorp’s share price was in the 70s.  Now it’s at $0.41.

--Australia’s economy grew a better-than-expected 0.9% in the first quarter, compared to the fourth quarter, though on an annualized basis, the economy expanded 2.3%. Economic growth in the March quarter of 2014 was 2.9%.

Improved consumer spending is offsetting the ongoing slump in the mining sector.

--Speaking of mining, according to a survey by PricewaterhouseCoopers, the overall market value of the world’s biggest miners has been more than halved in four years.

--South Korea has declared “war on Mers,” Middle East Respiratory Syndrome. Four have died in the country. The worry is that some of those who have succumbed took part in large gatherings before being diagnosed.

More than 1,000 schools have temporarily shut down in the country. The first case, reported on May 20, was of a 68-year-old man diagnosed after a trip to Saudi Arabia, where a majority of the cases have occurred. 

Mers has infected 1,161 people globally, with 436 deaths.

The virus is considered a deadlier but less infectious cousin of Severe Acute Respiratory Syndrome (Sars), which killed hundreds of people when it appeared in Asia in 2003.

Mers, like Sars, is capable of doing a number on South Korea’s economy, let alone the region’s if it spreads.

But for now, the government reported GDP in the first quarter was up 2.5% vs. the first three months of 2014. Quarter-on-quarter growth came in at 0.8%. Q4 was up just 0.4% compared with Q3.

--Venezuela’s international reserves have dropped $7.3bn from a 2015 peak of $24.2bn in late February to $16.9bn this week, according to the central bank. Yikes. The economy is expected to shrink 7 percent this year.

--In a good indicator of demand for air travel, Ryanair reported a 16% hike in passenger numbers for the month of May vs. a year ago. The load factor (percentage of seats filled) rose to 92%.

--Barclays Plc said it reached a settlement with the trustee for Lehman Brothers Holdings Inc.’s brokerage that will boost first-half pretax profit by about $750 million.

Under the accord relating to Barclays’ acquisition of Lehman assets in September 2008, the UK bank will receive all except $80 million of $1.1 billion of disputed assets in Lehman’s record bankruptcy case; assuming a federal bankruptcy court in Manhattan approves of the deal.

--Microsoft announced Windows 10 is coming July 29. 

--Sales at J Crew fell 5% for the three months to May 2, compared to the same period last year, with same-store sales plunging 10% as some of the retailer’s new offerings, such as $500 jeweled shirts, were called into question.

--HSBC is expected to announce a large restructuring this coming week that could lead to 10,000 to 20,000 layoffs, according to Sky News. Europe’s largest bank employed almost 258,000 people at the end of last year.

--Yum Brands Inc.’s KFC unit is suing three companies in China for spreading rumors about the quality of its foods, “including that its chickens have eight legs,” as reported by the Wall Street Journal’s Laurie Burkitt.

KFC is alleging three Chinese media companies have been spreading the false product information on social media. Classic China crap, as detailed further below. KFC said it is hard for companies to protect their reputation on the Internet.

Yum has been struggling mightily in China, which accounts for half its revenue. In the first quarter ended March 21, China sales were down 9% from a year earlier, following declines in the third and fourth quarters. The company is still trying to come back from Chinese media reports in 2012 that alleged a KFC supplier had been using growth hormones and antibiotics to help chickens grow faster.

--Apple is recalling 233,000 of its Beats Pill XL speakers in the U.S. and Canada, after the company received eight reports of problems, specifically that the pill can overheat, according to the Consumer Product Safety Commission. One report involved a burn injury to someone’s finger and another said a desk was damaged.

Customers can request a refund or store credit for $325, slightly more than the speakers’ $300 price tag.

Apple suspended sales “for the time being,” according to a company spokesman.

--Sheryl Sandberg, chief operating officer at Facebook, posted an emotional tribute to the site, marking the end of the formal Jewish grieving period. Sandberg lost her husband, David Goldberg, when he died in a tragic accident while exercising on a family vacation.

“These past thirty days, I have spent many of my moments lost in that void. And I know that many future moments will be consumed by the vast emptiness as well,” Sandberg said in part.

“I have lived thirty years in these thirty days. I am thirty years sadder. I feel like I am thirty years wiser,” she added.

--Hedge-fund billionaire John Paulson is giving $400 million to Harvard University’s engineering school, the biggest donation in the college’s 379-year history. Harvard said it would rename the engineering school after him and establish an endowment for research, faculty and financial aid.

Harvard had raised $1.16 billion last year. Paulson is a 1980 graduate of Harvard Business School.

Adjusted for inflation, the largest donation to higher education is a 2001 gift to Stanford University from the William and Flora Hewlett Foundation that would be worth $532 million today. [Bloomberg]

Foreign Affairs

Appearing at an Asian forum this week in Washington, President Obama said this in response to a question.

“Internationally, we’ve reinvigorated diplomacy in a whole variety of ways. People don’t remember – when I came into office, the United States in world opinion ranked below China and just barely above Russia. And today, once again, the United States is the most respected country on Earth. And part of that, I think, is because of the work that we did to reengage the world and say that we want to work with you as partners with mutual interest and mutual respect. It’s on that basis that we were able to end two wars while still focusing on the very real threat of terrorism and to try to work with our partners on the ground in places like Iraq and Afghanistan. It’s the reason why we are moving in the direction of normalizing relations with Cuba. The nuclear deal that we’re trying to negotiate with Iran. Our efforts to help encourage democracy in Myanmar.”

Mr. Obama really believes this. But you can’t even give the administration Myanmar anymore. It’s been sliding backwards.

The U.S. the most respected country on Earth? I hardly think so. I understand how the president and his team are cherry-picking some global polling data, but name a country in the Middle East that respects us more today than six years ago. Russia? China? Is anyone scared of the United States?

Just read what follows for the real story.

Iraq/Syria/ISIS: ISIS militants advanced to the edge of the Syrian city of Hassakeh (northeastern Syria), threatening to take their second provincial capital, after Raqqa. Assad regime helicopters were dropping barrel bombs on jihadi positions, according to the Syrian Observatory for Human Rights, the Britain-based monitoring group.

For Syria, the fall of Hassakeh would mark the third capital it lost, Idlib having been seized by rebels in March.

A Turkish government official said more than 3,300 Syrians had crossed into Turkey in the past two days.

The Syrian government appears to be concentrating on regions it deems vital for its survival, which is why they abandoned Idlib. A security source told AFP, “For the regime, the vital territory to be protected is Damascus, Homs, Hama and the coast. Idlib is no longer [vital].”

Meanwhile, at least 71 were killed in Syria’s northern Aleppo province by barrel bombs, according to the Observatory. It is estimated that between January 2014 and March 2015, over 3,100 civilians were killed by barrel bombs there, according to Amnesty International and Reuters.

Aleppo has been divided between government- and rebel-held areas since fighting broke out there in 2012.

In February, Human Rights Watch accused Damascus of dropping barrel bombs on hundreds of sites in 2014, violating a UN Security resolution. President Assad has always denied his forces use them, telling the BBC back in February, such allegations were a “childish story...There are no barrel bombs. We don’t have barrels.”

The latest death toll in Syria is at least 220,000 since the start of the uprising against Assad in 2011. I told you in August 2012 it was over. We had lost. That has indeed proved to be the case.

Gen. John Allen, the U.S. presidential envoy charged with battling ISIS, warned Wednesday that it would be a long-term campaign that could require a generation to stamp out the ideology that has encouraged thousands of Muslims worldwide to flock to Iraq and Syria.

“Aspects of it, like defeating Daesh’s ideology will likely take a generation or more,” Allen said in addressing the annual U.S.-Islamic World Forum in Doha, while using the Arabic acronym for ISIS. “In an age when we are more connected than at any other time in human history, Daesh is a global threat. And if we do not defeat this threat through strength and unity, our collective future will [see] more groups like Daesh.”

Allen added: “They will use the tools of modernity like the ease of world travel, our global financial networks and the Internet, to wreak havoc upon the progress of humanity which has been achieved at such a high cost by all of us over centuries.” [Daily Star]

In Iraq, Tariq Aziz, known as the face of Saddam Hussein’s regime on the world stage for many years, died in an Iraqi prison. He was 79. Aziz had been sentenced to death by the Iraqi Supreme Court in 2010 for the persecution of religious parties under Saddam’s rule but the sentence was never carried out.

He surrendered to U.S. troops in 2003 shortly after the fall of Baghdad.

In the here and now, last weekend there were reports Iraqi forces had seized some villages around Ramadi, in preparation for a counteroffensive to take back the provincial capital, but by week’s end there seemed to be little evidence such a move was imminent.

After the fall of Ramadi, the U.S. is rushing 2,000 portable anti-tank missiles to Iraqi forces to help them fend off ISIS car bombs. Just the other day, at least 45 Iraqi police officers were killed in a suicide attack carried out by ISIS, as they sent three vehicles packed with explosives into a base on a road connecting the cities of Falluja and Samarra.

An Obama administration official, addressing a Paris conference on how to stop the extremists, claimed the U.S. campaign of airstrikes has killed at least 10,000 ISIS militants. But, if true (and others put the figure at 13,000), it has obviously had little if any overall impact.

As for Iran’s role in Iraq and Syria these days, a Lebanese political source told the Daily Star (Beirut) that Iran had sent 15,000 fighters to Syria to reverse battlefield setbacks for the regime; mainly to hold the line in Damascus and the Alawite stronghold of Latakia.

Gen. Qasem Suleimani, the commander of Iran’s elite Quds force who has been leading the fight in Iraq, was apparently in Latakia this week to prepare for the new campaign.

Iran’s official IRNA state news agency quoted the general as saying Tuesday, “The world will be surprised by what we and the Syrian military leadership are preparing for in the coming days.”

Iran is hoping to improve its leverage ahead of the nuclear talks deadline.

Speaking of which....

Iran: At a critical juncture, with a June 30 deadline rapidly approaching, Secretary of State John Kerry decided to go on a bike ride in Switzerland and broke his leg, forcing him to return to Massachusetts to recuperate. This is so incredibly irresponsible and stupid. [Iranian media spread rumors Kerry was the target of an assassination attempt while meeting with Islamic State terrorists.]

Jennifer Rubin / Washington Post

“Testifying before the Senate Foreign Relations Committee on Wednesday...Ambassador James Jeffrey told lawmakers that despite the administration’s attempt to cordon off other issues, ‘the (nuclear) agreement cannot be considered outside the context of Iran’s record of destabilization in the region.’ We have seen Iran become increasingly bold as the talks have progressed.  ‘Two Middle Eastern states either have acknowledged, or are widely believed to have, possession of nuclear weapons,’ Jeffrey said. ‘But the region’s leaders do not lose sleep over these weapons, nor does the UN Security Council pass multiple Chapter VII resolutions about them, as with Iran. The reason is that Iran’s behavior in the region is profoundly troubling to many states. Either an Iranian nuclear weapons capability, or an Iran politically empowered by an agreement that stops it just short of such a capability, would pose extraordinary new threats to a region already under stress, and undermine the above U.S. vital interests.’

“Moreover, the idea that a nuclear deal will transform Iran into a responsible state actor is without foundation. ‘Iran is a revolutionary power with hegemonic aspirations. In other words, it is a country seeking to assert its dominance in the region and it will not play by the rules...Iran, however, has brazenly defied (the) international order and continues to expand its reach,’ he said, reciting an earlier op-ed. ‘Any decision on the Iran nuclear deal must bear this sobering fact in mind, and must not read Iranian willingness to sign an agreement as a change of heart about its ultimate hegemonic goals.’”

Separately, the New York Times reported that, contrary to Obama administration claims that Iran has frozen its nuclear program, international inspectors discovered recently that Iran’s stockpile of nuclear fuel has increased by about 20 percent over the course of the last 18 months.

According to the Times story, analysts speculate Iran is seeking a contingency plan should the talks fail to produce an agreement. The bolstered stockpiles were first noticed by inspectors with the International Atomic Energy Agency.

The key sticking point in reaching a deal at this point is clearly access to Iran’s suspected nuclear sites.

John Podhoretz / New York Post

“As the June 30 deadline for the Iran nuclear deal approaches, President Obama is putting all his cards on the table – by announcing he is keeping no cards in his hand.

“In an astonishing interview with Israel’s Channel 2, the president declared that ‘the best way to prevent Iran from having a nuclear weapon is a verifiable, tough, agreement.

“ ‘A military solution will not fix it, even if the United States participates. It would temporarily slow down an Iranian nuclear program, but it would not eliminate it.’

“Why is this astonishing? Because Obama is publicly eliminating any American possibility that we will bomb Iran’s nuclear sites even if the deal in which he has invested so much collapses.

“Despite his declaration at a Washington synagogue last week that ‘Iran must not, under any circumstances, be allowed to get a nuclear weapon,’ the president is in fact making it very clear Iran will go nuclear, and with his implicit assent.

“Period.

“Note that he has decided to eliminate the possibility of a military strike even though he has already indicated his deal will allow Iran to go nuclear in 2028....

“Look: If your choice is A) Iran goes nuclear or B) Iran goes nuclear, then obviously a military option is a bad one and a diplomatic solution is better.

“But the president has spent his entire time in office assuring the American people that Iran going nuclear was not a choice at all.”

Russia/Ukraine: Ukrainian President Petro Poroshenko said on Thursday there were 9,000 Russian servicemen on Ukrainian soil and warned of a “full-scale invasion” by Russia along the whole joint border.

Poroshenko addressed parliament a day after Ukrainian forces fought their most serious battle for months with Russian-backed separatists in the east, with five Ukrainian troops being killed and 39 wounded, while the rebels said five civilians and 16 of its fighters died in fighting around the town of Maryinka, 23 kilometers to the west of the rebel stronghold of Donetsk.

The European Union warned the renewed fighting could create a “new spiral” of violence and represented “the most serious violation of the ceasefire arising from the Minsk accords in February.”

At the UN on Friday, Britain’s ambassador, Matthew Rycroft, said this week’s violence “was a separatist assault on Ukrainian military units. The separatist forces are Russia’s creation, they are Russia’s tool.”

Russian Ambassador Vitaly Churkin blamed Kiev for the latest fighting.

U.S. Ambassador Samantha Power said Russia continues to deny the “open secret” that it arms the rebels and sends Russian soldiers to die anonymously in Ukraine.

A G7 summit in Bavaria this weekend is expected to produce nothing more than further condemnation of Russia for its role in the escalating violence. There is little appetite for levying tougher penalties on Moscow.

Separately, Russian state news agency RIA reported military aircraft were scrambled to head off a U.S. warship that was acting “aggressively” in the Black Sea, but the Pentagon said just the opposite, that the USS Ross was “well within international waters at all times, performing routine operations.” The Pentagon showed video of the low-flying Russian aircraft and clearly the Kremlin crafted the story for propaganda gain.

And a Russian film about the 1968 Soviet-led invasion of Czechoslovakia has infuriated both the Czech and Slovak governments, who said it distorted history by justifying the armed crackdown on the democratic “Prague Spring” movement.

The movie portrays the invasion as a friendly move to protect against a potential threat from NATO.

China: What have I been saying the last few reviews? Another week, another China hacking or industrial espionage story.

This time, Chinese hackers breached the computer system of the Office of Personnel Management in December, officials announced Thursday, and 4 million current and former employees are being notified their personal data may have been compromised; the second major intrusion of the agency by China in less than a year and the biggest yet on the U.S.

OPM discovered the breach in April, and while a target may have been Social Security numbers, it could easily be about espionage rather than commercial gain. While there is little doubt among officials that the attack was launched from China, it’s not known yet whether it was state-sponsored, though it sure looks like it.

An annual “Strategic and Economic Dialogue” with Chinese officials is slated for this month, and no doubt this latest attack will be at the forefront of discussion. But will the U.S. do anything?

President Obama and Chinese President Xi Jinping have spent hours on the topic over the past three years and it only seems to get worse. [Xi is coming to the States in September and wants to address Congress. If I were Congress, I’d give him stony silence.]

Separately, China’s new military strategy states that “great importance has to be attached to managing the seas and oceans and protecting maritime rights and interests,” according to an English translation that was published last week.

China promises “to seize the strategic initiative in military struggle, pro-actively plan for military struggle in all directions and domains, concentrate superior forces, and make integrated use of all operational means and methods.”

As the Wall Street Journal editorialized:

“The Pentagon’s Office of Naval Intelligence reports that China launched more ships in 2013-14 ‘than any other country.’ China’s official military budget will grow by some 10% this year, to $144 billion, with much of the money going to a comprehensive naval modernization.

“By 2020, ONI predicts, China will deploy as many as 78 submarines and more than 170 major surface combatants, most of modern design. Assuming most of these will be deployed in the Western Pacific, this means the U.S. will have 64 surface combatants and subs in the region compared to 248 for China.”

Yet while some in the U.S. Navy question China’s seamanship, “Beijing has also invested heavily in ‘asymmetric’ military capabilities, such as ballistic missiles that could take out a U.S. carrier, which they can field in large numbers at low cost....As a recent Congressional Research Service report notes, China wants ‘a force that can deter U.S. intervention in a conflict in China’s near-seas region over Taiwan or some other issue, or failing that, delay the arrival or reduce the effectiveness of intervening U.S. forces.’

“The U.S. isn’t yet losing the naval race with China, but it has allowed its naval power to decline enough that Beijing plausibly believes it can compete....

“But the only way China is going to reconsider its long-term strategy is for the U.S. to convince Beijing that a naval race is unwinnable and not worth running.”

As for China’s land reclamation project in the South China Sea, U.S. Defense Secretary Ash Carter, addressing a security conference in Singapore, stepped up America’s condemnation as his counterparts sat in the audience.

Carter said the U.S. opposes “any further militarization” of the disputed lands, with the Chinese countering Carter’s remarks were “groundless and not constructive.”

Carter said: “Turning an underwater rock into an airfield simply does not afford the rights of sovereignty or permit restrictions on international air or maritime transit.”

Sen. John McCain (R-AZ), who was at the Shangri-La Dialogue with a bipartisan delegation of senators, urged tougher action. “We need to recognize this reality that China will likely continue with its destabilizing activities unless and until it perceives that the costs of doing so outweigh the benefits. Clearly, it has not yet concluded that.”

Analysts tell the South China Morning Post (Hong Kong) that China’s reclamation projects are designed to help it develop “situational awareness” of the regional waters that it has not yet mastered.

Meanwhile, China was dealing with its worst boat tragedy in 60 years, as the Eastern Star cruise ship capsized in a severe storm, a probable tornado, on Monday night on a section of the Yangtze River. There were 456 passengers and crew and the final death toll is likely to be nearly 440. As I go to post, there are just 14 survivors. The captain and chief engineer survived.

France: In a further example of the massive immigration issues faced by the government, police dismantled a makeshift camp of 380 migrants from Sudan, Eritrea and Somalia that had suddenly set up tents under a subway bridge in northern Paris. Police also dismantled two camps in and outside the port of Calais. 200 Sudanese stormed one camp there, setting tents on fire and shouting ‘Allahu akbar.’

About 2,500 to 3,000 migrants now live in camps in Calais. Most of these are hoping to get to the UK. What a nightmare for the French.

Turkey: The country is holding a critical general election on Sunday, and while there is little doubt the ruling Justice and Development party, or AKP, will win its fourth straight victory since 2002, it doesn’t seem likely the AKP will have a majority big enough to allow President Erdogan to rewrite the constitution, including changing from a parliamentary to presidential system of government.

In 2011 the AKP won nearly 50% of the vote and current polls put it at 43%. Much more on the topic next week.

Pakistan: As stated in the BBC, eight of the 10 men reportedly jailed for the attempted assassination of Pakistani schoolgirl Malala were acquitted.

In April, officials in Pakistan said that 10 Taliban fighters had been found guilty and received 25-year jail terms, but sources have now confirmed to the BBC that only two of them were actually convicted. The whereabouts of the eight is not known.

Nigeria: In a report issued Wednesday by Amnesty International, abuses by Nigeria’s military caused the deaths of more than 8,000 civilians in the battle against Boko Haram. As reported by Robyn Dixon of the Los Angeles Times: “They include about 1,200 who were the victims of extrajudicial executions since February 2012, and 7,000 who died of mistreatment in detention since March 2011, according to the report.

“Some starved to death. Others died of thirst or suffocated to death in poorly ventilated cells jammed with prisoners. And some died when soldiers fumigated the cells with mosquito poison, the report said.” 

Oh brother.

Amnesty obtained up to 90 videos that it used for evidence.

Random Musings

--Congress gave final approval and President Obama signed legislation to set up a new system for the government’s domestic surveillance program.

The Senate by a 67-32 vote rolled back the post-9/11-era program somewhat, overcoming objections from Sen. Rand Paul (R-Ky.), whose protest forced the brief expiration on Sunday of the once-secret bulk collection of Americans’ phone records. Earlier the measure had passed the House.

As reported by the Washington Post: “The new legislation [the USA Freedom Act] places additional curbs on (the NSA’s) authority, most significantly by mandating a six-month transition to a system in which the call data – which includes call numbers, times and durations – would remain in private company hands but could be searched on a case-by-case basis under a court order.”

--According to a CNN/ORC poll, George W. Bush is seen in a favorable light by 52% of those surveyed, while views on the president are divided, 49-49. This is the first time Bush 43 has scored higher than Obama.

At this point in his presidency, Bush had an approval rating of 32% and disapproval of 62%, per Gallup.

--A new Washington Post-ABC News poll revealed some bad news for Hillary Clinton, with just 41% of Americans saying she was honest and trustworthy, compared with 52% who said she was not – a 22-point swing in the past year. [A CNN/ORC poll has 57% believing Hillary is not honest and trustworthy, up from 49% in March.]

In terms of ‘favorability,’ the same survey has more Americans with an unfavorable opinion of Clinton than a favorable one, 49% to 45%. Among independent voters, the figure is worse: 55% unfavorable to 39% favorable.

The same poll surveyed registered Republicans and GOP-leaners, and, like an earlier survey mentioned by me last week, the race is incredibly close with no candidate separating themselves from the pack.

Sen. Rand Paul and Wisconsin Gov. Scott Walker were at 11%, Sen. Marco Rubio and former Florida Gov. Jeb Bush garnered 10%, former Arkansas Gov. Mike Huckabee polled 9%, Dr. Ben Carson and Sen. Ted Cruz received 8%, and New Jersey Gov. Chris Christie picked up 6%.

[Last week’s Quinnipiac University survey, recall, had five candidates tied with 10% each.]

In terms of the above-mentioned CNN/ORC survey, Rubio tops the field with 14%, with Bush at 13%. Huckabee and Walker follow at 10%, Cruz and Paul 8% and Carson7%. [Among those who consider themselves Tea Party supporters, Walker is first at 19%, followed by Cruz at 12%.

Back to Hillary, onetime Republican senator and former Rhode Island governor, Lincoln Chafee, announced his candidacy as a Democrat, joining Sen. Bernie Sander (I-Vt.) and former Maryland Gov. Martin O’Malley. Former Sen. Jim Webb of Virginia is also probably going to enter the race.

The Washington Post/ABC poll showed Clinton leading the Democratic pack at 62%. Vice President Biden, who has not formally ruled out a candidacy, was second with 14%, followed by Sanders at 10%. [The CNN/ORC poll has Clinton at 60%, with Biden and Sanders at the same 14% and 10% they received in the Post/ABC survey.]

The Clintonites should be concerned. It wasn’t too long ago that Clinton was at about 80%. While it was natural to expect the race to tighten as a few quixotic types like Sanders entered the race, the trends for every metric are not good.

Edward Luce / Financial Times

“It is hard to picture any of Mrs. Clinton’s rivals unseating her. Polls show her with a 50 percentage point lead over Bernie Sanders, her nearest rival. But the sands appear to be shifting an inch or two each week....

“Is Mrs. Clinton in trouble? Not if you judge by the chances of her competitors....

“(But Hillary) faces three problems. First, the U.S. media are itching to bring her down. So poor are relations between ‘Hillaryland’ and journalists that Mrs. Clinton has avoided virtually any interaction with the media since declaring in April.

“On Thursday, Lindsay Graham, the senator from South Carolina, who recently entered the more crowded Republican field, likened Mrs. Clinton to Kim Jong-un. ‘Well, it’s easier to talk to the North Korean guy than it is to her,’ he quipped to Fox News.

“Second, more than half of Americans say Mrs. Clinton is ‘untrustworthy.’ A majority also describe her as a ‘strong leader.’ Whether the first undermines the second is an open question.

“Finally, the Democratic field remains open. If Joe Biden, the vice-president, were to throw his hat into the ring, it could seriously alter the dynamic. A recent CNN poll gave Mr. Biden 14 percent support without his having declared. For the time being, Mrs. Clinton remains the inevitable nominee. But it is beginning to feel like a contest.”

--In a new Bloomberg/Des Moines Register Iowa Poll, Scott Walker has expanded his early lead with 17% (he had 15% in Jan.). Tied for second are Rand Paul and Ben Carson at 10%, with Jeb Bush and Mike Huckabee at 9% each. Marco Rubio gets just 6%, as does Rick Santorum, the 2012 Iowa caucuses’ winner.

Chris Christie only receives 4%, plus 58% of likely Republican caucus goers have an unfavorable opinion of him, compared with 28% who view him favorably. Only Jeb Bush was in negative territory, albeit slightly, with a 45% unfavorable rating and a 43% favorable mark.

By contrast, Walker was viewed favorably by 66%, Huckabee by 61% and Rubio by 60%.

--In a new York Times/CBS News poll, nearly six in 10 Americans said government should do more to reduce the gap between the rich and the poor, but only one in three Republicans believe government should play a more active role, while eight in 10 Democrats do.

Seven in 10 Americans support an increase in the federal minimum wage to $10.10 from $7.25 an hour. But six in 10 opposed requiring fast-food chains and other employers of hourly workers to raise wages to at least $15 an hour.

Nearly two-thirds favor some sort of trade restrictions, and more than half opposed giving the president authority to negotiate trade agreements that Congress could only vote up or down without amending, a White House priority.

--Sepp Blatter stepped down as head of FIFA, soccer’s governing body, just four days after he was re-elected to a fifth term amid the massive corruption scandal surrounding the organization, including bribes paid in the bidding process for the right to hold the World Cup in 2018 (Russia) and 2022 (Qatar).

Blatter is being investigated by the FBI and U.S. prosecutors, though his daughter told a Swiss newspaper her father’s decision to stand down is not tied to recent allegations.

Blatter said he made the decision to step aside because of a “lack of support in the world of football.”

But he will remain in power until a replacement is elected – which under FIFA rules could be anywhere from December to next March.

The final straw for Blatter was clearly the emergence of a letter suggesting FIFA had lied over the identity of an official who had handled a $10 million wire transfer alleged to have been a bribe, one of Blatter’s deputies, Jerome Valcke, as reported by the New York Times. Others such as former FIFA vice-president, Jack Warner, and American Chuck Blazer either are prepared to sing or have already pleaded guilty and have been cooperating.

But while some are now saying the 2018 and 2022 bids will be reopened, I don’t see it. Too much work has already taken place at these two sites. Russia, for one, would go ballistic, potentially literally...as in ballistic missiles, though England could easily fill the bill on short notice with its existing stadiums and infrastructure.

--Investigators in Boston believe ISIS-inspired homegrown terrorist Usaama Rahim was plotting to kill and behead police officers in Massachusetts either Tuesday or Wednesday, and was also targeting anti-Islamist activist Pamela Geller.

In a phone call that was tapped on Tuesday, Rahim told alleged co-conspirator David Wright, “I’m just going to go after them, those boys in blue. ‘Cause it’s the easiest target and the most common is the easiest for me.”

Two hours later he was killed after being confronted by police, Rahim then threatening them with one of the three large knives they knew he had acquired online. Wright has been charged thus far with obstructing a federal investigation by destroying evidence on Rahim’s phone. He was ordered held without bail.

--Julian E. Barnes / Wall Street Journal:

“Pentagon officials said Wednesday the inadvertent shipment of live anthrax to laboratories nationwide stretched back a decade and that the scope of the mishap was likely to expand in coming days.

“Four batches of the pathogen sent from the U.S. military laboratory at Dugway Proving Ground in Utah – which were thought to have been irradiated and inactivated – have been identified as containing live anthrax, officials said. Samples from those batches were sent to 51 sites in the U.S. and overseas over the past 10 years.

“An additional 400 batches from all four military labs that handle live anthrax are being tested, officials said, and if those are found to be live, the number of outside labs that received suspect samples could grow sharply.

“ ‘We expect this number may rise,’ said Robert Work, the deputy defense secretary.”

Unbelievable. The Pentagon is trying to convince us the concentration of the anthrax is so low, it poses little health threat. But of course these are the same people that initially talked about eight states and South Korea, and then it expanded to 17 states and three countries, including Canada and Australia.

--Jeh Johnson, secretary of Homeland Security, reassigned the acting director of the Transportation Security Administration, Melvin Carraway, when an internal investigation by the department’s inspector general found that screeners at airport checkpoints failed to detect weapons and other prohibited items 95 percent of the time in a covert test.

--The Environmental Protection Agency’s inspector general issued a report on the “culture of complacency” in the department when it comes to employee misconduct.

For example, “Two employees earning $120,000 a year were watching pornography on the job and were put on paid administrative leave for almost a year before anybody tried to fire them. One case was discovered in November 2013, the other in May 2014, but it took until March of this year for the agency to move to fire them. One employee retired. The other is appealing the decision, and remains on paid leave.”

And... “Like most agencies, EPA uses administrative leave generously, maybe too much so: Eight employees accused of misconduct are sitting at home on paid leave that’s reached 21,000 hours, costing taxpayers $1,096,868.” [Lisa Rein / Washington Post]

--Meanwhile, from David Willman / Los Angeles times:

“Two serious technical flaws have been identified in the ground-launched anti-missile interceptors that the United States would rely on to defend against a nuclear attack by North Korea.

“Pentagon officials were informed of the problems as recently as last summer but decided to postpone corrective action. They told federal auditors that acting immediately to fix the defects would interfere with the production of new interceptors and slow a planned expansion of the nation’s homeland missile defense system, according to a new report by the Government Accountability Office.

“As a result, all 33 interceptors now deployed at Vandenberg Air Force Base in Santa Barbara County and Ft. Greely, Alaska, have one of the defects. Ten of those interceptors – plus eight being prepared for delivery this year – have both.”

Gee, isn’t this comforting? Yet another reason to always sleep with one eye open, just as we do here at StocksandNews. [If you read the full report, you’d have zero confidence they’d ever work.] #Wearesoscrewed

--New York City police officials announced this week that shootings were up 8.9% through May with a 19.5% rise in murders, from 113 to 135. Mayor Bill de Blasio, in a brief press conference (he took all of three questions), said the increase in crime didn’t change his stance on the sharp curtailment in the NYPD’s stop-and-frisk encounters, saying they had formerly been “applied with such a broad brush as to be unconstitutional.”

--Baltimore recorded its deadliest single month in more than 40 years, with 43 homicides in May, surpassing the 42 the city saw in August 1990. 45 were killed in August 1972, that’s how far back you have to go. But the population was 908,000 in ’72 and is just 622,000 in 2014.

--According to a Pew Research Center poll, 72% of Americans believe illegal immigrants in the U.S. should be allowed to remain here, if they meet certain conditions.

In terms of legal immigration, 39% said they support keeping it at the current level, while 31% favor a decrease, 24% favor an increase.

--CBS’ Bob Schieffer, who joined the network’s news division in 1969, called it a day last Sunday after 24 years hosting “Face the Nation.”

A few days before, appearing on “CBS This Morning,” Schieffer talked of the “revolution in communications” that has turned D.C. “upside-down.”

“We now don’t know where people get their news, but what we do know is they’re bombarded with information 24 hours a day, seven days a week. Most of the information is wrong and some of it is wrong on purpose,” Schieffer said. “It is our job, I think, in mainstream journalism to try to cut through this mall of information and tell people what we think is relevant in what they need to know. That is the job of the journalist and I have to say it’s harder and harder.”

--Experts at the world’s biggest cancer conference in Chicago this week said they were “very excited” by the findings from a series of studies of almost 150,000 people that found that those taking statins could cut the risk of dying from cancer by up to half.

“Research found that for some of the most common cancers, including breast, bowel, prostate and ovarian disease, death rates were at least 40% lower among those taking statins. For some rarer cancers, the difference was up to 55%....

“The studies did not show statins would prevent cancer. But they suggest taking them daily could save thousands of lives, by slowing the spread of diseases.

“Doctors said it was not clear why they had such an effect, but the drugs reduce cholesterol, which is known to help the spread of disease....

“Dr. Ange Wang of Stanford University, who led the study (involving 146,000 American women, aged 50 to 79), said the findings suggested a simple daily pill could become a significant weapon in the war on cancer.”

--Finally, we note the passing of Beau Biden, 46, who died of brain cancer. As part of a statement released by his father, Vice President Joe Biden: “The entire Biden family is saddened beyond words. We know that Beau’s spirit will live on in all of us, especially through his brave wife, Hallie, and two remarkable children.”

The younger Biden was a former Delaware attorney general and member of the Delaware National Guard, serving in Iraq. He had announced he planned to run for governor in 2016.

I saw father and son at the Iowa State Fair in 2007 in a small gathering of about 12 people, as then Senator Biden was campaigning for president. He gave a great speech about his support for the new Mrap mine resistant vehicles that he was promoting for use by our troops in Iraq and Afghanistan, which ended up saving countless lives. But I couldn’t stop observing Beau, and how proud he was of his dad.

You know how you meet or just see someone a first time and immediately like them? That was my impression of Beau Biden. Our thoughts and prayers go out to the Biden family.

---

Pray for the men and women of our armed forces.

We remember June 6, 1944. One of my three personal treasures in life is a glass jar filled with sand from Omaha and Utah beach that I personally scooped up. It’s placed in a prominent place in my home so that I think about that day often.

God bless America.
---

Gold closed at $1168
Oil $59.13

Returns for the week 6/1-6/5

Dow Jones -0.9% [17849]
S&P 500 -0.7% [2092]
S&P MidCap +0.1%
Russell 2000 +1.2%
Nasdaq -0.03% [5068...down 2 points]

Returns for the period 1/1/15-6/5/15

Dow Jones +0.15%
S&P 500 +1.6%
S&P MidCap +5.1%
Russell 2000 +4.7%
Nasdaq +7.0%

Bulls 51.5
Bears 15.8 [Source: Investors Intelligence]

Dr. Bortrum posted a new column.

Have a great week. I appreciate your support, especially those who have given to the cause. If you haven’t, check out the gofundme link above or on the home page.

Brian Trumbore



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Week in Review

06/06/2015

For the week 6/1-6/5

[Posted 10:00 PM ET, Friday]

Edition 843

Washington and Wall Street

The head of the International Monetary Fund, Christine Lagarde, is said to be close to Federal Reserve Chair Janet Yellen, and this week Lagarde’s organization said conditions were still not right for the Fed to raise rates for the first time in almost a decade.

As part of the IMF’s annual review of the state of the U.S. economy, the IMF said it sees growth of 2.5 percent this year despite a contraction in the first quarter. “The underpinnings for continued growth and job creation remain in place,” fund economists wrote. The issues of the first quarter, such as the effects of a strong dollar, “unfavorable weather,” a West Coast port strike and a sharp contraction in investment in the oil sector all amounted to “a temporary drag but not a long-lasting brake on growth.”

But the IMF was urging the Fed to wait for “greater signs of wage or price inflation than are currently evident.”

“Based on the mission’s macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016,” the IMF wrote, adding they did not see inflation reaching the Fed’s 2 percent target until 2017.

“Raising rates too soon could trigger a greater-than-expected tightening of financial conditions or a bout of financial instability, causing the economy to stall. This would likely force the Fed to reverse direction, moving rates back down toward zero with potential costs to credibility,” the IMF economists wrote.

“Given the balance in the likelihood and severity of these risks, as well as the significant uncertainty around inflation prospects, the degree of slack and the neutral policy rate, there is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident.”

The IMF said among the risks was the strong dollar that was weighing on U.S. growth, job creation and inflation. [Shawn Donnan / Financial Times]

That was Thursday. But then on Friday, the jobs report for May was released and non-farm payrolls rose 280,000, much higher than expected, with another 32,000 net added for March and April than initially reported.

Most importantly, average hourly earnings rose 0.3% and are now running 2.3% higher than a year ago, the best pace in years. This is what I’ve been forecasting for a long time...that wage growth would begin to accelerate, leaving the Fed with its pants down.

Noted economist Ian Shepherdson of Pantheon Macroeconomics said in a note to clients: “Hourly earnings are on the move, and, over the past 30 years, nothing has been more closely correlated with Fed action than wage gains. If the June employment report is as strong as this one, a July hike can’t be ruled out.”

Well, so much for the IMF and the hopes of Christine Lagarde. If not July, certainly the now-much-talked-about September hike appears to be a certainty.

As for the other economic data released this week, it was mixed. April personal income rose 0.4%, but consumption was unchanged. The ISM manufacturing index was better than expected at 54.0, but the service sector reading was less than forecast at 55.7, down from April’s 57.8 and the lowest since April 2014.

April construction spending was better than expected, up 2.2%, but factory orders for the month fell 0.4%.

Then again, U.S. auto sales, as noted below, were at their best annualized pace in the month of May since late 2005.

The Fed in its latest assessment of the economy, the so-called Beige Book, said regional surveys from across the country suggested “overall economic activity expanded” from early April to late May. “Outlooks among respondents were generally optimistic.”

Barring an accident in the eurozone over Greece, which is very possible, the Fed will act in September. But we should know by end of June with Greece’s next drop-dead date.

[Just a few other tidbits on the employment report. The jobless rate ticked up to 5.5% and U6, the measure of underemployment, remained unchanged at 10.8%. The labor-force participation rate edged up to 62.9% from 62.8%, a sign of progress but still near the record lows of the late 1970s.]

And since I’ve been noting the Atlanta Fed’s GDPNow indicator, its forecast for Q2 growth in the U.S. is now up to 1.1%, though the consensus remains 2% to 3%.

Finally, the Organization for Economic Cooperation and Development (OECD) think-tank cut its U.S. growth forecast to just 2% this year and 2.8% next year – down from its November forecast of 3.1% and 3%, respectively, owing to the awful first quarter.

The OECD calls for global growth of 3.1% in 2015, down from an earlier forecasted 3.7%, with 3.8% the new outlook for 2016.

The outlook for China is just 6.8% in 2015, 6.7% in 2016, while the OECD sees eurozone growth of 1.4% this year, after 0.9% in 2014.

Europe and Asia

I wrote last week that the IMF had offered Greece the option to “bundle” their four debt payments to the IMF in the month of June, 1.6bn euro, and pay it off by the end of the month if it chose to do so, allowable under the rules, and that Greece would take them up on this. So I was surprised how few earlier this week seemed to be aware of this option as they thought Friday, June 4, was the real deadline for Greece and its first payment of 300m. Well it wasn’t.

But talks between Greece and its creditors are going nowhere and Prime Minister Alexis Tsipras rejected demands for more austerity to receive a final chunk of bailout money. In a call with German Chancellor Angela Merkel and French President Francois Hollande on Thursday night, Tsipras said a list of demands hammered out earlier by officials from the IMF and the euro area can’t be the basis for a deal, according to a Greek official, as told to the BBC. Euro finance ministers now say they want an agreement by June 14, or Greece can kiss away any thought of the desperately needed 7.2bn euro in aid it is still eligible for.

The delay of the payment, while allowed, is nonetheless an escalation of the confrontation and stocks in Greece cratered 5% on Friday. Yields on Greek 2-year paper soared to 25%.

Then Friday night, Tsipras addressed his parliament, describing the EU-IMF lenders’ plan as a “bad moment for Europe” and a “bad negotiating trick.”

He accused Greece’s lenders of massively backtracking on measures agreed to in recent months, and of failing to see the need for an end to austerity.

“The strangulation of a country is a matter of moral order which conflicts with the founding principles of Europe,” said the prime minister.

Tsipras said the aim of any deal should be “for a solution and not to...humiliate a whole people.”

In a poll conducted June 3-4, 50% of Greeks said the Syriza-led government should abandon its so-called red lines if creditors don’t accept them in order to have an agreement, while a strong majority, 74%, want to remain in the euro. [newsit.gr]

Should Tsipras be forced to accept creditors terms, he likely would have to call new elections because of opposition from within his own party.

Earlier in the week, Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area finance ministers’ group, said the two sides remain far apart.

“As long as it doesn’t meet economic conditions, we can’t come to an agreement. It’s not right to think that we can meet half way....

“You can change the content of the package, you can make other priorities, but the total package – as we agreed with the former government – is that the budget must be in order.”

Germany’s Vice Chancellor, Sigmar Gabriel, warned Greece’s exit from the eurozone would have “gigantic consequences.’

“The political consequences of a Greek bankruptcy in the eurozone would of course be gigantic. I think a lot of people have the impression that we’re better off without Greece in the eurozone.

“The truth is that if we break the first piece out of the European house, Europe would be in a different state.”

Fitch ratings agency said the risk Greece misses its larger IMF payment at the end of the month cannot be discounted. Also, if no agreement is reached in the coming weeks, the European Central Bank could restrict assistance to Greece’s banks, through the Emergency Liquidity Assistance (ELA) facility, which would lead to capital controls to stave off a full-blown bank run, which is already basically under way. 

Meanwhile, there was a slew of economic data in the eurozone this week, some of it unsettling to the markets, the moves fanned by ECB President Mario Draghi’s remarks on Wednesday as the central bank held the line on rates. Draghi said markets should get used to periods of volatility, which won’t affect monetary-policy decisions, but this sparked a sharp bond-market selloff when he added the ECB’s quantitative easing (QE), stimulus program of 1 trillion euro ($1.11 trillion) is working to bolster economic output in the eurozone. “Reaching our objectives is conditional on the full implementation of our monetary-policy stance,” meaning he wasn’t planning on quitting the program early, as some believe he’ll have to if the numbers keep improving.

Traders took it all to mean higher yields and the 10-year German bund yield had back-to-back massive 17 basis point updrafts (0.34% in two days), the biggest one-day rout since October 2000, and biggest two-day since 1998. [Also worst week since 1998.]

The German bund traded over 1.00% this week, before closing at 0.84%...which is a massive percentage move off the 0.05% closing low of less than two months ago (April 17) after the ECB’s adoption of QE, and last Friday’s 0.49%.

Other 10-year paper was crushed this week.

France...0.79% (5/29) to 1.16% (6/5)
Italy 1.84% to 2.23%
Spain 1.83% to 2.21%
Portugal 2.53% to 2.92%

And to repeat myself, for Draghi to say QE has worked is a bit strange. The yield on Italy’s 10-year has risen from 1.31%, the day before QE launched, to 2.23%. Spain’s from 1.29% to 2.21%.

Yes, the big move down in rates was in anticipation of QE, but still.

Meanwhile, the Euro Stoxx 600 index (their version of the S&P 500), fell 2.7% this week and is down 4.6% in two weeks over the dual uncertainty of volatility in the bond market and Greece.

As for the data, what spooked the markets most was a report from Eurostats that inflation in the eurozone in May was at a 0.3% annualized pace, which while still well below the ECB’s 2% target is a significant improvement from prior months. In January, inflation was at an annualized pace of -0.6%, ergo, deflation. April’s rate came in unchanged. Further, the core rate for May was 0.9%. If the trend continues, there will be further carnage in the euro bond pits.

Markit released readings on manufacturing and services for the euro-area and the final May composite figure for both was 53.6 vs. 53.9 in April, with services at 53.8 (54.1April) and manufacturing at 52.5 (52.0 April).

On the manufacturing side, Germany was at 51.1 (reminder...50 being the dividing line between growth and contraction), a 3-month low; Spain was 55.8, a 97-mo. high; Netherlands 55.5, 17-mo. high; Italy 54.8, 49-mo. high; France 49.4, 12-mo. high.

But Greece’s manufacturing PMI was only 48.0, a further sign of renewed recession.

Eurostats reported April retail trade in the eurozone rose 0.7% vs. March, up 2.2% year over year.

And then you had the unemployment readings for the euro-area, also courtesy of Eurostats. The overall rate was 11.1% in April, down from 11.2% in March and 11.7% April 2014, which is hardly an improvement over this time.

Individually, Spain is at 22.7% (24.9% 4/14); France 10.5% (10.1% 4/14, though the government said the current unemployment rate is 10.3%); Germany 4.7%; Italy 12.4% (12.5% 4/14) and Ireland 9.7% (11.8% 4/14).

But here again, Greece is still at 25.4% (February) and it has a youth rate of 50.1%. The youth rate in Spain is still 49.6% (slight improvement from 53.1% a year earlier), while Italy’s youth jobless rate is 40.9% (43.3) and Portugal’s 31.2% (36.4).

Chris Williamson, Chief Economist at Markit:

“The Eurozone recovery lost some of the wind from its sails in May, with growth of output and new orders both slowing to three-month lows.

“The weak euro is boosting manufacturing and households are benefitting from lower inflation, but the region’s high unemployment continues to limit spending on goods and services. Heightened uncertainty surrounding the Greek debt crisis is also acting as a brake on growth....

“Oil prices need to remain low and any escalation of the Greek crisis could rapidly derail the recovery.”

The ECB is forecasting eurozone growth of 1.5% in 2015, 1.9% in 2016, and 2% in 2017.

Germany’s Bundesbank said it sees growth in that country of 1.7% this year, 1.8% in 2016. Back in December, it was calling for just 1% GDP growth in 2015. April factory orders surged 1.4% over March.

In non-euro UK, home-price growth is definitely cooling, and a reading on the service sector, while still growing at 56.5, is nonetheless a comedown from April’s 59.5.

Turning to Asia...HSBC’s reading on China’s service economy for May was 53.5 vs. 52.9 in April, but manufacturing was at 49.2 vs. 48.9. The government’s official manufacturing PMI was 50.2, while non-manufacturing came in at 53.2.

Commenting on China’s services and composite PMI data, Annabel Fiddes, Economist at Markit, said:

“Latest China PMI data saw a strong service performance offset a deteriorating outlook at manufacturers, leading to a modest rise in overall business activity. Furthermore, service providers saw the strongest upturn in new business for three years in May, which supported sharper growth of activity and employment. In contrast, manufacturing companies continued to trim their payroll numbers as both output and new orders contracted over the month.

“Overall, growth momentum appears relatively weak...further stimulus measures may be required to keep up with an annual GDP growth target of 7%.”

As for the Shanghai Composite stock index, after a 6.5% swoon on May 28, it has recovered and then some to finish above 5000, a 7-year high, despite some clampdowns on margin trading. This is going to end badly.

In Japan, HSBC’s manufacturing PMI for May was 50.9 vs. 49.9 in April, while the reading on the service sector was 51.5 vs. 51.3 the prior month.

Street Bytes

--The three major stock indexes finished down on the week, though Nasdaq lost only two points to 5068. The Dow Jones fell 0.9% to 17849 and is now well off its all-time high of 18312, while the S&P 500 lost 0.7%.

For the S&P, it is the sixth straight week of less than a 1% move, the longest stretch of calm since May 1994 (Bloomberg).

--U.S. Treasury Yields

6-mo. 0.07% 2-yr. 0.71% 10-yr. 2.41% 30-yr. 3.11%

Just as in Europe bonds were crushed, with the yield on the 10-year now at its highest level since Oct. 6, which is doing a number on the 30-year fixed mortgage rate. There is a rush to lock in deals so the housing stats could be a little distorted coming up.

--Global bond traders lost their shirts these past few weeks (unless they were short) amid the rout in the fixed-income markets.  Again, it’s not the actual yields, it’s the percentage moves and the speed of it all. Put some leverage on top of this and you’re asking for trouble.

More than $2 billion was pulled from eurozone bond funds over the past six weeks, but that was prior to this week’s bloodbath.

--Interesting piece in Bloomberg:

“There’s a new whale in the corporate-bond market.

“Apple Inc., Oracle Corp. and the other tech giants hoarding half a trillion dollars in cash have joined the ranks of the biggest buyers of the debt, often snapping up as much as half of some bond issues, according to five people with knowledge of the transactions.

“The companies are muscling into a market traditionally dominated by big bond funds including PIMCO, BlackRock, Vanguard Group and Fidelity Investments. They’re honing in on one of the asset managers’ favorite ways to juice returns, particularly as the Federal Reserve holds short-term interest rates near zero for a seventh year....

“Apple, Oracle, Google Inc. and seven of their biggest peers now have in excess of $500 billion of cash and marketable securities, up more than three-fold since 2008, according to data compiled by Bloomberg. The problem is much of it is stuck overseas. Bringing it home would mean subjecting it to U.S. repatriation taxes, so they invest it in the bond market....

“The trend is cutting into traditional investors’ access to new issues.”

Most of the investments, generally in the two- to three-year maturity range, are in the financial sector, though the likes of Apple have also targeted companies such as Exxon Mobil and Wal-Mart.

But large concentrations on the part of Apple and Oracle, for example, could mean even more volatility if market conditions lead them to suddenly dump their positions and do something else with their cash.

--May saw the smallest rate of withdrawals for the PIMCO Total Return Fund, $2.7bn, with assets under management falling to $107.3bn.

Upon the announcement of Bill Gross’ departure last September, investors pulled $27.5bn out the following October.

--U.S. automakers had their best month since July 2005, as light vehicle sales rose to 1.63m in May, according to WardsAuto. The annualized pace of 17.7m vehicles bested Wall Street’s expectations.

General Motors’ sales rose 3% in the month (to its best May levels since 2007) and Fiat Chrysler’s increased 4%, while Toyota’s were down 0.3% and Ford’s were off 1.3%, the latter blaming supply constraints.

Honda’s increased 1.3%, Nissan’s were down 0.8%, but VW’s rose 8%.

General Motors accounted for 18 percent of overall sales, with Ford at 15.1 percent and Toyota 14.9.

Importantly, Kelley Blue Book estimates transaction prices for the industry grew 4.3% to $33,363 a vehicle compared with last year.

--OPEC opted to hold the line on production levels at 30 million barrels per day. Investors had been worried the cartel might increase supply, so the price of crude was slumping heading into the meeting. 

--Demand for U.S. wheat has been falling, due partly to competition from the likes of Russia and Romania, while American farmers are on track to produce 3% more than last year, according to the Agriculture Department.

And while heavy rains battered the crop in some areas, the forecast going forward looks good.

--Egg prices are soaring as the worst bird flu outbreak in U.S. history sweeps through the Midwest, leaving tens of millions of egg-laying hens dead in its wake. The wholesale price for a carton of a dozen eggs has more than doubled over the past month from $1.19 to a record high of $2.62, according to commodities research firm Urner Barry, which has been tracking the industry since 1858.

About 35 million hens, or 10 percent of the country’s flock, have been wiped out.

Some fast-food restaurant chains have been cutting back on breakfast hours due to dwindling supply.

--After weeks of rumors, Intel Corp. announced it was purchasing smaller chip maker Altera Corp. for $16.7 billion in cash. The previous week, Avago Technologies Ltd. agreed to buy Broadcom Corp. for $37 billion in the largest merger on record in the tech industry.

--T-Mobile and Dish Network are in merger talks, T-Mobile being the nation’s fourth-largest wireless carrier.

--The Environmental Protection Agency has concluded after studying the matter that there is no evidence hydraulic fracturing or “fracking,” has caused “widespread” pollution of drinking water in the U.S.

The EPA said fracking (the technique used to produce shale oil and gas) had contaminated some drinking water, but that the number of cases were “small relative to the number of hydraulically fractured wells.”

Both proponents and opponents drew their own conclusions from the 998-page study.

--Californians used 13.5% less water in April compared to the same month in 2013 in response to Gov. Jerry Brown’s mandate, the State Water Resources Board reported this week.

The goal, per Brown’s executive order, is to achieve a 25% urban water-use reduction, but April’s figure is a big step, seeing as how the prior three months saw minimal compliance.

--Awhile back you may recall a “60 Minutes” story on rare-earth minerals, the kind of stuff that goes into items ranging from cellphones and batteries to military hardware, and it featured a company, Molycorp Inc., the only U.S. miner of the elements.

Molycorp, which missed a $32.5 million loan payment this week, has been struggling mightily and will be filing for chapter 11 bankruptcy, according to reports, in order to reduce its $1.7 billion debt load. The company is yet another victim of China, which controls the vast supply of rare earths and has been flooding the market, causing prices to crash.

At one point in 2011, at the peak of the bubble in rare earths, Molycorp’s share price was in the 70s.  Now it’s at $0.41.

--Australia’s economy grew a better-than-expected 0.9% in the first quarter, compared to the fourth quarter, though on an annualized basis, the economy expanded 2.3%. Economic growth in the March quarter of 2014 was 2.9%.

Improved consumer spending is offsetting the ongoing slump in the mining sector.

--Speaking of mining, according to a survey by PricewaterhouseCoopers, the overall market value of the world’s biggest miners has been more than halved in four years.

--South Korea has declared “war on Mers,” Middle East Respiratory Syndrome. Four have died in the country. The worry is that some of those who have succumbed took part in large gatherings before being diagnosed.

More than 1,000 schools have temporarily shut down in the country. The first case, reported on May 20, was of a 68-year-old man diagnosed after a trip to Saudi Arabia, where a majority of the cases have occurred. 

Mers has infected 1,161 people globally, with 436 deaths.

The virus is considered a deadlier but less infectious cousin of Severe Acute Respiratory Syndrome (Sars), which killed hundreds of people when it appeared in Asia in 2003.

Mers, like Sars, is capable of doing a number on South Korea’s economy, let alone the region’s if it spreads.

But for now, the government reported GDP in the first quarter was up 2.5% vs. the first three months of 2014. Quarter-on-quarter growth came in at 0.8%. Q4 was up just 0.4% compared with Q3.

--Venezuela’s international reserves have dropped $7.3bn from a 2015 peak of $24.2bn in late February to $16.9bn this week, according to the central bank. Yikes. The economy is expected to shrink 7 percent this year.

--In a good indicator of demand for air travel, Ryanair reported a 16% hike in passenger numbers for the month of May vs. a year ago. The load factor (percentage of seats filled) rose to 92%.

--Barclays Plc said it reached a settlement with the trustee for Lehman Brothers Holdings Inc.’s brokerage that will boost first-half pretax profit by about $750 million.

Under the accord relating to Barclays’ acquisition of Lehman assets in September 2008, the UK bank will receive all except $80 million of $1.1 billion of disputed assets in Lehman’s record bankruptcy case; assuming a federal bankruptcy court in Manhattan approves of the deal.

--Microsoft announced Windows 10 is coming July 29. 

--Sales at J Crew fell 5% for the three months to May 2, compared to the same period last year, with same-store sales plunging 10% as some of the retailer’s new offerings, such as $500 jeweled shirts, were called into question.

--HSBC is expected to announce a large restructuring this coming week that could lead to 10,000 to 20,000 layoffs, according to Sky News. Europe’s largest bank employed almost 258,000 people at the end of last year.

--Yum Brands Inc.’s KFC unit is suing three companies in China for spreading rumors about the quality of its foods, “including that its chickens have eight legs,” as reported by the Wall Street Journal’s Laurie Burkitt.

KFC is alleging three Chinese media companies have been spreading the false product information on social media. Classic China crap, as detailed further below. KFC said it is hard for companies to protect their reputation on the Internet.

Yum has been struggling mightily in China, which accounts for half its revenue. In the first quarter ended March 21, China sales were down 9% from a year earlier, following declines in the third and fourth quarters. The company is still trying to come back from Chinese media reports in 2012 that alleged a KFC supplier had been using growth hormones and antibiotics to help chickens grow faster.

--Apple is recalling 233,000 of its Beats Pill XL speakers in the U.S. and Canada, after the company received eight reports of problems, specifically that the pill can overheat, according to the Consumer Product Safety Commission. One report involved a burn injury to someone’s finger and another said a desk was damaged.

Customers can request a refund or store credit for $325, slightly more than the speakers’ $300 price tag.

Apple suspended sales “for the time being,” according to a company spokesman.

--Sheryl Sandberg, chief operating officer at Facebook, posted an emotional tribute to the site, marking the end of the formal Jewish grieving period. Sandberg lost her husband, David Goldberg, when he died in a tragic accident while exercising on a family vacation.

“These past thirty days, I have spent many of my moments lost in that void. And I know that many future moments will be consumed by the vast emptiness as well,” Sandberg said in part.

“I have lived thirty years in these thirty days. I am thirty years sadder. I feel like I am thirty years wiser,” she added.

--Hedge-fund billionaire John Paulson is giving $400 million to Harvard University’s engineering school, the biggest donation in the college’s 379-year history. Harvard said it would rename the engineering school after him and establish an endowment for research, faculty and financial aid.

Harvard had raised $1.16 billion last year. Paulson is a 1980 graduate of Harvard Business School.

Adjusted for inflation, the largest donation to higher education is a 2001 gift to Stanford University from the William and Flora Hewlett Foundation that would be worth $532 million today. [Bloomberg]

Foreign Affairs

Appearing at an Asian forum this week in Washington, President Obama said this in response to a question.

“Internationally, we’ve reinvigorated diplomacy in a whole variety of ways. People don’t remember – when I came into office, the United States in world opinion ranked below China and just barely above Russia. And today, once again, the United States is the most respected country on Earth. And part of that, I think, is because of the work that we did to reengage the world and say that we want to work with you as partners with mutual interest and mutual respect. It’s on that basis that we were able to end two wars while still focusing on the very real threat of terrorism and to try to work with our partners on the ground in places like Iraq and Afghanistan. It’s the reason why we are moving in the direction of normalizing relations with Cuba. The nuclear deal that we’re trying to negotiate with Iran. Our efforts to help encourage democracy in Myanmar.”

Mr. Obama really believes this. But you can’t even give the administration Myanmar anymore. It’s been sliding backwards.

The U.S. the most respected country on Earth? I hardly think so. I understand how the president and his team are cherry-picking some global polling data, but name a country in the Middle East that respects us more today than six years ago. Russia? China? Is anyone scared of the United States?

Just read what follows for the real story.

Iraq/Syria/ISIS: ISIS militants advanced to the edge of the Syrian city of Hassakeh (northeastern Syria), threatening to take their second provincial capital, after Raqqa. Assad regime helicopters were dropping barrel bombs on jihadi positions, according to the Syrian Observatory for Human Rights, the Britain-based monitoring group.

For Syria, the fall of Hassakeh would mark the third capital it lost, Idlib having been seized by rebels in March.

A Turkish government official said more than 3,300 Syrians had crossed into Turkey in the past two days.

The Syrian government appears to be concentrating on regions it deems vital for its survival, which is why they abandoned Idlib. A security source told AFP, “For the regime, the vital territory to be protected is Damascus, Homs, Hama and the coast. Idlib is no longer [vital].”

Meanwhile, at least 71 were killed in Syria’s northern Aleppo province by barrel bombs, according to the Observatory. It is estimated that between January 2014 and March 2015, over 3,100 civilians were killed by barrel bombs there, according to Amnesty International and Reuters.

Aleppo has been divided between government- and rebel-held areas since fighting broke out there in 2012.

In February, Human Rights Watch accused Damascus of dropping barrel bombs on hundreds of sites in 2014, violating a UN Security resolution. President Assad has always denied his forces use them, telling the BBC back in February, such allegations were a “childish story...There are no barrel bombs. We don’t have barrels.”

The latest death toll in Syria is at least 220,000 since the start of the uprising against Assad in 2011. I told you in August 2012 it was over. We had lost. That has indeed proved to be the case.

Gen. John Allen, the U.S. presidential envoy charged with battling ISIS, warned Wednesday that it would be a long-term campaign that could require a generation to stamp out the ideology that has encouraged thousands of Muslims worldwide to flock to Iraq and Syria.

“Aspects of it, like defeating Daesh’s ideology will likely take a generation or more,” Allen said in addressing the annual U.S.-Islamic World Forum in Doha, while using the Arabic acronym for ISIS. “In an age when we are more connected than at any other time in human history, Daesh is a global threat. And if we do not defeat this threat through strength and unity, our collective future will [see] more groups like Daesh.”

Allen added: “They will use the tools of modernity like the ease of world travel, our global financial networks and the Internet, to wreak havoc upon the progress of humanity which has been achieved at such a high cost by all of us over centuries.” [Daily Star]

In Iraq, Tariq Aziz, known as the face of Saddam Hussein’s regime on the world stage for many years, died in an Iraqi prison. He was 79. Aziz had been sentenced to death by the Iraqi Supreme Court in 2010 for the persecution of religious parties under Saddam’s rule but the sentence was never carried out.

He surrendered to U.S. troops in 2003 shortly after the fall of Baghdad.

In the here and now, last weekend there were reports Iraqi forces had seized some villages around Ramadi, in preparation for a counteroffensive to take back the provincial capital, but by week’s end there seemed to be little evidence such a move was imminent.

After the fall of Ramadi, the U.S. is rushing 2,000 portable anti-tank missiles to Iraqi forces to help them fend off ISIS car bombs. Just the other day, at least 45 Iraqi police officers were killed in a suicide attack carried out by ISIS, as they sent three vehicles packed with explosives into a base on a road connecting the cities of Falluja and Samarra.

An Obama administration official, addressing a Paris conference on how to stop the extremists, claimed the U.S. campaign of airstrikes has killed at least 10,000 ISIS militants. But, if true (and others put the figure at 13,000), it has obviously had little if any overall impact.

As for Iran’s role in Iraq and Syria these days, a Lebanese political source told the Daily Star (Beirut) that Iran had sent 15,000 fighters to Syria to reverse battlefield setbacks for the regime; mainly to hold the line in Damascus and the Alawite stronghold of Latakia.

Gen. Qasem Suleimani, the commander of Iran’s elite Quds force who has been leading the fight in Iraq, was apparently in Latakia this week to prepare for the new campaign.

Iran’s official IRNA state news agency quoted the general as saying Tuesday, “The world will be surprised by what we and the Syrian military leadership are preparing for in the coming days.”

Iran is hoping to improve its leverage ahead of the nuclear talks deadline.

Speaking of which....

Iran: At a critical juncture, with a June 30 deadline rapidly approaching, Secretary of State John Kerry decided to go on a bike ride in Switzerland and broke his leg, forcing him to return to Massachusetts to recuperate. This is so incredibly irresponsible and stupid. [Iranian media spread rumors Kerry was the target of an assassination attempt while meeting with Islamic State terrorists.]

Jennifer Rubin / Washington Post

“Testifying before the Senate Foreign Relations Committee on Wednesday...Ambassador James Jeffrey told lawmakers that despite the administration’s attempt to cordon off other issues, ‘the (nuclear) agreement cannot be considered outside the context of Iran’s record of destabilization in the region.’ We have seen Iran become increasingly bold as the talks have progressed.  ‘Two Middle Eastern states either have acknowledged, or are widely believed to have, possession of nuclear weapons,’ Jeffrey said. ‘But the region’s leaders do not lose sleep over these weapons, nor does the UN Security Council pass multiple Chapter VII resolutions about them, as with Iran. The reason is that Iran’s behavior in the region is profoundly troubling to many states. Either an Iranian nuclear weapons capability, or an Iran politically empowered by an agreement that stops it just short of such a capability, would pose extraordinary new threats to a region already under stress, and undermine the above U.S. vital interests.’

“Moreover, the idea that a nuclear deal will transform Iran into a responsible state actor is without foundation. ‘Iran is a revolutionary power with hegemonic aspirations. In other words, it is a country seeking to assert its dominance in the region and it will not play by the rules...Iran, however, has brazenly defied (the) international order and continues to expand its reach,’ he said, reciting an earlier op-ed. ‘Any decision on the Iran nuclear deal must bear this sobering fact in mind, and must not read Iranian willingness to sign an agreement as a change of heart about its ultimate hegemonic goals.’”

Separately, the New York Times reported that, contrary to Obama administration claims that Iran has frozen its nuclear program, international inspectors discovered recently that Iran’s stockpile of nuclear fuel has increased by about 20 percent over the course of the last 18 months.

According to the Times story, analysts speculate Iran is seeking a contingency plan should the talks fail to produce an agreement. The bolstered stockpiles were first noticed by inspectors with the International Atomic Energy Agency.

The key sticking point in reaching a deal at this point is clearly access to Iran’s suspected nuclear sites.

John Podhoretz / New York Post

“As the June 30 deadline for the Iran nuclear deal approaches, President Obama is putting all his cards on the table – by announcing he is keeping no cards in his hand.

“In an astonishing interview with Israel’s Channel 2, the president declared that ‘the best way to prevent Iran from having a nuclear weapon is a verifiable, tough, agreement.

“ ‘A military solution will not fix it, even if the United States participates. It would temporarily slow down an Iranian nuclear program, but it would not eliminate it.’

“Why is this astonishing? Because Obama is publicly eliminating any American possibility that we will bomb Iran’s nuclear sites even if the deal in which he has invested so much collapses.

“Despite his declaration at a Washington synagogue last week that ‘Iran must not, under any circumstances, be allowed to get a nuclear weapon,’ the president is in fact making it very clear Iran will go nuclear, and with his implicit assent.

“Period.

“Note that he has decided to eliminate the possibility of a military strike even though he has already indicated his deal will allow Iran to go nuclear in 2028....

“Look: If your choice is A) Iran goes nuclear or B) Iran goes nuclear, then obviously a military option is a bad one and a diplomatic solution is better.

“But the president has spent his entire time in office assuring the American people that Iran going nuclear was not a choice at all.”

Russia/Ukraine: Ukrainian President Petro Poroshenko said on Thursday there were 9,000 Russian servicemen on Ukrainian soil and warned of a “full-scale invasion” by Russia along the whole joint border.

Poroshenko addressed parliament a day after Ukrainian forces fought their most serious battle for months with Russian-backed separatists in the east, with five Ukrainian troops being killed and 39 wounded, while the rebels said five civilians and 16 of its fighters died in fighting around the town of Maryinka, 23 kilometers to the west of the rebel stronghold of Donetsk.

The European Union warned the renewed fighting could create a “new spiral” of violence and represented “the most serious violation of the ceasefire arising from the Minsk accords in February.”

At the UN on Friday, Britain’s ambassador, Matthew Rycroft, said this week’s violence “was a separatist assault on Ukrainian military units. The separatist forces are Russia’s creation, they are Russia’s tool.”

Russian Ambassador Vitaly Churkin blamed Kiev for the latest fighting.

U.S. Ambassador Samantha Power said Russia continues to deny the “open secret” that it arms the rebels and sends Russian soldiers to die anonymously in Ukraine.

A G7 summit in Bavaria this weekend is expected to produce nothing more than further condemnation of Russia for its role in the escalating violence. There is little appetite for levying tougher penalties on Moscow.

Separately, Russian state news agency RIA reported military aircraft were scrambled to head off a U.S. warship that was acting “aggressively” in the Black Sea, but the Pentagon said just the opposite, that the USS Ross was “well within international waters at all times, performing routine operations.” The Pentagon showed video of the low-flying Russian aircraft and clearly the Kremlin crafted the story for propaganda gain.

And a Russian film about the 1968 Soviet-led invasion of Czechoslovakia has infuriated both the Czech and Slovak governments, who said it distorted history by justifying the armed crackdown on the democratic “Prague Spring” movement.

The movie portrays the invasion as a friendly move to protect against a potential threat from NATO.

China: What have I been saying the last few reviews? Another week, another China hacking or industrial espionage story.

This time, Chinese hackers breached the computer system of the Office of Personnel Management in December, officials announced Thursday, and 4 million current and former employees are being notified their personal data may have been compromised; the second major intrusion of the agency by China in less than a year and the biggest yet on the U.S.

OPM discovered the breach in April, and while a target may have been Social Security numbers, it could easily be about espionage rather than commercial gain. While there is little doubt among officials that the attack was launched from China, it’s not known yet whether it was state-sponsored, though it sure looks like it.

An annual “Strategic and Economic Dialogue” with Chinese officials is slated for this month, and no doubt this latest attack will be at the forefront of discussion. But will the U.S. do anything?

President Obama and Chinese President Xi Jinping have spent hours on the topic over the past three years and it only seems to get worse. [Xi is coming to the States in September and wants to address Congress. If I were Congress, I’d give him stony silence.]

Separately, China’s new military strategy states that “great importance has to be attached to managing the seas and oceans and protecting maritime rights and interests,” according to an English translation that was published last week.

China promises “to seize the strategic initiative in military struggle, pro-actively plan for military struggle in all directions and domains, concentrate superior forces, and make integrated use of all operational means and methods.”

As the Wall Street Journal editorialized:

“The Pentagon’s Office of Naval Intelligence reports that China launched more ships in 2013-14 ‘than any other country.’ China’s official military budget will grow by some 10% this year, to $144 billion, with much of the money going to a comprehensive naval modernization.

“By 2020, ONI predicts, China will deploy as many as 78 submarines and more than 170 major surface combatants, most of modern design. Assuming most of these will be deployed in the Western Pacific, this means the U.S. will have 64 surface combatants and subs in the region compared to 248 for China.”

Yet while some in the U.S. Navy question China’s seamanship, “Beijing has also invested heavily in ‘asymmetric’ military capabilities, such as ballistic missiles that could take out a U.S. carrier, which they can field in large numbers at low cost....As a recent Congressional Research Service report notes, China wants ‘a force that can deter U.S. intervention in a conflict in China’s near-seas region over Taiwan or some other issue, or failing that, delay the arrival or reduce the effectiveness of intervening U.S. forces.’

“The U.S. isn’t yet losing the naval race with China, but it has allowed its naval power to decline enough that Beijing plausibly believes it can compete....

“But the only way China is going to reconsider its long-term strategy is for the U.S. to convince Beijing that a naval race is unwinnable and not worth running.”

As for China’s land reclamation project in the South China Sea, U.S. Defense Secretary Ash Carter, addressing a security conference in Singapore, stepped up America’s condemnation as his counterparts sat in the audience.

Carter said the U.S. opposes “any further militarization” of the disputed lands, with the Chinese countering Carter’s remarks were “groundless and not constructive.”

Carter said: “Turning an underwater rock into an airfield simply does not afford the rights of sovereignty or permit restrictions on international air or maritime transit.”

Sen. John McCain (R-AZ), who was at the Shangri-La Dialogue with a bipartisan delegation of senators, urged tougher action. “We need to recognize this reality that China will likely continue with its destabilizing activities unless and until it perceives that the costs of doing so outweigh the benefits. Clearly, it has not yet concluded that.”

Analysts tell the South China Morning Post (Hong Kong) that China’s reclamation projects are designed to help it develop “situational awareness” of the regional waters that it has not yet mastered.

Meanwhile, China was dealing with its worst boat tragedy in 60 years, as the Eastern Star cruise ship capsized in a severe storm, a probable tornado, on Monday night on a section of the Yangtze River. There were 456 passengers and crew and the final death toll is likely to be nearly 440. As I go to post, there are just 14 survivors. The captain and chief engineer survived.

France: In a further example of the massive immigration issues faced by the government, police dismantled a makeshift camp of 380 migrants from Sudan, Eritrea and Somalia that had suddenly set up tents under a subway bridge in northern Paris. Police also dismantled two camps in and outside the port of Calais. 200 Sudanese stormed one camp there, setting tents on fire and shouting ‘Allahu akbar.’

About 2,500 to 3,000 migrants now live in camps in Calais. Most of these are hoping to get to the UK. What a nightmare for the French.

Turkey: The country is holding a critical general election on Sunday, and while there is little doubt the ruling Justice and Development party, or AKP, will win its fourth straight victory since 2002, it doesn’t seem likely the AKP will have a majority big enough to allow President Erdogan to rewrite the constitution, including changing from a parliamentary to presidential system of government.

In 2011 the AKP won nearly 50% of the vote and current polls put it at 43%. Much more on the topic next week.

Pakistan: As stated in the BBC, eight of the 10 men reportedly jailed for the attempted assassination of Pakistani schoolgirl Malala were acquitted.

In April, officials in Pakistan said that 10 Taliban fighters had been found guilty and received 25-year jail terms, but sources have now confirmed to the BBC that only two of them were actually convicted. The whereabouts of the eight is not known.

Nigeria: In a report issued Wednesday by Amnesty International, abuses by Nigeria’s military caused the deaths of more than 8,000 civilians in the battle against Boko Haram. As reported by Robyn Dixon of the Los Angeles Times: “They include about 1,200 who were the victims of extrajudicial executions since February 2012, and 7,000 who died of mistreatment in detention since March 2011, according to the report.

“Some starved to death. Others died of thirst or suffocated to death in poorly ventilated cells jammed with prisoners. And some died when soldiers fumigated the cells with mosquito poison, the report said.” 

Oh brother.

Amnesty obtained up to 90 videos that it used for evidence.

Random Musings

--Congress gave final approval and President Obama signed legislation to set up a new system for the government’s domestic surveillance program.

The Senate by a 67-32 vote rolled back the post-9/11-era program somewhat, overcoming objections from Sen. Rand Paul (R-Ky.), whose protest forced the brief expiration on Sunday of the once-secret bulk collection of Americans’ phone records. Earlier the measure had passed the House.

As reported by the Washington Post: “The new legislation [the USA Freedom Act] places additional curbs on (the NSA’s) authority, most significantly by mandating a six-month transition to a system in which the call data – which includes call numbers, times and durations – would remain in private company hands but could be searched on a case-by-case basis under a court order.”

--According to a CNN/ORC poll, George W. Bush is seen in a favorable light by 52% of those surveyed, while views on the president are divided, 49-49. This is the first time Bush 43 has scored higher than Obama.

At this point in his presidency, Bush had an approval rating of 32% and disapproval of 62%, per Gallup.

--A new Washington Post-ABC News poll revealed some bad news for Hillary Clinton, with just 41% of Americans saying she was honest and trustworthy, compared with 52% who said she was not – a 22-point swing in the past year. [A CNN/ORC poll has 57% believing Hillary is not honest and trustworthy, up from 49% in March.]

In terms of ‘favorability,’ the same survey has more Americans with an unfavorable opinion of Clinton than a favorable one, 49% to 45%. Among independent voters, the figure is worse: 55% unfavorable to 39% favorable.

The same poll surveyed registered Republicans and GOP-leaners, and, like an earlier survey mentioned by me last week, the race is incredibly close with no candidate separating themselves from the pack.

Sen. Rand Paul and Wisconsin Gov. Scott Walker were at 11%, Sen. Marco Rubio and former Florida Gov. Jeb Bush garnered 10%, former Arkansas Gov. Mike Huckabee polled 9%, Dr. Ben Carson and Sen. Ted Cruz received 8%, and New Jersey Gov. Chris Christie picked up 6%.

[Last week’s Quinnipiac University survey, recall, had five candidates tied with 10% each.]

In terms of the above-mentioned CNN/ORC survey, Rubio tops the field with 14%, with Bush at 13%. Huckabee and Walker follow at 10%, Cruz and Paul 8% and Carson7%. [Among those who consider themselves Tea Party supporters, Walker is first at 19%, followed by Cruz at 12%.

Back to Hillary, onetime Republican senator and former Rhode Island governor, Lincoln Chafee, announced his candidacy as a Democrat, joining Sen. Bernie Sander (I-Vt.) and former Maryland Gov. Martin O’Malley. Former Sen. Jim Webb of Virginia is also probably going to enter the race.

The Washington Post/ABC poll showed Clinton leading the Democratic pack at 62%. Vice President Biden, who has not formally ruled out a candidacy, was second with 14%, followed by Sanders at 10%. [The CNN/ORC poll has Clinton at 60%, with Biden and Sanders at the same 14% and 10% they received in the Post/ABC survey.]

The Clintonites should be concerned. It wasn’t too long ago that Clinton was at about 80%. While it was natural to expect the race to tighten as a few quixotic types like Sanders entered the race, the trends for every metric are not good.

Edward Luce / Financial Times

“It is hard to picture any of Mrs. Clinton’s rivals unseating her. Polls show her with a 50 percentage point lead over Bernie Sanders, her nearest rival. But the sands appear to be shifting an inch or two each week....

“Is Mrs. Clinton in trouble? Not if you judge by the chances of her competitors....

“(But Hillary) faces three problems. First, the U.S. media are itching to bring her down. So poor are relations between ‘Hillaryland’ and journalists that Mrs. Clinton has avoided virtually any interaction with the media since declaring in April.

“On Thursday, Lindsay Graham, the senator from South Carolina, who recently entered the more crowded Republican field, likened Mrs. Clinton to Kim Jong-un. ‘Well, it’s easier to talk to the North Korean guy than it is to her,’ he quipped to Fox News.

“Second, more than half of Americans say Mrs. Clinton is ‘untrustworthy.’ A majority also describe her as a ‘strong leader.’ Whether the first undermines the second is an open question.

“Finally, the Democratic field remains open. If Joe Biden, the vice-president, were to throw his hat into the ring, it could seriously alter the dynamic. A recent CNN poll gave Mr. Biden 14 percent support without his having declared. For the time being, Mrs. Clinton remains the inevitable nominee. But it is beginning to feel like a contest.”

--In a new Bloomberg/Des Moines Register Iowa Poll, Scott Walker has expanded his early lead with 17% (he had 15% in Jan.). Tied for second are Rand Paul and Ben Carson at 10%, with Jeb Bush and Mike Huckabee at 9% each. Marco Rubio gets just 6%, as does Rick Santorum, the 2012 Iowa caucuses’ winner.

Chris Christie only receives 4%, plus 58% of likely Republican caucus goers have an unfavorable opinion of him, compared with 28% who view him favorably. Only Jeb Bush was in negative territory, albeit slightly, with a 45% unfavorable rating and a 43% favorable mark.

By contrast, Walker was viewed favorably by 66%, Huckabee by 61% and Rubio by 60%.

--In a new York Times/CBS News poll, nearly six in 10 Americans said government should do more to reduce the gap between the rich and the poor, but only one in three Republicans believe government should play a more active role, while eight in 10 Democrats do.

Seven in 10 Americans support an increase in the federal minimum wage to $10.10 from $7.25 an hour. But six in 10 opposed requiring fast-food chains and other employers of hourly workers to raise wages to at least $15 an hour.

Nearly two-thirds favor some sort of trade restrictions, and more than half opposed giving the president authority to negotiate trade agreements that Congress could only vote up or down without amending, a White House priority.

--Sepp Blatter stepped down as head of FIFA, soccer’s governing body, just four days after he was re-elected to a fifth term amid the massive corruption scandal surrounding the organization, including bribes paid in the bidding process for the right to hold the World Cup in 2018 (Russia) and 2022 (Qatar).

Blatter is being investigated by the FBI and U.S. prosecutors, though his daughter told a Swiss newspaper her father’s decision to stand down is not tied to recent allegations.

Blatter said he made the decision to step aside because of a “lack of support in the world of football.”

But he will remain in power until a replacement is elected – which under FIFA rules could be anywhere from December to next March.

The final straw for Blatter was clearly the emergence of a letter suggesting FIFA had lied over the identity of an official who had handled a $10 million wire transfer alleged to have been a bribe, one of Blatter’s deputies, Jerome Valcke, as reported by the New York Times. Others such as former FIFA vice-president, Jack Warner, and American Chuck Blazer either are prepared to sing or have already pleaded guilty and have been cooperating.

But while some are now saying the 2018 and 2022 bids will be reopened, I don’t see it. Too much work has already taken place at these two sites. Russia, for one, would go ballistic, potentially literally...as in ballistic missiles, though England could easily fill the bill on short notice with its existing stadiums and infrastructure.

--Investigators in Boston believe ISIS-inspired homegrown terrorist Usaama Rahim was plotting to kill and behead police officers in Massachusetts either Tuesday or Wednesday, and was also targeting anti-Islamist activist Pamela Geller.

In a phone call that was tapped on Tuesday, Rahim told alleged co-conspirator David Wright, “I’m just going to go after them, those boys in blue. ‘Cause it’s the easiest target and the most common is the easiest for me.”

Two hours later he was killed after being confronted by police, Rahim then threatening them with one of the three large knives they knew he had acquired online. Wright has been charged thus far with obstructing a federal investigation by destroying evidence on Rahim’s phone. He was ordered held without bail.

--Julian E. Barnes / Wall Street Journal:

“Pentagon officials said Wednesday the inadvertent shipment of live anthrax to laboratories nationwide stretched back a decade and that the scope of the mishap was likely to expand in coming days.

“Four batches of the pathogen sent from the U.S. military laboratory at Dugway Proving Ground in Utah – which were thought to have been irradiated and inactivated – have been identified as containing live anthrax, officials said. Samples from those batches were sent to 51 sites in the U.S. and overseas over the past 10 years.

“An additional 400 batches from all four military labs that handle live anthrax are being tested, officials said, and if those are found to be live, the number of outside labs that received suspect samples could grow sharply.

“ ‘We expect this number may rise,’ said Robert Work, the deputy defense secretary.”

Unbelievable. The Pentagon is trying to convince us the concentration of the anthrax is so low, it poses little health threat. But of course these are the same people that initially talked about eight states and South Korea, and then it expanded to 17 states and three countries, including Canada and Australia.

--Jeh Johnson, secretary of Homeland Security, reassigned the acting director of the Transportation Security Administration, Melvin Carraway, when an internal investigation by the department’s inspector general found that screeners at airport checkpoints failed to detect weapons and other prohibited items 95 percent of the time in a covert test.

--The Environmental Protection Agency’s inspector general issued a report on the “culture of complacency” in the department when it comes to employee misconduct.

For example, “Two employees earning $120,000 a year were watching pornography on the job and were put on paid administrative leave for almost a year before anybody tried to fire them. One case was discovered in November 2013, the other in May 2014, but it took until March of this year for the agency to move to fire them. One employee retired. The other is appealing the decision, and remains on paid leave.”

And... “Like most agencies, EPA uses administrative leave generously, maybe too much so: Eight employees accused of misconduct are sitting at home on paid leave that’s reached 21,000 hours, costing taxpayers $1,096,868.” [Lisa Rein / Washington Post]

--Meanwhile, from David Willman / Los Angeles times:

“Two serious technical flaws have been identified in the ground-launched anti-missile interceptors that the United States would rely on to defend against a nuclear attack by North Korea.

“Pentagon officials were informed of the problems as recently as last summer but decided to postpone corrective action. They told federal auditors that acting immediately to fix the defects would interfere with the production of new interceptors and slow a planned expansion of the nation’s homeland missile defense system, according to a new report by the Government Accountability Office.

“As a result, all 33 interceptors now deployed at Vandenberg Air Force Base in Santa Barbara County and Ft. Greely, Alaska, have one of the defects. Ten of those interceptors – plus eight being prepared for delivery this year – have both.”

Gee, isn’t this comforting? Yet another reason to always sleep with one eye open, just as we do here at StocksandNews. [If you read the full report, you’d have zero confidence they’d ever work.] #Wearesoscrewed

--New York City police officials announced this week that shootings were up 8.9% through May with a 19.5% rise in murders, from 113 to 135. Mayor Bill de Blasio, in a brief press conference (he took all of three questions), said the increase in crime didn’t change his stance on the sharp curtailment in the NYPD’s stop-and-frisk encounters, saying they had formerly been “applied with such a broad brush as to be unconstitutional.”

--Baltimore recorded its deadliest single month in more than 40 years, with 43 homicides in May, surpassing the 42 the city saw in August 1990. 45 were killed in August 1972, that’s how far back you have to go. But the population was 908,000 in ’72 and is just 622,000 in 2014.

--According to a Pew Research Center poll, 72% of Americans believe illegal immigrants in the U.S. should be allowed to remain here, if they meet certain conditions.

In terms of legal immigration, 39% said they support keeping it at the current level, while 31% favor a decrease, 24% favor an increase.

--CBS’ Bob Schieffer, who joined the network’s news division in 1969, called it a day last Sunday after 24 years hosting “Face the Nation.”

A few days before, appearing on “CBS This Morning,” Schieffer talked of the “revolution in communications” that has turned D.C. “upside-down.”

“We now don’t know where people get their news, but what we do know is they’re bombarded with information 24 hours a day, seven days a week. Most of the information is wrong and some of it is wrong on purpose,” Schieffer said. “It is our job, I think, in mainstream journalism to try to cut through this mall of information and tell people what we think is relevant in what they need to know. That is the job of the journalist and I have to say it’s harder and harder.”

--Experts at the world’s biggest cancer conference in Chicago this week said they were “very excited” by the findings from a series of studies of almost 150,000 people that found that those taking statins could cut the risk of dying from cancer by up to half.

“Research found that for some of the most common cancers, including breast, bowel, prostate and ovarian disease, death rates were at least 40% lower among those taking statins. For some rarer cancers, the difference was up to 55%....

“The studies did not show statins would prevent cancer. But they suggest taking them daily could save thousands of lives, by slowing the spread of diseases.

“Doctors said it was not clear why they had such an effect, but the drugs reduce cholesterol, which is known to help the spread of disease....

“Dr. Ange Wang of Stanford University, who led the study (involving 146,000 American women, aged 50 to 79), said the findings suggested a simple daily pill could become a significant weapon in the war on cancer.”

--Finally, we note the passing of Beau Biden, 46, who died of brain cancer. As part of a statement released by his father, Vice President Joe Biden: “The entire Biden family is saddened beyond words. We know that Beau’s spirit will live on in all of us, especially through his brave wife, Hallie, and two remarkable children.”

The younger Biden was a former Delaware attorney general and member of the Delaware National Guard, serving in Iraq. He had announced he planned to run for governor in 2016.

I saw father and son at the Iowa State Fair in 2007 in a small gathering of about 12 people, as then Senator Biden was campaigning for president. He gave a great speech about his support for the new Mrap mine resistant vehicles that he was promoting for use by our troops in Iraq and Afghanistan, which ended up saving countless lives. But I couldn’t stop observing Beau, and how proud he was of his dad.

You know how you meet or just see someone a first time and immediately like them? That was my impression of Beau Biden. Our thoughts and prayers go out to the Biden family.

---

Pray for the men and women of our armed forces.

We remember June 6, 1944. One of my three personal treasures in life is a glass jar filled with sand from Omaha and Utah beach that I personally scooped up. It’s placed in a prominent place in my home so that I think about that day often.

God bless America.
---

Gold closed at $1168
Oil $59.13

Returns for the week 6/1-6/5

Dow Jones -0.9% [17849]
S&P 500 -0.7% [2092]
S&P MidCap +0.1%
Russell 2000 +1.2%
Nasdaq -0.03% [5068...down 2 points]

Returns for the period 1/1/15-6/5/15

Dow Jones +0.15%
S&P 500 +1.6%
S&P MidCap +5.1%
Russell 2000 +4.7%
Nasdaq +7.0%

Bulls 51.5
Bears 15.8 [Source: Investors Intelligence]

Dr. Bortrum posted a new column.

Have a great week. I appreciate your support, especially those who have given to the cause. If you haven’t, check out the gofundme link above or on the home page.

Brian Trumbore