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06/13/2015

For the week 6/8-6/12

[Posted 10:00 PM ET, Friday]

Edition 844

Washington and Wall Street

Little in the way of economic news the past few days, though next week we’ll have a critical Federal Reserve Open Market Committee confab, with Chair Janet Yellen holding a press conference after. The Fed isn’t going to raise interest rates now, but investors will be parsing Yellen’s words and the FOMC’s accompanying statement for further clues on a projected September rate hike.

For now, retail sales for May rose a solid 1.2%, while producer prices for last month were up 0.5%, up 0.1% ex-food and energy. Year over year, the PPI is down 1.1%, up 0.6% on core.

The World Bank issued its latest forecast for global growth, lowering it to 2.8% for 2015 – 2.7% in the U.S., 2.6% in the U.K., 1.5% for the eurozone, 6.9% in China, 7.5% in India and a sharp revision downwards for Brazil, from an initial estimate of growth of 1.0% to a contraction of 1.3%.

By the way, the Atlanta Fed’s GDPNow indicator for growth in the second quarter here is all the way up to 1.9%, virtually the same as the 2.0% to 3.0% consensus forecast of economists. GDPNow had been at just 0.6% as recently as May 22.

On the federal budget front, the Treasury Department announced the deficit for the first eight months of the fiscal year, which began Oct. 1, totaled $365.2 billion, down 16.3 percent from the same period last year, though part of this is because of a calendar quirk in 2014. The Congressional Budget Office is forecasting the deficit for the full year will total $486 billion, little changed from last year’s deficit of $483.4 billion.

For October through May, receipts were up 8.6 percent over last year, owing to a stronger economy (putrid growth is growth nonetheless), while outlays rose at a slower pace, up 4 percent. [But folks are still underestimating how quickly defense spending could rise.]

On the increasingly popular topic of liquidity in the fixed-income markets, as Barron’s Randall W. Forsyth wrote, illiquidity is growing and becoming more worrisome. 

“(In) the post-crisis regulatory environment, banks’ market-making has been curtailed. New regulations and capital charges have induced them to shrink their securities inventories – which serve as the buffer between buyers and sellers. The result is greater volatility, as (economist Nouriel) Roubini writes, a point on which virtually all fixed-income pros – whether institutions on the buy side or Wall Street banks on the sell side – agree.

“The other aspect is the greater role played by intermediaries, such as bond mutual funds and especially exchange-traded funds. ETFs in particular offer the liquidity of listed stocks in an instrument consisting of varying liquidity, while open-end funds offer the functional equivalent of a bank deposit on illiquid assets.

“A ‘run’ on these funds forces them to redeem bonds, pushing down prices very fast and exacerbating swings in an already illiquid market....

“ ‘This combination of macro liquidity and market illiquidity is a time bomb,’ Roubini contends. ‘So far, it has led only to volatile flash crashes and sudden changes in bond yields and stock prices. But, over time, the longer that central banks create liquidity to suppress short-run volatility, the more they will feed price bubbles in equity, bond, and other asset markets. As more investors pile into overvalued, increasingly illiquid assets – such as bonds – the risk of a long-term crash increases.’”

Stephen A. Schwarzman, CEO of Blackstone, had the following take on this topic in an op-ed for the Wall Street Journal.

“Why should we care? Because new capital, liquidity and trading rules are interrelated, and locked-up markets and rapidly falling securities prices will force banks to reduce assets and hoard liquidity in order to satisfy applicable regulatory tests. With individuals suffering losses and companies not able to raise capital, the economy will contract with layoffs, lower tax revenues and pain for middle- and lower-income Americans.”

Now while I’m not a defender of Wall Street, writ large, I do agree with Roubini that there will be severe liquidity issues, though they will be sooner than ‘long-term.’ Also, make sure you understand the risks in your bond fund.

Finally, on the trade front, two-thirds of Americans say protecting American industries and jobs by limiting imports is more important than allowing free trade so they can buy products at lower prices from any country, according to a recent NBC News online survey.

So with this in mind, the House voted on giving the president “fast-track” authority to negotiate a sweeping multinational trade pact, the Trans-Pacific Partnership (TPP). It passed 219-211.

But...earlier the House voted against a worker-aid program (Trade Adjustment Assistance) that is a critical, required component of the legislation and it wasn’t even close, 126-302. House Minority Leader Nancy Pelosi led the charge of her fellow Democrats to go against their president in a huge blow to Obama and his legacy.

House Speaker John Boehner, who supported both pieces of legislation, set a new vote on the worker-aid program by Tuesday, gambling that he and the president can still pull a rabbit out of the hat, but Republicans made clear Obama will have to do the heavy lifting since they view it as an ineffective welfare style program to begin with.

A majority of Democrats oppose the overall legislation, believing it will cost American jobs and result in lower wages, and liberal Democrats in particular are digging in to stop the entire deal.

The Senate has already approved it.

The TPP would be one of the world’s largest and most ambitious trade efforts ever, affecting 40% of the global economy.

More next week, sports fans.

Europe and Asia

Yet another weekend and no resolution to the Greek debt crisis. There is little to write, except that the slow-motion bank run continues. It is estimated that Greeks have stashed 5bn euro under mattresses and floorboards since January, while pensioners are worried the government won’t be able to pay them this month.

This past week, the International Monetary Fund pulled its technical team out of talks between Athens and its lenders, a sign of exasperation at a lack of any real progress; while as I go to post, once again Greece is making statements like, ‘we’ve never been closer to a deal,’ and talking of further negotiations this weekend.

Greece has little time left to secure the release of the bailout’s final 7.2bn euro aid tranche, which is roughly enough to make its bond payments to the ECB in July and August. 

Donald Tusk, the European Council president, said, “We need decisions not negotiations now. It's my opinion that the Greek government has to be, I think, a little more realistic. There’s no more space for gambling, there’s no more time for gambling. The day is coming, I’m afraid, where someone says the game is over.”

The Germans have been sending strong hints in recent days that it was time to cut off talks and adopt a “take it or leave it” approach, though German Chancellor Angela Merkel and her finance minister, Wolfgang Schauble, differ on whether they need to prevent a Grexit, a Greek exit from the eurozone. There are a growing number of MPs in their Christian Democratic bloc that share Schauble’s view, a willingness to allow Greece to walk.

Jens Weidmann, president of Germany’s central bank, said the “risk of insolvency is increasing by the day.”

Alexis Tsipras, the Greek prime minister, counters, “I think the EU leadership realizes they must agree to a viable solution and a possibility for Greece to return to social cohesion with security and growth and also with a sustainable debt level.”

That was after a meeting Wednesday with Merkel and French President Francois Hollande.

One thing seems clear. If there is to be a deal, a further extension, Germany and the creditors need to see Greece initiate at least one major reform, immediately, and undoubtedly on the pension topic. But Friday, Greece reiterated further pension cuts are off the table and now they want debt relief, which the creditors have repeatedly said no way to.

Editorial / Wall Street Journal

“Greece’s talks with creditors entered a new stage Thursday as the International Monetary Fund withdrew from bailout talks. This is the bluntest in a series of increasingly impatient statements from creditors that all make the same point: Athens won’t get a better deal.

“That may shock Alexis Tsipras, the far-left prime minister who has spent recent days trying to modify a final proposal prepared by creditors early last week, or at least plead for a nine-month extension of the current bailout. Creditors have offered some easing on Athens’ fiscal surplus targets. But they’re holding fast to demands for pension reform that Mr. Tsipras’ Syriza party promised Greek voters it wouldn’t implement.

“It’s no accident that pensions have become the make-or-break issue in the talks. Pensions and wages account for 80% of government spending, and pensions alone cost Greece around 16% of gross domestic product each year, the highest proportion in Europe. Without reform, spending was on track to hit 24% of GDP by 2050, compared to 15% on current plan. No serious program for returning Athens to fiscal balance can ignore pension reform.”

The Tsipras government refuses to raise the retirement age, or re-categorize workers, such as hairdressers, currently qualifying as an “arduous profession” and thus more generous benefits, though Tsipras hasn’t offered any game plan when it comes to raising money to pay them.

Wall Street Journal:

“The difference between Syriza and the creditors on this point is so stark it’s unlikely that more time will make much difference. In the best case, a delay would leave time for some political accident to trigger an election that would return a saner government to power. But in the meantime, Greece, the eurozone and investors would suffer from the prolonged uncertainty. Syriza might even be emboldened if voters perceive another extension as a concession from creditors.

“A Greek default and possible exit from the euro would be a catastrophe for Greeks and potentially costly for the rest of the eurozone. But despite telling pollsters they overwhelmingly support euro membership, Greeks voted in droves for Syriza and other antireform parties in January. If Greeks refuse to reform, other European are not obliged to underwrite their refusal.”

A few eurobits....

--A second estimate of first-quarter eurozone growth came in at 0.4% over Q4 (which was also 0.4%), and 1.0% year over year.

--German exports rose a strong 1.9% in April over March.

--The U.K.’s statistics office revised 2014 GDP upwards to 3.1% from a previous 2.8%.

--On the heels of a seemingly improving euro economy, and early signs of inflation, the euro bond market continued to get rocked as the yield on the 10-year German bund hit 1.05% at one point on Wednesday before closing at 0.98% that day and then back down to 0.83% at week’s end. All in all, eurozone bonds were largely unchanged after the midweek volatility.

--Bloomberg Businessweek had a story on EU infrastructure spending, over $3 billion since 2007. 21% of that sum, though, was spent on building or renovating a dozen Polish airports; most of them being a “financial bust.” The country now has 15 airports offering scheduled passenger service, but one of them, Szymany, doesn’t have a single airline committed to fly there (though it was used from 2002 to 2005 as a CIA black site for delivering al-Qaeda suspects).

Meanwhile, on a different issue, last month the European Commission presented a plan on relocating 40,000 Syrians and Eritreans – expected to arrive in Italy and Greece over the next two years – to 23 other EU countries. But as some nations balked, it was decided this week that no final decision on quotas will be made until September, which is pathetic and just a further sign of paralysis in the union. Last weekend alone, 5,700 migrants arrived on the Italian coast, a harbinger of things to come during the summer months.

Turning to Asia, China released some surprise trade figures, with May exports falling 2.5% year over year, while imports plunged 17.6%, a further sign of weak domestic consumption.*

Exports were up 7.8% to the U.S., and up 6.9% to the EU.

*For some reason the South China Morning Post had exports down 2.8% and imports down 18.1%. Not sure on the difference in the figures.

Earlier, May industrial production rose 6.1% year over year, while fixed-asset investment for the first five months, Jan.-May, was up 11.4%, which historically is not good. May retail sales rose 10.1%, also not as good as it may look.

And car sales have been slowing, with the China Association of Automobile Manufacturers reporting new passenger-car sales grew only 1.2% in May from a year earlier to 1.6 million vehicles – the weakest expansion since February 2013.

As the Wall Street Journal also reported, sales in the western part of the country, which was supposed to see faster growth than in the more car-saturated eastern and southern manufacturing belts, is slowing as well, which doesn’t bode well for the likes of Volkswagen and Ford, who have been investing heavily there.

But housing sales for the first five months, according to government statistics, were up 2.2%, reversing a decline from earlier in the year, and new bank loans were up sharply in May over April. So these last two bear watching in terms of divining trends.

On a different topic, the outlook is not good. A quarter of foreign investors surveyed by the European Chamber of Commerce in China are planning to cut jobs in the country. Joerg Wuttke, the chamber’s president, said, “The outlook is more pessimistic than it has ever been. [China’s economic] transition seems to be difficult. No European companies are leaving but headquarters are putting less into China.”

European companies are in part concerned about a tougher regulatory environment there, including strict internet controls. Almost 60 percent of the companies surveyed by the chamber said their inability to access certain websites, such as Google, has a major negative impact on their business.

And 40 percent of those companies surveyed reported their “China-based R&D activity was lagging investment in innovation in other markets, in part because of concerns about intellectual property rights and legal recourse.” [Tom Mitchell / Financial Times]

In Japan, first-quarter GDP was revised sharply upward to 3.9%, annualized, from an initial estimate of 2.4%. Business spending came in far better than first thought. But few are optimistic about the second quarter.

Machine orders, however, a key metric here, rose 3.8% in April over March, better than expected.

Street Bytes

--Stocks were mixed on the week, rising and falling mostly on the news from the eurozone and Greece. It’s been dullsville, witness the year-to-date returns below with almost half the year gone. Friday was also the second slowest trading day of the year.

The Dow Jones added 0.3% to 17898, the S&P 500 was up 0.1%, but Nasdaq fell 0.3%.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.73% 10-yr. 2.39% 30-yr. 3.10%

The 10-year hit 2.47% at midweek, which was the highest yield since Sept. 30, but for the week overall, Treasuries, like much of Europe’s paper, were basically unchanged.

--Twitter shares rose at first on news CEO Dick Costolo was stepping down effective July 1. Former co-founder and chief executive Jack Dorsey is taking over on an interim basis until the board can find a permanent replacement.

Costolo has been running the messaging platform since 2010 and led its initial public offering. But while Twitter has been underperforming, with slowing user growth and disappointing earnings, he had dismissed calls for his resignation, telling CNBC recently, “The board loves the road map we have...the board and I are aligned...we are going to ignore the external noise.”

Costolo announced his departure with a tweet, “Welcome back @jack!!” He also said Twitter had the right strategy, the right products and best management team it ever had.

Dorsey, on a call with investors, said Costolo’s departure was his own decision and that the existing strategy would remain in place. Well this wasn’t exactly what investors wanted to hear and the next day the stock was back in the doldrums. 

--Saudi Arabia increased its oil production to a record level in May as it sought to win back more customers. Output reached 10.33m barrels a day.

In its monthly oil market report, OPEC said world demand would amount to 92.5m b/d this year, up from 91.3m b/d in 2014, unchanged from earlier forecasts.

“The global economic recovery appears to have stabilized at a moderate level,” said the cartel, adding, “The current oversupply in the market is likely to ease in the coming quarters.” [Financial Times]

--The net worth of U.S. households rose in the first quarter by $1.6 trillion, putting it at a new record high of $84.9 trillion, owing to rising home values and investments.

--The Obama administration announced it would regulate greenhouse gas emissions from airplanes, which could severely impact the industry.

While the EPA hasn’t laid out specific requirements yet, it is expected to pattern its rules after existing regulations on autos and power plants.

The airline industry countered it has already been making big strides in reducing fuel use and increasing efficiency, and that further demands will only raise costs.

According to the International Air Transport Association, each 5.5 pounds of weight reduced on an airplane means a one-ton reduction in carbon emissions per year.

--Chancellor of the Exchequer (Treasury Secretary) George Osborne said Britain was going to begin selling off its $40bn+ stake in Royal Bank of Scotland at a loss, saying, “I’m not interested in what’s easy – I’m interested in what’s right.”

The UK is seeking to normalize its banking system following the 2008 financial crisis, of which RBS was the poster child. At the time of its failure, it was the biggest bank in the world. The government of Gordon Brown injected over $60bn into the bank, while RBS reported a net loss of $35bn that year, the worst in British corporate history.

So the current value of the government’s stake is far less than the bailout, but Osborne argues, the longer the wait, “the higher the price on the economy.”

--HSBC announced this week it would slash 50,000 jobs, including through the sale of its businesses in Brazil and Turkey, while stressing it would earn 10% on equity by the end of 2017, though investors are skeptical.

Europe’s largest bank will end up with about 208,000 full-time staff when the cuts are complete, down from 295,000 at the end of 2010 and 258,000 at the end of 2014.

HSBC will step up investment in Asia, including in China. At the same time, the bank announced it will complete its headquarters review by end of the year, leaving open the possibility it could flee London due to rising tax and regulatory costs.

--MSCI, the leading indexer of emerging stock markets, was supposed to add China’s domestic A-share market into its flagship emerging market index, but MSCI left it unchanged.

While the non-move didn’t hurt China’s stock market this week, the earliest A-shares can now be added is May 2017.

MSCI made clear that talks with Chinese authorities are ongoing. But as the Financial Times pointed out, “China has failed to convince the indexers on three points – that the process for allocating quotas to foreign investors needs to be ‘more streamlined, transparent and predictable,’ that capital needs to be more mobile to allow daily liquidity for all investment vehicles, and that the issue of ownership of separate accounts in the new Shanghai-Hong Kong Stock Connect program needs to be clarified.”

I’d add that if you think some U.S. companies play games with their books, financial engineering, for example, there is no way you can trust Chinese corporations, even with big names behind some of the audits. [Alas, I have personal experience in this matter.]

MSCI says if all A-shares were to be included at their full weighting, China would take up 43.6 percent of the emerging markets index.

--General Electric announced it is “going fast” with its plans to sell most of its financial services operations and is pleased with the prices it is achieving.

GE agreed to sell its U.S. buyout lending unit to Canada’s biggest pension fund in a $12bn deal, with $2.5bn being returned to the parent from the sale, part of a total of $35bn that GE plans to raise from its disposal program.

In April, GE agreed on the sale of $26.5bn worth of property assets to Blackstone and Wells Fargo.

--Alibaba CEO Jack Ma, the richest man in China, was traveling in the U.S. this week and said, “If I had another life, I would keep my company private.” Ma’s stake in the company has grown to about $37 billion.

“Life is tough when you IPO,” he said in a speech before the Economic Club of New York.

“If you have less than $1 million, you know how to spend the money,” he said. But once you top $1 billion, you’re obligated to spend your riches “on behalf of society.”

Ma added the best years of his life were when he was making $12 an hour as an English teacher.

--The FDA has recommended a powerful new drug to protect against heart attacks, Sanofi and Regeneron Pharmaceuticals’ alirocumab, which will undergo large clinical trials to be completed by 2017.

Early trials have shown that those taking the new class of medicines have seen their LDL cholesterol, the bad stuff, plunge to super low levels.

Dr. Steven Nissen, a Cleveland Clinic cardiologists, said “imagine starting with an LDL of 220,” referring to a dangerously high level. “With the maximum dose of the most powerful statin you get it down to 120. Now you add a PCSK9* inhibitor and get it to 60. For those people it will be really helpful.” [New York Times]

*A gene that protects people from getting heart disease.

--McDonald’s released monthly same-store sales for the final time (from here on it will be quarterly), with May global comp sales -0.3%, worse than expected, though Europe at +2.3% was better than forecast. But the U.S. was -2.2%, so the tough times continue.

--Former Fed chairman Paul Volcker commented on state finances in a report released by the Volcker Alliance, a government reform group he founded in 2013.

“The continued fiscal stress is tempting states to continue, and even intensify, budgeting and accounting practices that obscure their true financial position, shift current costs on to future generations, and push off the need to make hard choices on spending priorities and revenue practices.”

“There are problems hidden by a lack of truth and integrity” in state budgeting, Volcker said.

Volcker adds that while all states but one – Vermont – are required to balance their budgets annually, there is no common definition of a balanced budget, leaving room for “sleight of hand.” [Nicole Bullock / Financial Times]

--A Bloomberg Businessweek story on pilot licensing in India is troubling. A 2011 government review, for example, found at least 18 people were using forged documents to win a promotion at an airline or win certification from a flight school and it seems many are still being granted certificates they in no way qualify for. 

One fellow said he has a certificate saying he’s flown an aircraft for 360 hours when he actually sat in a co-pilot’s seat for just 35 minutes.

--Fox Chief Executive Rupert Murdoch is expected to relinquish his CEO role and will appoint James Murdoch, 42, to the post, with his older brother Lachlan Murdoch, 43, taking a larger role as executive chairman. Rupert, 84, would continue to be actively involved in the company as executive co-chairman.

--Hedge-fund billionaire Steven A. Cohen was revealed to be the buyer of Alberto Giacometti’s bronze “Pointing Man” at a Christie’s auction in May for a record $141 million.

There was also a Page Six story in the New York Post this week that Cohen’s pet pig, which had its own room, seriously, got so “fat and moody” he was shipped to a farm to be with others his own age, and species.

Well you can imagine what the pig, “Romeo,” must be saying. “I’ve got to eat this [slop]?”

--Former International Monetary Fund chief Dominique Strauss-Kahn was cleared of all “pimping” charges following a three-week trial where he was accused of helping supply prostitutes for sex parties he attended in Lille, Paris and Washington. The courts were unable to prove he knew the women were being paid.

It was four years ago that Strauss-Kahn, once thought to be a leading contender for the presidency of France, was accused by a New York hotel chambermaid of sexual assault. The charges in New York were eventually dropped and he settled with the woman.

While he was exonerated, the trial itself was humiliating as he was forced to answer claims he referred to women as “equipment.”

--The latest rumors have Lester Holt replacing Brian Williams permanently in the anchor desk on “NBC Nightly News.” Williams’ fate is to be decided soon.

But Holt may be asking for the same $10 million contract that Williams has.

Katie Couric just re-upped with Yahoo for $10 million.

Foreign Affairs

Iraq/Syria/ISIS: At a press conference at the G7 summit in Bavaria, President Obama stunningly admitted he did not yet have a “complete strategy” for training Iraqi forces to fight ISIS.

Obama said the Pentagon was reviewing plans to boost the effectiveness of the Iraqi military, following its humiliating defeat and abandonment of Ramadi.

“We don’t yet have a complete strategy because it requires commitments on the part of the Iraqis, as well about how recruitment takes place, how that training takes place, and so the details of that are not yet worked out,” he said.

“When a finalized plan is presented to me by the Pentagon, then I will share it with the American people,” he added.

House Homeland Security Committee Chairman Michael McCaul (R-Texas) immediately replied, “It is no surprise this administration does not have a ‘complete strategy.’”

But a few days later, Obama seemed open to expanding the American footprint in Iraq with the addition of 450 military trainers to help “train and advise” local forces, bringing the total in Iraq to 3,550. A separate proposal for establishing a network of bases, outposts, where Americans would work with Iraqi troops and local tribesmen, though not engage in ground combat, is in the cards. Nothing is finalized, beyond the 450, and White House officials did not anticipate doing so for a few more weeks.

The main immediate goal is to retake the city of Ramadi. But keeping troops on bases still carries great risks, given ISIS’ penchant for suicide bombers.

Noted military strategist Anthony Cordesman told the New York Times that the latest moves may have some merit, “But creeping incrementalism is rarely a way of correcting a failed or inadequate strategy, and this approach certainly is not a new strategy or a way of addressing the problems that the existing strategy does not address.”

Benny Avni / New York Post

“ISIS is having a good week.

“It’s gaining ground in Iraq, where it’s closing in on Baghdad. It’s solidifying ownership of more than half of Syria. And on Tuesday, ISIS captured a strategically located power plant in Sirte, Libya, and is closing in on the country’s oil fields.

“Yup, the Islamic State marches on, conquering territory and imposing harsh ‘comply or off-with-your-head’ laws over vast populations in the Mideast and Africa. And America? Even though President Obama marked ISIS as our Enemy No. 1, Washington has done little more than yawn.

“ ‘We don’t yet have a complete strategy,’ Obama said in Germany over the weekend, speaking of progress in his year-old vow to ‘degrade and destroy’ ISIS.

“Victims of ISIS will have to wait until the commander in chief of the world’s former sole superpower completes devising a strategy. How long will it take? Please have some ‘strategic patience,’ pleads John Kirby, the new State Department spokesman.

“So don’t hold your breath, world. The cavalry may be coming, but first America must end our little power nap....

“In reality, Obama does have a strategy. Early on he’d detected a desire among Americans to shrink our global footprint. He ran on a promise to do just that, won and made it his life mission to ‘end wars.’...

“For the world, America’s detachment from global affairs is growing more disastrous by the day. ISIS is just the symptom. Powers from Iran and al Qaeda to China and Russia rush to fill in all those empty spaces we leave behind.

“At one point Americans will awaken and realize that such voids are our problem, too. That will happen when an enemy hits us badly or, preferably, before that – when a presidential candidate makes the case for reversing America’s strategy in the last six years.

“You know that strategy. It’s the one that’s incomplete – by design.”

Editorial / Wall Street Journal

“President Obama all but admitted on Wednesday that his strategy against the Islamic State is failing by ordering an additional 450 U.S. military advisers to join the 3,500 already in Iraq. Alas, this looks like more of the half-hearted incrementalism that hasn’t worked so far.

“The new troops won’t be used as spotters to call in airstrikes against Islamic State, much less join Iraqis on the front lines. Apache helicopters won’t provide air cover for Iraqi soldiers. There won’t be additional special forces to conduct raids against high-value targets. The highest ranking U.S. military officer will remain a mere two-star general.

“Instead, the additional advisers will buttress Mr. Obama’s current strategy at the margins by putting Iraqi troops and Sunni tribesmen through a basic training course of between two and four weeks. This may be enough to show recruits how to march in drill and maintain and fire a AK-47.

“But as retired four-star Gen. Jack Keane told us Wednesday, while the training is helpful, it ‘is insufficient to transfer a civilian to the physical, psychological and disciplinary demands of combat. And it doesn’t address the leader issue in terms of quantity or quality.’

“That second point is vital, since the Iraqi army suffers from a dearth of competent and courageous leaders, particularly at the tactical levels of command. ‘We were not deserters,’ one soldier told the pan-Arab daily Asharq al-Aswat after Mosul fell last June. ‘Our commanders abandoned us while we were sleeping in the night, and fled by helicopter.’....

“The fundamental problem with Mr. Obama’s strategy is that he is so determined to show that the U.S. isn’t returning to war in Iraq that he isn’t doing enough to win the war we are fighting....

“The longer ISIS stands up to a U.S. president pledging its destruction, the more of a magnet it becomes for young men willing to die for its perverted form of Islam. Every day that ISIS’ army of 30,000 irregulars holds its conquered territory against the world’s most powerful military, it becomes a greater threat to American security.”

In other developments, Hizbullah repelled an ISIS attack in northeast Lebanon Tuesday, losing eight fighters while killing 14 jihadis, in the largest confrontation between the two since the former joined the Syrian war three years ago. ISIS is holding nine Lebanese soldiers hostage.

The Syrian Observatory for Human Rights said the Assad regime killed at least 49 civilians in airstrikes on a town in Idlib province on Monday.

Iran: The June 30 deadline for a final agreement on Iran’s nuclear program is less than 20 days away and the biggest issue, inspections, remains unresolved.

The P5+1 wants UN nuclear inspectors to have unfettered access to any suspect facilities where nuclear work may be going on, so-called undeclared facilities, but there is no way Iran’s leadership will allow this, and, of course, it’s the undeclared sites where Iran would conduct the secret work.

The known facilities at Natanz and Fordow, plus the heavy-water reactor at Arak, are under international oversight.

But some involved in the talks seem to feel a comprehensive deal will still be reached, though it seems likely the deadline could be extended a little further.

The incentive for Iran in agreeing to inspections and strict monitoring is an easing of international sanctions.

But while the U.S. publicly says inspectors must be given “anywhere, anytime” access, as the Los Angeles Times’ Paul Richter wrote, “In the negotiating rooms... U.S. diplomats aren’t demanding immediate access.

“Rather, they’ve signaled that they’re willing to allow a panel some time to consider Iranian objections and weigh the evidence before allowing a challenge inspection to proceed.”

But as I brought up months ago, this would be a disaster. While a proposal calls for a maximum of 30 days for deliberations by a commission (comprised of representatives from the six powers, Iran and possibly the European Union), you know it could extend far beyond that while Iran merrily proceeds with its work, or, hides it.

For a different take in the overall issue of Iran, Ian Bremmer / Eurasia Group and TIME:

“(Instead) of continuing to focus on Iran’s nukes, Washington should focus on Iran’s more dangerous weapons. In 2009-10, a virus known as Stuxnet inflicted significant damage on Iran’s ability to enrich uranium. Many experts believe that since that time, Iran has made substantial progress in developing its own cybercapabilities, with attacks on targets that are believed to include Saudi Aramco, the world’s largest oil company.

“Even if Iran one day builds a nuclear weapon, it’s unlikely to use it, for the same reason that Washington and Moscow avoided the use of nuclear weapons throughout the Cold War. Despite sometimes over-the-top rhetoric from Iran’s leaders, there’s no reason to believe they’re suicidal. Cyberweapons are another matter: unlike a nuclear attack, they can be used with deniability. As the U.S. and its allies hash out what could be a historic deal, they should worry less about a weapon Iran will never use and focus instead on the weapons it’s already believed to be using.”

Yemen: Saudi airstrikes on Sunday targeted the headquarters of Yemen’s armed forces in the rebel-held capital, Sanaa, killing at least 22. This came a day after the Houthis, the Iranian-backed Shiite militants, fired a Scud missile into Saudi Arabia in a dramatic escalation of the war. The Saudis say a Patriot missile battery shot it down.

The Yemeni military was believed to possess 300 Scuds, most of which are now in the rebels’ control.

Israel: Prime Minister Benjamin Netanyahu, on the non-existent reaction to the recent rockets fired on Israel from Gaza.

“I didn’t hear any international actor condemn this rocket fire, and even in the UN no one is opening their mouth,” he said. “It is interesting whether this quiet will continue when we act in full force to defend ourselves. Let it be clear, the hypocrisy spreading in the world will not tie our hands when it comes to defending Israeli citizens. This is how we acted in the past, and how we will continue to act." [Jerusalem Post]

Egypt: Suicide bombers targeted Egypt’s famed Karnak temple in the ancient city of Luxor on Wednesday, injuring at least four, as militants continue to go after Egypt’s vital tourism industry. The Interior Ministry said two attackers were killed and a third wounded in what was a foiled attempt that did not hurt any tourists.

Attackers were first going after a tourist bus when they came under fire from security forces.

Russia / Ukraine:

Arseniy Yatsenyuk, prime minister of Ukraine / op-ed Washington Post

“Ukraine is fighting a war on two fronts. The one you see on television is taking place in the east of our country, where thousands of Russian troops are engaged in an armed aggression against Ukraine’s territorial integrity, including the illegal annexation of Crimea.

“Less visible, but just as important, is Ukraine’s war against the Soviet past and the legacy of corruption and misrule that has held us back for so many years. These battles must be fought and won together because they are essentially about the same thing – Ukraine’s desire to build a prosperous and democratic future.

“Russian President Vladimir Putin wants us to fail because he knows that democratic ideas are contagious and that a free Ukraine would set an unwelcome example at home. Russia’s military intervention is an attempt to prevent change by forcing us to choose between security and reform....

“No one should have any doubt what is at stake. The great achievement of a ‘Europe whole and free’ that marked the end of the Cold War is under direct attack from resurgent Russian authoritarianism and imperialism. Ukraine is bearing the brunt of the attack, but the consequences of allowing our independence to be crushed would not be contained within Ukraine. It would give rise to new threats and crises that would be even more difficult and costly to resolve. The democratic idea itself would be undermined....

“With our firm commitment to reform and the support of our partners, we can fulfill the dreams of our nation for freedom and prosperity. Democracy is the most powerful idea ever conceived and never more so than when democratic nations stand shoulder to shoulder. That has been the lesson of U.S. leadership over the past century. It remains our inspiration today.”

Editorial / Washington Post

“In the past several months, Ukraine’s freely elected government has taken dramatic steps to reform its economy, fight corruption and rebuild democratic institutions. It has imposed painful austerity on average Ukrainians, stripped oligarchs of political and economic privileges and rewritten laws to encourage free enterprise and foreign investment. It has done all this even while fighting a low-grade war against Russia, which has deployed an estimated 10,000 troops to eastern Ukraine and, with its local proxies, attacks Ukrainian forces on a near-daily basis.

“Ukrainian leaders such as Prime Minister Arseniy Yatsenyuk, who visited Washington this week, see themselves as fighting on the front line in defense of Western democracy against Vladimir Putin’s imperialist autocracy. ‘This is about the core values of the free world,’ he told us. ‘If we fail, this will be a failure for the entire free world.’

“In spite of the government’s exertions, the odds of a Ukrainian collapse remain alarmingly high. In addition to the ongoing Russian-led military assaults, waged in blatant violation of a peace deal Moscow agreed to in February, Mr. Yatsenyuk’s government is struggling to meet staggering financial obligations. Private creditors, including the U.S.-based Franklin Templeton firm, are refusing to cooperate with a debt restructuring, sanctioned by the International Monetary Fund, that is needed to save the country $15 billion over four years....

“What’s missing is a decision by Mr. Obama to make the defense of Ukraine a priority. The president has ceded leadership on the issue to Germany and France and overridden those in his administration and Congress who support arms deliveries. In dispatching Secretary of State John F. Kerry to meet Mr. Putin last month, he appeared more intent on obtaining the Russian ruler’s cooperation on Iran than in stopping his ongoing aggression.

“A stronger U.S. commitment to Ukraine will not guarantee its success. But Mr. Obama’s lukewarm support risks a catastrophic failure for the cause of Western democracy.”

The Pentagon announced Monday that U.S. and European allies have begun a large military exercise in the Baltic Sea involving 5,600 military personnel – including 2,000 Americans.

As for Putin, he told an Italian newspaper in an interview published last Saturday that “there’s no need to be afraid of Russia.”

“The world has changed so much that people in their right mind cannot imagine such a large-scale military conflict today.... We have other things to do, I can assure you,” Putin said.

“Only a sick person – and even then only in his sleep – can imagine that Russia would suddenly attack NATO.”

Polling released Wednesday by the Pew Research Center shouldn’t give the citizens of the Baltic nations any comfort.

In Germany, only 38% of the public said their country should respond militarily to a Russian attack on a neighboring NATO ally, while 58% said it shouldn’t. In other western European nations surveyed – the U.K., France, Spain and Italy – support for military action was higher, but still less than 50%.

But 56% of Americans and 53% of Canadians favor using military force in response to a Russian attack on a neighboring country that’s a NATO ally.

At the same time, Americans are split on the question of sending arms to Ukraine, with 46% in support and 43% opposed, according to Pew. Only 19% of Germans support such a move.

Of course Article 5 of NATO requires member countries to assist allies who are attacked.

According to Russia’s state statistics service Rosstat, the number of people falling below the official poverty line in the first three months of the year rose from 19.8 million to 22.9 million, or 15.9 percent of the total population. Inflation spiked to 16.2 percent in Q1, while incomes rose by only 11 percent, according to Rosstat.

China: The number two figure in the Central Military Commission traveled to Washington in a sign Beijing doesn’t want relations with Washington to deteriorate further, especially prior to President Xi Jinping’s state visit in September.

Analysts said Fan Changlong’s visit would help both sides to establish communication channels to prevent military confrontations between the two.

But Fan’s mission comes amid not just disputes over the South China Sea, but also cyber security and disagreements in the financial and economic sectors.

As for the cyber security issue, there is little doubt Chinese hackers are trying to map the government and gain access to networks in other departments following the breach at the Office of Personnel Management. Certainly the database at OPM could be used to find staff with high security clearance and then access information that could be used for blackmail, or recruiting, later.

According to the head of the American Federation of Government Employees, J. David Cox, the vital personal data of every current and former federal employee and retiree, including Social Security numbers, birthdays, addresses and other data, was pilfered in the massive attack.

Cox wrote in a letter to OPM Director Katherine Archuleta, “We believe that Social Security numbers were not encrypted, a cybersecurity failure that is absolutely indefensible and outrageous.”

And then the Wall Street Journal reported late Friday that the hackers who raided OPM “had access to the secret background investigations that the U.S. government conducted on current and former employees, senior administration officials said Friday – an ominous development in the recent theft of federal data, one of the largest in history.”

Hackers gained “access to at least two separate background investigation forms that must be completed for many U.S. officials to work in select government jobs, and these forms are often necessary for someone to obtain security clearance. The two forms – known as Standard Form 85 and 86 – contain extensive information about family members, past relationships and personal habits. They often contain the Social Security numbers of immediate family members, suggesting that the impact of the hack could be much wider than initially feared.” [Damian Paletta / WSJ]

Pasi Eronen / New York Post

“Data stolen from this hack and from the earlier intrusions into Anthem and Blue Cross insurance databases allow the Chinese to build detailed profiles of federal employees, including those with security clearances.

“On top of the damage caused to our intelligence capabilities, the hacking campaign against U.S. companies has inflicted an estimated $250 billion in annual losses from intellectual-property theft. This is a serious extra burden to the recovering American economy.

“And aside from better cyber-defenses, the United States must also prioritize deterring the Chinese – or other adversaries like Russia, North Korea and Iran – from conducting operations against the United States.

“The way to do this is for the Obama administration to convince our adversaries that the expected benefits from successful cyber-attacks would be dwarfed by the price paid for conducting them. That doesn’t only include hitting back with our own cyber-attacks....

“The OPM hack should not be seen as an isolated, one-off case, but as the tip of an iceberg, one piece of a larger ongoing Chinese campaign in cyberspace against the United States and its interests.

“It is a persistent, multi-pronged and low-intensity campaign, which does not aim at simple ‘shock-and-awe.’

“The campaign’s long-term goal is to improve China’s strategic standing vis-à-vis the United States without – and this is the key – provoking a military response.

“The Chinese and their collaborators hope to compromise America’s core intelligence capabilities and erode the source of U.S. global power: its economic dominance.

“Both to safeguard its global standing and to establish more sustainable rules of the road for cyberspace, the United States needs to lead the technologically advanced – but still highly vulnerable – Western world and reclaim its cyber-security.

“We must start making our adversaries pay a steep price for their attacks.”

Turkey: President Recep Tayyip Erdogan broke his silence after being dealt a huge blow at the polls last weekend, calling for the swift formation of a new coalition government.

The ruling Justice and Development (AK) Party Erdogan co-founded lost its majority, as forecast. 

In a message to investors rattled by the political uncertainty, Erdogan insisted the election result “certainly does not mean Turkey will remain without a government.”

The AKP, which has had a majority since it came to power in 2002, will have 258 seats in the 550-seat parliament, the Republican People’s Party (CHP) 132, and the Nationalist Movement Party (MHP) and the pro-Kurdish Peoples’ Democratic Party (HDP) 80 apiece.

An AKP-MHP coalition is the most likely option, according to analysts, with the two sharing a conservative and nationalist voter base between them.

AKP secured less than 41% of the vote, while for the first time, a party dominated by ethnic Kurds surged into the Grand National Assembly with 12% of the vote. [You need 10% of the total to gain seats in parliament.]

The war between the militant Kurdistan Workers’ Party, or PKK, and the Turkish state has claimed 40,000 lives since the conflict first flared in the 1980s, making the HDP’s rise all the more remarkable. The political branch has been around just three years.

David Gardner / Financial Times

“There have always been at least two sides to Recep Tayyip Erdogan, and both of them have been on full display in Turkey’s general election.

“There is the richly gifted, sometimes reformist politician who has won 10 contests in a row, including three general elections with a rising share of the vote.

“Then there is the willful would-be sultan stalked by hubris and paranoia, treating Turks as his patriarchal property – ‘my nation,’ as he habitually calls them, which he avowed would always obliterate the vast conspiracy he sees taking him and Turkey down.

“Mr. Erdogan, who ascended from prime minister to president last year, was not on the ballot in Sunday’s vote. But this general election was all about whether his neo-Islamist Justice and Development party (AKP) could win a majority big enough to change Turkey’s constitution and move from a government emanating from parliament to a top-down, executive presidency – investing President Erdogan with even more power than he has already grabbed....he appears to have failed.”

Erdogan could still use his power, however, to call a new election if he can’t form a coalition with the MHP. The goal would be to get the HDP back below 10% and win most of their seats. He has 45 days to call a new vote.

Former Israeli president Shimon Peres, appearing at a conference in New York, said, “I am happy about what happened in Turkey – Erdogan wanted to turn Turkey into Iran, and there is no room for two Iran’s in the Middle East.”

By the way, turnout for the vote was estimated at 85%.

Pakistan: The charity Save the Children was ordered to leave the country, with a government official accusing the NGO of “anti-Pakistan” activities. The staff was given 15 days to leave the country.

Pakistan previously linked the charity to the fake vaccination program used by the CIA to track down Osama bin Laden.

The charity has always denied it was involved with the CIA or Pakistani doctor Shakil Afridi, who carried out the program.

South Korea: President Park Geun-hye was forced to cancel her summit meeting with President Obama in Washington to deal with the Mers (Middle East respiratory syndrome) crisis that has claimed 14 lives at last word. Park’s government has been accused of mishandling the health scare, allowing Mers to become the biggest outside of Saudi Arabia, but she was already struggling to regain the confidence of her people after the ferry disaster of last year that killed 304. Her approval rating is now below 40%.

Last week I talked of how Mers could do a huge number on the South Korean economy. One example...all 600 tours to South Korea organized for this month by local travel agencies in Hong Kong were cancelled after the Hong Kong government issued a red alert against travel to the Mers-hit country.

Nigeria: Boko Haram burned down six northeast Nigerian villages and killed 37 near its Sambisa Forest stronghold, according to the Associated Press.

A joint force of troops from Nigeria, Chad and Cameroon has had some success in driving Boko Haram fighters out of towns and villages, but then the terrorists move back in.

Mexico: In Sunday’s midterm election in which President Enrique Pena Nieto’s ruling party and its allies won a small majority in the lower house of Congress, Jaime Rodriguez became the country’s first independent candidate to win a governor’s race, taking Nuevo Leon, Mexico’s richest state and home to some of its largest corporations.

The three traditional major parties garnered just 60% of the vote, nationwide, between them, the lowest ever.

Random Musings

--More on ‘As America gets hacked’...Robert Samuelson / Washington Post

“(None) of these intrusions threatens the everyday routines of the overwhelming majority of Americans. Unless they happen to us, cyberattacks are just someone else’s problem or tragedy. They’re the hurricane and the tornado on the evening news or the random shooting in an inner-city neighborhood. They’re unfortunate and perhaps devastating – but isolated.

“This may be self-delusion. What we ultimately have to fear from hackers is that they – and this would apply mostly to hostile governments and terrorist groups – will get inside our most sensitive data systems with the intent of causing havoc. They would hijack, destroy or corrupt the data systems that regulate energy, control financial transactions, contain medical records and oversee transportation networks. Everyday life would be disrupted for countless millions.

“We don’t know our full vulnerability because these attacks have yet to be mounted on a grand scale. But given the success of lesser hacking, it’s hard to be confident that this most destructive variety is simply the figment of an overactive imagination. This is true cyberwarfare. We need to protect against it and also to stop making more systems dependent on the Internet – an act of commercial convenience that, with hindsight, may seem self-destructive.

“Until we recognize the threat’s gravity, we need to be constantly reminded. That’s why the relentless hacking may be doing us a favor.”

--G7 leaders meeting in Bavaria agreed to support cutting greenhouse gases by 40 to 70 percent by 2050 from 2010 levels – the first time they have backed such a precise long-term target. It’s hoped this will help boost negotiations among nearly 200 countries in Paris in December, where a final global climate deal could be reached.

The G7 also agreed to speed up renewable energy deployment in Africa.

China, the world’s largest emitter, has said its greenhouse gas pollution would peak by 2030 at the latest, but this date, like any for this topic, is worthless.

And in terms of a previous pledge to mobilize $100bn a year from public and private sources by 2020 to help poorer nations tackle climate change, no one seems to know how the G7 is going to come up with the funds.

Said Tim Gore of Oxfam, policy lead on climate change, “Developing countries need a credible financial road map, not a set of accounting tricks.”

--In a Democratic Party convention in Wisconsin, Bernie Sanders finished within eight points of Hillary Clinton. Granted, a recent Real Clear Politics poll average had Hillary at 59 percent to Sanders’ 11.5 percent, but the Wisconsin showing attracted attention. 

What Sanders has is authenticity and consistency. Asked recently on a Sunday news program if he wanted to make America more like Scandinavia, Sanders agreed enthusiastically.

“That’s right, that’s right. And what’s wrong with that? What’s wrong when you have more income and wealth equality?” [Nick O’Malley / Sydney Morning Herald]

--Michael Goodwin / New York Post

“Two new reports from the Clinton Chronicles demand attention. One involves an anti-gay church in an impoverished African country that gave up to $10 million to the Clinton Foundation. The London Daily Mail reports that the Cameroon Baptists Convention believes that being gay ‘contradicts God’s purpose’ and likens homosexuality to the Devil.

“The church only has about 100,000 members, so where did it get so much money? And why is it shipping millions to the Clintons when Cameroon is one of the poorest countries on Earth, with child labor a scourge and only one doctor for every 5,000 people? Life expectancy is reported as 55.

“Moreover, Cameroon is extremely corrupt, with human-rights organizations claiming that criminal suspects, gays and political activists are routinely tortured.

“The second scandal involves a Clinton spinoff in Sweden that collected $26 million in donations while Sweden was trying to persuade Hillary Clinton’s State Department not to sanction major national firms doing business with Iran. The Washington Times broke the story and says the spinoff was never disclosed to federal ethics officials, ‘even though one of its largest sources of donations was a Swedish government-sanctioned lottery.’

“Two results: No Swedish firms were sanctioned, and one of them, telecommunications giant Ericsson AB, paid Bill Clinton $750,000 for a speech. The Times reports that Ericsson was trying to sell tracking technology to Iran that could be used by the mullah’s security services.

“Something is rotten in Clinton World. Actually, everything is rotten in Clinton World.”

So Bill Clinton was at a Clinton Global Initiative event in Denver the other day and he said he would stop making paid speeches if his wife wins the White House.

But in addressing questions of the charity, the former president said:

“Has anybody proved that we did anything objectionable, no. Have we done a lot of good things with this money, yes.”

I’m too tired to argue this week.

--Editorial / Wall Street Journal

“Does the White House think it is going to lose this year’s big ObamaCare subsidy case at the Supreme Court? We’re beginning to wonder given President Obama’s increasing show of pique when he talks about the law.

“On Monday in Austria, Mr. Obama responded to a question about the looming decision in King v. Burwell by treating the Supreme Court like first-year law students for even considering the case.

“ ‘There is no reason why the existing exchanges should be overturned through a court case. It has been well documented that those who passed this legislation never intended for folks who were going through the federal exchange not to have their citizens get subsidies,’ Mr. Obama averred. That conveniently ignores comments by ObamaCare architect Jonathan Gruber, but the President kept rolling.

“ ‘And so this should be an easy case. Frankly, it probably shouldn’t even have been taken up,’ he added. ‘And since we’re going to get a ruling pretty quick, I think it’s important for us to go ahead and assume that the Supreme Court is going to do what most legal scholars who’ve looked at this would expect them to do.’

“That last bit of political bravado is belied by the previous display of legal frustration. A seasoned observer like Mr. Obama must know that it does him no good to lacerate the Justices in public if he’s trying to influence them to come his way. His best strategy would be silence. Our suspicions were raised even more on Tuesday when Mr. Obama gave a full-throated defense of his signature health law that assailed opponents and gave the impression he’s not going to alter a single letter no matter what the Court does.

“Could it be that legal sources are telling Mr. Obama that he’s about to lose, so he is now beginning to prepare the public for an all-out assault on the Court and Republicans?”

--According to federal data released this week, New Jersey is ranked 46th nationwide in economic growth for 2014, up 0.4%, which was less than the previous two years.   By contrast, New York posted a 2.5% increase last year while Pennsylvania grew 1.8%.

Only two states – Alaska and Mississippi – experienced contractions.

Meanwhile, as you’re thinking just why the heck does Chris Christie think he should be president, the governor did score a victory this week when the state Supreme Court ruled he did not have to contribute more to the state pension system, which is incredibly in the hole, if he did not think it was financially viable. However, it left intact higher payments for employees.

Bottom line, Christie can claim he is being fiscally responsible, even though the state’s credit rating has been downgraded umpteen times, as entitlements is a major focus of his nascent presidential campaign. But at the same time he has zero positives to point to in terms of the state’s economic vitality...or lack thereof.

--Former House speaker Dennis Hastert pleaded not guilty to charges that he lied to federal investigators and structured bank withdrawals to avoid reporting rules.

The money was allegedly paid to hide previous ‘misconduct’ against an unnamed Illinois resident who was to receive $3.5 million.

--Editorial / New York Daily News

“It was the year of the blackout and bloodthirsty Son of Sam, the South Bronx was burning and subway cars were slathered in graffiti.

“Or as Mayor de Blasio and his wife Chirlane recall 1977, the good old days.

“Police investigated 1,557 homicides that year – in the midst of a decade where New York City’s population dipped by 10%, as residents fled for safer climes.

“Chirlane McCray, while urging tougher rent hike regulations, wistfully recalled on NY1 her arrival in the reeling city during the Abe Beame administration.

“And her husband, after defending his spouse, reiterated Friday that the reduction of stop-and-frisk had zero correlation with this year’s increase in murders and shootings.

“ ‘As we have reduced stops, we have reduced crime,’ the mayor said during a live radio appearance Friday. ‘I think the numbers are overwhelmingly clear.

“ ‘To me, this has actually been a great ratification of the fact that we can protect individual liberties while making ourselves safer.’

“The Daily News reported exclusively that the city is on pace to make 42% fewer stops this year as homicides are up almost 20%....

“McCray offered her rosy recollections of the late ‘70s, when she came to New York from Springfield, Mass.

“ ‘The city was strong,’ she said. ‘The city was inclusive and dynamic. We want the city to stay that way.’

“The city was, in fact, a mess in the last year of one-term Mayor Beame’s administration.

“ ‘I lived in New York City in 1977, and my car was broken into twice,’ recalled former Mayor Rudy Giuliani. ‘The city was considered a basket base in 1977.’....

“De Blasio, asked if his wife’s pining for 1977 was a gaffe, said she was referring to the amount of affordable housing available at the time.”

Oh brother.

But “Giuliani gave McCray a pass: ‘I don’t believe it’s fair to criticize her, because I don’t know if she’s aware of those facts.’”

But wait....there’s more!

Michael Goodwin / New York Post

“In the annals of law enforcement, no living American can top the celebrated career of Bill Bratton. Starting as a Boston cop in 1970, he became the police commissioner there, then held the top jobs in New York and Los Angeles. London wanted to hire him before a citizenship requirement scuttled the offer.

“At every stop, he reduced crime while changing the culture of policing....

“For all that glory, Bratton, at age 67, now faces the most difficult challenge of his career.

“Crime is exploding in New York, but he could handle that. His problem is his boss....

“The only thing (de Blasio) won’t do is let Bratton be Bratton.

“It’s not merely the refusal to add the 1,000 cops the commissioner wants. It’s that de Blasio’s dogma blinds him to the fundamental virtue of law and order and the universal desire for safety. Despite his claims, he clearly doesn’t subscribe to ‘broken windows’ policing.

“Arrest and summonses in virtually every category are falling off a cliff even as the sound of gunfire fills the night air in many neighborhoods and Central Park turns dangerous. When the increase in murders over last year hit 20 percent, de Blasio called it an ‘uptick.’

“That’s obscene. I challenge the mayor to go to a funeral and tell grieving loved ones that their child died from an ‘uptick.’....

“I can only worry that, if Bratton doesn’t save New York from de Blasio, nobody will.”

That’s the concern. Bratton doesn’t need this. He can walk away with his reputation, and legacy, intact....and maybe get a cabinet position in the next administration in the White House.

--From the New York Post: “U.S. Attorney Preet Bharara moved ‘a giant step closer’ to Gov. Andrew Cuomo late last week with an indictment that alleges insurance exec Anthony Bonomo, a top Cuomo contributor whom the governor made chairman of the New York Racing Association, gave a lucrative no-show job to state Sen. Dean Skelos’ son, sources have told The Post.

“ ‘Bonomo is Cuomo’s guy, and he wouldn’t offer anything to Skelos’ kid without first making sure it was OK with the governor or his people,’ said a senior state Democrat....

“Others at the Capitol agreed Bharara appeared to be moving closer to charging Cuomo and/or one or more of his top aides in his investigation of corruption in state government, which originated with Cuomo’s abrupt closure last year of his Moreland Act Commission as it was closing in on evidence of wrongdoing.

“ ‘This is a drip by drip that’s getting closer and closer to Cuomo, with Bonomo and Dorego* providing prosecutors with an inside look at how the corrupt Albany system works,’ explained a second senior state political figure.”

*Charles Dorego, a top official of Cuomo megacontributor Leonard Litwin’s Glenwood Management, a real estate development firm.

--Kathleen Parker / Washington Post

“Barring a terror strike or an Ebola outbreak to distract us, the 2016 presidential election seems headed for a gender identity showdown.

“Within days of the release of Caitlyn Jenner’s Vanity Fair cover photo, Republican presidential candidates were being asked to comment, while conservative pundits were warning of a political apocalypse....

“Mike Huckabee was (thrust) into the debate when a video of a speech he gave in February surfaced online. Huckabee had joked, ‘I wish that someone told me that when I was in high school that I could have felt like a woman when it came time to take showers in P.E.’

“When asked Tuesday about his earlier remark, Huckabee said, ‘I’m not going there.’

“This is good advice for all Republicans, unless they have something thoughtful to say.   If you think ‘legitimate rape’ was a problem, stick around for ‘Can Jenner be a woman if he still has male organs?’ Apparently, Jenner hasn’t yet taken the final physical step to becoming a woman....

“Clearly, this subject is more complicated than a girlie pinup in a ‘50s muffler shop, which is what Jenner’s cover photo reminded me of. Never mind the potential ramifications and adjustments that may become necessary in the public square, from single-sex institutions to restroom facilities to those awful public school showers.

“(Rush) Limbaugh isn’t wrong in predicting the coming stigmatization of conservatives as crazy or hateful because they’re not queuing up as popular convention requires. The danger for the GOP is that the loudest and kookiest voices will be harnessed by the media and trotted out as typical of the Republican base....

“What really bothers most conservatives, and doubtless many others, is the dominant template of social change via media saturation. While some advocates and talk-show hosts are cheering the debate on transgenderism prompted by Jenner’s celebrity transition, there is no debate. What we have is a media-created, media-driven conversation among the media.

“Indeed, the matter has been settled by Vanity Fair and other Big Media, and it’s now up to the rest of the country to fall in line....

“The media’s group embrace of Jenner’s transition should be seen for what it is – not a revolutionary step toward minority rights but a money grab for ads, ratings, sales and buzz in a culture of provocation and greed without ethics or conscience.

“Let’s talk about that, instead.”

--Comedian Jerry Seinfeld received a lot of press this week for decrying political correctness gone wild in saying he understood why other comics such as Chris Rock have stopped performing on campuses. “He said young people cry ‘racism,’ ‘sexism’ or ‘prejudice’ without any idea of what they’re talking about,” as the Wall Street Journal’s Daniel Henninger put it.

--I watched almost all of Beau Biden’s funeral last Saturday. The eulogies were tremendous (and very touching), including President Obama’s. You need to put politics aside at such moments. A family lost their father, a father lost his son, far too early, and Beau Biden was a good man.

--The Wall Street Journal’s Gerald Seib interviewed Bob Dole (who turns 92 July 22) and George H.W. Bush (who turned 91 today, Friday) for their thoughts on the Big One, among other things.

“We made such a difference in World War II,” said Dole. “Look what we did in Europe. Look at how many people had freedom for the first time in decades. No more Hitler. No more Mussolini. We all made a difference.”

Dole, though frail, still treks to the Mall in Washington to greet fellow veterans flown in to visit the World War II Memorial.

Bush: “It was good versus evil, and thanks to the courage and selfless sacrifices of too many people – too many sons, and brothers and fathers who never came home – freedom prevailed over tyranny.”

The war was the defining experience for both. “It made a man out of a scared boy in my case. It broadened my horizons as well – brought me into contact with a broad cross-section of Americans that only deepened my admiration for our nation and people,” said Bush. Seib: “The experience, he says, compelled him upon his return to strike out in an entirely new direction, by heading to Texas to lunge into the oil industry.”

Seib: “In retrospect, (Bush and Dole agree), the shared war experience among many lawmakers created a common bond that crossed party lines and made conversation and compromise more possible. That kind of bond is sorely missing today.”

--Finally, congratulations to American Pharoah! What an awesome moment. I’m praying trainer Bob Baffert takes the Triple Crown winner to The Haskell at Monmouth Park on Aug. 2, seeing as I already snapped up tickets, very cheaply.

It sounds like Baffert won’t decide for another week where Pharoah goes next.

---

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

God bless America.
---

Gold closed at $1179
Oil $59.86

Returns for the week 6/8-6/12

Dow Jones +0.3% [17898]
S&P 500 +0.1% [2094]
S&P MidCap +0.3%
Russell 2000 +0.3%
Nasdaq -0.3% [5051]

Returns for the period 1/1/15-6/12/15

Dow Jones +0.4%
S&P 500 +1.7%
S&P MidCap +5.4%
Russell 2000 +5.0%
Nasdaq +6.6%

Bulls  47.4
Bears 16.5 [Source: Investors Intelligence]

I appreciate those of you who have contributed to the cause through GoFundMe, or by mail (PO Box 990, New Providence, NJ 07974). The link is at the top of the page, and on the home page.

Have a great week. 

Brian Trumbore

 



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Week in Review

06/13/2015

For the week 6/8-6/12

[Posted 10:00 PM ET, Friday]

Edition 844

Washington and Wall Street

Little in the way of economic news the past few days, though next week we’ll have a critical Federal Reserve Open Market Committee confab, with Chair Janet Yellen holding a press conference after. The Fed isn’t going to raise interest rates now, but investors will be parsing Yellen’s words and the FOMC’s accompanying statement for further clues on a projected September rate hike.

For now, retail sales for May rose a solid 1.2%, while producer prices for last month were up 0.5%, up 0.1% ex-food and energy. Year over year, the PPI is down 1.1%, up 0.6% on core.

The World Bank issued its latest forecast for global growth, lowering it to 2.8% for 2015 – 2.7% in the U.S., 2.6% in the U.K., 1.5% for the eurozone, 6.9% in China, 7.5% in India and a sharp revision downwards for Brazil, from an initial estimate of growth of 1.0% to a contraction of 1.3%.

By the way, the Atlanta Fed’s GDPNow indicator for growth in the second quarter here is all the way up to 1.9%, virtually the same as the 2.0% to 3.0% consensus forecast of economists. GDPNow had been at just 0.6% as recently as May 22.

On the federal budget front, the Treasury Department announced the deficit for the first eight months of the fiscal year, which began Oct. 1, totaled $365.2 billion, down 16.3 percent from the same period last year, though part of this is because of a calendar quirk in 2014. The Congressional Budget Office is forecasting the deficit for the full year will total $486 billion, little changed from last year’s deficit of $483.4 billion.

For October through May, receipts were up 8.6 percent over last year, owing to a stronger economy (putrid growth is growth nonetheless), while outlays rose at a slower pace, up 4 percent. [But folks are still underestimating how quickly defense spending could rise.]

On the increasingly popular topic of liquidity in the fixed-income markets, as Barron’s Randall W. Forsyth wrote, illiquidity is growing and becoming more worrisome. 

“(In) the post-crisis regulatory environment, banks’ market-making has been curtailed. New regulations and capital charges have induced them to shrink their securities inventories – which serve as the buffer between buyers and sellers. The result is greater volatility, as (economist Nouriel) Roubini writes, a point on which virtually all fixed-income pros – whether institutions on the buy side or Wall Street banks on the sell side – agree.

“The other aspect is the greater role played by intermediaries, such as bond mutual funds and especially exchange-traded funds. ETFs in particular offer the liquidity of listed stocks in an instrument consisting of varying liquidity, while open-end funds offer the functional equivalent of a bank deposit on illiquid assets.

“A ‘run’ on these funds forces them to redeem bonds, pushing down prices very fast and exacerbating swings in an already illiquid market....

“ ‘This combination of macro liquidity and market illiquidity is a time bomb,’ Roubini contends. ‘So far, it has led only to volatile flash crashes and sudden changes in bond yields and stock prices. But, over time, the longer that central banks create liquidity to suppress short-run volatility, the more they will feed price bubbles in equity, bond, and other asset markets. As more investors pile into overvalued, increasingly illiquid assets – such as bonds – the risk of a long-term crash increases.’”

Stephen A. Schwarzman, CEO of Blackstone, had the following take on this topic in an op-ed for the Wall Street Journal.

“Why should we care? Because new capital, liquidity and trading rules are interrelated, and locked-up markets and rapidly falling securities prices will force banks to reduce assets and hoard liquidity in order to satisfy applicable regulatory tests. With individuals suffering losses and companies not able to raise capital, the economy will contract with layoffs, lower tax revenues and pain for middle- and lower-income Americans.”

Now while I’m not a defender of Wall Street, writ large, I do agree with Roubini that there will be severe liquidity issues, though they will be sooner than ‘long-term.’ Also, make sure you understand the risks in your bond fund.

Finally, on the trade front, two-thirds of Americans say protecting American industries and jobs by limiting imports is more important than allowing free trade so they can buy products at lower prices from any country, according to a recent NBC News online survey.

So with this in mind, the House voted on giving the president “fast-track” authority to negotiate a sweeping multinational trade pact, the Trans-Pacific Partnership (TPP). It passed 219-211.

But...earlier the House voted against a worker-aid program (Trade Adjustment Assistance) that is a critical, required component of the legislation and it wasn’t even close, 126-302. House Minority Leader Nancy Pelosi led the charge of her fellow Democrats to go against their president in a huge blow to Obama and his legacy.

House Speaker John Boehner, who supported both pieces of legislation, set a new vote on the worker-aid program by Tuesday, gambling that he and the president can still pull a rabbit out of the hat, but Republicans made clear Obama will have to do the heavy lifting since they view it as an ineffective welfare style program to begin with.

A majority of Democrats oppose the overall legislation, believing it will cost American jobs and result in lower wages, and liberal Democrats in particular are digging in to stop the entire deal.

The Senate has already approved it.

The TPP would be one of the world’s largest and most ambitious trade efforts ever, affecting 40% of the global economy.

More next week, sports fans.

Europe and Asia

Yet another weekend and no resolution to the Greek debt crisis. There is little to write, except that the slow-motion bank run continues. It is estimated that Greeks have stashed 5bn euro under mattresses and floorboards since January, while pensioners are worried the government won’t be able to pay them this month.

This past week, the International Monetary Fund pulled its technical team out of talks between Athens and its lenders, a sign of exasperation at a lack of any real progress; while as I go to post, once again Greece is making statements like, ‘we’ve never been closer to a deal,’ and talking of further negotiations this weekend.

Greece has little time left to secure the release of the bailout’s final 7.2bn euro aid tranche, which is roughly enough to make its bond payments to the ECB in July and August. 

Donald Tusk, the European Council president, said, “We need decisions not negotiations now. It's my opinion that the Greek government has to be, I think, a little more realistic. There’s no more space for gambling, there’s no more time for gambling. The day is coming, I’m afraid, where someone says the game is over.”

The Germans have been sending strong hints in recent days that it was time to cut off talks and adopt a “take it or leave it” approach, though German Chancellor Angela Merkel and her finance minister, Wolfgang Schauble, differ on whether they need to prevent a Grexit, a Greek exit from the eurozone. There are a growing number of MPs in their Christian Democratic bloc that share Schauble’s view, a willingness to allow Greece to walk.

Jens Weidmann, president of Germany’s central bank, said the “risk of insolvency is increasing by the day.”

Alexis Tsipras, the Greek prime minister, counters, “I think the EU leadership realizes they must agree to a viable solution and a possibility for Greece to return to social cohesion with security and growth and also with a sustainable debt level.”

That was after a meeting Wednesday with Merkel and French President Francois Hollande.

One thing seems clear. If there is to be a deal, a further extension, Germany and the creditors need to see Greece initiate at least one major reform, immediately, and undoubtedly on the pension topic. But Friday, Greece reiterated further pension cuts are off the table and now they want debt relief, which the creditors have repeatedly said no way to.

Editorial / Wall Street Journal

“Greece’s talks with creditors entered a new stage Thursday as the International Monetary Fund withdrew from bailout talks. This is the bluntest in a series of increasingly impatient statements from creditors that all make the same point: Athens won’t get a better deal.

“That may shock Alexis Tsipras, the far-left prime minister who has spent recent days trying to modify a final proposal prepared by creditors early last week, or at least plead for a nine-month extension of the current bailout. Creditors have offered some easing on Athens’ fiscal surplus targets. But they’re holding fast to demands for pension reform that Mr. Tsipras’ Syriza party promised Greek voters it wouldn’t implement.

“It’s no accident that pensions have become the make-or-break issue in the talks. Pensions and wages account for 80% of government spending, and pensions alone cost Greece around 16% of gross domestic product each year, the highest proportion in Europe. Without reform, spending was on track to hit 24% of GDP by 2050, compared to 15% on current plan. No serious program for returning Athens to fiscal balance can ignore pension reform.”

The Tsipras government refuses to raise the retirement age, or re-categorize workers, such as hairdressers, currently qualifying as an “arduous profession” and thus more generous benefits, though Tsipras hasn’t offered any game plan when it comes to raising money to pay them.

Wall Street Journal:

“The difference between Syriza and the creditors on this point is so stark it’s unlikely that more time will make much difference. In the best case, a delay would leave time for some political accident to trigger an election that would return a saner government to power. But in the meantime, Greece, the eurozone and investors would suffer from the prolonged uncertainty. Syriza might even be emboldened if voters perceive another extension as a concession from creditors.

“A Greek default and possible exit from the euro would be a catastrophe for Greeks and potentially costly for the rest of the eurozone. But despite telling pollsters they overwhelmingly support euro membership, Greeks voted in droves for Syriza and other antireform parties in January. If Greeks refuse to reform, other European are not obliged to underwrite their refusal.”

A few eurobits....

--A second estimate of first-quarter eurozone growth came in at 0.4% over Q4 (which was also 0.4%), and 1.0% year over year.

--German exports rose a strong 1.9% in April over March.

--The U.K.’s statistics office revised 2014 GDP upwards to 3.1% from a previous 2.8%.

--On the heels of a seemingly improving euro economy, and early signs of inflation, the euro bond market continued to get rocked as the yield on the 10-year German bund hit 1.05% at one point on Wednesday before closing at 0.98% that day and then back down to 0.83% at week’s end. All in all, eurozone bonds were largely unchanged after the midweek volatility.

--Bloomberg Businessweek had a story on EU infrastructure spending, over $3 billion since 2007. 21% of that sum, though, was spent on building or renovating a dozen Polish airports; most of them being a “financial bust.” The country now has 15 airports offering scheduled passenger service, but one of them, Szymany, doesn’t have a single airline committed to fly there (though it was used from 2002 to 2005 as a CIA black site for delivering al-Qaeda suspects).

Meanwhile, on a different issue, last month the European Commission presented a plan on relocating 40,000 Syrians and Eritreans – expected to arrive in Italy and Greece over the next two years – to 23 other EU countries. But as some nations balked, it was decided this week that no final decision on quotas will be made until September, which is pathetic and just a further sign of paralysis in the union. Last weekend alone, 5,700 migrants arrived on the Italian coast, a harbinger of things to come during the summer months.

Turning to Asia, China released some surprise trade figures, with May exports falling 2.5% year over year, while imports plunged 17.6%, a further sign of weak domestic consumption.*

Exports were up 7.8% to the U.S., and up 6.9% to the EU.

*For some reason the South China Morning Post had exports down 2.8% and imports down 18.1%. Not sure on the difference in the figures.

Earlier, May industrial production rose 6.1% year over year, while fixed-asset investment for the first five months, Jan.-May, was up 11.4%, which historically is not good. May retail sales rose 10.1%, also not as good as it may look.

And car sales have been slowing, with the China Association of Automobile Manufacturers reporting new passenger-car sales grew only 1.2% in May from a year earlier to 1.6 million vehicles – the weakest expansion since February 2013.

As the Wall Street Journal also reported, sales in the western part of the country, which was supposed to see faster growth than in the more car-saturated eastern and southern manufacturing belts, is slowing as well, which doesn’t bode well for the likes of Volkswagen and Ford, who have been investing heavily there.

But housing sales for the first five months, according to government statistics, were up 2.2%, reversing a decline from earlier in the year, and new bank loans were up sharply in May over April. So these last two bear watching in terms of divining trends.

On a different topic, the outlook is not good. A quarter of foreign investors surveyed by the European Chamber of Commerce in China are planning to cut jobs in the country. Joerg Wuttke, the chamber’s president, said, “The outlook is more pessimistic than it has ever been. [China’s economic] transition seems to be difficult. No European companies are leaving but headquarters are putting less into China.”

European companies are in part concerned about a tougher regulatory environment there, including strict internet controls. Almost 60 percent of the companies surveyed by the chamber said their inability to access certain websites, such as Google, has a major negative impact on their business.

And 40 percent of those companies surveyed reported their “China-based R&D activity was lagging investment in innovation in other markets, in part because of concerns about intellectual property rights and legal recourse.” [Tom Mitchell / Financial Times]

In Japan, first-quarter GDP was revised sharply upward to 3.9%, annualized, from an initial estimate of 2.4%. Business spending came in far better than first thought. But few are optimistic about the second quarter.

Machine orders, however, a key metric here, rose 3.8% in April over March, better than expected.

Street Bytes

--Stocks were mixed on the week, rising and falling mostly on the news from the eurozone and Greece. It’s been dullsville, witness the year-to-date returns below with almost half the year gone. Friday was also the second slowest trading day of the year.

The Dow Jones added 0.3% to 17898, the S&P 500 was up 0.1%, but Nasdaq fell 0.3%.

--U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.73% 10-yr. 2.39% 30-yr. 3.10%

The 10-year hit 2.47% at midweek, which was the highest yield since Sept. 30, but for the week overall, Treasuries, like much of Europe’s paper, were basically unchanged.

--Twitter shares rose at first on news CEO Dick Costolo was stepping down effective July 1. Former co-founder and chief executive Jack Dorsey is taking over on an interim basis until the board can find a permanent replacement.

Costolo has been running the messaging platform since 2010 and led its initial public offering. But while Twitter has been underperforming, with slowing user growth and disappointing earnings, he had dismissed calls for his resignation, telling CNBC recently, “The board loves the road map we have...the board and I are aligned...we are going to ignore the external noise.”

Costolo announced his departure with a tweet, “Welcome back @jack!!” He also said Twitter had the right strategy, the right products and best management team it ever had.

Dorsey, on a call with investors, said Costolo’s departure was his own decision and that the existing strategy would remain in place. Well this wasn’t exactly what investors wanted to hear and the next day the stock was back in the doldrums. 

--Saudi Arabia increased its oil production to a record level in May as it sought to win back more customers. Output reached 10.33m barrels a day.

In its monthly oil market report, OPEC said world demand would amount to 92.5m b/d this year, up from 91.3m b/d in 2014, unchanged from earlier forecasts.

“The global economic recovery appears to have stabilized at a moderate level,” said the cartel, adding, “The current oversupply in the market is likely to ease in the coming quarters.” [Financial Times]

--The net worth of U.S. households rose in the first quarter by $1.6 trillion, putting it at a new record high of $84.9 trillion, owing to rising home values and investments.

--The Obama administration announced it would regulate greenhouse gas emissions from airplanes, which could severely impact the industry.

While the EPA hasn’t laid out specific requirements yet, it is expected to pattern its rules after existing regulations on autos and power plants.

The airline industry countered it has already been making big strides in reducing fuel use and increasing efficiency, and that further demands will only raise costs.

According to the International Air Transport Association, each 5.5 pounds of weight reduced on an airplane means a one-ton reduction in carbon emissions per year.

--Chancellor of the Exchequer (Treasury Secretary) George Osborne said Britain was going to begin selling off its $40bn+ stake in Royal Bank of Scotland at a loss, saying, “I’m not interested in what’s easy – I’m interested in what’s right.”

The UK is seeking to normalize its banking system following the 2008 financial crisis, of which RBS was the poster child. At the time of its failure, it was the biggest bank in the world. The government of Gordon Brown injected over $60bn into the bank, while RBS reported a net loss of $35bn that year, the worst in British corporate history.

So the current value of the government’s stake is far less than the bailout, but Osborne argues, the longer the wait, “the higher the price on the economy.”

--HSBC announced this week it would slash 50,000 jobs, including through the sale of its businesses in Brazil and Turkey, while stressing it would earn 10% on equity by the end of 2017, though investors are skeptical.

Europe’s largest bank will end up with about 208,000 full-time staff when the cuts are complete, down from 295,000 at the end of 2010 and 258,000 at the end of 2014.

HSBC will step up investment in Asia, including in China. At the same time, the bank announced it will complete its headquarters review by end of the year, leaving open the possibility it could flee London due to rising tax and regulatory costs.

--MSCI, the leading indexer of emerging stock markets, was supposed to add China’s domestic A-share market into its flagship emerging market index, but MSCI left it unchanged.

While the non-move didn’t hurt China’s stock market this week, the earliest A-shares can now be added is May 2017.

MSCI made clear that talks with Chinese authorities are ongoing. But as the Financial Times pointed out, “China has failed to convince the indexers on three points – that the process for allocating quotas to foreign investors needs to be ‘more streamlined, transparent and predictable,’ that capital needs to be more mobile to allow daily liquidity for all investment vehicles, and that the issue of ownership of separate accounts in the new Shanghai-Hong Kong Stock Connect program needs to be clarified.”

I’d add that if you think some U.S. companies play games with their books, financial engineering, for example, there is no way you can trust Chinese corporations, even with big names behind some of the audits. [Alas, I have personal experience in this matter.]

MSCI says if all A-shares were to be included at their full weighting, China would take up 43.6 percent of the emerging markets index.

--General Electric announced it is “going fast” with its plans to sell most of its financial services operations and is pleased with the prices it is achieving.

GE agreed to sell its U.S. buyout lending unit to Canada’s biggest pension fund in a $12bn deal, with $2.5bn being returned to the parent from the sale, part of a total of $35bn that GE plans to raise from its disposal program.

In April, GE agreed on the sale of $26.5bn worth of property assets to Blackstone and Wells Fargo.

--Alibaba CEO Jack Ma, the richest man in China, was traveling in the U.S. this week and said, “If I had another life, I would keep my company private.” Ma’s stake in the company has grown to about $37 billion.

“Life is tough when you IPO,” he said in a speech before the Economic Club of New York.

“If you have less than $1 million, you know how to spend the money,” he said. But once you top $1 billion, you’re obligated to spend your riches “on behalf of society.”

Ma added the best years of his life were when he was making $12 an hour as an English teacher.

--The FDA has recommended a powerful new drug to protect against heart attacks, Sanofi and Regeneron Pharmaceuticals’ alirocumab, which will undergo large clinical trials to be completed by 2017.

Early trials have shown that those taking the new class of medicines have seen their LDL cholesterol, the bad stuff, plunge to super low levels.

Dr. Steven Nissen, a Cleveland Clinic cardiologists, said “imagine starting with an LDL of 220,” referring to a dangerously high level. “With the maximum dose of the most powerful statin you get it down to 120. Now you add a PCSK9* inhibitor and get it to 60. For those people it will be really helpful.” [New York Times]

*A gene that protects people from getting heart disease.

--McDonald’s released monthly same-store sales for the final time (from here on it will be quarterly), with May global comp sales -0.3%, worse than expected, though Europe at +2.3% was better than forecast. But the U.S. was -2.2%, so the tough times continue.

--Former Fed chairman Paul Volcker commented on state finances in a report released by the Volcker Alliance, a government reform group he founded in 2013.

“The continued fiscal stress is tempting states to continue, and even intensify, budgeting and accounting practices that obscure their true financial position, shift current costs on to future generations, and push off the need to make hard choices on spending priorities and revenue practices.”

“There are problems hidden by a lack of truth and integrity” in state budgeting, Volcker said.

Volcker adds that while all states but one – Vermont – are required to balance their budgets annually, there is no common definition of a balanced budget, leaving room for “sleight of hand.” [Nicole Bullock / Financial Times]

--A Bloomberg Businessweek story on pilot licensing in India is troubling. A 2011 government review, for example, found at least 18 people were using forged documents to win a promotion at an airline or win certification from a flight school and it seems many are still being granted certificates they in no way qualify for. 

One fellow said he has a certificate saying he’s flown an aircraft for 360 hours when he actually sat in a co-pilot’s seat for just 35 minutes.

--Fox Chief Executive Rupert Murdoch is expected to relinquish his CEO role and will appoint James Murdoch, 42, to the post, with his older brother Lachlan Murdoch, 43, taking a larger role as executive chairman. Rupert, 84, would continue to be actively involved in the company as executive co-chairman.

--Hedge-fund billionaire Steven A. Cohen was revealed to be the buyer of Alberto Giacometti’s bronze “Pointing Man” at a Christie’s auction in May for a record $141 million.

There was also a Page Six story in the New York Post this week that Cohen’s pet pig, which had its own room, seriously, got so “fat and moody” he was shipped to a farm to be with others his own age, and species.

Well you can imagine what the pig, “Romeo,” must be saying. “I’ve got to eat this [slop]?”

--Former International Monetary Fund chief Dominique Strauss-Kahn was cleared of all “pimping” charges following a three-week trial where he was accused of helping supply prostitutes for sex parties he attended in Lille, Paris and Washington. The courts were unable to prove he knew the women were being paid.

It was four years ago that Strauss-Kahn, once thought to be a leading contender for the presidency of France, was accused by a New York hotel chambermaid of sexual assault. The charges in New York were eventually dropped and he settled with the woman.

While he was exonerated, the trial itself was humiliating as he was forced to answer claims he referred to women as “equipment.”

--The latest rumors have Lester Holt replacing Brian Williams permanently in the anchor desk on “NBC Nightly News.” Williams’ fate is to be decided soon.

But Holt may be asking for the same $10 million contract that Williams has.

Katie Couric just re-upped with Yahoo for $10 million.

Foreign Affairs

Iraq/Syria/ISIS: At a press conference at the G7 summit in Bavaria, President Obama stunningly admitted he did not yet have a “complete strategy” for training Iraqi forces to fight ISIS.

Obama said the Pentagon was reviewing plans to boost the effectiveness of the Iraqi military, following its humiliating defeat and abandonment of Ramadi.

“We don’t yet have a complete strategy because it requires commitments on the part of the Iraqis, as well about how recruitment takes place, how that training takes place, and so the details of that are not yet worked out,” he said.

“When a finalized plan is presented to me by the Pentagon, then I will share it with the American people,” he added.

House Homeland Security Committee Chairman Michael McCaul (R-Texas) immediately replied, “It is no surprise this administration does not have a ‘complete strategy.’”

But a few days later, Obama seemed open to expanding the American footprint in Iraq with the addition of 450 military trainers to help “train and advise” local forces, bringing the total in Iraq to 3,550. A separate proposal for establishing a network of bases, outposts, where Americans would work with Iraqi troops and local tribesmen, though not engage in ground combat, is in the cards. Nothing is finalized, beyond the 450, and White House officials did not anticipate doing so for a few more weeks.

The main immediate goal is to retake the city of Ramadi. But keeping troops on bases still carries great risks, given ISIS’ penchant for suicide bombers.

Noted military strategist Anthony Cordesman told the New York Times that the latest moves may have some merit, “But creeping incrementalism is rarely a way of correcting a failed or inadequate strategy, and this approach certainly is not a new strategy or a way of addressing the problems that the existing strategy does not address.”

Benny Avni / New York Post

“ISIS is having a good week.

“It’s gaining ground in Iraq, where it’s closing in on Baghdad. It’s solidifying ownership of more than half of Syria. And on Tuesday, ISIS captured a strategically located power plant in Sirte, Libya, and is closing in on the country’s oil fields.

“Yup, the Islamic State marches on, conquering territory and imposing harsh ‘comply or off-with-your-head’ laws over vast populations in the Mideast and Africa. And America? Even though President Obama marked ISIS as our Enemy No. 1, Washington has done little more than yawn.

“ ‘We don’t yet have a complete strategy,’ Obama said in Germany over the weekend, speaking of progress in his year-old vow to ‘degrade and destroy’ ISIS.

“Victims of ISIS will have to wait until the commander in chief of the world’s former sole superpower completes devising a strategy. How long will it take? Please have some ‘strategic patience,’ pleads John Kirby, the new State Department spokesman.

“So don’t hold your breath, world. The cavalry may be coming, but first America must end our little power nap....

“In reality, Obama does have a strategy. Early on he’d detected a desire among Americans to shrink our global footprint. He ran on a promise to do just that, won and made it his life mission to ‘end wars.’...

“For the world, America’s detachment from global affairs is growing more disastrous by the day. ISIS is just the symptom. Powers from Iran and al Qaeda to China and Russia rush to fill in all those empty spaces we leave behind.

“At one point Americans will awaken and realize that such voids are our problem, too. That will happen when an enemy hits us badly or, preferably, before that – when a presidential candidate makes the case for reversing America’s strategy in the last six years.

“You know that strategy. It’s the one that’s incomplete – by design.”

Editorial / Wall Street Journal

“President Obama all but admitted on Wednesday that his strategy against the Islamic State is failing by ordering an additional 450 U.S. military advisers to join the 3,500 already in Iraq. Alas, this looks like more of the half-hearted incrementalism that hasn’t worked so far.

“The new troops won’t be used as spotters to call in airstrikes against Islamic State, much less join Iraqis on the front lines. Apache helicopters won’t provide air cover for Iraqi soldiers. There won’t be additional special forces to conduct raids against high-value targets. The highest ranking U.S. military officer will remain a mere two-star general.

“Instead, the additional advisers will buttress Mr. Obama’s current strategy at the margins by putting Iraqi troops and Sunni tribesmen through a basic training course of between two and four weeks. This may be enough to show recruits how to march in drill and maintain and fire a AK-47.

“But as retired four-star Gen. Jack Keane told us Wednesday, while the training is helpful, it ‘is insufficient to transfer a civilian to the physical, psychological and disciplinary demands of combat. And it doesn’t address the leader issue in terms of quantity or quality.’

“That second point is vital, since the Iraqi army suffers from a dearth of competent and courageous leaders, particularly at the tactical levels of command. ‘We were not deserters,’ one soldier told the pan-Arab daily Asharq al-Aswat after Mosul fell last June. ‘Our commanders abandoned us while we were sleeping in the night, and fled by helicopter.’....

“The fundamental problem with Mr. Obama’s strategy is that he is so determined to show that the U.S. isn’t returning to war in Iraq that he isn’t doing enough to win the war we are fighting....

“The longer ISIS stands up to a U.S. president pledging its destruction, the more of a magnet it becomes for young men willing to die for its perverted form of Islam. Every day that ISIS’ army of 30,000 irregulars holds its conquered territory against the world’s most powerful military, it becomes a greater threat to American security.”

In other developments, Hizbullah repelled an ISIS attack in northeast Lebanon Tuesday, losing eight fighters while killing 14 jihadis, in the largest confrontation between the two since the former joined the Syrian war three years ago. ISIS is holding nine Lebanese soldiers hostage.

The Syrian Observatory for Human Rights said the Assad regime killed at least 49 civilians in airstrikes on a town in Idlib province on Monday.

Iran: The June 30 deadline for a final agreement on Iran’s nuclear program is less than 20 days away and the biggest issue, inspections, remains unresolved.

The P5+1 wants UN nuclear inspectors to have unfettered access to any suspect facilities where nuclear work may be going on, so-called undeclared facilities, but there is no way Iran’s leadership will allow this, and, of course, it’s the undeclared sites where Iran would conduct the secret work.

The known facilities at Natanz and Fordow, plus the heavy-water reactor at Arak, are under international oversight.

But some involved in the talks seem to feel a comprehensive deal will still be reached, though it seems likely the deadline could be extended a little further.

The incentive for Iran in agreeing to inspections and strict monitoring is an easing of international sanctions.

But while the U.S. publicly says inspectors must be given “anywhere, anytime” access, as the Los Angeles Times’ Paul Richter wrote, “In the negotiating rooms... U.S. diplomats aren’t demanding immediate access.

“Rather, they’ve signaled that they’re willing to allow a panel some time to consider Iranian objections and weigh the evidence before allowing a challenge inspection to proceed.”

But as I brought up months ago, this would be a disaster. While a proposal calls for a maximum of 30 days for deliberations by a commission (comprised of representatives from the six powers, Iran and possibly the European Union), you know it could extend far beyond that while Iran merrily proceeds with its work, or, hides it.

For a different take in the overall issue of Iran, Ian Bremmer / Eurasia Group and TIME:

“(Instead) of continuing to focus on Iran’s nukes, Washington should focus on Iran’s more dangerous weapons. In 2009-10, a virus known as Stuxnet inflicted significant damage on Iran’s ability to enrich uranium. Many experts believe that since that time, Iran has made substantial progress in developing its own cybercapabilities, with attacks on targets that are believed to include Saudi Aramco, the world’s largest oil company.

“Even if Iran one day builds a nuclear weapon, it’s unlikely to use it, for the same reason that Washington and Moscow avoided the use of nuclear weapons throughout the Cold War. Despite sometimes over-the-top rhetoric from Iran’s leaders, there’s no reason to believe they’re suicidal. Cyberweapons are another matter: unlike a nuclear attack, they can be used with deniability. As the U.S. and its allies hash out what could be a historic deal, they should worry less about a weapon Iran will never use and focus instead on the weapons it’s already believed to be using.”

Yemen: Saudi airstrikes on Sunday targeted the headquarters of Yemen’s armed forces in the rebel-held capital, Sanaa, killing at least 22. This came a day after the Houthis, the Iranian-backed Shiite militants, fired a Scud missile into Saudi Arabia in a dramatic escalation of the war. The Saudis say a Patriot missile battery shot it down.

The Yemeni military was believed to possess 300 Scuds, most of which are now in the rebels’ control.

Israel: Prime Minister Benjamin Netanyahu, on the non-existent reaction to the recent rockets fired on Israel from Gaza.

“I didn’t hear any international actor condemn this rocket fire, and even in the UN no one is opening their mouth,” he said. “It is interesting whether this quiet will continue when we act in full force to defend ourselves. Let it be clear, the hypocrisy spreading in the world will not tie our hands when it comes to defending Israeli citizens. This is how we acted in the past, and how we will continue to act." [Jerusalem Post]

Egypt: Suicide bombers targeted Egypt’s famed Karnak temple in the ancient city of Luxor on Wednesday, injuring at least four, as militants continue to go after Egypt’s vital tourism industry. The Interior Ministry said two attackers were killed and a third wounded in what was a foiled attempt that did not hurt any tourists.

Attackers were first going after a tourist bus when they came under fire from security forces.

Russia / Ukraine:

Arseniy Yatsenyuk, prime minister of Ukraine / op-ed Washington Post

“Ukraine is fighting a war on two fronts. The one you see on television is taking place in the east of our country, where thousands of Russian troops are engaged in an armed aggression against Ukraine’s territorial integrity, including the illegal annexation of Crimea.

“Less visible, but just as important, is Ukraine’s war against the Soviet past and the legacy of corruption and misrule that has held us back for so many years. These battles must be fought and won together because they are essentially about the same thing – Ukraine’s desire to build a prosperous and democratic future.

“Russian President Vladimir Putin wants us to fail because he knows that democratic ideas are contagious and that a free Ukraine would set an unwelcome example at home. Russia’s military intervention is an attempt to prevent change by forcing us to choose between security and reform....

“No one should have any doubt what is at stake. The great achievement of a ‘Europe whole and free’ that marked the end of the Cold War is under direct attack from resurgent Russian authoritarianism and imperialism. Ukraine is bearing the brunt of the attack, but the consequences of allowing our independence to be crushed would not be contained within Ukraine. It would give rise to new threats and crises that would be even more difficult and costly to resolve. The democratic idea itself would be undermined....

“With our firm commitment to reform and the support of our partners, we can fulfill the dreams of our nation for freedom and prosperity. Democracy is the most powerful idea ever conceived and never more so than when democratic nations stand shoulder to shoulder. That has been the lesson of U.S. leadership over the past century. It remains our inspiration today.”

Editorial / Washington Post

“In the past several months, Ukraine’s freely elected government has taken dramatic steps to reform its economy, fight corruption and rebuild democratic institutions. It has imposed painful austerity on average Ukrainians, stripped oligarchs of political and economic privileges and rewritten laws to encourage free enterprise and foreign investment. It has done all this even while fighting a low-grade war against Russia, which has deployed an estimated 10,000 troops to eastern Ukraine and, with its local proxies, attacks Ukrainian forces on a near-daily basis.

“Ukrainian leaders such as Prime Minister Arseniy Yatsenyuk, who visited Washington this week, see themselves as fighting on the front line in defense of Western democracy against Vladimir Putin’s imperialist autocracy. ‘This is about the core values of the free world,’ he told us. ‘If we fail, this will be a failure for the entire free world.’

“In spite of the government’s exertions, the odds of a Ukrainian collapse remain alarmingly high. In addition to the ongoing Russian-led military assaults, waged in blatant violation of a peace deal Moscow agreed to in February, Mr. Yatsenyuk’s government is struggling to meet staggering financial obligations. Private creditors, including the U.S.-based Franklin Templeton firm, are refusing to cooperate with a debt restructuring, sanctioned by the International Monetary Fund, that is needed to save the country $15 billion over four years....

“What’s missing is a decision by Mr. Obama to make the defense of Ukraine a priority. The president has ceded leadership on the issue to Germany and France and overridden those in his administration and Congress who support arms deliveries. In dispatching Secretary of State John F. Kerry to meet Mr. Putin last month, he appeared more intent on obtaining the Russian ruler’s cooperation on Iran than in stopping his ongoing aggression.

“A stronger U.S. commitment to Ukraine will not guarantee its success. But Mr. Obama’s lukewarm support risks a catastrophic failure for the cause of Western democracy.”

The Pentagon announced Monday that U.S. and European allies have begun a large military exercise in the Baltic Sea involving 5,600 military personnel – including 2,000 Americans.

As for Putin, he told an Italian newspaper in an interview published last Saturday that “there’s no need to be afraid of Russia.”

“The world has changed so much that people in their right mind cannot imagine such a large-scale military conflict today.... We have other things to do, I can assure you,” Putin said.

“Only a sick person – and even then only in his sleep – can imagine that Russia would suddenly attack NATO.”

Polling released Wednesday by the Pew Research Center shouldn’t give the citizens of the Baltic nations any comfort.

In Germany, only 38% of the public said their country should respond militarily to a Russian attack on a neighboring NATO ally, while 58% said it shouldn’t. In other western European nations surveyed – the U.K., France, Spain and Italy – support for military action was higher, but still less than 50%.

But 56% of Americans and 53% of Canadians favor using military force in response to a Russian attack on a neighboring country that’s a NATO ally.

At the same time, Americans are split on the question of sending arms to Ukraine, with 46% in support and 43% opposed, according to Pew. Only 19% of Germans support such a move.

Of course Article 5 of NATO requires member countries to assist allies who are attacked.

According to Russia’s state statistics service Rosstat, the number of people falling below the official poverty line in the first three months of the year rose from 19.8 million to 22.9 million, or 15.9 percent of the total population. Inflation spiked to 16.2 percent in Q1, while incomes rose by only 11 percent, according to Rosstat.

China: The number two figure in the Central Military Commission traveled to Washington in a sign Beijing doesn’t want relations with Washington to deteriorate further, especially prior to President Xi Jinping’s state visit in September.

Analysts said Fan Changlong’s visit would help both sides to establish communication channels to prevent military confrontations between the two.

But Fan’s mission comes amid not just disputes over the South China Sea, but also cyber security and disagreements in the financial and economic sectors.

As for the cyber security issue, there is little doubt Chinese hackers are trying to map the government and gain access to networks in other departments following the breach at the Office of Personnel Management. Certainly the database at OPM could be used to find staff with high security clearance and then access information that could be used for blackmail, or recruiting, later.

According to the head of the American Federation of Government Employees, J. David Cox, the vital personal data of every current and former federal employee and retiree, including Social Security numbers, birthdays, addresses and other data, was pilfered in the massive attack.

Cox wrote in a letter to OPM Director Katherine Archuleta, “We believe that Social Security numbers were not encrypted, a cybersecurity failure that is absolutely indefensible and outrageous.”

And then the Wall Street Journal reported late Friday that the hackers who raided OPM “had access to the secret background investigations that the U.S. government conducted on current and former employees, senior administration officials said Friday – an ominous development in the recent theft of federal data, one of the largest in history.”

Hackers gained “access to at least two separate background investigation forms that must be completed for many U.S. officials to work in select government jobs, and these forms are often necessary for someone to obtain security clearance. The two forms – known as Standard Form 85 and 86 – contain extensive information about family members, past relationships and personal habits. They often contain the Social Security numbers of immediate family members, suggesting that the impact of the hack could be much wider than initially feared.” [Damian Paletta / WSJ]

Pasi Eronen / New York Post

“Data stolen from this hack and from the earlier intrusions into Anthem and Blue Cross insurance databases allow the Chinese to build detailed profiles of federal employees, including those with security clearances.

“On top of the damage caused to our intelligence capabilities, the hacking campaign against U.S. companies has inflicted an estimated $250 billion in annual losses from intellectual-property theft. This is a serious extra burden to the recovering American economy.

“And aside from better cyber-defenses, the United States must also prioritize deterring the Chinese – or other adversaries like Russia, North Korea and Iran – from conducting operations against the United States.

“The way to do this is for the Obama administration to convince our adversaries that the expected benefits from successful cyber-attacks would be dwarfed by the price paid for conducting them. That doesn’t only include hitting back with our own cyber-attacks....

“The OPM hack should not be seen as an isolated, one-off case, but as the tip of an iceberg, one piece of a larger ongoing Chinese campaign in cyberspace against the United States and its interests.

“It is a persistent, multi-pronged and low-intensity campaign, which does not aim at simple ‘shock-and-awe.’

“The campaign’s long-term goal is to improve China’s strategic standing vis-à-vis the United States without – and this is the key – provoking a military response.

“The Chinese and their collaborators hope to compromise America’s core intelligence capabilities and erode the source of U.S. global power: its economic dominance.

“Both to safeguard its global standing and to establish more sustainable rules of the road for cyberspace, the United States needs to lead the technologically advanced – but still highly vulnerable – Western world and reclaim its cyber-security.

“We must start making our adversaries pay a steep price for their attacks.”

Turkey: President Recep Tayyip Erdogan broke his silence after being dealt a huge blow at the polls last weekend, calling for the swift formation of a new coalition government.

The ruling Justice and Development (AK) Party Erdogan co-founded lost its majority, as forecast. 

In a message to investors rattled by the political uncertainty, Erdogan insisted the election result “certainly does not mean Turkey will remain without a government.”

The AKP, which has had a majority since it came to power in 2002, will have 258 seats in the 550-seat parliament, the Republican People’s Party (CHP) 132, and the Nationalist Movement Party (MHP) and the pro-Kurdish Peoples’ Democratic Party (HDP) 80 apiece.

An AKP-MHP coalition is the most likely option, according to analysts, with the two sharing a conservative and nationalist voter base between them.

AKP secured less than 41% of the vote, while for the first time, a party dominated by ethnic Kurds surged into the Grand National Assembly with 12% of the vote. [You need 10% of the total to gain seats in parliament.]

The war between the militant Kurdistan Workers’ Party, or PKK, and the Turkish state has claimed 40,000 lives since the conflict first flared in the 1980s, making the HDP’s rise all the more remarkable. The political branch has been around just three years.

David Gardner / Financial Times

“There have always been at least two sides to Recep Tayyip Erdogan, and both of them have been on full display in Turkey’s general election.

“There is the richly gifted, sometimes reformist politician who has won 10 contests in a row, including three general elections with a rising share of the vote.

“Then there is the willful would-be sultan stalked by hubris and paranoia, treating Turks as his patriarchal property – ‘my nation,’ as he habitually calls them, which he avowed would always obliterate the vast conspiracy he sees taking him and Turkey down.

“Mr. Erdogan, who ascended from prime minister to president last year, was not on the ballot in Sunday’s vote. But this general election was all about whether his neo-Islamist Justice and Development party (AKP) could win a majority big enough to change Turkey’s constitution and move from a government emanating from parliament to a top-down, executive presidency – investing President Erdogan with even more power than he has already grabbed....he appears to have failed.”

Erdogan could still use his power, however, to call a new election if he can’t form a coalition with the MHP. The goal would be to get the HDP back below 10% and win most of their seats. He has 45 days to call a new vote.

Former Israeli president Shimon Peres, appearing at a conference in New York, said, “I am happy about what happened in Turkey – Erdogan wanted to turn Turkey into Iran, and there is no room for two Iran’s in the Middle East.”

By the way, turnout for the vote was estimated at 85%.

Pakistan: The charity Save the Children was ordered to leave the country, with a government official accusing the NGO of “anti-Pakistan” activities. The staff was given 15 days to leave the country.

Pakistan previously linked the charity to the fake vaccination program used by the CIA to track down Osama bin Laden.

The charity has always denied it was involved with the CIA or Pakistani doctor Shakil Afridi, who carried out the program.

South Korea: President Park Geun-hye was forced to cancel her summit meeting with President Obama in Washington to deal with the Mers (Middle East respiratory syndrome) crisis that has claimed 14 lives at last word. Park’s government has been accused of mishandling the health scare, allowing Mers to become the biggest outside of Saudi Arabia, but she was already struggling to regain the confidence of her people after the ferry disaster of last year that killed 304. Her approval rating is now below 40%.

Last week I talked of how Mers could do a huge number on the South Korean economy. One example...all 600 tours to South Korea organized for this month by local travel agencies in Hong Kong were cancelled after the Hong Kong government issued a red alert against travel to the Mers-hit country.

Nigeria: Boko Haram burned down six northeast Nigerian villages and killed 37 near its Sambisa Forest stronghold, according to the Associated Press.

A joint force of troops from Nigeria, Chad and Cameroon has had some success in driving Boko Haram fighters out of towns and villages, but then the terrorists move back in.

Mexico: In Sunday’s midterm election in which President Enrique Pena Nieto’s ruling party and its allies won a small majority in the lower house of Congress, Jaime Rodriguez became the country’s first independent candidate to win a governor’s race, taking Nuevo Leon, Mexico’s richest state and home to some of its largest corporations.

The three traditional major parties garnered just 60% of the vote, nationwide, between them, the lowest ever.

Random Musings

--More on ‘As America gets hacked’...Robert Samuelson / Washington Post

“(None) of these intrusions threatens the everyday routines of the overwhelming majority of Americans. Unless they happen to us, cyberattacks are just someone else’s problem or tragedy. They’re the hurricane and the tornado on the evening news or the random shooting in an inner-city neighborhood. They’re unfortunate and perhaps devastating – but isolated.

“This may be self-delusion. What we ultimately have to fear from hackers is that they – and this would apply mostly to hostile governments and terrorist groups – will get inside our most sensitive data systems with the intent of causing havoc. They would hijack, destroy or corrupt the data systems that regulate energy, control financial transactions, contain medical records and oversee transportation networks. Everyday life would be disrupted for countless millions.

“We don’t know our full vulnerability because these attacks have yet to be mounted on a grand scale. But given the success of lesser hacking, it’s hard to be confident that this most destructive variety is simply the figment of an overactive imagination. This is true cyberwarfare. We need to protect against it and also to stop making more systems dependent on the Internet – an act of commercial convenience that, with hindsight, may seem self-destructive.

“Until we recognize the threat’s gravity, we need to be constantly reminded. That’s why the relentless hacking may be doing us a favor.”

--G7 leaders meeting in Bavaria agreed to support cutting greenhouse gases by 40 to 70 percent by 2050 from 2010 levels – the first time they have backed such a precise long-term target. It’s hoped this will help boost negotiations among nearly 200 countries in Paris in December, where a final global climate deal could be reached.

The G7 also agreed to speed up renewable energy deployment in Africa.

China, the world’s largest emitter, has said its greenhouse gas pollution would peak by 2030 at the latest, but this date, like any for this topic, is worthless.

And in terms of a previous pledge to mobilize $100bn a year from public and private sources by 2020 to help poorer nations tackle climate change, no one seems to know how the G7 is going to come up with the funds.

Said Tim Gore of Oxfam, policy lead on climate change, “Developing countries need a credible financial road map, not a set of accounting tricks.”

--In a Democratic Party convention in Wisconsin, Bernie Sanders finished within eight points of Hillary Clinton. Granted, a recent Real Clear Politics poll average had Hillary at 59 percent to Sanders’ 11.5 percent, but the Wisconsin showing attracted attention. 

What Sanders has is authenticity and consistency. Asked recently on a Sunday news program if he wanted to make America more like Scandinavia, Sanders agreed enthusiastically.

“That’s right, that’s right. And what’s wrong with that? What’s wrong when you have more income and wealth equality?” [Nick O’Malley / Sydney Morning Herald]

--Michael Goodwin / New York Post

“Two new reports from the Clinton Chronicles demand attention. One involves an anti-gay church in an impoverished African country that gave up to $10 million to the Clinton Foundation. The London Daily Mail reports that the Cameroon Baptists Convention believes that being gay ‘contradicts God’s purpose’ and likens homosexuality to the Devil.

“The church only has about 100,000 members, so where did it get so much money? And why is it shipping millions to the Clintons when Cameroon is one of the poorest countries on Earth, with child labor a scourge and only one doctor for every 5,000 people? Life expectancy is reported as 55.

“Moreover, Cameroon is extremely corrupt, with human-rights organizations claiming that criminal suspects, gays and political activists are routinely tortured.

“The second scandal involves a Clinton spinoff in Sweden that collected $26 million in donations while Sweden was trying to persuade Hillary Clinton’s State Department not to sanction major national firms doing business with Iran. The Washington Times broke the story and says the spinoff was never disclosed to federal ethics officials, ‘even though one of its largest sources of donations was a Swedish government-sanctioned lottery.’

“Two results: No Swedish firms were sanctioned, and one of them, telecommunications giant Ericsson AB, paid Bill Clinton $750,000 for a speech. The Times reports that Ericsson was trying to sell tracking technology to Iran that could be used by the mullah’s security services.

“Something is rotten in Clinton World. Actually, everything is rotten in Clinton World.”

So Bill Clinton was at a Clinton Global Initiative event in Denver the other day and he said he would stop making paid speeches if his wife wins the White House.

But in addressing questions of the charity, the former president said:

“Has anybody proved that we did anything objectionable, no. Have we done a lot of good things with this money, yes.”

I’m too tired to argue this week.

--Editorial / Wall Street Journal

“Does the White House think it is going to lose this year’s big ObamaCare subsidy case at the Supreme Court? We’re beginning to wonder given President Obama’s increasing show of pique when he talks about the law.

“On Monday in Austria, Mr. Obama responded to a question about the looming decision in King v. Burwell by treating the Supreme Court like first-year law students for even considering the case.

“ ‘There is no reason why the existing exchanges should be overturned through a court case. It has been well documented that those who passed this legislation never intended for folks who were going through the federal exchange not to have their citizens get subsidies,’ Mr. Obama averred. That conveniently ignores comments by ObamaCare architect Jonathan Gruber, but the President kept rolling.

“ ‘And so this should be an easy case. Frankly, it probably shouldn’t even have been taken up,’ he added. ‘And since we’re going to get a ruling pretty quick, I think it’s important for us to go ahead and assume that the Supreme Court is going to do what most legal scholars who’ve looked at this would expect them to do.’

“That last bit of political bravado is belied by the previous display of legal frustration. A seasoned observer like Mr. Obama must know that it does him no good to lacerate the Justices in public if he’s trying to influence them to come his way. His best strategy would be silence. Our suspicions were raised even more on Tuesday when Mr. Obama gave a full-throated defense of his signature health law that assailed opponents and gave the impression he’s not going to alter a single letter no matter what the Court does.

“Could it be that legal sources are telling Mr. Obama that he’s about to lose, so he is now beginning to prepare the public for an all-out assault on the Court and Republicans?”

--According to federal data released this week, New Jersey is ranked 46th nationwide in economic growth for 2014, up 0.4%, which was less than the previous two years.   By contrast, New York posted a 2.5% increase last year while Pennsylvania grew 1.8%.

Only two states – Alaska and Mississippi – experienced contractions.

Meanwhile, as you’re thinking just why the heck does Chris Christie think he should be president, the governor did score a victory this week when the state Supreme Court ruled he did not have to contribute more to the state pension system, which is incredibly in the hole, if he did not think it was financially viable. However, it left intact higher payments for employees.

Bottom line, Christie can claim he is being fiscally responsible, even though the state’s credit rating has been downgraded umpteen times, as entitlements is a major focus of his nascent presidential campaign. But at the same time he has zero positives to point to in terms of the state’s economic vitality...or lack thereof.

--Former House speaker Dennis Hastert pleaded not guilty to charges that he lied to federal investigators and structured bank withdrawals to avoid reporting rules.

The money was allegedly paid to hide previous ‘misconduct’ against an unnamed Illinois resident who was to receive $3.5 million.

--Editorial / New York Daily News

“It was the year of the blackout and bloodthirsty Son of Sam, the South Bronx was burning and subway cars were slathered in graffiti.

“Or as Mayor de Blasio and his wife Chirlane recall 1977, the good old days.

“Police investigated 1,557 homicides that year – in the midst of a decade where New York City’s population dipped by 10%, as residents fled for safer climes.

“Chirlane McCray, while urging tougher rent hike regulations, wistfully recalled on NY1 her arrival in the reeling city during the Abe Beame administration.

“And her husband, after defending his spouse, reiterated Friday that the reduction of stop-and-frisk had zero correlation with this year’s increase in murders and shootings.

“ ‘As we have reduced stops, we have reduced crime,’ the mayor said during a live radio appearance Friday. ‘I think the numbers are overwhelmingly clear.

“ ‘To me, this has actually been a great ratification of the fact that we can protect individual liberties while making ourselves safer.’

“The Daily News reported exclusively that the city is on pace to make 42% fewer stops this year as homicides are up almost 20%....

“McCray offered her rosy recollections of the late ‘70s, when she came to New York from Springfield, Mass.

“ ‘The city was strong,’ she said. ‘The city was inclusive and dynamic. We want the city to stay that way.’

“The city was, in fact, a mess in the last year of one-term Mayor Beame’s administration.

“ ‘I lived in New York City in 1977, and my car was broken into twice,’ recalled former Mayor Rudy Giuliani. ‘The city was considered a basket base in 1977.’....

“De Blasio, asked if his wife’s pining for 1977 was a gaffe, said she was referring to the amount of affordable housing available at the time.”

Oh brother.

But “Giuliani gave McCray a pass: ‘I don’t believe it’s fair to criticize her, because I don’t know if she’s aware of those facts.’”

But wait....there’s more!

Michael Goodwin / New York Post

“In the annals of law enforcement, no living American can top the celebrated career of Bill Bratton. Starting as a Boston cop in 1970, he became the police commissioner there, then held the top jobs in New York and Los Angeles. London wanted to hire him before a citizenship requirement scuttled the offer.

“At every stop, he reduced crime while changing the culture of policing....

“For all that glory, Bratton, at age 67, now faces the most difficult challenge of his career.

“Crime is exploding in New York, but he could handle that. His problem is his boss....

“The only thing (de Blasio) won’t do is let Bratton be Bratton.

“It’s not merely the refusal to add the 1,000 cops the commissioner wants. It’s that de Blasio’s dogma blinds him to the fundamental virtue of law and order and the universal desire for safety. Despite his claims, he clearly doesn’t subscribe to ‘broken windows’ policing.

“Arrest and summonses in virtually every category are falling off a cliff even as the sound of gunfire fills the night air in many neighborhoods and Central Park turns dangerous. When the increase in murders over last year hit 20 percent, de Blasio called it an ‘uptick.’

“That’s obscene. I challenge the mayor to go to a funeral and tell grieving loved ones that their child died from an ‘uptick.’....

“I can only worry that, if Bratton doesn’t save New York from de Blasio, nobody will.”

That’s the concern. Bratton doesn’t need this. He can walk away with his reputation, and legacy, intact....and maybe get a cabinet position in the next administration in the White House.

--From the New York Post: “U.S. Attorney Preet Bharara moved ‘a giant step closer’ to Gov. Andrew Cuomo late last week with an indictment that alleges insurance exec Anthony Bonomo, a top Cuomo contributor whom the governor made chairman of the New York Racing Association, gave a lucrative no-show job to state Sen. Dean Skelos’ son, sources have told The Post.

“ ‘Bonomo is Cuomo’s guy, and he wouldn’t offer anything to Skelos’ kid without first making sure it was OK with the governor or his people,’ said a senior state Democrat....

“Others at the Capitol agreed Bharara appeared to be moving closer to charging Cuomo and/or one or more of his top aides in his investigation of corruption in state government, which originated with Cuomo’s abrupt closure last year of his Moreland Act Commission as it was closing in on evidence of wrongdoing.

“ ‘This is a drip by drip that’s getting closer and closer to Cuomo, with Bonomo and Dorego* providing prosecutors with an inside look at how the corrupt Albany system works,’ explained a second senior state political figure.”

*Charles Dorego, a top official of Cuomo megacontributor Leonard Litwin’s Glenwood Management, a real estate development firm.

--Kathleen Parker / Washington Post

“Barring a terror strike or an Ebola outbreak to distract us, the 2016 presidential election seems headed for a gender identity showdown.

“Within days of the release of Caitlyn Jenner’s Vanity Fair cover photo, Republican presidential candidates were being asked to comment, while conservative pundits were warning of a political apocalypse....

“Mike Huckabee was (thrust) into the debate when a video of a speech he gave in February surfaced online. Huckabee had joked, ‘I wish that someone told me that when I was in high school that I could have felt like a woman when it came time to take showers in P.E.’

“When asked Tuesday about his earlier remark, Huckabee said, ‘I’m not going there.’

“This is good advice for all Republicans, unless they have something thoughtful to say.   If you think ‘legitimate rape’ was a problem, stick around for ‘Can Jenner be a woman if he still has male organs?’ Apparently, Jenner hasn’t yet taken the final physical step to becoming a woman....

“Clearly, this subject is more complicated than a girlie pinup in a ‘50s muffler shop, which is what Jenner’s cover photo reminded me of. Never mind the potential ramifications and adjustments that may become necessary in the public square, from single-sex institutions to restroom facilities to those awful public school showers.

“(Rush) Limbaugh isn’t wrong in predicting the coming stigmatization of conservatives as crazy or hateful because they’re not queuing up as popular convention requires. The danger for the GOP is that the loudest and kookiest voices will be harnessed by the media and trotted out as typical of the Republican base....

“What really bothers most conservatives, and doubtless many others, is the dominant template of social change via media saturation. While some advocates and talk-show hosts are cheering the debate on transgenderism prompted by Jenner’s celebrity transition, there is no debate. What we have is a media-created, media-driven conversation among the media.

“Indeed, the matter has been settled by Vanity Fair and other Big Media, and it’s now up to the rest of the country to fall in line....

“The media’s group embrace of Jenner’s transition should be seen for what it is – not a revolutionary step toward minority rights but a money grab for ads, ratings, sales and buzz in a culture of provocation and greed without ethics or conscience.

“Let’s talk about that, instead.”

--Comedian Jerry Seinfeld received a lot of press this week for decrying political correctness gone wild in saying he understood why other comics such as Chris Rock have stopped performing on campuses. “He said young people cry ‘racism,’ ‘sexism’ or ‘prejudice’ without any idea of what they’re talking about,” as the Wall Street Journal’s Daniel Henninger put it.

--I watched almost all of Beau Biden’s funeral last Saturday. The eulogies were tremendous (and very touching), including President Obama’s. You need to put politics aside at such moments. A family lost their father, a father lost his son, far too early, and Beau Biden was a good man.

--The Wall Street Journal’s Gerald Seib interviewed Bob Dole (who turns 92 July 22) and George H.W. Bush (who turned 91 today, Friday) for their thoughts on the Big One, among other things.

“We made such a difference in World War II,” said Dole. “Look what we did in Europe. Look at how many people had freedom for the first time in decades. No more Hitler. No more Mussolini. We all made a difference.”

Dole, though frail, still treks to the Mall in Washington to greet fellow veterans flown in to visit the World War II Memorial.

Bush: “It was good versus evil, and thanks to the courage and selfless sacrifices of too many people – too many sons, and brothers and fathers who never came home – freedom prevailed over tyranny.”

The war was the defining experience for both. “It made a man out of a scared boy in my case. It broadened my horizons as well – brought me into contact with a broad cross-section of Americans that only deepened my admiration for our nation and people,” said Bush. Seib: “The experience, he says, compelled him upon his return to strike out in an entirely new direction, by heading to Texas to lunge into the oil industry.”

Seib: “In retrospect, (Bush and Dole agree), the shared war experience among many lawmakers created a common bond that crossed party lines and made conversation and compromise more possible. That kind of bond is sorely missing today.”

--Finally, congratulations to American Pharoah! What an awesome moment. I’m praying trainer Bob Baffert takes the Triple Crown winner to The Haskell at Monmouth Park on Aug. 2, seeing as I already snapped up tickets, very cheaply.

It sounds like Baffert won’t decide for another week where Pharoah goes next.

---

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

God bless America.
---

Gold closed at $1179
Oil $59.86

Returns for the week 6/8-6/12

Dow Jones +0.3% [17898]
S&P 500 +0.1% [2094]
S&P MidCap +0.3%
Russell 2000 +0.3%
Nasdaq -0.3% [5051]

Returns for the period 1/1/15-6/12/15

Dow Jones +0.4%
S&P 500 +1.7%
S&P MidCap +5.4%
Russell 2000 +5.0%
Nasdaq +6.6%

Bulls  47.4
Bears 16.5 [Source: Investors Intelligence]

I appreciate those of you who have contributed to the cause through GoFundMe, or by mail (PO Box 990, New Providence, NJ 07974). The link is at the top of the page, and on the home page.

Have a great week. 

Brian Trumbore