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07/04/2015

For the week 6/29-7/3

[Posted 9:00 PM ET, Friday]

Edition 847

Washington and Wall Street

Before I get to Greece, a few notes on the domestic economy. The June jobs report came in less than expected, 223,000 new jobs created, with the unemployment rate ticking down to 5.3%. But there were negative revisions to the previous two months totaling 60,000 and average hourly earnings, which had been trending higher, were unchanged and are up only 2% over the last 12 months.

We also learned the labor participation rate fell to 62.6%, the lowest since October 1977.

In other data points, the June Chicago manufacturing PMI was just 49.4, less than expected, but the national ISM for the month was a little better than forecast at 53.5.

May construction spending was up 0.8%, decent, but factory orders for the month were down 1.0%, worse than expected.

So what will the Federal Reserve do with all of this? Clearly the jobs report, even if so-so, wouldn’t preclude Chair Janet Yellen and her band of merry pranksters from raising interest rates in September, as currently forecast, but the global growth outlook is iffy and the Fed clearly has to wait to see what happens with Greece and its impact on sentiment and the euro economy. It also has to be concerned with China, whose financial markets are in turmoil.

Ergo, there is zero guarantee the Fed will do anything in September, but let’s hope they do finally hike then because that would be a very good sign for a number of geopolitical reasons, for starters. History shows us that August can be a crazy month.

So let’s look at one of the potential flies in the ointment, shall we?

Europe and Asia

It’s all about Greece’s referendum on Sunday. Greek Prime Minister Alexis Tsipras seized on a report from the International Monetary Fund this week that concluded Greece’s debt was unsustainable and that voters should press for a ‘No’.

Tsipras said the IMF analysis of Greece’s debt burden, which also called for 60bn euro in new financial aid over the next three years, justified his government’s rejection of a bailout extension proposal that contained no debt relief.

[The IMF also said Tsipras’ government was responsible for plunging the economy back into a crisis after signs of recovery.]

In a televised address Friday, Tsipras said: “The IMF published a report on Greece’s economy which is a great vindication for the Greek government as it confirms the obvious – that Greek debt is not sustainable.”

He urged Greeks to vote “no to ultimatums, divisions and fear.”

All week Tsipras continued with his calls that Greece was being “blackmailed” one moment, and then using tones of conciliation the next. Eurozone officials grew weary of the prime minister’s constantly changing tactics and mixed messages. Wednesday they slammed the door on further talks until after the referendum.

And in missing its 1.5bn euro payment to the IMF on Tuesday, Greece was officially in default; the first European Union country to fail to repay a loan to the IMF. Its original bailout program also ended Tuesday at midnight. Eurozone finance ministers refused to extend it.

The thing is the proposal in Sunday’s referendum on the question of whether to accept the last offer from creditors in return for an aid package has been withdrawn.

The creditors have said a No vote is a rejection of the country’s membership in the euro currency bloc.

Heck, Greece’s highest court was trying to decide Friday whether the referendum is even constitutional, as I noted last week.

The President of the European Commission, Jean-Claude Junker, said Friday that a No result, rejecting the terms of a bailout, would mean “the Greek position is dramatically weakened.”

The current bailout program has come to an end and there are no negotiations on the way.

Juncker added: “If Greeks vote no, they will have done everything but strengthen the Greek position.

“Even in the case of a yes vote, we will face difficult negotiations. In case of no vote, the Greek position will be dramatically weak.”

Luxembourg’s Prime Minister Xavier Bettel cautioned other European leaders would have to “respect” the Greek vote, and that neither outcome would be simple. Luxembourg has taken on the rotating presidency of the European council, giving the Grand Duchy a wee bit of power the next six months. Timing is everything.

Earlier Friday, Greek Finance Minister Yanis Varoufakis took except with the official line that a No vote would entirely end the chance of any further talks. He insists a deal is still “in the offing” regardless of the outcome Sunday, to which Dutch counterpart Jeroen Dijsselbloem said that to describe the notion of negotiating after a No result was an “illusion.”

Earlier in the week, German Finance Minister Wolfgang Schaeuble said, “The (Tsipras) government has done nothing since it came into office.” In another moment, Schaeuble said, “The Greek government’s behavior has been beyond belief.” German Chancellor Angela Merkel was also clearly losing her patience.

According to a poll of Greek voters commissioned by Bloomberg News, 43 percent intend to vote No to reject austerity demanded by creditors in exchange for more aid; 42.5 percent back a Yes to accept the creditors’ conditions.

Another survey published in To Ethnos newspaper had 41.5 percent voting Yes, 40.2 percent No.

So it’s very possible that the referendum won’t resolve anything, even though four in five Greeks polled said they want to stay in the euro.

Should Yes carry the day, aid may follow, but there will no doubt be a change in government and negotiations won’t be easy.

The No side has been losing support since the banks closed, with commerce grinding to a halt.

French President Francois Hollande said, “If it’s a ‘yes,’ negotiations can quickly re-start. If it’s a ‘no’, we are in unknown territory.”

What is very clear the past few weeks is that there is incredible pain being inflicted on the Greek people, made doubly worse when capital controls were initiated last weekend, with ATM withdrawals severely limited and pensions for the elderly slashed amid the severe cash crunch.

There is no money to pay for imports, like for food, and pharmaceutical goods are drying up. The tourism sector is a disaster because tourists can’t use their credit cards. 20 euro notes are out of supply. Gas stations only accept cash.

The banks, which have little cash left, can’t reopen because it would be gone in a flash.

Factories are closing because raw materials used in production aren’t being delivered.

Needless to say, no one is paying their taxes, so nothing is coming into state coffers.

European Central Bank Vice President Vitor Constancio said he could not say whether the ECB would provide emergency liquidity assistance (ELA) to Greek banks if Greeks vote No.

Meanwhile, Italy’s Prime Minister Matteo Renzi is concerned about political contagion from Greece. Beppe Grillo, the leader of Italy’s opposition Five Star Movement, which polls 25%, was so excited by the Greek referendum, he said he was going to Athens for the vote. “Power to the people, not the banks,” he wrote on his blog. Anti-euro parties such as Grillo’s are gaining strength.

“From the economic and financial point of view, the situation is manageable,” said Sandro Gozi, a top aide to Renzi on European affairs. “But the point is political. At a time when we want to strengthen the European Union and go towards greater economic unity, to lose pieces along the way is something that worries us a lot.”

Vincenzo Scarpetta, an analyst at the Open Europe think-tank, told the Financial Times: “Italy is possibly the eurozone country where political contagion would be the most significant. If Greece leaves the eurozone, then eurozone membership is not irreversible,” he warned.

Spanish Prime Minister Mariano Rajoy echoed the sentiment. “People may think that if one country can leave the euro, others could do so in the future.”

The leader of Spain’s anti-austerity party, Podemos, which is allied with Greece’s ruling Syriza party, said last weekend that “The future of Europe is now at risk.”

Pablo Iglesias added: “In my opinion the problem isn’t Greece, the problem is Europe. Germany and the IMF are destroying the political project of Europe. The IMF and the German government are attacking democracy.” [Reuters]

Retired U.S. Admiral James Stavridis, a former NATO supreme allied commander, said in an interview, “Greece spiraling into chaos would be a significant strategic disruption for Europe and therefore for the U.S. There’s more to this crisis than money and the financial markets.” [Bloomberg]

Robert D. Kaplan / Wall Street Journal

“(What) many European policy makers know – even if few articulate it – is that Europe will be increasingly vulnerable to Russian aggression if its links to Greece are substantially loosened. Greece is the only part of the Balkans accessible on several seaboards to the Mediterranean, and thus is a crucial gateway to and from the West.

“Given the bellicosity of Russian President Vladimir Putin, it is useful to contemplate what would have happened had Stalin not ceded Greece to the West in return for the rest of the Balkans at the start of the Cold War. With Greece inside the Communist bloc, Italy would have been permanently endangered, to say nothing of the whole eastern Mediterranean and the Levant. Indeed, American bases in Greece were critical to the policy of containment.

“But Greece, in terms of its politics and culture, is not fully anchored in the West. Greece is more properly viewed as the child of Byzantine and Ottoman despotism than of Periclean Athens. The mid-19th century revolutions in Europe were often of bourgeois origins with political liberties as their goal. Yet the Greek independence movement was more of an ethnic movement with a religious basis. Greece, by virtue of its Eastern Orthodox Christianity, has an emotional and spiritual bond with Russia. This helps explain why most Greeks sided with Russia in favor of the Serbs and against Europe during the 1999 Kosovo War, even if the Greek government’s position was more equivocal....

“Russia may be helping to inflame Syriza’s internal divisions in the hope that Greece’s ruling party cannot make the difficult concessions necessary to stay in the eurozone. If Greece does leave the eurozone, the economic aftershocks to the domestic economy could reduce it to a semi-failed state that, along with the dismemberment and weakening of Ukraine, will seriously weaken Europe’s geopolitical position vis-à-vis Russia.

“If this happens not only will the Iberian states of Spain and Portugal be more susceptible to euro-debt contagion, but Balkan states with weak institutions and fragile economies like Albania, Bulgaria and Romania will be in a more exposed position. While those states were never part of the eurozone, the spectacle of a major Balkan country pivotally loosening its ties with the West, even as Russia appears momentarily ascendant in the region, will be sobering in the extreme.

“Then there is the larger picture. The first post-Cold War decades featured a secure Eurasian maritime sphere from the Mediterranean across the Indian Ocean to the Western Pacific. Thus, the weakening of Greece’s ties with the West in the eastern Mediterranean has to be seen alongside the ascendancy of Iran in the Persian Gulf and the rise of China in the South and East China seas as a singular process in the chipping away at American power.

“The EU, as frustrating as its policies can be, represents the ultimate triumph of American power emerging from the bloodshed of World War II. If Greece does leave the eurozone, whatever the country’s sins, it is demonstrably in Europe’s and America’s interest to nurse it back to health to keep, for example, Russian warships away from Greek ports.”

---

There was a slew of economic data this week for the eurozone.

A final reading on the manufacturing PMI for June came in at 52.5 vs. 52.2 in May. Germany’s figure rose to 51.9 from 51.1 (50 being the dividing line between growth and contraction), while France’s manufacturing PMI rose to 50.7 vs. 49.4 in May. Expansion!

Spain registered 54.5 in June vs. 55.8 in May, Italy came in at 54.1 for June, but Greece was just 46.9.

Non-euro U.K.’s mfg. PMI was 51.4 vs. 51.9 the previous month.

As reported by Markit, the final eurozone services index was 54.4 vs. 53.8 in May.

Chris Williamson, Chief Economist at Markit:

“Despite the escalation of the Greek crisis in the second half of the month, the final PMI for June came in slightly above the ‘flash’ estimate, suggesting the turmoil has so far had little discernible impact on the real economy.

“Business activity expanded at the strongest rate for just over four years in June and hiring remained reassuringly resilient, with job creation also running at its highest for four years in the past two months.

“The survey data point to GDP rising 0.4% in the second quarter, with the upturn led by Spain and Ireland alongside ongoing robust growth in Germany, but with recoveries also now building momentum nicely in Italy and France.

“The combination of ECB stimulus and low inflation appears to be boosting spending among consumers and businesses, offsetting ‘Grexit’ anxiety. However, with growth of new business slowing for a third month running, the survey is hinting that some risk aversion is creeping in which could hit growth in coming months if the Greek crisis is not resolved soon.”

Speaking of inflation, the eurozone annualized rate for June was 0.2%, down from 0.3% in May, according to Eurostat’s ‘flash’ estimate.

Eurozone retail sales for May rose 0.2% over April, up 2.4% year over year, which is respectable.

And then Eurostat released the May unemployment picture, 11.1% for the euro area vs. 11.6% May 2014, hardly an improvement.

Germany is at 4.7%, France 10.1%, Italy 12.4%, Spain 22.5% and Greece 25.6% (March).

Greece has a youth unemployment rate of 49.7% (March)*, Spain’s is at 49.3% (though down 4% from year ago levels), France’s has actually ticked up to 23.7% from the May 2014 level of 23.6%, and Italy’s youth jobless rate is 41.5%.

*Seeing as Greece’s figures are for March, in all likelihood they have deteriorated since then.

[Ireland, as Chris Williamson notes above, continues to be a positive with an overall unemployment rate of 9.8%, down from 11.7% a year earlier.]

Turning to Asia...Chinese securities regulators are investigating suspected manipulation of the stock market, as reported by Xinhua news agency. The benchmark Shanghai Composite Index has crashed 30% since mid-June, its worst stretch in years, including 12.1% this week.

The Shanghai exchange had more than doubled in value over 12 months but the losses of the past few weeks have wiped out trillions in share value.

In an online survey reported by the South China Morning Post, some 24 percent of those polled said they “had suffered a loss of over 50 percent,” while another 27 percent said their investments had fallen by up to half since the beginning of the year.

Some are blaming foreign investors for the manipulation and short-selling, but foreigners have limited access to Chinese markets.

The selloff continued even as China cut interest rates and eased margin lending rules, the latter to make it easier for brokerages to lend money. The government is doing all it can to calm nerves.

On the data front, HSBC’s final PMI for China manufacturing in June came in at 49.4 vs. 49.2 in May. The government’s figure was 50.2, unchanged from May. [The reading on the service sector was 53.8 vs. 53.2. HSBC’s service index was 50.6 in June vs. 51.2 in May.]

*Reminder...HSBC’s indexes tend to look at China’s private sector, while the government focuses on large state enterprises.

On a different topic, there have been a record number of Chinese companies leaving their U.S. listings. At least 25 are considering going private or have done so this year amid speculation they plan to list in China for higher valuations. Of particular concern is the treatment of bondholders. If the company ditches its U.S. listing, it no longer has to file quarterly financial results, which bond buyers use to assess the companies’ ability to pay off obligations.

And lastly, China is relaxing visa rules for its citizens, allowing them to stay seven days in Macau, up from the current five, which should be good for gaming stocks, which have been suffering big time with President Xi Jinping’s crackdown on official corruption and excess in general.

But at the same time, a bill to ban smoking lounges on mass floors, which comes after mass gaming floors were made non-smoking last October, would be a killer. Analysts said mass gaming revenue took a serious hit with last fall’s ban, which forces smokers to take their breaks outside.

Having been to Macau twice, though not since the bans went into effect, I can indeed say the gaming rooms were beyond disgusting, albeit profitable.

Lastly, Japan’s manufacturing PMI for June was a disappointing 50.1 vs. 50.9 in May. Taiwan’s was a sickly 46.3 last month vs. 49.3.

Street Bytes

--Stocks finished down in the holiday-shortened week, with the Dow Jones falling 1.2% to 17730, while the S&P 500 also declined 1.2% and Nasdaq lost 1.4%.

For the second quarter, the Dow fell 0.9% and the S&P lost 0.2%, snapping nine consecutive quarters of gains for the latter. But Nasdaq gained 1.8%, its tenth quarterly rise in a row.

Through 7/3, however, talk about unexciting. The Dow is -0.5%, the S&P is +0.9% and Nasdaq is +5.8%. Whoopty-damn-do.

Second-quarter earnings start to dribble in this week, the following one in earnest, and S&P 500 companies are forecast to report a 4.5% drop for the quarter, according to FactSet, which should this turn out to be the case would mark the end of 10 consecutive quarters of growth.

But if you take out the energy sector, the S&P is expected to see earnings growth of about 2%.

--U.S. Treasury Yields

6-mo. 0.10% 2-yr. 0.63% 10-yr. 2.38% 30-yr. 3.19%

The long end rallied a bit on the weaker than expected jobs report.

For the second quarter, the yield on the 10-year rose to 2.33%, 6/30, from 1.93% end of Q1.

The German bund’s yield rose to 0.74% from 0.18% in Q2, a hefty percentage increase.

--The Atlanta Fed’s GDPNow indicator keeps inching up when it comes to the second-quarter growth forecast, now 2.2%.

--Puerto Rico’s governor admitted his island’s $70bn debt pile is “not payable,” as a report on the economy warned the fiscal deficit was even worse than thought.

Governor Garcia Padilla said Puerto Rico would seek to restructure its liabilities.

Revenues on the island have been on average 15 percent lower than projected since 2004 as the population dwindles and the economy stagnates.

As the island is a U.S. territory and not a state, Puerto Rico cannot ask the IMF for help or loans until it can restructure its debts and economy.

I have never felt this is a huge issue. It’s long been priced in. If I’m wrong, I’ll admit it.

--BP can finally exhale. On Thursday, the company announced an $18.7bn settlement with U.S. plaintiffs, to be paid over 18 years. Yes, the figure is startling, but spread out over two decades, and with two-thirds of the settlement able to be taken against taxes, it’s not that awful. 

BP can now plan investments with more clarity. And it’s already said that when it comes to its shareholders, the dividend will not suffer. BP could also become a takeover target from the likes of Exxon Mobil.

There do remain some legal issues and more payments to small business, but all in all, there’s a reason why BP stock rallied 5% on news of the settlement.

--The Supreme Court blocked one of the administration’s chief environmental initiatives, an EPA regulation designed to limit emissions of mercury and other toxic pollutants from coal-fired power plants.

Industry groups and up to 20 states had challenged the EPA’s move to regulate the emissions because of the costs to meet the regulations.

Writing for the majority, Justice Antonin Scalia wrote: “It is not rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits. Statutory context supports this reading.”

The EPA argued the benefits far outweighed the costs.

--U.S. auto sales are on track to hit record levels not seen in 15 years and could approach 17.4 million (another source I read said 17.2m), the previous annual record. But many feel this is also the peak, as the rush to replace aging vehicles and drivers (just kidding, boys and girls), runs its course.

By the end of the year, as reported by the Los Angeles Times, auto sales will have grown about 65% from their low of 10.4 million in 2009.

As for June, General Motors reported its sales fell 3% compared to the same month a year earlier, due to lower sales to rental car fleets, though this was expected.

Ford Motor saw its sales rise 2% and Fiat Chrysler reported an 8% gain. The latter, the No. 3 U.S. automaker, has had 63 straight months of collective sales increases for its four brands.

Toyota’s sales rose 4%, Honda’s 4.2% and Nissan’s were up a whopping 13%.

There has been a big increase in small SUVs.

Clown car sales are, unsurprisingly, down because this is more a Depression-type buy.

--Aetna agreed to pay $37 billion to buy rival Humana at a hefty 29 percent premium to its May 28 share price, prior to rumors of the move taking hold, as first reported in the Wall Street Journal. Aetna shareholders will own 74 percent of the combined company.

This is yet another move spurred on by ObamaCare, specifically the Medicare Advantage program. The move will create the second-largest managed care company in the U.S.

--Oregon became the first state to announce final 2016 health insurance rates and the insurance commissioner approved an average 25.6% increase for the biggest plans on the state’s health exchange.

Commissioner Laura Cali said the increases were necessary for plans to stay afloat. Now discuss amongst yourselves.

--Insurer ACE Ltd. agreed to acquire Chubb Corp. for $28.3 billion in cash and stock, creating one of the biggest property and casualty insurance companies in the world. ACE is led by Evan Greenberg, son of Maurice “Hank” Greenberg of AIG fame.

From the Journal’s Leslie Scism and Erik Holm:

“The deal comes as property-casualty insurers are facing pressure from what most people view as a stroke of good luck: relatively modest hurricane claims since 2012, the year of superstorm Sandy. With fewer claims checks being sent to individuals and businesses, insurers’ capital bases are growing, and their stepped-up competition with each other to put that capital to work is depressing prices.”

Tuesday, insurance broker Willis Group Holdings PLC and consulting firm Towers Watson & Co. agreed to an $18 billion merger.

--Chicago Mayor Rahm Emanuel said the nation’s third-biggest school district is cutting 1,400 jobs amid the growing fiscal crisis facing the city and the state of Illinois. The city and state have pension systems that have long been severely underfunded, but the state, which controls education spending and the pension systems, has taken no steps to help Chicago’s school system.

Teachers aren’t impacted, but vacant positions aren’t going to be filled.

Illinois has the lowest credit rating among U.S. states, while Chicago was recently lowered by Moody’s Investors Service to below investment grade.

--The PIMCO Total Return Fund suffered withdrawals in June for a ninth straight month since “bond king” Bill Gross departed, though the figure was just $3 billion, a relative trickle. Withdrawals were $32bn last October.

--According to California’s Water Resources Control Board, residential water use in the state dropped by a hefty 29% in May (vs. May 2013); the biggest monthly decline yet reported since Gov. Jerry Brown’s mandatory 25% cut in urban water use was issued on April 1. 

Frankly, I’m shocked. This is good! Seriously, it shows all Americans what they can do when similar emergencies strike the country, as they surely will.

But in the case of the Golden State, the people obviously can’t let up, until the highly anticipated winter rains hit...and they will, sports fans!

--A SpaceX Falcon 9 rocket blew up shortly after takeoff on what was to be a mission to re-supply the International Space Station. The company’s technical staff can’t explain as yet what went wrong. The Falcon 9 is the company’s work-horse product and some $7 billion in revenue from 50 scheduled missions depend on its being able to fly.

The seven previous SpaceX supply runs, dating back to 2012, went very well. The next launch is scheduled for August.

SpaceX founder and chief rocket designer, Elon Musk, tweeted on the day of the accident that the company was examining an “overpressure event” in a liquid oxygen tank used to fuel the second-stage engine. [Tim Femholz / Defense One]

SpaceX is one of two companies hired by NASA to start ferrying American astronauts to the space station as early as 2017. The other contender is Boeing.

This was the second failed station shipment in a row and the third in eight months. In April, a Russian cargo ship spun out of control and burned up upon re-entry, and last October, another company’s supply ship, Dragon, was destroyed in a launch accident.

But Russia did successfully launch supplies to the ISS on Friday from Kazakhstan, a Progress M-28M rocket, which is ferrying three tons of food, fuel and other supplies.

--Two Uber France executives have been ordered to stand trial on September 30 on charges of “misleading commercial practices” and “complicity in the illegal exercise of the taxi profession,” as noted by the Paris prosecutor’s office.

Taxi drivers in Paris are furious that Uber’s service allows drivers to operate without a taxi license, which can cost them up to 240,000 euros, as reported by the Financial Times.

But on Friday, Uber announced it was suspending the most controversial service in France, Uberpop (which used drivers without professional licenses), as it caved to authorities’ demands.

--From Tom Fairless / Wall Street Journal:

“New research by two U.S. academics suggest that Google Inc. is harming Internet users and violating competition laws by skewing search results to favor its own services, a potentially significant twist in Europe’s long-running antitrust investigation of the U.S. search company.”

On a small scale, I couldn’t agree more. Most weeks, when you plug in the search term “Week in Review” into Bing or Yahoo, StocksandNews shows up first or second on page 1. But with Google, I am generally anywhere from page 8 to page 12.

--A U.S. federal appeals court has ruled that Apple conspired with publishers to fix the prices of electronic books when it entered an e-book market dominated by Amazon.

Apple said it did nothing wrong and is exploring further steps.

--Sir Richard Branson’s Virgin Atlantic announced it was cutting 500 managerial and support jobs, though the airline recently announced a return to profitability.

--Phil Knight announced he is stepping down as chairman of Nike, the company he founded in 1964, along with University of Oregon track coach Bill Bowerman. The company formally became “Nike” in 1978. Knight has recommended he be succeeded by Mark Parker, who has been the apparel and equipment company’s president and CEO since 2006.

--The British Broadcasting Corp. announced it is cutting more than 1,000 jobs to cope with the increasing migration of television viewers to the Internet. The BBC is largely funded by a public tax, including an annual TV license, which is enforced through inspections.

The British government, however, has frozen the license fee since 2010, which has severely impacted the BBC’s budget, as reported by the Wall Street Journal.

--Jim McTague, a longtime excellent columnist at Barron’s, wrote his last piece this week after 21 ½ years. In talking about a looming bear market and his overall pessimism, I liked this passage:

“Bears have weak eyes, compensated for by a powerful sense of smell. There’s a strong odor in the air, but I can’t discern if it’s in the backyard or halfway down the block.”

--Xiaomi shipped 34.7m smartphones in the first six months of this year, but the company had set a full year target of 100 million, so said the CEO in 2014. It has since revised the figure to 80m to 100m. This speaks volumes about the smartphone market overall in China. It is reaching the saturation point, with shipments declining in China for the first time in six years during the first quarter, according to research firm IDC.

--Yikes. From the Financial Times:

“A technician was killed by a robot at a Volkswagen plant near Kassel, Germany on Wednesday, in a rare accident that touches on concerns about the spread of automation and its impact on jobs.

“The 21-year-old contractor was working with a colleague to install the machine when he was struck in the chest by the equipment and pressed against a metal plate. He later died of his injuries.”

VW said this was not a result of some super intelligent newer type of robotics, but rather a more traditional industrial accident.

FT:

“In this incident, the contractor was standing inside the safety cage when the accident occurred....VW said the robot did not suffer a technical defect. Prosecutors have opened an investigation into how the accident occurred.”

--Huge local story. I’ve told you how the last 5+ years I have lived directly across the street from Merck’s former North American headquarters, but after the company decided to send thousands of employees there out to its other area locations, including New England and Pennsylvania, the 1.3 million-square-foot complex has laid dormant.

But on Wednesday, friend and current Merck employee Gene M. first told me of breaking news...Summit, N.J. fellow corporate resident Celgene was buying the whole thing, even though Celgene, once thought to be a buyer, is expanding its existing facility a few miles away by 500,000-square-feet; which speaks volumes about Celgene’s outlook for its business.

Needless to say this is super for local businesses, like restaurants, that catered to the old Merck crowd at lunch and after hours. So your intrepid editor walked up the block to one said establishment to spread the news. Being the first to tell Vinny the bartender and the various other employees, it was cool to make somebody’s day.

“Hang in there, guys. The business will return!”

-- Saudi billionaire Prince Alwaleed bin Talal has said he will donate his entire $32 billion fortune to charity, having been inspired by the Bill and Melinda Gates Foundation. The Prince wants the money to go to “foster cultural understanding,” “empower women,” and “provide vital disaster relief,” among other things.

While I deeply admire the Gates Foundation’s work, I’d rather Prince Alwaleed give his money to ISIS if they promised to go away and leave us alone for a few centuries. That not being possible, however, let’s go with Disaster Relief for $200.

Foreign Affairs

Iran: With nuclear talks extended one week from the June 30 deadline, Iran signaled on Thursday it may allow inspectors with the U.N.’s International Atomic Energy Agency to question its experts about the country’s nuclear activities.

Iran’s envoy to the IAEA, Reza Najafi, said his government and the agency had reached a “general understanding” on the IAEA’s demands for aggressive inspections of Iranian facilities and for access to scientists.

Another senior Iranian official in Vienna said Tehran would provide limited access to “individuals and places” related to the nuclear program.

Recently, Supreme Leader Ayatollah Khamenei said there was no way Tehran would allow inspectors to question the nation’s nuclear scientists and engineers, calling this a violation of Iran’s sovereignty. [Paul Richter / Los Angeles Times]

If a deal is not wrapped up before July 9, new U.S. legislation stipulates that Congress would be given 60 days rather than 30 to review the nuclear agreement.

A poll conducted by the Chicago Council on Global Affairs found 59% of Americans favoring the “framework” deal that was announced in April.

But, again, it’s always been about inspections so we await the details, and Congress is certainly prepared to act. Sen. Bob Corker (R-Tenn.), chairman of the Senate Foreign Relations Committee, said the other day the pact must allow inspectors to gain access to Iranian military bases and must allow inspections “anytime, anywhere.”

That’s not going to be the case, though, as there will be an appeal process for Iran to challenge any U.N. request for access.

Meanwhile, as a Financial Times story put it, the elite Revolutionary Guards “feels increasingly insecure about what a nuclear deal could mean not just for Iran but also for its commercial empire, whose multi-billion dollar interests stretch from telecoms to construction to consumer goods imports....

“(The Guards) fear the consequences of any deal on the country’s politics, economy and military influence in the region after more than three decades of anti-western rhetoric and international isolation.

“But reform-minded analysts say the hardliners’ main concern is about losing control of their vast business interests now that the country is preparing to open up its doors to foreign investment.” [Najmeh Bozorgmehr / FT]

Ray Takeyh / Washington Post

“The much-discussed terms of the impending agreement with Iran (offer) the theocracy all that it wants. The accord would concede a vast enrichment capacity, as well as accepting both a heavy water plant and a well-fortified underground enrichment facility that the United States once vowed to shutter. It would permit an elaborate research and development program and would likely rely on an inspection regime that falls short of indispensable ‘anytime, anywhere’ access. In the meantime, the sanctions architecture will be diminished, and the notion of ever ‘snapping back’ sanctions into place once they are lifted is delusional. And because the agreement itself would be term-limited, there would be no practical limits on Iran’s nuclear ambitions upon its expiration.

“However, as disturbing as all this may be, the most important legacy of the prospective agreement may not even lie in the nuclear realm. The massive financial gains from the deal would enable the Islamic Republic’s imperial surge while allowing a repressive regime that was on the brink of collapse in 2009 to consolidate power. This would be no small achievement for Iran’s emboldened rulers.”

At a news conference this week, President Obama said he’s still prepared to walk away from the talks if Iran can’t meet the terms set out by the U.S. and its partners.

“I will walk away from the negotiations if in fact it’s a bad deal,” he said. “Given past behavior on the part of Iran, that simply can’t be a declaration by Iran and a few inspectors wandering around every once in a while.”

I have my doubts as to the president’s sincerity, to say the least. But the fight in the Senate could not only be historic, it could make for great television.

Iraq/ISIS/Syria: A leading Israeli defense official said Syria’s Bashar Assad controls just a fifth of his country and is likely to end up in charge of a rump state controlled by his Alawite minority sect.

Amos Gilad, director of the Political-Military Affairs Bureau at the Defense Ministry, declared at an intelligence conference: “Syria is gone. Syria is dying. The funeral will be declared in due time.”

ISIS beheaded two women in Syria for sorcery, a punishment normally reserved for men. It is the first time a woman civilian is recorded as having been beheaded, though women soldiers from the Kurdish militia have in the past.

Sorcery in Islamic countries is basically fortune-telling, which attracts the death penalty in Saudi Arabia.

Separately, it’s now estimated ISIS killed 200 civilians in the Syrian border city of Kobani, across from Turkey, to avenge recent ISIS defeats at the hands of Kurdish forces. The Kurds apparently retook most of Kobani after the latest IS massacre.

ISIS militants also killed at least 40 Syrian government troops in attacks on three checkpoints in central Syria.

Lastly, you know that training program the U.S. is spearheading to recruit 5,000 or so Syrian rebels to fight ISIS? We learned this week that a whopping 100 have been identified to date. Pathetic.

Egypt: There were fierce battles this week between Islamist militants and the Egyptian army in the northern Sinai peninsula that left at least 117 dead, according to state media.

The violence came two days after Egypt’s top prosecutor was assassinated in a bomb attack in a Cairo suburb. The Muslim Brotherhood was blamed by the government, but the Brotherhood has denied the allegations.

The army’s counterinsurgency efforts in the thinly populated Sinai have achieved little success in putting down the Islamists, mostly affiliates of IS, such as Sinai Province, which said it carried out three suicide attacks and battled Egyptian forces at more than 15 sites in the northern Sinai.

17 soldiers were among the dead, but earlier there had been a government report that 60 had been killed and wounded, so who knows. There has been a two-year restriction on media access to northern Sinai.

Following the attacks, Israel closed its border crossings with Egypt in the Sinai.

For his part, Egyptian President Sisi warned of a new crackdown against domestic “enemies.”

“The hand of justice is tied by laws,” Sisi said, following the assassination of the top prosecutor. “We won’t wait on this. We will amend the laws in order for us to achieve justice.”

Sisi vowed to carry out death sentences, which would include that handed down to former President Mohamed Morsi and hundreds of Brotherhood supporters.

I like Sisi, but he needs to be careful with this last bit.

Jordan: The nation is preparing to carve out a security zone in southern Syria to prevent a jihadi victory in the area, which would represent the first humanitarian “buffer zone” for rebels and refugees in the four year civil war. Jordan is concerned ISIS will grab territory on its border and threaten it directly.

Tunisia: The death toll in last Friday’s terror attack at a beach resort reached 39, with at least 15 Britons among the victims. The government announced the closure of 80 mosques that it said were outside government control and used to spread venom.

I feel for this country. Between this attack and the March one in the capital on the Bardo Museum that killed 24, there is just no reason to risk going here. One French woman who was trying to get back home after vacationing in the country told the Financial Times, “No way will I come back after this. It’s sad because I have been coming here for 12 years.”

Russia: Sen. John McCain (R-Ariz.) returned from a trip to Ukraine, accompanied by Senators Barrasso (R-Wyo.) and Cotton (R-Ark.), and had some of the following thoughts in a Washington Post op-ed.

“No one in the West wants a return to the Cold War. But we must recognize that we are confronting a Russian ruler who seeks exactly that. It is time for U.S. strategy to adjust to the reality of a revanchist Russia with a modernized military that is willing to use force not as a last resort, but as a primary tool to achieve its neo-imperial objectives. We must do more to deter Russia by increasing the military costs of its aggression, starting with the immediate provision of the defensive weapons and other assistance the Ukrainians desperately need.

“President Obama has wrongly argued that providing Ukraine with the assistance and equipment it needs to defend itself would only provoke Russia. Putin needed no provocation to invade Ukraine and annex Crimea. Rather, it is the weakness of the collective U.S. and European response that provokes the very aggression we seek to avoid. Of course, there is no military solution in Ukraine, but there is a clear military dimension to achieving a political solution. If Ukrainians are given the assistance they need and the military cost is raised for the Russian forces that have invaded their country, Putin will be forced to determine how long he can sustain a war he tells his people is not happening....

“During my trip, the Ukrainians never asked for the United States to send troops to do their fighting. Ukrainians only hope that the United States will once again open the arsenal of democracy that has allowed free people to defend themselves so many times before.

“How we respond to Putin’s brazen aggression will have repercussions far beyond Ukraine. We face the reality of a challenge that many assumed was resigned to the history books: a strong, militarily capable state that is hostile to our interests and our values and seeks to overturn the rules-based international order that American leaders of both parties have sought to maintain since World War II. Among the core principles of that order is the conviction that might does not make right, that the strong should not be allowed to dominate the weak and that wars of aggression should be relegated to the bloody past.

“Around the world, friend and foe alike are watching to see whether the United States will once again summon its power and influence to defend the international system that has kept the peace for decades. We must not fail this test.”

Separately, Russia’s federal Investigative Committee, which answers directly to Putin, said it wants to question former Yukos oil executive Mikhail Khodorkovsky as a suspect in a 1998 murder case, that of the mayor of a Siberian town where Yukos had its biggest oil production unit. A Yukos security chief was convicted of the mayor’s murder.

Khodorkovsky, who spent a decade in jail after a falling out with Putin, now lives in Switzerland, where he remains one of Putin’s harshest critics.

This week Khodorkovsky suggested on Twitter the new investigation was politically motivated.

Khodorkovsky was arrested in 2003 and convicted of theft and tax evasion in 2005. He was released from prison in 2013.

Germany: According to a report released on Tuesday by the country’s domestic intelligence agency, the number of Islamists in Germany increased to 43,890 in 2014 from 43,190 in 2013. The president of the agency, Hans-Georg Maassen, said radical Islamists are “the greatest danger to Germany.”

According to the Jerusalem Post, Hizbullah has 950 active operatives in the Federal Republic, and Hamas has 300.

There are 7,000 Salafists who represent “the most dynamic Islamic movement in Germany” and serve as a recruitment pool for jihadist groups in Syria and Iraq, the report also said.

China: So you know how I first noted months ago that China’s reclamation work in the South China Sea was an environmental disaster? 

From the South China Morning Post and Reuters:

“China’s use of dredged sand and coral to build artificial islands on seven reefs had also damaged reef systems beyond the outposts, meaning the affected area could be greater than first thought, said several scientists who have studied satellite images.”

Beijing has issued statements saying the government is committed to protecting reefs and the broader marine environment. Right.

“John McManus, a prominent University of Miami marine biologist who has worked with Philippine scientists to research the South China Sea, told fellow experts this month that China’s reclamation ‘constitutes the most rapid rate of permanent loss of coral reef area in human history.’”

Meanwhile, China’s national legislature passed a sweeping national security law that critics say will further restrictions on freedom of speech and civil rights, though Beijing said it would not apply to Hong Kong and Macau.

Cuba: The U.S. and Cuba announced they are opening embassies in each other’s capitals, formally re-establishing diplomatic relations after more than five decades.

But Havana has made zero concessions when it comes to improving its human rights record and President Obama is likely to face stiff pressure from a large number of senators, such as Florida’s Marco Rubio and New Jersey’s Robert Menendez when the administration sends its nominee for U.S. ambassador to Cuba to the Senate for confirmation.

Editorial / Washington Post

“In announcing the reopening of the U.S. embassy in Havana, President Obama said ‘nobody expects Cuba to be transformed overnight’ by his policy of ‘engagement.’ That’s just as well because in the first six months of Mr. Obama’s normalization of relations with the Communist regime, most indicators of human rights on the island have moved in the wrong direction.

“Since December, there have been more than 3,000 political detentions in Cuba, including 641 in May and 220 on Sunday alone, according to dissident sources. Most were accompanied by beatings; at least 20 detainees required medical treatment in May. After Cuba was invited for the first time to the Summit of the Americas in Panama, regime thugs attacked the civil society activists who also showed up....

“Thanks to congressional opposition, no U.S. ambassador to Cuba may be confirmed anytime soon. But Mr. Obama himself, according to his spokesman, is eager to visit Havana. We’d like to hope that the president will restrain himself until the Castro regime shows some sign of delivering the improvements in human rights he says are the goal of his outreach. So far, U.S.-Cuba rapprochement is looking entirely one-sided.”

Liberia: Two months after the country was declared free of Ebola, a 17-year-old boy died from it. No other cases have been identified thus far. There were 20 confirmed cases of Ebola in Sierra Leone and Guinea in the week ending June 21, according to the World Health Organization.

Random Musings

--According to the latest Quinnipiac University poll of likely Iowa caucus participants, Wisconsin Gov. Scott Walker leads among Republicans with 18% of the vote, but this compares to 25% in a February survey, and 21% in May.

Donald Trump and Ben Carson each receive 10%, while Sen. Rand Paul and Sen. Ted Cruz get 9%. Jeb Bush is at 8%, Sen. Marco Rubio 7%, and Mike Huckabee 5%.

--In a new CNN/ORC national poll, Jeb Bush stands at 19%, up from 13% in May. Trump follows at 12%, up from 3% before his announcement. Mike Huckabee (8%), Ben Carson (7%) and Rand Paul (7%) round out the top five. Not good news for Marco Rubio and Scott Walker, both of whom received 6%.

--In a FDU PublicMind survey of New Jersey registered voters, among Republicans, Chris Christie and Jeb Bush are tied for first at 18%, with Donald Trump at 11%. But 22% say they would never support Christie and 27% wouldn’t support Trump, regardless of who wins the Democratic nomination.

Among Democrats, Hillary Clinton wins 63% in New Jersey, with Bernie Sanders at 15%.

Christie formally declared he was running on Tuesday, saying “I am now ready to fight for the people of the United States of America.”

“As a candidate for president, I want to promise you a few things,” said the rotund one. “First, a campaign without spin, or without pandering or focus group-tested answers. You’re going to get what I think, whether you like it or not, and whether it makes you cringe every once in a while or not.”

But as the rest of the nation is rapidly learning, my home state is a basket case and while Christie has one or two accomplishments he can point to, the economy sure isn’t one of them.

--As for Donald Trump, he continues to be haunted by the statement from his campaign announcement speech concerning Mexican immigrants.

“They’re bringing drugs. They’re bringing crime. Their rapists.” [You know, since Trump didn’t have a script, we really don’t know if he meant ‘They’re rapists’ or ‘Their rapists.’ Most reports, if not all I’ve seen, write it ‘They’re rapists.’ I think it’s the other word. But both kill him.]

In response, Univision said it would not air Trump’s Miss Universe and Miss USA beauty pageants. Trump then sued them for $500 million. NBCUniversal severed all ties to him; Trump then called the network “weak and so foolish.”

Macy’s dumped his clothing line. Trump said the chain had “totally caved.” [Phillip Rucker / Washington Post]

But there he sits, in second place in Iowa and New Hampshire, second nationally. He’s not going away anytime soon.

--Hillary Clinton’s presidential campaign raised a record $45 million in its first quarter, besting President Obama’s $41.9 million after launching his re-election bid. For the year the haul is estimated at $70 million.

The campaign’s goal was to raise $100 million by the end of 2015, as reported by Jennifer Epstein of Bloomberg.

[Bernie Sanders, by the way, apparently raised $8.3 million through mid-June, according to FEC filings, which sounds more than respectable. I also saw a figure of $15 million thus far, total, for Bernie. He drew a startling crowd of 10,000 to a rally in Madison, Wisconsin the other day. “Feel the Bern” is the campaign slogan.]

But back to Clinton, $70 million is great, but there are costs and at the end of her 2008 campaign, there were debts of $25 million.

--So will Joe Biden run? As the Wall Street Journal reported this week, before his death, elder son Beau Biden encouraged his father to get into the race, as did Beau’s younger brother Hunter.

A recent Journal/NBC News poll showed that Americans’ image of Biden has improved, with 40% viewing him in a favorable light versus 31% who had a negative opinion of him, an improvement from Nov. 2014, when it was 35% favorable, 38% unfavorable.

Hunter Biden apparently continues to urge his father to run. But if the vice president is going to make a move, it has to be soon, though supposedly he has supporters organizing staffs in Iowa and New Hampshire.

--The State Department released its latest trove of Hillary Clinton e-mails and they reveal that despite the administration’s denials, top White House officials were aware of the then-Sec. of State’s use of a private e-mail server to conduct government business.

The White House has said it first became aware of the server in August 2014, after Republican lawmakers received the information. But e-mails from 2009 show senior staffers knew then.

This issue, though, is just not a killer for Hillary’s opponents as yet.

Nonetheless, Kimberley A. Strassel / Wall Street Journal:

“Clinton scandals have a way of bumping and rolling along to a point where nobody can remember why there was any outrage to begin with. So in the interest of clarity, let’s take the latest news in the Hillary email escapade, and distill it into its basic pieces:

“Nothing Mrs. Clinton has said so far on the subject is correct....

“A quick correction: At least one thing Mrs. Clinton said in March was true. She deleted email. A lot of it....

“The White House also needs to answer questions....

“As it is unlikely the press corps will begin this investigation anew, or with any fervor, the best chance of getting answers from Mrs. Clinton probably rests in her Democratic rivals for the nomination. Vermont Sen. Bernie Sanders and former Maryland Gov. Martin O’Malley have so far avoided touching the Clinton scandals, unwilling to risk blowback accusing them of undermining the likely nominee. But if those men truly believe themselves better fit for the presidency, they could do the country no bigger favor than to start pressing Mrs. Clinton to explain her actions. Somebody has to.”

--Back to Chris Christie and New Jersey, according to a YouGov survey, the Garden State is the only state in the country that more people said they don’t like than do like. 40% of the people have an unfavorable opinion of the place while only 30% have a favorable one. [NJ.com]

--The Supreme Court ruled against three death row inmates who had sought to bar the use of an execution drug on the grounds it caused excruciating pain. It was another 5-to-4 decision with Justice Anthony Kennedy joining the court’s four main conservative members.

But the decision exposed the broader issue of whether the death penalty was unconstitutional, as Justices Stephen Breyer and Ruth Bader Ginsburg faced off against Antonin Scalia and Clarence Thomas.

--L. Gordon Crovitz / Wall Street Journal

“The Obama administration disclosed this month that for the past year China had access to the confidential records of four million federal employees. This was the biggest breach ever – until the administration later admitted the number of hacked employees is at least 18 million. In congressional testimony last week it became clear the number could reach 32 million – all current and former federal workers.

“The Chinese hackers managed to gain ‘administrator privileges,’ allowing them full access to the computers of the U.S. Office of Personnel Management. Among other things, they were able to download confidential forms that list ‘close or continuous contacts,’ including those overseas – giving Beijing a new tool to identify and suppress dissenters....

“OPM director Katherine Archuleta tried to dodge blame for the security lapses. ‘I don’t believe anyone is personally responsible,’ she told a Senate committee last week. ‘If there’s anyone to blame, it’s the perpetrators.’

“That’s bunk.” As Michael Hayden, who has headed both the CIA and National Security Agency, told the Journal, “(This) is not shame on China. This is shame on us for not protecting that kind of information.”

Crovitz:

“The Obama administration passively endured years of cyberattacks leading to these most recent hacks....

“Americans expect their government to protect them in the digital, as much as the physical, world. The next president should accept the responsibility to fight back against cyber war before more is lost.”

--A ton of stuff happened end of last week, as you all know, and then after I posted Friday night, there were some opinion pieces over the weekend I need to make note of.

Editorial / Wall Street Journal...on the reaction to the Charleston massacre.

“Charleston is the city whose harbor saw the first shots fired in the Civil War and many of whose stores and restaurants within living memory would not serve its black citizens. The city’s response gives hope to the idea that decent Americans can find their way past historic grievances and injustice to embrace those of different races and backgrounds as neighbors and fellow citizens.

“And sure enough, the reaction of the church families has inspired a movement to solve the old dispute over the Confederate flag flying on the state Capitol grounds. South Carolina’s Republican Governor Nikki Haley, an Indian-American, flanked by state politicians including black Republican Senator Tim Scott, called for taking the flag down. The movement has since gained support, as other politicians and businesses followed. A debate that has polarized politics for decades may be on the way to being settled.

“All of this is a refutation of those who contend that little has changed in American race relations. At Friday’s funeral for the Rev. Clementa Pinckney, President Obama concluded his eulogy by leading the congregation in singing ‘Amazing Grace.’ Earlier this week he said that racism continues to exist in America, and of course he is right. Anyone familiar with the concept of original sin knows that such sentiments can’t be banished from the heart of every individual.

“The more important question for any society is whether racial animus still drives public or private institutions. With the exception of a few outcast groups like the one that seems to have inspired (Dylann) Roof, we think the answer is no, and the reaction in Charleston and South Carolina more broadly is powerful proof. Their conciliation is a rebuke to those who commit violence in the name of race and to those who believe America is irredeemably racist. Their triumph over hatred is a lesson for the rest of America.”

--A CNN/ORC poll on the Confederate flag shows public opinion about where it was 15 years ago, with 57% of Americans seeing the flag more as a symbol of Southern pride than a symbol of racism. In 2000 the figure was 59%.

Among African-Americans, 72% see the flag as a symbol of racism, just 25% of whites agree.

75% of Southern whites describe the flag as a symbol of pride and 18% call it a symbol of racism, which are almost exactly reversed among Southern African-Americans, with just 11% seeing it as a sign of pride and 75% viewing it as a symbol of racism.

Among whites with a college degree, 51% say it’s a symbol of pride, 41% one of racism. Among those whites who do not have a college degree, 73% say it’s a sign of Southern pride, 18% racism.

David Brooks / New York Times

“Lowering the Confederate flag from public properties is...an easy call. There are plenty of ways to celebrate Southern heritage and Southern life without choosing one so enmeshed in the fight to preserve slavery.

“The harder call concerns Robert E. Lee. Should schools and other facilities be named after the great Confederate general, or should his name be removed and replaced?

“The case for Lee begins with his personal character. It is almost impossible to imagine a finer and more considerate gentleman.

“As a general and public figure, he was a man of impeccable honesty, integrity and kindness. As a soldier, he displayed courage from the beginning of his career straight through to the end. Despite his blunders at Gettysburg and elsewhere he was by many accounts the most effective general in the Civil War and maybe in American history. One biographer, Michael Korda, writes, ‘His generosity of spirit, undiminished by ideological or political differences, and even by the divisive, bloody Civil War, shines through in every letter he writes, and in every conversation of his that was reported or remembered.’....

“In theory, he opposed slavery, once calling it ‘a moral and political evil in any country.’ He opposed Southern secession, calling it ‘silly’ and a rash revolutionary act. Moreover we shouldn’t be overly guilty of the sin of ‘presentism,’ judging historical figures by contemporary standards.

“The case against Lee begins with the fact that he betrayed his oath to serve the United States. He didn’t need to do it. That late historian Elizabeth Brown Pryor demonstrated that 40 percent of Virginia officers decided to remain with the Union forces, including members of Lee’s family.

“As the historian Allen Guelzo emailed me, ‘He withdrew from the Army and took up arms in a rebellion against the United States.’ He could have at least sat out the war. But, Guelzo continues, ‘he raised his hand against the flag and government he had sworn to defend. This more than fulfills the constitutional definition of treason.’”

So I was at this (rainy) picnic last Saturday and brought the topic of Bobby Lee up with a West Point friend of mine, Tom M., and asked his opinion. Tom was adamant...Robert E. Lee was a traitor.

Personally, in my old home where I had three times the amount of space I have today, Lee was featured prominently in my dining room, along with Lincoln, Grant and another Confederate, Gen. John B. Gordon, whose name I kept coming across way back when I did an extensive Civil War battlefield tour. Gordon, a gallant man, would go on to become a U.S. senator, though he remained a staunch defender of the Old South. 

It’s complicated. Today, if you were in my living room you’d see seven paintings/prints. Four are winter landscapes and the other three are Civil War prints, all of which have Confederate figures in them, including one of the surrender at Appomattox. 

One of these last three, by the great artist John Paul Strain, has a rather infamous character in it as well. It’s just very cool looking. That’s why I bought it.

David Brooks:

“My own view is that we should preserve most Confederate memorials out of respect for the common soldiers. We should keep Lee’s name on institutions that reflect postwar service, like Washington and Lee University, where he was president.”

Well, just a few years ago I went to this fine school to do some sightseeing (it’s where Lee is buried...as well as being the home of an excellent museum honoring George C. Marshall...part of next door neighbor VMI).

Brooks, though, continues:

“But we should remove Lee’s name from most schools, roads and other institutions, where the name could be seen as acceptance of what he did and stood for during the war.

“This is not about rewriting history. It’s about shaping the culture going forward.”

I’m not going to say whether I personally agree or disagree with Mr. Brooks’ last two paragraphs. But this is the debate going forward, part of which was the stimulating conversation I had with my West Point friend last Saturday.

It’s a conversation certainly on full display this weekend at Daytona, too. I’ll leave it there for now.

--California Gov. Jerry Brown signed one of the nation’s toughest mandatory childhood vaccination bills, which will end exemptions from state immunization laws.

The legislation requires children who enter school or day care to be vaccinated against diseases such as measles and whooping cough.

Those with certain medical conditions can be excused, but there are no exemptions based on religious or other personal beliefs.

[The death of a woman in Washington State this spring has just been confirmed as the first U.S. fatality from measles in 12 years. This particular case was not linked to the Disneyland outbreak in 2014 that infected over 100.]

--For all the handwringing about an increase in crime in New York City, namely the murder rate and the number of shootings, the fact is the city had its lowest-crime June since 1994, according to New York City Police Commissioner William J. Bratton, June 1994 coincidentally being a time when he was in the midst of his first stint leading the NYPD.

And when it comes to homicides, through June 28, there were 161 this year, versus 145 in the same period a year ago...with shootings up only slightly from 511 to 542. Just not significant differences.

So I’m going to lay off this topic for a while.

--Meanwhile, Mayor Bill de Blasio finally unleashed his fury at fellow Democrat, Gov. Andrew Cuomo, for undermining New York City residents, while being focused on “deal making” and “revenge.”

A spokeswoman for the governor said, “For those new to the process, it takes coalition building and compromises to get things done in government.”

During his first 18 months in office, de Blasio shied away from criticizing Cuomo, but now, with the gloves off, the mayor said he knows there will be further retribution.

At the same time, any new law involving New York City requires support from Albany.

--When David Sweat was captured, days after fellow fugitive Richard Matt was killed, Sweat was carrying a compass, along with water, Pop-Tarts and a can of Vienna sausages. Matt had sardines with him when he was killed, sources said.

Personally, I would have been carrying veal cutlet with spaetzle and some Shiner Bock (the premium domestic), but we all have different tastes.

We are all grateful no innocents were hurt in this three-week chase.

--We note the passing of Nicholas Winton, 106, the man who became known as the “British Schindler” for saving hundreds of Czech children from Nazi persecution in the run-up to World War Two.

Winton managed to bring 669 mostly Jewish children on eight trains to Britain through Germany in 1939, but as noted in the Jerusalem Post this week, “the ninth train with 250 children never left Prague because the war broke out. None of the 250 children on board was ever seen again.”

Winton’s wartime exploits remained a secret until 1988, when his wife found a detailed scrapbook in their attic.

“You can’t come up to somebody and say: ‘by the way do you want to know what I did in ’39?’ he told Reuters in 2009.

--Finally, Misty Copeland made history when she was promoted to principal dancer of the American Ballet Theatre, the first African-American ballerina so chosen. She has been a tremendous role model and hers is a very cool story in these otherwise depressing times.

---

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

Happy Birthday, America!

---

Gold $1167
Oil
$55.52

Returns for the week 6/29-7/3

Dow Jones -1.2% [17730]
S&P 500 -1.2% [2076]
S&P MidCap -1.7%
Russell 2000 -2.5%
Nasdaq -1.4% [5009]

Returns for the period 1/1/15-7/3/15

Dow Jones -0.5%
S&P 500 +0.9%
S&P MidCap +3.7%
Russell 2000 +3.6%
Nasdaq +5.8%

Bulls 49.5
Bears 15.4 [Source: Investors Intelligence]

Dr. Bortrum has a new column posted.

Have a great week. If you haven’t contributed to the cause as yet, please feel free to do so. Click on the gofundme link above. Or you can send a check to PO Box 990, New Providence, NJ 07974.

Brian Trumbore



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Week in Review

07/04/2015

For the week 6/29-7/3

[Posted 9:00 PM ET, Friday]

Edition 847

Washington and Wall Street

Before I get to Greece, a few notes on the domestic economy. The June jobs report came in less than expected, 223,000 new jobs created, with the unemployment rate ticking down to 5.3%. But there were negative revisions to the previous two months totaling 60,000 and average hourly earnings, which had been trending higher, were unchanged and are up only 2% over the last 12 months.

We also learned the labor participation rate fell to 62.6%, the lowest since October 1977.

In other data points, the June Chicago manufacturing PMI was just 49.4, less than expected, but the national ISM for the month was a little better than forecast at 53.5.

May construction spending was up 0.8%, decent, but factory orders for the month were down 1.0%, worse than expected.

So what will the Federal Reserve do with all of this? Clearly the jobs report, even if so-so, wouldn’t preclude Chair Janet Yellen and her band of merry pranksters from raising interest rates in September, as currently forecast, but the global growth outlook is iffy and the Fed clearly has to wait to see what happens with Greece and its impact on sentiment and the euro economy. It also has to be concerned with China, whose financial markets are in turmoil.

Ergo, there is zero guarantee the Fed will do anything in September, but let’s hope they do finally hike then because that would be a very good sign for a number of geopolitical reasons, for starters. History shows us that August can be a crazy month.

So let’s look at one of the potential flies in the ointment, shall we?

Europe and Asia

It’s all about Greece’s referendum on Sunday. Greek Prime Minister Alexis Tsipras seized on a report from the International Monetary Fund this week that concluded Greece’s debt was unsustainable and that voters should press for a ‘No’.

Tsipras said the IMF analysis of Greece’s debt burden, which also called for 60bn euro in new financial aid over the next three years, justified his government’s rejection of a bailout extension proposal that contained no debt relief.

[The IMF also said Tsipras’ government was responsible for plunging the economy back into a crisis after signs of recovery.]

In a televised address Friday, Tsipras said: “The IMF published a report on Greece’s economy which is a great vindication for the Greek government as it confirms the obvious – that Greek debt is not sustainable.”

He urged Greeks to vote “no to ultimatums, divisions and fear.”

All week Tsipras continued with his calls that Greece was being “blackmailed” one moment, and then using tones of conciliation the next. Eurozone officials grew weary of the prime minister’s constantly changing tactics and mixed messages. Wednesday they slammed the door on further talks until after the referendum.

And in missing its 1.5bn euro payment to the IMF on Tuesday, Greece was officially in default; the first European Union country to fail to repay a loan to the IMF. Its original bailout program also ended Tuesday at midnight. Eurozone finance ministers refused to extend it.

The thing is the proposal in Sunday’s referendum on the question of whether to accept the last offer from creditors in return for an aid package has been withdrawn.

The creditors have said a No vote is a rejection of the country’s membership in the euro currency bloc.

Heck, Greece’s highest court was trying to decide Friday whether the referendum is even constitutional, as I noted last week.

The President of the European Commission, Jean-Claude Junker, said Friday that a No result, rejecting the terms of a bailout, would mean “the Greek position is dramatically weakened.”

The current bailout program has come to an end and there are no negotiations on the way.

Juncker added: “If Greeks vote no, they will have done everything but strengthen the Greek position.

“Even in the case of a yes vote, we will face difficult negotiations. In case of no vote, the Greek position will be dramatically weak.”

Luxembourg’s Prime Minister Xavier Bettel cautioned other European leaders would have to “respect” the Greek vote, and that neither outcome would be simple. Luxembourg has taken on the rotating presidency of the European council, giving the Grand Duchy a wee bit of power the next six months. Timing is everything.

Earlier Friday, Greek Finance Minister Yanis Varoufakis took except with the official line that a No vote would entirely end the chance of any further talks. He insists a deal is still “in the offing” regardless of the outcome Sunday, to which Dutch counterpart Jeroen Dijsselbloem said that to describe the notion of negotiating after a No result was an “illusion.”

Earlier in the week, German Finance Minister Wolfgang Schaeuble said, “The (Tsipras) government has done nothing since it came into office.” In another moment, Schaeuble said, “The Greek government’s behavior has been beyond belief.” German Chancellor Angela Merkel was also clearly losing her patience.

According to a poll of Greek voters commissioned by Bloomberg News, 43 percent intend to vote No to reject austerity demanded by creditors in exchange for more aid; 42.5 percent back a Yes to accept the creditors’ conditions.

Another survey published in To Ethnos newspaper had 41.5 percent voting Yes, 40.2 percent No.

So it’s very possible that the referendum won’t resolve anything, even though four in five Greeks polled said they want to stay in the euro.

Should Yes carry the day, aid may follow, but there will no doubt be a change in government and negotiations won’t be easy.

The No side has been losing support since the banks closed, with commerce grinding to a halt.

French President Francois Hollande said, “If it’s a ‘yes,’ negotiations can quickly re-start. If it’s a ‘no’, we are in unknown territory.”

What is very clear the past few weeks is that there is incredible pain being inflicted on the Greek people, made doubly worse when capital controls were initiated last weekend, with ATM withdrawals severely limited and pensions for the elderly slashed amid the severe cash crunch.

There is no money to pay for imports, like for food, and pharmaceutical goods are drying up. The tourism sector is a disaster because tourists can’t use their credit cards. 20 euro notes are out of supply. Gas stations only accept cash.

The banks, which have little cash left, can’t reopen because it would be gone in a flash.

Factories are closing because raw materials used in production aren’t being delivered.

Needless to say, no one is paying their taxes, so nothing is coming into state coffers.

European Central Bank Vice President Vitor Constancio said he could not say whether the ECB would provide emergency liquidity assistance (ELA) to Greek banks if Greeks vote No.

Meanwhile, Italy’s Prime Minister Matteo Renzi is concerned about political contagion from Greece. Beppe Grillo, the leader of Italy’s opposition Five Star Movement, which polls 25%, was so excited by the Greek referendum, he said he was going to Athens for the vote. “Power to the people, not the banks,” he wrote on his blog. Anti-euro parties such as Grillo’s are gaining strength.

“From the economic and financial point of view, the situation is manageable,” said Sandro Gozi, a top aide to Renzi on European affairs. “But the point is political. At a time when we want to strengthen the European Union and go towards greater economic unity, to lose pieces along the way is something that worries us a lot.”

Vincenzo Scarpetta, an analyst at the Open Europe think-tank, told the Financial Times: “Italy is possibly the eurozone country where political contagion would be the most significant. If Greece leaves the eurozone, then eurozone membership is not irreversible,” he warned.

Spanish Prime Minister Mariano Rajoy echoed the sentiment. “People may think that if one country can leave the euro, others could do so in the future.”

The leader of Spain’s anti-austerity party, Podemos, which is allied with Greece’s ruling Syriza party, said last weekend that “The future of Europe is now at risk.”

Pablo Iglesias added: “In my opinion the problem isn’t Greece, the problem is Europe. Germany and the IMF are destroying the political project of Europe. The IMF and the German government are attacking democracy.” [Reuters]

Retired U.S. Admiral James Stavridis, a former NATO supreme allied commander, said in an interview, “Greece spiraling into chaos would be a significant strategic disruption for Europe and therefore for the U.S. There’s more to this crisis than money and the financial markets.” [Bloomberg]

Robert D. Kaplan / Wall Street Journal

“(What) many European policy makers know – even if few articulate it – is that Europe will be increasingly vulnerable to Russian aggression if its links to Greece are substantially loosened. Greece is the only part of the Balkans accessible on several seaboards to the Mediterranean, and thus is a crucial gateway to and from the West.

“Given the bellicosity of Russian President Vladimir Putin, it is useful to contemplate what would have happened had Stalin not ceded Greece to the West in return for the rest of the Balkans at the start of the Cold War. With Greece inside the Communist bloc, Italy would have been permanently endangered, to say nothing of the whole eastern Mediterranean and the Levant. Indeed, American bases in Greece were critical to the policy of containment.

“But Greece, in terms of its politics and culture, is not fully anchored in the West. Greece is more properly viewed as the child of Byzantine and Ottoman despotism than of Periclean Athens. The mid-19th century revolutions in Europe were often of bourgeois origins with political liberties as their goal. Yet the Greek independence movement was more of an ethnic movement with a religious basis. Greece, by virtue of its Eastern Orthodox Christianity, has an emotional and spiritual bond with Russia. This helps explain why most Greeks sided with Russia in favor of the Serbs and against Europe during the 1999 Kosovo War, even if the Greek government’s position was more equivocal....

“Russia may be helping to inflame Syriza’s internal divisions in the hope that Greece’s ruling party cannot make the difficult concessions necessary to stay in the eurozone. If Greece does leave the eurozone, the economic aftershocks to the domestic economy could reduce it to a semi-failed state that, along with the dismemberment and weakening of Ukraine, will seriously weaken Europe’s geopolitical position vis-à-vis Russia.

“If this happens not only will the Iberian states of Spain and Portugal be more susceptible to euro-debt contagion, but Balkan states with weak institutions and fragile economies like Albania, Bulgaria and Romania will be in a more exposed position. While those states were never part of the eurozone, the spectacle of a major Balkan country pivotally loosening its ties with the West, even as Russia appears momentarily ascendant in the region, will be sobering in the extreme.

“Then there is the larger picture. The first post-Cold War decades featured a secure Eurasian maritime sphere from the Mediterranean across the Indian Ocean to the Western Pacific. Thus, the weakening of Greece’s ties with the West in the eastern Mediterranean has to be seen alongside the ascendancy of Iran in the Persian Gulf and the rise of China in the South and East China seas as a singular process in the chipping away at American power.

“The EU, as frustrating as its policies can be, represents the ultimate triumph of American power emerging from the bloodshed of World War II. If Greece does leave the eurozone, whatever the country’s sins, it is demonstrably in Europe’s and America’s interest to nurse it back to health to keep, for example, Russian warships away from Greek ports.”

---

There was a slew of economic data this week for the eurozone.

A final reading on the manufacturing PMI for June came in at 52.5 vs. 52.2 in May. Germany’s figure rose to 51.9 from 51.1 (50 being the dividing line between growth and contraction), while France’s manufacturing PMI rose to 50.7 vs. 49.4 in May. Expansion!

Spain registered 54.5 in June vs. 55.8 in May, Italy came in at 54.1 for June, but Greece was just 46.9.

Non-euro U.K.’s mfg. PMI was 51.4 vs. 51.9 the previous month.

As reported by Markit, the final eurozone services index was 54.4 vs. 53.8 in May.

Chris Williamson, Chief Economist at Markit:

“Despite the escalation of the Greek crisis in the second half of the month, the final PMI for June came in slightly above the ‘flash’ estimate, suggesting the turmoil has so far had little discernible impact on the real economy.

“Business activity expanded at the strongest rate for just over four years in June and hiring remained reassuringly resilient, with job creation also running at its highest for four years in the past two months.

“The survey data point to GDP rising 0.4% in the second quarter, with the upturn led by Spain and Ireland alongside ongoing robust growth in Germany, but with recoveries also now building momentum nicely in Italy and France.

“The combination of ECB stimulus and low inflation appears to be boosting spending among consumers and businesses, offsetting ‘Grexit’ anxiety. However, with growth of new business slowing for a third month running, the survey is hinting that some risk aversion is creeping in which could hit growth in coming months if the Greek crisis is not resolved soon.”

Speaking of inflation, the eurozone annualized rate for June was 0.2%, down from 0.3% in May, according to Eurostat’s ‘flash’ estimate.

Eurozone retail sales for May rose 0.2% over April, up 2.4% year over year, which is respectable.

And then Eurostat released the May unemployment picture, 11.1% for the euro area vs. 11.6% May 2014, hardly an improvement.

Germany is at 4.7%, France 10.1%, Italy 12.4%, Spain 22.5% and Greece 25.6% (March).

Greece has a youth unemployment rate of 49.7% (March)*, Spain’s is at 49.3% (though down 4% from year ago levels), France’s has actually ticked up to 23.7% from the May 2014 level of 23.6%, and Italy’s youth jobless rate is 41.5%.

*Seeing as Greece’s figures are for March, in all likelihood they have deteriorated since then.

[Ireland, as Chris Williamson notes above, continues to be a positive with an overall unemployment rate of 9.8%, down from 11.7% a year earlier.]

Turning to Asia...Chinese securities regulators are investigating suspected manipulation of the stock market, as reported by Xinhua news agency. The benchmark Shanghai Composite Index has crashed 30% since mid-June, its worst stretch in years, including 12.1% this week.

The Shanghai exchange had more than doubled in value over 12 months but the losses of the past few weeks have wiped out trillions in share value.

In an online survey reported by the South China Morning Post, some 24 percent of those polled said they “had suffered a loss of over 50 percent,” while another 27 percent said their investments had fallen by up to half since the beginning of the year.

Some are blaming foreign investors for the manipulation and short-selling, but foreigners have limited access to Chinese markets.

The selloff continued even as China cut interest rates and eased margin lending rules, the latter to make it easier for brokerages to lend money. The government is doing all it can to calm nerves.

On the data front, HSBC’s final PMI for China manufacturing in June came in at 49.4 vs. 49.2 in May. The government’s figure was 50.2, unchanged from May. [The reading on the service sector was 53.8 vs. 53.2. HSBC’s service index was 50.6 in June vs. 51.2 in May.]

*Reminder...HSBC’s indexes tend to look at China’s private sector, while the government focuses on large state enterprises.

On a different topic, there have been a record number of Chinese companies leaving their U.S. listings. At least 25 are considering going private or have done so this year amid speculation they plan to list in China for higher valuations. Of particular concern is the treatment of bondholders. If the company ditches its U.S. listing, it no longer has to file quarterly financial results, which bond buyers use to assess the companies’ ability to pay off obligations.

And lastly, China is relaxing visa rules for its citizens, allowing them to stay seven days in Macau, up from the current five, which should be good for gaming stocks, which have been suffering big time with President Xi Jinping’s crackdown on official corruption and excess in general.

But at the same time, a bill to ban smoking lounges on mass floors, which comes after mass gaming floors were made non-smoking last October, would be a killer. Analysts said mass gaming revenue took a serious hit with last fall’s ban, which forces smokers to take their breaks outside.

Having been to Macau twice, though not since the bans went into effect, I can indeed say the gaming rooms were beyond disgusting, albeit profitable.

Lastly, Japan’s manufacturing PMI for June was a disappointing 50.1 vs. 50.9 in May. Taiwan’s was a sickly 46.3 last month vs. 49.3.

Street Bytes

--Stocks finished down in the holiday-shortened week, with the Dow Jones falling 1.2% to 17730, while the S&P 500 also declined 1.2% and Nasdaq lost 1.4%.

For the second quarter, the Dow fell 0.9% and the S&P lost 0.2%, snapping nine consecutive quarters of gains for the latter. But Nasdaq gained 1.8%, its tenth quarterly rise in a row.

Through 7/3, however, talk about unexciting. The Dow is -0.5%, the S&P is +0.9% and Nasdaq is +5.8%. Whoopty-damn-do.

Second-quarter earnings start to dribble in this week, the following one in earnest, and S&P 500 companies are forecast to report a 4.5% drop for the quarter, according to FactSet, which should this turn out to be the case would mark the end of 10 consecutive quarters of growth.

But if you take out the energy sector, the S&P is expected to see earnings growth of about 2%.

--U.S. Treasury Yields

6-mo. 0.10% 2-yr. 0.63% 10-yr. 2.38% 30-yr. 3.19%

The long end rallied a bit on the weaker than expected jobs report.

For the second quarter, the yield on the 10-year rose to 2.33%, 6/30, from 1.93% end of Q1.

The German bund’s yield rose to 0.74% from 0.18% in Q2, a hefty percentage increase.

--The Atlanta Fed’s GDPNow indicator keeps inching up when it comes to the second-quarter growth forecast, now 2.2%.

--Puerto Rico’s governor admitted his island’s $70bn debt pile is “not payable,” as a report on the economy warned the fiscal deficit was even worse than thought.

Governor Garcia Padilla said Puerto Rico would seek to restructure its liabilities.

Revenues on the island have been on average 15 percent lower than projected since 2004 as the population dwindles and the economy stagnates.

As the island is a U.S. territory and not a state, Puerto Rico cannot ask the IMF for help or loans until it can restructure its debts and economy.

I have never felt this is a huge issue. It’s long been priced in. If I’m wrong, I’ll admit it.

--BP can finally exhale. On Thursday, the company announced an $18.7bn settlement with U.S. plaintiffs, to be paid over 18 years. Yes, the figure is startling, but spread out over two decades, and with two-thirds of the settlement able to be taken against taxes, it’s not that awful. 

BP can now plan investments with more clarity. And it’s already said that when it comes to its shareholders, the dividend will not suffer. BP could also become a takeover target from the likes of Exxon Mobil.

There do remain some legal issues and more payments to small business, but all in all, there’s a reason why BP stock rallied 5% on news of the settlement.

--The Supreme Court blocked one of the administration’s chief environmental initiatives, an EPA regulation designed to limit emissions of mercury and other toxic pollutants from coal-fired power plants.

Industry groups and up to 20 states had challenged the EPA’s move to regulate the emissions because of the costs to meet the regulations.

Writing for the majority, Justice Antonin Scalia wrote: “It is not rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits. Statutory context supports this reading.”

The EPA argued the benefits far outweighed the costs.

--U.S. auto sales are on track to hit record levels not seen in 15 years and could approach 17.4 million (another source I read said 17.2m), the previous annual record. But many feel this is also the peak, as the rush to replace aging vehicles and drivers (just kidding, boys and girls), runs its course.

By the end of the year, as reported by the Los Angeles Times, auto sales will have grown about 65% from their low of 10.4 million in 2009.

As for June, General Motors reported its sales fell 3% compared to the same month a year earlier, due to lower sales to rental car fleets, though this was expected.

Ford Motor saw its sales rise 2% and Fiat Chrysler reported an 8% gain. The latter, the No. 3 U.S. automaker, has had 63 straight months of collective sales increases for its four brands.

Toyota’s sales rose 4%, Honda’s 4.2% and Nissan’s were up a whopping 13%.

There has been a big increase in small SUVs.

Clown car sales are, unsurprisingly, down because this is more a Depression-type buy.

--Aetna agreed to pay $37 billion to buy rival Humana at a hefty 29 percent premium to its May 28 share price, prior to rumors of the move taking hold, as first reported in the Wall Street Journal. Aetna shareholders will own 74 percent of the combined company.

This is yet another move spurred on by ObamaCare, specifically the Medicare Advantage program. The move will create the second-largest managed care company in the U.S.

--Oregon became the first state to announce final 2016 health insurance rates and the insurance commissioner approved an average 25.6% increase for the biggest plans on the state’s health exchange.

Commissioner Laura Cali said the increases were necessary for plans to stay afloat. Now discuss amongst yourselves.

--Insurer ACE Ltd. agreed to acquire Chubb Corp. for $28.3 billion in cash and stock, creating one of the biggest property and casualty insurance companies in the world. ACE is led by Evan Greenberg, son of Maurice “Hank” Greenberg of AIG fame.

From the Journal’s Leslie Scism and Erik Holm:

“The deal comes as property-casualty insurers are facing pressure from what most people view as a stroke of good luck: relatively modest hurricane claims since 2012, the year of superstorm Sandy. With fewer claims checks being sent to individuals and businesses, insurers’ capital bases are growing, and their stepped-up competition with each other to put that capital to work is depressing prices.”

Tuesday, insurance broker Willis Group Holdings PLC and consulting firm Towers Watson & Co. agreed to an $18 billion merger.

--Chicago Mayor Rahm Emanuel said the nation’s third-biggest school district is cutting 1,400 jobs amid the growing fiscal crisis facing the city and the state of Illinois. The city and state have pension systems that have long been severely underfunded, but the state, which controls education spending and the pension systems, has taken no steps to help Chicago’s school system.

Teachers aren’t impacted, but vacant positions aren’t going to be filled.

Illinois has the lowest credit rating among U.S. states, while Chicago was recently lowered by Moody’s Investors Service to below investment grade.

--The PIMCO Total Return Fund suffered withdrawals in June for a ninth straight month since “bond king” Bill Gross departed, though the figure was just $3 billion, a relative trickle. Withdrawals were $32bn last October.

--According to California’s Water Resources Control Board, residential water use in the state dropped by a hefty 29% in May (vs. May 2013); the biggest monthly decline yet reported since Gov. Jerry Brown’s mandatory 25% cut in urban water use was issued on April 1. 

Frankly, I’m shocked. This is good! Seriously, it shows all Americans what they can do when similar emergencies strike the country, as they surely will.

But in the case of the Golden State, the people obviously can’t let up, until the highly anticipated winter rains hit...and they will, sports fans!

--A SpaceX Falcon 9 rocket blew up shortly after takeoff on what was to be a mission to re-supply the International Space Station. The company’s technical staff can’t explain as yet what went wrong. The Falcon 9 is the company’s work-horse product and some $7 billion in revenue from 50 scheduled missions depend on its being able to fly.

The seven previous SpaceX supply runs, dating back to 2012, went very well. The next launch is scheduled for August.

SpaceX founder and chief rocket designer, Elon Musk, tweeted on the day of the accident that the company was examining an “overpressure event” in a liquid oxygen tank used to fuel the second-stage engine. [Tim Femholz / Defense One]

SpaceX is one of two companies hired by NASA to start ferrying American astronauts to the space station as early as 2017. The other contender is Boeing.

This was the second failed station shipment in a row and the third in eight months. In April, a Russian cargo ship spun out of control and burned up upon re-entry, and last October, another company’s supply ship, Dragon, was destroyed in a launch accident.

But Russia did successfully launch supplies to the ISS on Friday from Kazakhstan, a Progress M-28M rocket, which is ferrying three tons of food, fuel and other supplies.

--Two Uber France executives have been ordered to stand trial on September 30 on charges of “misleading commercial practices” and “complicity in the illegal exercise of the taxi profession,” as noted by the Paris prosecutor’s office.

Taxi drivers in Paris are furious that Uber’s service allows drivers to operate without a taxi license, which can cost them up to 240,000 euros, as reported by the Financial Times.

But on Friday, Uber announced it was suspending the most controversial service in France, Uberpop (which used drivers without professional licenses), as it caved to authorities’ demands.

--From Tom Fairless / Wall Street Journal:

“New research by two U.S. academics suggest that Google Inc. is harming Internet users and violating competition laws by skewing search results to favor its own services, a potentially significant twist in Europe’s long-running antitrust investigation of the U.S. search company.”

On a small scale, I couldn’t agree more. Most weeks, when you plug in the search term “Week in Review” into Bing or Yahoo, StocksandNews shows up first or second on page 1. But with Google, I am generally anywhere from page 8 to page 12.

--A U.S. federal appeals court has ruled that Apple conspired with publishers to fix the prices of electronic books when it entered an e-book market dominated by Amazon.

Apple said it did nothing wrong and is exploring further steps.

--Sir Richard Branson’s Virgin Atlantic announced it was cutting 500 managerial and support jobs, though the airline recently announced a return to profitability.

--Phil Knight announced he is stepping down as chairman of Nike, the company he founded in 1964, along with University of Oregon track coach Bill Bowerman. The company formally became “Nike” in 1978. Knight has recommended he be succeeded by Mark Parker, who has been the apparel and equipment company’s president and CEO since 2006.

--The British Broadcasting Corp. announced it is cutting more than 1,000 jobs to cope with the increasing migration of television viewers to the Internet. The BBC is largely funded by a public tax, including an annual TV license, which is enforced through inspections.

The British government, however, has frozen the license fee since 2010, which has severely impacted the BBC’s budget, as reported by the Wall Street Journal.

--Jim McTague, a longtime excellent columnist at Barron’s, wrote his last piece this week after 21 ½ years. In talking about a looming bear market and his overall pessimism, I liked this passage:

“Bears have weak eyes, compensated for by a powerful sense of smell. There’s a strong odor in the air, but I can’t discern if it’s in the backyard or halfway down the block.”

--Xiaomi shipped 34.7m smartphones in the first six months of this year, but the company had set a full year target of 100 million, so said the CEO in 2014. It has since revised the figure to 80m to 100m. This speaks volumes about the smartphone market overall in China. It is reaching the saturation point, with shipments declining in China for the first time in six years during the first quarter, according to research firm IDC.

--Yikes. From the Financial Times:

“A technician was killed by a robot at a Volkswagen plant near Kassel, Germany on Wednesday, in a rare accident that touches on concerns about the spread of automation and its impact on jobs.

“The 21-year-old contractor was working with a colleague to install the machine when he was struck in the chest by the equipment and pressed against a metal plate. He later died of his injuries.”

VW said this was not a result of some super intelligent newer type of robotics, but rather a more traditional industrial accident.

FT:

“In this incident, the contractor was standing inside the safety cage when the accident occurred....VW said the robot did not suffer a technical defect. Prosecutors have opened an investigation into how the accident occurred.”

--Huge local story. I’ve told you how the last 5+ years I have lived directly across the street from Merck’s former North American headquarters, but after the company decided to send thousands of employees there out to its other area locations, including New England and Pennsylvania, the 1.3 million-square-foot complex has laid dormant.

But on Wednesday, friend and current Merck employee Gene M. first told me of breaking news...Summit, N.J. fellow corporate resident Celgene was buying the whole thing, even though Celgene, once thought to be a buyer, is expanding its existing facility a few miles away by 500,000-square-feet; which speaks volumes about Celgene’s outlook for its business.

Needless to say this is super for local businesses, like restaurants, that catered to the old Merck crowd at lunch and after hours. So your intrepid editor walked up the block to one said establishment to spread the news. Being the first to tell Vinny the bartender and the various other employees, it was cool to make somebody’s day.

“Hang in there, guys. The business will return!”

-- Saudi billionaire Prince Alwaleed bin Talal has said he will donate his entire $32 billion fortune to charity, having been inspired by the Bill and Melinda Gates Foundation. The Prince wants the money to go to “foster cultural understanding,” “empower women,” and “provide vital disaster relief,” among other things.

While I deeply admire the Gates Foundation’s work, I’d rather Prince Alwaleed give his money to ISIS if they promised to go away and leave us alone for a few centuries. That not being possible, however, let’s go with Disaster Relief for $200.

Foreign Affairs

Iran: With nuclear talks extended one week from the June 30 deadline, Iran signaled on Thursday it may allow inspectors with the U.N.’s International Atomic Energy Agency to question its experts about the country’s nuclear activities.

Iran’s envoy to the IAEA, Reza Najafi, said his government and the agency had reached a “general understanding” on the IAEA’s demands for aggressive inspections of Iranian facilities and for access to scientists.

Another senior Iranian official in Vienna said Tehran would provide limited access to “individuals and places” related to the nuclear program.

Recently, Supreme Leader Ayatollah Khamenei said there was no way Tehran would allow inspectors to question the nation’s nuclear scientists and engineers, calling this a violation of Iran’s sovereignty. [Paul Richter / Los Angeles Times]

If a deal is not wrapped up before July 9, new U.S. legislation stipulates that Congress would be given 60 days rather than 30 to review the nuclear agreement.

A poll conducted by the Chicago Council on Global Affairs found 59% of Americans favoring the “framework” deal that was announced in April.

But, again, it’s always been about inspections so we await the details, and Congress is certainly prepared to act. Sen. Bob Corker (R-Tenn.), chairman of the Senate Foreign Relations Committee, said the other day the pact must allow inspectors to gain access to Iranian military bases and must allow inspections “anytime, anywhere.”

That’s not going to be the case, though, as there will be an appeal process for Iran to challenge any U.N. request for access.

Meanwhile, as a Financial Times story put it, the elite Revolutionary Guards “feels increasingly insecure about what a nuclear deal could mean not just for Iran but also for its commercial empire, whose multi-billion dollar interests stretch from telecoms to construction to consumer goods imports....

“(The Guards) fear the consequences of any deal on the country’s politics, economy and military influence in the region after more than three decades of anti-western rhetoric and international isolation.

“But reform-minded analysts say the hardliners’ main concern is about losing control of their vast business interests now that the country is preparing to open up its doors to foreign investment.” [Najmeh Bozorgmehr / FT]

Ray Takeyh / Washington Post

“The much-discussed terms of the impending agreement with Iran (offer) the theocracy all that it wants. The accord would concede a vast enrichment capacity, as well as accepting both a heavy water plant and a well-fortified underground enrichment facility that the United States once vowed to shutter. It would permit an elaborate research and development program and would likely rely on an inspection regime that falls short of indispensable ‘anytime, anywhere’ access. In the meantime, the sanctions architecture will be diminished, and the notion of ever ‘snapping back’ sanctions into place once they are lifted is delusional. And because the agreement itself would be term-limited, there would be no practical limits on Iran’s nuclear ambitions upon its expiration.

“However, as disturbing as all this may be, the most important legacy of the prospective agreement may not even lie in the nuclear realm. The massive financial gains from the deal would enable the Islamic Republic’s imperial surge while allowing a repressive regime that was on the brink of collapse in 2009 to consolidate power. This would be no small achievement for Iran’s emboldened rulers.”

At a news conference this week, President Obama said he’s still prepared to walk away from the talks if Iran can’t meet the terms set out by the U.S. and its partners.

“I will walk away from the negotiations if in fact it’s a bad deal,” he said. “Given past behavior on the part of Iran, that simply can’t be a declaration by Iran and a few inspectors wandering around every once in a while.”

I have my doubts as to the president’s sincerity, to say the least. But the fight in the Senate could not only be historic, it could make for great television.

Iraq/ISIS/Syria: A leading Israeli defense official said Syria’s Bashar Assad controls just a fifth of his country and is likely to end up in charge of a rump state controlled by his Alawite minority sect.

Amos Gilad, director of the Political-Military Affairs Bureau at the Defense Ministry, declared at an intelligence conference: “Syria is gone. Syria is dying. The funeral will be declared in due time.”

ISIS beheaded two women in Syria for sorcery, a punishment normally reserved for men. It is the first time a woman civilian is recorded as having been beheaded, though women soldiers from the Kurdish militia have in the past.

Sorcery in Islamic countries is basically fortune-telling, which attracts the death penalty in Saudi Arabia.

Separately, it’s now estimated ISIS killed 200 civilians in the Syrian border city of Kobani, across from Turkey, to avenge recent ISIS defeats at the hands of Kurdish forces. The Kurds apparently retook most of Kobani after the latest IS massacre.

ISIS militants also killed at least 40 Syrian government troops in attacks on three checkpoints in central Syria.

Lastly, you know that training program the U.S. is spearheading to recruit 5,000 or so Syrian rebels to fight ISIS? We learned this week that a whopping 100 have been identified to date. Pathetic.

Egypt: There were fierce battles this week between Islamist militants and the Egyptian army in the northern Sinai peninsula that left at least 117 dead, according to state media.

The violence came two days after Egypt’s top prosecutor was assassinated in a bomb attack in a Cairo suburb. The Muslim Brotherhood was blamed by the government, but the Brotherhood has denied the allegations.

The army’s counterinsurgency efforts in the thinly populated Sinai have achieved little success in putting down the Islamists, mostly affiliates of IS, such as Sinai Province, which said it carried out three suicide attacks and battled Egyptian forces at more than 15 sites in the northern Sinai.

17 soldiers were among the dead, but earlier there had been a government report that 60 had been killed and wounded, so who knows. There has been a two-year restriction on media access to northern Sinai.

Following the attacks, Israel closed its border crossings with Egypt in the Sinai.

For his part, Egyptian President Sisi warned of a new crackdown against domestic “enemies.”

“The hand of justice is tied by laws,” Sisi said, following the assassination of the top prosecutor. “We won’t wait on this. We will amend the laws in order for us to achieve justice.”

Sisi vowed to carry out death sentences, which would include that handed down to former President Mohamed Morsi and hundreds of Brotherhood supporters.

I like Sisi, but he needs to be careful with this last bit.

Jordan: The nation is preparing to carve out a security zone in southern Syria to prevent a jihadi victory in the area, which would represent the first humanitarian “buffer zone” for rebels and refugees in the four year civil war. Jordan is concerned ISIS will grab territory on its border and threaten it directly.

Tunisia: The death toll in last Friday’s terror attack at a beach resort reached 39, with at least 15 Britons among the victims. The government announced the closure of 80 mosques that it said were outside government control and used to spread venom.

I feel for this country. Between this attack and the March one in the capital on the Bardo Museum that killed 24, there is just no reason to risk going here. One French woman who was trying to get back home after vacationing in the country told the Financial Times, “No way will I come back after this. It’s sad because I have been coming here for 12 years.”

Russia: Sen. John McCain (R-Ariz.) returned from a trip to Ukraine, accompanied by Senators Barrasso (R-Wyo.) and Cotton (R-Ark.), and had some of the following thoughts in a Washington Post op-ed.

“No one in the West wants a return to the Cold War. But we must recognize that we are confronting a Russian ruler who seeks exactly that. It is time for U.S. strategy to adjust to the reality of a revanchist Russia with a modernized military that is willing to use force not as a last resort, but as a primary tool to achieve its neo-imperial objectives. We must do more to deter Russia by increasing the military costs of its aggression, starting with the immediate provision of the defensive weapons and other assistance the Ukrainians desperately need.

“President Obama has wrongly argued that providing Ukraine with the assistance and equipment it needs to defend itself would only provoke Russia. Putin needed no provocation to invade Ukraine and annex Crimea. Rather, it is the weakness of the collective U.S. and European response that provokes the very aggression we seek to avoid. Of course, there is no military solution in Ukraine, but there is a clear military dimension to achieving a political solution. If Ukrainians are given the assistance they need and the military cost is raised for the Russian forces that have invaded their country, Putin will be forced to determine how long he can sustain a war he tells his people is not happening....

“During my trip, the Ukrainians never asked for the United States to send troops to do their fighting. Ukrainians only hope that the United States will once again open the arsenal of democracy that has allowed free people to defend themselves so many times before.

“How we respond to Putin’s brazen aggression will have repercussions far beyond Ukraine. We face the reality of a challenge that many assumed was resigned to the history books: a strong, militarily capable state that is hostile to our interests and our values and seeks to overturn the rules-based international order that American leaders of both parties have sought to maintain since World War II. Among the core principles of that order is the conviction that might does not make right, that the strong should not be allowed to dominate the weak and that wars of aggression should be relegated to the bloody past.

“Around the world, friend and foe alike are watching to see whether the United States will once again summon its power and influence to defend the international system that has kept the peace for decades. We must not fail this test.”

Separately, Russia’s federal Investigative Committee, which answers directly to Putin, said it wants to question former Yukos oil executive Mikhail Khodorkovsky as a suspect in a 1998 murder case, that of the mayor of a Siberian town where Yukos had its biggest oil production unit. A Yukos security chief was convicted of the mayor’s murder.

Khodorkovsky, who spent a decade in jail after a falling out with Putin, now lives in Switzerland, where he remains one of Putin’s harshest critics.

This week Khodorkovsky suggested on Twitter the new investigation was politically motivated.

Khodorkovsky was arrested in 2003 and convicted of theft and tax evasion in 2005. He was released from prison in 2013.

Germany: According to a report released on Tuesday by the country’s domestic intelligence agency, the number of Islamists in Germany increased to 43,890 in 2014 from 43,190 in 2013. The president of the agency, Hans-Georg Maassen, said radical Islamists are “the greatest danger to Germany.”

According to the Jerusalem Post, Hizbullah has 950 active operatives in the Federal Republic, and Hamas has 300.

There are 7,000 Salafists who represent “the most dynamic Islamic movement in Germany” and serve as a recruitment pool for jihadist groups in Syria and Iraq, the report also said.

China: So you know how I first noted months ago that China’s reclamation work in the South China Sea was an environmental disaster? 

From the South China Morning Post and Reuters:

“China’s use of dredged sand and coral to build artificial islands on seven reefs had also damaged reef systems beyond the outposts, meaning the affected area could be greater than first thought, said several scientists who have studied satellite images.”

Beijing has issued statements saying the government is committed to protecting reefs and the broader marine environment. Right.

“John McManus, a prominent University of Miami marine biologist who has worked with Philippine scientists to research the South China Sea, told fellow experts this month that China’s reclamation ‘constitutes the most rapid rate of permanent loss of coral reef area in human history.’”

Meanwhile, China’s national legislature passed a sweeping national security law that critics say will further restrictions on freedom of speech and civil rights, though Beijing said it would not apply to Hong Kong and Macau.

Cuba: The U.S. and Cuba announced they are opening embassies in each other’s capitals, formally re-establishing diplomatic relations after more than five decades.

But Havana has made zero concessions when it comes to improving its human rights record and President Obama is likely to face stiff pressure from a large number of senators, such as Florida’s Marco Rubio and New Jersey’s Robert Menendez when the administration sends its nominee for U.S. ambassador to Cuba to the Senate for confirmation.

Editorial / Washington Post

“In announcing the reopening of the U.S. embassy in Havana, President Obama said ‘nobody expects Cuba to be transformed overnight’ by his policy of ‘engagement.’ That’s just as well because in the first six months of Mr. Obama’s normalization of relations with the Communist regime, most indicators of human rights on the island have moved in the wrong direction.

“Since December, there have been more than 3,000 political detentions in Cuba, including 641 in May and 220 on Sunday alone, according to dissident sources. Most were accompanied by beatings; at least 20 detainees required medical treatment in May. After Cuba was invited for the first time to the Summit of the Americas in Panama, regime thugs attacked the civil society activists who also showed up....

“Thanks to congressional opposition, no U.S. ambassador to Cuba may be confirmed anytime soon. But Mr. Obama himself, according to his spokesman, is eager to visit Havana. We’d like to hope that the president will restrain himself until the Castro regime shows some sign of delivering the improvements in human rights he says are the goal of his outreach. So far, U.S.-Cuba rapprochement is looking entirely one-sided.”

Liberia: Two months after the country was declared free of Ebola, a 17-year-old boy died from it. No other cases have been identified thus far. There were 20 confirmed cases of Ebola in Sierra Leone and Guinea in the week ending June 21, according to the World Health Organization.

Random Musings

--According to the latest Quinnipiac University poll of likely Iowa caucus participants, Wisconsin Gov. Scott Walker leads among Republicans with 18% of the vote, but this compares to 25% in a February survey, and 21% in May.

Donald Trump and Ben Carson each receive 10%, while Sen. Rand Paul and Sen. Ted Cruz get 9%. Jeb Bush is at 8%, Sen. Marco Rubio 7%, and Mike Huckabee 5%.

--In a new CNN/ORC national poll, Jeb Bush stands at 19%, up from 13% in May. Trump follows at 12%, up from 3% before his announcement. Mike Huckabee (8%), Ben Carson (7%) and Rand Paul (7%) round out the top five. Not good news for Marco Rubio and Scott Walker, both of whom received 6%.

--In a FDU PublicMind survey of New Jersey registered voters, among Republicans, Chris Christie and Jeb Bush are tied for first at 18%, with Donald Trump at 11%. But 22% say they would never support Christie and 27% wouldn’t support Trump, regardless of who wins the Democratic nomination.

Among Democrats, Hillary Clinton wins 63% in New Jersey, with Bernie Sanders at 15%.

Christie formally declared he was running on Tuesday, saying “I am now ready to fight for the people of the United States of America.”

“As a candidate for president, I want to promise you a few things,” said the rotund one. “First, a campaign without spin, or without pandering or focus group-tested answers. You’re going to get what I think, whether you like it or not, and whether it makes you cringe every once in a while or not.”

But as the rest of the nation is rapidly learning, my home state is a basket case and while Christie has one or two accomplishments he can point to, the economy sure isn’t one of them.

--As for Donald Trump, he continues to be haunted by the statement from his campaign announcement speech concerning Mexican immigrants.

“They’re bringing drugs. They’re bringing crime. Their rapists.” [You know, since Trump didn’t have a script, we really don’t know if he meant ‘They’re rapists’ or ‘Their rapists.’ Most reports, if not all I’ve seen, write it ‘They’re rapists.’ I think it’s the other word. But both kill him.]

In response, Univision said it would not air Trump’s Miss Universe and Miss USA beauty pageants. Trump then sued them for $500 million. NBCUniversal severed all ties to him; Trump then called the network “weak and so foolish.”

Macy’s dumped his clothing line. Trump said the chain had “totally caved.” [Phillip Rucker / Washington Post]

But there he sits, in second place in Iowa and New Hampshire, second nationally. He’s not going away anytime soon.

--Hillary Clinton’s presidential campaign raised a record $45 million in its first quarter, besting President Obama’s $41.9 million after launching his re-election bid. For the year the haul is estimated at $70 million.

The campaign’s goal was to raise $100 million by the end of 2015, as reported by Jennifer Epstein of Bloomberg.

[Bernie Sanders, by the way, apparently raised $8.3 million through mid-June, according to FEC filings, which sounds more than respectable. I also saw a figure of $15 million thus far, total, for Bernie. He drew a startling crowd of 10,000 to a rally in Madison, Wisconsin the other day. “Feel the Bern” is the campaign slogan.]

But back to Clinton, $70 million is great, but there are costs and at the end of her 2008 campaign, there were debts of $25 million.

--So will Joe Biden run? As the Wall Street Journal reported this week, before his death, elder son Beau Biden encouraged his father to get into the race, as did Beau’s younger brother Hunter.

A recent Journal/NBC News poll showed that Americans’ image of Biden has improved, with 40% viewing him in a favorable light versus 31% who had a negative opinion of him, an improvement from Nov. 2014, when it was 35% favorable, 38% unfavorable.

Hunter Biden apparently continues to urge his father to run. But if the vice president is going to make a move, it has to be soon, though supposedly he has supporters organizing staffs in Iowa and New Hampshire.

--The State Department released its latest trove of Hillary Clinton e-mails and they reveal that despite the administration’s denials, top White House officials were aware of the then-Sec. of State’s use of a private e-mail server to conduct government business.

The White House has said it first became aware of the server in August 2014, after Republican lawmakers received the information. But e-mails from 2009 show senior staffers knew then.

This issue, though, is just not a killer for Hillary’s opponents as yet.

Nonetheless, Kimberley A. Strassel / Wall Street Journal:

“Clinton scandals have a way of bumping and rolling along to a point where nobody can remember why there was any outrage to begin with. So in the interest of clarity, let’s take the latest news in the Hillary email escapade, and distill it into its basic pieces:

“Nothing Mrs. Clinton has said so far on the subject is correct....

“A quick correction: At least one thing Mrs. Clinton said in March was true. She deleted email. A lot of it....

“The White House also needs to answer questions....

“As it is unlikely the press corps will begin this investigation anew, or with any fervor, the best chance of getting answers from Mrs. Clinton probably rests in her Democratic rivals for the nomination. Vermont Sen. Bernie Sanders and former Maryland Gov. Martin O’Malley have so far avoided touching the Clinton scandals, unwilling to risk blowback accusing them of undermining the likely nominee. But if those men truly believe themselves better fit for the presidency, they could do the country no bigger favor than to start pressing Mrs. Clinton to explain her actions. Somebody has to.”

--Back to Chris Christie and New Jersey, according to a YouGov survey, the Garden State is the only state in the country that more people said they don’t like than do like. 40% of the people have an unfavorable opinion of the place while only 30% have a favorable one. [NJ.com]

--The Supreme Court ruled against three death row inmates who had sought to bar the use of an execution drug on the grounds it caused excruciating pain. It was another 5-to-4 decision with Justice Anthony Kennedy joining the court’s four main conservative members.

But the decision exposed the broader issue of whether the death penalty was unconstitutional, as Justices Stephen Breyer and Ruth Bader Ginsburg faced off against Antonin Scalia and Clarence Thomas.

--L. Gordon Crovitz / Wall Street Journal

“The Obama administration disclosed this month that for the past year China had access to the confidential records of four million federal employees. This was the biggest breach ever – until the administration later admitted the number of hacked employees is at least 18 million. In congressional testimony last week it became clear the number could reach 32 million – all current and former federal workers.

“The Chinese hackers managed to gain ‘administrator privileges,’ allowing them full access to the computers of the U.S. Office of Personnel Management. Among other things, they were able to download confidential forms that list ‘close or continuous contacts,’ including those overseas – giving Beijing a new tool to identify and suppress dissenters....

“OPM director Katherine Archuleta tried to dodge blame for the security lapses. ‘I don’t believe anyone is personally responsible,’ she told a Senate committee last week. ‘If there’s anyone to blame, it’s the perpetrators.’

“That’s bunk.” As Michael Hayden, who has headed both the CIA and National Security Agency, told the Journal, “(This) is not shame on China. This is shame on us for not protecting that kind of information.”

Crovitz:

“The Obama administration passively endured years of cyberattacks leading to these most recent hacks....

“Americans expect their government to protect them in the digital, as much as the physical, world. The next president should accept the responsibility to fight back against cyber war before more is lost.”

--A ton of stuff happened end of last week, as you all know, and then after I posted Friday night, there were some opinion pieces over the weekend I need to make note of.

Editorial / Wall Street Journal...on the reaction to the Charleston massacre.

“Charleston is the city whose harbor saw the first shots fired in the Civil War and many of whose stores and restaurants within living memory would not serve its black citizens. The city’s response gives hope to the idea that decent Americans can find their way past historic grievances and injustice to embrace those of different races and backgrounds as neighbors and fellow citizens.

“And sure enough, the reaction of the church families has inspired a movement to solve the old dispute over the Confederate flag flying on the state Capitol grounds. South Carolina’s Republican Governor Nikki Haley, an Indian-American, flanked by state politicians including black Republican Senator Tim Scott, called for taking the flag down. The movement has since gained support, as other politicians and businesses followed. A debate that has polarized politics for decades may be on the way to being settled.

“All of this is a refutation of those who contend that little has changed in American race relations. At Friday’s funeral for the Rev. Clementa Pinckney, President Obama concluded his eulogy by leading the congregation in singing ‘Amazing Grace.’ Earlier this week he said that racism continues to exist in America, and of course he is right. Anyone familiar with the concept of original sin knows that such sentiments can’t be banished from the heart of every individual.

“The more important question for any society is whether racial animus still drives public or private institutions. With the exception of a few outcast groups like the one that seems to have inspired (Dylann) Roof, we think the answer is no, and the reaction in Charleston and South Carolina more broadly is powerful proof. Their conciliation is a rebuke to those who commit violence in the name of race and to those who believe America is irredeemably racist. Their triumph over hatred is a lesson for the rest of America.”

--A CNN/ORC poll on the Confederate flag shows public opinion about where it was 15 years ago, with 57% of Americans seeing the flag more as a symbol of Southern pride than a symbol of racism. In 2000 the figure was 59%.

Among African-Americans, 72% see the flag as a symbol of racism, just 25% of whites agree.

75% of Southern whites describe the flag as a symbol of pride and 18% call it a symbol of racism, which are almost exactly reversed among Southern African-Americans, with just 11% seeing it as a sign of pride and 75% viewing it as a symbol of racism.

Among whites with a college degree, 51% say it’s a symbol of pride, 41% one of racism. Among those whites who do not have a college degree, 73% say it’s a sign of Southern pride, 18% racism.

David Brooks / New York Times

“Lowering the Confederate flag from public properties is...an easy call. There are plenty of ways to celebrate Southern heritage and Southern life without choosing one so enmeshed in the fight to preserve slavery.

“The harder call concerns Robert E. Lee. Should schools and other facilities be named after the great Confederate general, or should his name be removed and replaced?

“The case for Lee begins with his personal character. It is almost impossible to imagine a finer and more considerate gentleman.

“As a general and public figure, he was a man of impeccable honesty, integrity and kindness. As a soldier, he displayed courage from the beginning of his career straight through to the end. Despite his blunders at Gettysburg and elsewhere he was by many accounts the most effective general in the Civil War and maybe in American history. One biographer, Michael Korda, writes, ‘His generosity of spirit, undiminished by ideological or political differences, and even by the divisive, bloody Civil War, shines through in every letter he writes, and in every conversation of his that was reported or remembered.’....

“In theory, he opposed slavery, once calling it ‘a moral and political evil in any country.’ He opposed Southern secession, calling it ‘silly’ and a rash revolutionary act. Moreover we shouldn’t be overly guilty of the sin of ‘presentism,’ judging historical figures by contemporary standards.

“The case against Lee begins with the fact that he betrayed his oath to serve the United States. He didn’t need to do it. That late historian Elizabeth Brown Pryor demonstrated that 40 percent of Virginia officers decided to remain with the Union forces, including members of Lee’s family.

“As the historian Allen Guelzo emailed me, ‘He withdrew from the Army and took up arms in a rebellion against the United States.’ He could have at least sat out the war. But, Guelzo continues, ‘he raised his hand against the flag and government he had sworn to defend. This more than fulfills the constitutional definition of treason.’”

So I was at this (rainy) picnic last Saturday and brought the topic of Bobby Lee up with a West Point friend of mine, Tom M., and asked his opinion. Tom was adamant...Robert E. Lee was a traitor.

Personally, in my old home where I had three times the amount of space I have today, Lee was featured prominently in my dining room, along with Lincoln, Grant and another Confederate, Gen. John B. Gordon, whose name I kept coming across way back when I did an extensive Civil War battlefield tour. Gordon, a gallant man, would go on to become a U.S. senator, though he remained a staunch defender of the Old South. 

It’s complicated. Today, if you were in my living room you’d see seven paintings/prints. Four are winter landscapes and the other three are Civil War prints, all of which have Confederate figures in them, including one of the surrender at Appomattox. 

One of these last three, by the great artist John Paul Strain, has a rather infamous character in it as well. It’s just very cool looking. That’s why I bought it.

David Brooks:

“My own view is that we should preserve most Confederate memorials out of respect for the common soldiers. We should keep Lee’s name on institutions that reflect postwar service, like Washington and Lee University, where he was president.”

Well, just a few years ago I went to this fine school to do some sightseeing (it’s where Lee is buried...as well as being the home of an excellent museum honoring George C. Marshall...part of next door neighbor VMI).

Brooks, though, continues:

“But we should remove Lee’s name from most schools, roads and other institutions, where the name could be seen as acceptance of what he did and stood for during the war.

“This is not about rewriting history. It’s about shaping the culture going forward.”

I’m not going to say whether I personally agree or disagree with Mr. Brooks’ last two paragraphs. But this is the debate going forward, part of which was the stimulating conversation I had with my West Point friend last Saturday.

It’s a conversation certainly on full display this weekend at Daytona, too. I’ll leave it there for now.

--California Gov. Jerry Brown signed one of the nation’s toughest mandatory childhood vaccination bills, which will end exemptions from state immunization laws.

The legislation requires children who enter school or day care to be vaccinated against diseases such as measles and whooping cough.

Those with certain medical conditions can be excused, but there are no exemptions based on religious or other personal beliefs.

[The death of a woman in Washington State this spring has just been confirmed as the first U.S. fatality from measles in 12 years. This particular case was not linked to the Disneyland outbreak in 2014 that infected over 100.]

--For all the handwringing about an increase in crime in New York City, namely the murder rate and the number of shootings, the fact is the city had its lowest-crime June since 1994, according to New York City Police Commissioner William J. Bratton, June 1994 coincidentally being a time when he was in the midst of his first stint leading the NYPD.

And when it comes to homicides, through June 28, there were 161 this year, versus 145 in the same period a year ago...with shootings up only slightly from 511 to 542. Just not significant differences.

So I’m going to lay off this topic for a while.

--Meanwhile, Mayor Bill de Blasio finally unleashed his fury at fellow Democrat, Gov. Andrew Cuomo, for undermining New York City residents, while being focused on “deal making” and “revenge.”

A spokeswoman for the governor said, “For those new to the process, it takes coalition building and compromises to get things done in government.”

During his first 18 months in office, de Blasio shied away from criticizing Cuomo, but now, with the gloves off, the mayor said he knows there will be further retribution.

At the same time, any new law involving New York City requires support from Albany.

--When David Sweat was captured, days after fellow fugitive Richard Matt was killed, Sweat was carrying a compass, along with water, Pop-Tarts and a can of Vienna sausages. Matt had sardines with him when he was killed, sources said.

Personally, I would have been carrying veal cutlet with spaetzle and some Shiner Bock (the premium domestic), but we all have different tastes.

We are all grateful no innocents were hurt in this three-week chase.

--We note the passing of Nicholas Winton, 106, the man who became known as the “British Schindler” for saving hundreds of Czech children from Nazi persecution in the run-up to World War Two.

Winton managed to bring 669 mostly Jewish children on eight trains to Britain through Germany in 1939, but as noted in the Jerusalem Post this week, “the ninth train with 250 children never left Prague because the war broke out. None of the 250 children on board was ever seen again.”

Winton’s wartime exploits remained a secret until 1988, when his wife found a detailed scrapbook in their attic.

“You can’t come up to somebody and say: ‘by the way do you want to know what I did in ’39?’ he told Reuters in 2009.

--Finally, Misty Copeland made history when she was promoted to principal dancer of the American Ballet Theatre, the first African-American ballerina so chosen. She has been a tremendous role model and hers is a very cool story in these otherwise depressing times.

---

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

Happy Birthday, America!

---

Gold $1167
Oil
$55.52

Returns for the week 6/29-7/3

Dow Jones -1.2% [17730]
S&P 500 -1.2% [2076]
S&P MidCap -1.7%
Russell 2000 -2.5%
Nasdaq -1.4% [5009]

Returns for the period 1/1/15-7/3/15

Dow Jones -0.5%
S&P 500 +0.9%
S&P MidCap +3.7%
Russell 2000 +3.6%
Nasdaq +5.8%

Bulls 49.5
Bears 15.4 [Source: Investors Intelligence]

Dr. Bortrum has a new column posted.

Have a great week. If you haven’t contributed to the cause as yet, please feel free to do so. Click on the gofundme link above. Or you can send a check to PO Box 990, New Providence, NJ 07974.

Brian Trumbore