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07/18/2015

For the week 7/13-7/17

[Posted 10:00 PM ET, Friday]

Edition 849

Washington and Wall Street

With attention focused primarily on the Greek debt crisis and the Iran nuclear talks, both of which came to a head this week, Fed Chair Janet Yellen made her semi-annual appearance before Congress to update members on the state of the economy, prospects for which she said are currently “favorable” as hiring pushes the country towards maximum employment.

And while Yellen highlighted risks to the U.S. from Greece and China’s “volatile” financial conditions, she was positive in discussing progress the U.S. has made since the financial crisis.

Yellen made it clear she wants to raise interest rates this year and most are convinced September is the time, though she has also said on numerous occasions any further hikes beyond the first one will be very gradual.

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy.”

Yellen said growth was likely to strengthen over the remainder of the year after the putrid first quarter. [Though this week the White House cut its own forecast for 2015 GDP to 2% from 3%; its February estimate.]

The Fed’s latest beige book revealed that most of the 12 districts reported stronger wage growth for skilled workers.

On the data front, June retail sales disappointed, down 0.3% when an increase of 0.3% was expected. June industrial production was up 0.3%, in line, while June housing starts rose 10%, better than expected, and thus reversing the prior month’s 10% decline.

On the inflation front, producer prices for June were up 0.4%, up 0.3% ex-food and energy. For the 12 months, the PPI is down 0.7%, but the core is up 0.8%. The CPI rose 0.3% last month, ex-food and energy up 0.2%, while year over year consumer prices were up just 0.1%, but up 1.8% on core.

Lastly, the Treasury Department reported a $52 billion surplus in June, a traditional month for a surplus with individual and corporate taxes collected, and it appears we’re headed to a deficit of $455 billion, which would represent the second-lowest 12-month figure in 7 years. Enjoy this better news while it lasts...which won’t be much longer.

Revenue for the 12-month period ended June is 9% over the year-earlier level, while spending is up 4%.

The Greece Crisis, Europe and Asia

Last weekend, amid reports the Greek economy was going to crater at least 10% this year, after a 25% decline since the start of the crisis, the Greek parliament early Saturday morning approved new reform proposals, including cuts to pensions and tax increases, in order to appease eurozone finance ministers and leaders for the purposes of beginning negotiations on a new bailout package, which would be Greece’s third. Prime Minister Alexis Tsipras was able to get the backing of 251 out of 300 lawmakers, though as expected 17 of his own Syriza party members did not support him.

European leaders then approved the deal Monday following the Greek parliament’s vote. Among the tough steps Greece has to swallow is Germany’s insistence that Greek state assets worth up to 50bn euro be placed in a trust fund beyond government reach to be sold off with proceeds going directly to pay down debt.

But EU and IMF experts evaluate Greek assets currently earmarked for privatization at just 7 billion euros.

Germany was accused of turning Greece into a “German protectorate,” stripping it of more sovereignty. But Chancellor Angela Merkel declared the matter a “red line” for Germany.

For his part, Tsipras finally accepted a full role for the IMF, which he had balked at.

The head of the International Monetary Fund, Christine Lagarde, however, said the eurozone creditors’ plan for Greece is “categorically” not viable without a reduction in debt. Lagarde said the IMF will participate in a “complete” bailout package, but she seeks a significant extension on Greek debt maturities with the long-term goal of Greece returning to the market. European Central Bank president Mario Draghi on Thursday also said debt relief is “uncontroversial” and the only question is “what form this takes.”

The IMF said in its July 14 forecast for Greece’s debt as a share of GDP that it will be almost 200% in 2017, up substantially from its April estimate of 151.8%, yet another sign of how quickly the economy is collapsing.

Meanwhile, Draghi granted Greece’s teetering banking sector a fresh cash lifeline, as the ECB raised its limit on emergency loans by 900m euro over one week. The banks may now be able to open Monday after being closed nearly three weeks. But capital controls are likely to remain in place for weeks, maybe months.

[The ECB had refused to raise the ceiling on Emergency Liquidity Assistance (ELA) for Greece since late June, after Prime Minister Alexis Tsipras called his referendum.]

Draghi said, “The ECB continues to act on the assumption that Greece is and will remain a member of the euro area.”

But German Finance Minister Wolfgang Schauble reiterated his earlier position that a temporary exit “could perhaps be a better way for Greece.” And Germany remains adamantly opposed to debt relief, with Schauble saying a “debt cut is incompatible with membership of the currency union.”

[A poll in Germany revealed 49% of Germans don’t want to enter talks over the deal.]

Back to Tsipras, he had to then convince parliament a second time to swallow the terms mandated by the eurozone. “I was blackmailed,” he told lawmakers before the vote. “The government does not believe in these measures. We will do our best to protect people from measures we do not believe in but are forced to implement.” 

Tsipras knew there would be a revolt in his own party and while in the end, 229 of 300 MPs supported the prime minister, 38 Syriza members did not. Former finance minister Yanis Varoufakis compared the deal to a new “Versailles Treaty” and voted against the measures, as did the parliament speaker, Zoe Konstantopoulou, who warned the deal could lead to “social genocide.”

Then in the 631-seat Bundestag, Chancellor Merkel won parliament’s backing to open negotiations on Greece’s rescue plan by a 439 to 119 margin, with 40 abstentions out of 598 ballots cast. Embarrassingly, 60 members of her coalition voted against the plan and five abstained. Not a good sign for the future of the package. Those in revolt argue the bailout will waste German taxpayers’ money.

Merkel warned before the vote that a sudden Grexit could bring “chaos and violence” to Greece. She also said that after five years of failing to meet its reform promises, Greece would be watched carefully by its creditors to ensure that the “unprecedented European solidarity” was matched by implementation of reform and not just declarations of intent.

Schauble asked MPs to back the plan, though he made clear he still harbors doubts about whether it will succeed.

So with Germany’s vote on Friday, as well as that of other eurozone parliaments that required approval, directors of the 500bn euro bailout fund, the European Stability Mechanism, announced they have formally launched negotiations with Greece at week’s end.

Euro-area finance ministers have also agreed in principle to extend a 7 billion-euro bridge loan to Greece to tide it over until an 86bn aid package can be assembled. This would enable Greece to meet the repayment of a 3.5bn euro bond held by the ECB that matures on Monday.  Had the ECB not done so and Greece defaulted, then the ECB would not have been allowed to aid the banks further.

[Having missed a 450bn euro debt payment to the IMF earlier, Greece now owes that body 2bn.]

So the crisis is far from over. Negotiations will be tough. Greece has lost all credibility among euro leaders, especially Angela Merkel. A Grexit is still a distinct possibility.

But Donald Tusk, head of the European Council, said he feared “political contagion” far more than the financial fallout. Common cause between far-right and far-left groups has been a precursor to some of Europe’s darkest moments.

“I am really afraid of this ideological or political contagion,” Tusk said. “It was always the same game before the biggest tragedies in our European history, this tactical alliance between radicals from all sides. Today, for sure, we can observe the same political phenomenon.”

Tusk played a central role in forcing Tsipras and Merkel to reach agreement on Monday. He also told the Financial Times’ Peter Spiegel he was “100 percent sure that Germany is not the winner in the context of political power,” particularly since “Germany has to sacrifice much more than other countries” in terms of financial aid it will soon have to send to Athens.

“I can’t accept this argument, that someone was punished, especially Tsipras or Greece. The whole process was about assistance to Greece,” Tusk said.

“When we discuss facts, deeds and numbers, this is the only number on the table: 80bn euro for Greek assistance, and quite soft conditions. Not only [soft] financial conditions, but political conditions – in fact, without collateral. Come on: what is the reason to claim it’s something humiliating for Greece, or this is punishment for Tsipras?”

Tusk compared the current atmosphere to the time after 1968 in Europe.

“I can feel, maybe not a revolutionary mood, but something like widespread impatience. When impatience becomes not an individual but a social experience of feeling, this is the introduction for revolutions.”

Examples of what Tusk is referring to:

Spanish Prime Minister Mariano Rajoy is facing a huge challenge from far-left party Podemos, which backs Athens. With national elections in a few months, the latest poll has Podemos at 21.5%, with Rajoy’s Popular Party at just 23% (with the center-left Socialist Party at 22.5%). Podemos leader Juan Carlos Monedero labeled the Greek deal “a terrorist crime.”

Beppe Grillo, leader of Italy’s anti-euro Five Star party said eurozone leaders had used a “strategy of terror.”

Marine Le Pen, leader of France’s National Front, said if she were Tsipras she would have led Greece out of the eurozone.

“Greece is no longer free,” she said. “This is a carve-up to deprive the Greeks of their entire national heritage. It is clearly the enslavement of a country inside the European Union itself.” [Nick Miller / Sydney Morning Herald]

Wolfgang Munchau / Financial Times

“A few things that many of us took for granted, and that some of us believed in, ended in a single weekend. By forcing Alexis Tsipras into a humiliating defeat, Greece’s creditors have done a lot more than bring about regime change in Greece or endanger its relations with the eurozone. They destroyed the eurozone as we know it. They demolished the idea of a monetary union as a step towards a democratic political union and reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order. The best thing that can be said of the weekend is the brutal honesty of those perpetrating this regime change....

“The fact that a formal Grexit may have been avoided for the moment is immaterial. Grexit will be back on the table when you have the slightest political accident – and there are still many things that could go wrong, both in Greece and in other eurozone parliaments. Any other country that in the future might challenge German economic orthodoxy will face similar problems.”

---

Eurobits....

--The ECB left its interest rate and asset purchase programs unchanged as a combination of bond-buying and unlimited liquidity from the central bank have muted market reaction to Greece’s problems.

--Eurozone industrial production fell 0.4% in May over April. Euro area inflation for June came in at an annualized rate of 0.2% vs. 0.3% in May. [Greece was -1.1%.]

--But euro car sales rose 15% in June, year over year, the fastest pace in 5 ½ years. For the first half they are up 8.2%, as reported by the European Automobile Manufacturers Association.

--The U.K.’s annual inflation rate fell back to zero in June, which could keep the Bank of England on its usual course of holding borrowing costs at ultra-low levels.

But at the same time U.K. wage growth accelerated to the fastest pace in more than five years, an annual pace of 3.2% in the three months through May, according to the Office for National Statistics. So that’s great. Zero inflation and 3.2% wage growth. Maybe a rate hike should be considered after all.

--Italy’s central bank revised its 2015 GDP growth expectations to 0.7% from 0.5%.

--Lastly, 69,000 migrants have reached Greece in the first half of this year, dwarfing the 43,500 for all of 2014, according to the U.N. refugee agency. With the current economic crisis, you can imagine today’s migrants are hardly being welcomed with open arms and while under the law they have access to the health system, some doctors are demanding money to treat them, which is illegal. And there are no more automatic work permits. It’s a mess.

---

Turning to China, the stock market remained volatile but finished up a bit on the week as the recovery continued, in fits and starts, from the 32% crash in the Shanghai Composite Index.

Then on Wednesday, the Statistics Bureau released the figure for second-quarter GDP, up 7%, unchanged from the pace of the first quarter, and above economists’ estimates of a 6.8% rise. Church Lady was heard to say in Beijing, “How conveeenient!” before she was thrown in jail as part of President Xi Jinping’s crackdown on dissent and sarcasm.

Anyone with half a brain knows the government is manipulating the numbers to suit its purposes and keep the people, and the increasingly important stock market, placated.

Premier Li Keqiang had set a full-year target for GDP of “around 7%,” which is down from last year’s 7.4% for the full year, and this is where we’ll end up, no doubt.

But there were some other important data points this week. Exports for June rose just 2.1% vs. year ago levels (yuan-denominated terms), while imports fell 6.7%, the eighth consecutive month in a row of declines.

Fixed-asset investment rose 11.4% in June, unchanged from May’s pace, and below expectations. During boom times this figure was in the high teens. New property development was down 15.8% in the first half of the year, with residential property development down 17.3%.

Industrial production was up 6.3% on an annualized basis in June, the fastest pace in four months. And retail sales rose 10.6% in June, though this was on the heels of booming movie box-office receipts.

Add it all up and it’s most likely not indicative of an economy supposedly growing 7%, but one thing is for sure. As Credit Suisse’s global research team put it, China is in the midst of a “triple bubble” – “a combination of the third biggest credit bubble, the biggest investment bubble and the second biggest real estate bubble of all time,” as reported by Vanessa Desloires of the Sydney Morning Herald. If you believe this, then you agree China’s economy represents the single biggest risk to the global economy.

The Iran Nuclear Agreement

After over 13 years of repeated diplomatic failures over Iran’s nuclear program and threats of military action, and after 18 days of marathon talks in Vienna between Iran and the P5+1 (the U.S., Britain, France, Germany, Russia and China), an historic agreement was reached between the parties to prevent the Islamic Republic from obtaining an atomic bomb, though immediately critics voiced serious displeasure and disgust at the accord.

In a statement after the signing early Tuesday morning, President Obama said the agreement meant “every pathway to a nuclear weapon is cut off.”

“This deal offers an opportunity to move in a new direction. We should seize it,” he said in his address to the nation.

Obama also vowed to veto any effort by Congress to scuttle the deal.

Underscoring the seeming shift in relations, for only the second time since the 1979 Iranian revolution, state television broadcast Obama’s statement live.

Iranian President Hassan Rouhani said in his own address that “God has accepted the nation’s prayers” and that the accord would lift “inhumane and tyrannical sanctions.”

Rouhani added: “Iran will never seek a nuclear weapon, with or without the implementation” of the Vienna deal.

Russian President Vladimir Putin said the world had “breathed a huge sigh of relief.”

Russian Foreign Minister Sergey Lavrov said the deal paves the way for a broader coalition to fight ISIS.

President Obama quickly telephoned Saudi King Salman to reassure him on the deal. A Saudi official told Reuters the accord would mean “a happy day” for the Middle East if it stopped Iran gaining a nuclear arsenal, but stressed there were fears the deal would instead allow Iran “to wreak havoc in the region.”

“We have learned as Iran’s neighbors in the last 40 years that goodwill only led us to harvest sour grapes,” he said.

The agreement is supposed to limit Iran’s nuclear activities for at least a decade and allows strict oversight, which is supposed to give the West advance notice of any rush to the bomb.

In return Iran gets major sanctions relief though the White House is making the point the sanctions can “snap back” into place if there are any violations.

Israeli leader Benjamin Netanyahu called the deal a “stunning historic mistake,” saying it would not prevent Iran from gaining nuclear weapons capability. Nor did it do anything to prevent Iran’s support of terrorism.

Netanyahu said, “Israel is not bound by this deal with Iran because Iran continues to seek our destruction. We will always defend ourselves....

“Even this weekend, when Iran continued to get more and more concessions at the negotiating table, Iranian President Hassan Rouhani led a march through the streets of Tehran in which the masses yelled, ‘Death to America, Death to Israel,” Netanyahu said.

So now Congress has 60 days to review the deal, but as Senate Majority Leader Mitch McConnell concedes, it is going to be virtually impossible to override President Obama’s veto. Many Democratic senators who have taken a tough stance on negotiations will now be reluctant to support a “resolution of disapproval” that might weaken Obama on the international stage.

A vote is not expected until September.

But as Charles Krauthammer of the Washington Post writes:

“(Obama) is taking the agreement to the U.N. Security Council for approval within days. Approval there will cancel all previous U.N. resolutions outlawing and sanctioning Iran’s nuclear activities.

“Meaning: Whatever Congress ultimately does, it won’t matter because the legal underpinning for the entire international sanctions regime against Iran will have been dismantled at the Security Council. Ten years of painstakingly constructed international sanctions will vanish overnight, irretrievably.

“Even if Congress rejects the agreement, do you think the Europeans, the Chinese or the Russians will reinstate sanctions? The result: The United States is left isolated while the rest of the world does thriving business with Iran.”

Further details...

On sanctions relief: “Tehran wanted immediate removal of the economic and financial curbs that have throttled its economy. Under the deal, all EU and U.S. energy, economic and financial sanctions, and most U.N. sanctions, will be lifted on ‘implementation day’ – the day Iran shows it has complied with specific obligations to reduce centrifuge numbers and uranium stockpiles and address concerns about the potential military dimensions of its nuclear program.

“This is expected to take at least six to nine months, meaning the huge economic boost brought by sanctions relief would start in the first half of 2016. At that point more than $100bn in Iranian assets overseas would immediately be unfrozen and Iran’s oil exports would rapidly increase.

“The EU and U.S. will maintain proliferation-related technology trade curbs for eight years, or until the International Atomic Energy Agency concludes that nuclear material in Iran remains in peaceful use. After 10 years, the remaining U.N. curbs on sensitive nuclear related items are scheduled to be removed in full.”

Uranium enrichment: “As was specified in the blueprint agreement Iran sealed with the P5+1 in Lausanne three months ago, the Islamic Republic will be permitted to operate up to 5,060 first generation centrifuges, configured to enrich uranium to 3.67 percent – well below the level of enrichment required to make an atomic weapon.

“Iran will also be permitted to operate as many as 1,000 centrifuges at Fordow, its fortified mountain facility. Crucially, however, the centrifuges there will not be permitted to enrich uranium and instead will be reconfigured for the purification of other radioactive gases and elements that cannot be weaponized. The restriction on the number of first generation centrifuges will last for 10 years. The restrictions on the use of Fordow will last for 15.” [Sam Jones and Alex Barker / Financial Times]

Separately, within three months, Iran is to address evidence of its past nuclear weapons work obtained by the International Atomic Energy Agency. The IAEA will then issue its report on Iran’s past nuclear research within five months, including any evidence of weapons work, by Dec. 15. [USA TODAY]

In his news conference Wednesday, President Obama attempted to head off his critics.

“With this deal, we cut off every single one of Iran’s pathways to a nuclear weapons program.

“And Iran’s nuclear program will be under severe limits for many years. Without a deal, those pathways remain open. There would be no limits to Iran’s nuclear program, and Iran could move closer to a nuclear bomb. With this deal, we gain unprecedented around the clock monitoring of Iran’s key nuclear facilities in the most comprehensive and intrusive inspection and verification regime ever negotiated.

“Without a deal, those inspections go away and we’d lose the ability to closely monitor Iran’s program and detect any covert nuclear weapons program. With this deal, if Iran violates its commitments, there will be real consequences, nuclear-related sanctions that have helped to cripple the Iranian economy will snap back into place.

“Without a deal, the international sanctions regime will unravel with little ability to reimpose them. With this deal, we have the possibility of peacefully resolving a major threat to regional and international security. Without a deal, we risk even more war in the Middle East and other countries in the region would feel compelled to pursue their own nuclear programs, threatening a nuclear arms race in the most volatile region in the world.”

Addressing the issue that Iran can delay for 24 days before granting access to military facilities, Obama said:

“Keep in mind first of all that we’ll have 24/7 inspections of declared nuclear facilities: Fordow, Natanz, Arak, their uranium mines, facilities that are known to produce centrifuges, parts. That entire infrastructure that we know about, we will have sophisticated 24/7 monitoring of those facilities.

“So then the issue is what if they try to develop a covert program? Now, one of the advantages of having inspections across the entire production chain is that it makes it very difficult to set up a covert program.

“You know, there are only so many uranium mines in Iran. And if in fact we’re counting the amount of uranium that’s being mined, and suddenly some is missing on the back end, they got some ‘splainin’ to do.

“So we’re able to track what’s happening along the existing facilities to make sure that there is no diversion into a covert program. But let’s say that Iran is so determined that it now wants to operate covertly, the IAEA, the international organization charged with implementing the non-proliferation treaty and monitoring nuclear activities in countries around the world, will have the ability to say that undeclared site, we’re concerned about it. We see something suspicious. And they will be able to say to Iran, we want to go inspect that.

“Now, if Iran objects, we can override it. In the agreement, we’ve set it up so we can override Iran’s objection, and we don’t need Russia or China in order for us to get that override. And if they continue to object, we’re in a position to snap back sanctions and declare that Iran’s in violation and is cheating.

“As for the fact that it may take 24 days to finally get access to the site, the nature of nuclear programs and facilities is such – this is not something you hide in a closet. This is not something you put on a dolly and kind of wheel off somewhere. And by the way, if we identify an undeclared site that we’re suspicious about, we’re going to be keeping eyes on it. So we’re going to be monitoring what the activity is, and that’s going to be something that will be evidence if we think that some funny business was going on there, that we can then present to the international community.”

Our president is living in Fantasyland, re inspections (which, just wait, the 24-day review period will morph into months), and the idea of snap back sanctions.

In his first public statement on the accord, Iran’s Supreme Leader Ali Khamenei said the text should be carefully scrutinized and legal procedures taken so the other side does not breach it. “Some of the members of the P5+1 are not trustworthy,” Khamenei wrote in a letter to President Hassan Rouhani, according to state media.

Foreign Minister Javad Zarif said it would take four months to formally implement the deal.

There were massive celebrations in Tehran when the accord was announced. And with Iran set to reopen for business, German Vice Chancellor Sigmar Gabriel will lead a business delegation to Iran on Sunday.

Sen. Ben Sasse (R., Neb.) issued a statement saying the deal “lit the fuse for a nuclear arms race in the Middle East.”

Sen. Lindsey Graham (R., S.C.) called the deal “the most dangerous, irresponsible step” that could be taken in Mideast policy.

Speaker of the House John Boehner (R., Ohio) said the deal would only “embolden” Tehran. “Instead of stopping the spread of nuclear weapons in the Middle East, this deal is likely to fuel a nuclear arms race around the world.”

French President Francois Hollande suggested the deal may provide an opportunity to coordinate with Iran toward a peaceful solution to the Syrian war.

“Now that Iran has a greater financial capacity, we need to be extremely vigilant on what Iran will be. Iran must show that it is ready to help us end the conflict.”

Opinion...all sides...

Philip Stephens / Financial Times

“This does not feel like an epochal moment. After so much wrangling – the false starts, constant setbacks and mutual suspicion – the nuclear deal between Iran and the major powers was always likely to disappoint. Many will say it has lived down to expectations. It should be applauded anyway. For one thing, there is a fair chance that history will take a kinder view. For another, the agreement must be measured against the more unpalatable alternative.

“Benjamin Netanyahu will not agree. The Israeli prime minister’s fulminations against the Tehran regime have grown louder and, it must be said, somewhat delusional. The other day, Mr. Netanyahu said that Iran’s goal ‘is to take over the world.’ Iran has been ruthless in promoting its Shia proxies as much of the Arab state system has fallen into collapse, but taking over the world? Mr. Netanyahu’s answer to Tehran’s nuclear program has long been to start another war.

“Barack Obama’s hope is that the nuclear thaw with Tehran will form part of his legacy – the start of a process that reshapes the geopolitical landscape. The U.S. president’s predecessor, George W. Bush, thought he could do that by fighting wars. Mr. Obama wants to demonstrate that diplomacy, albeit in this case coercive, can do a better job. Richard Nixon’s reputation was forever besmirched by the criminality of Watergate, and yet the disgraced former president is still remembered for the opening up of China. Mr. Obama wants posterity to record that he halted the perilous slide to nuclear proliferation....

“Iran has accepted unprecedented international control and surveillance over its nuclear program as well as cuts in its uranium stocks and in the number of centrifuges. Yes, it might cheat. But the terms imposed by the U.S. and the other members of the P5+1 group of leading powers will not make that easy....

“The clinching argument for this agreement, though, is that it is the best on offer. All the alternatives are worse. Iran’s nuclear capability cannot be wished or bombed away.... the U.S. politicians who will now seek to scupper the deal in the U.S. have reasons aplenty to dislike it but nothing credible with which to replace it. No, this does not feel like a heroic moment. But then we live in a world of least-worst options.”

Editorial / Wall Street Journal

“The prospect of a nuclear-threshold Iran newly fortified with cash from sanctions relief has to be terrifying for its Sunni Arab neighbors. Traditional Persian imperialism combined with Shiite revolutionary fervor make for a fearsome regional threat, especially with President Obama signaling U.S. retreat from the region. Iran is now the most important foreign influence in Baghdad, and its Shiite militias are more powerful than Iraq’s army. Iran will have far more resources to spend arming its Shiite and other proxies in Lebanon, Syria and Yemen.

“Listen to Syria’s Bashar Assad, who called the Vienna accord a ‘major turning point’ for Iran and congratulated Ayatollah Ali Khamenei in a message saying, ‘We are confident that the Islamic Republic of Iran will support, with greater drive, just causes of nations and work for peace and stability in the region and the world.’

“For months the Gulf Arabs have signaled their unhappiness with the Iran talks, asking visitors in private what Mr. Obama could possibly be thinking. Out of character, they’ve also spoken more in public. Prince Alwaweed bin Talal, a Saudi royal (and once a major shareholder in the Journal’s owner, News Corp.), told us in November 2013 that ‘for the first time Saudi Arabian interests and Israel are almost parallel’ over Iran. He all but said the Saudis could purchase a nuclear bomb off the shelf from Pakistan given the close ties between the countries....

“Now that the deal is done, the Sunni Arab states can expect enormous U.S. pressure to shut up and fall in line. Mr. Obama has been cajoling them with a visit to Camp David and promises of new weapons and other support. But the U.S. will no doubt also imply that such support can be withdrawn if the Saudis decide to campaign against the deal during the Congressional debate.”

Michael Rubin (American Enterprise Institute) / New York Post

“In 2013, Kerry declared of the Iranians, ‘There is no right to enrich.’ Two years later? The final agreement allows Iran to keep 5,000 centrifuges, 2,000 more than Pakistan had when it secretly built a nuclear arsenal.

“Nor will Iran be limited to current technology; Kerry has ceded Iran’s right to experiment with new-generation centrifuges exponentially more powerful than Iran has now.

“But centrifuges are only one part of Iran’s illicit program. In 2013, Kerry told Congress the ‘whole point of the [sanctions] regime’ was to force Iran to ‘dismantle its nuclear program.’ But the deal to which Kerry agreed lets Iran keep everything in place.

“This includes Fordow, the once-covert nuclear site Iran built under a mountain.

“ ‘They don’t need to have an underground, fortified facility like Fordow in order to have a peaceful nuclear program,’ Obama said in 2013. Congress will likely ask what changed, since this deal allows Iran to keep Fordow.

“It gets worse. In 1991, the International Atomic Energy Agency required South Africa to come clean on the past 20 years of its nuclear work in order to certify that it had ceased its nuclear-weapons program.

“Anything short of that, and the IAEA said it could not certify that all material was accounted for. And yet, Kerry caved on this, effectively crafting a deal the IAEA can’t certify.

“But what about ‘anytime, anywhere’ inspections? Again, the administration backtracked. First, they qualified by saying they’d be the most intrusive inspections on any country ‘not defeated in war.’

“Then, Kerry backed down on demands that inspectors be able to conduct snap inspections on military sites. Those inspections are necessary because this is where, according to the IAEA, Iran worked on everything from components for a warhead to detonators.

“Finally, he allowed Iran essentially to pre-approve any inspection. That’s the equivalent of having a criminal pre-approve a search warrant.

“Then, of course, there’s the arms embargo. It gets lifted after a short period of time.

“This not only means Iran can use its $100 billion signing bonus to buy weapons.

“It also means Iran can export them to terrorist groups across the region.

“Essentially, Obama is reimbursing Iran in full for decades of investment in a covert nuclear program.”

Roula Khalaf / Financial Times

“The most important political aspect of the accord is the promise of a détente between the U.S. and Iran, whose estrangement has been a principal source of tension in the Middle East. The Iranian regime and the U.S. are beginning to turn the page on 35 years of hostility that followed the 1979 Islamic revolution and the takeover of the U.S. embassy in Tehran, a painful atrocity etched in the collective American memory.

“It’s not quite a normalization of relations – no one is bracing for grand embassy openings in Tehran and Washington. Iran’s interventions in the Middle East and its efforts to project its power present an obstacle to normalization that will not be easily overcome. To placate hardliners Iran’s supreme leader, Ayatollah Ali Khamenei, will proceed cautiously towards any further cooperation with Washington.

“But the Vienna agreement was possible only because the American and Iranian delegations were able to establish a measure of trust through a process that began in Muscat in 2013, with the help of Omani mediation. Despite the supreme leader’s continued tirades against the U.S., the discourse of officials in Tehran has changed remarkably. The nuclear deal, they say, is the first step and there will be more.”

Frederick Kagan / Wall Street Journal

“The nuclear agreement with Iran announced Tuesday is an astoundingly good deal, far surpassing the hopes of anyone...in Tehran. It requires Iran to reduce the number of centrifuges enriching uranium by about half, to sell most of its current uranium stockpile or ‘downblend’ it to lower levels of enrichment, and to accept inspections (whose precise nature is yet to be specified) by the International Atomic Energy Agency, something that Supreme Leader Ali Khamenei had wanted to avoid.

“But the agreement also permits Iran to phase out the first-generation centrifuges on which it now relies and focus its research and development by exclusively using a number of advanced centrifuge models many times more efficient, which has been Tehran’s plan all along. The deal will also entirely end the United Nations’ involvement in Iran’s nuclear program in 10 years, and in 15 years will lift most restrictions on the program.

“Even that, though, is not Tehran’s biggest win. The main achievement of the regime’s negotiators is striking a deal that commits the West to removing almost all sanctions on Iran, including most of those imposed to reduce terrorism or to prevent weapons proliferation. Most of the sanctions are likely to end in a few months. Thus the agreement ensures that after a short delay Iran will be able to lay the groundwork for a large nuclear arsenal and, in the interim, expand its conventional military capabilities as much as the regime pleases. The supreme leader should be very proud of his team....

“The likelihood is, therefore, that this agreement will lead to a significant expansion in the capabilities of the Iranian military, including the Republican Guard and the Quds Force. It comes just as Iran is straining to keep Bashar Assad in power, dominate the portions of Iraq not controlled by Islamic State and help the Houthis fight Saudi Arabia in Yemen. That makes it a very good deal for Iran.”

David Ignatius / Washington Post

“As the Iran nuclear talks neared the endgame, some observers worried that President Obama and Secretary of State John F. Kerry, in their eagerness for a deal, would give away the store with last-minute concessions.

“Those fears turned out to be misplaced, notwithstanding Tuesday’s howls of protest from Israeli and GOP critics. The agreement is a well-crafted pact that maintains the framework reached in Lausanne, Switzerland, in April. Rather than softening the Lausanne terms, the final language firms up some squishy items. It also adds important new restrictions on Iran’s ability to develop the exotic triggering mechanisms needed to build a nuclear bomb.

“The problem isn’t the agreement but Iran itself. Its behavior remains defiantly belligerent, even as it signs an accord pledging to be peaceful. Its operatives subvert neighboring regimes, even as their front companies are about to be removed from the sanctions lists. The agreement welcomes Iran to the community of nations, even though its leader proclaims that Iran is a revolutionary cause.

“Obama argues that dealing with a menacing Iran will be easier if the nuclear issue is off the table for the next 10 years. He’s probably right, but the Iran problem won’t vanish with this accord. Iranian behavior in the region becomes the core issue. Having played the dealmaker, Obama must now press Iran to become a more responsible neighbor....

“A deal with Iran has been Obama’s overriding foreign-policy goal since Inauguration Day, when he declared his desire to engage adversaries on a basis of ‘mutual interest and mutual respect.’ He has paid a heavy cost to protect his Iran peacemaking, sidestepping confrontation with Iranian proxies in Syria and Russia in Ukraine, in part because he saw the Iran deal as a higher priority. Obama explained his logic Tuesday morning: ‘Put simply, no deal means a greater chance of more war in the Middle East.’ Historians will have to judge whether he has gained more than he lost.”

Editorial / Washington Post

“As it is, the bargain is complex and costly – if ultimately preferable, in the short term, to the likely alternative of an escalating confrontation with Iran. Its most immediate effect will be to provide Tehran with up to $150 billion in fresh assets from sanctions relief over the next year, funds that its leaders will probably use to revive the domestic economy but also to finance wars and terrorist groups in Iraq, Syria, the Gaza Strip, Yemen and elsewhere.

“Though Mr. Obama has promised to mitigate that outcome with new support for Israel and U.S. Arab allies, one effect of the deal may be an increase in the sectarian bloodshed wracking the region, as well as the conventional threat to Israel. When embargoes on arms and missile sales to Iran expire in five and eight years, that threat could further escalate, and Tehran could seek missiles capable of striking U.S. warships in the Persian Gulf or reaching the U.S. homeland....

“(The) provisions for deterring and detecting violations are the areas in which Tehran fought for, and won, some troubling compromises. International inspectors seeking access to a suspected Iranian site could be delayed by a 24-day, multi-step process ultimately requiring five votes on an eight-member committee; at a minimum, the United States and four European representatives would have to concur. While a U.S. president could, in theory, unilaterally determine that Iran was cheating and force the reimposition of U.N. sanctions, it could take 65 days and might prove politically unworkable....

“Mr. Obama settled for terms far short of those he originally aimed for....Whether he is right in claiming that his successor in 10 or 15 years ‘will be in a far stronger position’ with Iran will depend on whether his hopeful theory about its political future proves correct.”

Editorial / Wall Street Journal

“The debate is raging over President Obama’s nuclear deal with Iran, and Mr. Obama held a rare press conference Wednesday to say that ‘99% of the world community’ agrees with him. Then why bother with a press conference? Mr. Obama made other claims...but for today it’s worth rebutting his assertion that ‘none’ of his critics ‘have presented to me or the American people a better alternative.’

“Specifically, Mr. Obama resorted to his familiar default of the false political choice. ‘There really are only two alternatives here. Either the issue of Iran obtaining a nuclear weapon is resolved diplomatically through a negotiation or it’s resolved through force, through war. Those are the options,” Mr. Obama said. He added that no better deal was or is possible than the one he has negotiated.

“Mr. Obama knows there has always been an alternative to his diplomacy of concessions because many critics have suggested it. It’s called coercive diplomacy, and it might have worked to get a better deal if Mr. Obama had tried it....

“Mr. Obama now argues that the sanctions could not have been maintained, and that they are sure to collapse if Congress scuttles his deal. But there was no sign sanctions were collapsing as long as the U.S. continued to keep the pressure on. And to the extent support did weaken, one reason was the momentum of Mr. Obama’s negotiations. The more the U.S. gave the impression that it desperately wanted a deal, the more other countries and businesses began to maneuver for post-sanctions opportunities.

“This is the opposite of coercive diplomacy, which shows determination so an adversary under pressure concludes that it must make more concessions. This is the diplomacy Ronald Reagan practiced with the Soviets, refusing to budge on missile defenses at the 1986 Reykjavik Summit despite pressure from 99% of the world to do so. The Soviets were soon back at the negotiating table....

“As for Mr. Obama’s false choice of war and diplomacy, the truth is that war becomes less likely when diplomacy is accompanied by the credible threat of war. The President removed that credible threat from Iran by insisting war was the only (bad) alternative to his diplomacy, as well as by threatening force against Syria only to erase his own ‘red line.’ In May Supreme Leader Ali Khamenei boasted that the U.S. military ‘can’t do a damn thing’ against Iran. He understood his negotiating partner all too well.

“Mr. Obama is now presenting his deeply flawed deal to Congress and the public as a fait accompli that must be embraced or war will result. Congress shouldn’t be any more impressed by his false ultimatums than the Iranians were by his weak diplomacy.”

Benny Avni / New York Post

“The curious case of Qassem Soleimani perfectly explains the secrecy and folly of President Obama’s Iran deal, as well as his rush to bypass Congress and instead entrust a vital national-security issue to the United Nations.

“Gen. Soleimani is the commander of the Quds division of Iran’s Revolutionary Guards Corps. He’s charged with exporting the Islamic Republic’s revolution to the rest of the Mideast and beyond. He has American blood on his hands. He is, then, America’s enemy.

“Or is he? Gen. Joseph Dunford, Obama’s candidate to become the next chairman of the Joint Chiefs of Staff, told Congress last week that Soleimani is directly responsible for killing at least 500 U.S. troops in Iraq. He’s also responsible for many deaths of others in Syria, Lebanon and Yemen. That’s the nature of his business.

“So America has made sure, since 2007, to name him on all lists of Iranians targeted for international sanctions.

“No longer. According to the deal reached in Vienna Tuesday, Soleimani will be de-listed.”

At first the White House denied this, then it explained “that sanctions on him won’t be removed in ‘Phase 1’ of the deal, but much later, in eight years.

“Maybe. Meanwhile, in the real world, Soleimani, our former enemy, is now a partner and friend. He’s the one commanding the Iranian troops and their proxy Iraqi Shiite militias that fight, under U.S. air umbrella and with our guidance, against ISIS.

“And in that very real world the sanctions against him, including a UN resolution banning him from traveling anywhere outside of Iran’s borders, are long gone.”

Editorial / Wall Street Journal

“In the months leading up to Tuesday’s announcement of a nuclear agreement with Iran, American proponents and skeptics of the deal at least agreed on one thing: the importance of ‘anywhere, anytime’ inspections of Iran’s nuclear facilities....

“(There) was Energy Secretary Ernest Moniz in April saying, ‘We expect to have anywhere, anytime access.’ And Deputy National Security Adviser Ben Rhodes also in April saying: ‘In the first place we will have anytime, anywhere access [to] nuclear facilities.’...

“(But) Mr. Rhodes was on CNN on Wednesday denying that negotiators had ever sought anytime, anywhere inspections.

“Under the deal’s terms, when the IAEA demands access to a suspect site, Iran will have 14 days to fulfill the request or propose other means to satisfy it. If the matter remains unresolved, a joint commission with representatives from each of the eight parties to the agreement would have a further week to act, and Iran would then be given three days to comply. Thus, 24 days might elapse between a request for access by the IAEA and a requirement upon Iran to provide it – ample time for Iran to hide or destroy evidence.

“Many observers now are in despair over how far short the nuclear agreement falls of the ‘anywhere, anytime’ standard. But the promise of what such unfettered access could accomplish was always a chimera. Much more would be required for any attempt to monitor Iran’s nuclear program to be a success.”

Street Bytes

--Stocks had a strong week, though in terms of the Dow and S&P 500, the lion’s share of the gain came on Monday with relief over developments in the Greek debt crisis. And then later in the week it was about a soaring Nasdaq and Google.

The Dow gained 1.8% to 18086, back in the black for the year, +1.5%, while the S&P rose 2.4% to 2126, four points shy of its all-time mark.

But Nasdaq hit new highs on Thursday and Friday, finishing with its best week since 10/24/14, +4.2% to 5210.

I detail some of the earnings reports that began to flow in below, but they weren’t that big a factor in the market action (save for Google and one or two others). While earnings generally beat, revenues are still weak and if you’re a large multinational, fuggedaboudit. The strong dollar is killing you and this week the dollar rallied even more.

As for Google, its shares traded at an intraday low of $565, prior to its earnings release after the close on Thursday, and then the stock finished the week at $672 as earnings handily beat. Investors liked that smartphones weren’t crushing its search-advertising model, and that spending was coming under control.

Google now has a market cap of $468 billion, making it the second-most-valuable U.S. stock behind Apple.

It’s 16% gain on Friday equated to about $65 billion, the second largest gain ever for a Nasdaq stock, next to Cisco Systems $66 billion back on April 17, 2000, according to the Wall Street Journal and FactSet. [I’ve seen all kinds of figures, frankly. We might need this to shake out a bit.]

Nasdaq was also helped by the fact Netflix shares rose 18% on the week after its solid earnings report. 

--U.S. Treasury Yields

6-mo. 0.11% 2-yr. 0.67% 10-yr. 2.35% 30-yr. 3.08%

Nothing of interest on the bond front. The inflation numbers were obviously tame and traders have discounted a September hike of 25 basis points.

--The Bank of Canada reduced its key interest rate by a ¼-point to 0.5% and slashed its growth forecast for the year to just over 1% from 1.9%.

The downward revision reflects further downgrades of business investment plans in the energy sector.

--Saudi Arabia raised its crude oil output to the highest level on record, 10.6m barrels a day in June, an increase of more than 200,000 b/d over May.

At its current pace, the kingdom could, by the end of the summer, be the first to pump 11m b/d since the former Soviet Union.

Granted some of the production is aimed at meeting seasonal air conditioning demand but the increase is still significant. [Saudi Arabia burns crude oil in power stations during times of peak consumption.]

U.S. crude output is around 9.7m b/d, according to the U.S. Energy Information Administration, but growth has slowed due to falling prices. Russia is producing about 10.5m b/d.

Iraq topped 4m b/d a day for the first time in June, OPEC reported.

--Editorial / Wall Street Journal

“The Affordable Care Act was supposed to make insurance, well, more affordable. But now hard results are starting to emerge: premium surges that often average 10% to 20% and spikes that sometimes run as high as 50% or 60% or more from coast to coast. Welcome to the new abnormal of ObamaCare.

“This summer insurers must submit rates to state regulators for approval on the ObamaCare exchanges in 2016 – and even liberals are shocked at the double-digit requests, or at least the honest liberals are....

“In a study across 45 states, the research outfit Health Pocket reports that mid-level Exclusive Provider Organization plans are 20% more expensive in 2016 on average. HMOs are 19% more expensive, and for all plan types the average is 14%.”

--Intel beat on the top and bottom line, though revenues did fall 4.6% year over year for the second quarter. The company said it expected third-quarter revenue to be near the top of the analysts’ current range. “We expect the launches of Skylake, Microsoft’s Windows 10 and new OEM systems will bring excitement to client computing in the second half of 2015.”

As for Moore’s Law, the prediction made by Intel’s co-founder that computing power would double every two years, CEO Brian Krzanich told analysts on a conference call following release of the earnings that the time between each new generation of microprocessor has widened.

“The last two technology transitions have signaled that our cadence today is closer to two and a half years than two,” Krzanich said.

The importance of this is that consumers have come to expect regular upgrades in their computers and smartphones.

--Bank of America delivered better than expected profits for the second quarter, $5.3bn, far exceeding expectations on a per share basis. Revenue edged up to $22.1bn in the quarter from $21.7bn a year ago.

The big reason for the increase in profits, though, was expenses fell 4 percent vs. a year ago.

--JPMorgan Chase reported second-quarter net revenue fell by 3% and total assets declined by 6% compared with year ago levels, but profits rose 5.2% to $6.3 billion, owing in part to expense cuts.

Total trading revenues were down 9% year over year, including a 21% decline in fixed-income, currency and commodities trading.

JPM did at least report solid loan growth of 6%. And the investment banking side saw its net income rise 10%.

--Goldman Sachs’ earnings beat if you take out a net $1.45bn charge for litigation, but trading revenue on the fixed-income, currency and commodities side, a la JPM and BofA, was weaker. CFO Harvey Schwartz cited a “challenging” market backdrop, blaming Greece in part.

The smaller equities trading division did much better, with net revenues up more than 60% to $787m. Investment banking contributed $2bn in net revenues, up 10%.

--Citigroup delivered another quarter of higher-than-expected results as it continues its post-crisis transformation, with adjusted net income of $4.7bn and earnings that handily beat the Street. It was Citi’s highest profit in eight years.

--As alluded to above, Google blew away its earnings estimate, $6.99 vs. analysts’ forecast of $6.70 and the stock rocketed higher in the after-hours following the release Thursday. Revenue was up on a constant currency basis by 18% (11% net). The early expense efforts of new CFO Ruth Porat would appear to be bearing fruit

--Netflix passed the 65 million subscriber mark in the second quarter, adding 3.28m members, including a greater than expected 900,000 in the U.S. The shares rocketed higher to the tune of about 17%.

Original programming such as Daredevil and the latest season of Orange is the New Black continues to be a key to the story. Netflix is also expanding into new markets, including Japan, Spain, Portugal and Italy by year’s end, and it hopes to hit China next year.

--Delta Air Lines Inc. posted second-quarter results that beat expectations (though revenues were up only 0.8%). Unit revenue, the amount taken in for each passenger flown a mile, declined 4.6% in the June quarter from a year earlier and the company expects a similar fall in the September quarter. Delta said it plans to increase its capacity by 3% in the current quarter, as the Justice Department investigates whether the nation’s four largest carriers are colluding on their capacity plans.

Delta reported corporate demand “remains solid” and rose 3% in the June quarter, but that some domestic markets such as Dallas, Chicago and Orlando are showing weakness.

Delta also announced it was preparing to order 60 narrow-body jetliners if most of its 12,800 pilots voted for a new three-year contract that supersedes the current one expiring end of the year. But the pilots rejected it and Delta canceled the order.

--General Electric reported earnings in line with expectations, though revenues fell 1.4% year over year, worse than consensus. The strong dollar again hurt in a big way.

--Yum Brands Inc. reported net profit fell 30% in the quarter through June 13, driven in part by one-time charges, but more importantly, with China accounting for about half of Yum’s sales (KFC, Pizza Hut and Taco Bell), sales there continue to crater, down another 4% in the second quarter, with same-store sales (those open at least a year) declining 10%. KFC in particular continues to suffer from reports questioning the quality of its food. [Overall company revenue fell 3%.]

But the 10% figure marks an improvement over the 12% decline for same-store sales in the first quarter, and the fourth-quarter decline of 16%.

Last month, Yum announced it was suing rival companies in China for spreading false information, but this is what Chinese companies do. Lie, steal and cheat.

Nonetheless Yum said it remains bullish there...as if it has a choice at this point.

--China’s state-owned semiconductor chip designer, Tsinghua Unigroup Ltd., made a bid for the only remaining U.S. memory chip maker, Micron Technology, in a deal that is valued at $23 billion but one that will also face deep skepticism by U.S. regulators, including the Committee on Foreign Investment in the U.S. (CFIUS), and no doubt Congress.

In 2008, CFIUS objected to a bid by China’s Huawei Technologies Co. for 3Com, forcing Huawei to drop it.

China is weak in memory chips and it is pushing to build more domestic sources for semiconductors, as much for its military buildup as anything else.

I’ll make it easy for everyone. Don’t allow it, Washington. There is no way the U.S. can hand over its last significant production of a key component used in personal computers and smartphones.

Actually, it’s a low bid and Micron would never accept it.

--Russia’s economy appears headed back into recession when second quarter figures are finalized as retail sales dropped by 9.4% in the quarter compared with the same period last year, according to the Federal Statistics Service. Industrial production decreased by 4.9% and fixed asset investment fell 6.5% in the second quarter. Some economists say this data suggests an economy that contracted 5% year over year in Q2, compared with Q1’s 2.2% fall.

--So I told you the other day of how Summit, N.J.-based Celgene (literally the other side of town from where I live) was acquiring the mammoth Merck complex across the street from me, and I said at the time this spoke well of their future and acquisition plans.

So on Tuesday, the cancer-drug company said it will pay $7.2 billion for Receptos Inc. in a bid to move deeper into the lucrative market for autoimmune diseases.

Not because of this deal, but the Merck property has been a beehive of activity recently, which is good to see for the local merchants who have been suffering with Merck’s dispersal to other locations.

--Japanese airbag maker Takata’s problems continue. Now Ferrari has announced it is recalling about a third of its annual production because of a different problem with airbags from Takata. The Italian automaker found airbags had the potential to inflate with the wrong orientation, increasing the risk of injury in a crash. This is different from the other issue facing Takata where airbags can deploy with too much force and spray shrapnel into the car.

--Amazon’s Prime Day was Wednesday and Twitter users slammed it as a made-up “holiday” that was like a garage sale.

Prime Day was hyped as a sale celebrating Amazon’s 20th birthday and it was to be bigger than Black Friday. But the sale items seemed totally random and were underwhelming, according to Twitter users.

However, Amazon said “Prime Day” led to a surge in signups of “hundreds of thousands” for its $99 annual Prime loyalty program. The company also said sales surpassed that of Black Friday in terms of items ordered per second.

--EBay reported revenues that rose 6% in the second quarter to $4.65 billion and earnings beat analyst expectations. But in its core marketplace, which comprises mostly eBay.com and ticket-seller StubHub, sales were down 3%, the second straight quarterly decline.

Unfortunately, as the company prepared to spin off the PayPal unit, this is potentially the future. PayPal’s sales grew 16%.

EBay and Amazon are both marking their 20th anniversary this year, but Amazon’s sales will approach $100 billion in 2015, while eBay’s – minus PayPal – will fall below $10 billion. Earlier this year, eBay eliminated 2,400 jobs.

--Johnson & Johnson saw its sales slide 8.8% in the second quarter as revenues declined across most of its businesses.

J&J was particularly hit by a collapse in sales of its hepatitis C treatment Olysio, with sales of the drug plummeting 93% to $50m for the quarter, compared to $725m a year earlier – as rivals Gilead Sciences and AbbVie introduced competing drugs.

J&J was also hit hard by the strong dollar when it came to its international sales.

But the company still reported earnings that rose 4% to $4.5bn.

--UnitedHealth Group Inc., the biggest U.S. health insurer, raised its full-year forecast after second-quarter net income climbed to $1.59 billion, $1.64 a share, vs. $1.41 billion, or $1.42 a share, a year earlier. Full-year revenue is now expected to rise about 8%.

--Singapore’s economy contracted 4.6% quarter-on-quarter in the three months to June, versus forecasts for a 1.5% decline. The manufacturing sector contracted by an annualized 14%.

Weakness certainly reflects a slowdown in China, Singapore’s largest export destination. Year-on-year GDP is down to +1.7%.

--Home sales in the six-county Southern California market soared 18.1% in June vs. year ago levels, with the median price rising 5.7% to $442,000, according to CoreLogic. [The median in Orange County is $629,500.]

--California’s jobless rate fell to 6.3% in June, down from 7.5% a year earlier. The nationwide rate is 5.3%

--The corporate parent of the A&P, Pathmark, Waldbaum’s and Food Emporium grocery chains is set to file for Chapter 11, as has been rumored. 

A&P (The Great Atlantic & Pacific Tea Co.) has been hurt by brutal competition from the likes of Walmart, as well as a 2007 acquisition of Pathmark, a deal engineered by billionaire Ron Burkle, the dirtball who used to fly around the country with Bill Clinton to party. Burkle saddled A&P with massive debts with the Pathmark deal.

--New Jersey Transit is instituting a new fare increase of 9 percent, on average, in October. The increase will add $40 to the price of a monthly pass for some commutes who ride trains to Penn Station in Manhattan. $500 a year just kills lower- and middle-income riders.

--Lester Holt and “NBC Nightly News” are off to a good start after Holt was officially named the replacement for Brian Williams. The broadcast scored its third consecutive weekly ratings win.

Foreign Affairs

In his news conference Wednesday, at one point President Obama said this in terms of his foreign policy and legacy.

“Now, in terms of the larger issues (in) the Middle East....I think my key goal when I turn over the keys to the president – the next president, is that we are on track to defeat ISIL, that they are much more contained and we’re moving in the right direction there, that we have jumpstarted a process to resolve the civil war in Syria, which is like an open sore in the region, and is giving refuge to terrorist organizations who are taking advantage of that chaos. To make sure that in Iraq, not only have we pushed back ISIL, but we’ve also created an environment in which Sunni, Shia, and Kurd are starting to operate and function more effectively together, and to be in a conversation with all our partners in the region about how we have strengthened our security partnerships so that they feel they can address any potential threats that may come, including threats from Iran.

“And that includes providing additional security assurances and cooperation to Israel, building on the unprecedented cooperation that we have already put in place, and the support that we’ve already put in place. It includes the work that we’ve done with the (Gulf partners) up at Camp David, making sure we execute that.

“If we have done those things, then the problems in the Middle East will not be solved. And ultimately, it’s not the job of the president of the United States to solve every problem in the Middle East.

“The people in the Middle East are going to have to solve some of these problems themselves. But I think we can provide that next president at least a foundation for continued progress in these various areas.”

I can already imagine the president’s farewell speech... how he’ll tell us he left the world in far better shape than when he first took office. At that point I’ll throw up.

Iraq/Syria/ISIS: ISIS executed six former officers of the Iraqi army this week, following their arrest in Mosul a year ago. The next day, ISIS placed a number of men on a road close to a government building in Mosul, “and then a bulldozer drove back and forth over them,” a source told an Arab satellite television network.

A spokesman for the Kurdistan Democratic Party said ISIS also kidnapped 111 children in Mosul, between the ages of 10 and 15, and had sent them to a training camp for the purposes of learning how to carry out acts of terror.

ISIS gained ground against the Syrian army in the major northeastern city of Hassakeh. According to activists, 170 have been killed in three weeks of fighting. ISIS carried out at least 17 suicide attacks against army positions, the group’s preferred method of waging war these days.

Of the 70 jihadis killed in the fighting over Hassakeh, 15 were under the age of 16, recruited by ISIS (or maybe kidnapped for this purpose). [Daily Star]

Meanwhile, Iraqi security forces launched a counteroffensive in Anbar province to retake territory seized by Islamic State militants, but it’s not clear how the operation is going.

The joint force includes the army, federal police, Shiite militias and Sunni tribal fighters. The primary targets are Fallujah and Ramadi, which are close to the capital of Baghdad.

One of the tribal leaders whose forces are taking part told the Wall Street Journal, “I do believe that within a week, they will take Fallujah. But I don’t believe it will be a liberation operation,” he said. “It will be a scorched earth operation.”

But on Friday evening in Baghdad (tonight), a suicide bomber killed at least 86 people and wounded more than a hundred! The bomber detonated a small tanker truck laden with heavy explosives in a town center. You know who did it. ISIS claimed responsibility, calling it revenge for “massacres of Sunnis” in the northern Iraq town of Hawija. Frankly, I didn’t know there was a “massacre” in Hawija. Must have been watching a Mets game that day.

Yemen: The Journal reports that the military force that wrested back control of Yemen’s second city, Aden, from Iranian-backed Houthi rebels was comprised of special forces from the UAE and al Qaeda militants, along with local militias backed by Saudi Arabia. Yes, as the paper noted, “a precarious tangle of alliances, it poses a new quandary for the U.S.”

“Although the U.S. continues to conduct separate airstrikes targeting AQAP militants in Yemen, its plans to build a robust counterterrorism force in the country to deny al Qaeda a haven have been wiped out.”

Afghanistan: A suicide car bomb killed at least 33, mostly women and children, near a military base in Afghanistan in eastern Khost province.

Russia / Ukraine: Six Russian military aircraft of different designs have crashed since the start of June, as reported by the Moscow Times. The latest accident came on Tuesday, when a Tu-95 strategic bomber went down in Russia’s Far East. All four of its engines had failed mid-flight during a training mission, a government source told news agency TASS. Two of the crew members died. Five managed to successfully bail out.

The Tu-95 is the mainstay of Russia’s long-range bomber fleet, with around 60 in service. It was the second “Bear” to go down in about a month. Some are blaming the fact that many of the pilots are very young and inexperienced.

Separately, at least 23 Russian conscripts were killed and another 19 injured when a military barracks collapsed near the Siberian city of Omsk. I saw a picture of the barracks and the roof just caved in. According to the Moscow Times, reconstruction work on the facility was carried out in 2013 and it clearly was a shoddy job.

There have also been reports of soldiers going AWOL from a base in southern Russia, allegedly fleeing the base to avoid being sent to fight in Ukraine.

Meanwhile, Ukraine’s Prime Minister Arseniy Yatseniuk is bemoaning the “politicial disaster” in Greece, saying it was leading to growing repercussions for Kiev as the opposition is rising to fight tough reforms required as part of an international bailout.

“Everyone is so focused on Greece that Ukraine is not the priority. It is not on radars,” Yatseniuk said during a visit to Washington.

“We’ve been promised $25bn for the coming four years from the IMF, the World Bank and others, having Russian tanks on board...[and] having lost 20% of the Ukrainian economy,” he said. “And our Greek friends, with a population four times less than the Ukrainian one, already got 300bn euro? And they need another 60bn-80bn?" [Shawn Donnan / Financial Times]

Friday represented the first anniversary of the downing of Malaysia Airlines flight MH17 over war-torn eastern Ukraine. All 298 passengers and crew were killed, including 189 Dutch nationals. The Kremlin continues to deny allegations pro-Russian rebels shot the plane down.

China: Editorial / Washington Post

“China’s authoritarian system has in the past few years tolerated a narrow space – a kind of gray zone – for some lawyers and activists to defend human rights, case by case. It became known as the rights defense movement and included appeals to China’s existing laws, as well as shrewd use of the Internet to expose the plight of victims. Despite the overarching power of the party-state and its intolerance of dissent, the Chinese authorities permitted these lawyers and activists to function, often because they were devoted to individual petitioners and didn’t seem to threaten the survival of the regime.

“A wave of arrests and detentions over the past week points to a sudden closure of even this narrow space. In a nationwide sweep, as of Wednesday, police had detained and interrogated at least 159 human rights lawyers, activists and their relatives in 24 cities and provinces, according to a Hong Kong group that monitors human rights and rule of law in China. Some 10 remain in custody, and the whereabouts of 14 are unknown. The unusually wide crackdown appears to signal that the authorities will no longer tolerate these defenders of human dignity.

“Typically, the lawyers disappeared suddenly. One prominent human rights lawyer, Wang Yu, returned home July 9 after dropping off her husband and son at the airport. She sent a text message to friends saying that the Internet connection and power at her home had been cut off. She sent another message saying that people were trying to break in. She has not been heard from since.”

Japan: Prime Minister Shinzo Abe’s coalition on Thursday approved legislation in the lower house of parliament that could strengthen the military’s role to counter China’s growing presence in the region. A ban on collective self-defense or fighting to defend an ally like the United States was dropped, sparking huge protests in Japan with many holding placards reading “No War, No Killing.”

The U.S. welcomes the bolder security stance, of course. Abe told reporters after the vote, “The security situation around Japan is getting tougher. These bills are vital to protect the Japanese people’s lives and prevent war.”

Opponents say the revisions violate pacifist Article Nine of the U.S.-drafted, post-war constitution. Abe’s approval rating has been slipping (to around 40%) on the legislation and plans to restart nuclear reactors.

Australia: Peter Hartcher / Sydney Morning Herald:

“China has shown itself to be an ugly bully. Contrary to all its fine rhetoric of cooperation, it is happy to use coercion to take territory that is also claimed by its smaller neighbors.

“It is waging a creeping invasion, and nobody is stopping it.

“A new report [Ed. “ANZUS Alliance in an Ascending Asia,” by Mike Green] says that the U.S. needs to stop China’s encroachments, and Australia needs to be prepared to help.

“So far, Australia’s alliance with the U.S. has been a mere bystander to China’s great grab.

“The power of this new report, released in Sydney on Monday, is the idea that the alliance should move from the sidelines and into the hot zone as a bulwark against China’s advances.

“Instead of a ‘bilateral tie,’ the ANZUS alliance should become a ‘regional hub’ for U.S. allies and U.S. partners in marshalling forces against Beijing, it says.”

Mexico: Drug lord Joaquin Guzman, “El Chapo,” used an elaborate tunnel to break out of a maximum security prison last Saturday. It was the second time he had escaped from such a facility.

In 2001 he broke out by hiding in a laundry basket after bribing prison officials. This time, following his recapture in 2014, a tunnel costing $millions to construct, was his way out.

The escape is seen as a mockery of the Mexican prison system and a massive blow to the administration of President Enrique Pena Nieto, who had been receiving plaudits for taking a hard stance against the most powerful drug traffickers, nabbing leaders of every major cartel.

At week’s end, no one seemed to have a clue where El Chapo escaped to, but his journey started with a helicopter flight outside the prison walls.

Many think tanks and academics believe the escape will lead to the fall of Pena Nieto’s government. The United States isn’t happy because the president ignored Washington’s request for El Chapo to be extradited.

Brazil: Former president Luiz Lula da Silva is now the subject of a formal criminal investigation into alleged illegal influence peddling, as the political crisis in Latin America’s biggest economy grows.

At the same time, the leader of Brazil’s lower house of Congress is seeking legal advice on whether there are grounds to impeach current president Dilma Rousseff, over separate corruption charges.

Ransom Musings

--Federal investigators say a gunman who killed four Marines in a shooting spree in Chattanooga, Tennessee had no known links to international terrorism that they have uncovered, as yet, but the investigation is in its early stages. The FBI says Mohammad Youssuf Abdulazeez’s motive is unclear, but he did spend seven months in Jordan in 2014.

Rep. Michael McCaul, chairman of the House Homeland Security Committee, however, says it’s pretty clear this was ISIS-inspired terrorism.

--A new Washington Post/ABC News poll has Donald Trump’s popularity surging among Republicans. 57% of them now have a favorable view of him, compared to 40% who have an unfavorable one; marking a complete reversal of a late May Post/ABC poll that had 65% of Republicans viewing him unfavorably.

Among the public at large, Trump’s negatives outpace the positives, 61-33. His unfavorable among Hispanics since his negative comments about Mexican illegal immigrants rose to 81% from 60% in May.

In this same poll, Hillary Clinton’s ratings moved from a 45-49 favorable-unfavorable split in May to a net positive position of 52-45.

--In a USA TODAY/Suffolk University nationwide poll, among Republicans, Trump garnered 17% for first, followed by Jeb Bush at 14%, and Scott Walker with 8%.

However in a hypothetical match-up against Hillary Clinton, Trump trails by a whopping 17%. Bush fared best against Clinton, trailing by just 4 points.

Talk about name recognition, only 2 percent of those surveyed had never heard of Trump.

In the above poll, New Jersey Gov. Chris Christie receives only 2%.

--In a nationwide Monmouth University poll, Hillary leads the Democratic field but her support is declining; down to 51%, from 57% in June and 60% in April. Bernie Sanders was second with 17%. Even though he hasn’t said he is running, yet, Vice President Joe Biden picked up 13%.

Among those who said they were likely to vote for Biden in the event of his candidacy, 68% said they currently support Clinton.

Among Republicans, Jeb Bush leads in the Monmouth survey with 15%, followed by Trump at 13%, Sen. Ted Cruz 9%, and Scott Walker and Mike Huckabee at 7%. Christie receives just 2% in this one as well.

--And this just in...a new Fox News national poll of Republican primary voters has Trump at 18% (up 14 points since May), Walker in second with 15%, Bush 14%. Then it’s a drop to Rand Paul in fourth at 8%.

On the Democratic side, Hillary leads Bernie Sanders 59-19, a slight narrowing from last month’s 61-15 margin for this survey.

--One more Trump-related tidbit...the Huffington Post announced it would no longer cover his 2016 presidential run as a political story. Idiots.

HuffPost editors said in a note, “Instead, we will cover his campaign as part of our Entertainment section.”

--Sen. Marco Rubio, who didn’t fare well in the above-mentioned polls, generally with about 6%, has at least raised $45 million since the launch of his campaign in April. Ted Cruz raised $51 million, though Jeb Bush’s war chest is $114m, including from his Super-Pac. 

--Ohio Governor John Kasich will become the 16th Republican to enter the race next week, though he has already raised a solid $11 million. He is still my personal favorite.

--Back to Clinton, she gave her first major speech on the U.S. economy and said Corporate America was too focused on the short-term, driven by the need to produce quarterly earnings and keep share prices up. She said she will “propose reforms to help CEOs focus on the next decade rather than the next day.”

On the fundraising front, while Clinton raised $47m between launching her campaign in mid-April and the end of June, FEC filings show she has already spent nearly $19m, which was the problem last time she ran.

Clinton’s campaign claims it needs to expand quickly to meet the suddenly competitive Democratic primary fight, let alone the general-election campaign.

--Back to Trump, appearing in Arizona last Saturday, he told a large crowd of 4,200 that “we have to take back the heart of our country.”

Regarding the battle over immigration reform, Trump said: “These are people that shouldn’t be in our country. They flow in like water.”

In an article in the Washington Post, Trump was on his campaign plane, headed to Phoenix from an appearance in Las Vegas, and he was drinking a Coca-Cola – the full-calorie kind, he noted, because, “Have you ever seen a thin person drinking Diet Coke?”

--Peggy Noonan / Wall Street Journal...on Trump:

“He has the power of the man with nothing to lose. If he won he’d be president. If he loses he’s Donald Trump, only a little more famous. His next show will get even higher ratings.

“He puts individuals and groups down in a mean and careless way. He has poor impulse control and is never above the fray. He likes to start fights. That’s a weakness. Eventually he’ll lose one.

“But Donald Trump has a real following, and people make a mistake in assuming his appeal is limited to Republicans. His persona and particular brand of populism have hit a nerve among some independents and moderate Democrats too, and I say this because two independent voters and one Democrat volunteered to me this week how much they like him, and why. This is purely anecdotal, but here’s what they said:

“They think he’s real, that he’s under nobody’s thumb, that maybe he’s a big-mouth but he’s a truth-teller. He’s afraid of no one, he’s not politically correct. He’s rich and can’t be bought by some billionaire, because he is the billionaire. He’s talking about what people are thinking and don’t feel free to say. He can turn the economy around because he made a lot of money, so he probably knows how to make jobs.

“He is a fighter. People want a fighter. Maybe he’s impolitic but he’s better than some guy who filters everything he says through a screen of political calculation....

“He capitalizes on the fact that no one in America trusts politicians anymore.”

--The NAACP voted on Saturday to end its 15-year boycott of South Carolina prompted by the display of the Confederate battle flag on state capitol grounds.

And in a separate move, NCAA president Mark Emmert said his organization was removing all barriers to South Carolina hosting championship-level college sports events now that the flag has been removed.

--President Obama was asked at this press conference whether he would consider revoking the Medal of Freedom from Bill Cosby, who had received the award in 2002. Obama said there is “no precedent for revoking a medal. We don’t have that mechanism.”

But while he didn’t address the charges against Cosby directly, he said that “if you give a woman, or a man, for that matter, without his or her knowledge a drug and then have sex with that person without consent, that’s rape.”

--Through Wednesday, the city of Baltimore had recorded 168 homicides in 2015, compared to 106 at the same time last year. 24 had died in July through the 15th, putting it on pace to exceed the record 42 homicides recorded in May.

--The City of New York reached an agreement with the family of Eric Garner, who died after he was placed in a chokehold during an arrest. Garner was heard gasping “I can’t breathe” 11 times before losing consciousness. He was pronounced dead at the hospital.

Garner’s family received $5.9 million

--NASA scientists celebrated Tuesday as the New Horizons spacecraft flew by Pluto and transmitted the closest pictures ever of the dwarf planet. Great stuff. But no signs of any Plutonians, which would’ve made for good TV during the All-Star break.

---

Pray for the men and women of our armed forces...and all the fallen, including the four Marines in Chattanooga.

God bless America.
---

Gold closed at $1131...5-year low! [4/2/10]
Oil $50.89...lowest weekly close since 4/3/15

Returns for the week 7/13-7/17

Dow Jones +1.8% [18086]
S&P 500 +2.4% [2126...4 pts. shy of all-time high]
S&P MidCap +0.3%
Russell 2000 +1.2%
Nasdaq +4.2% [5210]

Returns for the period 1/1/15-7/17/15

Dow Jones +1.5%
S&P 500 +3.3%
S&P MidCap +3.8%
Russell 2000 +5.2%
Nasdaq +10.0%

Bulls 43.7
Bears 15.6 [Source: Investors Intelligence]

Have a great week. See above gofundme link on how to contribute to the cause. 

Note to my Middle East readers. You have written me telling me how much you appreciate my work when your governments are otherwise censoring the news. So, you know, show me some love.

Or send a check to StocksandNews.com, PO Box 990, New Providence, NJ 07974.

Oh, and having had to renew my Apple app license this week, I keep forgetting to remind new readers, I do have a StocksandNews iPad app, for which I receive like a $1.40...enough for a single bottle of premium...or two cans of Hamm’s. 

Brian Trumbore



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Week in Review

07/18/2015

For the week 7/13-7/17

[Posted 10:00 PM ET, Friday]

Edition 849

Washington and Wall Street

With attention focused primarily on the Greek debt crisis and the Iran nuclear talks, both of which came to a head this week, Fed Chair Janet Yellen made her semi-annual appearance before Congress to update members on the state of the economy, prospects for which she said are currently “favorable” as hiring pushes the country towards maximum employment.

And while Yellen highlighted risks to the U.S. from Greece and China’s “volatile” financial conditions, she was positive in discussing progress the U.S. has made since the financial crisis.

Yellen made it clear she wants to raise interest rates this year and most are convinced September is the time, though she has also said on numerous occasions any further hikes beyond the first one will be very gradual.

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy.”

Yellen said growth was likely to strengthen over the remainder of the year after the putrid first quarter. [Though this week the White House cut its own forecast for 2015 GDP to 2% from 3%; its February estimate.]

The Fed’s latest beige book revealed that most of the 12 districts reported stronger wage growth for skilled workers.

On the data front, June retail sales disappointed, down 0.3% when an increase of 0.3% was expected. June industrial production was up 0.3%, in line, while June housing starts rose 10%, better than expected, and thus reversing the prior month’s 10% decline.

On the inflation front, producer prices for June were up 0.4%, up 0.3% ex-food and energy. For the 12 months, the PPI is down 0.7%, but the core is up 0.8%. The CPI rose 0.3% last month, ex-food and energy up 0.2%, while year over year consumer prices were up just 0.1%, but up 1.8% on core.

Lastly, the Treasury Department reported a $52 billion surplus in June, a traditional month for a surplus with individual and corporate taxes collected, and it appears we’re headed to a deficit of $455 billion, which would represent the second-lowest 12-month figure in 7 years. Enjoy this better news while it lasts...which won’t be much longer.

Revenue for the 12-month period ended June is 9% over the year-earlier level, while spending is up 4%.

The Greece Crisis, Europe and Asia

Last weekend, amid reports the Greek economy was going to crater at least 10% this year, after a 25% decline since the start of the crisis, the Greek parliament early Saturday morning approved new reform proposals, including cuts to pensions and tax increases, in order to appease eurozone finance ministers and leaders for the purposes of beginning negotiations on a new bailout package, which would be Greece’s third. Prime Minister Alexis Tsipras was able to get the backing of 251 out of 300 lawmakers, though as expected 17 of his own Syriza party members did not support him.

European leaders then approved the deal Monday following the Greek parliament’s vote. Among the tough steps Greece has to swallow is Germany’s insistence that Greek state assets worth up to 50bn euro be placed in a trust fund beyond government reach to be sold off with proceeds going directly to pay down debt.

But EU and IMF experts evaluate Greek assets currently earmarked for privatization at just 7 billion euros.

Germany was accused of turning Greece into a “German protectorate,” stripping it of more sovereignty. But Chancellor Angela Merkel declared the matter a “red line” for Germany.

For his part, Tsipras finally accepted a full role for the IMF, which he had balked at.

The head of the International Monetary Fund, Christine Lagarde, however, said the eurozone creditors’ plan for Greece is “categorically” not viable without a reduction in debt. Lagarde said the IMF will participate in a “complete” bailout package, but she seeks a significant extension on Greek debt maturities with the long-term goal of Greece returning to the market. European Central Bank president Mario Draghi on Thursday also said debt relief is “uncontroversial” and the only question is “what form this takes.”

The IMF said in its July 14 forecast for Greece’s debt as a share of GDP that it will be almost 200% in 2017, up substantially from its April estimate of 151.8%, yet another sign of how quickly the economy is collapsing.

Meanwhile, Draghi granted Greece’s teetering banking sector a fresh cash lifeline, as the ECB raised its limit on emergency loans by 900m euro over one week. The banks may now be able to open Monday after being closed nearly three weeks. But capital controls are likely to remain in place for weeks, maybe months.

[The ECB had refused to raise the ceiling on Emergency Liquidity Assistance (ELA) for Greece since late June, after Prime Minister Alexis Tsipras called his referendum.]

Draghi said, “The ECB continues to act on the assumption that Greece is and will remain a member of the euro area.”

But German Finance Minister Wolfgang Schauble reiterated his earlier position that a temporary exit “could perhaps be a better way for Greece.” And Germany remains adamantly opposed to debt relief, with Schauble saying a “debt cut is incompatible with membership of the currency union.”

[A poll in Germany revealed 49% of Germans don’t want to enter talks over the deal.]

Back to Tsipras, he had to then convince parliament a second time to swallow the terms mandated by the eurozone. “I was blackmailed,” he told lawmakers before the vote. “The government does not believe in these measures. We will do our best to protect people from measures we do not believe in but are forced to implement.” 

Tsipras knew there would be a revolt in his own party and while in the end, 229 of 300 MPs supported the prime minister, 38 Syriza members did not. Former finance minister Yanis Varoufakis compared the deal to a new “Versailles Treaty” and voted against the measures, as did the parliament speaker, Zoe Konstantopoulou, who warned the deal could lead to “social genocide.”

Then in the 631-seat Bundestag, Chancellor Merkel won parliament’s backing to open negotiations on Greece’s rescue plan by a 439 to 119 margin, with 40 abstentions out of 598 ballots cast. Embarrassingly, 60 members of her coalition voted against the plan and five abstained. Not a good sign for the future of the package. Those in revolt argue the bailout will waste German taxpayers’ money.

Merkel warned before the vote that a sudden Grexit could bring “chaos and violence” to Greece. She also said that after five years of failing to meet its reform promises, Greece would be watched carefully by its creditors to ensure that the “unprecedented European solidarity” was matched by implementation of reform and not just declarations of intent.

Schauble asked MPs to back the plan, though he made clear he still harbors doubts about whether it will succeed.

So with Germany’s vote on Friday, as well as that of other eurozone parliaments that required approval, directors of the 500bn euro bailout fund, the European Stability Mechanism, announced they have formally launched negotiations with Greece at week’s end.

Euro-area finance ministers have also agreed in principle to extend a 7 billion-euro bridge loan to Greece to tide it over until an 86bn aid package can be assembled. This would enable Greece to meet the repayment of a 3.5bn euro bond held by the ECB that matures on Monday.  Had the ECB not done so and Greece defaulted, then the ECB would not have been allowed to aid the banks further.

[Having missed a 450bn euro debt payment to the IMF earlier, Greece now owes that body 2bn.]

So the crisis is far from over. Negotiations will be tough. Greece has lost all credibility among euro leaders, especially Angela Merkel. A Grexit is still a distinct possibility.

But Donald Tusk, head of the European Council, said he feared “political contagion” far more than the financial fallout. Common cause between far-right and far-left groups has been a precursor to some of Europe’s darkest moments.

“I am really afraid of this ideological or political contagion,” Tusk said. “It was always the same game before the biggest tragedies in our European history, this tactical alliance between radicals from all sides. Today, for sure, we can observe the same political phenomenon.”

Tusk played a central role in forcing Tsipras and Merkel to reach agreement on Monday. He also told the Financial Times’ Peter Spiegel he was “100 percent sure that Germany is not the winner in the context of political power,” particularly since “Germany has to sacrifice much more than other countries” in terms of financial aid it will soon have to send to Athens.

“I can’t accept this argument, that someone was punished, especially Tsipras or Greece. The whole process was about assistance to Greece,” Tusk said.

“When we discuss facts, deeds and numbers, this is the only number on the table: 80bn euro for Greek assistance, and quite soft conditions. Not only [soft] financial conditions, but political conditions – in fact, without collateral. Come on: what is the reason to claim it’s something humiliating for Greece, or this is punishment for Tsipras?”

Tusk compared the current atmosphere to the time after 1968 in Europe.

“I can feel, maybe not a revolutionary mood, but something like widespread impatience. When impatience becomes not an individual but a social experience of feeling, this is the introduction for revolutions.”

Examples of what Tusk is referring to:

Spanish Prime Minister Mariano Rajoy is facing a huge challenge from far-left party Podemos, which backs Athens. With national elections in a few months, the latest poll has Podemos at 21.5%, with Rajoy’s Popular Party at just 23% (with the center-left Socialist Party at 22.5%). Podemos leader Juan Carlos Monedero labeled the Greek deal “a terrorist crime.”

Beppe Grillo, leader of Italy’s anti-euro Five Star party said eurozone leaders had used a “strategy of terror.”

Marine Le Pen, leader of France’s National Front, said if she were Tsipras she would have led Greece out of the eurozone.

“Greece is no longer free,” she said. “This is a carve-up to deprive the Greeks of their entire national heritage. It is clearly the enslavement of a country inside the European Union itself.” [Nick Miller / Sydney Morning Herald]

Wolfgang Munchau / Financial Times

“A few things that many of us took for granted, and that some of us believed in, ended in a single weekend. By forcing Alexis Tsipras into a humiliating defeat, Greece’s creditors have done a lot more than bring about regime change in Greece or endanger its relations with the eurozone. They destroyed the eurozone as we know it. They demolished the idea of a monetary union as a step towards a democratic political union and reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order. The best thing that can be said of the weekend is the brutal honesty of those perpetrating this regime change....

“The fact that a formal Grexit may have been avoided for the moment is immaterial. Grexit will be back on the table when you have the slightest political accident – and there are still many things that could go wrong, both in Greece and in other eurozone parliaments. Any other country that in the future might challenge German economic orthodoxy will face similar problems.”

---

Eurobits....

--The ECB left its interest rate and asset purchase programs unchanged as a combination of bond-buying and unlimited liquidity from the central bank have muted market reaction to Greece’s problems.

--Eurozone industrial production fell 0.4% in May over April. Euro area inflation for June came in at an annualized rate of 0.2% vs. 0.3% in May. [Greece was -1.1%.]

--But euro car sales rose 15% in June, year over year, the fastest pace in 5 ½ years. For the first half they are up 8.2%, as reported by the European Automobile Manufacturers Association.

--The U.K.’s annual inflation rate fell back to zero in June, which could keep the Bank of England on its usual course of holding borrowing costs at ultra-low levels.

But at the same time U.K. wage growth accelerated to the fastest pace in more than five years, an annual pace of 3.2% in the three months through May, according to the Office for National Statistics. So that’s great. Zero inflation and 3.2% wage growth. Maybe a rate hike should be considered after all.

--Italy’s central bank revised its 2015 GDP growth expectations to 0.7% from 0.5%.

--Lastly, 69,000 migrants have reached Greece in the first half of this year, dwarfing the 43,500 for all of 2014, according to the U.N. refugee agency. With the current economic crisis, you can imagine today’s migrants are hardly being welcomed with open arms and while under the law they have access to the health system, some doctors are demanding money to treat them, which is illegal. And there are no more automatic work permits. It’s a mess.

---

Turning to China, the stock market remained volatile but finished up a bit on the week as the recovery continued, in fits and starts, from the 32% crash in the Shanghai Composite Index.

Then on Wednesday, the Statistics Bureau released the figure for second-quarter GDP, up 7%, unchanged from the pace of the first quarter, and above economists’ estimates of a 6.8% rise. Church Lady was heard to say in Beijing, “How conveeenient!” before she was thrown in jail as part of President Xi Jinping’s crackdown on dissent and sarcasm.

Anyone with half a brain knows the government is manipulating the numbers to suit its purposes and keep the people, and the increasingly important stock market, placated.

Premier Li Keqiang had set a full-year target for GDP of “around 7%,” which is down from last year’s 7.4% for the full year, and this is where we’ll end up, no doubt.

But there were some other important data points this week. Exports for June rose just 2.1% vs. year ago levels (yuan-denominated terms), while imports fell 6.7%, the eighth consecutive month in a row of declines.

Fixed-asset investment rose 11.4% in June, unchanged from May’s pace, and below expectations. During boom times this figure was in the high teens. New property development was down 15.8% in the first half of the year, with residential property development down 17.3%.

Industrial production was up 6.3% on an annualized basis in June, the fastest pace in four months. And retail sales rose 10.6% in June, though this was on the heels of booming movie box-office receipts.

Add it all up and it’s most likely not indicative of an economy supposedly growing 7%, but one thing is for sure. As Credit Suisse’s global research team put it, China is in the midst of a “triple bubble” – “a combination of the third biggest credit bubble, the biggest investment bubble and the second biggest real estate bubble of all time,” as reported by Vanessa Desloires of the Sydney Morning Herald. If you believe this, then you agree China’s economy represents the single biggest risk to the global economy.

The Iran Nuclear Agreement

After over 13 years of repeated diplomatic failures over Iran’s nuclear program and threats of military action, and after 18 days of marathon talks in Vienna between Iran and the P5+1 (the U.S., Britain, France, Germany, Russia and China), an historic agreement was reached between the parties to prevent the Islamic Republic from obtaining an atomic bomb, though immediately critics voiced serious displeasure and disgust at the accord.

In a statement after the signing early Tuesday morning, President Obama said the agreement meant “every pathway to a nuclear weapon is cut off.”

“This deal offers an opportunity to move in a new direction. We should seize it,” he said in his address to the nation.

Obama also vowed to veto any effort by Congress to scuttle the deal.

Underscoring the seeming shift in relations, for only the second time since the 1979 Iranian revolution, state television broadcast Obama’s statement live.

Iranian President Hassan Rouhani said in his own address that “God has accepted the nation’s prayers” and that the accord would lift “inhumane and tyrannical sanctions.”

Rouhani added: “Iran will never seek a nuclear weapon, with or without the implementation” of the Vienna deal.

Russian President Vladimir Putin said the world had “breathed a huge sigh of relief.”

Russian Foreign Minister Sergey Lavrov said the deal paves the way for a broader coalition to fight ISIS.

President Obama quickly telephoned Saudi King Salman to reassure him on the deal. A Saudi official told Reuters the accord would mean “a happy day” for the Middle East if it stopped Iran gaining a nuclear arsenal, but stressed there were fears the deal would instead allow Iran “to wreak havoc in the region.”

“We have learned as Iran’s neighbors in the last 40 years that goodwill only led us to harvest sour grapes,” he said.

The agreement is supposed to limit Iran’s nuclear activities for at least a decade and allows strict oversight, which is supposed to give the West advance notice of any rush to the bomb.

In return Iran gets major sanctions relief though the White House is making the point the sanctions can “snap back” into place if there are any violations.

Israeli leader Benjamin Netanyahu called the deal a “stunning historic mistake,” saying it would not prevent Iran from gaining nuclear weapons capability. Nor did it do anything to prevent Iran’s support of terrorism.

Netanyahu said, “Israel is not bound by this deal with Iran because Iran continues to seek our destruction. We will always defend ourselves....

“Even this weekend, when Iran continued to get more and more concessions at the negotiating table, Iranian President Hassan Rouhani led a march through the streets of Tehran in which the masses yelled, ‘Death to America, Death to Israel,” Netanyahu said.

So now Congress has 60 days to review the deal, but as Senate Majority Leader Mitch McConnell concedes, it is going to be virtually impossible to override President Obama’s veto. Many Democratic senators who have taken a tough stance on negotiations will now be reluctant to support a “resolution of disapproval” that might weaken Obama on the international stage.

A vote is not expected until September.

But as Charles Krauthammer of the Washington Post writes:

“(Obama) is taking the agreement to the U.N. Security Council for approval within days. Approval there will cancel all previous U.N. resolutions outlawing and sanctioning Iran’s nuclear activities.

“Meaning: Whatever Congress ultimately does, it won’t matter because the legal underpinning for the entire international sanctions regime against Iran will have been dismantled at the Security Council. Ten years of painstakingly constructed international sanctions will vanish overnight, irretrievably.

“Even if Congress rejects the agreement, do you think the Europeans, the Chinese or the Russians will reinstate sanctions? The result: The United States is left isolated while the rest of the world does thriving business with Iran.”

Further details...

On sanctions relief: “Tehran wanted immediate removal of the economic and financial curbs that have throttled its economy. Under the deal, all EU and U.S. energy, economic and financial sanctions, and most U.N. sanctions, will be lifted on ‘implementation day’ – the day Iran shows it has complied with specific obligations to reduce centrifuge numbers and uranium stockpiles and address concerns about the potential military dimensions of its nuclear program.

“This is expected to take at least six to nine months, meaning the huge economic boost brought by sanctions relief would start in the first half of 2016. At that point more than $100bn in Iranian assets overseas would immediately be unfrozen and Iran’s oil exports would rapidly increase.

“The EU and U.S. will maintain proliferation-related technology trade curbs for eight years, or until the International Atomic Energy Agency concludes that nuclear material in Iran remains in peaceful use. After 10 years, the remaining U.N. curbs on sensitive nuclear related items are scheduled to be removed in full.”

Uranium enrichment: “As was specified in the blueprint agreement Iran sealed with the P5+1 in Lausanne three months ago, the Islamic Republic will be permitted to operate up to 5,060 first generation centrifuges, configured to enrich uranium to 3.67 percent – well below the level of enrichment required to make an atomic weapon.

“Iran will also be permitted to operate as many as 1,000 centrifuges at Fordow, its fortified mountain facility. Crucially, however, the centrifuges there will not be permitted to enrich uranium and instead will be reconfigured for the purification of other radioactive gases and elements that cannot be weaponized. The restriction on the number of first generation centrifuges will last for 10 years. The restrictions on the use of Fordow will last for 15.” [Sam Jones and Alex Barker / Financial Times]

Separately, within three months, Iran is to address evidence of its past nuclear weapons work obtained by the International Atomic Energy Agency. The IAEA will then issue its report on Iran’s past nuclear research within five months, including any evidence of weapons work, by Dec. 15. [USA TODAY]

In his news conference Wednesday, President Obama attempted to head off his critics.

“With this deal, we cut off every single one of Iran’s pathways to a nuclear weapons program.

“And Iran’s nuclear program will be under severe limits for many years. Without a deal, those pathways remain open. There would be no limits to Iran’s nuclear program, and Iran could move closer to a nuclear bomb. With this deal, we gain unprecedented around the clock monitoring of Iran’s key nuclear facilities in the most comprehensive and intrusive inspection and verification regime ever negotiated.

“Without a deal, those inspections go away and we’d lose the ability to closely monitor Iran’s program and detect any covert nuclear weapons program. With this deal, if Iran violates its commitments, there will be real consequences, nuclear-related sanctions that have helped to cripple the Iranian economy will snap back into place.

“Without a deal, the international sanctions regime will unravel with little ability to reimpose them. With this deal, we have the possibility of peacefully resolving a major threat to regional and international security. Without a deal, we risk even more war in the Middle East and other countries in the region would feel compelled to pursue their own nuclear programs, threatening a nuclear arms race in the most volatile region in the world.”

Addressing the issue that Iran can delay for 24 days before granting access to military facilities, Obama said:

“Keep in mind first of all that we’ll have 24/7 inspections of declared nuclear facilities: Fordow, Natanz, Arak, their uranium mines, facilities that are known to produce centrifuges, parts. That entire infrastructure that we know about, we will have sophisticated 24/7 monitoring of those facilities.

“So then the issue is what if they try to develop a covert program? Now, one of the advantages of having inspections across the entire production chain is that it makes it very difficult to set up a covert program.

“You know, there are only so many uranium mines in Iran. And if in fact we’re counting the amount of uranium that’s being mined, and suddenly some is missing on the back end, they got some ‘splainin’ to do.

“So we’re able to track what’s happening along the existing facilities to make sure that there is no diversion into a covert program. But let’s say that Iran is so determined that it now wants to operate covertly, the IAEA, the international organization charged with implementing the non-proliferation treaty and monitoring nuclear activities in countries around the world, will have the ability to say that undeclared site, we’re concerned about it. We see something suspicious. And they will be able to say to Iran, we want to go inspect that.

“Now, if Iran objects, we can override it. In the agreement, we’ve set it up so we can override Iran’s objection, and we don’t need Russia or China in order for us to get that override. And if they continue to object, we’re in a position to snap back sanctions and declare that Iran’s in violation and is cheating.

“As for the fact that it may take 24 days to finally get access to the site, the nature of nuclear programs and facilities is such – this is not something you hide in a closet. This is not something you put on a dolly and kind of wheel off somewhere. And by the way, if we identify an undeclared site that we’re suspicious about, we’re going to be keeping eyes on it. So we’re going to be monitoring what the activity is, and that’s going to be something that will be evidence if we think that some funny business was going on there, that we can then present to the international community.”

Our president is living in Fantasyland, re inspections (which, just wait, the 24-day review period will morph into months), and the idea of snap back sanctions.

In his first public statement on the accord, Iran’s Supreme Leader Ali Khamenei said the text should be carefully scrutinized and legal procedures taken so the other side does not breach it. “Some of the members of the P5+1 are not trustworthy,” Khamenei wrote in a letter to President Hassan Rouhani, according to state media.

Foreign Minister Javad Zarif said it would take four months to formally implement the deal.

There were massive celebrations in Tehran when the accord was announced. And with Iran set to reopen for business, German Vice Chancellor Sigmar Gabriel will lead a business delegation to Iran on Sunday.

Sen. Ben Sasse (R., Neb.) issued a statement saying the deal “lit the fuse for a nuclear arms race in the Middle East.”

Sen. Lindsey Graham (R., S.C.) called the deal “the most dangerous, irresponsible step” that could be taken in Mideast policy.

Speaker of the House John Boehner (R., Ohio) said the deal would only “embolden” Tehran. “Instead of stopping the spread of nuclear weapons in the Middle East, this deal is likely to fuel a nuclear arms race around the world.”

French President Francois Hollande suggested the deal may provide an opportunity to coordinate with Iran toward a peaceful solution to the Syrian war.

“Now that Iran has a greater financial capacity, we need to be extremely vigilant on what Iran will be. Iran must show that it is ready to help us end the conflict.”

Opinion...all sides...

Philip Stephens / Financial Times

“This does not feel like an epochal moment. After so much wrangling – the false starts, constant setbacks and mutual suspicion – the nuclear deal between Iran and the major powers was always likely to disappoint. Many will say it has lived down to expectations. It should be applauded anyway. For one thing, there is a fair chance that history will take a kinder view. For another, the agreement must be measured against the more unpalatable alternative.

“Benjamin Netanyahu will not agree. The Israeli prime minister’s fulminations against the Tehran regime have grown louder and, it must be said, somewhat delusional. The other day, Mr. Netanyahu said that Iran’s goal ‘is to take over the world.’ Iran has been ruthless in promoting its Shia proxies as much of the Arab state system has fallen into collapse, but taking over the world? Mr. Netanyahu’s answer to Tehran’s nuclear program has long been to start another war.

“Barack Obama’s hope is that the nuclear thaw with Tehran will form part of his legacy – the start of a process that reshapes the geopolitical landscape. The U.S. president’s predecessor, George W. Bush, thought he could do that by fighting wars. Mr. Obama wants to demonstrate that diplomacy, albeit in this case coercive, can do a better job. Richard Nixon’s reputation was forever besmirched by the criminality of Watergate, and yet the disgraced former president is still remembered for the opening up of China. Mr. Obama wants posterity to record that he halted the perilous slide to nuclear proliferation....

“Iran has accepted unprecedented international control and surveillance over its nuclear program as well as cuts in its uranium stocks and in the number of centrifuges. Yes, it might cheat. But the terms imposed by the U.S. and the other members of the P5+1 group of leading powers will not make that easy....

“The clinching argument for this agreement, though, is that it is the best on offer. All the alternatives are worse. Iran’s nuclear capability cannot be wished or bombed away.... the U.S. politicians who will now seek to scupper the deal in the U.S. have reasons aplenty to dislike it but nothing credible with which to replace it. No, this does not feel like a heroic moment. But then we live in a world of least-worst options.”

Editorial / Wall Street Journal

“The prospect of a nuclear-threshold Iran newly fortified with cash from sanctions relief has to be terrifying for its Sunni Arab neighbors. Traditional Persian imperialism combined with Shiite revolutionary fervor make for a fearsome regional threat, especially with President Obama signaling U.S. retreat from the region. Iran is now the most important foreign influence in Baghdad, and its Shiite militias are more powerful than Iraq’s army. Iran will have far more resources to spend arming its Shiite and other proxies in Lebanon, Syria and Yemen.

“Listen to Syria’s Bashar Assad, who called the Vienna accord a ‘major turning point’ for Iran and congratulated Ayatollah Ali Khamenei in a message saying, ‘We are confident that the Islamic Republic of Iran will support, with greater drive, just causes of nations and work for peace and stability in the region and the world.’

“For months the Gulf Arabs have signaled their unhappiness with the Iran talks, asking visitors in private what Mr. Obama could possibly be thinking. Out of character, they’ve also spoken more in public. Prince Alwaweed bin Talal, a Saudi royal (and once a major shareholder in the Journal’s owner, News Corp.), told us in November 2013 that ‘for the first time Saudi Arabian interests and Israel are almost parallel’ over Iran. He all but said the Saudis could purchase a nuclear bomb off the shelf from Pakistan given the close ties between the countries....

“Now that the deal is done, the Sunni Arab states can expect enormous U.S. pressure to shut up and fall in line. Mr. Obama has been cajoling them with a visit to Camp David and promises of new weapons and other support. But the U.S. will no doubt also imply that such support can be withdrawn if the Saudis decide to campaign against the deal during the Congressional debate.”

Michael Rubin (American Enterprise Institute) / New York Post

“In 2013, Kerry declared of the Iranians, ‘There is no right to enrich.’ Two years later? The final agreement allows Iran to keep 5,000 centrifuges, 2,000 more than Pakistan had when it secretly built a nuclear arsenal.

“Nor will Iran be limited to current technology; Kerry has ceded Iran’s right to experiment with new-generation centrifuges exponentially more powerful than Iran has now.

“But centrifuges are only one part of Iran’s illicit program. In 2013, Kerry told Congress the ‘whole point of the [sanctions] regime’ was to force Iran to ‘dismantle its nuclear program.’ But the deal to which Kerry agreed lets Iran keep everything in place.

“This includes Fordow, the once-covert nuclear site Iran built under a mountain.

“ ‘They don’t need to have an underground, fortified facility like Fordow in order to have a peaceful nuclear program,’ Obama said in 2013. Congress will likely ask what changed, since this deal allows Iran to keep Fordow.

“It gets worse. In 1991, the International Atomic Energy Agency required South Africa to come clean on the past 20 years of its nuclear work in order to certify that it had ceased its nuclear-weapons program.

“Anything short of that, and the IAEA said it could not certify that all material was accounted for. And yet, Kerry caved on this, effectively crafting a deal the IAEA can’t certify.

“But what about ‘anytime, anywhere’ inspections? Again, the administration backtracked. First, they qualified by saying they’d be the most intrusive inspections on any country ‘not defeated in war.’

“Then, Kerry backed down on demands that inspectors be able to conduct snap inspections on military sites. Those inspections are necessary because this is where, according to the IAEA, Iran worked on everything from components for a warhead to detonators.

“Finally, he allowed Iran essentially to pre-approve any inspection. That’s the equivalent of having a criminal pre-approve a search warrant.

“Then, of course, there’s the arms embargo. It gets lifted after a short period of time.

“This not only means Iran can use its $100 billion signing bonus to buy weapons.

“It also means Iran can export them to terrorist groups across the region.

“Essentially, Obama is reimbursing Iran in full for decades of investment in a covert nuclear program.”

Roula Khalaf / Financial Times

“The most important political aspect of the accord is the promise of a détente between the U.S. and Iran, whose estrangement has been a principal source of tension in the Middle East. The Iranian regime and the U.S. are beginning to turn the page on 35 years of hostility that followed the 1979 Islamic revolution and the takeover of the U.S. embassy in Tehran, a painful atrocity etched in the collective American memory.

“It’s not quite a normalization of relations – no one is bracing for grand embassy openings in Tehran and Washington. Iran’s interventions in the Middle East and its efforts to project its power present an obstacle to normalization that will not be easily overcome. To placate hardliners Iran’s supreme leader, Ayatollah Ali Khamenei, will proceed cautiously towards any further cooperation with Washington.

“But the Vienna agreement was possible only because the American and Iranian delegations were able to establish a measure of trust through a process that began in Muscat in 2013, with the help of Omani mediation. Despite the supreme leader’s continued tirades against the U.S., the discourse of officials in Tehran has changed remarkably. The nuclear deal, they say, is the first step and there will be more.”

Frederick Kagan / Wall Street Journal

“The nuclear agreement with Iran announced Tuesday is an astoundingly good deal, far surpassing the hopes of anyone...in Tehran. It requires Iran to reduce the number of centrifuges enriching uranium by about half, to sell most of its current uranium stockpile or ‘downblend’ it to lower levels of enrichment, and to accept inspections (whose precise nature is yet to be specified) by the International Atomic Energy Agency, something that Supreme Leader Ali Khamenei had wanted to avoid.

“But the agreement also permits Iran to phase out the first-generation centrifuges on which it now relies and focus its research and development by exclusively using a number of advanced centrifuge models many times more efficient, which has been Tehran’s plan all along. The deal will also entirely end the United Nations’ involvement in Iran’s nuclear program in 10 years, and in 15 years will lift most restrictions on the program.

“Even that, though, is not Tehran’s biggest win. The main achievement of the regime’s negotiators is striking a deal that commits the West to removing almost all sanctions on Iran, including most of those imposed to reduce terrorism or to prevent weapons proliferation. Most of the sanctions are likely to end in a few months. Thus the agreement ensures that after a short delay Iran will be able to lay the groundwork for a large nuclear arsenal and, in the interim, expand its conventional military capabilities as much as the regime pleases. The supreme leader should be very proud of his team....

“The likelihood is, therefore, that this agreement will lead to a significant expansion in the capabilities of the Iranian military, including the Republican Guard and the Quds Force. It comes just as Iran is straining to keep Bashar Assad in power, dominate the portions of Iraq not controlled by Islamic State and help the Houthis fight Saudi Arabia in Yemen. That makes it a very good deal for Iran.”

David Ignatius / Washington Post

“As the Iran nuclear talks neared the endgame, some observers worried that President Obama and Secretary of State John F. Kerry, in their eagerness for a deal, would give away the store with last-minute concessions.

“Those fears turned out to be misplaced, notwithstanding Tuesday’s howls of protest from Israeli and GOP critics. The agreement is a well-crafted pact that maintains the framework reached in Lausanne, Switzerland, in April. Rather than softening the Lausanne terms, the final language firms up some squishy items. It also adds important new restrictions on Iran’s ability to develop the exotic triggering mechanisms needed to build a nuclear bomb.

“The problem isn’t the agreement but Iran itself. Its behavior remains defiantly belligerent, even as it signs an accord pledging to be peaceful. Its operatives subvert neighboring regimes, even as their front companies are about to be removed from the sanctions lists. The agreement welcomes Iran to the community of nations, even though its leader proclaims that Iran is a revolutionary cause.

“Obama argues that dealing with a menacing Iran will be easier if the nuclear issue is off the table for the next 10 years. He’s probably right, but the Iran problem won’t vanish with this accord. Iranian behavior in the region becomes the core issue. Having played the dealmaker, Obama must now press Iran to become a more responsible neighbor....

“A deal with Iran has been Obama’s overriding foreign-policy goal since Inauguration Day, when he declared his desire to engage adversaries on a basis of ‘mutual interest and mutual respect.’ He has paid a heavy cost to protect his Iran peacemaking, sidestepping confrontation with Iranian proxies in Syria and Russia in Ukraine, in part because he saw the Iran deal as a higher priority. Obama explained his logic Tuesday morning: ‘Put simply, no deal means a greater chance of more war in the Middle East.’ Historians will have to judge whether he has gained more than he lost.”

Editorial / Washington Post

“As it is, the bargain is complex and costly – if ultimately preferable, in the short term, to the likely alternative of an escalating confrontation with Iran. Its most immediate effect will be to provide Tehran with up to $150 billion in fresh assets from sanctions relief over the next year, funds that its leaders will probably use to revive the domestic economy but also to finance wars and terrorist groups in Iraq, Syria, the Gaza Strip, Yemen and elsewhere.

“Though Mr. Obama has promised to mitigate that outcome with new support for Israel and U.S. Arab allies, one effect of the deal may be an increase in the sectarian bloodshed wracking the region, as well as the conventional threat to Israel. When embargoes on arms and missile sales to Iran expire in five and eight years, that threat could further escalate, and Tehran could seek missiles capable of striking U.S. warships in the Persian Gulf or reaching the U.S. homeland....

“(The) provisions for deterring and detecting violations are the areas in which Tehran fought for, and won, some troubling compromises. International inspectors seeking access to a suspected Iranian site could be delayed by a 24-day, multi-step process ultimately requiring five votes on an eight-member committee; at a minimum, the United States and four European representatives would have to concur. While a U.S. president could, in theory, unilaterally determine that Iran was cheating and force the reimposition of U.N. sanctions, it could take 65 days and might prove politically unworkable....

“Mr. Obama settled for terms far short of those he originally aimed for....Whether he is right in claiming that his successor in 10 or 15 years ‘will be in a far stronger position’ with Iran will depend on whether his hopeful theory about its political future proves correct.”

Editorial / Wall Street Journal

“The debate is raging over President Obama’s nuclear deal with Iran, and Mr. Obama held a rare press conference Wednesday to say that ‘99% of the world community’ agrees with him. Then why bother with a press conference? Mr. Obama made other claims...but for today it’s worth rebutting his assertion that ‘none’ of his critics ‘have presented to me or the American people a better alternative.’

“Specifically, Mr. Obama resorted to his familiar default of the false political choice. ‘There really are only two alternatives here. Either the issue of Iran obtaining a nuclear weapon is resolved diplomatically through a negotiation or it’s resolved through force, through war. Those are the options,” Mr. Obama said. He added that no better deal was or is possible than the one he has negotiated.

“Mr. Obama knows there has always been an alternative to his diplomacy of concessions because many critics have suggested it. It’s called coercive diplomacy, and it might have worked to get a better deal if Mr. Obama had tried it....

“Mr. Obama now argues that the sanctions could not have been maintained, and that they are sure to collapse if Congress scuttles his deal. But there was no sign sanctions were collapsing as long as the U.S. continued to keep the pressure on. And to the extent support did weaken, one reason was the momentum of Mr. Obama’s negotiations. The more the U.S. gave the impression that it desperately wanted a deal, the more other countries and businesses began to maneuver for post-sanctions opportunities.

“This is the opposite of coercive diplomacy, which shows determination so an adversary under pressure concludes that it must make more concessions. This is the diplomacy Ronald Reagan practiced with the Soviets, refusing to budge on missile defenses at the 1986 Reykjavik Summit despite pressure from 99% of the world to do so. The Soviets were soon back at the negotiating table....

“As for Mr. Obama’s false choice of war and diplomacy, the truth is that war becomes less likely when diplomacy is accompanied by the credible threat of war. The President removed that credible threat from Iran by insisting war was the only (bad) alternative to his diplomacy, as well as by threatening force against Syria only to erase his own ‘red line.’ In May Supreme Leader Ali Khamenei boasted that the U.S. military ‘can’t do a damn thing’ against Iran. He understood his negotiating partner all too well.

“Mr. Obama is now presenting his deeply flawed deal to Congress and the public as a fait accompli that must be embraced or war will result. Congress shouldn’t be any more impressed by his false ultimatums than the Iranians were by his weak diplomacy.”

Benny Avni / New York Post

“The curious case of Qassem Soleimani perfectly explains the secrecy and folly of President Obama’s Iran deal, as well as his rush to bypass Congress and instead entrust a vital national-security issue to the United Nations.

“Gen. Soleimani is the commander of the Quds division of Iran’s Revolutionary Guards Corps. He’s charged with exporting the Islamic Republic’s revolution to the rest of the Mideast and beyond. He has American blood on his hands. He is, then, America’s enemy.

“Or is he? Gen. Joseph Dunford, Obama’s candidate to become the next chairman of the Joint Chiefs of Staff, told Congress last week that Soleimani is directly responsible for killing at least 500 U.S. troops in Iraq. He’s also responsible for many deaths of others in Syria, Lebanon and Yemen. That’s the nature of his business.

“So America has made sure, since 2007, to name him on all lists of Iranians targeted for international sanctions.

“No longer. According to the deal reached in Vienna Tuesday, Soleimani will be de-listed.”

At first the White House denied this, then it explained “that sanctions on him won’t be removed in ‘Phase 1’ of the deal, but much later, in eight years.

“Maybe. Meanwhile, in the real world, Soleimani, our former enemy, is now a partner and friend. He’s the one commanding the Iranian troops and their proxy Iraqi Shiite militias that fight, under U.S. air umbrella and with our guidance, against ISIS.

“And in that very real world the sanctions against him, including a UN resolution banning him from traveling anywhere outside of Iran’s borders, are long gone.”

Editorial / Wall Street Journal

“In the months leading up to Tuesday’s announcement of a nuclear agreement with Iran, American proponents and skeptics of the deal at least agreed on one thing: the importance of ‘anywhere, anytime’ inspections of Iran’s nuclear facilities....

“(There) was Energy Secretary Ernest Moniz in April saying, ‘We expect to have anywhere, anytime access.’ And Deputy National Security Adviser Ben Rhodes also in April saying: ‘In the first place we will have anytime, anywhere access [to] nuclear facilities.’...

“(But) Mr. Rhodes was on CNN on Wednesday denying that negotiators had ever sought anytime, anywhere inspections.

“Under the deal’s terms, when the IAEA demands access to a suspect site, Iran will have 14 days to fulfill the request or propose other means to satisfy it. If the matter remains unresolved, a joint commission with representatives from each of the eight parties to the agreement would have a further week to act, and Iran would then be given three days to comply. Thus, 24 days might elapse between a request for access by the IAEA and a requirement upon Iran to provide it – ample time for Iran to hide or destroy evidence.

“Many observers now are in despair over how far short the nuclear agreement falls of the ‘anywhere, anytime’ standard. But the promise of what such unfettered access could accomplish was always a chimera. Much more would be required for any attempt to monitor Iran’s nuclear program to be a success.”

Street Bytes

--Stocks had a strong week, though in terms of the Dow and S&P 500, the lion’s share of the gain came on Monday with relief over developments in the Greek debt crisis. And then later in the week it was about a soaring Nasdaq and Google.

The Dow gained 1.8% to 18086, back in the black for the year, +1.5%, while the S&P rose 2.4% to 2126, four points shy of its all-time mark.

But Nasdaq hit new highs on Thursday and Friday, finishing with its best week since 10/24/14, +4.2% to 5210.

I detail some of the earnings reports that began to flow in below, but they weren’t that big a factor in the market action (save for Google and one or two others). While earnings generally beat, revenues are still weak and if you’re a large multinational, fuggedaboudit. The strong dollar is killing you and this week the dollar rallied even more.

As for Google, its shares traded at an intraday low of $565, prior to its earnings release after the close on Thursday, and then the stock finished the week at $672 as earnings handily beat. Investors liked that smartphones weren’t crushing its search-advertising model, and that spending was coming under control.

Google now has a market cap of $468 billion, making it the second-most-valuable U.S. stock behind Apple.

It’s 16% gain on Friday equated to about $65 billion, the second largest gain ever for a Nasdaq stock, next to Cisco Systems $66 billion back on April 17, 2000, according to the Wall Street Journal and FactSet. [I’ve seen all kinds of figures, frankly. We might need this to shake out a bit.]

Nasdaq was also helped by the fact Netflix shares rose 18% on the week after its solid earnings report. 

--U.S. Treasury Yields

6-mo. 0.11% 2-yr. 0.67% 10-yr. 2.35% 30-yr. 3.08%

Nothing of interest on the bond front. The inflation numbers were obviously tame and traders have discounted a September hike of 25 basis points.

--The Bank of Canada reduced its key interest rate by a ¼-point to 0.5% and slashed its growth forecast for the year to just over 1% from 1.9%.

The downward revision reflects further downgrades of business investment plans in the energy sector.

--Saudi Arabia raised its crude oil output to the highest level on record, 10.6m barrels a day in June, an increase of more than 200,000 b/d over May.

At its current pace, the kingdom could, by the end of the summer, be the first to pump 11m b/d since the former Soviet Union.

Granted some of the production is aimed at meeting seasonal air conditioning demand but the increase is still significant. [Saudi Arabia burns crude oil in power stations during times of peak consumption.]

U.S. crude output is around 9.7m b/d, according to the U.S. Energy Information Administration, but growth has slowed due to falling prices. Russia is producing about 10.5m b/d.

Iraq topped 4m b/d a day for the first time in June, OPEC reported.

--Editorial / Wall Street Journal

“The Affordable Care Act was supposed to make insurance, well, more affordable. But now hard results are starting to emerge: premium surges that often average 10% to 20% and spikes that sometimes run as high as 50% or 60% or more from coast to coast. Welcome to the new abnormal of ObamaCare.

“This summer insurers must submit rates to state regulators for approval on the ObamaCare exchanges in 2016 – and even liberals are shocked at the double-digit requests, or at least the honest liberals are....

“In a study across 45 states, the research outfit Health Pocket reports that mid-level Exclusive Provider Organization plans are 20% more expensive in 2016 on average. HMOs are 19% more expensive, and for all plan types the average is 14%.”

--Intel beat on the top and bottom line, though revenues did fall 4.6% year over year for the second quarter. The company said it expected third-quarter revenue to be near the top of the analysts’ current range. “We expect the launches of Skylake, Microsoft’s Windows 10 and new OEM systems will bring excitement to client computing in the second half of 2015.”

As for Moore’s Law, the prediction made by Intel’s co-founder that computing power would double every two years, CEO Brian Krzanich told analysts on a conference call following release of the earnings that the time between each new generation of microprocessor has widened.

“The last two technology transitions have signaled that our cadence today is closer to two and a half years than two,” Krzanich said.

The importance of this is that consumers have come to expect regular upgrades in their computers and smartphones.

--Bank of America delivered better than expected profits for the second quarter, $5.3bn, far exceeding expectations on a per share basis. Revenue edged up to $22.1bn in the quarter from $21.7bn a year ago.

The big reason for the increase in profits, though, was expenses fell 4 percent vs. a year ago.

--JPMorgan Chase reported second-quarter net revenue fell by 3% and total assets declined by 6% compared with year ago levels, but profits rose 5.2% to $6.3 billion, owing in part to expense cuts.

Total trading revenues were down 9% year over year, including a 21% decline in fixed-income, currency and commodities trading.

JPM did at least report solid loan growth of 6%. And the investment banking side saw its net income rise 10%.

--Goldman Sachs’ earnings beat if you take out a net $1.45bn charge for litigation, but trading revenue on the fixed-income, currency and commodities side, a la JPM and BofA, was weaker. CFO Harvey Schwartz cited a “challenging” market backdrop, blaming Greece in part.

The smaller equities trading division did much better, with net revenues up more than 60% to $787m. Investment banking contributed $2bn in net revenues, up 10%.

--Citigroup delivered another quarter of higher-than-expected results as it continues its post-crisis transformation, with adjusted net income of $4.7bn and earnings that handily beat the Street. It was Citi’s highest profit in eight years.

--As alluded to above, Google blew away its earnings estimate, $6.99 vs. analysts’ forecast of $6.70 and the stock rocketed higher in the after-hours following the release Thursday. Revenue was up on a constant currency basis by 18% (11% net). The early expense efforts of new CFO Ruth Porat would appear to be bearing fruit

--Netflix passed the 65 million subscriber mark in the second quarter, adding 3.28m members, including a greater than expected 900,000 in the U.S. The shares rocketed higher to the tune of about 17%.

Original programming such as Daredevil and the latest season of Orange is the New Black continues to be a key to the story. Netflix is also expanding into new markets, including Japan, Spain, Portugal and Italy by year’s end, and it hopes to hit China next year.

--Delta Air Lines Inc. posted second-quarter results that beat expectations (though revenues were up only 0.8%). Unit revenue, the amount taken in for each passenger flown a mile, declined 4.6% in the June quarter from a year earlier and the company expects a similar fall in the September quarter. Delta said it plans to increase its capacity by 3% in the current quarter, as the Justice Department investigates whether the nation’s four largest carriers are colluding on their capacity plans.

Delta reported corporate demand “remains solid” and rose 3% in the June quarter, but that some domestic markets such as Dallas, Chicago and Orlando are showing weakness.

Delta also announced it was preparing to order 60 narrow-body jetliners if most of its 12,800 pilots voted for a new three-year contract that supersedes the current one expiring end of the year. But the pilots rejected it and Delta canceled the order.

--General Electric reported earnings in line with expectations, though revenues fell 1.4% year over year, worse than consensus. The strong dollar again hurt in a big way.

--Yum Brands Inc. reported net profit fell 30% in the quarter through June 13, driven in part by one-time charges, but more importantly, with China accounting for about half of Yum’s sales (KFC, Pizza Hut and Taco Bell), sales there continue to crater, down another 4% in the second quarter, with same-store sales (those open at least a year) declining 10%. KFC in particular continues to suffer from reports questioning the quality of its food. [Overall company revenue fell 3%.]

But the 10% figure marks an improvement over the 12% decline for same-store sales in the first quarter, and the fourth-quarter decline of 16%.

Last month, Yum announced it was suing rival companies in China for spreading false information, but this is what Chinese companies do. Lie, steal and cheat.

Nonetheless Yum said it remains bullish there...as if it has a choice at this point.

--China’s state-owned semiconductor chip designer, Tsinghua Unigroup Ltd., made a bid for the only remaining U.S. memory chip maker, Micron Technology, in a deal that is valued at $23 billion but one that will also face deep skepticism by U.S. regulators, including the Committee on Foreign Investment in the U.S. (CFIUS), and no doubt Congress.

In 2008, CFIUS objected to a bid by China’s Huawei Technologies Co. for 3Com, forcing Huawei to drop it.

China is weak in memory chips and it is pushing to build more domestic sources for semiconductors, as much for its military buildup as anything else.

I’ll make it easy for everyone. Don’t allow it, Washington. There is no way the U.S. can hand over its last significant production of a key component used in personal computers and smartphones.

Actually, it’s a low bid and Micron would never accept it.

--Russia’s economy appears headed back into recession when second quarter figures are finalized as retail sales dropped by 9.4% in the quarter compared with the same period last year, according to the Federal Statistics Service. Industrial production decreased by 4.9% and fixed asset investment fell 6.5% in the second quarter. Some economists say this data suggests an economy that contracted 5% year over year in Q2, compared with Q1’s 2.2% fall.

--So I told you the other day of how Summit, N.J.-based Celgene (literally the other side of town from where I live) was acquiring the mammoth Merck complex across the street from me, and I said at the time this spoke well of their future and acquisition plans.

So on Tuesday, the cancer-drug company said it will pay $7.2 billion for Receptos Inc. in a bid to move deeper into the lucrative market for autoimmune diseases.

Not because of this deal, but the Merck property has been a beehive of activity recently, which is good to see for the local merchants who have been suffering with Merck’s dispersal to other locations.

--Japanese airbag maker Takata’s problems continue. Now Ferrari has announced it is recalling about a third of its annual production because of a different problem with airbags from Takata. The Italian automaker found airbags had the potential to inflate with the wrong orientation, increasing the risk of injury in a crash. This is different from the other issue facing Takata where airbags can deploy with too much force and spray shrapnel into the car.

--Amazon’s Prime Day was Wednesday and Twitter users slammed it as a made-up “holiday” that was like a garage sale.

Prime Day was hyped as a sale celebrating Amazon’s 20th birthday and it was to be bigger than Black Friday. But the sale items seemed totally random and were underwhelming, according to Twitter users.

However, Amazon said “Prime Day” led to a surge in signups of “hundreds of thousands” for its $99 annual Prime loyalty program. The company also said sales surpassed that of Black Friday in terms of items ordered per second.

--EBay reported revenues that rose 6% in the second quarter to $4.65 billion and earnings beat analyst expectations. But in its core marketplace, which comprises mostly eBay.com and ticket-seller StubHub, sales were down 3%, the second straight quarterly decline.

Unfortunately, as the company prepared to spin off the PayPal unit, this is potentially the future. PayPal’s sales grew 16%.

EBay and Amazon are both marking their 20th anniversary this year, but Amazon’s sales will approach $100 billion in 2015, while eBay’s – minus PayPal – will fall below $10 billion. Earlier this year, eBay eliminated 2,400 jobs.

--Johnson & Johnson saw its sales slide 8.8% in the second quarter as revenues declined across most of its businesses.

J&J was particularly hit by a collapse in sales of its hepatitis C treatment Olysio, with sales of the drug plummeting 93% to $50m for the quarter, compared to $725m a year earlier – as rivals Gilead Sciences and AbbVie introduced competing drugs.

J&J was also hit hard by the strong dollar when it came to its international sales.

But the company still reported earnings that rose 4% to $4.5bn.

--UnitedHealth Group Inc., the biggest U.S. health insurer, raised its full-year forecast after second-quarter net income climbed to $1.59 billion, $1.64 a share, vs. $1.41 billion, or $1.42 a share, a year earlier. Full-year revenue is now expected to rise about 8%.

--Singapore’s economy contracted 4.6% quarter-on-quarter in the three months to June, versus forecasts for a 1.5% decline. The manufacturing sector contracted by an annualized 14%.

Weakness certainly reflects a slowdown in China, Singapore’s largest export destination. Year-on-year GDP is down to +1.7%.

--Home sales in the six-county Southern California market soared 18.1% in June vs. year ago levels, with the median price rising 5.7% to $442,000, according to CoreLogic. [The median in Orange County is $629,500.]

--California’s jobless rate fell to 6.3% in June, down from 7.5% a year earlier. The nationwide rate is 5.3%

--The corporate parent of the A&P, Pathmark, Waldbaum’s and Food Emporium grocery chains is set to file for Chapter 11, as has been rumored. 

A&P (The Great Atlantic & Pacific Tea Co.) has been hurt by brutal competition from the likes of Walmart, as well as a 2007 acquisition of Pathmark, a deal engineered by billionaire Ron Burkle, the dirtball who used to fly around the country with Bill Clinton to party. Burkle saddled A&P with massive debts with the Pathmark deal.

--New Jersey Transit is instituting a new fare increase of 9 percent, on average, in October. The increase will add $40 to the price of a monthly pass for some commutes who ride trains to Penn Station in Manhattan. $500 a year just kills lower- and middle-income riders.

--Lester Holt and “NBC Nightly News” are off to a good start after Holt was officially named the replacement for Brian Williams. The broadcast scored its third consecutive weekly ratings win.

Foreign Affairs

In his news conference Wednesday, at one point President Obama said this in terms of his foreign policy and legacy.

“Now, in terms of the larger issues (in) the Middle East....I think my key goal when I turn over the keys to the president – the next president, is that we are on track to defeat ISIL, that they are much more contained and we’re moving in the right direction there, that we have jumpstarted a process to resolve the civil war in Syria, which is like an open sore in the region, and is giving refuge to terrorist organizations who are taking advantage of that chaos. To make sure that in Iraq, not only have we pushed back ISIL, but we’ve also created an environment in which Sunni, Shia, and Kurd are starting to operate and function more effectively together, and to be in a conversation with all our partners in the region about how we have strengthened our security partnerships so that they feel they can address any potential threats that may come, including threats from Iran.

“And that includes providing additional security assurances and cooperation to Israel, building on the unprecedented cooperation that we have already put in place, and the support that we’ve already put in place. It includes the work that we’ve done with the (Gulf partners) up at Camp David, making sure we execute that.

“If we have done those things, then the problems in the Middle East will not be solved. And ultimately, it’s not the job of the president of the United States to solve every problem in the Middle East.

“The people in the Middle East are going to have to solve some of these problems themselves. But I think we can provide that next president at least a foundation for continued progress in these various areas.”

I can already imagine the president’s farewell speech... how he’ll tell us he left the world in far better shape than when he first took office. At that point I’ll throw up.

Iraq/Syria/ISIS: ISIS executed six former officers of the Iraqi army this week, following their arrest in Mosul a year ago. The next day, ISIS placed a number of men on a road close to a government building in Mosul, “and then a bulldozer drove back and forth over them,” a source told an Arab satellite television network.

A spokesman for the Kurdistan Democratic Party said ISIS also kidnapped 111 children in Mosul, between the ages of 10 and 15, and had sent them to a training camp for the purposes of learning how to carry out acts of terror.

ISIS gained ground against the Syrian army in the major northeastern city of Hassakeh. According to activists, 170 have been killed in three weeks of fighting. ISIS carried out at least 17 suicide attacks against army positions, the group’s preferred method of waging war these days.

Of the 70 jihadis killed in the fighting over Hassakeh, 15 were under the age of 16, recruited by ISIS (or maybe kidnapped for this purpose). [Daily Star]

Meanwhile, Iraqi security forces launched a counteroffensive in Anbar province to retake territory seized by Islamic State militants, but it’s not clear how the operation is going.

The joint force includes the army, federal police, Shiite militias and Sunni tribal fighters. The primary targets are Fallujah and Ramadi, which are close to the capital of Baghdad.

One of the tribal leaders whose forces are taking part told the Wall Street Journal, “I do believe that within a week, they will take Fallujah. But I don’t believe it will be a liberation operation,” he said. “It will be a scorched earth operation.”

But on Friday evening in Baghdad (tonight), a suicide bomber killed at least 86 people and wounded more than a hundred! The bomber detonated a small tanker truck laden with heavy explosives in a town center. You know who did it. ISIS claimed responsibility, calling it revenge for “massacres of Sunnis” in the northern Iraq town of Hawija. Frankly, I didn’t know there was a “massacre” in Hawija. Must have been watching a Mets game that day.

Yemen: The Journal reports that the military force that wrested back control of Yemen’s second city, Aden, from Iranian-backed Houthi rebels was comprised of special forces from the UAE and al Qaeda militants, along with local militias backed by Saudi Arabia. Yes, as the paper noted, “a precarious tangle of alliances, it poses a new quandary for the U.S.”

“Although the U.S. continues to conduct separate airstrikes targeting AQAP militants in Yemen, its plans to build a robust counterterrorism force in the country to deny al Qaeda a haven have been wiped out.”

Afghanistan: A suicide car bomb killed at least 33, mostly women and children, near a military base in Afghanistan in eastern Khost province.

Russia / Ukraine: Six Russian military aircraft of different designs have crashed since the start of June, as reported by the Moscow Times. The latest accident came on Tuesday, when a Tu-95 strategic bomber went down in Russia’s Far East. All four of its engines had failed mid-flight during a training mission, a government source told news agency TASS. Two of the crew members died. Five managed to successfully bail out.

The Tu-95 is the mainstay of Russia’s long-range bomber fleet, with around 60 in service. It was the second “Bear” to go down in about a month. Some are blaming the fact that many of the pilots are very young and inexperienced.

Separately, at least 23 Russian conscripts were killed and another 19 injured when a military barracks collapsed near the Siberian city of Omsk. I saw a picture of the barracks and the roof just caved in. According to the Moscow Times, reconstruction work on the facility was carried out in 2013 and it clearly was a shoddy job.

There have also been reports of soldiers going AWOL from a base in southern Russia, allegedly fleeing the base to avoid being sent to fight in Ukraine.

Meanwhile, Ukraine’s Prime Minister Arseniy Yatseniuk is bemoaning the “politicial disaster” in Greece, saying it was leading to growing repercussions for Kiev as the opposition is rising to fight tough reforms required as part of an international bailout.

“Everyone is so focused on Greece that Ukraine is not the priority. It is not on radars,” Yatseniuk said during a visit to Washington.

“We’ve been promised $25bn for the coming four years from the IMF, the World Bank and others, having Russian tanks on board...[and] having lost 20% of the Ukrainian economy,” he said. “And our Greek friends, with a population four times less than the Ukrainian one, already got 300bn euro? And they need another 60bn-80bn?" [Shawn Donnan / Financial Times]

Friday represented the first anniversary of the downing of Malaysia Airlines flight MH17 over war-torn eastern Ukraine. All 298 passengers and crew were killed, including 189 Dutch nationals. The Kremlin continues to deny allegations pro-Russian rebels shot the plane down.

China: Editorial / Washington Post

“China’s authoritarian system has in the past few years tolerated a narrow space – a kind of gray zone – for some lawyers and activists to defend human rights, case by case. It became known as the rights defense movement and included appeals to China’s existing laws, as well as shrewd use of the Internet to expose the plight of victims. Despite the overarching power of the party-state and its intolerance of dissent, the Chinese authorities permitted these lawyers and activists to function, often because they were devoted to individual petitioners and didn’t seem to threaten the survival of the regime.

“A wave of arrests and detentions over the past week points to a sudden closure of even this narrow space. In a nationwide sweep, as of Wednesday, police had detained and interrogated at least 159 human rights lawyers, activists and their relatives in 24 cities and provinces, according to a Hong Kong group that monitors human rights and rule of law in China. Some 10 remain in custody, and the whereabouts of 14 are unknown. The unusually wide crackdown appears to signal that the authorities will no longer tolerate these defenders of human dignity.

“Typically, the lawyers disappeared suddenly. One prominent human rights lawyer, Wang Yu, returned home July 9 after dropping off her husband and son at the airport. She sent a text message to friends saying that the Internet connection and power at her home had been cut off. She sent another message saying that people were trying to break in. She has not been heard from since.”

Japan: Prime Minister Shinzo Abe’s coalition on Thursday approved legislation in the lower house of parliament that could strengthen the military’s role to counter China’s growing presence in the region. A ban on collective self-defense or fighting to defend an ally like the United States was dropped, sparking huge protests in Japan with many holding placards reading “No War, No Killing.”

The U.S. welcomes the bolder security stance, of course. Abe told reporters after the vote, “The security situation around Japan is getting tougher. These bills are vital to protect the Japanese people’s lives and prevent war.”

Opponents say the revisions violate pacifist Article Nine of the U.S.-drafted, post-war constitution. Abe’s approval rating has been slipping (to around 40%) on the legislation and plans to restart nuclear reactors.

Australia: Peter Hartcher / Sydney Morning Herald:

“China has shown itself to be an ugly bully. Contrary to all its fine rhetoric of cooperation, it is happy to use coercion to take territory that is also claimed by its smaller neighbors.

“It is waging a creeping invasion, and nobody is stopping it.

“A new report [Ed. “ANZUS Alliance in an Ascending Asia,” by Mike Green] says that the U.S. needs to stop China’s encroachments, and Australia needs to be prepared to help.

“So far, Australia’s alliance with the U.S. has been a mere bystander to China’s great grab.

“The power of this new report, released in Sydney on Monday, is the idea that the alliance should move from the sidelines and into the hot zone as a bulwark against China’s advances.

“Instead of a ‘bilateral tie,’ the ANZUS alliance should become a ‘regional hub’ for U.S. allies and U.S. partners in marshalling forces against Beijing, it says.”

Mexico: Drug lord Joaquin Guzman, “El Chapo,” used an elaborate tunnel to break out of a maximum security prison last Saturday. It was the second time he had escaped from such a facility.

In 2001 he broke out by hiding in a laundry basket after bribing prison officials. This time, following his recapture in 2014, a tunnel costing $millions to construct, was his way out.

The escape is seen as a mockery of the Mexican prison system and a massive blow to the administration of President Enrique Pena Nieto, who had been receiving plaudits for taking a hard stance against the most powerful drug traffickers, nabbing leaders of every major cartel.

At week’s end, no one seemed to have a clue where El Chapo escaped to, but his journey started with a helicopter flight outside the prison walls.

Many think tanks and academics believe the escape will lead to the fall of Pena Nieto’s government. The United States isn’t happy because the president ignored Washington’s request for El Chapo to be extradited.

Brazil: Former president Luiz Lula da Silva is now the subject of a formal criminal investigation into alleged illegal influence peddling, as the political crisis in Latin America’s biggest economy grows.

At the same time, the leader of Brazil’s lower house of Congress is seeking legal advice on whether there are grounds to impeach current president Dilma Rousseff, over separate corruption charges.

Ransom Musings

--Federal investigators say a gunman who killed four Marines in a shooting spree in Chattanooga, Tennessee had no known links to international terrorism that they have uncovered, as yet, but the investigation is in its early stages. The FBI says Mohammad Youssuf Abdulazeez’s motive is unclear, but he did spend seven months in Jordan in 2014.

Rep. Michael McCaul, chairman of the House Homeland Security Committee, however, says it’s pretty clear this was ISIS-inspired terrorism.

--A new Washington Post/ABC News poll has Donald Trump’s popularity surging among Republicans. 57% of them now have a favorable view of him, compared to 40% who have an unfavorable one; marking a complete reversal of a late May Post/ABC poll that had 65% of Republicans viewing him unfavorably.

Among the public at large, Trump’s negatives outpace the positives, 61-33. His unfavorable among Hispanics since his negative comments about Mexican illegal immigrants rose to 81% from 60% in May.

In this same poll, Hillary Clinton’s ratings moved from a 45-49 favorable-unfavorable split in May to a net positive position of 52-45.

--In a USA TODAY/Suffolk University nationwide poll, among Republicans, Trump garnered 17% for first, followed by Jeb Bush at 14%, and Scott Walker with 8%.

However in a hypothetical match-up against Hillary Clinton, Trump trails by a whopping 17%. Bush fared best against Clinton, trailing by just 4 points.

Talk about name recognition, only 2 percent of those surveyed had never heard of Trump.

In the above poll, New Jersey Gov. Chris Christie receives only 2%.

--In a nationwide Monmouth University poll, Hillary leads the Democratic field but her support is declining; down to 51%, from 57% in June and 60% in April. Bernie Sanders was second with 17%. Even though he hasn’t said he is running, yet, Vice President Joe Biden picked up 13%.

Among those who said they were likely to vote for Biden in the event of his candidacy, 68% said they currently support Clinton.

Among Republicans, Jeb Bush leads in the Monmouth survey with 15%, followed by Trump at 13%, Sen. Ted Cruz 9%, and Scott Walker and Mike Huckabee at 7%. Christie receives just 2% in this one as well.

--And this just in...a new Fox News national poll of Republican primary voters has Trump at 18% (up 14 points since May), Walker in second with 15%, Bush 14%. Then it’s a drop to Rand Paul in fourth at 8%.

On the Democratic side, Hillary leads Bernie Sanders 59-19, a slight narrowing from last month’s 61-15 margin for this survey.

--One more Trump-related tidbit...the Huffington Post announced it would no longer cover his 2016 presidential run as a political story. Idiots.

HuffPost editors said in a note, “Instead, we will cover his campaign as part of our Entertainment section.”

--Sen. Marco Rubio, who didn’t fare well in the above-mentioned polls, generally with about 6%, has at least raised $45 million since the launch of his campaign in April. Ted Cruz raised $51 million, though Jeb Bush’s war chest is $114m, including from his Super-Pac. 

--Ohio Governor John Kasich will become the 16th Republican to enter the race next week, though he has already raised a solid $11 million. He is still my personal favorite.

--Back to Clinton, she gave her first major speech on the U.S. economy and said Corporate America was too focused on the short-term, driven by the need to produce quarterly earnings and keep share prices up. She said she will “propose reforms to help CEOs focus on the next decade rather than the next day.”

On the fundraising front, while Clinton raised $47m between launching her campaign in mid-April and the end of June, FEC filings show she has already spent nearly $19m, which was the problem last time she ran.

Clinton’s campaign claims it needs to expand quickly to meet the suddenly competitive Democratic primary fight, let alone the general-election campaign.

--Back to Trump, appearing in Arizona last Saturday, he told a large crowd of 4,200 that “we have to take back the heart of our country.”

Regarding the battle over immigration reform, Trump said: “These are people that shouldn’t be in our country. They flow in like water.”

In an article in the Washington Post, Trump was on his campaign plane, headed to Phoenix from an appearance in Las Vegas, and he was drinking a Coca-Cola – the full-calorie kind, he noted, because, “Have you ever seen a thin person drinking Diet Coke?”

--Peggy Noonan / Wall Street Journal...on Trump:

“He has the power of the man with nothing to lose. If he won he’d be president. If he loses he’s Donald Trump, only a little more famous. His next show will get even higher ratings.

“He puts individuals and groups down in a mean and careless way. He has poor impulse control and is never above the fray. He likes to start fights. That’s a weakness. Eventually he’ll lose one.

“But Donald Trump has a real following, and people make a mistake in assuming his appeal is limited to Republicans. His persona and particular brand of populism have hit a nerve among some independents and moderate Democrats too, and I say this because two independent voters and one Democrat volunteered to me this week how much they like him, and why. This is purely anecdotal, but here’s what they said:

“They think he’s real, that he’s under nobody’s thumb, that maybe he’s a big-mouth but he’s a truth-teller. He’s afraid of no one, he’s not politically correct. He’s rich and can’t be bought by some billionaire, because he is the billionaire. He’s talking about what people are thinking and don’t feel free to say. He can turn the economy around because he made a lot of money, so he probably knows how to make jobs.

“He is a fighter. People want a fighter. Maybe he’s impolitic but he’s better than some guy who filters everything he says through a screen of political calculation....

“He capitalizes on the fact that no one in America trusts politicians anymore.”

--The NAACP voted on Saturday to end its 15-year boycott of South Carolina prompted by the display of the Confederate battle flag on state capitol grounds.

And in a separate move, NCAA president Mark Emmert said his organization was removing all barriers to South Carolina hosting championship-level college sports events now that the flag has been removed.

--President Obama was asked at this press conference whether he would consider revoking the Medal of Freedom from Bill Cosby, who had received the award in 2002. Obama said there is “no precedent for revoking a medal. We don’t have that mechanism.”

But while he didn’t address the charges against Cosby directly, he said that “if you give a woman, or a man, for that matter, without his or her knowledge a drug and then have sex with that person without consent, that’s rape.”

--Through Wednesday, the city of Baltimore had recorded 168 homicides in 2015, compared to 106 at the same time last year. 24 had died in July through the 15th, putting it on pace to exceed the record 42 homicides recorded in May.

--The City of New York reached an agreement with the family of Eric Garner, who died after he was placed in a chokehold during an arrest. Garner was heard gasping “I can’t breathe” 11 times before losing consciousness. He was pronounced dead at the hospital.

Garner’s family received $5.9 million

--NASA scientists celebrated Tuesday as the New Horizons spacecraft flew by Pluto and transmitted the closest pictures ever of the dwarf planet. Great stuff. But no signs of any Plutonians, which would’ve made for good TV during the All-Star break.

---

Pray for the men and women of our armed forces...and all the fallen, including the four Marines in Chattanooga.

God bless America.
---

Gold closed at $1131...5-year low! [4/2/10]
Oil $50.89...lowest weekly close since 4/3/15

Returns for the week 7/13-7/17

Dow Jones +1.8% [18086]
S&P 500 +2.4% [2126...4 pts. shy of all-time high]
S&P MidCap +0.3%
Russell 2000 +1.2%
Nasdaq +4.2% [5210]

Returns for the period 1/1/15-7/17/15

Dow Jones +1.5%
S&P 500 +3.3%
S&P MidCap +3.8%
Russell 2000 +5.2%
Nasdaq +10.0%

Bulls 43.7
Bears 15.6 [Source: Investors Intelligence]

Have a great week. See above gofundme link on how to contribute to the cause. 

Note to my Middle East readers. You have written me telling me how much you appreciate my work when your governments are otherwise censoring the news. So, you know, show me some love.

Or send a check to StocksandNews.com, PO Box 990, New Providence, NJ 07974.

Oh, and having had to renew my Apple app license this week, I keep forgetting to remind new readers, I do have a StocksandNews iPad app, for which I receive like a $1.40...enough for a single bottle of premium...or two cans of Hamm’s. 

Brian Trumbore