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Week in Review

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07/25/2015

For the week 7/20-7/24

[Posted 10:15 PM ET, Friday]

Edition 850

Washington and Wall Street

What kind of a year has it been thus far in the U.S. equity markets?

Year-to-date returns thru 7/24....

Dow Jones -1.4%
S&P 500 +1.0%
Nasdaq +7.4%

Whoopty-damn-do.

I get into it in detail below, but in terms of the economic data for the week....

The weekly jobless claims figure can be volatile and subject to major revision, but this week’s figure fell by 26,000 to a seasonally adjusted 255,000 in the week ended July 18, the Labor Department said, a 41-year low. Six years ago the figure was nearly 600,000.

Granted, the four-week moving average is 278,000, which is a better gauge, but the recent decline is coinciding with the strongest pace of hiring since the late 1990s.

On the housing front, the news was decidedly mixed. June existing home sales rose 3.2% to 5.49 million on an annualized basis, the fastest pace in eight years (Feb. 2007), according to the National Association of Realtors. The median price rose 6.5% year over year to $236,400, the highest on record before adjusting for inflation. 

But then June new home sales plunged 6.8% to an annualized pace of 482,000, far worse than expected, while May was revised downwards.

It was the busiest week of the year for earnings and while Amazon stole the spotlight at week’s end, some very large companies such as United Technologies, Caterpillar, 3M, IBM and American Express issued poor reports, with the strong dollar continuing to hammer multi-nationals’ profits. The trend of zero, or very small, revenue growth also continues.

And with a broad-based index of commodities hitting its lowest level since 2009, with copper at a 6-year low, gold a new 5-year low, and oil prices back solidly below $50 (as measured by West Texas Intermediate) to $48.14, needless to say stocks in the energy and mining sectors continue to get slammed, owing in no small part to clearly slowing growth in China and elsewhere.

Commodities are also hit by the strong dollar and the feeling the Federal Reserve is preparing to raise interest rates as early as September, which curbs the attractiveness of the likes of gold that don’t pay interest or have the returns of assets such as stocks and bonds.

The Fed’s Open Market Committee meets next week, the last time before the Sept. 16-17 liftoff confab.

Lastly, the Fed articulated a pair of rules on Monday that press Wall Street banks to cut their size and appetite for risk, or force them to face the costs. The Fed completed one rule stating that the eight largest banks needed an additional layer of capital to protect against losses, “reduce their reliance on volatile forms of funding, improve their risk management and cut back on risky assets,” as noted in the Wall Street Journal.

“For Wall Street banks and their investors, the emerging regime presents a series of choices; specifically whether to pay the cost of new regulation, which will fall to the bottom line, or change their business models by shedding businesses or withdrawing from certain markets, such as owning commodities.”

New capital surcharge levels for the Big Eight were levied, from Bank of New York Mellon’s 1% up to JPMorgan Chase’s 4.5%.

J.P. Morgan has been resisting calls from lawmakers to break up its operations, with CEO Jamie Dimon defending the bank’s scale.

“We still want that pre-eminent position, and we’re not going to give that up for anyone,” he said at a JPM investor day in February.

But of the eight, only J.P. Morgan doesn’t have enough current capital to meet the new rule, which comes into full effect in 2019. It ends up being $12.5 billion Dimon and JPM execs need to come up with through cutting businesses and other actions.

One more on an unrelated topic...this trip of President Obama’s to Kenya and Ethiopia is more than a bit unsettling.

Europe and Asia

Greek Prime Minister Alexis Tsipras contained a rebellion in his Syriza party to win parliamentary approval on a second package of reforms that was required by Greece’s creditors to start talks on a third bailout package of 86 billion euro over three years.

The legislation, which covered rules for dealing with failed banks and speeding up the justice system, passed with the backing of 230 votes in the 300-seat chamber, with Tsipras again gaining opposition support, while a quarter of Syriza deputies voted against the bill or abstained.

Tsipras has publicly said he disagrees with measures demanded by Greece’s euro area peers and the IMF, but after he made a U-turn by accepting an 11th hour deal to keep his country in the currency bloc, he told party hardliners to face reality and back the package.

With his reduced support among his own party, though, a snap election for September or October is in the cards, but with a 60% approval rating among the Greek people, Tsipras will do well. What the people like is that while he lost a power struggle with the likes of the Germans, he fought hard for them and he appeared to stand up for national pride...at least that’s how they feel today.

Tsipras faces minimal opposition at this point and if elections were held today, one poll has 42.5% voting for Syriza, nearly double that of the main center-right opposition party, New Democracy, at 21.5%.

Additionally, 70% of the people said they would prefer to accept the bailout deal if it kept Greece in the euro.

All players involved in the bailout negotiations now underway hope to wrap things up by August 20, when Greece owes the European Central Bank a tidy sum (3.2bn euro). But there are more than a few who feel that while it looks as though a third bailout will be agreed to, implementation of the latest reform program is another story.

Former Greek finance minister Yanis Varoufakis said, “This program is going to fail whoever undertakes its implementation. It has failed already.”

Varoufakis said of Tsipras, “We were given a choice between being executed and capitulating. And he decided that capitulation was the ultimate strategy.”

Greek banks reopened on Monday and Athens paid debts due to the ECB and the IMF, while the ECB increased its emergency funding of the banks. But the people were still limited to a 60 euro a day limit in withdrawals, only now they can take out 420 (a week’s worth) all at once should they choose to do so. This is important for the rural elderly in particular who were forced to spend a ton on transportation costs just to take out 60. At least now they only have to make one trip.

But there remains zero commercial banking activity and the economy is still largely frozen, as is the Athens stock market all this time.

Greek government debt fell sharply in the first quarter of this year, according to figures released by Eurostats, to 168.8% of GDP from 177.1% in the fourth quarter of 2014, but I’d be shocked if it didn’t increase again during the tumultuous second quarter.

[The eurozone’s overall debt to GDP ratio ticked up to 92.9% in Q1, with Italy at 135.1% (up from 132.1%), Portugal 129.6%, Spain 98.0%, France 97.5%, the U.K. at 88.5% and Germany at 74.4%. Italy’s figure is more than troublesome.]

Tony Barber / Financial Times

“Once again, it was an agonizingly long piece of Greek parliamentary theatre. But once again, in the early hours of Thursday morning, Alexis Tsipras came out on top....

“There is no doubt about it, Mr. Tsipras is for the time being lord and master of all he surveys on the Greek political scene. His craftiness, his tactical agility and his recent, chameleon-like changes of political color remind me a bit of Francois Mitterrand, the French president from 1981 to 1995 [Ed. Mitterrand abandoned most of his Socialist policies over the time he served, aligning France more closely with Germany]...

“No wonder Mr. Tsipras’ strategists talk openly about calling a snap election in September or October as a way of sealing his supremacy. The prime minister still enjoys broad support from the Greek public, because they admire the way he has tried – as many Greeks see it – to stand up bravely to the cold-blooded northern European-dominated creditors.”

As for the German tag team of Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble, “good cop, bad cop,” a senior German official told Reuters this week:

“Until now Merkel and Schaeuble...worked together to get the most favorable deal for Germany. But that was always premised on the idea that they had the same goal. This time on Greece they didn’t. We got the result that the bad cop didn’t want.”

Schaeuble didn’t get his “Grexit,” but he emerged strengthened and unbowed. If Greece slips again, his Plan B is on the table.

Editorial / The Economist

“Mr. Tsipras faces a mammoth task: the financial system is creaking, unemployment is rising and the recession will surely deepen. And given the emotional swings that the Greeks have already exhibited in the last few weeks, nobody is sure that the specter of Grexit has been banished....

“In the immediate future, if there is any politician who can steer Greece away from the temptations of the hard right, or forces well to the left even of Syriza, he is probably the one. Still, even if he behaves perfectly, and even if Grexit doesn’t come back onto the table, it seems hard, to people in Athens as much as Brussels or Berlin, to see how the shattered relationship between the Greeks and their (northern) European neighbors will be repaired.”

The Greeks hate the Germans, and the Germans hate the Greeks. In a recent German poll, 85% rejected further concessions to Greece.

Steven Erlanger of the New York Times had the following in a good piece the other day.

“ ‘(We) see, with this crisis, a qualitative transformation of the European Union into a more coercive bloc, different from the one the founding fathers had in mind, or even the creators of the single currency,’ (said author Hans Kundnani). ‘And Germany is at the heart of that.’

“ ‘The fight over Greece,’ Mr. Kundnani said, ‘took these developments to a new level – a more German Europe and a more coercive E.U.’

“One could argue, as many have, about the correctness of the German prescription of austerity in a time of recession. But the brutality of the negotiations over Greece in Brussels has damaged Germany’s reputation inside the European Union, said Francois Heisbourg, a French analyst.

“ ‘I think the Germans have crossed a line,’ he said, ‘and it will be very difficult for them to walk it back.’

“Jurgen Habermas, a pro-European German intellectual, said that Ms. Merkel and her coalition government, including the center-left Social Democratic Party, ‘have gambled away in one night all the political capital that a better Germany had accumulated in half a century.’”

---

Regarding the eurozone economy, Markit’s flash readings for July showed a Composite PMI for the euro area of 53.7 vs. 54.2 in June. The services PMI is 53.8 (vs. 54.4), while the manufacturing PMI flash reading is 52.2 vs. June’s 52.5.

Chris Williamson, Chief Economist at Markit:

“Eurozone economic growth lost only slight momentum in July amid the rollercoaster events of the Greek debt crisis during the month. The rate of expansion remained reassuringly robust to suggest that it was by-and-large ‘business as usual’ for the region as a whole.”

Eurobits....

--After weeks of volatility, European bond yields have resumed a slow and steady decline, no longer jerked around by the Greece crisis, and helped by the resumption of the ECB’s quantitative easing program and the steady buying of debt. But if the eurozone economy continues to improve, just as in the case of the Fed, the ECB will be forced to raise interest rates and the rout will be on.

--U.K. retail sales unexpectedly declined in June, down 0.2% in June over May.

In China, the Caixin (Markit) flash manufacturing purchasing managers’ index (previously from HSBC), came in at just 48.2 for July, the lowest level in 15 months and less than the 49.7 that economists were expecting, as well as June’s final 49.4...50 being the dividing line between growth and contraction.

After rallying for six straight days on government manipulation, the Shanghai Composite fell on Friday, though finished up a third straight week after a 32% crash the prior three weeks.

A commentary in the Communist Party’s prime mouthpiece, People’s Daily, suggests the government is prepared to intervene in the stock market any time turbulence returns, the article maintaining financial stability should be a top priority.

It said the finance sector was the lifeline of the national economy and warned that instability would jeopardize years of market reform.

“When abnormal volatility and irregularities arise, we must be resolute in taking action and measures when necessary, without hesitation,” the commentary said. “Genuine financial stability must be a proactive, long-term and sustainable stability – not a passive, short-lived and unsustainable stability.” [Daniel Ren / South China Morning Post]

Separately, you know all those stories of Chinese espionage I’ve been putting out here? This week the FBI labeled China “the most dominant threat” to U.S. companies, saying it believed Beijing was the main culprit behind a 53% jump in economic espionage cases its agents are investigating.

FBI officials warned on Thursday that hundreds of billions of dollars were now being lost every year from the theft of trade secrets, intellectual property, sales and pricing information and other company data, posing a national security threat to the U.S.

“China is the most dominant threat we face,” said Randall Coleman, assistant director of the agency’s counterintelligence unit. “The Chinese government plays a significant role. The playing field is not level.”

As reported by Gina Chon of the Financial Times: “In an FBI survey of 165 companies, 50 percent acknowledged that trade secrets or intellectual property had been stolen and 95 percent suspected China was behind the thefts, said William Evanina, counterintelligence executive at the office of the director of national intelligence.”

The whole espionage story is in keeping with my position that you shouldn’t touch anything in China when it comes to investing. I got a kick out of a call from giant hedge fund Bridgewater Associates LP, which was the subject of a page-one article in the Wall Street Journal on Thursday.

Raymond Dalio, who heads up the $169 billion behemoth, co-wrote a note earlier this week telling clients he was particularly concerned about the psychological damage of China’s stock-market decline. Specifically:

“Our views about China have changed. There are now no safe places to invest.”

But then Dalio tried to walk it back, no doubt worried about being hacked by Chinese authorities, with Bridgewater issuing a statement after the article hit that said in part: “Ray Dalio and Bridgewater believe that too much has been made of the shift in their thinking and want to clarify their thinking.

“The observations that were made simply noted that falling stock prices have a negative wealth and negative psychological effect. When a classic stock market bubble bursts, there are negative growth effects. When combined with the debt and economic restructurings underway, that will most likely result in slower growth, and more stimulative government policies to offset these downward pressures.

“Bridgewater’s view that China faces debt and economic restructuring challenges, and that it has the resources and the capable leaders to manage these challenges, remains the same.”

Their leaders, Mr. Dalio, especially the man at the top, are to be feared, though I kind of respect Premier Li Keqiang. I wish he was in charge, not Xi. [Kind of like Putin compared to Medvedev. The Western world would love Medvedev to be the one pulling the strings in Moscow, for sure.]

Regarding Japan, the International Monetary Fund warned the country needs to “reload its economic reforms,” “Abenomics,” or risk “stagnation” and turmoil in financial markets. The IMF is only projecting a growth rate of 0.8% in 2015 and 1.2% in 2016.

The IMF emphasized the recovery in Japan was fragile. Japan’s flash PMI on manufacturing for July was 51.4 vs. 50.1 in June.

Street Bytes

--Stocks suffered through their worst week in months. The Dow Jones lost 2.9% to 17568, its worst week since January (one article I read said December). The S&P 500 fell 2.2% and Nasdaq 2.3%, the worst for these two since March. The earnings just aren’t that good, with a handful of exceptions. It’s the same old, same old....yes, some companies do a good job of managing expectations (and financial engineering), but when you examine the internals, particularly revenue growth, they’ve been putrid for years.

--U.S. Treasury Yields

6-mo. 0.13% 2-yr. 0.68% 10-yr. 2.26% 30-yr. 2.96%

Yields on the longer end of the curve fell due to a little flight to quality, which is being exacerbated by the China growth concerns at this point, with Greece temporarily out of the picture.

--In a report put out by Morgan Stanley, since October, the number of rigs actively drilling for new oil around the world has declined by about 42 percent. More than 70,000 oil workers have lost their jobs globally, and in 2015 alone listed oil companies have cut about $130bn in capital expenditures.

But while this would lead to a rebound in prices, and as U.S. production has leveled off since June, OPEC is taking up the role of market spoiler. While the cartel doesn’t have that much spare capacity, now you’re going to have increasing supplies from Iran and Libya, should the situation in the latter improve. A significant rebound in prices doesn’t seem to be in the cards.

[Friday afternoon we learned the U.S. rig count rose by 21 to 659 in the week to July 24, according to the latest data from Baker Hughes, the biggest weekly gain since last April. This isn’t helpful for prices.]

--Back to the mining sector, Anglo American PLC, the U.K. mining giant, announced Friday it was laying off 6,000 positions from corporate offices, and as many as 53,000 employees over several years. The latter figure would come through the sale of mines, not direct layoffs.

--Apple’s profits and revenues for its June quarter beat consensus estimates, though iPhone shipments were a little below expectations and the company gave a slightly weaker-than-expected revenue target for the September quarter, so the shares fell about $5 on the news.

That said, iPhone sales of 47.5 million units were up 35 percent year-on-year, with an average selling price 18 percent higher. Sales in China were also up 112 percent, which means the China market will outstrip the Americas in the coming months. CEO Tim Cook dismissed recent market volatility in China as a mere “speed bump.”

As for Apple Watch, sales of which were not broken out, I’m guessing the product proves to be a bust, though Cook insisted, “Sales of the Watch did exceed our expectations and they did so despite supply still trailing demand at the end of the quarter.”

--Chinese tech giant Huawei reported its global smartphone sales jumped 39 percent in the first half of the year, with overall company revenue up 30 percent.

Huawei said it shipped 48.2 million devices globally in Q1 and Q2, an 87 percent increase in handset revenues over year ago levels.

The company is competing for the top spot in China with Apple and Xiaomi; Xiaomi and Huawei of course ripping off Apple’s intellectual property at every opportunity.

--Toshiba’s CEO and the company vice-chairman are among a bunch of senior staff that are resigning after an investigation into a $1.2bn accounting scandal over a seven-year period.

A panel of external lawyers and accountants said on Monday there was a “systematic” and “deliberate” attempt to inflate profit figures, while employees were afraid to speak out against bosses’ pushes for unrealistic earnings targets. [Kana Inagaki / Financial Times]

--Microsoft reported a $3.2bn net loss in the latest quarter, the worst in its history, as it struggled to put its failed acquisition of Nokia’s handset business behind it. A recent slump in the PC market also didn’t help.

But, Microsoft did manage to top Wall Street’s revenue and earnings expectations, thanks largely to a jump in its Surface tablet and Xbox game consoles.

Sales of software licenses to PC makers fell by 22 percent, with both Windows and Office suffering from a decline in shipments; research firm Gartner earlier reporting a 9.5 percent decline in new machines in the latest quarter.

Overall, Microsoft’s revenues fell 5 percent to $22.2 billion.

--Revenue at IBM fell 13 percent in the second quarter, the 13th consecutive quarter of falling sales, though 9 percentage points were a result of the currency effect. IBM also continues to shed some businesses. 

Instead, CEO Virginia M. Rometty pointed to revenue from newer businesses the company calls “strategic initiatives” rising 30 percent in the quarter, with cloud computing revenue up more than 70 percent.

But the traditional hardware, software and services business continues to erode.

Overall revenue fell short of the Street’s expectations and the shares were hammered, though adjusted earnings were better than forecast.

--German exports to Russia slumped 34 percent in the first five months of the year due to Western sanctions imposed on Moscow over the Ukraine crisis. The decline could end up being to levels just half the 2012 export record.

--Shares in Amazon soared nearly 20 percent (before a bizarre late Friday selloff pared the gain to 10 percent), with the company’s market cap now about $16 billion ahead of Walmart’s, as the Web giant reported better-than-expected revenue growth of 20 percent to $23.2 billion, while the company reported a profit of $92 million, 19 cents a share, when a loss of 14 cents had been expected.

Amazon’s cloud-computing division saw its revenue surge to $1.82 billion, up from $1 billion a year earlier, with an operating profit of $391 million.

All in all, exactly what investors have been waiting for; proof the company can earn profits and that its new initiatives, like in the Cloud, are bearing fruit far sooner than expected.

As for the share price and multiple, hey, I’ve said for about a decade you can’t short it. Thousands have died trying to do so.

--Yahoo reported earnings that were less than expected, though revenues beat the Street, with revenue from display ads rising 3.3 percent.

--Qualcomm announced it would cut about 15 percent of its staff, somewhere between 4,500 and 5,000 people, as the semiconductor designer and maker of chips used in smartphones reported net income had declined 47 percent in the recent quarter as revenue fell 14 percent to $5.8 billion, from $6.8 billion last year.

--United Technologies cut its annual profit forecast, with its Otis Elevator business being blamed, as in Otis had sales growth in Europe and the Americas, but new orders fell 10% in China in the second quarter.

--Caterpillar continued to struggle amid the global slump in commodities and ongoing weakness in the likes of China and Brazil. The company that is heavily tied to mining and rapid growth in emerging market economies cut its full-year forecast.

“While economic conditions in the United States are modestly positive, the global economy remains relatively stagnant. Many of the key industries we serve remain weak, and we haven’t seen sustained signs of improvement.”

The gloom, along with the strong dollar, led the company to cut its full-year sales forecast to $49bn from an earlier prediction of $50bn. 56 percent of the company’s revenues come from outside North America.

In Latin America, machine sales fell 50 percent.

--Coca-Cola reported greater than expected earnings for the second quarter, but revenues declined year over year (though ahead of expectations).

--Starbucks reported quarterly same-store sales growth in the Americas of 8 percent, driven largely by higher average spending per visit, with global comps up 7 percent, including an 11 percent increase in Asia. Starbucks beat the Street’s estimates on the bottom line by a penny in earning $626.7 million, 42 cents per share on an adjusted basis. Total revenue for the quarter was $4.88 billion, also slightly better than expected.

--General Motors reported profits of $1.12 billion in the second quarter, compared with $190 million in the same period a year ago, exceeding expectations. Significantly, GM lost only $45 million in Europe, a big improvement from a $305 million loss in the region last year. Losses in South America, however, grew to $144 million.

Pretax profits in North America were $2.78 billion, compared with $1.39 billion a year ago.

The stock rose 4 percent in response.

--Boeing reported revenues at its commercial aircraft division climbed 18% to $16.9bn in the quarter. Boeing’s overall revenues for the quarter rose to $34.5bn from $22bn.

--SpaceX founder Elon Musk said the company believes its rocket disintegrated last month because of a shoddy part, a small steel band purchased from a subcontractor snapped under pressure.

The 2-foot-long strut “was a purchased part,” Musk said. “We just install it at SpaceX.”

But Musk also said he believed some employees at SpaceX had become complacent about quality control after about 20 successful prior launches, since its last failure in 2008.

“Most people at the company today have only ever seen success,” Musk said. “When you’ve only ever seen success, you don’t fear failure quite as much.” [Melody Petersen / Los Angeles Times]

--Due to the strong dollar, 3M reported revenues fell 5.5 percent year over year to $7.69 billion, less than expected. The shares were hit hard.

--Visa Inc. reported profits rose 25 percent in its latest fiscal quarter with higher payment volume. Sales rose to $3.52 billion from $3.16 billion.

--Shares in American Express Co. fell as revenue declined 4% for the second quarter, though excluding the impact of currency conversions rose 5%. The net figure was below expectations. The company noted spending growth on Costco cards in the U.S. has slowed, AmEx having been the only credit card accepted at Costco for 16 years, a relationship it was previously announced would end in 2016. The move is expected to have a big impact on AmEx because one in every 10 AmEx cards in circulation are Costco cards. [Robin Sidel / Wall Street Journal]

--Shares in Chipotle soared (after declining initially) as the company reported same-store sales growth that was actually at its weakest pace in more than two years in the last quarter, but, the shares rebounded sharply when on a conference call, management said July same-store sales were “positive” when it was expected they would turn negative. Chipotle also said price increases were sticking.

Profits were up 27 percent, with revenues rising 14 percent.

--Yes, while Chipotle’s sales were rising 14 percent, McDonald’s was reporting global same-store sales decreased 0.7%, with U.S. same-store sales falling 2.0%. They were up 1.2% in Europe, though, another positive sign for that region.

McDonald’s is on the verge of offering breakfast all day long, which makes for big changes in each restaurant. This isn’t easy to do.

--Anthem Inc. agreed to acquire rival Cigna Corp. for $54 billion, creating the health insurance industry’s biggest company by enrollment, the latest in a series of deals in the sector.

Earlier, for example, Aetna Inc. reached a $37-billion deal for Humana Inc.

The combination of Anthem and Cigna has 53 million members, ahead of UnitedHealth Group Inc., which has 46 million. The Aetna-Humana combination would have about 33 million.

Antitrust authorities will have their say. You don’t have to be a brain surgeon to know this means higher premiums.

Isn’t the Affordable Care Act wonderful? With limits on their profits under ObamaCare, the companies need consolidation to lower costs.

--Morgan Stanley reported second-quarter profit fell 8.5 percent from a year earlier, though it beat the Street’s expectations. Total net revenue rose to $9.74 billion from $8.61 billion. Unlike most of its brethren, fixed income and commodities trading net revenues increased over last year.

--Bank of New York Mellon Corp. reported stronger than expected revenues and earnings growth.

--Shares in Capital One Financial Corp. cratered 13% Friday as the company reported it was setting aside $1.1 billion to cover credit losses.

--New York City Mayor Bill de Blasio, who has just been godawful, caved to Uber when he was preparing to go along with City Council, which wanted to place a cap on the number of cars the ride-hailing company can have on the roads of New York.

Instead, de Blasio announced a four-month study on the impact of the cars on traffic and the environment. The city will not stop Uber’s growth during this time.

The council was set to vote for a 1% cap on growth within the city during a yearlong study, with Uber opposing any kind of cap.

Currently, Uber has become a dominant force in Gotham, dispatching 25,000 cars compared to 13,000 yellow cabs.

But Gov. Andrew Cuomo, who can’t stand de Blasio, wants his own review with Uber officials.

--Meanwhile, a panel appointed by Gov. Cuomo recommended that the minimum wage be raised for employees of fast-food chain restaurants throughout the state to $15 an hour. Wages would be raised in New York City first, then the rest of the state.

$15 an hour would represent a 70% increase over the state’s current minimum wage of $8.75.

Similar increases have been approved in the likes of Seattle, San Francisco and Los Angeles.

The thing is in New York, neither the mayor nor the city council has the power to set the minimum wage citywide...it’s up to Albany.

I was watching Dunkin’ Donuts’ CEO on Thursday and I don’t blame him when he said it was wrong that the fast-food industry be singled out in such a fashion. No other industries, just them. That’s a crock.

--South Korea’s quarterly growth rate slowed to 2.2 percent in the second quarter over a year earlier, the slowest pace in more than two years.

--Unemployment in emerging markets has risen to 5.7 percent, from a cyclical low of 5.2 percent in January, according to JPMorgan. Bruce Kasman, chief economist at JPM, noted, “Recessions in Russia and Brazil have been a major driver of the slump in job growth.” India and China are excluded in the numbers for differing reasons.

--Celgene, which earlier reported it was buying the old Merck headquarters across the street from yours truly, announced it was also acquiring another huge Merck campus in Whitehouse Station, N.J.

The company reported second-quarter earnings that were better than expected, with revenues rising 21.6% year over year to $2.28 billion.

--Biogen shares plummeted 22% on Friday after the biotech cut its 2015 earnings forecast.

--Nikkei, Japan’s largest media company, is buying the FT Group from Pearson for about $1.2bn. The FT group is comprised of the Financial Times, a number of related titles and a 50 percent stake in the Economist Group, publisher of The Economist magazine.

The FT’s total circulation in April had risen 12 percent year on year to 722,000 across print and online.

Pearson is opting to focus on its education businesses

--Dr. W. pointed out to me the Barron’s story that noted Japan has an obesity rate of just 3.6%, vs. 35.5% for the U.S. “Under a 2008 law, middle-aged Japanese men whose waistlines are found in yearly checkups to have expanded beyond 33.5 inches, and women, 35.4 inches, are sent to counseling. Companies with chubby workers can face fines.”

Dr. W., hoping the U.S. adopts such a law, wants to invest in the counseling company. 

--Yippee, my local A&P grocery store that I do the bulk of my shopping at is going to survive the bankruptcy of parent Great Atlantic & Pacific Tea Co., though now it will be an Acme. It’s going to be interesting to see which check-out employees survive...it is quite a group.

Foreign Affairs

Iran: In the latest Washington Post/ABC News poll that I detail further below, there is an interesting tidbit. Just 35% of the American electorate approves of the way President Obama is handling the situation with Iran, while 52% disapprove. In a Pew survey, 38% support the nuclear deal, specifically, 48% oppose it.

But in a major, albeit expected, rebuff of Congress, the United Nations Security Council unanimously endorsed a resolution on the Iran deal, after U.S. lawmakers had written President Obama asking him to postpone the U.N. vote until after a 60-day congressional review period mandated by U.S. law. The administration argued the U.N. vote created a 90-day window for the U.S. to review before the deal is implemented.

Sen. Marco Rubio (R-Fla.): “President Obama’s nuclear deal with Iran is a dangerous and destabilizing failure, and it is telling that he is seeking Russia and China’s seal of approval of his deal before administration officials have even briefed Congress,” Rubio said. “The stakes are far too high for America’s security to be outsourced to the United Nations.”

U.S. Defense Secretary Ashton Carter went to the Middle East to sell the nuclear deal, with Israeli Prime Minister Benjamin Netanyahu rejecting the Obama administration’s offers of military aid as “compensation” if he didn’t oppose the deal via Congress.

Carter then met with King Salman of Saudi Arabia, who expressed doubt about the accord’s verification process, as well as questioning the “snapback” mechanism for reimposing sanctions if Iran violated its terms.

Ron Dermer, the Israeli ambassador to Washington and Netanyahu’s close confidant, met between 30 and 40 House Republicans this week, emphasizing Iran’s untrustworthiness. 

Last Saturday, Supreme Leader Ayatollah Khamenei vowed to defy American policies in the region despite the nuclear accord.

Khamenei told supporters that U.S. policies were “180 degrees” opposed to Iran’s, in a Tehran speech punctuated by chants of “Death to America” and “Death to Israel.”

U.S. Secretary of State John Kerry said of Khamenei’s comments, “If it is the policy, it’s very disturbing, very troubling.” [Kerry is like Rip Van Winkle.]

Mohammad Javad Zarif, Iran’s foreign minister and lead negotiator, said most of Iran’s conditions had been met, including so-called “red lines” set by Khamenei.

But Iran’s Revolutionary Guards and other hardliners have started to attack the deal directly.

In remarks broadcast on national television, Iranian President Rouhani pushed back against such critics, saying Iran not only retained Iran’s nuclear energy autonomy, but also removed the sanctions, the goal the Iranian people wanted when they elected him in 2013.

“This is a new page in history,” he said. “It didn’t happen when we reached the deal in Vienna on July 14; it happened on the fourth of August 2013, when the Iranians elected me as their president.”

Rouhani spoke about the sanction’s corrosive effects and how they denied the country access to the global banking system.

Ayatollah Khamenei, who has the final word, did give his tacit support to the deal.

For their part, France and Germany are lining up their business interests, with both governments sending ministers, and in the case of Germany, business leaders, to Tehran. Some in Germany were, however, critical of the haste to explore commerce.

Iranian Foreign Minister Zarif told parliament that the expected surge of foreign businesses into the country would make it difficult for the U.N. to restore sanctions, which of course he is right about.

The Iranian parliament, however, is supposedly waiting at least 80 days before voting on the nuclear agreement, waiting ostensibly to see what the U.S. Congress does.

As for Congress, a recent tally by the Washington Post found that 59 senators opposed the Iran deal, with 14 undecided. Opponents would need the support of 67 senators to override the president’s veto.

But a key Democrat, New York Sen. Charles Schumer, has yet to decide in what is the biggest decision of his career; Schumer being a strong defender of Israel with a large Jewish constituency, while also being in line to replace Harry Reid as Democratic senate leader (minority leader these days).

At the opening hearing on the accord Thursday, Republicans grilled Sec. of State Kerry, Energy Secretary Ernest Moniz and Treasury Sec. Jack Lew.

Foreign Relations Committee Chairman Bob Corker (R-Tenn.) told Kerry, “I believe you’ve been fleeced.” Iran, he said, had gone from being “a rogue nation that had a boot on its neck” with crippling international sanctions to a country that would reap a windfall from sanctions relief and be allowed to develop an “industrial”-strength nuclear program.

Others said Kerry had been “bamboozled.”

Kerry scoffed at the notion there was a better deal to be had, calling it a “fantasy, plain and simple...some sort of unicorn arrangement involving Iran’s complete capitulation.”

If the United States were to walk away from the unilateral agreement it negotiated with its partners, he said, “we’re on our own.”

“Our partners will not walk away with us,” Kerry added, and “we will have squandered the best chance we have to solve this problem through peaceful means.” [Karen DeYoung / Washington Post]

John F. Kerry and Ernest Moniz / Op-ed, Washington Post

“When President Obama took office, he faced an Iran that had mastered the nuclear fuel cycle, had constructed a covert uranium enrichment facility inside a mountain, was on its way to installing nearly 20,000 centrifuges for uranium enrichment, was developing advanced centrifuges and was building a heavy-water reactor that could produce weapons-grade plutonium. If Iran wanted to develop a nuclear weapon, it was already well down that road and the international community had little insight into its program. Against this backdrop the president vowed never to let Iran obtain a nuclear weapon.

“The deal reached in Vienna this month is not only the best way to prevent Iran from having a nuclear weapon, it is the only durable and viable option for achieving this goal. This comprehensive diplomatic resolution has the unified support of the world’s leading powers. It extends the time it would need to develop a nuclear weapon, provides strong verification measures that give us ample time to respond if Iran chooses that path, and takes none of our options off the table....

“If Iran fails to meet its responsibilities, sanctions will snap back into place, and no country can stop that from happening. If Iran tries to break out of the deal altogether, the world will have a longer time period – a year compared with two months – to respond before it could produce a bomb. We also will have the moral authority that comes from exhausting all diplomatic options....

“Without this deal, Iran could take the steps necessary to produce a nuclear weapon. With it, Iran is prohibited from pursuing any of these steps.

“If the international community suspects that Iran is cheating, the International Atomic Energy Agency (IAEA) can request access to any suspicious location. Much has been made about a possible 24-day delay before inspectors could gain access to suspected undeclared nuclear sites. To be clear, the IAEA can request access to any suspicious location with 24 hours’ notice under the Additional Protocol of the Nonproliferation Treaty, which Iran will implement under this deal. This accord does not change that baseline. In fact, the deal enhances it by creating a new mechanism to ensure that the IAEA gets the required access and sets a firm time limit to resolve access issues within 24 days. This mechanism provides an important tool for ensuring that Iran could not delay indefinitely....

“We recognize that Iran remains a threat to stability in the Middle East. That danger is precisely why this deal is so necessary and why we fought so hard for the multilateral arms embargo to remain in place for five years and the embargo on ballistic missiles for eight. U.S. sanctions related to terrorism, human rights and missiles will also continue.

“A nuclear-armed Iran is a threat to our allies in the Middle East, as well as to the United States and the international community. By taking this threat off the table, this deal makes it far less complicated to address the many other problems that we have with Iran’s regional actions.

“President Obama has said clearly that Iran will not get a nuclear weapon. Neither sanctions nor military action can guarantee that outcome. The solution is the comprehensive diplomatic deal reached in Vienna.”

Mitt Romney / Wall Street Journal

“The generational calamity that will result from President Obama’s nuclear deal with Iran will last a very long time indeed. This can be said with perfect confidence because of two undeniable facts.

“First, Iran is led by suicidal, apocalypse-seeking, America-hating, Israel-denying theocratic fanatics. If these ayatollahs have nuclear weapons, they will use them, someday, somewhere. Iran is a major, longtime state sponsor of terrorism; its leaders are entirely bereft of restraint, decency and respect for human life.

“Second, the Obama deal prescribes a pathway for Iran to develop nuclear weapons. The agreement’s defenders contend that it will delay Iran’s nuclear program by 10 to 15 years (about one half of a generation). Perhaps. But no one can say that the deal will prevent Iran from getting the bomb....

“(Even) if inspectors from the International Atomic Energy Agency were able to definitively identify a violation, would the civilized world really be willing and able to ‘snap back’ crippling sanctions on Iran?

“In some ways, the deal may actually speed Iran’s nuclear ambitions. Lifting sanctions will provide a gusher of new oil revenues that can be used to finance nuclear research and development. The oil revenues will also strengthen Iran’s hand as it underwrites terrorism, regime change and sectarian mayhem throughout the Middle East.”

Bret Stephens / Wall Street Journal

“The Iran deal is supposed to prevent a nuclear-arms race in the Middle East. So what better way to get that ball of hopefulness rolling than by arming our regional allies to the teeth?

“ ‘The U.S. is specifically looking at ways to expedite arms transfers to Arab states in the Persian Gulf and is accelerating plans for them to develop an integrated regional ballistic missile defense capability,’ the Journal’s Carol Lee and Gordon Lubold reported Monday. The goal, they add, is to prevent the Saudis ‘from trying to match Tehran’s nuclear capabilities.’

“Let’s follow this logic. If the Iran deal is as fail-safe as President Obama claims, why not prove it by giving the Saudis exactly the same nuclear rights that Iran is now to enjoy? Why race to prevent an ally from developing a capability we have just ceded to an enemy? What’s the point of providing the Saudis with defense capabilities they presumably don’t need?

“A hypochondriac convinced he has cancer isn’t usually offered a course of chemotherapy. What we have here is ObamaCare for Arabia....

“What about ‘snap back sanctions’? This is the make-believe mechanism whereby the slightest Iranian infraction will swiftly be detected and countered by a majority vote of a special multilateral committee that will instantly and forcefully reapply all the sanctions that were previously lifted.

“Because this is how multilateral committees across the ages have always worked. Efficiently and without regard to political or commercial considerations....

“Meantime, Iran gets $150 billion in mostly upfront sanctions relief. Susan Rice insists that ‘for the most part’ the money will be spent on ‘the Iranian people and their economy,’ an insight the national security adviser must have from the same people who briefed her on Benghazi and Bowe Bergdahl. But she also admits that some of the money might be spent on Iran’s ‘bad behavior in the region’ – but that’s OK because the nuclear deal ‘was not designed to prevent them from engaging in bad behavior.’

“Let it be entered into the record that the United States government has agreed to release monies that it believes will be used to fund Iran’s terrorist proxies....

“Iran will get its money. It will redouble its bad behavior. And sooner or later it will probably get its bomb. The most Congress can do now is to lay a political predicate for the next president to disavow the deal. Good luck.”

Eric Edelman and Ray Takeyh / Washington Post

“After two years of painstaking diplomacy, the Obama administration has finally concluded a nuclear agreement with Iran. A careful examination of the Joint Comprehensive Plan of Action (JCPOA) reveals that it concedes an enrichment capacity that is too large; sunset clauses that are too short; a verification regime that is too leaky; and enforcement mechanisms that are too suspect. No agreement is perfect, but at times the scale of imperfection is so great that the judicious course is to reject the deal and renegotiate a more stringent one. The way for this to happen is for Congress to disapprove the JCPOA.”

Meanwhile, Iran continues to hold four Americans hostage. For its part, the Washington Post is aggressively appealing to the U.N. Human Rights Council to increase international pressure on the Iranian government to release jailed Post reporter Jason Rezaian, accusing the Iranians of flagrant human rights violations.

Separately, human rights watchdog Amnesty International Thursday released a report claiming Iran had executed over 690 people from January 1 to July 15, 2015, far exceeding the 246 executions declared by authorities in Iran. A UN investigation had found that Iran executed 753 in all of 2014.

An Amnesty International official said, “The use of the death penalty is always abhorrent, but it raises additional concerns in a country like Iran, where trials are blatantly unfair.”

AI said Iranian executions do not meet international legal standards for which the death penalty is appropriate, noting that many of the executions are for drug-related crimes, along with adultery, sodomy and “vaguely worded national security offenses.” 

Thousands are currently said to be on death row. [The Jerusalem Post]

And late Friday we learned the U.S. is preparing to release convicted Israeli spy Jonathan Pollard from prison after 30 years, a clear attempt to curry favor with the Netanyahu government.

Pollard was sentenced to life in prison after being arrested on charges of spying for Israel in 1985. It’s been a contentious case between the U.S. and Israel ever since.

I don’t like the guy, but he’s served his time. He’s also already scheduled to be released in November.

Netanyahu has personally pressed for his release for years. But MP and former ambassador to the U.S., Michael Oren, said you need to draw a distinction between the Pollard news and the Iran deal.

“While we are delighted that Jonathan Pollard will be a free man again, this will not change in any way our position on the nuclear deal,” he said. “The Pollard case is about justice and clemency and the nuclear deal about security and survival.” [Wall Street Journal]

Iraq/ISIS/Syria: The United States and Turkey reached an agreement in which manned and unmanned American warplanes will be allowed to carry out airstrikes against ISIS from Incirlik Air Base in southern Turkey. Some Obama administration officials are calling this a “game changer,” coming after months of negotiations, but while time will tell, no doubt it is a significant step.

However, this is an example of just what a failed policy President Obama has had when it comes to Syria. What was I saying back in 2012? Set up no-fly zones in Syria in coordination with the Turks, who at the time were pleading to work with the U.S. That would have been the game-changer. Instead, 200,000 have died since then and about 7 million Syrians have become refugees or have been displaced. It didn’t have to be this way! Syria is forever broken. But maybe now ISIS can finally be seriously degraded, at least here.

Thursday, Turkish forces returned fire on ISIS fighters in Syria after a Turkish soldier was killed in a cross-border firefight. There were also reports Turkish warplanes struck IS targets across the border in Syria.

Earlier this week, ISIS killed 32 people, many of them students, in a horrific suicide attack in a Turkish town located near the border, the first large-scale attack of its kind by ISIS militants on Turkish soil.

A U.S. military drone strike reportedly took out the head of the shadowy al-Qaeda offshoot the Khorasan Group in northwest Syria, which has sought to attack Western targets.

As for President Bashar al-Assad, he’s no longer content with chemical attacks with cylinders of chlorine gas and barrel bombs. Now it’s reported his forces are dropping 200-kilogram naval mines from its helicopters into residential neighborhoods.

These explode just a few feet from the ground and the weapons, designed to detonate as a warship approaches, are packed with high-intensity explosives that cause extraordinary damage and terror, experts say.

Barrel bomb attacks have killed more than 3,000 civilians in Aleppo province alone in the last year, according to Amnesty International. [Ruth Pollard / Sydney Morning Herald]

The death toll in last Friday night’s ISIS attack on a crowded marketplace north of Baghdad rose to 120.

As to the effort to retake Anbar province from ISIS, including the city of Ramadi, Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, said his senior field commanders do not require additional U.S. forces or the need to deploy advisers in the field with Iraq’s combat forces for the offensive to succeed.

But thus far an estimated 250 to 300 ISIS militants in Ramadi is holding off 10,000 troops who include Iraqi army, national police, Shiite militias and Sunni tribal forces.

Yemen: Over 3,600 have now died in the fighting here, with the most intense recent action in Aden. For now, Saudi-backed forces have retaken much of the strategic port city, though a Houthi artillery barrage killed 43 last Sunday, underscoring the fragile grip of the anti-Houthi forces.

Ousted president Abd Rabbu Mansour Hadi vowed in a speech to “retake all of Yemen.” Members of his exiled government arrived in Aden last week, accompanied by Saudi special forces, the first time the Saudis have put boots on the ground in this country.

Saudi Arabia: Security forces have arrested 431 suspected members of the Islamic State. They were accused of plotting suicide attacks on security forces and mosques in various parts of the country.

Russia: From Frida Ghitis, special to CNN: “On July 4, while Americans celebrated Independence Day, a cinematic, tension-filled drama unfolded along America’s western skies. In two separate incidents, U.S. fighter jets were scrambled to intercept Russian bombers approaching the country’s airspace; first near the California coast, then just outside U.S. airspace over Alaska.

“The aircraft’s presence was clearly both a warning for the United States, its allies and Russia’s neighbors, and also a bit of bravado to please Putin’s Russian fans. It is also part of a worrying trend.

“True, the Kremlin sent a congratulatory letter on America’s birthday, with Putin apparently telling President Obama that ‘Russian-American relations remain the most important factor of international stability and security.’ But it also noted that the two countries should ‘find solutions to international issues...on principles of equality and respect for each other’s interests.’

“That last point likely sounds ominous to many in Europe – particularly eastern and central Europe and the former Soviet states – because it is unclear following the invasion of Crimea quite how broadly Russia now sees its interests, and in light of repeated near incursions by Russian bombers how far it is willing to push the defense of them....

“Every time Putin pushes, every time Russia prods and provokes, there is a chance that a clash will occur, with unpredictable results. The incentive for continuing to do so is the popularity boost the regime gets at home. But maneuvers like taunting the United States near the homeland on the day of its independence is a risky game. And Putin is playing with fire.”

China: Mainland authorities could be announcing in the coming months an easing of the decades-long one-child policy to let almost all couples have two children, according to local media on Wednesday. China Business News reported the new policy is designed to deal with the greying population. 15.5 percent of the population is at least 60. [South China Morning Post]

Greenpeace said this week that air pollution levels in China’s cities improved in the first six months of this year, but remained far worse than global and domestic standards.

For example, PM2.5 levels (airborne particulates small enough to deeply penetrate the lungs) fell 15.5 percent in January-June from the same period a year earlier. But they still averaged 77.8 micrograms per cubic meter. The World Health Organization’s recommended maximum annual average is 10. [Agence France-Presse]

Japan: A recent Kyodo News poll found 60% of respondents said the Japanese Constitution should not be altered, while 32% called for changing it, at a time Prime Minister Shinzo Abe is seeking to amend the fundamental law, which would allow Japan to be more aggressive in defending its allies and using force.

Meanwhile, Japan called on China to halt construction of oil-and-gas exploration platforms in the East China Sea close to waters claimed by both nations, concerned that Chinese drills could tap reservoirs that extend into Japanese territory.

Random Musings

--According to a new Washington Post/ABC News poll, Donald Trump surged to 24% of registered Republicans and Republican-leaning independents, a six-fold increase in his support since late May, shortly before he formally joined the race.

Wisconsin Gov. Scott Walker is second at 13%, followed by Jeb Bush at 12%. These three are followed by Mike Huckabee, Sen. Marco Rubio, Ben Carson, Sen. Rand Paul and Sen. Ted Cruz. Only the top 10, based on an average of the most recent national polls, will qualify for the first Republican debate in Cleveland on Aug. 6, Fox News being the sponsor.

Among those who have dropped, Bush was at 21% four months ago, Cruz has fallen from 12% shortly after he announced to 4%. Paul was at 11% two months ago and is at 6%. Christie has dropped from 14% in January to 3%.

On the Democratic side, Hillary Clinton is at 68% among registered Democrats and Democratic-leaning Independents. Sen. Bernie Sanders is at 16%. Jim Webb gets 5%, among the other declared candidates.

When Vice President Biden is added to the mix, Clinton is at 63%, Sanders at 14% and Biden at 12%.

But Sanders’ story is all about Iowa and New Hampshire, where as I noted last week he is not only polling well, strong performances in both could really seriously slow the Clinton express.

Back to the Post/ABC survey, President Obama’s overall approval rating is just 45%, 50% disapproving, almost identical to the poll in late May, despite his string of successes over the past six weeks, such as in Supreme Court decisions, the trade victory, and last week’s Iran decision.

Regarding his handling of the economy, 47% say they approve and 48% say they disapprove, exactly the same as the last poll.

Back to Trump, the Post/ABC survey was conducted before his inflammatory remarks about Sen. McCain not being a war hero (“He’s a war hero because he was captured...I like people that weren’t captured”), but the bombast hasn’t seemed to hurt him in the past.

That said, the influential Des Moines Register is calling for Trump and his “bloviating side show” of a campaign to exit the race. The paper cites his antics, ranging from his “attempts to demonize immigrants” to the McCain remarks.

“Trump has proven himself not only unfit to hold office, but unfit to stand on the same stage as his Republican opponents,” the paper wrote.

I’ll be in Iowa in a few weeks and in the bars at the State Fair, I’ll do my own digging on local attitudes. It’s hit or miss as to who I might see among the candidates, but hopefully at least two of them. [I’m going to be there the last four days...at the fair probably three of the four.]

Just to wrap up the Trump remarks on McCain, the senator said The Donald should apologize to military families “of those who have sacrificed in conflict and those who have undergone the prison experience in serving their country.”

Jeb Bush tweeted, “Enough with the slanderous attacks.” Former Texas governor Rick Perry said Trump was “unfit” to serve as the commander-in-chief and called on him to “immediately withdraw.”

Mitt Romney tweeted the difference between Trump and McCain is that “Trump shot himself down. McCain and American veterans are true heroes.”

To which Trump fired back on Twitter: “Why would anybody listen to @MittRomney? He lost an election that should have easily been won against Obama. By the way, so did John McCain!”

Finally, just for the record, I have to note that McCain rejected offers of an early release by the North Vietnamese, knowing this would aid the enemy’s propaganda effort. The man was beaten and tortured. He’s an American war hero...period.

--In a Quinnipiac University poll of three key swing states, Republican candidates Scott Walker, Jeb Bush and Marco Rubio are all ahead of Hillary Clinton. For example in Colorado, Clinton trails Rubio 46-38, Bush 41-36 and Walker 47-38. It’s a similar situation in Iowa, while in Virginia, Rubio, Walker and Bush are 2-3 points ahead of her.

Even more troublesome for Clinton should be the numbers on whether she is trustworthy.

Colorado voters by 62-34 percent say that Clinton is not honest and trustworthy. Iowa voters have the same opinion by a 59-33 margin, while Virginia voters have it at 55-39 (not trustworthy and honest).

[Separately, I’m employing my ‘wait 24 hours’ dictum in the case of the latest news on Hillary and her emails because as I go to post, it just isn’t clear what is going on. First, the New York Times reported two inspectors general had asked the Justice Department to open a criminal investigation into whether sensitive government information was mishandled in connection with her personal email account that she used as secretary of state. But then an official from Justice said later Friday, “The department has received a referral related to the potential compromise of classified information. It is not a criminal referral.” It was a total reversal without explanation. That said the Clinton campaign is scrambling.]

--Back to Donald Trump, poll averages compiled by Real Clear Politics show Clinton beating him 52.8 percent to 33.8 percent.

Among Republicans, the Real Clear Politics average of surveys has Trump trailing only Jeb Bush, 15.5 percent to 15 percent.

Meanwhile, on Thursday, speaking from the border with Mexico, Trump didn’t rule out running as an independent, the ultimate nightmare for Republicans. 

--Editorial / Washington Post

“Gov. John Kasich entered the presidential race on Tuesday as the most accomplished GOP candidate no one has heard of. Mr. Kasich boasts a strong record running one of the most sought-after swing states in the country, Ohio, and he has the solid approval ratings to prove it. Though he is running from the Midwest, he also served 18 years in Congress before returning to Ohio, so he knows the ropes in Washington. The question is whether his many qualities will stand out in a GOP field packed with people who will be louder and angrier. That’s going to be tough, but, we hope, not impossible.

“Mr. Kasich’s strength is his unique blend of conservative values, pragmatic accomplishments and religious conviction, elements of which could appeal to the party’s business and Christian wings without alienating general election voters. A budget hawk, he boasts about righting Ohio’s books and the state’s economic recovery. Openly pious, he claims he is ‘a flawed man’ whose motivation is ‘to honor God’s blessings in my life.’ A member of the House Armed Services Committee during his years in Congress, he favors strengthening the military. He can credibly state that he worked with Ronald Reagan....

“Mr. Kasich’s route to the GOP nomination would run through New Hampshire, where his casual and authentic tone could play well in town-hall meetings. Yet that tone could also be a curse: It may be that Mr. Kasich’s no-nonsense style doesn’t fit with the GOP’s current ethos. He may not even make it on the debate stage. If one of the most serious candidates in the race fails to attract real attention while Donald Trump surges, it would say more about the Republican Party than Mr. Kasich.”

Editorial / Wall Street Journal

“John Kasich joined the Republican presidential cavalcade on Tuesday, making the candidate total 16. If primary voters are spoiled for choice, the Ohio Governor and former nine-term Congressman deserves some notice.

“Mr. Kasich has a capable record in the Buckeye State and as House Budget Chairman in the 1990s, as well as the potential to appeal across the GOP coalition. The question is whether he can overcome his political idiosyncracies and frequent self-control outages....

“Mr. Kasich’s badgering moralizing is one of his less attractive qualities, and his unfiltered streams of political consciousness – he told kids not to use drugs in an aside in his announcement speech Tuesday – may get him into trouble on the trail....

“Then again, no Republican has ever won the White House without carrying the swing state of Ohio, and perhaps Mr. Kasich can take his Buckeye successes national. He’s more likely to find an audience if he underscores his record and economic ideas rather than his moral superiority.”

I’m an unabashed supporter of John Kasich. I do also understand his detractors. But he has a superb background, one of success, and as the Post offers he’s as qualified as anyone in the field.

I love his authenticity as well, but the Journal is right in talking about his moralizing. I just hope he can afford to stick around a while, at least through New Hampshire, because as the field begins to winnow down prior to Iowa, the spotlight will increasingly shine on him. He’ll grow on the electorate...if he can just survive.

--I saw this blurb last weekend from the Tribune News Service:

“New research showed that Republicans will need a larger slice of Latino voters than previously thought if they hope to win the White House in 2016, creating an even tougher hurdle for the eventual nominee.

“Thanks to changing demographics, the conventional math that once said the GOP would need to win a minimum of 40 percent of the Latino electorate no longer holds.

“Now, data suggests that Republicans will need as much as 47 percent of Latino voters – nearly twice the share that Mitt Romney is believed to have captured in 2012.

“That means 47 percent is the new 40 percent: a daunting number.”

Daunting indeed, my fellow elephants.

--New Jersey Dem. Sen. Robert Menendez, indicted on corruption charges, remains a key figure in the White House’s attempts to gain congressional approval on the Iran nuclear agreement, Menendez being a long-time detractor.

But this week he accused federal prosecutors of misconduct that included allowing an FBI agent to give false testimony – saying the Justice Department would “stop at nothing” to convict him.

Menendez’ defense team also claimed prosecutors “advanced salacious allegations of sexual misconduct” while they “intimidated” witnesses and members of the Menendez family. [Carol D. Leonnig / Washington Post]

Needless to say, Menendez wouldn’t appear to be close to stepping down, as had been rumored last spring. But how will this impact his decision on the Iran agreement? I’d say it’s less than 50/50 he stays the course and votes against it.

--Back to Trump, he said the following before an evangelical audience:

“When we go in church and I drink the little wine, which is about the only wine I drink, and I eat the little cracker – I guess that’s a form of asking forgiveness.”

Oh dear.

--After the Supreme Court’s ruling last month legalizing same-sex marriage nationwide, a new AP-GfK poll suggests support for gay unions may be down slightly from earlier in the year.

There is a near-even split over whether local officials with religious objections should be required to issue marriage licenses to same-sex couples, with 47 percent saying that should be the case and 49 percent saying they should be exempt.

Overall, if there’s a conflict, a majority of those questioned think religious liberties should win out over gay rights. 39 percent said it’s more important for the government to protect gay rights, 56 percent said protection of religious liberties should take precedence.

Also according to the poll, 42 percent support same-sex marriage and 40 percent oppose it. 39 percent approve of the Supreme Court ruling, specifically, while 41 percent disapprove.

I’m a little surprised, I guess, by some of the above. And then you have 59 percent of the poll respondents who said wedding-related businesses with religious objections should be allowed to refuse service to gay and lesbian couples, which compares to 52 percent in April.

--A New York Times/CBS News poll conducted last week reveals that “nearly six in 10 Americans, including heavy majorities of both whites and blacks, think race relations are generally bad, and that nearly four in 10 think the situation is getting worse. By comparison, two-thirds of Americans surveyed shortly after President Obama took office said they believed that race relations were generally good.

“68 percent of blacks said race relations were generally bad, the highest level of discontent among blacks during the Obama years and close to the numbers recorded in the aftermath of the riots that followed the 1992 acquittal of Los Angeles police officers charged in the beating of Rodney King.

“Only a fifth of those surveyed said they thought race relations were improving.” [Kevin Sack and Megan Thee-Brenan / New York Times]

President Obama won 95 percent of the black vote and 43 percent of the white vote in 2008, and 93 and 39 percent in his re-election.

--The funniest story of the week, in a week lacking in humor, was the hacking of the Ashley Madison website, a dating site aimed at those looking for extramarital affairs. The intruder threatened to release the real names and personal preferences of the site’s millions of users unless it shuts down.

So look for a surge in business at divorce court.

Personally, I used to drool over Dolly Madison...ice cream, that is. 

--Finally, Kyle Peterson / Wall Street Journal...on the mysteries being uncovered by the New Horizons spacecraft.

“Pluto is alive – and no one knows why....

“(The) planet’s surface is young, renewed and reformed by geological activity...

“But geological processes require heat, and therein lies the riddle. ‘There’s no really good model for how these small planets can have their engines running after four billion years. As planets get smaller, the ratio of surface area compared to their mass goes up. That means that they can’t trap the heat inside very long. They cool off,’ notes Alan Stern, the scientist in charge of the mission.”

So what is going on with the dwarf planet? Bottom line, New Horizons’ “data-transmission speed (is) only a slight fraction of those offered by old dial-up modems, (so) it will take more than a year simply to transmit all the gathered data, and longer for scientists to analyze it,” writes Kyle Peterson.

Ergo, the story of Pluto is just beginning. The debate on whether or not it is a true planet will continue as well. It seems only fair, though, that the Plutonians have a say, but it would appear the results of the poll taken by the Daily Planet will be very slow in coming.

Separately, a near-Earth-sized planet has been found orbiting a star very much like our sun, Kepler-452b, but it’s 1400 light years from Earth in the constellation Cygnus. So it’s going to take a while to determine how the Keplerians handle video reviews for baseball and football.

Actually, we don’t even know if Kepler-452b has an atmosphere, let alone free agency.

---

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

God bless America.
---

Gold closed at $1085 [lowest since Feb. 2010]
Oil $48.14 [lowest weekly close since 3/20/15]

Returns for the week 7/20-7/24

Dow Jones -2.9% [17568]
S&P 500 -2.2% [2079]
S&P MidCap -2.1%
Russell 2000 -3.2%
Nasdaq -2.3% [5088]

Returns for the period 1/1/15-7/24/15

Dow Jones -1.4%
S&P 500 +1.0%
S&P MidCap +1.7%
Russell 2000 +1.8%
Nasdaq +7.4%

Bulls 49.0
Bears 15.6

Have a great week. If you haven’t given to the cause (I can’t expand without your help), click on the gofundme link up top or send a check to PO Box 990, New Providence, NJ 07974.

Also note up above. This is my 850th WIR. It’s still too early to know if it was all worth it. If I make it to 1,000, that’s a very good sign on a number of levels.

Brian Trumbore



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-07/25/2015-      
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Week in Review

07/25/2015

For the week 7/20-7/24

[Posted 10:15 PM ET, Friday]

Edition 850

Washington and Wall Street

What kind of a year has it been thus far in the U.S. equity markets?

Year-to-date returns thru 7/24....

Dow Jones -1.4%
S&P 500 +1.0%
Nasdaq +7.4%

Whoopty-damn-do.

I get into it in detail below, but in terms of the economic data for the week....

The weekly jobless claims figure can be volatile and subject to major revision, but this week’s figure fell by 26,000 to a seasonally adjusted 255,000 in the week ended July 18, the Labor Department said, a 41-year low. Six years ago the figure was nearly 600,000.

Granted, the four-week moving average is 278,000, which is a better gauge, but the recent decline is coinciding with the strongest pace of hiring since the late 1990s.

On the housing front, the news was decidedly mixed. June existing home sales rose 3.2% to 5.49 million on an annualized basis, the fastest pace in eight years (Feb. 2007), according to the National Association of Realtors. The median price rose 6.5% year over year to $236,400, the highest on record before adjusting for inflation. 

But then June new home sales plunged 6.8% to an annualized pace of 482,000, far worse than expected, while May was revised downwards.

It was the busiest week of the year for earnings and while Amazon stole the spotlight at week’s end, some very large companies such as United Technologies, Caterpillar, 3M, IBM and American Express issued poor reports, with the strong dollar continuing to hammer multi-nationals’ profits. The trend of zero, or very small, revenue growth also continues.

And with a broad-based index of commodities hitting its lowest level since 2009, with copper at a 6-year low, gold a new 5-year low, and oil prices back solidly below $50 (as measured by West Texas Intermediate) to $48.14, needless to say stocks in the energy and mining sectors continue to get slammed, owing in no small part to clearly slowing growth in China and elsewhere.

Commodities are also hit by the strong dollar and the feeling the Federal Reserve is preparing to raise interest rates as early as September, which curbs the attractiveness of the likes of gold that don’t pay interest or have the returns of assets such as stocks and bonds.

The Fed’s Open Market Committee meets next week, the last time before the Sept. 16-17 liftoff confab.

Lastly, the Fed articulated a pair of rules on Monday that press Wall Street banks to cut their size and appetite for risk, or force them to face the costs. The Fed completed one rule stating that the eight largest banks needed an additional layer of capital to protect against losses, “reduce their reliance on volatile forms of funding, improve their risk management and cut back on risky assets,” as noted in the Wall Street Journal.

“For Wall Street banks and their investors, the emerging regime presents a series of choices; specifically whether to pay the cost of new regulation, which will fall to the bottom line, or change their business models by shedding businesses or withdrawing from certain markets, such as owning commodities.”

New capital surcharge levels for the Big Eight were levied, from Bank of New York Mellon’s 1% up to JPMorgan Chase’s 4.5%.

J.P. Morgan has been resisting calls from lawmakers to break up its operations, with CEO Jamie Dimon defending the bank’s scale.

“We still want that pre-eminent position, and we’re not going to give that up for anyone,” he said at a JPM investor day in February.

But of the eight, only J.P. Morgan doesn’t have enough current capital to meet the new rule, which comes into full effect in 2019. It ends up being $12.5 billion Dimon and JPM execs need to come up with through cutting businesses and other actions.

One more on an unrelated topic...this trip of President Obama’s to Kenya and Ethiopia is more than a bit unsettling.

Europe and Asia

Greek Prime Minister Alexis Tsipras contained a rebellion in his Syriza party to win parliamentary approval on a second package of reforms that was required by Greece’s creditors to start talks on a third bailout package of 86 billion euro over three years.

The legislation, which covered rules for dealing with failed banks and speeding up the justice system, passed with the backing of 230 votes in the 300-seat chamber, with Tsipras again gaining opposition support, while a quarter of Syriza deputies voted against the bill or abstained.

Tsipras has publicly said he disagrees with measures demanded by Greece’s euro area peers and the IMF, but after he made a U-turn by accepting an 11th hour deal to keep his country in the currency bloc, he told party hardliners to face reality and back the package.

With his reduced support among his own party, though, a snap election for September or October is in the cards, but with a 60% approval rating among the Greek people, Tsipras will do well. What the people like is that while he lost a power struggle with the likes of the Germans, he fought hard for them and he appeared to stand up for national pride...at least that’s how they feel today.

Tsipras faces minimal opposition at this point and if elections were held today, one poll has 42.5% voting for Syriza, nearly double that of the main center-right opposition party, New Democracy, at 21.5%.

Additionally, 70% of the people said they would prefer to accept the bailout deal if it kept Greece in the euro.

All players involved in the bailout negotiations now underway hope to wrap things up by August 20, when Greece owes the European Central Bank a tidy sum (3.2bn euro). But there are more than a few who feel that while it looks as though a third bailout will be agreed to, implementation of the latest reform program is another story.

Former Greek finance minister Yanis Varoufakis said, “This program is going to fail whoever undertakes its implementation. It has failed already.”

Varoufakis said of Tsipras, “We were given a choice between being executed and capitulating. And he decided that capitulation was the ultimate strategy.”

Greek banks reopened on Monday and Athens paid debts due to the ECB and the IMF, while the ECB increased its emergency funding of the banks. But the people were still limited to a 60 euro a day limit in withdrawals, only now they can take out 420 (a week’s worth) all at once should they choose to do so. This is important for the rural elderly in particular who were forced to spend a ton on transportation costs just to take out 60. At least now they only have to make one trip.

But there remains zero commercial banking activity and the economy is still largely frozen, as is the Athens stock market all this time.

Greek government debt fell sharply in the first quarter of this year, according to figures released by Eurostats, to 168.8% of GDP from 177.1% in the fourth quarter of 2014, but I’d be shocked if it didn’t increase again during the tumultuous second quarter.

[The eurozone’s overall debt to GDP ratio ticked up to 92.9% in Q1, with Italy at 135.1% (up from 132.1%), Portugal 129.6%, Spain 98.0%, France 97.5%, the U.K. at 88.5% and Germany at 74.4%. Italy’s figure is more than troublesome.]

Tony Barber / Financial Times

“Once again, it was an agonizingly long piece of Greek parliamentary theatre. But once again, in the early hours of Thursday morning, Alexis Tsipras came out on top....

“There is no doubt about it, Mr. Tsipras is for the time being lord and master of all he surveys on the Greek political scene. His craftiness, his tactical agility and his recent, chameleon-like changes of political color remind me a bit of Francois Mitterrand, the French president from 1981 to 1995 [Ed. Mitterrand abandoned most of his Socialist policies over the time he served, aligning France more closely with Germany]...

“No wonder Mr. Tsipras’ strategists talk openly about calling a snap election in September or October as a way of sealing his supremacy. The prime minister still enjoys broad support from the Greek public, because they admire the way he has tried – as many Greeks see it – to stand up bravely to the cold-blooded northern European-dominated creditors.”

As for the German tag team of Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble, “good cop, bad cop,” a senior German official told Reuters this week:

“Until now Merkel and Schaeuble...worked together to get the most favorable deal for Germany. But that was always premised on the idea that they had the same goal. This time on Greece they didn’t. We got the result that the bad cop didn’t want.”

Schaeuble didn’t get his “Grexit,” but he emerged strengthened and unbowed. If Greece slips again, his Plan B is on the table.

Editorial / The Economist

“Mr. Tsipras faces a mammoth task: the financial system is creaking, unemployment is rising and the recession will surely deepen. And given the emotional swings that the Greeks have already exhibited in the last few weeks, nobody is sure that the specter of Grexit has been banished....

“In the immediate future, if there is any politician who can steer Greece away from the temptations of the hard right, or forces well to the left even of Syriza, he is probably the one. Still, even if he behaves perfectly, and even if Grexit doesn’t come back onto the table, it seems hard, to people in Athens as much as Brussels or Berlin, to see how the shattered relationship between the Greeks and their (northern) European neighbors will be repaired.”

The Greeks hate the Germans, and the Germans hate the Greeks. In a recent German poll, 85% rejected further concessions to Greece.

Steven Erlanger of the New York Times had the following in a good piece the other day.

“ ‘(We) see, with this crisis, a qualitative transformation of the European Union into a more coercive bloc, different from the one the founding fathers had in mind, or even the creators of the single currency,’ (said author Hans Kundnani). ‘And Germany is at the heart of that.’

“ ‘The fight over Greece,’ Mr. Kundnani said, ‘took these developments to a new level – a more German Europe and a more coercive E.U.’

“One could argue, as many have, about the correctness of the German prescription of austerity in a time of recession. But the brutality of the negotiations over Greece in Brussels has damaged Germany’s reputation inside the European Union, said Francois Heisbourg, a French analyst.

“ ‘I think the Germans have crossed a line,’ he said, ‘and it will be very difficult for them to walk it back.’

“Jurgen Habermas, a pro-European German intellectual, said that Ms. Merkel and her coalition government, including the center-left Social Democratic Party, ‘have gambled away in one night all the political capital that a better Germany had accumulated in half a century.’”

---

Regarding the eurozone economy, Markit’s flash readings for July showed a Composite PMI for the euro area of 53.7 vs. 54.2 in June. The services PMI is 53.8 (vs. 54.4), while the manufacturing PMI flash reading is 52.2 vs. June’s 52.5.

Chris Williamson, Chief Economist at Markit:

“Eurozone economic growth lost only slight momentum in July amid the rollercoaster events of the Greek debt crisis during the month. The rate of expansion remained reassuringly robust to suggest that it was by-and-large ‘business as usual’ for the region as a whole.”

Eurobits....

--After weeks of volatility, European bond yields have resumed a slow and steady decline, no longer jerked around by the Greece crisis, and helped by the resumption of the ECB’s quantitative easing program and the steady buying of debt. But if the eurozone economy continues to improve, just as in the case of the Fed, the ECB will be forced to raise interest rates and the rout will be on.

--U.K. retail sales unexpectedly declined in June, down 0.2% in June over May.

In China, the Caixin (Markit) flash manufacturing purchasing managers’ index (previously from HSBC), came in at just 48.2 for July, the lowest level in 15 months and less than the 49.7 that economists were expecting, as well as June’s final 49.4...50 being the dividing line between growth and contraction.

After rallying for six straight days on government manipulation, the Shanghai Composite fell on Friday, though finished up a third straight week after a 32% crash the prior three weeks.

A commentary in the Communist Party’s prime mouthpiece, People’s Daily, suggests the government is prepared to intervene in the stock market any time turbulence returns, the article maintaining financial stability should be a top priority.

It said the finance sector was the lifeline of the national economy and warned that instability would jeopardize years of market reform.

“When abnormal volatility and irregularities arise, we must be resolute in taking action and measures when necessary, without hesitation,” the commentary said. “Genuine financial stability must be a proactive, long-term and sustainable stability – not a passive, short-lived and unsustainable stability.” [Daniel Ren / South China Morning Post]

Separately, you know all those stories of Chinese espionage I’ve been putting out here? This week the FBI labeled China “the most dominant threat” to U.S. companies, saying it believed Beijing was the main culprit behind a 53% jump in economic espionage cases its agents are investigating.

FBI officials warned on Thursday that hundreds of billions of dollars were now being lost every year from the theft of trade secrets, intellectual property, sales and pricing information and other company data, posing a national security threat to the U.S.

“China is the most dominant threat we face,” said Randall Coleman, assistant director of the agency’s counterintelligence unit. “The Chinese government plays a significant role. The playing field is not level.”

As reported by Gina Chon of the Financial Times: “In an FBI survey of 165 companies, 50 percent acknowledged that trade secrets or intellectual property had been stolen and 95 percent suspected China was behind the thefts, said William Evanina, counterintelligence executive at the office of the director of national intelligence.”

The whole espionage story is in keeping with my position that you shouldn’t touch anything in China when it comes to investing. I got a kick out of a call from giant hedge fund Bridgewater Associates LP, which was the subject of a page-one article in the Wall Street Journal on Thursday.

Raymond Dalio, who heads up the $169 billion behemoth, co-wrote a note earlier this week telling clients he was particularly concerned about the psychological damage of China’s stock-market decline. Specifically:

“Our views about China have changed. There are now no safe places to invest.”

But then Dalio tried to walk it back, no doubt worried about being hacked by Chinese authorities, with Bridgewater issuing a statement after the article hit that said in part: “Ray Dalio and Bridgewater believe that too much has been made of the shift in their thinking and want to clarify their thinking.

“The observations that were made simply noted that falling stock prices have a negative wealth and negative psychological effect. When a classic stock market bubble bursts, there are negative growth effects. When combined with the debt and economic restructurings underway, that will most likely result in slower growth, and more stimulative government policies to offset these downward pressures.

“Bridgewater’s view that China faces debt and economic restructuring challenges, and that it has the resources and the capable leaders to manage these challenges, remains the same.”

Their leaders, Mr. Dalio, especially the man at the top, are to be feared, though I kind of respect Premier Li Keqiang. I wish he was in charge, not Xi. [Kind of like Putin compared to Medvedev. The Western world would love Medvedev to be the one pulling the strings in Moscow, for sure.]

Regarding Japan, the International Monetary Fund warned the country needs to “reload its economic reforms,” “Abenomics,” or risk “stagnation” and turmoil in financial markets. The IMF is only projecting a growth rate of 0.8% in 2015 and 1.2% in 2016.

The IMF emphasized the recovery in Japan was fragile. Japan’s flash PMI on manufacturing for July was 51.4 vs. 50.1 in June.

Street Bytes

--Stocks suffered through their worst week in months. The Dow Jones lost 2.9% to 17568, its worst week since January (one article I read said December). The S&P 500 fell 2.2% and Nasdaq 2.3%, the worst for these two since March. The earnings just aren’t that good, with a handful of exceptions. It’s the same old, same old....yes, some companies do a good job of managing expectations (and financial engineering), but when you examine the internals, particularly revenue growth, they’ve been putrid for years.

--U.S. Treasury Yields

6-mo. 0.13% 2-yr. 0.68% 10-yr. 2.26% 30-yr. 2.96%

Yields on the longer end of the curve fell due to a little flight to quality, which is being exacerbated by the China growth concerns at this point, with Greece temporarily out of the picture.

--In a report put out by Morgan Stanley, since October, the number of rigs actively drilling for new oil around the world has declined by about 42 percent. More than 70,000 oil workers have lost their jobs globally, and in 2015 alone listed oil companies have cut about $130bn in capital expenditures.

But while this would lead to a rebound in prices, and as U.S. production has leveled off since June, OPEC is taking up the role of market spoiler. While the cartel doesn’t have that much spare capacity, now you’re going to have increasing supplies from Iran and Libya, should the situation in the latter improve. A significant rebound in prices doesn’t seem to be in the cards.

[Friday afternoon we learned the U.S. rig count rose by 21 to 659 in the week to July 24, according to the latest data from Baker Hughes, the biggest weekly gain since last April. This isn’t helpful for prices.]

--Back to the mining sector, Anglo American PLC, the U.K. mining giant, announced Friday it was laying off 6,000 positions from corporate offices, and as many as 53,000 employees over several years. The latter figure would come through the sale of mines, not direct layoffs.

--Apple’s profits and revenues for its June quarter beat consensus estimates, though iPhone shipments were a little below expectations and the company gave a slightly weaker-than-expected revenue target for the September quarter, so the shares fell about $5 on the news.

That said, iPhone sales of 47.5 million units were up 35 percent year-on-year, with an average selling price 18 percent higher. Sales in China were also up 112 percent, which means the China market will outstrip the Americas in the coming months. CEO Tim Cook dismissed recent market volatility in China as a mere “speed bump.”

As for Apple Watch, sales of which were not broken out, I’m guessing the product proves to be a bust, though Cook insisted, “Sales of the Watch did exceed our expectations and they did so despite supply still trailing demand at the end of the quarter.”

--Chinese tech giant Huawei reported its global smartphone sales jumped 39 percent in the first half of the year, with overall company revenue up 30 percent.

Huawei said it shipped 48.2 million devices globally in Q1 and Q2, an 87 percent increase in handset revenues over year ago levels.

The company is competing for the top spot in China with Apple and Xiaomi; Xiaomi and Huawei of course ripping off Apple’s intellectual property at every opportunity.

--Toshiba’s CEO and the company vice-chairman are among a bunch of senior staff that are resigning after an investigation into a $1.2bn accounting scandal over a seven-year period.

A panel of external lawyers and accountants said on Monday there was a “systematic” and “deliberate” attempt to inflate profit figures, while employees were afraid to speak out against bosses’ pushes for unrealistic earnings targets. [Kana Inagaki / Financial Times]

--Microsoft reported a $3.2bn net loss in the latest quarter, the worst in its history, as it struggled to put its failed acquisition of Nokia’s handset business behind it. A recent slump in the PC market also didn’t help.

But, Microsoft did manage to top Wall Street’s revenue and earnings expectations, thanks largely to a jump in its Surface tablet and Xbox game consoles.

Sales of software licenses to PC makers fell by 22 percent, with both Windows and Office suffering from a decline in shipments; research firm Gartner earlier reporting a 9.5 percent decline in new machines in the latest quarter.

Overall, Microsoft’s revenues fell 5 percent to $22.2 billion.

--Revenue at IBM fell 13 percent in the second quarter, the 13th consecutive quarter of falling sales, though 9 percentage points were a result of the currency effect. IBM also continues to shed some businesses. 

Instead, CEO Virginia M. Rometty pointed to revenue from newer businesses the company calls “strategic initiatives” rising 30 percent in the quarter, with cloud computing revenue up more than 70 percent.

But the traditional hardware, software and services business continues to erode.

Overall revenue fell short of the Street’s expectations and the shares were hammered, though adjusted earnings were better than forecast.

--German exports to Russia slumped 34 percent in the first five months of the year due to Western sanctions imposed on Moscow over the Ukraine crisis. The decline could end up being to levels just half the 2012 export record.

--Shares in Amazon soared nearly 20 percent (before a bizarre late Friday selloff pared the gain to 10 percent), with the company’s market cap now about $16 billion ahead of Walmart’s, as the Web giant reported better-than-expected revenue growth of 20 percent to $23.2 billion, while the company reported a profit of $92 million, 19 cents a share, when a loss of 14 cents had been expected.

Amazon’s cloud-computing division saw its revenue surge to $1.82 billion, up from $1 billion a year earlier, with an operating profit of $391 million.

All in all, exactly what investors have been waiting for; proof the company can earn profits and that its new initiatives, like in the Cloud, are bearing fruit far sooner than expected.

As for the share price and multiple, hey, I’ve said for about a decade you can’t short it. Thousands have died trying to do so.

--Yahoo reported earnings that were less than expected, though revenues beat the Street, with revenue from display ads rising 3.3 percent.

--Qualcomm announced it would cut about 15 percent of its staff, somewhere between 4,500 and 5,000 people, as the semiconductor designer and maker of chips used in smartphones reported net income had declined 47 percent in the recent quarter as revenue fell 14 percent to $5.8 billion, from $6.8 billion last year.

--United Technologies cut its annual profit forecast, with its Otis Elevator business being blamed, as in Otis had sales growth in Europe and the Americas, but new orders fell 10% in China in the second quarter.

--Caterpillar continued to struggle amid the global slump in commodities and ongoing weakness in the likes of China and Brazil. The company that is heavily tied to mining and rapid growth in emerging market economies cut its full-year forecast.

“While economic conditions in the United States are modestly positive, the global economy remains relatively stagnant. Many of the key industries we serve remain weak, and we haven’t seen sustained signs of improvement.”

The gloom, along with the strong dollar, led the company to cut its full-year sales forecast to $49bn from an earlier prediction of $50bn. 56 percent of the company’s revenues come from outside North America.

In Latin America, machine sales fell 50 percent.

--Coca-Cola reported greater than expected earnings for the second quarter, but revenues declined year over year (though ahead of expectations).

--Starbucks reported quarterly same-store sales growth in the Americas of 8 percent, driven largely by higher average spending per visit, with global comps up 7 percent, including an 11 percent increase in Asia. Starbucks beat the Street’s estimates on the bottom line by a penny in earning $626.7 million, 42 cents per share on an adjusted basis. Total revenue for the quarter was $4.88 billion, also slightly better than expected.

--General Motors reported profits of $1.12 billion in the second quarter, compared with $190 million in the same period a year ago, exceeding expectations. Significantly, GM lost only $45 million in Europe, a big improvement from a $305 million loss in the region last year. Losses in South America, however, grew to $144 million.

Pretax profits in North America were $2.78 billion, compared with $1.39 billion a year ago.

The stock rose 4 percent in response.

--Boeing reported revenues at its commercial aircraft division climbed 18% to $16.9bn in the quarter. Boeing’s overall revenues for the quarter rose to $34.5bn from $22bn.

--SpaceX founder Elon Musk said the company believes its rocket disintegrated last month because of a shoddy part, a small steel band purchased from a subcontractor snapped under pressure.

The 2-foot-long strut “was a purchased part,” Musk said. “We just install it at SpaceX.”

But Musk also said he believed some employees at SpaceX had become complacent about quality control after about 20 successful prior launches, since its last failure in 2008.

“Most people at the company today have only ever seen success,” Musk said. “When you’ve only ever seen success, you don’t fear failure quite as much.” [Melody Petersen / Los Angeles Times]

--Due to the strong dollar, 3M reported revenues fell 5.5 percent year over year to $7.69 billion, less than expected. The shares were hit hard.

--Visa Inc. reported profits rose 25 percent in its latest fiscal quarter with higher payment volume. Sales rose to $3.52 billion from $3.16 billion.

--Shares in American Express Co. fell as revenue declined 4% for the second quarter, though excluding the impact of currency conversions rose 5%. The net figure was below expectations. The company noted spending growth on Costco cards in the U.S. has slowed, AmEx having been the only credit card accepted at Costco for 16 years, a relationship it was previously announced would end in 2016. The move is expected to have a big impact on AmEx because one in every 10 AmEx cards in circulation are Costco cards. [Robin Sidel / Wall Street Journal]

--Shares in Chipotle soared (after declining initially) as the company reported same-store sales growth that was actually at its weakest pace in more than two years in the last quarter, but, the shares rebounded sharply when on a conference call, management said July same-store sales were “positive” when it was expected they would turn negative. Chipotle also said price increases were sticking.

Profits were up 27 percent, with revenues rising 14 percent.

--Yes, while Chipotle’s sales were rising 14 percent, McDonald’s was reporting global same-store sales decreased 0.7%, with U.S. same-store sales falling 2.0%. They were up 1.2% in Europe, though, another positive sign for that region.

McDonald’s is on the verge of offering breakfast all day long, which makes for big changes in each restaurant. This isn’t easy to do.

--Anthem Inc. agreed to acquire rival Cigna Corp. for $54 billion, creating the health insurance industry’s biggest company by enrollment, the latest in a series of deals in the sector.

Earlier, for example, Aetna Inc. reached a $37-billion deal for Humana Inc.

The combination of Anthem and Cigna has 53 million members, ahead of UnitedHealth Group Inc., which has 46 million. The Aetna-Humana combination would have about 33 million.

Antitrust authorities will have their say. You don’t have to be a brain surgeon to know this means higher premiums.

Isn’t the Affordable Care Act wonderful? With limits on their profits under ObamaCare, the companies need consolidation to lower costs.

--Morgan Stanley reported second-quarter profit fell 8.5 percent from a year earlier, though it beat the Street’s expectations. Total net revenue rose to $9.74 billion from $8.61 billion. Unlike most of its brethren, fixed income and commodities trading net revenues increased over last year.

--Bank of New York Mellon Corp. reported stronger than expected revenues and earnings growth.

--Shares in Capital One Financial Corp. cratered 13% Friday as the company reported it was setting aside $1.1 billion to cover credit losses.

--New York City Mayor Bill de Blasio, who has just been godawful, caved to Uber when he was preparing to go along with City Council, which wanted to place a cap on the number of cars the ride-hailing company can have on the roads of New York.

Instead, de Blasio announced a four-month study on the impact of the cars on traffic and the environment. The city will not stop Uber’s growth during this time.

The council was set to vote for a 1% cap on growth within the city during a yearlong study, with Uber opposing any kind of cap.

Currently, Uber has become a dominant force in Gotham, dispatching 25,000 cars compared to 13,000 yellow cabs.

But Gov. Andrew Cuomo, who can’t stand de Blasio, wants his own review with Uber officials.

--Meanwhile, a panel appointed by Gov. Cuomo recommended that the minimum wage be raised for employees of fast-food chain restaurants throughout the state to $15 an hour. Wages would be raised in New York City first, then the rest of the state.

$15 an hour would represent a 70% increase over the state’s current minimum wage of $8.75.

Similar increases have been approved in the likes of Seattle, San Francisco and Los Angeles.

The thing is in New York, neither the mayor nor the city council has the power to set the minimum wage citywide...it’s up to Albany.

I was watching Dunkin’ Donuts’ CEO on Thursday and I don’t blame him when he said it was wrong that the fast-food industry be singled out in such a fashion. No other industries, just them. That’s a crock.

--South Korea’s quarterly growth rate slowed to 2.2 percent in the second quarter over a year earlier, the slowest pace in more than two years.

--Unemployment in emerging markets has risen to 5.7 percent, from a cyclical low of 5.2 percent in January, according to JPMorgan. Bruce Kasman, chief economist at JPM, noted, “Recessions in Russia and Brazil have been a major driver of the slump in job growth.” India and China are excluded in the numbers for differing reasons.

--Celgene, which earlier reported it was buying the old Merck headquarters across the street from yours truly, announced it was also acquiring another huge Merck campus in Whitehouse Station, N.J.

The company reported second-quarter earnings that were better than expected, with revenues rising 21.6% year over year to $2.28 billion.

--Biogen shares plummeted 22% on Friday after the biotech cut its 2015 earnings forecast.

--Nikkei, Japan’s largest media company, is buying the FT Group from Pearson for about $1.2bn. The FT group is comprised of the Financial Times, a number of related titles and a 50 percent stake in the Economist Group, publisher of The Economist magazine.

The FT’s total circulation in April had risen 12 percent year on year to 722,000 across print and online.

Pearson is opting to focus on its education businesses

--Dr. W. pointed out to me the Barron’s story that noted Japan has an obesity rate of just 3.6%, vs. 35.5% for the U.S. “Under a 2008 law, middle-aged Japanese men whose waistlines are found in yearly checkups to have expanded beyond 33.5 inches, and women, 35.4 inches, are sent to counseling. Companies with chubby workers can face fines.”

Dr. W., hoping the U.S. adopts such a law, wants to invest in the counseling company. 

--Yippee, my local A&P grocery store that I do the bulk of my shopping at is going to survive the bankruptcy of parent Great Atlantic & Pacific Tea Co., though now it will be an Acme. It’s going to be interesting to see which check-out employees survive...it is quite a group.

Foreign Affairs

Iran: In the latest Washington Post/ABC News poll that I detail further below, there is an interesting tidbit. Just 35% of the American electorate approves of the way President Obama is handling the situation with Iran, while 52% disapprove. In a Pew survey, 38% support the nuclear deal, specifically, 48% oppose it.

But in a major, albeit expected, rebuff of Congress, the United Nations Security Council unanimously endorsed a resolution on the Iran deal, after U.S. lawmakers had written President Obama asking him to postpone the U.N. vote until after a 60-day congressional review period mandated by U.S. law. The administration argued the U.N. vote created a 90-day window for the U.S. to review before the deal is implemented.

Sen. Marco Rubio (R-Fla.): “President Obama’s nuclear deal with Iran is a dangerous and destabilizing failure, and it is telling that he is seeking Russia and China’s seal of approval of his deal before administration officials have even briefed Congress,” Rubio said. “The stakes are far too high for America’s security to be outsourced to the United Nations.”

U.S. Defense Secretary Ashton Carter went to the Middle East to sell the nuclear deal, with Israeli Prime Minister Benjamin Netanyahu rejecting the Obama administration’s offers of military aid as “compensation” if he didn’t oppose the deal via Congress.

Carter then met with King Salman of Saudi Arabia, who expressed doubt about the accord’s verification process, as well as questioning the “snapback” mechanism for reimposing sanctions if Iran violated its terms.

Ron Dermer, the Israeli ambassador to Washington and Netanyahu’s close confidant, met between 30 and 40 House Republicans this week, emphasizing Iran’s untrustworthiness. 

Last Saturday, Supreme Leader Ayatollah Khamenei vowed to defy American policies in the region despite the nuclear accord.

Khamenei told supporters that U.S. policies were “180 degrees” opposed to Iran’s, in a Tehran speech punctuated by chants of “Death to America” and “Death to Israel.”

U.S. Secretary of State John Kerry said of Khamenei’s comments, “If it is the policy, it’s very disturbing, very troubling.” [Kerry is like Rip Van Winkle.]

Mohammad Javad Zarif, Iran’s foreign minister and lead negotiator, said most of Iran’s conditions had been met, including so-called “red lines” set by Khamenei.

But Iran’s Revolutionary Guards and other hardliners have started to attack the deal directly.

In remarks broadcast on national television, Iranian President Rouhani pushed back against such critics, saying Iran not only retained Iran’s nuclear energy autonomy, but also removed the sanctions, the goal the Iranian people wanted when they elected him in 2013.

“This is a new page in history,” he said. “It didn’t happen when we reached the deal in Vienna on July 14; it happened on the fourth of August 2013, when the Iranians elected me as their president.”

Rouhani spoke about the sanction’s corrosive effects and how they denied the country access to the global banking system.

Ayatollah Khamenei, who has the final word, did give his tacit support to the deal.

For their part, France and Germany are lining up their business interests, with both governments sending ministers, and in the case of Germany, business leaders, to Tehran. Some in Germany were, however, critical of the haste to explore commerce.

Iranian Foreign Minister Zarif told parliament that the expected surge of foreign businesses into the country would make it difficult for the U.N. to restore sanctions, which of course he is right about.

The Iranian parliament, however, is supposedly waiting at least 80 days before voting on the nuclear agreement, waiting ostensibly to see what the U.S. Congress does.

As for Congress, a recent tally by the Washington Post found that 59 senators opposed the Iran deal, with 14 undecided. Opponents would need the support of 67 senators to override the president’s veto.

But a key Democrat, New York Sen. Charles Schumer, has yet to decide in what is the biggest decision of his career; Schumer being a strong defender of Israel with a large Jewish constituency, while also being in line to replace Harry Reid as Democratic senate leader (minority leader these days).

At the opening hearing on the accord Thursday, Republicans grilled Sec. of State Kerry, Energy Secretary Ernest Moniz and Treasury Sec. Jack Lew.

Foreign Relations Committee Chairman Bob Corker (R-Tenn.) told Kerry, “I believe you’ve been fleeced.” Iran, he said, had gone from being “a rogue nation that had a boot on its neck” with crippling international sanctions to a country that would reap a windfall from sanctions relief and be allowed to develop an “industrial”-strength nuclear program.

Others said Kerry had been “bamboozled.”

Kerry scoffed at the notion there was a better deal to be had, calling it a “fantasy, plain and simple...some sort of unicorn arrangement involving Iran’s complete capitulation.”

If the United States were to walk away from the unilateral agreement it negotiated with its partners, he said, “we’re on our own.”

“Our partners will not walk away with us,” Kerry added, and “we will have squandered the best chance we have to solve this problem through peaceful means.” [Karen DeYoung / Washington Post]

John F. Kerry and Ernest Moniz / Op-ed, Washington Post

“When President Obama took office, he faced an Iran that had mastered the nuclear fuel cycle, had constructed a covert uranium enrichment facility inside a mountain, was on its way to installing nearly 20,000 centrifuges for uranium enrichment, was developing advanced centrifuges and was building a heavy-water reactor that could produce weapons-grade plutonium. If Iran wanted to develop a nuclear weapon, it was already well down that road and the international community had little insight into its program. Against this backdrop the president vowed never to let Iran obtain a nuclear weapon.

“The deal reached in Vienna this month is not only the best way to prevent Iran from having a nuclear weapon, it is the only durable and viable option for achieving this goal. This comprehensive diplomatic resolution has the unified support of the world’s leading powers. It extends the time it would need to develop a nuclear weapon, provides strong verification measures that give us ample time to respond if Iran chooses that path, and takes none of our options off the table....

“If Iran fails to meet its responsibilities, sanctions will snap back into place, and no country can stop that from happening. If Iran tries to break out of the deal altogether, the world will have a longer time period – a year compared with two months – to respond before it could produce a bomb. We also will have the moral authority that comes from exhausting all diplomatic options....

“Without this deal, Iran could take the steps necessary to produce a nuclear weapon. With it, Iran is prohibited from pursuing any of these steps.

“If the international community suspects that Iran is cheating, the International Atomic Energy Agency (IAEA) can request access to any suspicious location. Much has been made about a possible 24-day delay before inspectors could gain access to suspected undeclared nuclear sites. To be clear, the IAEA can request access to any suspicious location with 24 hours’ notice under the Additional Protocol of the Nonproliferation Treaty, which Iran will implement under this deal. This accord does not change that baseline. In fact, the deal enhances it by creating a new mechanism to ensure that the IAEA gets the required access and sets a firm time limit to resolve access issues within 24 days. This mechanism provides an important tool for ensuring that Iran could not delay indefinitely....

“We recognize that Iran remains a threat to stability in the Middle East. That danger is precisely why this deal is so necessary and why we fought so hard for the multilateral arms embargo to remain in place for five years and the embargo on ballistic missiles for eight. U.S. sanctions related to terrorism, human rights and missiles will also continue.

“A nuclear-armed Iran is a threat to our allies in the Middle East, as well as to the United States and the international community. By taking this threat off the table, this deal makes it far less complicated to address the many other problems that we have with Iran’s regional actions.

“President Obama has said clearly that Iran will not get a nuclear weapon. Neither sanctions nor military action can guarantee that outcome. The solution is the comprehensive diplomatic deal reached in Vienna.”

Mitt Romney / Wall Street Journal

“The generational calamity that will result from President Obama’s nuclear deal with Iran will last a very long time indeed. This can be said with perfect confidence because of two undeniable facts.

“First, Iran is led by suicidal, apocalypse-seeking, America-hating, Israel-denying theocratic fanatics. If these ayatollahs have nuclear weapons, they will use them, someday, somewhere. Iran is a major, longtime state sponsor of terrorism; its leaders are entirely bereft of restraint, decency and respect for human life.

“Second, the Obama deal prescribes a pathway for Iran to develop nuclear weapons. The agreement’s defenders contend that it will delay Iran’s nuclear program by 10 to 15 years (about one half of a generation). Perhaps. But no one can say that the deal will prevent Iran from getting the bomb....

“(Even) if inspectors from the International Atomic Energy Agency were able to definitively identify a violation, would the civilized world really be willing and able to ‘snap back’ crippling sanctions on Iran?

“In some ways, the deal may actually speed Iran’s nuclear ambitions. Lifting sanctions will provide a gusher of new oil revenues that can be used to finance nuclear research and development. The oil revenues will also strengthen Iran’s hand as it underwrites terrorism, regime change and sectarian mayhem throughout the Middle East.”

Bret Stephens / Wall Street Journal

“The Iran deal is supposed to prevent a nuclear-arms race in the Middle East. So what better way to get that ball of hopefulness rolling than by arming our regional allies to the teeth?

“ ‘The U.S. is specifically looking at ways to expedite arms transfers to Arab states in the Persian Gulf and is accelerating plans for them to develop an integrated regional ballistic missile defense capability,’ the Journal’s Carol Lee and Gordon Lubold reported Monday. The goal, they add, is to prevent the Saudis ‘from trying to match Tehran’s nuclear capabilities.’

“Let’s follow this logic. If the Iran deal is as fail-safe as President Obama claims, why not prove it by giving the Saudis exactly the same nuclear rights that Iran is now to enjoy? Why race to prevent an ally from developing a capability we have just ceded to an enemy? What’s the point of providing the Saudis with defense capabilities they presumably don’t need?

“A hypochondriac convinced he has cancer isn’t usually offered a course of chemotherapy. What we have here is ObamaCare for Arabia....

“What about ‘snap back sanctions’? This is the make-believe mechanism whereby the slightest Iranian infraction will swiftly be detected and countered by a majority vote of a special multilateral committee that will instantly and forcefully reapply all the sanctions that were previously lifted.

“Because this is how multilateral committees across the ages have always worked. Efficiently and without regard to political or commercial considerations....

“Meantime, Iran gets $150 billion in mostly upfront sanctions relief. Susan Rice insists that ‘for the most part’ the money will be spent on ‘the Iranian people and their economy,’ an insight the national security adviser must have from the same people who briefed her on Benghazi and Bowe Bergdahl. But she also admits that some of the money might be spent on Iran’s ‘bad behavior in the region’ – but that’s OK because the nuclear deal ‘was not designed to prevent them from engaging in bad behavior.’

“Let it be entered into the record that the United States government has agreed to release monies that it believes will be used to fund Iran’s terrorist proxies....

“Iran will get its money. It will redouble its bad behavior. And sooner or later it will probably get its bomb. The most Congress can do now is to lay a political predicate for the next president to disavow the deal. Good luck.”

Eric Edelman and Ray Takeyh / Washington Post

“After two years of painstaking diplomacy, the Obama administration has finally concluded a nuclear agreement with Iran. A careful examination of the Joint Comprehensive Plan of Action (JCPOA) reveals that it concedes an enrichment capacity that is too large; sunset clauses that are too short; a verification regime that is too leaky; and enforcement mechanisms that are too suspect. No agreement is perfect, but at times the scale of imperfection is so great that the judicious course is to reject the deal and renegotiate a more stringent one. The way for this to happen is for Congress to disapprove the JCPOA.”

Meanwhile, Iran continues to hold four Americans hostage. For its part, the Washington Post is aggressively appealing to the U.N. Human Rights Council to increase international pressure on the Iranian government to release jailed Post reporter Jason Rezaian, accusing the Iranians of flagrant human rights violations.

Separately, human rights watchdog Amnesty International Thursday released a report claiming Iran had executed over 690 people from January 1 to July 15, 2015, far exceeding the 246 executions declared by authorities in Iran. A UN investigation had found that Iran executed 753 in all of 2014.

An Amnesty International official said, “The use of the death penalty is always abhorrent, but it raises additional concerns in a country like Iran, where trials are blatantly unfair.”

AI said Iranian executions do not meet international legal standards for which the death penalty is appropriate, noting that many of the executions are for drug-related crimes, along with adultery, sodomy and “vaguely worded national security offenses.” 

Thousands are currently said to be on death row. [The Jerusalem Post]

And late Friday we learned the U.S. is preparing to release convicted Israeli spy Jonathan Pollard from prison after 30 years, a clear attempt to curry favor with the Netanyahu government.

Pollard was sentenced to life in prison after being arrested on charges of spying for Israel in 1985. It’s been a contentious case between the U.S. and Israel ever since.

I don’t like the guy, but he’s served his time. He’s also already scheduled to be released in November.

Netanyahu has personally pressed for his release for years. But MP and former ambassador to the U.S., Michael Oren, said you need to draw a distinction between the Pollard news and the Iran deal.

“While we are delighted that Jonathan Pollard will be a free man again, this will not change in any way our position on the nuclear deal,” he said. “The Pollard case is about justice and clemency and the nuclear deal about security and survival.” [Wall Street Journal]

Iraq/ISIS/Syria: The United States and Turkey reached an agreement in which manned and unmanned American warplanes will be allowed to carry out airstrikes against ISIS from Incirlik Air Base in southern Turkey. Some Obama administration officials are calling this a “game changer,” coming after months of negotiations, but while time will tell, no doubt it is a significant step.

However, this is an example of just what a failed policy President Obama has had when it comes to Syria. What was I saying back in 2012? Set up no-fly zones in Syria in coordination with the Turks, who at the time were pleading to work with the U.S. That would have been the game-changer. Instead, 200,000 have died since then and about 7 million Syrians have become refugees or have been displaced. It didn’t have to be this way! Syria is forever broken. But maybe now ISIS can finally be seriously degraded, at least here.

Thursday, Turkish forces returned fire on ISIS fighters in Syria after a Turkish soldier was killed in a cross-border firefight. There were also reports Turkish warplanes struck IS targets across the border in Syria.

Earlier this week, ISIS killed 32 people, many of them students, in a horrific suicide attack in a Turkish town located near the border, the first large-scale attack of its kind by ISIS militants on Turkish soil.

A U.S. military drone strike reportedly took out the head of the shadowy al-Qaeda offshoot the Khorasan Group in northwest Syria, which has sought to attack Western targets.

As for President Bashar al-Assad, he’s no longer content with chemical attacks with cylinders of chlorine gas and barrel bombs. Now it’s reported his forces are dropping 200-kilogram naval mines from its helicopters into residential neighborhoods.

These explode just a few feet from the ground and the weapons, designed to detonate as a warship approaches, are packed with high-intensity explosives that cause extraordinary damage and terror, experts say.

Barrel bomb attacks have killed more than 3,000 civilians in Aleppo province alone in the last year, according to Amnesty International. [Ruth Pollard / Sydney Morning Herald]

The death toll in last Friday night’s ISIS attack on a crowded marketplace north of Baghdad rose to 120.

As to the effort to retake Anbar province from ISIS, including the city of Ramadi, Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, said his senior field commanders do not require additional U.S. forces or the need to deploy advisers in the field with Iraq’s combat forces for the offensive to succeed.

But thus far an estimated 250 to 300 ISIS militants in Ramadi is holding off 10,000 troops who include Iraqi army, national police, Shiite militias and Sunni tribal forces.

Yemen: Over 3,600 have now died in the fighting here, with the most intense recent action in Aden. For now, Saudi-backed forces have retaken much of the strategic port city, though a Houthi artillery barrage killed 43 last Sunday, underscoring the fragile grip of the anti-Houthi forces.

Ousted president Abd Rabbu Mansour Hadi vowed in a speech to “retake all of Yemen.” Members of his exiled government arrived in Aden last week, accompanied by Saudi special forces, the first time the Saudis have put boots on the ground in this country.

Saudi Arabia: Security forces have arrested 431 suspected members of the Islamic State. They were accused of plotting suicide attacks on security forces and mosques in various parts of the country.

Russia: From Frida Ghitis, special to CNN: “On July 4, while Americans celebrated Independence Day, a cinematic, tension-filled drama unfolded along America’s western skies. In two separate incidents, U.S. fighter jets were scrambled to intercept Russian bombers approaching the country’s airspace; first near the California coast, then just outside U.S. airspace over Alaska.

“The aircraft’s presence was clearly both a warning for the United States, its allies and Russia’s neighbors, and also a bit of bravado to please Putin’s Russian fans. It is also part of a worrying trend.

“True, the Kremlin sent a congratulatory letter on America’s birthday, with Putin apparently telling President Obama that ‘Russian-American relations remain the most important factor of international stability and security.’ But it also noted that the two countries should ‘find solutions to international issues...on principles of equality and respect for each other’s interests.’

“That last point likely sounds ominous to many in Europe – particularly eastern and central Europe and the former Soviet states – because it is unclear following the invasion of Crimea quite how broadly Russia now sees its interests, and in light of repeated near incursions by Russian bombers how far it is willing to push the defense of them....

“Every time Putin pushes, every time Russia prods and provokes, there is a chance that a clash will occur, with unpredictable results. The incentive for continuing to do so is the popularity boost the regime gets at home. But maneuvers like taunting the United States near the homeland on the day of its independence is a risky game. And Putin is playing with fire.”

China: Mainland authorities could be announcing in the coming months an easing of the decades-long one-child policy to let almost all couples have two children, according to local media on Wednesday. China Business News reported the new policy is designed to deal with the greying population. 15.5 percent of the population is at least 60. [South China Morning Post]

Greenpeace said this week that air pollution levels in China’s cities improved in the first six months of this year, but remained far worse than global and domestic standards.

For example, PM2.5 levels (airborne particulates small enough to deeply penetrate the lungs) fell 15.5 percent in January-June from the same period a year earlier. But they still averaged 77.8 micrograms per cubic meter. The World Health Organization’s recommended maximum annual average is 10. [Agence France-Presse]

Japan: A recent Kyodo News poll found 60% of respondents said the Japanese Constitution should not be altered, while 32% called for changing it, at a time Prime Minister Shinzo Abe is seeking to amend the fundamental law, which would allow Japan to be more aggressive in defending its allies and using force.

Meanwhile, Japan called on China to halt construction of oil-and-gas exploration platforms in the East China Sea close to waters claimed by both nations, concerned that Chinese drills could tap reservoirs that extend into Japanese territory.

Random Musings

--According to a new Washington Post/ABC News poll, Donald Trump surged to 24% of registered Republicans and Republican-leaning independents, a six-fold increase in his support since late May, shortly before he formally joined the race.

Wisconsin Gov. Scott Walker is second at 13%, followed by Jeb Bush at 12%. These three are followed by Mike Huckabee, Sen. Marco Rubio, Ben Carson, Sen. Rand Paul and Sen. Ted Cruz. Only the top 10, based on an average of the most recent national polls, will qualify for the first Republican debate in Cleveland on Aug. 6, Fox News being the sponsor.

Among those who have dropped, Bush was at 21% four months ago, Cruz has fallen from 12% shortly after he announced to 4%. Paul was at 11% two months ago and is at 6%. Christie has dropped from 14% in January to 3%.

On the Democratic side, Hillary Clinton is at 68% among registered Democrats and Democratic-leaning Independents. Sen. Bernie Sanders is at 16%. Jim Webb gets 5%, among the other declared candidates.

When Vice President Biden is added to the mix, Clinton is at 63%, Sanders at 14% and Biden at 12%.

But Sanders’ story is all about Iowa and New Hampshire, where as I noted last week he is not only polling well, strong performances in both could really seriously slow the Clinton express.

Back to the Post/ABC survey, President Obama’s overall approval rating is just 45%, 50% disapproving, almost identical to the poll in late May, despite his string of successes over the past six weeks, such as in Supreme Court decisions, the trade victory, and last week’s Iran decision.

Regarding his handling of the economy, 47% say they approve and 48% say they disapprove, exactly the same as the last poll.

Back to Trump, the Post/ABC survey was conducted before his inflammatory remarks about Sen. McCain not being a war hero (“He’s a war hero because he was captured...I like people that weren’t captured”), but the bombast hasn’t seemed to hurt him in the past.

That said, the influential Des Moines Register is calling for Trump and his “bloviating side show” of a campaign to exit the race. The paper cites his antics, ranging from his “attempts to demonize immigrants” to the McCain remarks.

“Trump has proven himself not only unfit to hold office, but unfit to stand on the same stage as his Republican opponents,” the paper wrote.

I’ll be in Iowa in a few weeks and in the bars at the State Fair, I’ll do my own digging on local attitudes. It’s hit or miss as to who I might see among the candidates, but hopefully at least two of them. [I’m going to be there the last four days...at the fair probably three of the four.]

Just to wrap up the Trump remarks on McCain, the senator said The Donald should apologize to military families “of those who have sacrificed in conflict and those who have undergone the prison experience in serving their country.”

Jeb Bush tweeted, “Enough with the slanderous attacks.” Former Texas governor Rick Perry said Trump was “unfit” to serve as the commander-in-chief and called on him to “immediately withdraw.”

Mitt Romney tweeted the difference between Trump and McCain is that “Trump shot himself down. McCain and American veterans are true heroes.”

To which Trump fired back on Twitter: “Why would anybody listen to @MittRomney? He lost an election that should have easily been won against Obama. By the way, so did John McCain!”

Finally, just for the record, I have to note that McCain rejected offers of an early release by the North Vietnamese, knowing this would aid the enemy’s propaganda effort. The man was beaten and tortured. He’s an American war hero...period.

--In a Quinnipiac University poll of three key swing states, Republican candidates Scott Walker, Jeb Bush and Marco Rubio are all ahead of Hillary Clinton. For example in Colorado, Clinton trails Rubio 46-38, Bush 41-36 and Walker 47-38. It’s a similar situation in Iowa, while in Virginia, Rubio, Walker and Bush are 2-3 points ahead of her.

Even more troublesome for Clinton should be the numbers on whether she is trustworthy.

Colorado voters by 62-34 percent say that Clinton is not honest and trustworthy. Iowa voters have the same opinion by a 59-33 margin, while Virginia voters have it at 55-39 (not trustworthy and honest).

[Separately, I’m employing my ‘wait 24 hours’ dictum in the case of the latest news on Hillary and her emails because as I go to post, it just isn’t clear what is going on. First, the New York Times reported two inspectors general had asked the Justice Department to open a criminal investigation into whether sensitive government information was mishandled in connection with her personal email account that she used as secretary of state. But then an official from Justice said later Friday, “The department has received a referral related to the potential compromise of classified information. It is not a criminal referral.” It was a total reversal without explanation. That said the Clinton campaign is scrambling.]

--Back to Donald Trump, poll averages compiled by Real Clear Politics show Clinton beating him 52.8 percent to 33.8 percent.

Among Republicans, the Real Clear Politics average of surveys has Trump trailing only Jeb Bush, 15.5 percent to 15 percent.

Meanwhile, on Thursday, speaking from the border with Mexico, Trump didn’t rule out running as an independent, the ultimate nightmare for Republicans. 

--Editorial / Washington Post

“Gov. John Kasich entered the presidential race on Tuesday as the most accomplished GOP candidate no one has heard of. Mr. Kasich boasts a strong record running one of the most sought-after swing states in the country, Ohio, and he has the solid approval ratings to prove it. Though he is running from the Midwest, he also served 18 years in Congress before returning to Ohio, so he knows the ropes in Washington. The question is whether his many qualities will stand out in a GOP field packed with people who will be louder and angrier. That’s going to be tough, but, we hope, not impossible.

“Mr. Kasich’s strength is his unique blend of conservative values, pragmatic accomplishments and religious conviction, elements of which could appeal to the party’s business and Christian wings without alienating general election voters. A budget hawk, he boasts about righting Ohio’s books and the state’s economic recovery. Openly pious, he claims he is ‘a flawed man’ whose motivation is ‘to honor God’s blessings in my life.’ A member of the House Armed Services Committee during his years in Congress, he favors strengthening the military. He can credibly state that he worked with Ronald Reagan....

“Mr. Kasich’s route to the GOP nomination would run through New Hampshire, where his casual and authentic tone could play well in town-hall meetings. Yet that tone could also be a curse: It may be that Mr. Kasich’s no-nonsense style doesn’t fit with the GOP’s current ethos. He may not even make it on the debate stage. If one of the most serious candidates in the race fails to attract real attention while Donald Trump surges, it would say more about the Republican Party than Mr. Kasich.”

Editorial / Wall Street Journal

“John Kasich joined the Republican presidential cavalcade on Tuesday, making the candidate total 16. If primary voters are spoiled for choice, the Ohio Governor and former nine-term Congressman deserves some notice.

“Mr. Kasich has a capable record in the Buckeye State and as House Budget Chairman in the 1990s, as well as the potential to appeal across the GOP coalition. The question is whether he can overcome his political idiosyncracies and frequent self-control outages....

“Mr. Kasich’s badgering moralizing is one of his less attractive qualities, and his unfiltered streams of political consciousness – he told kids not to use drugs in an aside in his announcement speech Tuesday – may get him into trouble on the trail....

“Then again, no Republican has ever won the White House without carrying the swing state of Ohio, and perhaps Mr. Kasich can take his Buckeye successes national. He’s more likely to find an audience if he underscores his record and economic ideas rather than his moral superiority.”

I’m an unabashed supporter of John Kasich. I do also understand his detractors. But he has a superb background, one of success, and as the Post offers he’s as qualified as anyone in the field.

I love his authenticity as well, but the Journal is right in talking about his moralizing. I just hope he can afford to stick around a while, at least through New Hampshire, because as the field begins to winnow down prior to Iowa, the spotlight will increasingly shine on him. He’ll grow on the electorate...if he can just survive.

--I saw this blurb last weekend from the Tribune News Service:

“New research showed that Republicans will need a larger slice of Latino voters than previously thought if they hope to win the White House in 2016, creating an even tougher hurdle for the eventual nominee.

“Thanks to changing demographics, the conventional math that once said the GOP would need to win a minimum of 40 percent of the Latino electorate no longer holds.

“Now, data suggests that Republicans will need as much as 47 percent of Latino voters – nearly twice the share that Mitt Romney is believed to have captured in 2012.

“That means 47 percent is the new 40 percent: a daunting number.”

Daunting indeed, my fellow elephants.

--New Jersey Dem. Sen. Robert Menendez, indicted on corruption charges, remains a key figure in the White House’s attempts to gain congressional approval on the Iran nuclear agreement, Menendez being a long-time detractor.

But this week he accused federal prosecutors of misconduct that included allowing an FBI agent to give false testimony – saying the Justice Department would “stop at nothing” to convict him.

Menendez’ defense team also claimed prosecutors “advanced salacious allegations of sexual misconduct” while they “intimidated” witnesses and members of the Menendez family. [Carol D. Leonnig / Washington Post]

Needless to say, Menendez wouldn’t appear to be close to stepping down, as had been rumored last spring. But how will this impact his decision on the Iran agreement? I’d say it’s less than 50/50 he stays the course and votes against it.

--Back to Trump, he said the following before an evangelical audience:

“When we go in church and I drink the little wine, which is about the only wine I drink, and I eat the little cracker – I guess that’s a form of asking forgiveness.”

Oh dear.

--After the Supreme Court’s ruling last month legalizing same-sex marriage nationwide, a new AP-GfK poll suggests support for gay unions may be down slightly from earlier in the year.

There is a near-even split over whether local officials with religious objections should be required to issue marriage licenses to same-sex couples, with 47 percent saying that should be the case and 49 percent saying they should be exempt.

Overall, if there’s a conflict, a majority of those questioned think religious liberties should win out over gay rights. 39 percent said it’s more important for the government to protect gay rights, 56 percent said protection of religious liberties should take precedence.

Also according to the poll, 42 percent support same-sex marriage and 40 percent oppose it. 39 percent approve of the Supreme Court ruling, specifically, while 41 percent disapprove.

I’m a little surprised, I guess, by some of the above. And then you have 59 percent of the poll respondents who said wedding-related businesses with religious objections should be allowed to refuse service to gay and lesbian couples, which compares to 52 percent in April.

--A New York Times/CBS News poll conducted last week reveals that “nearly six in 10 Americans, including heavy majorities of both whites and blacks, think race relations are generally bad, and that nearly four in 10 think the situation is getting worse. By comparison, two-thirds of Americans surveyed shortly after President Obama took office said they believed that race relations were generally good.

“68 percent of blacks said race relations were generally bad, the highest level of discontent among blacks during the Obama years and close to the numbers recorded in the aftermath of the riots that followed the 1992 acquittal of Los Angeles police officers charged in the beating of Rodney King.

“Only a fifth of those surveyed said they thought race relations were improving.” [Kevin Sack and Megan Thee-Brenan / New York Times]

President Obama won 95 percent of the black vote and 43 percent of the white vote in 2008, and 93 and 39 percent in his re-election.

--The funniest story of the week, in a week lacking in humor, was the hacking of the Ashley Madison website, a dating site aimed at those looking for extramarital affairs. The intruder threatened to release the real names and personal preferences of the site’s millions of users unless it shuts down.

So look for a surge in business at divorce court.

Personally, I used to drool over Dolly Madison...ice cream, that is. 

--Finally, Kyle Peterson / Wall Street Journal...on the mysteries being uncovered by the New Horizons spacecraft.

“Pluto is alive – and no one knows why....

“(The) planet’s surface is young, renewed and reformed by geological activity...

“But geological processes require heat, and therein lies the riddle. ‘There’s no really good model for how these small planets can have their engines running after four billion years. As planets get smaller, the ratio of surface area compared to their mass goes up. That means that they can’t trap the heat inside very long. They cool off,’ notes Alan Stern, the scientist in charge of the mission.”

So what is going on with the dwarf planet? Bottom line, New Horizons’ “data-transmission speed (is) only a slight fraction of those offered by old dial-up modems, (so) it will take more than a year simply to transmit all the gathered data, and longer for scientists to analyze it,” writes Kyle Peterson.

Ergo, the story of Pluto is just beginning. The debate on whether or not it is a true planet will continue as well. It seems only fair, though, that the Plutonians have a say, but it would appear the results of the poll taken by the Daily Planet will be very slow in coming.

Separately, a near-Earth-sized planet has been found orbiting a star very much like our sun, Kepler-452b, but it’s 1400 light years from Earth in the constellation Cygnus. So it’s going to take a while to determine how the Keplerians handle video reviews for baseball and football.

Actually, we don’t even know if Kepler-452b has an atmosphere, let alone free agency.

---

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

God bless America.
---

Gold closed at $1085 [lowest since Feb. 2010]
Oil $48.14 [lowest weekly close since 3/20/15]

Returns for the week 7/20-7/24

Dow Jones -2.9% [17568]
S&P 500 -2.2% [2079]
S&P MidCap -2.1%
Russell 2000 -3.2%
Nasdaq -2.3% [5088]

Returns for the period 1/1/15-7/24/15

Dow Jones -1.4%
S&P 500 +1.0%
S&P MidCap +1.7%
Russell 2000 +1.8%
Nasdaq +7.4%

Bulls 49.0
Bears 15.6

Have a great week. If you haven’t given to the cause (I can’t expand without your help), click on the gofundme link up top or send a check to PO Box 990, New Providence, NJ 07974.

Also note up above. This is my 850th WIR. It’s still too early to know if it was all worth it. If I make it to 1,000, that’s a very good sign on a number of levels.

Brian Trumbore