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07/09/2016

For the week 7/4-7/8

[Posted 11:00 PM ET, Friday]

Note: StocksandNews has significant ongoing costs.  Your support is greatly appreciated.  Click on the gofundme link or send a check to PO Box 990, New Providence, NJ 07974. Special thanks to Todd T. this week.

Edition 900

The Week

In over 17 years of writing this column, I have never commented extensively on incidents such as we had in Baton Rouge, St. Paul and Dallas over the past few days.  It’s really not what the column is about unless the story grows to such a point I can’t ignore it.

I’m also the ‘wait 24 hours’ guy and invariably the facts as we are first told in such matters, like ‘Ferguson,’ don’t end up squaring with the truth.

But this week all three cases seem pretty clear cut.  The bottom line was America’s heart was ripped out. 

After the Mets game was over on Thursday night, I flipped on Fox News just as the story was breaking in Dallas and stayed with it late into the night.  The facts ended up being quite different from what we were initially led to believe and, incredibly, a lone gunman was able to pin down a major downtown area for hours, killing five of Dallas’ finest.

I have to admit, I’m personally becoming numb to all this.  Part of it must be because I spend my life pouring through bits and pieces of information from around the word, constantly reading and  writing of tragic deaths, many of the victims being killed in the most heinous of fashions, like last weekend in Baghdad.

Attorney General Loretta Lynch issued a simple appeal on Friday.

“Americans across our country are feeling a sense of helplessness, of uncertainty, and of fear.  The answer must not be violence. The answer is never violence.

“To all Americans, I ask you – I implore you – do not let this week precipitate a new normal in this country.  I ask you to turn to each other, not against each other.”

Today, this isn’t just an issue in America, believe me.  But our history is such that we are as good a people as any in finding solutions, maybe not to everyone’s liking, but with the right leadership we respect the actions taken.

It’s the leadership part that worries me. We have none these days at the national level, and it’s at the top where the tone is set for the rest of us; lessons we then pass down to our children.

But at the same time every one of us can make a small difference in our communities, little moves that collectively add up.  Prayer doesn’t hurt either.

Brexit and Europe

There were a number of developments regarding the U.K.

In the fight to lead the Conservatives and replace Prime Minister David Cameron, Theresa May and Andrea Leadsom are the two who will battle it out to become Britain’s second female prime minister after the Tories held a series of ballots to winnow down the field.  Mrs. May won the votes of 199 Tory MPs, almost two-thirds of the parliamentary party, to Leadsom’s 84, but this doesn’t necessarily mean May is a shoo-in when the final leadership vote is announced on Sept. 9; the contest now being thrown open to the party’s 125,000 members, many of whom are strongly Eurosceptic, while May is the pro-Remain home secretary.

Leadsom, the energy minister, will call for Britain to leave the EU as soon as possible.  She has the support of Boris Johnson.

Meanwhile, six asset management firms (mutual funds) in Britain decided to refuse, at least in the short-term, cash demands from those seeking to redeem their funds, the firms largely investing in commercial real estate in the country; the rush for the exits following the vote to leave the European Union.  The fund companies cannot quickly unload assets that are hard to sell, a nightmare situation, so investors have been blocked.

Business confidence is cratering, which means less investment and hiring.  49% of business owners now feel pessimistic about the British economy, up from 25% pre-Brexit.  The construction industry PMI came in at 46 in June (50 being the dividing line between growth and contraction), the worst reading in 7 years.  Retailers (department stores) saw their worst June in a decade, with sales down 3.6%.  Industrial and manufacturing production both dropped in May after steep rises in April.

Treasury chief (Chancellor) George Osborne has said corporate tax cuts may be needed to spur investment, with Osborne looking to slash the tax to less than 15 percent in an effort to woo companies to post-Brexit Britain, and retain what they have.

The Bank of England warned on Tuesday that the environment had become “challenging,” noting that there were ‘tightening credit conditions’ in the commercial real estate market [see fund closures].

Italy

Prime Minister Matteo Renzi’s ruling Democratic party (PD) has fallen behind the populist Five Star Movement in four separate opinion polls, exposing the growing problems Renzi faces as the country’s center-left leader ahead of an October referendum on constitutional reform.

The Five Star Movement, led by comedian Beppe Grillo, has called for a referendum on ditching the euro (but not exiting the EU).

Renzi’s poll numbers are also adding to existing investor concerns about the Italian banking system, as covered below.

According to the polls, the Five Star Movement is supported by 30.6 percent of Italians, compared with 29.8 percent for the PD.  Similar polls in January had Renzi’s party leading Five Star by six percentage points.  In the 2014 European elections, shortly after Renzi took office, the PD defeated the Five Star Movement by nearly 20 percentage points.

The next national elections aren’t due until early 2018, but Renzi may not survive the October vote for reform, with Renzi calling it not only crucial “for the destiny of an individual, but for the future of the credibility of the Italian political class.”

[I’ll have more on the referendum in weeks to come, but Renzi’s proposal is to reduce the number of senators to 100 from 315 and limit the upper chamber’s power to bring down governments.  Some very entrenched interests are adamantly against the reforms, as you can imagine, including some in Renzi’s own party.]

Then you have the banks....

Editorial / The Economist

“Investors around the world are extraordinarily nervous.  Yields on ten-year Treasuries fell to their lowest-ever level this week; buyers of 50-year Swiss government bonds are prepared to accept a negative yield.  Some of the disquiet stems from Britain’s decision to hurl itself into the unknown. The pound, which hit a 31-year low against the dollar on July 6th, has yet to find a floor; several British commercial-property funds have suspended redemptions as the value of their assets tumbles.  But the Brexit vote does not explain all the current unease.  Another, potentially more dangerous, financial menace looms on the other side of the Channel – as Italy’s wobbly lenders teeter on the brink of a banking crisis.

“Italy is Europe’s fourth-biggest economy and one of its weakest.  Public debt stands at 135% of GDP; the adult employment rate is lower than in any EU country bar Greece. The economy has been moribund for years, suffocated by over-regulation and feeble productivity. Amid stagnation and deflation, Italy’s banks are in deep trouble, burdened by some ($400 billion) of souring loans, the equivalent of a fifth of the country’s GDP. Collectively they have provisioned for only 45% of that amount. At best, Italy’s weak banks will throttle the country’s growth; at worst, some will go bust. [Ed. You also have to remember that if Italy’s economy doesn’t grow, you’ll have an ever-increasing pool of bad loans.]

“Not surprisingly, investors have fled.  Shares in Italy’s biggest banks have fallen by as much as half since April, a sell-off that has intensified since the Brexit vote....

“Size alone makes Italy’s bank mess dangerous.  But it is also an exemplar of the euro area’s wider ills: the tension between rules made in Brussels and the exigencies of national politics; and the conflict between creditors and debtors. Both are the consequence of half-baked financial reforms.  Handled badly, the Italian job could be the euro zone’s undoing.

“Italy urgently needs a big, bold bank clean-up.  With private capital fleeing and an existing bank-backed rescue-fund largely used up, this will require an injection of government money.  The problem is that this is politically all but impossible.  New eurozone rules say banks cannot be bailed out by the state unless their bondholders take losses first.  The principle of ‘bailing in’ creditors rather than sticking the bill to taxpayers is a good one....But in Italy, thanks in part to a quirk of the tax code, some 200bn euro of bank bonds are held by retail investors. When a few small banks were patched up under the new rules in November, one retail bondholder committed suicide. It caused a political storm.  Forcing ordinary Italians to take losses again would badly damage Matteo Renzi, the prime minister, dashing his hope of winning a referendum on constitutional reform in the autumn.”

What is desperately needed is to shore up Italy’s banks with capital to quell fears of a systemic crisis, while shielding retail investors from any bail-in directives attached to the rescue.  But for this to happen, Germany needs to be flexible and the Germans are in no mood to be as their taxpayers could be placed further at risk, plus there is an election next year.  “We wrote the rules for the credit system,” said Angela Merkel, in response to Renzi’s appeals for leniency.  “We cannot change them every two years.”

Eurobits....

The eurozone services PMI for June was 52.8 vs. 53.3 in May, as reported by Markit.

Germany’s services reading was 53.7, down from 55.2.  France’s slumped into contraction territory at 49.9, down from 51.6 in May.  Italy’s service sector improved to 51.9 from 49.8.  Spain’s was up to 56 from 55.4.

Chris Williamson, chief economist at Markit, says it is all still part of a forecast of just 0.3% growth for the eurozone in the second quarter over the first, which was at a 0.6% clip.

[The U.K.’s services sector PMI fell to 52.3 from 53.5 in May; services comprising nearly 80% of the U.K. economy.]

The eurozone retail PMI for last month was in contraction mode, 48.5 vs. 50.6 in May.

--Germany’s industrial production shrank again in May, falling 1.3% on the month, after May factory orders disappointed as well.  On an annual basis May production fell 0.4%, while orders were off 0.2% year-on-year.

--Italy’s retail sales fell in June a sixth straight month.

--Spain’s industrial output fell 0.5% in May, month-on-month.

--France’s government forced approval of a contested labor bill in the lower house of Parliament without a vote Tuesday for a second time because of resistance from the far right and left.

French Prime Minister Manuel Valls invoked a special constitutional article to approve the second reading of the bill, which would give companies more freedom to fire workers and extend working hours.

The governing Socialist Party is split itself over the legislation. 

Valls argued that the bill is needed to boost hiring with unemployment stuck at 10% in France, and said he made the move “in the national interest.”

The bill now goes to the conservative-led Senate, then returns to the lower house, which has the final say.

--Austrian Freedom Party candidate Norbert Hofer, in an Oct. 2 rerun for president, said he does not favor a referendum to exit the EU like his comrade in arms, France’s Marine Le Pen.

--On the interest rate front, the German 10-yr. closed the week at -0.19%, with France at 0.10%.  Italy’s 10-yr. yield is 1.19%, Spain’s 1.14%.

So why haven’t Italian and Spanish bonds sold off thus far?  Spain’s election, while not conclusive, at least showed that support for populist Podemos had stalled.  Second, negative interest rates on an ever-increasing portion of European bonds reduces the available pool of assets for the European Central Bank to buy under its quantitative easing plan, which led to speculation the ECB may widen the criteria for purchases, possibly buying lower-quality bonds from Spain, Italy and other highly-indebted countries.

--When it comes to the looming Brexit process, there remains a lot of anger against Britain, with EU Commission President Jean-Claude Juncker accusing Brexit campaigners Boris Johnson and Nigel Farage of quitting when things got difficult.

“The Brexit heroes of yesterday are now the sad Brexit heroes of today,” he told the European parliament.

“Patriots don’t resign when things get difficult, they stay,” he told MEPs in Strasbourg.  “Instead of developing the (exit) plan, they are leaving the boat.”

Johnson had pulled out of the Conservative party leadership race after being stabbed in the back by Michael Gove, while Farage said he was stepping down from the leadership of pro-Brexit UKIP and leaving politics altogether.

Dutch Prime Minister Mark Rutte told MEPs that the Brexit vote was “extremely unfortunate,” especially for the U.K.  “That country now has collapsed – politically, economically, monetarily and constitutionally, and you will have years ahead of you to get out of this mess.”

The U.K.’s 73 members of the 751-seat EU Parliament risk being denied not only key roles over future draft European legislation but also leadership posts.

The European Commission, the EU’s executive arm, has a leadership team that is made up of a commissioner from each member state and a 33,000 strong staff that includes more than 1,100 U.K. nationals, so needless to say those 1,100 could be out of a job over time, though Juncker said he won’t fire them.  Certainly the Brits won’t be getting any promotions.

But the above also gives you a sense on the scope of the EU bureaucracy.

Yes, the two years, at least, from when Article 50 is invoked and exit negotiations formally begin could get dangerous, a very bad breakup. While some talk of an amicable one, no way that is the path that will be taken by the EU’s remaining powers.

It also needs to be said that while some in the EU want to use Britain as an example for the others in dealing with the U.K. harshly, at the same time any current plans on expansion in the union are already being scaled back.  Donald Tusk, president of the European Council, which brings together the bloc’s national government leaders, said that the former enthusiasm for a utopian union is not shared by ordinary European citizens:

“Increasingly louder are those who question the very principle of a united Europe. The specter of a breakup is haunting Europe and a vision of a federation doesn’t seem to me to be the best answer to it.”

A special EU summit has been called for Sept. 16 in Slovakia to work out a plan forward to keep the EU united.

Finally, just a few more thoughts on the U.K. and immigration that was so critical in the Brexit vote.

The migration influx has been so dramatic in recent years that currently one in 20 people living in the U.K. – 3 million people – were citizens of another EU country just two years ago, according to the British Office of National Statistics.

Before 2004, when the EU expanded to include 10 new member states such as Latvia, Poland and other Eastern European nations, net EU immigration to the U.K. averaged around 10,000 per year,

After the expansion, the U.K., Ireland and Sweden allowed EU nationals to immigrate immediately under the bloc’s freedom of labor laws.  The swarms developed.

Last year, 270,000 citizens from EU countries immigrated to the U.K., with 85,000 leaving for other EU countries, so a net migration of 185,000, a record.  As one who backed Brexit told the Daily Telegraph, “Brits weren’t flooding into Romania.  It was always a one-way street to the strongest country.”

A research group, Migration Watch U.K., predicted that the annual net migration to the U.K., were it to remain in the bloc, would exceed 250,000 a year for the next 20 years.

As an aside, the EU’s statistics arm, Eurostat, just published new population figures for the union, that saw it rise to 510 million by year end 2015.

Germany 82.1 million
France 66.6
U.K. 65.3
Italy 60.6
Spain 46.4

Asia

China’s government reading on the services sector was 53.7 in June, while the Caixin-Markit services figure was 52.7, the latter focusing on private-owned businesses, the former state-owned enterprises. The Caixin number is actually encouraging, it being deemed more accurate than the government’s stats.  52.7 compared with 51.2 in May.

Separately, China’s central bank said external risks to the economy and the complexity of the situation shouldn’t be underestimated; citing Brexit among other factors.  But the People’s Bank of China was optimistic about the domestic economy...at least it has achieved a level of stability.

In Japan, a reading from Markit on its services sector came in at a poor 49.4 in June vs. 50.4 in May.

Washington and Wall Street

Stocks had another strong week, continuing to bounce off the Brexit-related lows of two weeks ago, with the S&P 500 finishing less than a single point shy of the record closing high of 2130.82 at 2129.90.

The June jobs report came in far better than expected, 287,000 vs. a consensus of around 180,000, but the average for the last three months, including May’s poor number (revised down to 11,000...the worst since 2010)*, is just 147,000 compared with a 200,000 average in the first quarter. 

The unemployment rate rose to 4.9%, while the underemployment rate, U6, ticked down to 9.6%, the lowest since April 2008.

Average hourly earnings rose just 0.1% for the month, but year-over-year wage growth is 2.6%, so slowly getting healthier, though as I’ve noted ad nauseam, you want this number closer to 4.0% in a healthy recovery, which this hasn’t been.

The labor participation rate was 62.7%, still historically bad.

*35,000 striking Verizon workers were part of both the May and June calculations, a ‘-‘ for May and a ‘+’ in June as they went back to work, ergo, May’s 287K was really 252K, overall.

But you add it all up and it was pretty much a perfect number.  Investors were encouraged May wasn’t the beginning of an awful trend, though when you look at things such as the three-month average, there is zero reason for the Federal Reserve to raise interest rates, certainly not at their upcoming July meeting, especially in light of ongoing Brexit concerns and continued central bank easing elsewhere.

In other economic news, May factory orders fell 1.0%, while the ISM services reading was a strong 56.5, a 7-month high.

So now it’s about earnings, with Q2 reports beginning to roll out next week.  FactSet has EPS declining again in the quarter, 5.4%, but one of the reasons stocks have been rallying (or at least not falling) is the stubborn belief the second half will witness a sizable earnings rebound and that’s not going to be the case, sports fans.  Currently, for example, FactSet has fourth-quarter earnings rising 7.2% for the S&P 500.  Yes, year-over-year comparisons will be better, especially, it is assumed, in the energy patch, but the global outlook still looks sickly.  At least that’s my story and I’m sticking to it.

Finally, at President Obama’s campaign event in Charlotte with Hillary Clinton this week, Obama rolled out the line that makes me want to hurl each time I hear it.  “You can’t possibly know what it means to make life and death decisions until you have to.”  The implication being, of course, Joe Cool has been making the right ones for eight years when, I can’t help but say once a week, 400,000 Syrians would beg to differ, if they weren’t incapable of doing so because they are six feet under.

The president also said, I’ve seen the polls, “The rest of the world thinks we’re great.”

And then, “We can’t retreat from a world that needs American leadership!” [See Syria, Iraq and Ukraine, for starters.]

Obama’s implication being how can you trust turning the oval office over to Donald Trump?  And on this I’m not going to disagree with the president.  Once again The Donald was a clown this week, not knowing enough to just apologize for the Star of David ad and move on, and not knowing that Saddam Hussein was one of the great sponsors of terrorism in the 20th century. What the heck was Trump thinking, saying Saddam was “damn good at killing terrorists”?!

As for Hillary, I discuss the email controversy at length below, but I got a kick out of Dem. Sen. Chris Murphy (Conn.) telling CNN’s Wolf Blitzer, with a straight face, that the email issue was a “manufactured controversy,” whereupon I almost spit up my milk (cough cough), but then he added, Hillary had done “an incredible amount to keep this country safe.” Can anyone with half a brain possibly believe that? I guess so; this nation being truly peopled with idiots.

So as if the shootings in Baton Rouge and St. Paul weren’t bad enough, and the cop killings in Dallas, we have a presidential race between a clown and a crook.  It’s enough to make you want to cry, if you weren’t crying already.

Street Bytes

--In the second straight advance post-Brexit, the Dow Jones rose 1.1% on the week to 18146, while the S&P 500 gained 1.3% and Nasdaq 1.9%.  The Dow and S&P are up 4% for the year now, while Nasdaq is still down 1%.

But the Stoxx Europe 600, still feeling the aftereffects of Brexit, especially on the banking sector, fell 1.5% and is down 10.5% for the year.

--U.S. Treasury Yields

6-mo. 0.37%  2-yr. 0.61%  10-yr. 1.36%  30-yr. 2.10%

The 10- and 30-year yields are all-time lows.

According to Bianco Research, $12.7 trillion – 36% of the $35.07 trillion of all sovereign global debt – yielded less than zero, as of June 30.  Just $2.2 trillion, or 6% of sovereign paper, yields more than 2%.

“The reason is simple: if you’re facing negative interest rates on over 30 percent of government debt, you’re going to go look for where you can get positive rates, said Mohamed El-Erian, chief economic adviser at Allianz SE, in a Bloomberg interview.  U.S. 10-year yields “can go to 1.25 percent quite easily if we continue to see this combination of more central bank activism and a slowdown in Europe.”

--Oil prices hit a two-month low after a report from the Energy Information Administration showed a much smaller decline in inventories than expected, evidence of a persistent glut.

Gasoline prices have been falling as stockpiles of motor fuel remain high even during the summer driving season. Gasoline futures fell about 10% this week.

AAA estimates the national average price for regular unleaded gas over the Fourth of July holiday was $2.27 per gallon, the lowest since 2005 for Independence Day.

Separately, the head of the International Energy Agency told the Financial Times that Middle Eastern producers, such as Saudi Arabia and Iraq, now have the biggest share of the global oil market since the Arab oil embargo of the 1970s.

Demand for Middle Eastern crude has been surging as a collapse in prices has cut output from higher-cost producers such as the U.S. and Canada.  Producers from the Middle East now make up 34% of global output, pumping 31m barrels a day, according to IEA data, the highest proportion since 1975 when it hit 36%.

Hundreds of billions of dollars in energy investments have been cut since 2014 amid the slide in crude.

Fatih Birol, the IEA’s executive director said that when it comes to the U.S., “oil production will increase, but it is still an oil importer and will be for some time,” adding, “Some have the view the rise of tight [shale] oil will sideline the Middle East. This view, I would never subscribe to.”  [FT]

--But while the IEA talks of the impact of sliding crude prices, Delta Air Lines Inc. cut its profitability projection for the June quarter following higher-than-expected fuel costs and a 5% decline in passenger unit revenue – an important measure of performance in the airline sector.  The company estimates fuel costs averaged $1.95 to $2 a gallon in the quarter – much higher than its April estimate of $1.48 to $1.53.

Delta did say overall traffic rose 3.1% in June as capacity increased 3.5%, though the load factor edged down to 87.8% from 88.1% a year earlier.  [Wall Street Journal]

--Ryanair’s passenger traffic jumped 11% year-on-year in June to 10.6m, with the European discounter’s load factor jumping one point to 94%.  The numbers come despite numerous French air-traffic controller strikes, the airline cited.  But CEO Michael O’Leary was  silent on the impact of the UK’s Brexit vote, O’Leary being a prominent campaigner for “Remain.”

--One more on the oil front. The United States has overtaken Russia and Saudi Arabia in recoverable oil reserves, according to a report by Rystad Energy, an oil and gas consulting firm based in Oslo.

Three years ago, the U.S. was behind Russia, Saudi Arabia and Canada in Rystad’s estimates of recoverable oil.

The big jump for the U.S. stems from technological advancements such as hydraulic fracking and horizontal drilling that squeezes more oil and gas from shale formations. 

By itself, according to Rystad’s study, which pours over data from more than 60,000 oil fields across the globe, Texas holds more than 60 billion barrels of shale oil, rivaling all of Mexico. 

Some find fault with the study in that it should be viewed in context of the price at which reserves become exploitable. [Rob Nikolewski / Los Angeles Times]

--David Reilly of the Wall Street Journal reports, “Since the start of 2016, 20 of the world’s bigger banks have lost a quarter of their combined market value.  Added up, it equals about $465 billion, according to FactSet data.

“Brexit isn’t all to blame.  True, bank stocks have plummeted since the U.K. voted last month to leave the European Union.  But they have been losing value since the start of the year, when a group of factors – the Chinese economy, the path of U.S. interest rates, oil prices – weighed on the markets.

“More than pride is at stake.  Sharp share-price falls will make it much more difficult, and expensive, for banks to raise capital if that is what is ultimately needed to shore up their balance sheets.

“Just as bad, a serious decline in market value can breed inaction among bank executives.  Instead of selling equity when they can, executives may wait for share prices to recover, only to find themselves in a worse situation as stocks drop even further.”

--Tesla Motors Inc. said its second-quarter sales rose 25% to 14,370, but this was far less than the 17,000 expected

Tesla said it has now achieved regular levels of higher production and expects to produce 50,000 vehicles in the second half of 2016, after delivering fewer than 30,000 in the first half.

CEO Elon Musk continues to overpromise and underproduce.  The company has a stated goal of producing 500,000 cars a year by 2018, outrageously overambitious. 

But the share price hung in there following the disappointing news (released conveniently over the holiday weekend), and amid the ongoing investigation into a fatal May crash involving a Model S that had Tesla’s “Autopilot” feature engage.  There are questions as to when Musk knew of the accident and when the company finally admitted it was being investigated to shareholders and potential investors as it related to a secondary offering.

--PepsiCo reported better than expected earnings and revenues and the stock hit an all-time high.  The world’s largest snack maker and second-largest beverage company also lifted its full-year earnings outlook.

But while revenue came in better than forecast, overall it fell 3% due to the strong dollar.  Revenue at the important North American Beverage division rose just 1%, while the snack business grew 3%.

--Danone, the French dairy company, announced it is buying organic foods producer WhiteWave Foods for about $10 billion, boosting the world’s largest yogurt maker’s presence in the U.S.

--Amazon is creating 3,500 jobs in the U.K. this year as it launches a grocery delivery service in London, while extending its one-hour service to nine of England’s biggest cities.  Amazon said its vision for U.K. was undimmed by the Brexit vote.  The stock hit an all-time high on Friday.

--Brazil’s Olympic Games are running 51% over budget, even as the country deals with a severe recession.  Oxford University estimates the total cost at $4.6 billion.  When Rio decided to bid for the Games, the economy was doing well.  The Rio 2016 organizing committee denies the study’s conclusions.

The $4.6bn, though, compares with London 2012 at $15bn and the 2014 Winter Games at Sochi, which are estimated to have cost $22bn.

--PIMCO’s Total Return Bond Fund suffered its 38th consecutive month of customer outflows in May as assets in the fund now total $86.4bn as of the end of the month, down from a peak of $293bn in 2013.  Bill Gross’ departure in 2014 exacerbated the outflows.

--Wendy’s hiked the number of restaurants impacted by a hack attack to 1,025 from an initial estimate of fewer than 300 when the company first announced it was investigating the probable breach in January.  Customer’s credit and debit card information is compromised.  The company is supposed to post a list of affected restaurants on its website.

--From the South China Morning Post:

“Chinese smartphone maker Huawei has admitted a photograph it used to promote its P9 model with Leica-endorsed dual-lens camera was not taken using the phone.”

In a statement, the company said, “The photo, which was professionally taken while filming a Huawei P9 advert, was shared to inspire our community.

“We recognize, though, that we should have been clearer with the captions for this image.  It was never our intention to mislead.”  Ha!

The photo of a model at sunrise was instead taken with a Canon EOS 5D Mark III DSLR camera, that when paired with a high-quality lens cost $4,500.

--Gretchen Carlson, the longtime Fox News anchor, filed a lawsuit on Wednesday saying that Roger Ailes, the powerful chairman of Fox News, fired her from the network last month after she refused his sexual advances and complained to him about discriminatory treatment in the newsroom.

The lawsuit portrays Ailes as a serial sexual harasser, charging that he ogled Ms. Carlson in his office, called her ‘sexy’ and frequently made sexually charged comments about her physical appearance.

According to Carlson, when she went to Ailes complaining of ill treatment, Ailes said, “I think you and I should have had a sexual relationship a long time ago and then you’d be good and better and I’d be good and better.”

When she refused, Ailes retaliated by reducing her salary, curtailing her on-air appearances and, ultimately, declining to renew her contract last month.

Carlson, in the suit, describes a boys’ club environment that goes beyond Ailes.

--Two hugely expensive movies had their debuts last weekend, Steven Spielberg’s “The BFG” and “The Legend of Tarzan,” the two carrying a combined $500 million in production and global marketing costs but taking in just $57.7 million between them.  “Tarzan’s” take at $38.1 million over the three-day period was actually higher than expected after critics panned it (but audiences give it a much better grade).

Thru last Sunday, “Finding Dory,” from Disney’s Pixar division, has taken in a domestic total of $372.3 million.  [Los Angeles Times]

--Brett Barna, a portfolio manager at $15bn Moore Capital Management, decided to hold a pool-party fundraiser for an animal rescue charity at an exclusive home in the Hamptons in Long Island he was renting and 1,000 showed up, with the home suffering extensive damage.  When the story hit the New York Post, the hedge fund, run by billionaire Louis Bacon, fired Barna.

In a statement the firm said, “Mr. Barna’s personal judgment was inconsistent with the firm’s values.”

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: In the deadliest terrorist attack in Iraq since the 2003 U.S.-led invasion, the death toll in Sunday’s suicide bombing in Baghdad is a staggering 292, as reported by the health ministry on Thursday.

The attack, claimed by ISIS, targeted a shopping complex in a mainly Shia district that was packed with people enjoying a night out after breaking their daily fast for Ramadan.  When you see the photos of the aftermath, you just can’t fathom how powerful the bomb was.

The government faced heavy criticism for failing to protect the people and Iraq’s interior minister resigned on Tuesday.  There were also reports that bomb detection equipment employed by Iraqi officials simply doesn’t work, with the government saying it wouldn’t order any more.

Thursday night, an attack on a Shiite shrine north of Baghdad killed at least 37. 

The Syrian army said Wednesday it was observing a 72-hour ceasefire across the country coinciding with the festival, Eid, marking the end of Ramadan.  In a rare public appearance, President Bashar al-Assad joined Eid prayers at a mosque in third city Homs on Wednesday.

But despite the ceasefire, heavy fighting continued in Aleppo’s eastern areas.  The Syrian government was accused of shelling a rebel-held town, Jeiroud, northeast of Damascus, killing 43 prior to the “ceasefire.”

Then on Friday, at least 22 civilians were killed in airstrikes on an Al-Nusra Front-held town in northwest Syria, Darkush, near the Turkish border, as reported by the Syrian Observatory for Human Rights.  The attack was likely carried out by Syrian or Russian aircraft. 

Richard Cohen, in an op-ed in the Washington Post on the implications of Brexit on Europe and elsewhere, had this passage of note:

“(In) Syria, the Obama administration’s inaction loosed a tsunami of migrants that both overwhelmed and terrified Europe. Deep wells of intolerance, as much a part of the culture as knowing the proper wine, bubbled to the surface.  Germany is showing the strain.  Austria, Hungary and even Poland have veered right, in some cases, troublingly toward authoritarianism. France has a bad case of the nerves and Holland, too, has turned nasty....

“History shows that inaction is its own kind of butterfly.  Perhaps the wings that didn’t flutter in Syria doomed the resplendent goal of a united Europe.”

Meanwhile, in Turkey, President Erdogan is preparing to offer citizenship to Syrian refugees in a move that could cause deep domestic divisions and complicate a deal with Brussels to halt the flow of migrants to Europe.

There are 2.7m refugees registered as living in Turkey and it’s not clear how many of them would be allowed to apply for citizenship.

But Turkey and the EU had struck a deal to halt the flow of people using smugglers to reach Europe and in return for Ankara’s cooperation, Brussels promised a series of incentives, including granting visa-free travel for Turkish passport holders to Europe’s borderless Schengen zone.  But EU leaders, under growing pressure from the far right in particular to drastically curtail immigration, would likely be reluctant to extend the exemption to Syrians for fear that they would plan to settle in Europe or that ISIS operatives would travel to the continent to commit terror attacks.

On the other hand the influx of nearly 3m refugees into Turkey has greatly aided their economy at a time when it is getting hit hard by declining tourism after all the terror attacks it has suffered.

---

Separately, a much-awaited, British government-commissioned report on Britain’s decision to join the U.S.-led invasion of Iraq in 2003, the ‘Chilcot Report,’ concluded the decision was based on flawed intelligence and inadequate planning, while the public was presented with misleading information about the threat posed by Saddam Hussein.

The 2.6-million-word report is the culmination of interviews with 150 witnesses and analyses of 150,000 documents.  But it’s really all about former Prime Minister Tony Blair and calls from some quarters in the U.K. to bring him up on war crimes charges, which is beyond absurd.

Chilcot said: “It is now clear (the) policy on Iraq was made on the basis of flawed intelligence and assessments.  They were not challenged and they should have been.”

For his part, Blair, speaking in London, acknowledged that intelligence assessments at the time of the U.K. going to war turned out to be wrong and the aftermath was more complicated and bloody than had been anticipated.

“For all of this I express more sorrow, regret and apology than you may ever know or can believe,” he said.  “I feel deeply and sincerely in a way that no words can properly convey the grief and suffering of those who lost ones they loved in Iraq.”

But he insisted the nation was not misled.

“As the report makes clear there were no lies, Parliament and Cabinet were not misled. There was no secret commitment to war.”

Blair also dismissed claims that the toppling of Saddam led to the rise of terrorism from which the region is suffering today, saying the Iraqi dictator was a “wellspring of terror” and a continuing “threat to peace.”  Blair said:

“The world was and is in my judgment a better place without Saddam Hussein....

“My duty as prime minister at that time...was to do what I thought was right.

“I did it because I thought it was right and because I thought the human cost of inaction would be greater for us and for the world in the longer term.”

Editorial / Wall Street Journal

“Britain’s establishment never forgave itself for taking the country to war in Iraq in 2003, and Wednesday’s publication of a public inquiry into the invasion provided a fresh opportunity for self-flagellation. At four times the length of Tolstoy’s ‘War and Peace,’ the so-called Chilcot Inquiry tells us nothing we didn’t know.

“The main target of the Inquiry, named after its chairman, onetime civil servant John Chilcot, is former Prime Minister Tony Blair.  ‘I’ll be with you, whatever,’ Mr. Blair told President George W. Bush in July 2002, according to the Inquiry. War critics have seized on this quote as evidence of perfidious slavishness rather than a sign of a President and a Prime Minister seeing eye to eye on the long war on terror.

“The Inquiry’s main charge is that the decision to go to war was based on ‘flawed intelligence and assessments.’  There’s a news flash from 2003.  Mr. Chilcot and his colleagues also reproach Messrs. Blair and Bush for ‘undermining’ the authority of the United Nations Security Council by short-cutting diplomatic efforts to resolve the dispute over Saddam Hussein’s weapons-of-mass-destruction programs.  Both lines of attack are misplaced.

“Acting on bad information isn’t the same as acting in bad faith. Vocal opponents of the war, including Gerhard Schroder’s government in Germany, also believed Saddam had extensive WMD stocks.  Intelligence agencies throughout the West did not want to repeat a lesson of the 1991 Gulf War, when they underestimated the scale of Iraq’s illicit programs. As U.S. inspectors learned from debriefing Saddam once he was in prison, the Iraqi dictator had fully intended to restart his WMD program once sanctions on Iraq were lifted, which is where things were going until the attacks of September 11.

“It’s also easy to forget that WMD were far from the only reason the U.S. and Britain had for deposing Saddam, who was the cause of countless Middle East crises during his 25 years in power. These included the Iran-Iraq war, the Anfal campaign, the rape of Kuwait and the Gulf War, the Scud-missile attacks on Israel, the extermination campaign against the marsh Arabs, the Kurdish refugee crisis – a record of human cruelty and chaos exceeded by few dictators in history.  The most dangerous WMD in Iraq was Saddam....

“As for Mr. Chilcot’s faith in U.N. diplomacy, has he noticed what’s happening in Syria?  By delegating responsibility to the U.N. and Russia’s vetoes, the world has stood by as a half-million Syrians have been killed and half its population displaced.  Messrs. Bush and Blair were never more right than when they chose not to delegate responsibility for global security to the diplomats at Turtle Bay.”

Saudi Arabia: On Monday, there were three suicide bombings across the country, including an attack at Islam’s second holiest site, the Prophet’s Mosque in Medina, where four security guards were killed.  There were no claims of responsibility but ISIS had urged its supporters to carry out attacks during the holy month.

At the same time of the Medina attack, across the country in the Shiite-populated Gulf city of Qatif, another suicide bombing took place near a Shiite mosque, killing two.

Over the course of the week, Saudi security officers arrested a dozen Pakistanis who may or may not have been part of what was clearly a well-coordinated operation.

ISIS has killed dozens of people in the kingdom since late 2014.

Bangladesh:

Editorial / Wall Street Journal

“Not a month has passed since Islamic State killed 49 people at an Orlando, Fla., nightclub, and less than a week since it murdered 45 at the Istanbul airport, and now Islamic State is taking credit for two more massacres: On Friday in Bangladesh, at a café in Dhaka’s diplomatic quarter, and on Sunday in a public market in Baghdad.

“As usual with Islamic State, the Dhaka attack was distinguished by savagery and propaganda. Seven terrorists stormed the café Friday night and demanded that patrons recite verses of the Quran. Those who failed – nine Italians, seven Japanese, two Indians and possibly one America – were tortured and hacked to pieces....

“Police identified the attackers as Bangladeshis, mostly well-educated and from wealthy families. So much, once again, for the theory that poverty and hopelessness are the cause of terrorism, Islamic State is a religious and ideological movement of Muslim fanatics....

“The Dhaka attack is also a reminder that Islamic State is spreading globally at a much faster rate than the U.S. is defeating it in its Syrian and Iraqi heartland.  The Baghdad bombing on Sunday targeted a spot popular with families and young people, and the jihadists used flammable materials that spread fires, killing at least 151 and wounded 195. [Ed. this death toll was early on.]

“The jihadist threat is global and growing, and it cannot be adequately fought, much less won, until an American President is honest about the danger.”

[The Dhaka attacked killed 22, including two security guards, while six of seven attackers died.]

Iran: German Chancellor Merkel stated on Thursday that Iran is breaking UN Security Council regulations that mandate it stop its illicit military rocket program.  Merkel’s comments follow a report from Germany’s domestic intelligence agency that stated Iran has continued to seek illegal nuclear technology.

Merkel said NATO’s anti-missile system targets Iran’s rocket program and was “developed purely for defense,” while Russian leader Vladimir Putin continues to claim the shield is aimed at Russia.

Last weekend, Iran’s Deputy Commander of the Iranian Revolutionary Guard said Lebanon (read Hizbullah) has 100,000 missiles ready to annihilate Israel.

Hossein Salami said: “The opportunity to destroy Israel is now better than ever, because tens of thousands of long-range missiles all over the Islamic world are ready to hit Israel immediately upon receiving the order.”  [Jerusalem Post]

Afghanistan: President Obama had hoped to leave just a handful of U.S. troops in Afghanistan come January 2017, but this week he announced he would turn over a force of 8,400 to the next president, up from the 5,500 he decided to keep in the fall. The shift in attitude came at the urging of the Pentagon and U.S. NATO allies, owing to gains by the Taliban and the failures of the Afghan military, who are still a long ways from being able to defend their country without significant help.

But, as the Wall Street Journal editorializes, at least Obama is leaving his successor a relatively stable military situation, allowing him or her to make their own decisions about future U.S. engagement.

Russia: Chancellor Merkel blamed Russia for undermining European security on the eve of the NATO summit in Warsaw; though her foreign minister, Frank-Walter Steinmeier, called for a more accommodating approach to Moscow.

Other NATO members such as Hungary, Italy and Greece have suggested in recent months that sanctions against Moscow might be counter-productive.

Meanwhile, President Putin signed a controversial law on counterterrorism that has sparked alarm among rights activists.  The amendments include introducing prison sentences for failure to report a grave crime and doubling the number of crimes for which Russians as young as 14 can be prosecuted.  Another forces telecommunications companies to store logs and data for months, which the companies say threatens their financial viability.

Regarding this last bit, Putin said the government would modify the implementation of the amendments in light of possible “financial risks.”

But for now, Russian telecom companies will have to store call logs for 12 months and call and message data for six months, which the businesses have said is 100,000 times as much data as they currently store and will take more than $33 billion in investment to organize and run.  Originally, the bill called on companies storing the data for several years. [AP]

Josh Rogin / Washington Post

“The U.S.-Russia relationship is too big to fail, but it’s failing.

“The Obama administration came into office with a big idea about this relationship: that these two world powers must work together on areas of mutual interest even if they still worked against each other where their interests diverged.  The concept was sound, but as relations have deteriorated and Russia has taken a more antagonistic stance, the United States has failed to adapt.

“Last week’s revelation that the administration is proposing increased military cooperation with Russia in Syria, in exchange for Russian agreement to abide by the cease-fire it had already agreed to, was a stark example of how the administration’s theory about how to work with Russia is being misapplied on the ground.  Washington is offering Moscow both a reprieve from the political and military isolation it imposed after the invasion of Ukraine – and a reward for taking unilateral military action designed to undermine U.S. policy in Syria.  The White House and the State Department believe that the only way to make progress in Syria is to work with Moscow, even if that means setting the isolation effort to one side. That makes some sense, but only if Russia actually honors its agreements in Syria and makes progress toward resolving the Ukraine crisis.

“But neither of these things is happening.  Ukraine’s recently departed prime minister, Arseniy Yatsenyuk, told me last week that while Russia has successfully distracted the world from the Ukraine crisis, the Russian military continues a medium-boil military campaign in violation of the Minsk agreement.

“ ‘Every single day they kill Ukrainian soldiers, every single day the death toll is rising, every single day we’ve got civilian casualties. There is no cease-fire on the ground,’ he said.

“To Yatsenyuk, Russian President Vladimir Putin’s strategy is clear.  Russia will pretend to work with Western powers and even strike deals when the deals are sweet enough.  But by selectively violating the agreements while manipulating other governments and the media, Putin will continue to make steady progress toward his anti-Western, anti-democratic objectives. For Yatsenyuk, there’s simply no way to work constructively with the current Kremlin.”

China: U.S. navy destroyers have been sailing close to Chinese-controlled islands in the South China Sea ahead of a ruling by an international tribunal next week on China’s territorial claims in the disputed waters.

The patrols, though, are taking place 14 to 20 nautical miles from islands at Scarborough Shoal and the Spratly Islands, not within 12 miles, which must be approved at the highest levels.  Beijing would see any patrols within 12 miles as an intrusion into its territorial waters.

The Permanent Court of Arbitration in The Hague is due to rule on China’s claims on July 12.  Beijing has refused to take part in the hearings, saying the court has no jurisdiction in the matter.

The case was brought by the Philippines, a rival claimant in the region.  [South China Morning Post]

Separately, China is holding military drills in the South China Sea.

On a different issue, China accused Japan of targeting its warplanes, through the use of fire-control radar.  The clash, a near dogfight, occurred June 17 but just came to light on Monday as China said Japanese warplanes used the radar to “light up” Chinese counterparts and released infrared flares during evasive maneuvers.  Japan did not deny its aircraft had fired infrared decoy flares, a move that would be consistent with believing they were under attack.

The incident occurred somewhere over the East China Sea, where both countries claim overlapping Air Defense Identification Zones.

Lastly, a Chinese court sentenced former Politburo member Ling Jihua to life in prison Monday for accepting more than $11.6 billion in bribes.  His downfall caps leader Xi Jinping’s purge of political rivals under cover of an anticorruption campaign.  Ling was consigliere to Xi’s predecessor, Hu Jintao.

There are now rumors Xi is angling to remove Premier Li Keqiang, another Hu ally, who normally would serve a 10-year term through 2022.

Xi pledged last weekend that the Chinese Communist Party would go back to its Marxist roots.

“The whole party should remember, what we are building is socialism with Chinese characteristics, not some other –ism,” Xi said in an address in Beijing’s Great Hall of the People.

He added, “China doesn’t covet other countries’ interests, nor does it envy other countries’ development but we won’t give up our rightful interests.

“The Chinese people don’t fear trouble but don’t seek trouble.  Other countries should not expect us to trade away our core interests nor should they expect us to swallow circumstances that harm our sovereignty, security and developmental interest.”  [FT]

North Korea: Pyongyang vowed a tough response to what it deemed a “declaration of war” by the United States, after the Obama administration blacklisted Kim Jong Un for the first time over human rights abuses.  Pyongyang described the sanctioning of Kim as a ‘hideous crime,” according to North Korea’s KCNA news agency.

“What the U.S. did this time, not content with malignantly slandering the Democratic People’s Republic of Korea, is the worst crime that can never be pardoned,” it cited the foreign ministry as saying. [Reuters]

Meanwhile, South Korea and the United States said on Friday they would deploy an advanced missile defense system in South Korea to counter the growing threat from North Korea.  Beijing immediately lodged complaints with ambassadors from both countries, saying deployment of the THAAD (Terminal High Altitude Area Defense) system would complicate the regional situation  and harms China’s strategic security interests.

Australia: The results of the parliamentary election proved to be as close as forecast and there is a great deal of uncertainty after.

Prime Minister Malcolm Turnbull enjoyed high personal poll ratings in the first 100 days of his prime ministership, which propelled the coalition to a 10-point lead over the Labor party in the polls.  But after he called a snap election in May, the coalition was deadlocked with Labor at 50-50.  As I go to post, however, it does appear Turnbull will still head a new government but with a one- or two-seat margin and the opposition is already calling for another election by year end.

Big business is likely to be a loser as Turnbull is unlikely to be able to deliver on a pledge to cut corporate taxes and tackle trade union power.

The bottom line is that even if Turnbull forms a coalition, he won’t have a majority in the Senate, which can block legislation.

Venezuela: There is strong evidence that state workers who signed a recall referendum against President Nicolas Maduro are being fired, which among other things violates a 2015 presidential decree prohibiting employers from firing workers until 2019.

Random Musings

--Hillary’s emails....

I have consistently said I did not believe Hillary Clinton would be indicted because I just didn’t see FBI Director James Comey doing so (or recommending such a move).  I agree with the conclusion of Charles Krauthammer down below that Comey just didn’t want to be the one to decide the November election.  It’s really not more complicated than that.

So to back up, Clinton underwent a 3 ½ hour interview with the FBI on Saturday in Washington.  Then, suddenly, out of the blue, Comey went before a podium Tuesday morning and in a 15-minute statement said the FBI did not find that Clinton or her colleagues intended to violate the law, and that there was no ‘intentional misconduct” by her lawyers who sorted her emails.

Chris Cillizza / Washington Post

“Here’s the good news for Hillary Clinton: The FBI has recommended that no charges be brought following its investigation of the former secretary of state’s private email server.

“Here’s the bad news: Just about everything else.

“FBI Director James B. Comey dismantled large portions of Clinton’s long-told story about her private server and what she sent or received on it during a stirring 15-minute news conference, after which he took no questions.  While Comey exonerated Clinton, legally speaking, he provided huge amounts of fodder that could badly hamstring her in the court of public opinion.

“Most importantly, Comey said the FBI found 110 emails on Clinton’s server that were classified at the time they were sent or received.  That stands in direct contradiction to Clinton’s repeated insistence she never sent or received any classified emails....

“Comey condemned Clinton and her top aides as ‘extremely careless’ in how they handled classified information during her time as the head of the State Department, adding: ‘Any reasonable person...should have known that an unclassified system was no place’ for that sort of information.

“There was more – much more. Comey said Clinton had used not one but multiple private email servers during her time at State.  He said Clinton used multiple email devices during that time....

“It’s worth remembering at this point that Clinton and her team deleted more emails than they turned over to the State Department.

“It’s hard to read Comey’s statement as anything other than a wholesale rebuke of the story Clinton and her campaign team have been telling ever since the existence of her private email server came to light in spring 2015.   She did send and receive classified emails. The setup did leave her – and the classified information on the server – subject to a possible foreign hack.  She and her team did delete emails as personal that contained professional information.

“Those are facts, facts delivered by the Justice Department of a Democratic administration. And those facts run absolutely counter to the narrative put forth by the Clinton operation: that this whole thing was a Republican witch-hunt pushed by a bored and adversarial media.

“Now for the key question: How much do the FBI findings hurt her campaign?....

“The best thing Clinton may have going for her at this point is that Republicans are two weeks away from formally picking Donald Trump as their party’s presidential nominee.”

At the conclusion of Comey’s statement, the recommendation was that no criminal charges be filed, lifting a cloud of uncertainty for Clinton’s White House campaign.

Attorney General Loretta Lynch said last Friday that she would accept the recommendations of the career prosecutors and the FBI director on whether to charge Clinton for mishandling emails.

A day after Comey’s statement, Lynch issued a brief one of her own accepting the FBI’s recommendation that no one should be charged in the case.

“I received and accepted their unanimous recommendation that the thorough, year-long investigation be closed and that no charges be brought against any individuals within the scope of the investigation.”

House Speaker Paul Ryan (R-Wis.): “While I respect the law enforcement professionals at the FBI, this announcement defies explanation.  Declining to prosecute Secretary Clinton for recklessly mishandling and transmitting national security information will set a terrible precedent.”

Thursday, Director Comey told a congressional committee that his investigators found “evidence of mishandling” of classified information, though neither Clinton nor her aides intended to do wrong, thus they could not be charged with a crime.

Opinion...both sides....

Editorial / USA TODAY

“Unlike the crassly partisan Benghazi investigation by a Republican-dominated congressional panel, the issues exposed in the email inquiry are real.  They represent a major blunder on Clinton’s part, perhaps driven by the secretiveness and paranoia of someone who has been in the public eye, and subject to relentless attack, for decades.

“On the other hand, the fact that Comey is not recommending charges is also telling.  Clinton’s transgressions have to be considered alongside her accomplishments as first lady, U.S. Senator and secretary of State.  And her complete record should be measured alongside her opponents’ records....

“Bill Clinton’s stupendously ill-advised private meeting at the Phoenix airport last week with Attorney General Loretta Lynch provides plenty of fodder for conspiracy theorists, but the FBI is a non-partisan agency with a non-partisan presidential appointee at its helm.  Comey, who is nearly three years into a 10-year term, is a lawyer and career prosecutor with a sterling record.  He has accepted appointments from Republican and Democratic presidents and has a reputation for resisting political interference.

“This particular inquiry was so free of outside influence that Comey apparently caught the Justice Department and the White House off guard by reaching his judgment so swiftly after the Clinton interview.  He didn’t give them any notice of what he was going to say or when he was going to say it.

“As Comey noted, it’s impossible to find any comparable case in which charges were filed that did not involve willful misconduct, or such large quantities of classified information that an inference could be made of criminal intent.

“The case most often cited as a comparison – the prosecution of former CIA director David Petraeus – is instructive.  Unlike Clinton, Petraeus purposefully shared classified information with his biographer and lover, Paula Broadwell. And he still was able to get off with a misdemeanor plea agreement.

“It is good for the nation that the FBI inquiry was completed before the political conventions and the fall campaign.  But if Tuesday was a good day for Clinton, then the bar for good days – escaping indictment – has gotten very low indeed.”

Editorial / Wall Street Journal

“For our money, the most revealing words in FBI Director James Comey’s statement Tuesday explaining his decision not to recommend prosecuting Hillary Clinton for mishandling classified information were these: ‘This is not to suggest that in similar circumstances, a person who engaged in this activity would face no consequence. To the contrary, those individuals are often subject to security or administrative sanctions.’

“So there it is in the political raw: One standard exists for a Democratic candidate for President and another for the hoi polloi.  We’re not sure if Mr. Comey, the erstwhile Eliot Ness, intended to be so obvious, but what a depressing moment this is for the American rule of law.  No wonder so many voters think Washington is rigged for the powerful.

“Mr. Comey spent nearly all of his media appearance laying out the multiple ways in which Mrs. Clinton’s use of a private email server for official State Department business had violated official policy and jeopardized America’s secrets.  Yet at the end he declined to recommend prosecution because her behavior was merely ‘extremely careless’ rather than ‘grossly negligent’ as the law requires.  This is a rhetorical distinction without a  difference that deserves to be mocked.

“Mr. Comey’s facts grossly – if we may use that word – belie his conclusion.  Of the 30,000 work-related emails Mrs. Clinton turned over to State, 110 contained classified information at the time they were sent or received.  Eight email chains contained information judged to be Top Secret.  The FBI also found three emails containing classified information among emails that Mrs. Clinton had deleted (rather than turned over to State) – but which the FBI was able to find through forensic analysis.

“The FBI chief’s statement also had the effect of exposing the many lies Mrs. Clinton has told about her emails....

“Despite this list of indictable particulars, Mr. Comey concluded that none of it warrants a criminal prosecution.  His justification is that her behavior didn’t meet the standard of ‘clearly intentional and willful mishandling of classified information; or vast quantities of materials exposed in such a way as to support an inference of intentional misconduct; or indications of disloyalty to the United States; or efforts to obstruct justice.’

“Yet the recent State Department Inspector General report disclosed emails showing that Mrs. Clinton and her staff were warned by State officials that her private email was vulnerable to hackers.  She willfully and intentionally ignored those warnings.  Mr. Comey knows that many federal employees have been prosecuted for mishandling classified information despite no evidence of ill intent.  They were prosecuted merely for recklessly handling secrets.

“By a reasonable person’s standards, Mrs. Clinton’s decision to use a private server, to give her aides access to it, email classified information on it, to fail to secure it, and to use it in hostile territory was grossly negligent. We can’t wait for the next minion prosecuted for mishandling secrets to invoke the ‘extremely careless’ defense....

“The rule of law requires its neutral application.  We almost wish Mr. Comey had avoided his self-justifying, have-it-both-ways statement and said bluntly that he couldn’t indict Mrs. Clinton because the country must be spared a Donald Trump Presidency.  It would have been more honest and less corrosive to democracy than his Clinton Standard.”

Editorial / Washington Post

“First, a shout-out to the investigator: In examining the use of a private email server for official business by then-Secretary of State Hillary Clinton, FBI Director James B. Comey appears to have navigated treacherous waters with the commitment to principle and rule of law that any citizen could wish for.  The FBI investigated thoroughly.  It came to its conclusion in time for voters to factor it into their deliberations.  Mr. Comey leveled with the American people, reporting to them even before reporting to his own bosses.

“And the conclusion he came to strikes us as being as sound as the process: Ms. Clinton was ‘extremely careless,’ the FBI director said, but did not engage in the kind of intentional or willful mishandling of classified material that would warrant prosecution.

“The director left no doubt of his belief that Ms. Clinton’s use of a private email server was entirely inappropriate for a Cabinet member with access to the nation’s highest-level secrets.  Mr. Comey said ‘any reasonable person in Secretary Clinton’s position...should have known that an unclassified system was no place for that conversation.’

“The Clinton system had virtually no archiving; when servers were swapped out in 2013, ‘millions of email fragments’ wound up being inadvertently tossed into the ‘slack space’ of a decommissioned server.  Much will be made by Ms. Clinton’s critics of the finding that eight chains of ‘top secret’ emails were found, as well as several dozen chains of emails at lesser levels of classification; and that work emails were missed by her lawyers in their sorting from the personal; and that thousands of other emails were dislodged by investigators from other people’s accounts.

“No doubt an FBI investigation of equal intensity would find carelessness on the part of many other high-ranking officials.  But that does not excuse Ms. Clinton’s blithe disregard for procedure. The FBI found no ‘direct evidence’ that Ms. Clinton’s email was hacked by foreign adversaries, Mr. Comey said.  But it is worrisome that the FBI believes ‘hostile actors gained access’ to private, commercial email accounts of her interlocutors, and that it is ‘possible’ her emails also fell into hostile hands.  China’s and Russia’s known, aggressive cybersnooping may have reaped a rich harvest.

“Carelessness, however, is not a crime.  Mr. Comey said there is no precedent, in his view, that would justify prosecution in this case....

“From what’s come to light, it seems clear Ms. Clinton and her aides used the private email server to preserve control over her messages, neglecting their responsibility as public servants to follow procedures for protecting classified information.  Rather than toss off this experience with a back of the hand, Ms. Clinton needs to learn from it and find a way to show voters that she has better judgment than the combination of high-handedness and defensiveness she has displayed here.”

Editorial / New York Post

“Tuesday, FBI Director James Comey painted a devastating picture of Hillary Clinton’s reckless lawbreaking with her emails and the damage it likely caused – but then recommended no charges against her.

“When it comes to the Clintons, say goodbye to the rule of law.

“Comey said the bureau looked for evidence that ‘classified information was improperly stored or transmitted’ on Clinton’s personal email servers, in violation of a ‘statute making it a felony to mishandle classified information either intentionally or in a grossly negligent way.’

“Sure enough, his agents found plenty: 110 emails ‘in 52 email chains’ were considered classified ‘at the time they were sent or received.’

“That included eight ‘Top Secret’ chains...Another 2,000 were classified ‘Confidential’ later.

“There may have been more, but Comey said his agents couldn’t examine all of Hillary’s emails because some that were deleted may never be found.

“The evidence showed Clinton and her colleagues were ‘extremely careless in their handling of very sensitive, highly classified information’ – even if they may not have ‘intended’ to break the law. And, as he said, proving intent isn’t necessary to find her guilty of a felony.

“Comey made one other point: Some emails ‘bore markings indicating the presence of classified information’ – contrary to what Hillary repeatedly claims.  But even with emails that didn’t contain such markings, Clinton still had an obligation ‘to protect it.’

“All of which seems enough to convict (never mind indict) her – based on Comey’s own criteria.

“Nor was all this just a case of harmless sloppiness, as Hillary claims, Comey said the bureau ‘assessed that hostile actors’ (read: foreign enemies) ‘gained access’ to email accounts of people she had contact with and possibly even to Clinton’s own personal email account itself.

“So why on earth would Comey let her off the hook?  Especially when the agency had recommended charges against others, like Gen. David Petraeus, who had similarly failed to protect classified information.

“The answer: The Clintons enjoy a different standard. They are above the law....

“Comey just dealt a powerful blow to the public’s faith in the concept of equal justice.  Hillary will now claim falsely she’s been exonerated – even though the FBI found her in violation of the law.

“Is there any wonder so many voters this year are outraged by the ‘rigged’ system?”

Editorial / New York Times

“James Comey...may have relieved Hillary Clinton of a legal burden on Tuesday, but he left her with a substantial political one.  While announcing that the bureau would not recommend criminal charges against Mrs. Clinton for her handling of classified material on nonsecure personal email servers, Mr. Comey issued a strong rebuke of her practices, which he called ‘extremely careless’ – and for which she has never given the public a full explanation.  He was right on both points.

“Mr. Comey explained that there was no clear evidence Mrs. Clinton or her colleagues had intentionally broken any federal laws on classified information, and he said that ‘no reasonable prosecutor’ would pursue an indictment in the case.

“This legal decision is undoubtedly correct....

“For at least two reasons, Mr. Comey said, this did not amount to criminal wrongdoing.  First was the lack of evidence that Mrs. Clinton or her colleagues had intended to break any laws.  Second, prosecutions of similar cases in the past have relied on some combination of elements that were missing in this case: the intentional mishandling of classified information, indications of disloyalty to the United States, and efforts to obstruct justice.

“But Mr. Comey was clear that while these email habits weren’t criminal, Mrs. Clinton and her staff were ‘extremely careless in their handling of very sensitive, highly classified information.’  He added that ‘any reasonable person’ in Mrs. Clinton’s position should have known that she was playing with fire.

“Mr. Comey’s remarks also contradicted Mrs. Clinton’s repeated assertion that she didn’t send or receive material that was ‘marked classified’ at the time. She did....

“Perhaps more troubling was the FBI’s finding that Mrs. Clinton ‘also used her personal email extensively while abroad, including sending and receiving work-related emails in the territory of sophisticated adversaries,’ adding that ‘it is possible that hostile actors gained access to Secretary Clinton’s personal email account.’

“Mr. Comey’s conclusions – legal recommendation aside – can be seen as nothing less than  censure of Mrs. Clinton’s judgment....

“As Mrs. Clinton said in the past, and her campaign reiterated on Tuesday, her decision to use private email was a mistake.  She remains, far and away, the most experienced and knowledgeable candidate for the presidency, particularly when compared with Mr. Trump.  But she has done damage to her reputation by failing to conform to the established security policies of the department she ran and by giving evasive or misleading answers about her actions and motivations.  If there was ever a time that Mrs. Clinton needed to demonstrate that she understands the forthrightness demanded of those who hold the nation’s highest office, this is that moment.”

Michael B. Mukasey (former U.S. Attorney General) / Wall Street Journal

“Federal Bureau of Investigation Director James Comey opened and closed his statement to the press Tuesday with expressions of gratitude and pride to be associated with the bureau.  His description of FBI agents’ work on the Hillary Clinton email investigation showed why he feels that way.  Whether the rest of his statement – explaining why he wasn’t recommending prosecution of Mrs. Clinton – should make the feeling mutual is an open question.

“The agents had to reconstruct thousands of emails from a series of private servers used and abandoned over the years, some of them turned into confetti in the process.  The FBI agents also had to tease out from the files of other government employees emails that they might have received from or sent to Mrs. Clinton during her tenure as secretary of state, and weigh their importance.

“Unlike Mrs. Clinton’s own lawyers – who decided which emails to produce by reading just the headings – the agents read each of the many thousands of emails and fragments that passed through their hands. The job was made no easier by the decision of those lawyers to obliterate the email record they had examined, making it impenetrable to forensic examination.  All in all, these tasks of the agents bear comparison with the labors of Hercules....

“The FBI director said the investigation of Mrs. Clinton was a case for ‘unusual transparency,’ and the transparency in Tuesday’s exercise was certainly unusual.  Mr. Comey’s disclosure of his recommendation outside the context of any discussion with Justice Department lawyers was anomalous. What is supposed to happened in a matter like this is, as the director mentioned, a ‘prosecutive’ decision – i.e., a decision made by prosecutors.  It is not an investigative decision.  Investigators are supposed principally to gather facts.

“Mr. Comey didn’t explain why, with evidence clearly fulfilling the requirements of the two statutes involved, no reasonable prosecutor would bring a case – except for the director’s inaccurate assertion that it had never been done before.

“And finally, although there was transparency about process, there was no discussion of underlying facts, only conclusions.  It may be that someday there will be the usual transparency: disclosure of facts. That day was not Tuesday, and it is little wonder that many in and out of government were left both puzzled and dismayed.”

Comparison of statements Hillary Clinton or her campaign have made about her email practices while secretary of state and statements made by FBI Director James Comey on Tuesday:

CLINTON: “I did not email any classified material to anyone on my email.  There is no classified material.  So I’m certainly well-aware of the classification requirements and did not send classified material.” (Hillary Clinton, press conference, 3/10/15)

COMEY: “110 emails in 52 email chains have been determined by the owning [government] agency to contain classified information at the time they were sent or received. ...Separate from those, about 2,000 additional emails were up-classified to make them confidential.  Those emails had not been classified at the time that they were sent or received...[Some] chains involved Secretary Clinton both sending emails about [top-secret-level] matters and receiving emails from others about the same matters.”

CLINTON: “Nothing I sent was marked classified or that I received was marked classified.” (Hillary Clinton, Democratic Presidential Town Hall on Fox News, 3/7/2016)

COMEY: “It’s also important to say something about the marking of classified information.  Only a very small number of the emails here containing classified information bore markings that indicated the presence of classified information.  But even if information is not marked classified in an email, participants who know, or should know, that the subject matter is classified are still obligated to protect it.”

CLINTON: Asked if she “wiped” the server, “What, like with a cloth or something?  Well, no. I don’t know how it works digitally at all.” (Hillary Clinton, press conference, 8/18/2015)

COMEY: Clinton’s lawyers “cleaned their devices in such a way as to preclude complete forensic recovery.” [Byron Tau / Wall Street Journal]

With the Justice Department investigation closed, the State Department is reopening an internal probe of mishandling of classified information by Clinton and her top aides.  State suspended its review in April to avoid interfering with the FBI’s inquiry.  Spokesman John Kirby set no deadline for the investigation’s completion.

Charles Krauthammer / Washington Post...following Comey’s testimony...

“Why did he do it? FBI Director James Comey spent 14 minutes laying out an unassailable case for prosecuting Hillary Clinton for the mishandling of classified material. Then at literally the last minute, he recommended against prosecution.

“This is baffling.  Under the statute (18 U.S.C. section 793(f)) it’s a felony to mishandle classified information either intentionally or ‘through gross negligence.’  The evidence, as outlined by Comey, is overwhelming....

“Yet Comey let her off the hook, citing lack of intent.  But negligence doesn’t require intent.  Compromising national secrets is such a grave offense that it requires either intent or negligence.

“Lack of intent is, therefore, no defense.  But one can question that claim as well.  Yes, it is safe to assume that there was no malicious intent to injure the nation.  But Clinton clearly intended to set up an unsecured private server.  She clearly intended to send those classified emails. She clearly received warnings from her own department about the dangers of using a private email account.

“She meant to do what she did. And she did it. Intentionally....

“(But just as Chief Justice John Roberts didn’t want the Court to be the final word on ObamaCare, Comey) did not want...to end up as the arbiter of the 2016 presidential election. If Clinton were not a presumptive presidential nominee but simply a retired secretary of state, he might well have made a different recommendation.

“Prosecuting under current circumstances would have upended and redirected an already year-long presidential selection process.  In my view, Comey didn’t want to be remembered as the man who irreversibly altered the course of American political history.

“And with no guarantee that the prosecution would succeed, moreover. Imagine that scenario: You knock out of the race the most likely next president – and she ultimately gets acquitted!  Imagine how Comey goes down in history under those circumstances.

“I admit I’m giving Comey the benefit of the doubt. But the best way I can reconcile his reputation for integrity with the grating illogic of his Clinton decision is by presuming that he didn’t want to make history.

“I don’t endorse his decision.  But I think I understand it.”

Editorial / Wall Street Journal...Friday...

“Mr. Comey has done such a masterful job of public relations that Democrats and the media are now claiming that anyone who disagrees with his conclusion is attacking him for ‘doing his job.’  But Mr. Comey didn’t do his job of serving the public good. He protected his job with a dismayingly political performance.”

---

--A Washington Post-ABC News poll in June found that 56 percent of all adults disapprove of Hilary Clinton’s handling of questions about her email use – 44 percent of them ‘strongly disapproving.’  [This was conducted right before Comey’s statement on Tuesday.]

--A new USA TODAY/Suffolk University Poll has Clinton leading Trump by six points if you round it off (45.6% to 40.4%).  Two months ago she led 50-39 in this one.

--Clinton raised more than $40 million for her campaign in June, beginning July with more than $4 million in cash on hand as it starts to advertise heavily in battleground states.  Clinton also raised about $28 million for the Democratic National Committee and state parties.

Trump hauled in $26 million for his own campaign, $25 million for the RNC in June, quite an improvement from the measly $3.1 million he raised in May.

--Comey’s statement on Tuesday vastly overshadowed the controversy of former president Bill Clinton meeting with Attorney General Lynch at the Phoenix airport a few days prior.

Dan Balz / Washington Post

“Bill Clinton has made a mess.  It was either out of foolish indifference or plain foolishness, but it has created a terrible moment for his wife and the Democrats, and for President Obama and perceptions of the integrity of his administration....

“For a politician long praised for his political smarts, it was a striking error of judgment on Clinton’s part to walk to Lynch’s plane for any kind of conversation.  It was a similarly huge lapse on the part of the attorney general, who was appointed by Clinton as a U.S. attorney in 1999, to allow him to come aboard for any kind of conversation....

“Let’s assume that Lynch’s description of the meeting is wholly accurate – that this was a casual encounter between two people who have known each other for some time and who happened by circumstance to be on the same airport tarmac at the same time. Will that lessen suspicions that there is a coziness between the Clintons and the people in the Obama administration who have overall responsibility to be fair and fearless in the investigation?  Hardly.”

So we wait to see whether what we heard this week will further erode Clinton’s standing with the public.

--Donald Trump went to the capital on Thursday to unite the Republican Party, but he had some verbal scuffles with Senate Republicans that soured the trip.

Arizona Sen. Jeff Flake told Trump he is uncomfortable endorsing him.  Trump told Flake he’d lose his re-election bid – even though Flake doesn’t face the voters again until 2018.

Trump also went out of his way to criticize two other GOP senators – Mark Kirk of Illinois and Ben Sasse of Nebraska.  A Sasse spokesman said: “Mr. Sasse continues to believe this election remains a dumpster fire.”

But Trump did manage to land former rival Ted Cruz for a convention speaking slot, even though Cruz has not endorsed the presumptive nominee yet.

Trump’s meeting with House Republicans was more subdued, earning him mostly accolades.

--Daniel Henninger / Wall Street Journal

“Even Donald Trump’s critics would not go so far as to suggest that his voter base consists of vagabonds, pickpockets or even, ugh, ‘literati.’  But for the longest time, the American media saw the Trump base as an ‘indefinite, disintegrated mass’ of mostly angry, lower-middle-class white males.  The early Trump adopters often looked like bikers, with or without jobs. The Trumpen proletariat.

“This was the original Trump bedrock, the proles who could look past him saying that John McCain, though tortured for years by the Vietnamese, wasn’t a hero.  Even now they’ll blink right by Mr. Trump’s remark this week that Saddam Hussein was ‘good’ at killing terrorists (’they didn’t read them their rights’), despite the unhappy fact that Saddam was a psychopathic, blood-soaked torturer responsible for the deaths of perhaps a half million non-terrorist Iraqi citizens.

“(Still, one may ask: When the day after her Comey pardon, Hillary Clinton proposes ‘free’ tuition at public colleges for families earning up to $85,000 a year, and $125,000 by 2021, how come her campaign isn’t universally laughed and mocked off the map?)

“The media originally looked upon the emerging Trump base with suspicion and distrust, regarding it as a volatile and possibly dangerous political faction but one that would slip back to the shadows as the Trump candidacy faded.

“We are 10 days from the party conventions, and Mr. Trump sits, uneasily as always, close to the polling margin of error against the former Secretary of State, former U.S. senator and former first lady Hillary Clinton. The Trumpen proletariat turns out to be bigger than imagined.

“In the nonstop conversation about the 2016 election, the question at the center of everything is whether one is a ‘Trump supporter.’  But if it is true that in this election all the rules have been broken, couldn’t it also be true that Donald Trump has himself become a bystander to the forces set in motion this year?....

“Undeniably, economic anxiety over flatlined incomes and the sense of economic loss, blamed variously on globalization or immigrants, explains a lot in this election.  But not all of it.  A Trump doesn’t rise without stronger forces in play.

“That force has been described, including by me, as the revolt of the politically incorrect.  PC, though, is just the symptom of a more virulent social disease.

“The U.S. has been through culture wars before, as with the religious right in the 1980s and ‘90s.  Or the smart set in the 1920s.  The country, ever resilient, eventually adjusts and moves on.

“Political correctness added something new to the cultural divide: moral condescension.

“What has really ‘angered’ so many more millions who now feel drawn into the Trump camp isn’t just PC itself but that its proponents show such relentless moral contempt and superiority toward everyone else.  People in America can take a lot, but not that.  Marx would have a field day with how progressivism’s cultural elites have reordered social classes between the right-minded and everyone else.

“Despite years of winning Supreme Court assent to their views, the left insists that the other side must remain on the moral hook.  On race, sex or the environment the moralistic left seems to think it can keep the population incarcerated forever on vague, unproven charges of cultural gilt.  For what?

“In nearly eight years of presidential speeches, Barack Obama, by explicit choice, has come to embody the holier-than-thou idea of showing secular moral contempt for those who disagree with him.

“As his inheritor, Hillary Clinton will bear the brunt of an energized Trumpen proletariat that suddenly finds moral demotion as something they no longer have to bear. That the mercurial Donald Trump has occupied both sides of this conflict and then some is, after all these years, beside the point.”

--In a Gallup poll, 67 percent expressed negative views of Trump, 51 percent of Clinton.  The top reaction to Trump, 16 percent, was one of dislike; followed by 12 percent who said he was an “idiot” or “joke.” More than 27 percent said dishonest and unethical were the first things they thought of when it came to Clinton.

--Labor Secretary Tom Perez, who is said to be on Hillary Clinton’s Veep short list (which is unfathomable), said on NBC’s “Meet the Press” last Sunday:

“I think President Obama is going to go down as one of the most consequential presidents in U.S. history, as a result of his work in saving us from the precipice of the Great Depression.  It could have been a depression but for his leadership.  And it’s been an unmitigated honor to work with him and for him.”

I beg to differ, Mr. Perez.  The last nearly eight years have been an unmitigated disaster.

--Another Democratic representative, in this instance Congresswoman Corrine Brown of Florida, was indicted along with her chief of staff on fraud charges and other crimes, as a federal grand jury accused them of funneling money for a bogus education charity to personal use.  Brown, 69, from Jacksonville, Fla., is accused of using her political position to help raise more than $800,000 for a charity that donors believed supported college scholarships and other educational work. 

“Instead, funds donated to the group One Door for Education were used to pay for a golf tournament honoring Brown, luxury box seats at a Beyonce concert and a football game as well as other personal expenses, according to a 53-page indictment filed in U.S. District Court.”  [Letitia Stein / Reuters]

Her chief of staff, Elias “Ronnie” Simmons, was accused of multiple counts of fraud.  He allegedly misused his position to help a relative obtain government employment and receive more than $735,000 without doing any work for the U.S. House of Representatives, according to prosecutors.  Simmons diverted more than $80,000 of his relative’s salary for his own personal use, they said.

Brown has represented her district since 1992.  Her indictment follows the conviction last month of U.S. Rep. Chaka Fattah (Dem.) of Philadelphia, accused of orchestrating multiple frauds to enrich himself and preserve his political career.  He has resigned.

Yet another reason to hate Congress.

--We note the passing of Elie Wiesel, 87.  Wiesel, as an Auschwitz survivor, became an eloquent witness for the six million Jews slaughtered in World War II.  He was the voice that emerged to drive home the enormity of what had happened.  For his work, speaking out against forgetfulness and violence, he was awarded the 1986 Nobel Peace Prize.

Wiesel first gained attention in 1960 with the English translation of his autobiographical account of the horrors he witnessed in the camps, “Night.”

--Finally, the Juno space probe arrived in orbit around Jupiter after a five-year, 1.4 billion-mile voyage.

The spacecraft was able to complete a high-stakes maneuver that saw it fire a rocket to slow its 150,000 mph approach to the giant planet.  NASA has reason to be very proud, the mission’s chief scientist, Scott Bolton, saying to the team, “you’ve just done the hardest thing NASA’s ever done”

But now the craft has to survive one of the solar system’s harshest environments, “where circuitry-frying levels of radiation and high velocity dust and particles will be a constant threat.”  [BBC News]

Scientists hope that an analysis of Jupiter’s interior structure will help them understand the history and formation of the solar system.  Hopefully the Jupiterians are welcoming.  I’m also assuming Juno is equipped with a wealth of Swiffer products to take care of the dust, Jupiter having a ring of it.

---

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

Pray for peace and understanding.

God bless America.

---

Gold $1366...highest since March 2014
Oil $45.41...lowest in two months

Returns for the week 7/4-7/8

Dow Jones  +1.1%  [18146]
S&P 500  +1.3%  [2129]
S&P MidCap  +1.4%
Russell 2000  +1.8%
Nasdaq  +1.9%  [4956]

Returns for the period 1/1/16-7/8/16

Dow Jones  +4.1%
S&P 500  +4.2%
S&P MidCap  +8.7%
Russell 2000  +3.7%
Nasdaq  -1.0%

Bulls  47.1
Bears  24.5  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore



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Week in Review

07/09/2016

For the week 7/4-7/8

[Posted 11:00 PM ET, Friday]

Note: StocksandNews has significant ongoing costs.  Your support is greatly appreciated.  Click on the gofundme link or send a check to PO Box 990, New Providence, NJ 07974. Special thanks to Todd T. this week.

Edition 900

The Week

In over 17 years of writing this column, I have never commented extensively on incidents such as we had in Baton Rouge, St. Paul and Dallas over the past few days.  It’s really not what the column is about unless the story grows to such a point I can’t ignore it.

I’m also the ‘wait 24 hours’ guy and invariably the facts as we are first told in such matters, like ‘Ferguson,’ don’t end up squaring with the truth.

But this week all three cases seem pretty clear cut.  The bottom line was America’s heart was ripped out. 

After the Mets game was over on Thursday night, I flipped on Fox News just as the story was breaking in Dallas and stayed with it late into the night.  The facts ended up being quite different from what we were initially led to believe and, incredibly, a lone gunman was able to pin down a major downtown area for hours, killing five of Dallas’ finest.

I have to admit, I’m personally becoming numb to all this.  Part of it must be because I spend my life pouring through bits and pieces of information from around the word, constantly reading and  writing of tragic deaths, many of the victims being killed in the most heinous of fashions, like last weekend in Baghdad.

Attorney General Loretta Lynch issued a simple appeal on Friday.

“Americans across our country are feeling a sense of helplessness, of uncertainty, and of fear.  The answer must not be violence. The answer is never violence.

“To all Americans, I ask you – I implore you – do not let this week precipitate a new normal in this country.  I ask you to turn to each other, not against each other.”

Today, this isn’t just an issue in America, believe me.  But our history is such that we are as good a people as any in finding solutions, maybe not to everyone’s liking, but with the right leadership we respect the actions taken.

It’s the leadership part that worries me. We have none these days at the national level, and it’s at the top where the tone is set for the rest of us; lessons we then pass down to our children.

But at the same time every one of us can make a small difference in our communities, little moves that collectively add up.  Prayer doesn’t hurt either.

Brexit and Europe

There were a number of developments regarding the U.K.

In the fight to lead the Conservatives and replace Prime Minister David Cameron, Theresa May and Andrea Leadsom are the two who will battle it out to become Britain’s second female prime minister after the Tories held a series of ballots to winnow down the field.  Mrs. May won the votes of 199 Tory MPs, almost two-thirds of the parliamentary party, to Leadsom’s 84, but this doesn’t necessarily mean May is a shoo-in when the final leadership vote is announced on Sept. 9; the contest now being thrown open to the party’s 125,000 members, many of whom are strongly Eurosceptic, while May is the pro-Remain home secretary.

Leadsom, the energy minister, will call for Britain to leave the EU as soon as possible.  She has the support of Boris Johnson.

Meanwhile, six asset management firms (mutual funds) in Britain decided to refuse, at least in the short-term, cash demands from those seeking to redeem their funds, the firms largely investing in commercial real estate in the country; the rush for the exits following the vote to leave the European Union.  The fund companies cannot quickly unload assets that are hard to sell, a nightmare situation, so investors have been blocked.

Business confidence is cratering, which means less investment and hiring.  49% of business owners now feel pessimistic about the British economy, up from 25% pre-Brexit.  The construction industry PMI came in at 46 in June (50 being the dividing line between growth and contraction), the worst reading in 7 years.  Retailers (department stores) saw their worst June in a decade, with sales down 3.6%.  Industrial and manufacturing production both dropped in May after steep rises in April.

Treasury chief (Chancellor) George Osborne has said corporate tax cuts may be needed to spur investment, with Osborne looking to slash the tax to less than 15 percent in an effort to woo companies to post-Brexit Britain, and retain what they have.

The Bank of England warned on Tuesday that the environment had become “challenging,” noting that there were ‘tightening credit conditions’ in the commercial real estate market [see fund closures].

Italy

Prime Minister Matteo Renzi’s ruling Democratic party (PD) has fallen behind the populist Five Star Movement in four separate opinion polls, exposing the growing problems Renzi faces as the country’s center-left leader ahead of an October referendum on constitutional reform.

The Five Star Movement, led by comedian Beppe Grillo, has called for a referendum on ditching the euro (but not exiting the EU).

Renzi’s poll numbers are also adding to existing investor concerns about the Italian banking system, as covered below.

According to the polls, the Five Star Movement is supported by 30.6 percent of Italians, compared with 29.8 percent for the PD.  Similar polls in January had Renzi’s party leading Five Star by six percentage points.  In the 2014 European elections, shortly after Renzi took office, the PD defeated the Five Star Movement by nearly 20 percentage points.

The next national elections aren’t due until early 2018, but Renzi may not survive the October vote for reform, with Renzi calling it not only crucial “for the destiny of an individual, but for the future of the credibility of the Italian political class.”

[I’ll have more on the referendum in weeks to come, but Renzi’s proposal is to reduce the number of senators to 100 from 315 and limit the upper chamber’s power to bring down governments.  Some very entrenched interests are adamantly against the reforms, as you can imagine, including some in Renzi’s own party.]

Then you have the banks....

Editorial / The Economist

“Investors around the world are extraordinarily nervous.  Yields on ten-year Treasuries fell to their lowest-ever level this week; buyers of 50-year Swiss government bonds are prepared to accept a negative yield.  Some of the disquiet stems from Britain’s decision to hurl itself into the unknown. The pound, which hit a 31-year low against the dollar on July 6th, has yet to find a floor; several British commercial-property funds have suspended redemptions as the value of their assets tumbles.  But the Brexit vote does not explain all the current unease.  Another, potentially more dangerous, financial menace looms on the other side of the Channel – as Italy’s wobbly lenders teeter on the brink of a banking crisis.

“Italy is Europe’s fourth-biggest economy and one of its weakest.  Public debt stands at 135% of GDP; the adult employment rate is lower than in any EU country bar Greece. The economy has been moribund for years, suffocated by over-regulation and feeble productivity. Amid stagnation and deflation, Italy’s banks are in deep trouble, burdened by some ($400 billion) of souring loans, the equivalent of a fifth of the country’s GDP. Collectively they have provisioned for only 45% of that amount. At best, Italy’s weak banks will throttle the country’s growth; at worst, some will go bust. [Ed. You also have to remember that if Italy’s economy doesn’t grow, you’ll have an ever-increasing pool of bad loans.]

“Not surprisingly, investors have fled.  Shares in Italy’s biggest banks have fallen by as much as half since April, a sell-off that has intensified since the Brexit vote....

“Size alone makes Italy’s bank mess dangerous.  But it is also an exemplar of the euro area’s wider ills: the tension between rules made in Brussels and the exigencies of national politics; and the conflict between creditors and debtors. Both are the consequence of half-baked financial reforms.  Handled badly, the Italian job could be the euro zone’s undoing.

“Italy urgently needs a big, bold bank clean-up.  With private capital fleeing and an existing bank-backed rescue-fund largely used up, this will require an injection of government money.  The problem is that this is politically all but impossible.  New eurozone rules say banks cannot be bailed out by the state unless their bondholders take losses first.  The principle of ‘bailing in’ creditors rather than sticking the bill to taxpayers is a good one....But in Italy, thanks in part to a quirk of the tax code, some 200bn euro of bank bonds are held by retail investors. When a few small banks were patched up under the new rules in November, one retail bondholder committed suicide. It caused a political storm.  Forcing ordinary Italians to take losses again would badly damage Matteo Renzi, the prime minister, dashing his hope of winning a referendum on constitutional reform in the autumn.”

What is desperately needed is to shore up Italy’s banks with capital to quell fears of a systemic crisis, while shielding retail investors from any bail-in directives attached to the rescue.  But for this to happen, Germany needs to be flexible and the Germans are in no mood to be as their taxpayers could be placed further at risk, plus there is an election next year.  “We wrote the rules for the credit system,” said Angela Merkel, in response to Renzi’s appeals for leniency.  “We cannot change them every two years.”

Eurobits....

The eurozone services PMI for June was 52.8 vs. 53.3 in May, as reported by Markit.

Germany’s services reading was 53.7, down from 55.2.  France’s slumped into contraction territory at 49.9, down from 51.6 in May.  Italy’s service sector improved to 51.9 from 49.8.  Spain’s was up to 56 from 55.4.

Chris Williamson, chief economist at Markit, says it is all still part of a forecast of just 0.3% growth for the eurozone in the second quarter over the first, which was at a 0.6% clip.

[The U.K.’s services sector PMI fell to 52.3 from 53.5 in May; services comprising nearly 80% of the U.K. economy.]

The eurozone retail PMI for last month was in contraction mode, 48.5 vs. 50.6 in May.

--Germany’s industrial production shrank again in May, falling 1.3% on the month, after May factory orders disappointed as well.  On an annual basis May production fell 0.4%, while orders were off 0.2% year-on-year.

--Italy’s retail sales fell in June a sixth straight month.

--Spain’s industrial output fell 0.5% in May, month-on-month.

--France’s government forced approval of a contested labor bill in the lower house of Parliament without a vote Tuesday for a second time because of resistance from the far right and left.

French Prime Minister Manuel Valls invoked a special constitutional article to approve the second reading of the bill, which would give companies more freedom to fire workers and extend working hours.

The governing Socialist Party is split itself over the legislation. 

Valls argued that the bill is needed to boost hiring with unemployment stuck at 10% in France, and said he made the move “in the national interest.”

The bill now goes to the conservative-led Senate, then returns to the lower house, which has the final say.

--Austrian Freedom Party candidate Norbert Hofer, in an Oct. 2 rerun for president, said he does not favor a referendum to exit the EU like his comrade in arms, France’s Marine Le Pen.

--On the interest rate front, the German 10-yr. closed the week at -0.19%, with France at 0.10%.  Italy’s 10-yr. yield is 1.19%, Spain’s 1.14%.

So why haven’t Italian and Spanish bonds sold off thus far?  Spain’s election, while not conclusive, at least showed that support for populist Podemos had stalled.  Second, negative interest rates on an ever-increasing portion of European bonds reduces the available pool of assets for the European Central Bank to buy under its quantitative easing plan, which led to speculation the ECB may widen the criteria for purchases, possibly buying lower-quality bonds from Spain, Italy and other highly-indebted countries.

--When it comes to the looming Brexit process, there remains a lot of anger against Britain, with EU Commission President Jean-Claude Juncker accusing Brexit campaigners Boris Johnson and Nigel Farage of quitting when things got difficult.

“The Brexit heroes of yesterday are now the sad Brexit heroes of today,” he told the European parliament.

“Patriots don’t resign when things get difficult, they stay,” he told MEPs in Strasbourg.  “Instead of developing the (exit) plan, they are leaving the boat.”

Johnson had pulled out of the Conservative party leadership race after being stabbed in the back by Michael Gove, while Farage said he was stepping down from the leadership of pro-Brexit UKIP and leaving politics altogether.

Dutch Prime Minister Mark Rutte told MEPs that the Brexit vote was “extremely unfortunate,” especially for the U.K.  “That country now has collapsed – politically, economically, monetarily and constitutionally, and you will have years ahead of you to get out of this mess.”

The U.K.’s 73 members of the 751-seat EU Parliament risk being denied not only key roles over future draft European legislation but also leadership posts.

The European Commission, the EU’s executive arm, has a leadership team that is made up of a commissioner from each member state and a 33,000 strong staff that includes more than 1,100 U.K. nationals, so needless to say those 1,100 could be out of a job over time, though Juncker said he won’t fire them.  Certainly the Brits won’t be getting any promotions.

But the above also gives you a sense on the scope of the EU bureaucracy.

Yes, the two years, at least, from when Article 50 is invoked and exit negotiations formally begin could get dangerous, a very bad breakup. While some talk of an amicable one, no way that is the path that will be taken by the EU’s remaining powers.

It also needs to be said that while some in the EU want to use Britain as an example for the others in dealing with the U.K. harshly, at the same time any current plans on expansion in the union are already being scaled back.  Donald Tusk, president of the European Council, which brings together the bloc’s national government leaders, said that the former enthusiasm for a utopian union is not shared by ordinary European citizens:

“Increasingly louder are those who question the very principle of a united Europe. The specter of a breakup is haunting Europe and a vision of a federation doesn’t seem to me to be the best answer to it.”

A special EU summit has been called for Sept. 16 in Slovakia to work out a plan forward to keep the EU united.

Finally, just a few more thoughts on the U.K. and immigration that was so critical in the Brexit vote.

The migration influx has been so dramatic in recent years that currently one in 20 people living in the U.K. – 3 million people – were citizens of another EU country just two years ago, according to the British Office of National Statistics.

Before 2004, when the EU expanded to include 10 new member states such as Latvia, Poland and other Eastern European nations, net EU immigration to the U.K. averaged around 10,000 per year,

After the expansion, the U.K., Ireland and Sweden allowed EU nationals to immigrate immediately under the bloc’s freedom of labor laws.  The swarms developed.

Last year, 270,000 citizens from EU countries immigrated to the U.K., with 85,000 leaving for other EU countries, so a net migration of 185,000, a record.  As one who backed Brexit told the Daily Telegraph, “Brits weren’t flooding into Romania.  It was always a one-way street to the strongest country.”

A research group, Migration Watch U.K., predicted that the annual net migration to the U.K., were it to remain in the bloc, would exceed 250,000 a year for the next 20 years.

As an aside, the EU’s statistics arm, Eurostat, just published new population figures for the union, that saw it rise to 510 million by year end 2015.

Germany 82.1 million
France 66.6
U.K. 65.3
Italy 60.6
Spain 46.4

Asia

China’s government reading on the services sector was 53.7 in June, while the Caixin-Markit services figure was 52.7, the latter focusing on private-owned businesses, the former state-owned enterprises. The Caixin number is actually encouraging, it being deemed more accurate than the government’s stats.  52.7 compared with 51.2 in May.

Separately, China’s central bank said external risks to the economy and the complexity of the situation shouldn’t be underestimated; citing Brexit among other factors.  But the People’s Bank of China was optimistic about the domestic economy...at least it has achieved a level of stability.

In Japan, a reading from Markit on its services sector came in at a poor 49.4 in June vs. 50.4 in May.

Washington and Wall Street

Stocks had another strong week, continuing to bounce off the Brexit-related lows of two weeks ago, with the S&P 500 finishing less than a single point shy of the record closing high of 2130.82 at 2129.90.

The June jobs report came in far better than expected, 287,000 vs. a consensus of around 180,000, but the average for the last three months, including May’s poor number (revised down to 11,000...the worst since 2010)*, is just 147,000 compared with a 200,000 average in the first quarter. 

The unemployment rate rose to 4.9%, while the underemployment rate, U6, ticked down to 9.6%, the lowest since April 2008.

Average hourly earnings rose just 0.1% for the month, but year-over-year wage growth is 2.6%, so slowly getting healthier, though as I’ve noted ad nauseam, you want this number closer to 4.0% in a healthy recovery, which this hasn’t been.

The labor participation rate was 62.7%, still historically bad.

*35,000 striking Verizon workers were part of both the May and June calculations, a ‘-‘ for May and a ‘+’ in June as they went back to work, ergo, May’s 287K was really 252K, overall.

But you add it all up and it was pretty much a perfect number.  Investors were encouraged May wasn’t the beginning of an awful trend, though when you look at things such as the three-month average, there is zero reason for the Federal Reserve to raise interest rates, certainly not at their upcoming July meeting, especially in light of ongoing Brexit concerns and continued central bank easing elsewhere.

In other economic news, May factory orders fell 1.0%, while the ISM services reading was a strong 56.5, a 7-month high.

So now it’s about earnings, with Q2 reports beginning to roll out next week.  FactSet has EPS declining again in the quarter, 5.4%, but one of the reasons stocks have been rallying (or at least not falling) is the stubborn belief the second half will witness a sizable earnings rebound and that’s not going to be the case, sports fans.  Currently, for example, FactSet has fourth-quarter earnings rising 7.2% for the S&P 500.  Yes, year-over-year comparisons will be better, especially, it is assumed, in the energy patch, but the global outlook still looks sickly.  At least that’s my story and I’m sticking to it.

Finally, at President Obama’s campaign event in Charlotte with Hillary Clinton this week, Obama rolled out the line that makes me want to hurl each time I hear it.  “You can’t possibly know what it means to make life and death decisions until you have to.”  The implication being, of course, Joe Cool has been making the right ones for eight years when, I can’t help but say once a week, 400,000 Syrians would beg to differ, if they weren’t incapable of doing so because they are six feet under.

The president also said, I’ve seen the polls, “The rest of the world thinks we’re great.”

And then, “We can’t retreat from a world that needs American leadership!” [See Syria, Iraq and Ukraine, for starters.]

Obama’s implication being how can you trust turning the oval office over to Donald Trump?  And on this I’m not going to disagree with the president.  Once again The Donald was a clown this week, not knowing enough to just apologize for the Star of David ad and move on, and not knowing that Saddam Hussein was one of the great sponsors of terrorism in the 20th century. What the heck was Trump thinking, saying Saddam was “damn good at killing terrorists”?!

As for Hillary, I discuss the email controversy at length below, but I got a kick out of Dem. Sen. Chris Murphy (Conn.) telling CNN’s Wolf Blitzer, with a straight face, that the email issue was a “manufactured controversy,” whereupon I almost spit up my milk (cough cough), but then he added, Hillary had done “an incredible amount to keep this country safe.” Can anyone with half a brain possibly believe that? I guess so; this nation being truly peopled with idiots.

So as if the shootings in Baton Rouge and St. Paul weren’t bad enough, and the cop killings in Dallas, we have a presidential race between a clown and a crook.  It’s enough to make you want to cry, if you weren’t crying already.

Street Bytes

--In the second straight advance post-Brexit, the Dow Jones rose 1.1% on the week to 18146, while the S&P 500 gained 1.3% and Nasdaq 1.9%.  The Dow and S&P are up 4% for the year now, while Nasdaq is still down 1%.

But the Stoxx Europe 600, still feeling the aftereffects of Brexit, especially on the banking sector, fell 1.5% and is down 10.5% for the year.

--U.S. Treasury Yields

6-mo. 0.37%  2-yr. 0.61%  10-yr. 1.36%  30-yr. 2.10%

The 10- and 30-year yields are all-time lows.

According to Bianco Research, $12.7 trillion – 36% of the $35.07 trillion of all sovereign global debt – yielded less than zero, as of June 30.  Just $2.2 trillion, or 6% of sovereign paper, yields more than 2%.

“The reason is simple: if you’re facing negative interest rates on over 30 percent of government debt, you’re going to go look for where you can get positive rates, said Mohamed El-Erian, chief economic adviser at Allianz SE, in a Bloomberg interview.  U.S. 10-year yields “can go to 1.25 percent quite easily if we continue to see this combination of more central bank activism and a slowdown in Europe.”

--Oil prices hit a two-month low after a report from the Energy Information Administration showed a much smaller decline in inventories than expected, evidence of a persistent glut.

Gasoline prices have been falling as stockpiles of motor fuel remain high even during the summer driving season. Gasoline futures fell about 10% this week.

AAA estimates the national average price for regular unleaded gas over the Fourth of July holiday was $2.27 per gallon, the lowest since 2005 for Independence Day.

Separately, the head of the International Energy Agency told the Financial Times that Middle Eastern producers, such as Saudi Arabia and Iraq, now have the biggest share of the global oil market since the Arab oil embargo of the 1970s.

Demand for Middle Eastern crude has been surging as a collapse in prices has cut output from higher-cost producers such as the U.S. and Canada.  Producers from the Middle East now make up 34% of global output, pumping 31m barrels a day, according to IEA data, the highest proportion since 1975 when it hit 36%.

Hundreds of billions of dollars in energy investments have been cut since 2014 amid the slide in crude.

Fatih Birol, the IEA’s executive director said that when it comes to the U.S., “oil production will increase, but it is still an oil importer and will be for some time,” adding, “Some have the view the rise of tight [shale] oil will sideline the Middle East. This view, I would never subscribe to.”  [FT]

--But while the IEA talks of the impact of sliding crude prices, Delta Air Lines Inc. cut its profitability projection for the June quarter following higher-than-expected fuel costs and a 5% decline in passenger unit revenue – an important measure of performance in the airline sector.  The company estimates fuel costs averaged $1.95 to $2 a gallon in the quarter – much higher than its April estimate of $1.48 to $1.53.

Delta did say overall traffic rose 3.1% in June as capacity increased 3.5%, though the load factor edged down to 87.8% from 88.1% a year earlier.  [Wall Street Journal]

--Ryanair’s passenger traffic jumped 11% year-on-year in June to 10.6m, with the European discounter’s load factor jumping one point to 94%.  The numbers come despite numerous French air-traffic controller strikes, the airline cited.  But CEO Michael O’Leary was  silent on the impact of the UK’s Brexit vote, O’Leary being a prominent campaigner for “Remain.”

--One more on the oil front. The United States has overtaken Russia and Saudi Arabia in recoverable oil reserves, according to a report by Rystad Energy, an oil and gas consulting firm based in Oslo.

Three years ago, the U.S. was behind Russia, Saudi Arabia and Canada in Rystad’s estimates of recoverable oil.

The big jump for the U.S. stems from technological advancements such as hydraulic fracking and horizontal drilling that squeezes more oil and gas from shale formations. 

By itself, according to Rystad’s study, which pours over data from more than 60,000 oil fields across the globe, Texas holds more than 60 billion barrels of shale oil, rivaling all of Mexico. 

Some find fault with the study in that it should be viewed in context of the price at which reserves become exploitable. [Rob Nikolewski / Los Angeles Times]

--David Reilly of the Wall Street Journal reports, “Since the start of 2016, 20 of the world’s bigger banks have lost a quarter of their combined market value.  Added up, it equals about $465 billion, according to FactSet data.

“Brexit isn’t all to blame.  True, bank stocks have plummeted since the U.K. voted last month to leave the European Union.  But they have been losing value since the start of the year, when a group of factors – the Chinese economy, the path of U.S. interest rates, oil prices – weighed on the markets.

“More than pride is at stake.  Sharp share-price falls will make it much more difficult, and expensive, for banks to raise capital if that is what is ultimately needed to shore up their balance sheets.

“Just as bad, a serious decline in market value can breed inaction among bank executives.  Instead of selling equity when they can, executives may wait for share prices to recover, only to find themselves in a worse situation as stocks drop even further.”

--Tesla Motors Inc. said its second-quarter sales rose 25% to 14,370, but this was far less than the 17,000 expected

Tesla said it has now achieved regular levels of higher production and expects to produce 50,000 vehicles in the second half of 2016, after delivering fewer than 30,000 in the first half.

CEO Elon Musk continues to overpromise and underproduce.  The company has a stated goal of producing 500,000 cars a year by 2018, outrageously overambitious. 

But the share price hung in there following the disappointing news (released conveniently over the holiday weekend), and amid the ongoing investigation into a fatal May crash involving a Model S that had Tesla’s “Autopilot” feature engage.  There are questions as to when Musk knew of the accident and when the company finally admitted it was being investigated to shareholders and potential investors as it related to a secondary offering.

--PepsiCo reported better than expected earnings and revenues and the stock hit an all-time high.  The world’s largest snack maker and second-largest beverage company also lifted its full-year earnings outlook.

But while revenue came in better than forecast, overall it fell 3% due to the strong dollar.  Revenue at the important North American Beverage division rose just 1%, while the snack business grew 3%.

--Danone, the French dairy company, announced it is buying organic foods producer WhiteWave Foods for about $10 billion, boosting the world’s largest yogurt maker’s presence in the U.S.

--Amazon is creating 3,500 jobs in the U.K. this year as it launches a grocery delivery service in London, while extending its one-hour service to nine of England’s biggest cities.  Amazon said its vision for U.K. was undimmed by the Brexit vote.  The stock hit an all-time high on Friday.

--Brazil’s Olympic Games are running 51% over budget, even as the country deals with a severe recession.  Oxford University estimates the total cost at $4.6 billion.  When Rio decided to bid for the Games, the economy was doing well.  The Rio 2016 organizing committee denies the study’s conclusions.

The $4.6bn, though, compares with London 2012 at $15bn and the 2014 Winter Games at Sochi, which are estimated to have cost $22bn.

--PIMCO’s Total Return Bond Fund suffered its 38th consecutive month of customer outflows in May as assets in the fund now total $86.4bn as of the end of the month, down from a peak of $293bn in 2013.  Bill Gross’ departure in 2014 exacerbated the outflows.

--Wendy’s hiked the number of restaurants impacted by a hack attack to 1,025 from an initial estimate of fewer than 300 when the company first announced it was investigating the probable breach in January.  Customer’s credit and debit card information is compromised.  The company is supposed to post a list of affected restaurants on its website.

--From the South China Morning Post:

“Chinese smartphone maker Huawei has admitted a photograph it used to promote its P9 model with Leica-endorsed dual-lens camera was not taken using the phone.”

In a statement, the company said, “The photo, which was professionally taken while filming a Huawei P9 advert, was shared to inspire our community.

“We recognize, though, that we should have been clearer with the captions for this image.  It was never our intention to mislead.”  Ha!

The photo of a model at sunrise was instead taken with a Canon EOS 5D Mark III DSLR camera, that when paired with a high-quality lens cost $4,500.

--Gretchen Carlson, the longtime Fox News anchor, filed a lawsuit on Wednesday saying that Roger Ailes, the powerful chairman of Fox News, fired her from the network last month after she refused his sexual advances and complained to him about discriminatory treatment in the newsroom.

The lawsuit portrays Ailes as a serial sexual harasser, charging that he ogled Ms. Carlson in his office, called her ‘sexy’ and frequently made sexually charged comments about her physical appearance.

According to Carlson, when she went to Ailes complaining of ill treatment, Ailes said, “I think you and I should have had a sexual relationship a long time ago and then you’d be good and better and I’d be good and better.”

When she refused, Ailes retaliated by reducing her salary, curtailing her on-air appearances and, ultimately, declining to renew her contract last month.

Carlson, in the suit, describes a boys’ club environment that goes beyond Ailes.

--Two hugely expensive movies had their debuts last weekend, Steven Spielberg’s “The BFG” and “The Legend of Tarzan,” the two carrying a combined $500 million in production and global marketing costs but taking in just $57.7 million between them.  “Tarzan’s” take at $38.1 million over the three-day period was actually higher than expected after critics panned it (but audiences give it a much better grade).

Thru last Sunday, “Finding Dory,” from Disney’s Pixar division, has taken in a domestic total of $372.3 million.  [Los Angeles Times]

--Brett Barna, a portfolio manager at $15bn Moore Capital Management, decided to hold a pool-party fundraiser for an animal rescue charity at an exclusive home in the Hamptons in Long Island he was renting and 1,000 showed up, with the home suffering extensive damage.  When the story hit the New York Post, the hedge fund, run by billionaire Louis Bacon, fired Barna.

In a statement the firm said, “Mr. Barna’s personal judgment was inconsistent with the firm’s values.”

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: In the deadliest terrorist attack in Iraq since the 2003 U.S.-led invasion, the death toll in Sunday’s suicide bombing in Baghdad is a staggering 292, as reported by the health ministry on Thursday.

The attack, claimed by ISIS, targeted a shopping complex in a mainly Shia district that was packed with people enjoying a night out after breaking their daily fast for Ramadan.  When you see the photos of the aftermath, you just can’t fathom how powerful the bomb was.

The government faced heavy criticism for failing to protect the people and Iraq’s interior minister resigned on Tuesday.  There were also reports that bomb detection equipment employed by Iraqi officials simply doesn’t work, with the government saying it wouldn’t order any more.

Thursday night, an attack on a Shiite shrine north of Baghdad killed at least 37. 

The Syrian army said Wednesday it was observing a 72-hour ceasefire across the country coinciding with the festival, Eid, marking the end of Ramadan.  In a rare public appearance, President Bashar al-Assad joined Eid prayers at a mosque in third city Homs on Wednesday.

But despite the ceasefire, heavy fighting continued in Aleppo’s eastern areas.  The Syrian government was accused of shelling a rebel-held town, Jeiroud, northeast of Damascus, killing 43 prior to the “ceasefire.”

Then on Friday, at least 22 civilians were killed in airstrikes on an Al-Nusra Front-held town in northwest Syria, Darkush, near the Turkish border, as reported by the Syrian Observatory for Human Rights.  The attack was likely carried out by Syrian or Russian aircraft. 

Richard Cohen, in an op-ed in the Washington Post on the implications of Brexit on Europe and elsewhere, had this passage of note:

“(In) Syria, the Obama administration’s inaction loosed a tsunami of migrants that both overwhelmed and terrified Europe. Deep wells of intolerance, as much a part of the culture as knowing the proper wine, bubbled to the surface.  Germany is showing the strain.  Austria, Hungary and even Poland have veered right, in some cases, troublingly toward authoritarianism. France has a bad case of the nerves and Holland, too, has turned nasty....

“History shows that inaction is its own kind of butterfly.  Perhaps the wings that didn’t flutter in Syria doomed the resplendent goal of a united Europe.”

Meanwhile, in Turkey, President Erdogan is preparing to offer citizenship to Syrian refugees in a move that could cause deep domestic divisions and complicate a deal with Brussels to halt the flow of migrants to Europe.

There are 2.7m refugees registered as living in Turkey and it’s not clear how many of them would be allowed to apply for citizenship.

But Turkey and the EU had struck a deal to halt the flow of people using smugglers to reach Europe and in return for Ankara’s cooperation, Brussels promised a series of incentives, including granting visa-free travel for Turkish passport holders to Europe’s borderless Schengen zone.  But EU leaders, under growing pressure from the far right in particular to drastically curtail immigration, would likely be reluctant to extend the exemption to Syrians for fear that they would plan to settle in Europe or that ISIS operatives would travel to the continent to commit terror attacks.

On the other hand the influx of nearly 3m refugees into Turkey has greatly aided their economy at a time when it is getting hit hard by declining tourism after all the terror attacks it has suffered.

---

Separately, a much-awaited, British government-commissioned report on Britain’s decision to join the U.S.-led invasion of Iraq in 2003, the ‘Chilcot Report,’ concluded the decision was based on flawed intelligence and inadequate planning, while the public was presented with misleading information about the threat posed by Saddam Hussein.

The 2.6-million-word report is the culmination of interviews with 150 witnesses and analyses of 150,000 documents.  But it’s really all about former Prime Minister Tony Blair and calls from some quarters in the U.K. to bring him up on war crimes charges, which is beyond absurd.

Chilcot said: “It is now clear (the) policy on Iraq was made on the basis of flawed intelligence and assessments.  They were not challenged and they should have been.”

For his part, Blair, speaking in London, acknowledged that intelligence assessments at the time of the U.K. going to war turned out to be wrong and the aftermath was more complicated and bloody than had been anticipated.

“For all of this I express more sorrow, regret and apology than you may ever know or can believe,” he said.  “I feel deeply and sincerely in a way that no words can properly convey the grief and suffering of those who lost ones they loved in Iraq.”

But he insisted the nation was not misled.

“As the report makes clear there were no lies, Parliament and Cabinet were not misled. There was no secret commitment to war.”

Blair also dismissed claims that the toppling of Saddam led to the rise of terrorism from which the region is suffering today, saying the Iraqi dictator was a “wellspring of terror” and a continuing “threat to peace.”  Blair said:

“The world was and is in my judgment a better place without Saddam Hussein....

“My duty as prime minister at that time...was to do what I thought was right.

“I did it because I thought it was right and because I thought the human cost of inaction would be greater for us and for the world in the longer term.”

Editorial / Wall Street Journal

“Britain’s establishment never forgave itself for taking the country to war in Iraq in 2003, and Wednesday’s publication of a public inquiry into the invasion provided a fresh opportunity for self-flagellation. At four times the length of Tolstoy’s ‘War and Peace,’ the so-called Chilcot Inquiry tells us nothing we didn’t know.

“The main target of the Inquiry, named after its chairman, onetime civil servant John Chilcot, is former Prime Minister Tony Blair.  ‘I’ll be with you, whatever,’ Mr. Blair told President George W. Bush in July 2002, according to the Inquiry. War critics have seized on this quote as evidence of perfidious slavishness rather than a sign of a President and a Prime Minister seeing eye to eye on the long war on terror.

“The Inquiry’s main charge is that the decision to go to war was based on ‘flawed intelligence and assessments.’  There’s a news flash from 2003.  Mr. Chilcot and his colleagues also reproach Messrs. Blair and Bush for ‘undermining’ the authority of the United Nations Security Council by short-cutting diplomatic efforts to resolve the dispute over Saddam Hussein’s weapons-of-mass-destruction programs.  Both lines of attack are misplaced.

“Acting on bad information isn’t the same as acting in bad faith. Vocal opponents of the war, including Gerhard Schroder’s government in Germany, also believed Saddam had extensive WMD stocks.  Intelligence agencies throughout the West did not want to repeat a lesson of the 1991 Gulf War, when they underestimated the scale of Iraq’s illicit programs. As U.S. inspectors learned from debriefing Saddam once he was in prison, the Iraqi dictator had fully intended to restart his WMD program once sanctions on Iraq were lifted, which is where things were going until the attacks of September 11.

“It’s also easy to forget that WMD were far from the only reason the U.S. and Britain had for deposing Saddam, who was the cause of countless Middle East crises during his 25 years in power. These included the Iran-Iraq war, the Anfal campaign, the rape of Kuwait and the Gulf War, the Scud-missile attacks on Israel, the extermination campaign against the marsh Arabs, the Kurdish refugee crisis – a record of human cruelty and chaos exceeded by few dictators in history.  The most dangerous WMD in Iraq was Saddam....

“As for Mr. Chilcot’s faith in U.N. diplomacy, has he noticed what’s happening in Syria?  By delegating responsibility to the U.N. and Russia’s vetoes, the world has stood by as a half-million Syrians have been killed and half its population displaced.  Messrs. Bush and Blair were never more right than when they chose not to delegate responsibility for global security to the diplomats at Turtle Bay.”

Saudi Arabia: On Monday, there were three suicide bombings across the country, including an attack at Islam’s second holiest site, the Prophet’s Mosque in Medina, where four security guards were killed.  There were no claims of responsibility but ISIS had urged its supporters to carry out attacks during the holy month.

At the same time of the Medina attack, across the country in the Shiite-populated Gulf city of Qatif, another suicide bombing took place near a Shiite mosque, killing two.

Over the course of the week, Saudi security officers arrested a dozen Pakistanis who may or may not have been part of what was clearly a well-coordinated operation.

ISIS has killed dozens of people in the kingdom since late 2014.

Bangladesh:

Editorial / Wall Street Journal

“Not a month has passed since Islamic State killed 49 people at an Orlando, Fla., nightclub, and less than a week since it murdered 45 at the Istanbul airport, and now Islamic State is taking credit for two more massacres: On Friday in Bangladesh, at a café in Dhaka’s diplomatic quarter, and on Sunday in a public market in Baghdad.

“As usual with Islamic State, the Dhaka attack was distinguished by savagery and propaganda. Seven terrorists stormed the café Friday night and demanded that patrons recite verses of the Quran. Those who failed – nine Italians, seven Japanese, two Indians and possibly one America – were tortured and hacked to pieces....

“Police identified the attackers as Bangladeshis, mostly well-educated and from wealthy families. So much, once again, for the theory that poverty and hopelessness are the cause of terrorism, Islamic State is a religious and ideological movement of Muslim fanatics....

“The Dhaka attack is also a reminder that Islamic State is spreading globally at a much faster rate than the U.S. is defeating it in its Syrian and Iraqi heartland.  The Baghdad bombing on Sunday targeted a spot popular with families and young people, and the jihadists used flammable materials that spread fires, killing at least 151 and wounded 195. [Ed. this death toll was early on.]

“The jihadist threat is global and growing, and it cannot be adequately fought, much less won, until an American President is honest about the danger.”

[The Dhaka attacked killed 22, including two security guards, while six of seven attackers died.]

Iran: German Chancellor Merkel stated on Thursday that Iran is breaking UN Security Council regulations that mandate it stop its illicit military rocket program.  Merkel’s comments follow a report from Germany’s domestic intelligence agency that stated Iran has continued to seek illegal nuclear technology.

Merkel said NATO’s anti-missile system targets Iran’s rocket program and was “developed purely for defense,” while Russian leader Vladimir Putin continues to claim the shield is aimed at Russia.

Last weekend, Iran’s Deputy Commander of the Iranian Revolutionary Guard said Lebanon (read Hizbullah) has 100,000 missiles ready to annihilate Israel.

Hossein Salami said: “The opportunity to destroy Israel is now better than ever, because tens of thousands of long-range missiles all over the Islamic world are ready to hit Israel immediately upon receiving the order.”  [Jerusalem Post]

Afghanistan: President Obama had hoped to leave just a handful of U.S. troops in Afghanistan come January 2017, but this week he announced he would turn over a force of 8,400 to the next president, up from the 5,500 he decided to keep in the fall. The shift in attitude came at the urging of the Pentagon and U.S. NATO allies, owing to gains by the Taliban and the failures of the Afghan military, who are still a long ways from being able to defend their country without significant help.

But, as the Wall Street Journal editorializes, at least Obama is leaving his successor a relatively stable military situation, allowing him or her to make their own decisions about future U.S. engagement.

Russia: Chancellor Merkel blamed Russia for undermining European security on the eve of the NATO summit in Warsaw; though her foreign minister, Frank-Walter Steinmeier, called for a more accommodating approach to Moscow.

Other NATO members such as Hungary, Italy and Greece have suggested in recent months that sanctions against Moscow might be counter-productive.

Meanwhile, President Putin signed a controversial law on counterterrorism that has sparked alarm among rights activists.  The amendments include introducing prison sentences for failure to report a grave crime and doubling the number of crimes for which Russians as young as 14 can be prosecuted.  Another forces telecommunications companies to store logs and data for months, which the companies say threatens their financial viability.

Regarding this last bit, Putin said the government would modify the implementation of the amendments in light of possible “financial risks.”

But for now, Russian telecom companies will have to store call logs for 12 months and call and message data for six months, which the businesses have said is 100,000 times as much data as they currently store and will take more than $33 billion in investment to organize and run.  Originally, the bill called on companies storing the data for several years. [AP]

Josh Rogin / Washington Post

“The U.S.-Russia relationship is too big to fail, but it’s failing.

“The Obama administration came into office with a big idea about this relationship: that these two world powers must work together on areas of mutual interest even if they still worked against each other where their interests diverged.  The concept was sound, but as relations have deteriorated and Russia has taken a more antagonistic stance, the United States has failed to adapt.

“Last week’s revelation that the administration is proposing increased military cooperation with Russia in Syria, in exchange for Russian agreement to abide by the cease-fire it had already agreed to, was a stark example of how the administration’s theory about how to work with Russia is being misapplied on the ground.  Washington is offering Moscow both a reprieve from the political and military isolation it imposed after the invasion of Ukraine – and a reward for taking unilateral military action designed to undermine U.S. policy in Syria.  The White House and the State Department believe that the only way to make progress in Syria is to work with Moscow, even if that means setting the isolation effort to one side. That makes some sense, but only if Russia actually honors its agreements in Syria and makes progress toward resolving the Ukraine crisis.

“But neither of these things is happening.  Ukraine’s recently departed prime minister, Arseniy Yatsenyuk, told me last week that while Russia has successfully distracted the world from the Ukraine crisis, the Russian military continues a medium-boil military campaign in violation of the Minsk agreement.

“ ‘Every single day they kill Ukrainian soldiers, every single day the death toll is rising, every single day we’ve got civilian casualties. There is no cease-fire on the ground,’ he said.

“To Yatsenyuk, Russian President Vladimir Putin’s strategy is clear.  Russia will pretend to work with Western powers and even strike deals when the deals are sweet enough.  But by selectively violating the agreements while manipulating other governments and the media, Putin will continue to make steady progress toward his anti-Western, anti-democratic objectives. For Yatsenyuk, there’s simply no way to work constructively with the current Kremlin.”

China: U.S. navy destroyers have been sailing close to Chinese-controlled islands in the South China Sea ahead of a ruling by an international tribunal next week on China’s territorial claims in the disputed waters.

The patrols, though, are taking place 14 to 20 nautical miles from islands at Scarborough Shoal and the Spratly Islands, not within 12 miles, which must be approved at the highest levels.  Beijing would see any patrols within 12 miles as an intrusion into its territorial waters.

The Permanent Court of Arbitration in The Hague is due to rule on China’s claims on July 12.  Beijing has refused to take part in the hearings, saying the court has no jurisdiction in the matter.

The case was brought by the Philippines, a rival claimant in the region.  [South China Morning Post]

Separately, China is holding military drills in the South China Sea.

On a different issue, China accused Japan of targeting its warplanes, through the use of fire-control radar.  The clash, a near dogfight, occurred June 17 but just came to light on Monday as China said Japanese warplanes used the radar to “light up” Chinese counterparts and released infrared flares during evasive maneuvers.  Japan did not deny its aircraft had fired infrared decoy flares, a move that would be consistent with believing they were under attack.

The incident occurred somewhere over the East China Sea, where both countries claim overlapping Air Defense Identification Zones.

Lastly, a Chinese court sentenced former Politburo member Ling Jihua to life in prison Monday for accepting more than $11.6 billion in bribes.  His downfall caps leader Xi Jinping’s purge of political rivals under cover of an anticorruption campaign.  Ling was consigliere to Xi’s predecessor, Hu Jintao.

There are now rumors Xi is angling to remove Premier Li Keqiang, another Hu ally, who normally would serve a 10-year term through 2022.

Xi pledged last weekend that the Chinese Communist Party would go back to its Marxist roots.

“The whole party should remember, what we are building is socialism with Chinese characteristics, not some other –ism,” Xi said in an address in Beijing’s Great Hall of the People.

He added, “China doesn’t covet other countries’ interests, nor does it envy other countries’ development but we won’t give up our rightful interests.

“The Chinese people don’t fear trouble but don’t seek trouble.  Other countries should not expect us to trade away our core interests nor should they expect us to swallow circumstances that harm our sovereignty, security and developmental interest.”  [FT]

North Korea: Pyongyang vowed a tough response to what it deemed a “declaration of war” by the United States, after the Obama administration blacklisted Kim Jong Un for the first time over human rights abuses.  Pyongyang described the sanctioning of Kim as a ‘hideous crime,” according to North Korea’s KCNA news agency.

“What the U.S. did this time, not content with malignantly slandering the Democratic People’s Republic of Korea, is the worst crime that can never be pardoned,” it cited the foreign ministry as saying. [Reuters]

Meanwhile, South Korea and the United States said on Friday they would deploy an advanced missile defense system in South Korea to counter the growing threat from North Korea.  Beijing immediately lodged complaints with ambassadors from both countries, saying deployment of the THAAD (Terminal High Altitude Area Defense) system would complicate the regional situation  and harms China’s strategic security interests.

Australia: The results of the parliamentary election proved to be as close as forecast and there is a great deal of uncertainty after.

Prime Minister Malcolm Turnbull enjoyed high personal poll ratings in the first 100 days of his prime ministership, which propelled the coalition to a 10-point lead over the Labor party in the polls.  But after he called a snap election in May, the coalition was deadlocked with Labor at 50-50.  As I go to post, however, it does appear Turnbull will still head a new government but with a one- or two-seat margin and the opposition is already calling for another election by year end.

Big business is likely to be a loser as Turnbull is unlikely to be able to deliver on a pledge to cut corporate taxes and tackle trade union power.

The bottom line is that even if Turnbull forms a coalition, he won’t have a majority in the Senate, which can block legislation.

Venezuela: There is strong evidence that state workers who signed a recall referendum against President Nicolas Maduro are being fired, which among other things violates a 2015 presidential decree prohibiting employers from firing workers until 2019.

Random Musings

--Hillary’s emails....

I have consistently said I did not believe Hillary Clinton would be indicted because I just didn’t see FBI Director James Comey doing so (or recommending such a move).  I agree with the conclusion of Charles Krauthammer down below that Comey just didn’t want to be the one to decide the November election.  It’s really not more complicated than that.

So to back up, Clinton underwent a 3 ½ hour interview with the FBI on Saturday in Washington.  Then, suddenly, out of the blue, Comey went before a podium Tuesday morning and in a 15-minute statement said the FBI did not find that Clinton or her colleagues intended to violate the law, and that there was no ‘intentional misconduct” by her lawyers who sorted her emails.

Chris Cillizza / Washington Post

“Here’s the good news for Hillary Clinton: The FBI has recommended that no charges be brought following its investigation of the former secretary of state’s private email server.

“Here’s the bad news: Just about everything else.

“FBI Director James B. Comey dismantled large portions of Clinton’s long-told story about her private server and what she sent or received on it during a stirring 15-minute news conference, after which he took no questions.  While Comey exonerated Clinton, legally speaking, he provided huge amounts of fodder that could badly hamstring her in the court of public opinion.

“Most importantly, Comey said the FBI found 110 emails on Clinton’s server that were classified at the time they were sent or received.  That stands in direct contradiction to Clinton’s repeated insistence she never sent or received any classified emails....

“Comey condemned Clinton and her top aides as ‘extremely careless’ in how they handled classified information during her time as the head of the State Department, adding: ‘Any reasonable person...should have known that an unclassified system was no place’ for that sort of information.

“There was more – much more. Comey said Clinton had used not one but multiple private email servers during her time at State.  He said Clinton used multiple email devices during that time....

“It’s worth remembering at this point that Clinton and her team deleted more emails than they turned over to the State Department.

“It’s hard to read Comey’s statement as anything other than a wholesale rebuke of the story Clinton and her campaign team have been telling ever since the existence of her private email server came to light in spring 2015.   She did send and receive classified emails. The setup did leave her – and the classified information on the server – subject to a possible foreign hack.  She and her team did delete emails as personal that contained professional information.

“Those are facts, facts delivered by the Justice Department of a Democratic administration. And those facts run absolutely counter to the narrative put forth by the Clinton operation: that this whole thing was a Republican witch-hunt pushed by a bored and adversarial media.

“Now for the key question: How much do the FBI findings hurt her campaign?....

“The best thing Clinton may have going for her at this point is that Republicans are two weeks away from formally picking Donald Trump as their party’s presidential nominee.”

At the conclusion of Comey’s statement, the recommendation was that no criminal charges be filed, lifting a cloud of uncertainty for Clinton’s White House campaign.

Attorney General Loretta Lynch said last Friday that she would accept the recommendations of the career prosecutors and the FBI director on whether to charge Clinton for mishandling emails.

A day after Comey’s statement, Lynch issued a brief one of her own accepting the FBI’s recommendation that no one should be charged in the case.

“I received and accepted their unanimous recommendation that the thorough, year-long investigation be closed and that no charges be brought against any individuals within the scope of the investigation.”

House Speaker Paul Ryan (R-Wis.): “While I respect the law enforcement professionals at the FBI, this announcement defies explanation.  Declining to prosecute Secretary Clinton for recklessly mishandling and transmitting national security information will set a terrible precedent.”

Thursday, Director Comey told a congressional committee that his investigators found “evidence of mishandling” of classified information, though neither Clinton nor her aides intended to do wrong, thus they could not be charged with a crime.

Opinion...both sides....

Editorial / USA TODAY

“Unlike the crassly partisan Benghazi investigation by a Republican-dominated congressional panel, the issues exposed in the email inquiry are real.  They represent a major blunder on Clinton’s part, perhaps driven by the secretiveness and paranoia of someone who has been in the public eye, and subject to relentless attack, for decades.

“On the other hand, the fact that Comey is not recommending charges is also telling.  Clinton’s transgressions have to be considered alongside her accomplishments as first lady, U.S. Senator and secretary of State.  And her complete record should be measured alongside her opponents’ records....

“Bill Clinton’s stupendously ill-advised private meeting at the Phoenix airport last week with Attorney General Loretta Lynch provides plenty of fodder for conspiracy theorists, but the FBI is a non-partisan agency with a non-partisan presidential appointee at its helm.  Comey, who is nearly three years into a 10-year term, is a lawyer and career prosecutor with a sterling record.  He has accepted appointments from Republican and Democratic presidents and has a reputation for resisting political interference.

“This particular inquiry was so free of outside influence that Comey apparently caught the Justice Department and the White House off guard by reaching his judgment so swiftly after the Clinton interview.  He didn’t give them any notice of what he was going to say or when he was going to say it.

“As Comey noted, it’s impossible to find any comparable case in which charges were filed that did not involve willful misconduct, or such large quantities of classified information that an inference could be made of criminal intent.

“The case most often cited as a comparison – the prosecution of former CIA director David Petraeus – is instructive.  Unlike Clinton, Petraeus purposefully shared classified information with his biographer and lover, Paula Broadwell. And he still was able to get off with a misdemeanor plea agreement.

“It is good for the nation that the FBI inquiry was completed before the political conventions and the fall campaign.  But if Tuesday was a good day for Clinton, then the bar for good days – escaping indictment – has gotten very low indeed.”

Editorial / Wall Street Journal

“For our money, the most revealing words in FBI Director James Comey’s statement Tuesday explaining his decision not to recommend prosecuting Hillary Clinton for mishandling classified information were these: ‘This is not to suggest that in similar circumstances, a person who engaged in this activity would face no consequence. To the contrary, those individuals are often subject to security or administrative sanctions.’

“So there it is in the political raw: One standard exists for a Democratic candidate for President and another for the hoi polloi.  We’re not sure if Mr. Comey, the erstwhile Eliot Ness, intended to be so obvious, but what a depressing moment this is for the American rule of law.  No wonder so many voters think Washington is rigged for the powerful.

“Mr. Comey spent nearly all of his media appearance laying out the multiple ways in which Mrs. Clinton’s use of a private email server for official State Department business had violated official policy and jeopardized America’s secrets.  Yet at the end he declined to recommend prosecution because her behavior was merely ‘extremely careless’ rather than ‘grossly negligent’ as the law requires.  This is a rhetorical distinction without a  difference that deserves to be mocked.

“Mr. Comey’s facts grossly – if we may use that word – belie his conclusion.  Of the 30,000 work-related emails Mrs. Clinton turned over to State, 110 contained classified information at the time they were sent or received.  Eight email chains contained information judged to be Top Secret.  The FBI also found three emails containing classified information among emails that Mrs. Clinton had deleted (rather than turned over to State) – but which the FBI was able to find through forensic analysis.

“The FBI chief’s statement also had the effect of exposing the many lies Mrs. Clinton has told about her emails....

“Despite this list of indictable particulars, Mr. Comey concluded that none of it warrants a criminal prosecution.  His justification is that her behavior didn’t meet the standard of ‘clearly intentional and willful mishandling of classified information; or vast quantities of materials exposed in such a way as to support an inference of intentional misconduct; or indications of disloyalty to the United States; or efforts to obstruct justice.’

“Yet the recent State Department Inspector General report disclosed emails showing that Mrs. Clinton and her staff were warned by State officials that her private email was vulnerable to hackers.  She willfully and intentionally ignored those warnings.  Mr. Comey knows that many federal employees have been prosecuted for mishandling classified information despite no evidence of ill intent.  They were prosecuted merely for recklessly handling secrets.

“By a reasonable person’s standards, Mrs. Clinton’s decision to use a private server, to give her aides access to it, email classified information on it, to fail to secure it, and to use it in hostile territory was grossly negligent. We can’t wait for the next minion prosecuted for mishandling secrets to invoke the ‘extremely careless’ defense....

“The rule of law requires its neutral application.  We almost wish Mr. Comey had avoided his self-justifying, have-it-both-ways statement and said bluntly that he couldn’t indict Mrs. Clinton because the country must be spared a Donald Trump Presidency.  It would have been more honest and less corrosive to democracy than his Clinton Standard.”

Editorial / Washington Post

“First, a shout-out to the investigator: In examining the use of a private email server for official business by then-Secretary of State Hillary Clinton, FBI Director James B. Comey appears to have navigated treacherous waters with the commitment to principle and rule of law that any citizen could wish for.  The FBI investigated thoroughly.  It came to its conclusion in time for voters to factor it into their deliberations.  Mr. Comey leveled with the American people, reporting to them even before reporting to his own bosses.

“And the conclusion he came to strikes us as being as sound as the process: Ms. Clinton was ‘extremely careless,’ the FBI director said, but did not engage in the kind of intentional or willful mishandling of classified material that would warrant prosecution.

“The director left no doubt of his belief that Ms. Clinton’s use of a private email server was entirely inappropriate for a Cabinet member with access to the nation’s highest-level secrets.  Mr. Comey said ‘any reasonable person in Secretary Clinton’s position...should have known that an unclassified system was no place for that conversation.’

“The Clinton system had virtually no archiving; when servers were swapped out in 2013, ‘millions of email fragments’ wound up being inadvertently tossed into the ‘slack space’ of a decommissioned server.  Much will be made by Ms. Clinton’s critics of the finding that eight chains of ‘top secret’ emails were found, as well as several dozen chains of emails at lesser levels of classification; and that work emails were missed by her lawyers in their sorting from the personal; and that thousands of other emails were dislodged by investigators from other people’s accounts.

“No doubt an FBI investigation of equal intensity would find carelessness on the part of many other high-ranking officials.  But that does not excuse Ms. Clinton’s blithe disregard for procedure. The FBI found no ‘direct evidence’ that Ms. Clinton’s email was hacked by foreign adversaries, Mr. Comey said.  But it is worrisome that the FBI believes ‘hostile actors gained access’ to private, commercial email accounts of her interlocutors, and that it is ‘possible’ her emails also fell into hostile hands.  China’s and Russia’s known, aggressive cybersnooping may have reaped a rich harvest.

“Carelessness, however, is not a crime.  Mr. Comey said there is no precedent, in his view, that would justify prosecution in this case....

“From what’s come to light, it seems clear Ms. Clinton and her aides used the private email server to preserve control over her messages, neglecting their responsibility as public servants to follow procedures for protecting classified information.  Rather than toss off this experience with a back of the hand, Ms. Clinton needs to learn from it and find a way to show voters that she has better judgment than the combination of high-handedness and defensiveness she has displayed here.”

Editorial / New York Post

“Tuesday, FBI Director James Comey painted a devastating picture of Hillary Clinton’s reckless lawbreaking with her emails and the damage it likely caused – but then recommended no charges against her.

“When it comes to the Clintons, say goodbye to the rule of law.

“Comey said the bureau looked for evidence that ‘classified information was improperly stored or transmitted’ on Clinton’s personal email servers, in violation of a ‘statute making it a felony to mishandle classified information either intentionally or in a grossly negligent way.’

“Sure enough, his agents found plenty: 110 emails ‘in 52 email chains’ were considered classified ‘at the time they were sent or received.’

“That included eight ‘Top Secret’ chains...Another 2,000 were classified ‘Confidential’ later.

“There may have been more, but Comey said his agents couldn’t examine all of Hillary’s emails because some that were deleted may never be found.

“The evidence showed Clinton and her colleagues were ‘extremely careless in their handling of very sensitive, highly classified information’ – even if they may not have ‘intended’ to break the law. And, as he said, proving intent isn’t necessary to find her guilty of a felony.

“Comey made one other point: Some emails ‘bore markings indicating the presence of classified information’ – contrary to what Hillary repeatedly claims.  But even with emails that didn’t contain such markings, Clinton still had an obligation ‘to protect it.’

“All of which seems enough to convict (never mind indict) her – based on Comey’s own criteria.

“Nor was all this just a case of harmless sloppiness, as Hillary claims, Comey said the bureau ‘assessed that hostile actors’ (read: foreign enemies) ‘gained access’ to email accounts of people she had contact with and possibly even to Clinton’s own personal email account itself.

“So why on earth would Comey let her off the hook?  Especially when the agency had recommended charges against others, like Gen. David Petraeus, who had similarly failed to protect classified information.

“The answer: The Clintons enjoy a different standard. They are above the law....

“Comey just dealt a powerful blow to the public’s faith in the concept of equal justice.  Hillary will now claim falsely she’s been exonerated – even though the FBI found her in violation of the law.

“Is there any wonder so many voters this year are outraged by the ‘rigged’ system?”

Editorial / New York Times

“James Comey...may have relieved Hillary Clinton of a legal burden on Tuesday, but he left her with a substantial political one.  While announcing that the bureau would not recommend criminal charges against Mrs. Clinton for her handling of classified material on nonsecure personal email servers, Mr. Comey issued a strong rebuke of her practices, which he called ‘extremely careless’ – and for which she has never given the public a full explanation.  He was right on both points.

“Mr. Comey explained that there was no clear evidence Mrs. Clinton or her colleagues had intentionally broken any federal laws on classified information, and he said that ‘no reasonable prosecutor’ would pursue an indictment in the case.

“This legal decision is undoubtedly correct....

“For at least two reasons, Mr. Comey said, this did not amount to criminal wrongdoing.  First was the lack of evidence that Mrs. Clinton or her colleagues had intended to break any laws.  Second, prosecutions of similar cases in the past have relied on some combination of elements that were missing in this case: the intentional mishandling of classified information, indications of disloyalty to the United States, and efforts to obstruct justice.

“But Mr. Comey was clear that while these email habits weren’t criminal, Mrs. Clinton and her staff were ‘extremely careless in their handling of very sensitive, highly classified information.’  He added that ‘any reasonable person’ in Mrs. Clinton’s position should have known that she was playing with fire.

“Mr. Comey’s remarks also contradicted Mrs. Clinton’s repeated assertion that she didn’t send or receive material that was ‘marked classified’ at the time. She did....

“Perhaps more troubling was the FBI’s finding that Mrs. Clinton ‘also used her personal email extensively while abroad, including sending and receiving work-related emails in the territory of sophisticated adversaries,’ adding that ‘it is possible that hostile actors gained access to Secretary Clinton’s personal email account.’

“Mr. Comey’s conclusions – legal recommendation aside – can be seen as nothing less than  censure of Mrs. Clinton’s judgment....

“As Mrs. Clinton said in the past, and her campaign reiterated on Tuesday, her decision to use private email was a mistake.  She remains, far and away, the most experienced and knowledgeable candidate for the presidency, particularly when compared with Mr. Trump.  But she has done damage to her reputation by failing to conform to the established security policies of the department she ran and by giving evasive or misleading answers about her actions and motivations.  If there was ever a time that Mrs. Clinton needed to demonstrate that she understands the forthrightness demanded of those who hold the nation’s highest office, this is that moment.”

Michael B. Mukasey (former U.S. Attorney General) / Wall Street Journal

“Federal Bureau of Investigation Director James Comey opened and closed his statement to the press Tuesday with expressions of gratitude and pride to be associated with the bureau.  His description of FBI agents’ work on the Hillary Clinton email investigation showed why he feels that way.  Whether the rest of his statement – explaining why he wasn’t recommending prosecution of Mrs. Clinton – should make the feeling mutual is an open question.

“The agents had to reconstruct thousands of emails from a series of private servers used and abandoned over the years, some of them turned into confetti in the process.  The FBI agents also had to tease out from the files of other government employees emails that they might have received from or sent to Mrs. Clinton during her tenure as secretary of state, and weigh their importance.

“Unlike Mrs. Clinton’s own lawyers – who decided which emails to produce by reading just the headings – the agents read each of the many thousands of emails and fragments that passed through their hands. The job was made no easier by the decision of those lawyers to obliterate the email record they had examined, making it impenetrable to forensic examination.  All in all, these tasks of the agents bear comparison with the labors of Hercules....

“The FBI director said the investigation of Mrs. Clinton was a case for ‘unusual transparency,’ and the transparency in Tuesday’s exercise was certainly unusual.  Mr. Comey’s disclosure of his recommendation outside the context of any discussion with Justice Department lawyers was anomalous. What is supposed to happened in a matter like this is, as the director mentioned, a ‘prosecutive’ decision – i.e., a decision made by prosecutors.  It is not an investigative decision.  Investigators are supposed principally to gather facts.

“Mr. Comey didn’t explain why, with evidence clearly fulfilling the requirements of the two statutes involved, no reasonable prosecutor would bring a case – except for the director’s inaccurate assertion that it had never been done before.

“And finally, although there was transparency about process, there was no discussion of underlying facts, only conclusions.  It may be that someday there will be the usual transparency: disclosure of facts. That day was not Tuesday, and it is little wonder that many in and out of government were left both puzzled and dismayed.”

Comparison of statements Hillary Clinton or her campaign have made about her email practices while secretary of state and statements made by FBI Director James Comey on Tuesday:

CLINTON: “I did not email any classified material to anyone on my email.  There is no classified material.  So I’m certainly well-aware of the classification requirements and did not send classified material.” (Hillary Clinton, press conference, 3/10/15)

COMEY: “110 emails in 52 email chains have been determined by the owning [government] agency to contain classified information at the time they were sent or received. ...Separate from those, about 2,000 additional emails were up-classified to make them confidential.  Those emails had not been classified at the time that they were sent or received...[Some] chains involved Secretary Clinton both sending emails about [top-secret-level] matters and receiving emails from others about the same matters.”

CLINTON: “Nothing I sent was marked classified or that I received was marked classified.” (Hillary Clinton, Democratic Presidential Town Hall on Fox News, 3/7/2016)

COMEY: “It’s also important to say something about the marking of classified information.  Only a very small number of the emails here containing classified information bore markings that indicated the presence of classified information.  But even if information is not marked classified in an email, participants who know, or should know, that the subject matter is classified are still obligated to protect it.”

CLINTON: Asked if she “wiped” the server, “What, like with a cloth or something?  Well, no. I don’t know how it works digitally at all.” (Hillary Clinton, press conference, 8/18/2015)

COMEY: Clinton’s lawyers “cleaned their devices in such a way as to preclude complete forensic recovery.” [Byron Tau / Wall Street Journal]

With the Justice Department investigation closed, the State Department is reopening an internal probe of mishandling of classified information by Clinton and her top aides.  State suspended its review in April to avoid interfering with the FBI’s inquiry.  Spokesman John Kirby set no deadline for the investigation’s completion.

Charles Krauthammer / Washington Post...following Comey’s testimony...

“Why did he do it? FBI Director James Comey spent 14 minutes laying out an unassailable case for prosecuting Hillary Clinton for the mishandling of classified material. Then at literally the last minute, he recommended against prosecution.

“This is baffling.  Under the statute (18 U.S.C. section 793(f)) it’s a felony to mishandle classified information either intentionally or ‘through gross negligence.’  The evidence, as outlined by Comey, is overwhelming....

“Yet Comey let her off the hook, citing lack of intent.  But negligence doesn’t require intent.  Compromising national secrets is such a grave offense that it requires either intent or negligence.

“Lack of intent is, therefore, no defense.  But one can question that claim as well.  Yes, it is safe to assume that there was no malicious intent to injure the nation.  But Clinton clearly intended to set up an unsecured private server.  She clearly intended to send those classified emails. She clearly received warnings from her own department about the dangers of using a private email account.

“She meant to do what she did. And she did it. Intentionally....

“(But just as Chief Justice John Roberts didn’t want the Court to be the final word on ObamaCare, Comey) did not want...to end up as the arbiter of the 2016 presidential election. If Clinton were not a presumptive presidential nominee but simply a retired secretary of state, he might well have made a different recommendation.

“Prosecuting under current circumstances would have upended and redirected an already year-long presidential selection process.  In my view, Comey didn’t want to be remembered as the man who irreversibly altered the course of American political history.

“And with no guarantee that the prosecution would succeed, moreover. Imagine that scenario: You knock out of the race the most likely next president – and she ultimately gets acquitted!  Imagine how Comey goes down in history under those circumstances.

“I admit I’m giving Comey the benefit of the doubt. But the best way I can reconcile his reputation for integrity with the grating illogic of his Clinton decision is by presuming that he didn’t want to make history.

“I don’t endorse his decision.  But I think I understand it.”

Editorial / Wall Street Journal...Friday...

“Mr. Comey has done such a masterful job of public relations that Democrats and the media are now claiming that anyone who disagrees with his conclusion is attacking him for ‘doing his job.’  But Mr. Comey didn’t do his job of serving the public good. He protected his job with a dismayingly political performance.”

---

--A Washington Post-ABC News poll in June found that 56 percent of all adults disapprove of Hilary Clinton’s handling of questions about her email use – 44 percent of them ‘strongly disapproving.’  [This was conducted right before Comey’s statement on Tuesday.]

--A new USA TODAY/Suffolk University Poll has Clinton leading Trump by six points if you round it off (45.6% to 40.4%).  Two months ago she led 50-39 in this one.

--Clinton raised more than $40 million for her campaign in June, beginning July with more than $4 million in cash on hand as it starts to advertise heavily in battleground states.  Clinton also raised about $28 million for the Democratic National Committee and state parties.

Trump hauled in $26 million for his own campaign, $25 million for the RNC in June, quite an improvement from the measly $3.1 million he raised in May.

--Comey’s statement on Tuesday vastly overshadowed the controversy of former president Bill Clinton meeting with Attorney General Lynch at the Phoenix airport a few days prior.

Dan Balz / Washington Post

“Bill Clinton has made a mess.  It was either out of foolish indifference or plain foolishness, but it has created a terrible moment for his wife and the Democrats, and for President Obama and perceptions of the integrity of his administration....

“For a politician long praised for his political smarts, it was a striking error of judgment on Clinton’s part to walk to Lynch’s plane for any kind of conversation.  It was a similarly huge lapse on the part of the attorney general, who was appointed by Clinton as a U.S. attorney in 1999, to allow him to come aboard for any kind of conversation....

“Let’s assume that Lynch’s description of the meeting is wholly accurate – that this was a casual encounter between two people who have known each other for some time and who happened by circumstance to be on the same airport tarmac at the same time. Will that lessen suspicions that there is a coziness between the Clintons and the people in the Obama administration who have overall responsibility to be fair and fearless in the investigation?  Hardly.”

So we wait to see whether what we heard this week will further erode Clinton’s standing with the public.

--Donald Trump went to the capital on Thursday to unite the Republican Party, but he had some verbal scuffles with Senate Republicans that soured the trip.

Arizona Sen. Jeff Flake told Trump he is uncomfortable endorsing him.  Trump told Flake he’d lose his re-election bid – even though Flake doesn’t face the voters again until 2018.

Trump also went out of his way to criticize two other GOP senators – Mark Kirk of Illinois and Ben Sasse of Nebraska.  A Sasse spokesman said: “Mr. Sasse continues to believe this election remains a dumpster fire.”

But Trump did manage to land former rival Ted Cruz for a convention speaking slot, even though Cruz has not endorsed the presumptive nominee yet.

Trump’s meeting with House Republicans was more subdued, earning him mostly accolades.

--Daniel Henninger / Wall Street Journal

“Even Donald Trump’s critics would not go so far as to suggest that his voter base consists of vagabonds, pickpockets or even, ugh, ‘literati.’  But for the longest time, the American media saw the Trump base as an ‘indefinite, disintegrated mass’ of mostly angry, lower-middle-class white males.  The early Trump adopters often looked like bikers, with or without jobs. The Trumpen proletariat.

“This was the original Trump bedrock, the proles who could look past him saying that John McCain, though tortured for years by the Vietnamese, wasn’t a hero.  Even now they’ll blink right by Mr. Trump’s remark this week that Saddam Hussein was ‘good’ at killing terrorists (’they didn’t read them their rights’), despite the unhappy fact that Saddam was a psychopathic, blood-soaked torturer responsible for the deaths of perhaps a half million non-terrorist Iraqi citizens.

“(Still, one may ask: When the day after her Comey pardon, Hillary Clinton proposes ‘free’ tuition at public colleges for families earning up to $85,000 a year, and $125,000 by 2021, how come her campaign isn’t universally laughed and mocked off the map?)

“The media originally looked upon the emerging Trump base with suspicion and distrust, regarding it as a volatile and possibly dangerous political faction but one that would slip back to the shadows as the Trump candidacy faded.

“We are 10 days from the party conventions, and Mr. Trump sits, uneasily as always, close to the polling margin of error against the former Secretary of State, former U.S. senator and former first lady Hillary Clinton. The Trumpen proletariat turns out to be bigger than imagined.

“In the nonstop conversation about the 2016 election, the question at the center of everything is whether one is a ‘Trump supporter.’  But if it is true that in this election all the rules have been broken, couldn’t it also be true that Donald Trump has himself become a bystander to the forces set in motion this year?....

“Undeniably, economic anxiety over flatlined incomes and the sense of economic loss, blamed variously on globalization or immigrants, explains a lot in this election.  But not all of it.  A Trump doesn’t rise without stronger forces in play.

“That force has been described, including by me, as the revolt of the politically incorrect.  PC, though, is just the symptom of a more virulent social disease.

“The U.S. has been through culture wars before, as with the religious right in the 1980s and ‘90s.  Or the smart set in the 1920s.  The country, ever resilient, eventually adjusts and moves on.

“Political correctness added something new to the cultural divide: moral condescension.

“What has really ‘angered’ so many more millions who now feel drawn into the Trump camp isn’t just PC itself but that its proponents show such relentless moral contempt and superiority toward everyone else.  People in America can take a lot, but not that.  Marx would have a field day with how progressivism’s cultural elites have reordered social classes between the right-minded and everyone else.

“Despite years of winning Supreme Court assent to their views, the left insists that the other side must remain on the moral hook.  On race, sex or the environment the moralistic left seems to think it can keep the population incarcerated forever on vague, unproven charges of cultural gilt.  For what?

“In nearly eight years of presidential speeches, Barack Obama, by explicit choice, has come to embody the holier-than-thou idea of showing secular moral contempt for those who disagree with him.

“As his inheritor, Hillary Clinton will bear the brunt of an energized Trumpen proletariat that suddenly finds moral demotion as something they no longer have to bear. That the mercurial Donald Trump has occupied both sides of this conflict and then some is, after all these years, beside the point.”

--In a Gallup poll, 67 percent expressed negative views of Trump, 51 percent of Clinton.  The top reaction to Trump, 16 percent, was one of dislike; followed by 12 percent who said he was an “idiot” or “joke.” More than 27 percent said dishonest and unethical were the first things they thought of when it came to Clinton.

--Labor Secretary Tom Perez, who is said to be on Hillary Clinton’s Veep short list (which is unfathomable), said on NBC’s “Meet the Press” last Sunday:

“I think President Obama is going to go down as one of the most consequential presidents in U.S. history, as a result of his work in saving us from the precipice of the Great Depression.  It could have been a depression but for his leadership.  And it’s been an unmitigated honor to work with him and for him.”

I beg to differ, Mr. Perez.  The last nearly eight years have been an unmitigated disaster.

--Another Democratic representative, in this instance Congresswoman Corrine Brown of Florida, was indicted along with her chief of staff on fraud charges and other crimes, as a federal grand jury accused them of funneling money for a bogus education charity to personal use.  Brown, 69, from Jacksonville, Fla., is accused of using her political position to help raise more than $800,000 for a charity that donors believed supported college scholarships and other educational work. 

“Instead, funds donated to the group One Door for Education were used to pay for a golf tournament honoring Brown, luxury box seats at a Beyonce concert and a football game as well as other personal expenses, according to a 53-page indictment filed in U.S. District Court.”  [Letitia Stein / Reuters]

Her chief of staff, Elias “Ronnie” Simmons, was accused of multiple counts of fraud.  He allegedly misused his position to help a relative obtain government employment and receive more than $735,000 without doing any work for the U.S. House of Representatives, according to prosecutors.  Simmons diverted more than $80,000 of his relative’s salary for his own personal use, they said.

Brown has represented her district since 1992.  Her indictment follows the conviction last month of U.S. Rep. Chaka Fattah (Dem.) of Philadelphia, accused of orchestrating multiple frauds to enrich himself and preserve his political career.  He has resigned.

Yet another reason to hate Congress.

--We note the passing of Elie Wiesel, 87.  Wiesel, as an Auschwitz survivor, became an eloquent witness for the six million Jews slaughtered in World War II.  He was the voice that emerged to drive home the enormity of what had happened.  For his work, speaking out against forgetfulness and violence, he was awarded the 1986 Nobel Peace Prize.

Wiesel first gained attention in 1960 with the English translation of his autobiographical account of the horrors he witnessed in the camps, “Night.”

--Finally, the Juno space probe arrived in orbit around Jupiter after a five-year, 1.4 billion-mile voyage.

The spacecraft was able to complete a high-stakes maneuver that saw it fire a rocket to slow its 150,000 mph approach to the giant planet.  NASA has reason to be very proud, the mission’s chief scientist, Scott Bolton, saying to the team, “you’ve just done the hardest thing NASA’s ever done”

But now the craft has to survive one of the solar system’s harshest environments, “where circuitry-frying levels of radiation and high velocity dust and particles will be a constant threat.”  [BBC News]

Scientists hope that an analysis of Jupiter’s interior structure will help them understand the history and formation of the solar system.  Hopefully the Jupiterians are welcoming.  I’m also assuming Juno is equipped with a wealth of Swiffer products to take care of the dust, Jupiter having a ring of it.

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

Pray for peace and understanding.

God bless America.

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Gold $1366...highest since March 2014
Oil $45.41...lowest in two months

Returns for the week 7/4-7/8

Dow Jones  +1.1%  [18146]
S&P 500  +1.3%  [2129]
S&P MidCap  +1.4%
Russell 2000  +1.8%
Nasdaq  +1.9%  [4956]

Returns for the period 1/1/16-7/8/16

Dow Jones  +4.1%
S&P 500  +4.2%
S&P MidCap  +8.7%
Russell 2000  +3.7%
Nasdaq  -1.0%

Bulls  47.1
Bears  24.5  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore