Week in Review

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Week in Review

07/02/2016

For the week 6/27-7/1

[Posted 11:30 PM ET, Friday]

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Edition 899

Brexit and Europe

So what just happened?  Britain shocks the world by voting to leave the European Union, $3 trillion vanishes from global equities in the first two trading days in reaction, there is a major terror attack at Istanbul’s main airport on Tuesday (and an ongoing one in Dhaka as I write tonight), but in the end markets rally back strongly, including London’s best week for stocks in years, and all is seemingly well with the world.

Well excuse my French, but this whole week’s action was a crock of merde in terms of forecasting the future direction on Wall Street.  It was all about talk of further easing of monetary policy around the world, which forces traders, investors and computers into equities on an even greater scale, while the issue of Brexit is far from a one- or two-day event, rather it is with us for years, unless you can convince me as Gideon Rachman writes down below that somehow Britain will be able to pull back, gain renewed concessions from the European Union, hold another referendum, and this time have the people vote Remain.  Sorry, Mr. Rachman.  Ain’t gonna happen, as much as I wish you could be right.

Let me try to bottom line a lot of what has happened in the last ten days.  Not the program-trading induced global equity rally, fueled by central banks, but the truth.

52% of Brits voted to Leave for three reasons: 1) They are tired of the fact that 60%-70% of the rules and regulations they live under originated in Brussels, not London.  2) They are tired of not only paying far more into the EU than they get back, which a majority could still accept were it not for the fact they are also responsible for a large percentage of the debts of Greece, and, in the future no doubt, Portugal, Spain and Italy, with others to follow them. But the last reason (3) is the most important, immigration.

And while Europeans, especially the Brits, understand this, since the vast majority of my readers are American, let me set the record straight on immigration in the U.K., since if you watch the likes of Bill O’Reilly you aren’t getting the real story.

As I have written in this column extensively, and you won’t find many in the world who have covered this topic, including the rise of the far right across Europe, more extensively than moi, the majority of the huge surge of immigrants into the U.K. are from Eastern Europe, not as O’Reilly said the other evening, “Africa, the Middle East and Asia.”  Specifically, in the case of Britain, from Romania, Bulgaria and Poland.

It’s in the likes of Sweden, Germany, Austria and France (plus Italy and Greece), that the majority of immigrants are from Syria, Iraq, Afghanistan and North Africa.

This is an important distinction because in the case of Britain, they have been living under the EU’s open border rules whereby a citizen of one EU nation has the right to travel among the other member states without restrictions, to look for work, settle, receive benefits, etc.  Britain became a magnet for many in Eastern Europe seeking better lives, while the other countries I just listed deal with the real migration crisis primarily caused by a lack of leadership in 2012 on the part of President Barack Obama.

So heretofore, there have been no limits and what British Prime Minister David Cameron was attempting to do months before the referendum was negotiate with the other 27 EU members for new terms that would allow Britain to, within reason, set its own limits on immigration, which, yes, flies in the face of EU dogma.

As I wrote last winter, though, Cameron failed miserably in his final talks and you might recall I wrote of how many in his own Cabinet laughed at the minor concessions he gained from his fellow EU leaders.  It was at that point that the campaign for Brexit took off as some of Cameron’s Cabinet members and supporters broke away and went to the Leave camp, or, as in the case of Theresa May, who could now become Britain’s next prime minister, opted to give at best tepid support for staying in the EU.

But then the vote comes in and whaddya know; the Leave camp, led by the likes of Boris Johnson, had no plan for the day after.  David Cameron was forced to resign, the Conservatives (Tories) were in a state of turmoil, ditto the opposition Labour party, and you now have an incredible power vacuum at a most dangerous time.  If Britain were to come under serious attack, say of the multiple ISIS variety, just who will lead?

I discuss what actually happened at the two-day European Council meeting this week, while the European Parliament was in session, below, but for now, Cameron did announce there would be a new prime minister around Sept. 9 (it is hoped there isn’t a new election until 2020), which if it’s Ms. May, she has said she would not invoke Article 50, which sets the two-year timeline for exiting the EU in motion, until end of the year.

Yet so much can change in just the next few weeks, let alone months.

2017, for example, promises to be an exciting one if you engross yourself in the news cycle, with national elections in the Netherlands, France and Germany that could convulse the continent and global markets further.

But long before then, suddenly on Friday a new development was introduced...that being the decision of Austria’s high court to annul the recent presidential election where the far-right Freedom Party candidate lost by less than one percent.  A new vote is thus being held (in Sept. or Oct.), the result of which could heavily influence voters in the Netherlands and France, for example.

As for the equity markets, treat the past week’s action with a grain of salt.  More like a joke.  One that sounds funny at first, but upon further reflection isn’t.  There was zero reason for stocks to rally as they did except for the actions and words of the central banks, and while we have learned of their tremendous influence during this great bull market off the 2008-09 lows, it won’t last much longer.  Fundamentals, including geopolitical influences, will once again take over.  This you can bet on.

And I haven’t even mentioned our own chaotic political situation, which you don’t need my reminding you has been one very bad joke of its own.

Developments...from the EU summit and elsewhere...

“As of this evening, I see no way back from the Brexit vote,” German Chancellor Angela Merkel told reporters after a meeting of European leaders in Brussels on Tuesday.  “This is no time for wishful thinking, but rather to grasp reality.”

Prime Minister Cameron repeated that despite the uncertainty created by the vote, the process of exiting the EU is a job for his successor.

But European leaders warned Cameron that delaying the period before the UK formally activates the EU’s exit mechanism will prevent the start of negotiations.

Cameron told his fellow leaders he was “sorry” he’d lost, but that the pressure to hold the vote had been too great.

“I fought very hard for what I believed in,” Cameron told reporters.  “I didn’t stand back.  I threw myself in, head, heart and soul, to keep Britain in the European Union and I didn’t succeed.”

Several government chiefs insisted the UK cannot expect generous treatment from the EU once it’s no longer a member.

“The UK won’t be able to access the single market without applying the rules of freedom of movement.  This isn’t to punish the British people,” but following the referendum “they will have to face the consequences for some time.”

For example, Hollande warned that Britain would lose access to the EU’s single market, and the City of London would no longer be able to act as a clearing house in euros, if the UK stopped free movement of workers from Europe.  Hollande said single market access depended on accepting the so-called four freedoms of movement of goods, capital, labor and services.

This is a key for the UK, and was one of Cameron’s priorities in renegotiating terms of Britain’s EU membership.  But Hollande said: “The City, which thanks to the EU was able to handle clearing operations for the eurozone, will not be able to do them,” he said.  “It can serve as an example for those who seek the end of Europe...it can serve as a lesson.”

Leaders in Brussels expressed a growing frustration that the referendum had left a power vacuum in the UK and the whole EU in a state of limbo.  European Central Bank President Mario Draghi told a closed-door session that growth in the euro area could decline by as much as 0.5 percent for the next three years cumulatively.

In London, there isn’t just a vacuum of power, there is a revolt in leadership within both the Conservative and Labour parties.  Tories took down Conservative leader Boris Johnson, while Labour leader Jeremy Corbyn lost a confidence vote but is barely hanging on.

Separately, Scottish First Minister Nicola Sturgeon pleaded her case in Brussels to protect Scotland’s place in Europe, but Spain’s acting Prime Minister Mariano Rajoy said, “I am radically against (Scotland’s remaining an EU member), the treaties are radically against it, and I think everyone else is radically against it....If the United Kingdom leaves, Scotland leaves,” Rajoy dealing with his own separatist movement in Catalonia.

European Commission President Jean-Claude Juncker said the EU would place a time limit on the UK’s triggering of Article 50 (the exit mechanism) – even though technically Britain doesn’t have to do it all.

“If someone from the Remain camp will become British prime minister, this has to be done in two weeks after his appointment,” Juncker told reporters.  “If the next British PM is coming from the Leave campaign, it should be done the day after his appointment.”

German Chancellor Angela Merkel said, “The discussion (yesterday) reflected very clearly that everyone felt this was a sea change, a watershed moment, a historic moment.”  The goal was to reshape the relationship with Britain “as a relationship of friendship,” she said, but “we will also be guided by our own interests.”

Cameron told his 27 counterparts Tuesday night over dinner that their failure to give him more concessions on immigration cost him the referendum, but Merkel and Hollande agreed to a joint position that there can be no access to the single market without the associated freedom of movement, the aforementioned “four freedoms.”

Wednesday, EU leaders met without Cameron in attendance and appeared to soften demands that Britain formally file for divorce swiftly.

“Europe must be not too harsh, but very clear with the UK,” Italian Prime Minister Matteo Renzi told reporters.

At the same time, Donald Tusk, the EU Council president, said “There will be no single market a la carte.”

In their final statement released the same day, leaders of the 27 other nations said “there is a need to organize the withdrawal of the UK from the EU in an orderly fashion.”  But while the decision to trigger secession talks lies with Britain, and they can wait until a new prime minister is in place, “this should be done as quickly as possible.”

The bottom line for now is there will be no negotiations of any kind until the UK officially triggers the exit clause.

George Soros told the European Parliament in Brussels on Thursday that Brexit has “unleashed” a crisis in financial markets similar to the global financial crisis of 2007 and 2008.

“This has been unfolding in slow motion, but Brexit will accelerate it.  It is likely to reinforce the deflationary trends that were already prevalent,” the billionaire investor said.

Soros added that Europe’s banking systems hasn’t recovered from the crisis and will now be “severely tested.  We know what needs to be done.  Unfortunately, political and ideological disagreements within the euro zone have stood in the way.”

Companies have already begun cooling on the UK, with Vodafone Group Plc saying it would consider moving its headquarters unless Britain negotiates continued access to the EU’s single market. Siemens AG said it would freeze new power investment in the UK until there is further clarity on relations with the EU.  [Bloomberg]

Regarding the risk of other nations in the EU opting to follow Britain’s lead, on this we need to pause, for now.  There are elections due in France, Germany and the Netherlands in 2017 that will be telling, but Austrian Chancellor Christian Kern said with the referendum generating “a big mess” and having “done enormous damage...I don’t think that Great Britain will become a role model.”

Finally, Britain was convulsed anew on Thursday when Michael Gove announced he was running for the leadership of the Conservative party, stabbing former London mayor Boris Jonson in the back in the process.

“I have come reluctantly to the conclusion that Boris cannot provide the leadership or bild the team for the task ahead.

“I have, therefore, decided to put my name forward for the leadership.”

Gove and Johnson led the UK’s pro-Brexit campaign.  More on this below.

Brexit Tidbits....

--UKIP leader Nigel Farage was booed in the European Parliament when he called on the body to take a “grown up and sensible” attitude to negotiations with the UK, even as he insulted them, claiming none of them had ever done a “proper job” in their lives.

Farage said, “The UK will not be the last member state to leave the European Union....You as a political project are in denial.”

Belgian Prime Minister Charles Michel: “Uncertainty for our European projects would translate into more fear by investors.... It is a fundamental question to ask whether it is possible to on the one hand sit outside of Europe and on the other hand enjoy all the benefits.”

Marine Le Pen, member of European Parliament, head of France’s Far Right National Front: “The vote of our British friends is the biggest event in Europe since the fall of the Berlin Wall.  It is a cry of love by a people for their country... It is a huge victory for democracy, it is a slap at an EU built on fear, blackmail and lies.”

Former Fed Chairman Alan Greenspan called Brexit a “terrible outcome in all respects.”  The eurozone is the truly “vulnerable institution,” Greenspan said in an interview, primarily due to Greece’s inclusion in its structure.  “Get Greece out.  They’re a toxic liability sitting in the middle of a very important economic zone.”

Slovakia could be a sleeper in the race to join Britain (at least it may attempt to), as its far right People’s Party launched a petition drive for a referendum on the country’s membership in the EU, results of a referendum being legally binding.

“Citizens of Great Britain have decided to refuse the diktat from Brussels.  It  is high time for Slovakia to leave the sinking European ‘Titanic’ as well,” the party said on its website.

Shares in UK-based banks like Barclays and Royal Bank of Scotland cratered about 30% over last Friday and Monday, amid fears that financial activity will migrate to Frankfurt, Paris, Amsterdam, Dublin, Hong Kong and New York.  As alluded to above, the likes of French President Hollande are looking to speed up the process.

Opinion....

Thomas L. Friedman / New York Times

“The British vote by a narrow majority to leave the European Union is not the end of the world – but it does show us how we can get there.

“A major European power, a longtime defender of liberal democracy, pluralism and free markets, falls under the sway of a few cynical politicians who see a chance to exploit public fears of immigration to advance their careers. They create a stark binary choice on an incredibly complex issue, of which few people understand the full scope – stay in or quit the EU.

“These politicians assume that the dog will never catch the car and they will have the best of all worlds – opposing something unpopular but not having to deal with the implications of the public actually voting to get rid of it.  But they so dumb down the debate with lies, fear-mongering and misdirection, and with only a simple majority required to win, that the leave-the-EU crowd carries the day by a small margin.  Presto: the dog catches the car. And, of course, it has no idea now what to do with this car. There is no plan. There is just barking.

“Like I said, not the end of the world yet, but if a few more EU countries try this trick we’ll have quite a little mess on our hands. Attention Donald Trump voters: this is what happens to a country that falls for hucksters who think that life can just imitate Twitter – that there are simple answers to hard questions – and that small men can rearrange big complex systems by just erecting a wall and everything will be peachy.

“But I digress.

“Because although withdrawing from the EU is not the right answer for Britain, the fact that this argument won, albeit with lies, tells you that people are feeling deeply anxious about something.  It’s the story of our time: the pace of change in technology, globalization and climate have started to outrun the ability of our political systems to build the social, educational, community, workplace and political innovations needed for some citizens to keep up....

“At the same time, we have opened borders deliberately – or experienced the influx of illegal immigration from failing states at an unprecedented scale – and this too has left some people feeling culturally unanchored, that they are losing their ‘home’ in the deepest sense of the world. The physical reality of immigration, particularly in Europe, has run ahead of not only the host countries’ ability to integrate people but also of the immigrants’ ability to integrate themselves – and both are necessary for social stability.”

Philip Stephens / Financial Times

“Britain’s politics are going the way of Greece.  The economic risks of Brexit were well rehearsed.  The political perils were neglected. The out decision defies the majority in parliament.  Its legacy is a rudderless Conservative government, a Labour opposition fallen to civil war and a political class at sea about what to do next.  This is a nation surrendering its claim to be one of the world’s most stable democracies.

“The poet WB Yeats fretted that the center would not hold. In Britain, it has been bypassed. About two-thirds of MPs opposed pulling up the drawbridge. Now they must drag Britain into unsplendid isolation.

“After David Cameron’s resignation as prime minister a divided Tory party is in thrall to English nationalism. Scotland is thinking again about independence.  Labour has in Jeremy Corbyn a leader perfectly described by his unerring conviction that Hugo Chavez’s Venezuela was a socialist success story. Britain’s two-party system has been under strain for some time.  Now it is splintering....

“As Angela Merkel, the German chancellor, has said, Britain has to make a choice: between full access to the single market and autonomy over immigration.  It can have one or the other. The first, envisaged by membership of the European Economic Area – the so-called Norway option – would require Brexiters to abandon a promise to shut out workers from the rest of the EU; the second would oblige them to admit that Mr. (George) Osborne (the pro-EU chancellor), was right about falling employment and living standards.

“With a great deal of luck and even more goodwill on the part of the rest of the EU, Britain might yet salvage something from the wreckage.  The referendum result cannot be undone, but the strategic goal should be an association agreement that keeps Britain within the single market and recognizes that it is still a European state by preserving vital cooperation on security, defense and crime.  Norway-plus, you could call it.”

Charles Krauthammer / Washington Post

“Given their arrogance, pomposity and habitual absurdities, it is hard not to feel a certain satisfaction with the comeuppance that Brexit has delivered to the unaccountable European Union bureaucrats in Brussels.

“Nonetheless, we would do well to refrain from smug condescension.  Unity is not easy. What began in 1951 as a six-member European Coal and Steel Community was grounded in a larger conception of a united Europe born from the ashes of World War II. Seven decades into the postwar era, Britain wants out and the EU is facing an existential crisis.

“Yet where were we Americans seven decades into our great experiment in continental confederation, our ‘more perfect union’ contracted under the Constitution of 1787?  At Fort Sumter.

“The failure of our federal idea gave us civil war and 600,000 dead. And we had the advantage of a common language, common heritage and common memory of heroic revolutionary struggle against a common (British) foe.  Europe had none of this. The European project tries to forge the union of dozens of disparate peoples, ethnicities, languages and cultures, amid the searing memories of the two most destructive wars in history fought among and against each other.

“The result is the EU, a great idea badly executed....

“But we mustn’t underestimate the significance, and improbability, of the project’s more narrow, but still singular, achievement – peace.  It has given Europe the most extended period of internal tranquility since the Roman Empire.  (In conjunction, of course, with NATO, which provided Europe with its American umbrella against external threat.).”

Oliver Carroll / Moscow Times

“All in all, it took little over two years for an internal squabble within the British Conservative Party to end with the potential dismantling of the U.K., and of Europe.

“Unfortunately, things now have the potential to get a lot worse before they get better.  When the British economy feels the full impact of a withdrawal of investment and isolation, and enters the almost inevitable recession, internal pressures and inter-ethnic tensions are only likely to increase.  In the last few days, a number of reports have indicated that vigilante attacks by white supremacist groups are on the increase.  Some migrants have seen their homes defaced by graffiti, and told to ‘go home.’

“The hope is that, unlike two years ago in Ukraine, the now barely functioning British political system is able to quell violence, find consensus, and avoid the worst of scenarios.

“But it is hard not to feel despondent about this very dangerous moment in British history.”

Editorial / Bloomberg

“Britain’s decision to leave the European Union came as an enormous shock to investors worldwide, Europe’s leaders and, apparently, many of the people who voted for it.  Nonetheless, the choice has been made, and attention must now turn to making the best of it.

“That means taking things slowly. Disentangling the U.K. from 43 years of engagement with EU laws and procedures will be a long process, and the new relationship between Britain and the EU is far from clear.  Dithering is to be avoided – and so are hasty declarations about what can or cannot be done....

“Many will think that punishing the rebellious Brits serves a tactical purpose by stifling populist rebellion elsewhere in the union.

“Such an approach would be unwise.  Managing this transition smoothly is very much in Europe’s interests, and restoring calm should be paramount.  EU leaders shouldn’t need reminding that stress can easily get out of control.”

George Soros / Bloomberg

“The European migration crisis and the Brexit debate fed on each other. The Leave campaign exploited the deteriorating refugee situation – symbolized by frightening images of thousands of asylum-seekers concentrating in Calais, desperate to enter Britain by any means necessary – to stoke fear of ‘uncontrolled’ immigration from other EU member states. And the European authorities delayed important decisions on refugee policy in order to avoid a negative effect on the British referendum vote, thereby perpetuating scenes of chaos like the one in Calais.

“German Chancellor Angela Merkel’s decision to open her country’s doors wide to refugees was an inspiring gesture, but it was not properly thought out, because it ignored the pull factor.  A sudden influx of asylum-seekers disrupted people in their everyday lives across the EU.

“The lack of adequate controls, moreover, created panic, affecting everyone: the local population, the authorities in charge of public safety and the refugees themselves.  It has also paved the way for the rapid rise of xenophobic anti-European parties...as national governments and European institutions seem incapable of handling the crisis.

“Now the catastrophic scenario that many feared has materialized, making the disintegration of the EU practically irreversible.  Britain may or may not be relatively better off than other countries by leaving the EU, but its economy and people stand to suffer significantly in the short to medium term....The consequences for the real economy will be comparable only to the financial crisis of 2007-08.”

Editorial / USA TODAY

“Economic considerations aside, the ‘leave’ vote was first and foremost about something that Americans are all too familiar with: immigration.  Brexit advocates successfully convinced voters that they would ‘get their country back’ by being able to prevent people from the continent from settling on British shores.

“Sound familiar? There are lessons from Britain’s vote for the United States, and one is that erecting immigration and trade walls (literal or figurative), in a nationalistic backlash against globalization, is bad business.”

Editorial / New York Times

“The British vote strikes at a time when Europe’s institutions and unity are being tested to the limit by the Greek debt crisis and the waves of refugees pouring in from the Middle East and North Africa. Even though Britain never acceded to the EU’s open borders or single currency, it has been a leader of Western Europe, a bastion of democratic values, economic probity and military reliability.  What now happens to European unity in the face of challenges from Russia or the Middle East is one of the many open questions.”

Sebastian Mallaby / Washington Post

“The British vote to leave the European Union may come to be seen as a tipping point in global politics, perhaps more consequential than anything since the fall of the Berlin Wall.  It may mark the moment when Europe comes face to face with its own constitutional dysfunction, when the idea of the ‘West’ finally ceases to be plausible and when the United States is confirmed in its sense that its interests lie more in Asia than in its traditional Atlantic sphere of influence....

“Already, Euroskeptics in Sweden, France and the Netherlands have demanded a copycat referendum. Spain’s neo-Marxist far left is expected to win a quarter of the vote in Sunday’s election.*  Polls suggest that French voters are more skeptical of the EU even than British ones, a sentiment that will assist the far-right populist, Marine Le Pen, in next year’s presidential contest.  Populist governments are already in power in Greece, Hungary and Poland. The fear that Europe’s cohesion is weakening could reignite economic turmoil in the euro zone.  Government bonds in Spain and Italy look riskier now that the continent’s cohesion is in doubt.

*Podemos won just 20%.

“In an ideal world, the Brexit shock would galvanize Europe into a muscular response.  To borrow an analogy from the 2008 financial crisis, if Thursday’s vote was something of a ‘Lehman moment,’ then we should all wish for the next steps to resemble the fast rescue of AIG and the passing of the TARP bailout plan – in other words, a determined commitment that no more dominoes should fall. But Europe’s problems are too deep, and its leadership too fragmented, for this vigorous response to appear probable.

Roger Cohen / New York Times

“Timothy Garton Ash, the historian, paraphrasing Churchill on democracy, wrote before the referendum that: ‘The Europe we have today is the worst possible Europe, apart from all the other Europes that have been tried from time to time.’

“It was  a wise call to prudence in the imperfect real world.  Now, driven by myths about sovereignty and invading hordes, Britain has ushered in another time of treacherous trial for the European Continent and for itself.

“My nephew wrote on Facebook that he had never been less proud of his country. I feel the same way about the country I grew up in and left.”

Anne Applebaum / Washington Post

“The true impact of Brexit, on Britain and on Europe, will not be visible for many years.  In a certain sense, it will not be visible at all, for the real damage will be done by the things that will now not happen.  The slow agony of the divorce proceedings will take up precious political time and energy in London and other European capitals, so Europe’s leaders will not unite to cope with other crises.  The United Kingdom will turn further in on itself, so British energy and talent will not be dedicated to pushing back against the Islamic State, resettling migrants, resisting Russia.  The situation of the U.K. will be unstable and uncertain for a long time, so investments will not take place.  Money will not be spent.  Opportunities will not be created.

“It is not an exaggeration to say that there are tens of thousands of decisions to be made in the U.K., on legal issues; on joint foreign policy, security and diplomacy; and, if Britain leaves the European single market altogether, on tariffs and trade.”

Jim Tankersley / Sydney Morning Herald

“The economic story of the past quarter century was the rapid advance of globalization, the unleashing of trade and commerce among countries rich and poor – a McDonald’s in every European capital, ‘Made in China’ labels throughout Toys R Us.  The Brexit vote on Thursday ends that story, at least in its current volume.

“Even before the burst in anti-globalization sentiment, a slowdown in trade growth had already gripped the globe over the past several years, according to data from the World Trade Organization.  Prospects now look bleak for completion of major new trade agreements, including the Trans-Pacific Partnership and a new accord between the United States and the European Union, no matter who wins the U.S. presidential election in November.

“Political factions in other European countries are now clamoring to follow Britain out the door of the European Union.  Republican presidential candidate Donald Trump is promising to levy the highest set of tariffs in the last century for America, against China, Mexico and other key trading partners.  His presumptive Democratic opponent, Hillary Clinton, has vowed to renegotiate existing deals such as the North American Free Trade Agreement.

“These developments come at the hands of an anxious working class across the West, whose members feel left in the cold by many developments of the rapid integration of foreign products and people into their lives.

“It is clear from the results of the British vote, and from Trump’s rise in American politics, that there is a large backlash against the results of globalization so far.  Native-born workers without college degrees are venting their frustrations with immigrants, with factory jobs outsourced abroad and with a growing sense of political helplessness – the idea that their leaders no longer respond to concerns of people like them.”

Gideon Rachman / Financial Times

“All good dramas involve the suspension of disbelief.  So it was with Brexit. I went to bed at 4 a.m. on Friday depressed that Britain had voted to leave the EU. The following day my gloom only deepened.  But then, belatedly, I realized that I have seen this film before. I know how it ends. And it does not end with the U.K. leaving Europe.

“Any long-term observer of the EU should be familiar with the shock referendum result. In 1992 the Danes voted to reject the Maastricht treaty. The Irish voted to reject both the Nice treaty in 2001 and the Lisbon treaty in 2008.

“And what happened in each case? The EU rolled ever onwards.  The Danes and the Irish were granted some concessions by their EU partners.  They staged a second referendum. And the second time around they voted to accept the treaty. So why, knowing this history, should anyone believe that Britain’s referendum decision is definitive?

“It is true that the British case has some novel elements. The U.K. has voted to leave the EU altogether...

“Yet there are already signs that Britain might be heading towards a second referendum rather than the door marked exit....

“But would our European partners really be willing to play along? Quite possibly....

“And what kind of new concession should be offered?  That is easy.  What [Britain’s next prime minister] would need to win a second referendum is an emergency brake on free movement of people, allowing the U.K. to limit the number of EU nationals moving to Britain if it has surged beyond a certain level.

“In retrospect, it was a big mistake on the part of the EU not to give Mr. Cameron exactly this concession in his renegotiation of the U.K.’s terms of membership early this year.  It was the prime minister’s inability to promise that Britain could set an upper limit on immigration that probably ultimately lost him the vote.

“Even so, with 48 percent of voters opting to stay in the union, the result was extremely close.  If the Remain campaign could fight a second referendum with a proper answer to the question of immigration it should be able to win fairly easily.

“But why should Europe grant Britain any such concession on free movement? Because, despite all the current irritations, the British are valuable members of the EU.  The U.K. is a big contributor to the budget and it is a serious military and diplomatic power....

“(There) is no reason to let the extremists on both sides of the debate dictate how this story has to end.  There is a moderate middle in both Britain and Europe that should be capable of finding a deal that keeps the U.K. inside the EU.

“Like all good dramas, the Brexit story has been shocking, dramatic and upsetting. But its ending is not yet written.”

Eurozone Economy

There was some PMI data for the euro area this week, June’s manufacturing numbers as put out by Markit.

For the eurozone the PMI was 52.8 vs. 51.5 in May, so this is good.  [50 being the dividing line between growth and contraction.]

Germany came in at 54.2 for last month vs. 52.1 in May, a 28-month high.
France, though, was only 48.3 vs. 48.4.
Spain was 52.2 vs. 51.8.
Italy 53.5 vs. 52.4.
Greece 50.4 vs. 48.4, a 25-month high.

Separately, a flash reading on eurozone inflation for June came in at 0.1%, annualized, which compares with -0.1% in May.

And the eurozone unemployment rate for May was 10.1% vs. 10.2% in April, and 11.0% in May.

Germany’s jobless rate is 4.2% (the government just pegged it a record-low 5.9%, using a different calculation), France is 9.9%, Italy 11.5%, Spain 19.8% (below 20% for the first time in years), Greece 24.1% (March)...and Ireland 7.8%.

But you still have youth unemployment rates of 50.4% in Greece (March), Spain 43.9% and Italy 36.9%.

More Ecobits....

The Euro markets were helped by the feeling the European Central Bank was about to expand its existing quantitative easing program to include more pools of assets, i.e., crapola. They were further aided by the head of the Bank of England, Mark Carney, and his pronouncement that the BOE could cut interest rates within months as that central bank tries to shield the economy from the shock of Brexit and the political chaos in Britain.

“The economic outlook has deteriorated and some monetary policy easing will likely be needed over the summer,” he said on Thursday.

Any easing by the BOE would be its first since 2012, when it last expanded its asset purchase program.  Its key interest rate has been at a record-low 0.5 percent since March 2009.

Well the talk out of the BOE and ECB in particular helped lead to an extraordinary week in the bond markets.

The German 10-year, the bund, finished with a yield of -0.13%  France’s 10-year was down to 0.15%.  Italy’s 1.23%, Spain’s 1.14%, and even Portugal’s 2.98%.  With these last four it is beyond absurd, but then when it comes to the eurozone credit market, I’ve been crying wolf for years. 

The UK’s 10-year finished at 0.86%, after hitting an all-time low yield of 0.78% intraday, and we’re talking all the way back to Henry VIII...or so we’re told.

Meanwhile, Italy’s banks are a mess, as are those of much of the continent.  [A far cry from the largely excellent shape the big U.S. banks are in.]  Prime Minister Matteo Renzi tried to get the EU to change some rules to allow for more sweeping state-funded recapitalization of the country’s banking system and was turned down cold, so he had to turn to an Italian bank bailout fund.

This is exactly the kind of move, had Renzi been allowed to do so, that could have led to even more debt on Italy’s government books, which as the Brits know could mean more out of their pockets down the road when Italy itself needs a bailout.

As for Spain’s election last Sunday, while no party emerged with a clear mandate, the protest movement was slowed.

Podemos, the radical left-wing party, suffered its first setback since it was formed two years ago with a goal of uprooting Spain’s two-party system.  Instead, the Popular Party of Mariano Rajoy, the caretaker prime minister, won the most votes and Rajoy is in a stronger position to remain in office, and possibly at the head of a minority government, after six months of deadlock.

Rajoy’s Popular Party gained 137 of the 350 parliamentary seats, up from 123 in the December elections. The Socialists won 85, down from 90 and their lowest ever.  Podemos won 71, unchanged from December.

Together, Rajoy’s conservatives and the Socialists won 55.7 percent of the vote, five points more than six months ago.

A fourth party, Ciudadanos, won 32 seats, down from 40.

Rajoy has been able to point to the success of Spain’s economy, which grew 3.2% last year (though the Bank of Spain sees 2.7% in 2016), while the jobless rate has fallen below 20% from a crisis-era peak of 26%. Contrast this GDP with Germany (1.7% last year) and France (1.3%).

But Rajoy still has to put some kind of coalition together.

Britain’s Leadership Struggle

What happened inside the Conservative party was unbelievable.  As I noted earlier, it was expected Boris Johnson would be a strong candidate, if not the favorite, to succeed David Cameron.  Instead we had this.

From the Irish Independent:

“Sir Lynton Crosby, Boris Johnson’s campaign manager, was making final preparations for the formal announcement of Mr. Johnson’s Tory leadership bid when his phone rang at 8:53 yesterday morning (Thurs.).

“ ‘Hi Lynton, it’s Michael Gove here,’ said the voice on the other end.  ‘I’m running.’  ‘Running what?’ Sir Lynton replied.  ‘I’m running for the leadership myself.’  Sir Lynton was stunned.  With two hours to go until the launch of Mr. Johnson’s leadership bid, Mr. Gove, the man who was supposed to be making up the ‘dream ticket’ with him, had not so much stabbed him in the back as run him through with a pike.

“Sir Lynton asked Mr. Gove whether he had told Mr. Johnson.  He had not, but said he intended to.  The call, however, was never made.

“By noon, Mr. Johnson, the front-runner for the Tory leadership, was no longer a runner at all, ousted by what was being called a ‘cuckoo nest plot.’

“Having been stitched up by his running mate and several other ‘supporters,’ he threw in the towel, his ambitions in ruins.  Mr. Johnson’s most loyal friends were apoplectic.  One described Mr. Gove’s behavior as ‘utter treachery,’ and suspicions quickly surfaced that Mr. Gove had intended all along to use the popular Mr. Johnson to win the referendum vote before ambushing him at the last moment.

“It is no secret that Mr. Johnson had been broadly supportive of Europe before the referendum campaign began, and that David Cameron had expected to rely on his support for Remain.

“Mr. Johnson, though, fell for the persuasive powers of a certain Michael Gove in deciding he was, after all, in favor of leaving the EU.”

It’s a long story, but one that will make for a great book someday. 

Meantime, Home Secretary Theresa May is the favorite over Gove, who joined May in saying late Friday he would not invoke Article 50 until end of the year (or next).

The opposition Labour Party is also in a state of crisis, as leader Jeremy Corbyn, who many of us are still trying to figure out just how he came to his position in the first place, was accused, correctly, of making anti-Semitic comments at a speaking event.  There, activists hurled abuse at Jewish Labour MP Ruth Smeeth, causing her to leave in tears.  More on the racism of all sorts boiling over in Britain next week.

Asia

China’s National Statistics Bureau released the PMIs for June, 50.0 on manufacturing vs. 50.1, with the services reading at 53.7 vs. 53.1 the prior month.  This hardly bodes well for second-quarter GDP, which is released July 15 and is expected to come in around 6.5%; especially when you weigh in the private Caixin-Markit manufacturing PMI of 48.6 for June, down from 49.2 in May and the 16th consecutive month of contraction.  [Caixin releases its services number on Tuesday.]

Japan’s manufacturing PMI was 48.1 vs. 47.7 in May; South Korea’s 50.5 vs. 50.1; Taiwan’s 50.5 vs. 48.5; India’s 51.7 vs. 50.7; and Russia’s was 51.5 in June vs. 49.6, which is notable because it is the best reading since November 2014.

Washington and Wall Street

I’m writing this segment last and thankfully there isn’t too much to add because the story really was about the initial aftermath of Brexit and market reaction, and since I cover the election and Washington politics down below, just a few notes on the economic data of the week.

Tuesday saw a final look at first-quarter GDP and it came in at 1.1%, annualized, up from an initial 0.5% and a first revision of 0.8%.  But when you add it to the consensus second-quarter outlook of 2.7% (the Atlanta Fed’s GDPNow indicator is at 2.6%), once again what do you get?  2%.  Year after year, 2%.  That’s not good enough.

May personal income came in at 0.2%, a tick below expectations, while consumption was in line, a solid 0.4%, though consumer spending for the GDP report was revised down from 1.9% to 1.5%.

The Chicago Purchasing Managers’ report for June was a far better than forecast 56.8 vs. 49.3 in May, while the June national ISM manufacturing figure was also better than expected at 53.3.

But construction spending for May was far worse than projected, -0.8%.

Far more next week with June’s critical jobs report after May’s sloppy one.  Also a look at the coming earnings season. 

Street Bytes

--The Dow Jones had its best week of the year despite a 260-point drop on Monday, finishing up 3.2% to 17949, while the S&P 500 rose the same amount, and Nasdaq gained 3.3%.  The S&P at 2102 is just 28 points shy of its all-time high.  The S&P is also trading at a trailing P/E of 24 and it’s not as if earnings are improving.

For the first six months, the Dow was up 2.9% and the S&P 2.7%, but Nasdaq was down 3.3%.

The Stoxx Europe 600 was down 9.8% for the first half.

--U.S. Treasury Yields

6-mo. 0.34%  2-yr. 0.59%  10-yr. 1.44%   30-yr. 2.23%

The 30-year is at an all-time low yield (and hit 2.18% intraday), while the 10-year hit a record intraday mark at 1.37%.  Remarkable.  Savers, banks, pension funds, insurance companies and the like are now beyond getting screwed, but if you’re looking for a home, record-low mortgage rates should be enticing.

--Global government bonds returned 2.3% in June, according to Bank of America Merrill Lynch indices, the best since December 2008.  For the year they have returned 6.4%.

--According to a new analysis from Fitch Ratings, investors’ flight to safety following the U.K.’s referendum pushed the global total of sovereign debt with negative yields to $11.7 trillion as of June 27, up $1.3 trillion from the end-May total, which is redounding to the benefit of the U.S., where we still have positive yields.

Japanese government bonds (JGBs) continue to represent about two-thirds of the global total ($7.9 trillion), while Germany and France each now have over $1 trillion in sovereign debt with sub-zero yields.

--31 of 33 financial institutions passed the final round of the Federal Reserve’s annual “stress tests,” conducted to gauge how the banks would fare in a new financial crisis.  So the banks won permission to boost dividends and buybacks.  All but the U.S. banking units of Deutsche Bank AG and Banco Santander SA, who flunked due to Fed concerns about their ability to measure risks.

Separately, Morgan Stanley passed but was told to clean up its internal risk-management processes.

No doubt the banking sector is in much stronger shape than it was in 2008 and the financial crisis that required the sector to be bailed out as regulators have steadily raised capital requirements.

From the Financial Times’ Lex column:

“Although banks are relatively stuffed with capital, the Fed could – as it has for the past few years – keep moving the goalposts, demanding an even bigger cushion against a future crisis and making that scenario more dire.  It already forces banks to envisage an unemployment rate of 10 percent by next year, a staggeringly quick increase from less than 5 percent today.  Why not throw in a Martian invasion, or a Trump presidency?

“In theory, banks have become so safe that equity investors will lower their required returns on equity....

“The sector is shifting to caring more about profits than the capital demands of its regulators. Earnings are still weak, hampered in part by the Fed’s bigger job, setting rates. With expectations for rate rises diminishing, so has the chance of banks enjoying a boost to their net interest margins.

“But lower rates also means banks’ improved payouts will have a bigger relative impact.  A dividend yield of 3 percent at JPMorgan and Wells Fargo, with significantly higher buybacks and little yield on offer elsewhere, is a recipe for bank stocks to perform better.”

--Auto sales clocked in at an annualized rate of 17.3 million for June*, slightly below the pace of a month earlier and up from the 16.95m pace of June 2015.

Ford’s rose 6% year-on-year, Fiat Chrysler’s 7%, Honda’s 3% and Nissan’s 13%, but GM’s fell 1.6% and Toyota’s dropped 5.6%, according to the Financial Times.

*Autodata said the annualized pace in June was 16.67, which would make it the lowest in at least 13 months.  [Wall Street Journal]  This is why you have to read at least two sources for items like this, sports fans.  The individual company stats jive.

--OPEC’s output hit a record high in June as Nigerian production rebounded, 32.8 million barrels per day.  Nigeria’s output rose 150,000 bpd following repairs to facilities attacked by militants, and a lack of new attacks since mid-June.

--According to data gleaned from market research firm NPD Group Inc., as reported by Julie Jargon of the Wall Street Journal, restaurant visit growth has stalled in the last three months, which is a worrisome indicator of economic activity overall.

“Visits to fast-food restaurants had been growing at a quarterly clip of 2% since September 2015, but haven’t grown at all in March, April or May....

“When fast-food growth comes to a halt, ‘that’s a red flag because it’s been an area of growth and it’s 80% of the industry,’ NPD restaurant analyst Bonnie Riggs said.

“Restaurants are among the first industries to benefit when consumers are feeling flush, but recent economic indicators may be giving people pause about dining out.”  [Julie Jargon]

Or, as your editor often does, instead of using his coupons for two Whoppers for $5 at Burger King, he goes for two bacon cheeseburgers, small fries and a drink for $4.

Anyway, visits to fast-casual restaurants (like Chipotle) declined last month for the first time since 2004. 

--The National Highway Transportation Safety Board is opening a preliminary investigation into Tesla’s autopilot feature, after the fatal crash of a Model S that was in self-driving mode.

According to a blog post from Tesla, the car was on a divided highway when a tractor trailer drove across the road perpendicular to the Model S.

“Neither Autopilot nor the driver noticed the white side of the tractor trailer against a brightly lit sky, so the brake was not applied,” said Tesla.

The Model S passed under the trailer, with the bottom of the trailer slicing off the windshield.  It was the first fatality in which the autopilot feature was activated.

Tesla noted the autopilot technology comes disabled and requires “explicit acknowledgement” from the driver before activation that the system is still in a public beta phase.

When the autopilot is activated, “the car reminds the driver to ‘Always keep your hands on the wheel.  Be prepared to take over at any time.’”

Needless to say this sparks major question about the seeming inevitability of self-driving vehicles.

--Nike Inc. exceeded earnings expectations by a penny but profit fell 2% and sales were flat in North America for the quarter ending May 31, as the company faces increased competition from Under Armour and Adidas AG.

Overall revenue rose 6%, driven by gains overseas, but sales in North America edged up just 0.1%.

But, Nike did say future orders, which reflect products scheduled for delivery from June through November, rose 8% on a global basis.

For the first time, Nike broke out sales of its Jordan Brand segment, the sneaker and apparel line for basketball star Michael Jordan, and those sales rose 18% for the fiscal year ended May 31, while Nike brand basketball sales fell 1%.

--General Electric Co.’s lending arm has finally escaped post-financial crisis rules by dramatically shrinking its business, as regulators demanded if it was to escape the designation “systemically important,” which required stricter supervision and rules from the Federal Reserve.

GE Capital has sold about $180 billion of businesses and it marks the first time the Financial Stability Oversight Council has removed a “systemically important” designation since it was created under 2010’s Dodd-Frank law.

GE is now freed to borrow up to $20 billion for further stock buybacks.  GE Capital once had more than $660bn in assets and generated as much as half of GE’s annual profit.

--The U.S. Senate passed a bill creating a financial control board over Puerto Rico’s finances, a seven-member panel that will oversee the island’s budget and massive ($72bn) debt.  Puerto Rico is an absolute mess with closed schools, fewer hospital beds, mounting homelessness and a general breakdown of society.  And, yes, Zika.

The natives are ticked off Washington is now lording over them but they did it all to themselves, allowing massive corruption to flourish, for starters.

I have said since day one this was not a Wall Street story, as much as many wanted to make it out to be, and there hasn’t been a single day when Puerto Rico’s debt crisis moved our markets.

But I have also said it’s more an immigration crisis, as Puerto Ricans continue to flood into the U.S., with a rapidly declining population on the island only making existing problems there worse with an equally rapid drop in government revenues.

--Volkswagen’s settlement with U.S. car owners over the emission-cheating test scandal is reportedly going to be $14.7bn.  As I’ve noted in past WIRs, the deal will offer to repair or buy back the affected vehicles and pay owners compensation.

--Union leaders representing 25,000 flight attendants at United Continental Holdings Inc. agreed to a tentative contract after years of negotiation, with a membership vote later this year.  It would be the first contract for the cabin crew members since the merger of United and Continental in 2010.  The top pay rate would rise 18% to 31% over current top rates by the end of the five-year term.

--Mondelez International, the snacks and candy group (Oreo cookies and Cadbury chocolate), made a $23bn bid for its rival, Hershey (chocolate bars, Reese’s Peanut Butter cups and Hershey Kisses). 

Mondelez promised to preserve Hershey’s unique corporate culture and local jobs, but Hershey turned the bid down, saying it saw no basis for further discussion.  The Hersey Trust owns 80 percent of the voting rights in the company that was founded in 1894.

Mondelez is apparently concerned it in turn could become a target of Kraft Heinz Company, which is controlled by private equity group 3G Capital and Warren Buffett’s Berkshire Hathaway.

--Fidelity Investments announced it will lower expense ratios on 27 index funds and ETFs on July 1, as it goes after archrival Vanguard.

For example, the expense ratio on the Fidelity 500 Index fund’s premium share class, which has a $10,000 minimum, will fall to 0.045% vs. 0.05% for the similar Vanguard 500 Index Admiral shares.

--I filled up my gas tank on Thursday, ahead of a proposed 23-cent a gallon gas tax increase in my state.  New Jersey would immediately go from the second-lowest tax in the country to one of the highest; proceeds designed to fund road and bridge work, while the sales tax is cut from 7 percent to 6 percent over 18 months.

The Democrat-led Assembly passed the legislation, but the Senate failed to do so, thus far, meaning I have surplus cheap gas in my tank that I could sell to a Californian for $3.00 and turn a profit, assuming they drive over for it.

Meanwhile, pump prices are holding relatively steady nationwide and remain at their lowest levels for this time of year since 2005, $2.31 on average.

--The expanded Panama Canal opened for operation last Sunday, part of a $5.4-billion expansion to allow for the passage of bigger ships. This has been a decade in the making.

The original canal opened in 1914 and was designed to accommodate ships carrying as many as 5,500 cargo containers, but the new locks can handle ships carrying as many as 13,000.

It’s really about China and shipping goods to the Eastern Seaboard, even as many ports aren’t ready to handle the larger ships.  I know some bridges in my home area are being raised and rebuilt to accommodate the new behemoths.

--Drought-stricken California might have a lot more water than first thought.  A Stanford University study released Monday said the state has three times more groundwater located in deep aquifers than earlier estimated.

The water source is much deeper than traditional aquifers (1,000 to 3,000 feet underground) and tapping it will require lots of money and engineering expertise.

--The Centers for Disease Control and Prevention (CDC) updated their figures on the Zika virus in the U.S., reporting on Thursday that three more babies born here had birth defects likely linked to Zika, while another lost a pregnancy.  That brings the U.S. totals, as of June 23, to seven babies with microcephaly or other Zika-related birth defects such as serious brain abnormalities, and five lost pregnancies from either miscarriage, stillbirth or termination.  All of the cases (and more than 900 U.S. Zika cases have been reported so far) have involved people who contracted the virus outside the United States, or were infected through unprotected sex with an infected partner.

--Last time I forgot to pass along a story from Reuters that noted more than 240 “nuisance” alligators had been captured and killed over the last 10 years at Disney’s Florida theme park property, according to state records.  One trapper who worked with Disney for five years said it’s just impossible to get them all because there are so many canals and connecting waterways and gators travel a lot.  This trapper, Ron Ziemba, said he has removed alligators from parking lots and the lobby of a hotel not run by the resort.

Disney’s alligator harvest permit specifies that the resort can remove up to 300 alligators of more than 4 feet in length during the 10 years of the agreement, the current one expiring in 2019.

--Speaking of resorts, my friend Dr. W. was recently in Kiawah, S.C., where we get together each December, and he said there were fewer people on the beach at this time of year than he had ever seen before.  Kiawah is incredibly pricey (and beautiful), but Dr. W. can’t imagine who the next generation of homeowners is going to be as traditional buyers, such as doctors, lawyers and now investment bankers are increasingly squeezed.

--The Chinese acquirer of the Waldorf Astoria hotel in New York, Anbang Insurance Group Co., is finalizing plans for an extensive overhaul that would shut the landmark property for three years and convert up to 3/4s of the rooms into private apartments.  Even the restaurants are being closed, which will mean, overall, perhaps a thousand jobs will be eliminated.  [It has 1,500 hotel employees right now.  Anbang has been negotiating severance agreements with many of them.]

When the Waldorf reopens, the hotel will feature between 300 and 500 guest rooms upgraded to luxury standards, with the remainder (900 or so units) sold as condominiums.

--The number of people expected to travel this weekend is estimated to be 43 million, according to AAA, which would mark the highest level since AAA began tracking the data in 2001.

Nearly six in 10 travelers are expected to take vacations of at least four nights, according to travel data marketing firm Sojern.

--Declines at Macau’s casinos continue but at a better rate.  June’s gaming revenues fell 8.5% year-on-year, an improvement on May’s decline of 9.6% and the six-month year-on-year fall of 11.4%.

Macau’s GDP, heavily dependent on the sector, fell 13.3% in the first quarter yoy.

--Update: Last week I wrote that HBO’s “Game of Thrones,” which films in Northern Ireland (among other locales), could be impacted by the Brexit referendum because it was receiving European Union funding through a special program.

But numerous stories since, including a statement from an HBO spokesman, said the show has not received funding and the vote will have no material effect on production.

--As you watch the Nathan’s’ Famous Hot Dog Eating Contest on the Fourth, know that Nathan’s, celebrating its 100th birthday, sells 425 million annually, which is just a small portion of the estimated 9 billion that Americans eat each year.  [You know who makes a good hot dog?  Omaha Steaks.]

By the way, 71% of Americans favor mustard on their dogs over Ketchup, your editor being a proponent of the former.  I do not like sauerkraut.  But I add a slice of cheese and coleslaw.  [I prefer mustard on my burgers as well.]

I do have to add that my very first job out of college was as a clerk-typist at an insurance brokerage firm in Manhattan and one of our many accounts was Nathan’s.  Hey, Manny, was that yours or Sharon’s?

Foreign Affairs

Iraq/Syria/ISIS/Turkey/Russia:  ISIS staged a spectacular attack on Istanbul’s Ataturk international airport, killing 44 and wounding 230, at last report, as three attackers began shooting outside and inside the terminal late on Tuesday and blew themselves up after police fired at them.  We learned the attackers were not from Syria, Iraq, or homegrown, but rather the former Soviet Union (Russia/Dagestan, Uzbekistan and Kyrgyzstan), and this has many even more worried today because these are truly hardened veterans of the Islamic wars in the Caucasus.  The three also took their orders from ISIS in the caliphate’s self-proclaimed capital of Raqqa.  [At last word a Russian warlord may have been involved as well.]

Turkish officials are expressing disappointment with what they see as a tepid U.S. reaction to the airport assault and the Obama administration’s failure to consider an all-out drive by the U.S.-led coalition, including ground troops, to drive out the militants.  The Turks say they don’t need help with the investigation, the standard Washington response, but they want to see ISIS tackled head on.

I can’t help but add, once again, it all goes back to Aug. 2012 and the failure of the U.S. to work with Turkey on a no-fly zone for the Syrian/Turkish border...but as we’ve seen with the release of the Benghazi report this week, it was also just months before the election. 

There was some good news on the battle front, however, as a joint U.S.-Iraqi action against ISIS fighters fleeing from Fallujah took out anywhere from 150 to 300 militants.  [Iraqi commanders said 150.  The Pentagon said up to 300.]

Iraqi forces have retaken full control of Fallujah, a longtime ISIS bastion, but I’ve written extensively on the humanitarian disaster the battle left in its wake and there was little relief this past week for the tens of thousands who fled.

But now it’s about Mosul, ISIS’ de facto Iraqi capital.

Back to Syria, government forces continue to tighten the noose around the only gateway leading to rebel-held parts of the northern city of Aleppo, Syria’s largest and one-time commercial center.

Separately, Russian and Syrian government airstrikes killed at least 82 people, 58 of whom were civilians, in an ISIS-held area of eastern Syria, according to the Syrian Observatory for Human Rights

But U.S.-backed Syrian rebels did suffer a defeat at the hands of ISIS as they were pushed back from the border town of Al-Bukamal, with the rebels apparently suffering heavy casualties and loss of weapons in an ambush.

Lastly, according to Hisham al-Hashimi, a Baghdad-based expert who advises the Iraqi government on ISIS, of the 43 founders of Islamic State, 39 have been killed.  [Reuters]

Afghanistan: The Taliban continued its relentless campaign, striking a police convoy outside Kabul, killing at least 33 and wounding 50.  All but two of the dead were police cadets.  A week earlier, the Taliban hit a bus that killed 14.

Particularly heinous in this week’s action was a first bomber attacked one bus and when rescuers began to arrive a second bomber drove an explosives-laden car into their vehicles.

Over 175 have been killed in recent Taliban bombings throughout the country, including an April attack in Kabul that claimed 64 lives.

Iran: In a blistering report by the U.S. Navy, the sailors who were detained by Iran’s Revolutionary Guard Corps last winter gave up far more than their name, rank and serial numbers.

The 10 crew members, captured at gunpoint in the Persian Gulf on Jan. 12, improperly revealed passwords for laptops and cellphones and even sensitive technical details about their two ships, including their top speed, capabilities and missions, the report said.

The Navy report blamed the incident on a combination of errors, including poor planning, clueless leaders who didn’t understand how risky their actions were, and a lack of crew oversight and poor morale.

Among the many issues, the boats’ captains and crew at one point on the 250-nautical-mile transit didn’t realize they had entered Iranian waters off the coast of Iran’s Farsi Island in the Gulf because they did not check their map.  It was near Farsi that one of the two boats suffered a mechanical failure and the two craft were approached by two Iranian vessels.

The American captains didn’t order their gunners to put on protective gear or to man the weapons on the boats when the Iranians pointed their weapons at them.

Israel: Many members of Israel’s parliament, the Knesset (MKs), have blamed the death of a 13-year-old girl in a terrorist attack on MK Haneen Zoabi.  MK Nava Boker, a Deputy Knesset Speaker, said, “This is the result of the incitement she speaks from the Knesset’s stage.”

On Wednesday, Zoabi called IDF soldiers “murderers” during a speech in the Knesset, leading to a near-brawl when several MKs from the coalition and opposition shouted at her and tried to rush the stage, as reported by the Jerusalem Post. 

Separately, Turkey and Israel signed a deal to normalize relations after a six-year rift, a piece of good news.  Turkey was once a solid Muslim ally but the two split after Israeli Navy commandos stormed an activist ship in May 2010 to enforce a naval blockade of the Hamas-run Gaza Strip and killed 10 Turks on board.

Yemen: Despite ISIS’ battlefield losses in Iraq and Syria, as witness elsewhere it remains a powerful force.  35 were killed in Yemen’s southeastern city of Mukalla in a triple bomb attack.

Lebanon: Four suspected ISIS suicide bombers detonated their explosive belts in a northeast Lebanon border village with Syria, killing at least six.

Somalia: 35 were killed (including civilians and militants) in an al-Shabaab attack on a hotel in the center of Mogadishu last Saturday.

Russia: President Putin lifted curbs on tour firms selling holidays in Turkey, which were instituted after a Russian jet was downed by Turkey last year.  Putin also ordered trade talks with Turkey.

The ban on charter flights had hurt Turkey’s tourism industry in a big way as it is a favored destination of Russian vacationers.

Earlier, the Kremlin accepted a letter from Turkish President Erdogan as an apology for the downing, the first time Erdogan has done so.  A welcome thaw, but only that thus far, in relations between the two.

Meanwhile....

Robert D. Kaplan / Wall Street Journal

“For decades, NATO and the European Union have silently worked in unison. The former required a foundation of European unity, and the EU to a significant extent provided that, its elitist and statist bureaucracy notwithstanding.  Now the architecture is being toppled, as the vote for Brexit may trigger a cascade of desertions.

“Meanwhile, NATO still must defend Central and Eastern Europe against Russian subversion and outright aggression.  Russia’s President Vladimir Putin, who yearns for European disintegration, must see Brexit as a victory. Never since the early days of the Cold War have NATO and Europe so required American leadership.  Brexit is a test for this president and the next.

“The NATO states bordering Russia and the former Soviet Union, from Estonia in the north to Bulgaria in the south, have the most to lose.  In the 1990s these countries imagined themselves leaving history, with all of its tragedies, behind.  Now Poland drifts toward right-wing populism, Hungary is in the grip of neo-authoritarianism, Romania stands relatively weak and burdened by corruption, and Serbia and Bulgaria especially are undermined by Russian subversion and infiltration. The returning geopolitical chaos is akin, in some respect, to the 1930s.

“Collective security is becoming an abstraction.  The more that Europe fractures, the less resolve there will be to invoke NATO’s Article 5, which states that an attack on one member is an attack on all.  The United States can fill the emerging vacuum, without overextending itself, through a deft combination of diplomacy and projected military power.  If it doesn’t, the victory in the Cold War will have been erased....

“The tremors from Brexit have just begun, and they will roil Europe for years.  While the U.S. cannot fix the continent’s political and economic problems, it can protect allied democracies in Central and Eastern Europe to preserve the regional balance of power in Eurasia.  Weakening the administrative superstate in Europe may arguably be good in the long run.  But it is bad for geopolitics, and America must rise to the challenge.”

China: Addressing a gathering at Beijing’s Great Hall of the People to mark the Communist Party’s 95th anniversary, President Xi Jinping said China will not seek hegemony in Asia, but it will also not succumb to threats of military force.

Speaking ahead of a ruling by an international tribunal on China’s territorial claims in the South China Sea, Xi said:

“China does not covet any interests of other nations, but we’ll never waive our legitimate rights,” he said.  “Other nations should not expect us to haggle about our core interests or take the consequences of undermining our interests concerning sovereignty, security and development.”

The Hague is going to announce its ruling on China’s maritime claims on July 12; a case brought by the Philippines, which has rival claims in the South China Sea.

Xi blasted the U.S. for flexing its military muscle near the disputed waters amid heightened tensions in the region.

“China will continue the military approach of active national defense. We will not seek frequent threats of using military force or show off military strength at other’s doorsteps,” he said.

Meanwhile, you have the issue of Taiwan, which took a turn this week.  As I’ve been warning, this could be the surprise global flashpoint in the coming months and last Saturday, the Chinese government said it had stopped a communication mechanism with Taiwan because of the refusal of the island’s new government to recognize the “one China” principle, in the latest show of tension between the two.

A China Taiwan Affairs Office spokesman said, “Because the Taiwan side has not acknowledged the 1992 consensus, this joint political basis for showing the one China principle, the cross Taiwan Strait contact and communication mechanism has already stopped.”  [Reuters]

Separately, the Taiwanese captain of a fishing boat was killed and three of his crew members injured on Friday after a missile mistakenly fired by the island’s navy penetrated the vessel.

The accident was taking place as China was celebrating the Communist Party anniversary and the Taiwanese navy confirmed that a supersonic anti-ship missile was mistakenly launched from a naval vessel at a base in Kaohsiung.

The reason why the boat (and what are the odds) wasn’t blown to pieces is the missile didn’t explode before hitting its target.  The missile also did not pass the mid-course line of the Taiwan Strait, which meant it was not technically aimed at Fujian province, which lies on the other side. [Unfortunately, your editor knows Fujian all too well.]

Lastly, the South China Morning Post reported that a rocket launched from Hainan in southern China last Saturday, the Long March 7, is tasked with cleaning up space junk, according to the government, but some analysts claim it may serve a military purpose.

The Aolong-1, or Romaing Dragon, is equipped with a robotic arm to remove large debris such as old satellites.

A senior scientist with the China Aerospace Science and Technology Corporation said the rocket was the first in a series of craft that would be tasked with collecting man-made debris.

Tang Yagang said, “China, as a responsible big country, has committed to the control and reduction of space debris.”

But of course it is absurd to think a few space craft can clean up all the space junk when there are hundreds of millions of pieces floating out there.

The robot, instead, has the potential as an anti-satellite weapon, according to a researcher with the National Astronomical Observatories in Beijing.  It could be used as a deterrent or directly against enemy assets in space.

Ironically, it was a 2007 anti-satellite test which blew up a dead weather probe with a missile.  The test prompted a global outrage because the explosion generated such a large volume of debris. 

Australia: Today (Saturday) is election day and it is way too close to call, meaning there could be a fractured parliament.  Prime Minister Malcolm Turnbull’s conservatives have made late gains, with his center-right coalition holding a 51-49 lead over labor, according to a closely watched poll.

But this is deceiving since the same surveys show up to 30% of voters could back candidates unaligned with the two main blocs.  Ergo, this could be a mess.

Random Musings

--Polls....

In a new Wall Street Journal/NBC News poll, Hillary Clinton led Donald Trump 46% to 41% when voters were asked which of the two they favored.  When voters were given the option of Libertarian Gary Johnson and Green Party candidate Jill Stein, Clinton led by only one point, 39-38.  [Johnson 10%, Stein 6%.]

Trump leads 49% to 37% among white voters, while Clinton led 73% to 16% among nonwhites.

60% viewed Trump negatively, while 55% felt that way about Clinton.

In the latest Washington Post/ABC News poll, Clinton enjoys a much bigger advantage, 12 points, 51-39.  Adding Gary Johnson and Jill Stein makes it 47-37 Clinton, 7% Johnson, 3% Stein among registered voters.

In this one, by a 68-28 margin, Americans think Trump’s comment about Judge Gonzalo Curiel was racist.  85% said it was inappropriate.

President Obama’s approval rating is up to 56%, which is a huge help for Clinton.  [That’s 56% who don’t follow foreign affairs and don’t care about the legacy he is leaving on this front.]

A Reuters/Ipsos national poll had Clinton leading Trump 45-34, though the margin had been 14 the prior week.

A Fox News survey has Clinton leading Trump 44-38.

A Quinnipiac University national poll has Clinton leading just 42-40.  If you add Johnson and Stein to the mix, it’s 39 Clinton, 37 Trump, 8 Johnson, 4 Stein.

In 2012, President Obama coasted to reelection by defeating Mitt Romney in nine out of 10 battleground states – Colorado, Florida, Iowa, Nevada, New Hampshire, Ohio, Pennsylvania, Virginia and Wisconsin.  Obama lost a tenth, North Carolina, which he had won four years earlier.

Heading into the 2016 conventions, though, Hillary Clinton has an edge in six of the 10, while Trump is only consistently leading in North Carolina, as reported by The Hill and Monmouth University pollster Patrick Murray.

Real Clear Politics has Clinton favored to win 211 electoral votes, including 10 from Wisconsin, with Trump winning 164, but has him favored in none of the 10 battleground states.  [Tied in some or within margin of error.]

In a CBS News battleground tracker poll, Clinton leads Trump in Florida, 44-41.  In Colorado, she has just a 1-point lead, 40-39.

In Wisconsin, Clinton holds a 5-point lead, 41-36, and in North Carolina, she leads by two, 44-42.

--By the way, for those of you looking to see Gary Johnson on the debate stage this fall with Clinton and Trump, as the rules currently stand, he needs to be polling 15% before he can join them and I just don’t see that.  Of course Johnson would correctly argue he can’t get to that figure without exposure so he needs to do his best to get on every venue possible this summer.

--Trump appeared to be backing away from his controversial proposal to ban Muslims from entering the U.S.  Instead of a blanket ban, he seems to be moving to a more nuanced policy targeting countries with a record of terrorism.

The above mentioned WSJ/NBC poll found that 49% of registered voters oppose a temporary Muslim ban, while 34% support it.

--Hillary Clinton unveiled her secret weapon, Poca....,oops, sorry.  Sen. Elizabeth Warren.  In a joint appearance in Cincinnati, Warren called Trump a bigot and his trademark baseball cap “goofy.”

Trump continues to attack the liberal Democrat from Massachusetts over her claim in her 2012 Senate race that she had Cherokee ancestors.  This is just getting started.

--From the Wall Street Journal:

“Donald Trump pledged Tuesday to withdraw the U.S. from global trade alliances, saying he would exit the North American Free Trade Agreement if it isn’t renegotiated, would label China a currency manipulator and would kill the Trans-Pacific Partnership, a Pacific Rim trade deal.

“The presumptive Republican presidential nominee’s trade proposals amount to a wholesale rejection of longstanding Republican orthodoxy and leave the party with a candidate arguing against the very policies that most GOP leaders have enacted and supported.  He spoke longingly about 18th century economic policy that funded the federal government largely on tariffs.”

The U.S. Chamber of Commerce said on its Twitter account that Trump’s approach would cost 3.5 million U.S. jobs and result in “higher prices” and “a weaker economy.”

Trump blasted China, vowing “to instruct the U.S. trade representative to bring trade cases against China, both in this country and at the WTO.  China’s unfair subsidy behavior is prohibited by the terms of its entrance to the WTO, and I intend to enforce those rules,” he said of the World Trade Organization.

--Senate Majority Leader Mitch McConnell (R-Ky.) repeatedly refused to acknowledge whether Trump was qualified to be president while appearing on ABC’s “This Week.”

“Look that will be up to the American people to decide.  He won the Republican nomination fair and square.  He got more votes than anybody else against a whole lot of well-qualified candidates. So our primary voters have made their decision as to who they want to be the nominee.  The American people will be able to make that decision in the fall.”

When asked the same question another time, McConnell demurred.

“There’s no question that he’s made a number of mistakes over the last few weeks.  I think they’re beginning to right the ship, but it’s a long time until November.  The burden obviously will be on him to convince people that he can handle this job.”

--The House Select Committee on Benghazi’s report about the terrorist attack that killed Ambassador Chris Stevens and three other Americans, contained some new information about events in Washington and on the ground in Libya.

The report said that despite orders from President Obama and then-Secretary of Defense Leon Panetta: “[N]o asset was ever ordered to respond to Benghazi and the decisions made – and not made – coupled with a lack of urgency in Washington D.C. delayed the response even, in some instances, with an ambassador missing.”

As they were waiting at a base in Spain, U.S. Marines were ordered to change in and out of their uniforms four separate times.

At the time the State Department seemed most concerned about the image of uniformed troops marching through Benghazi.

The Libyan militia that eventually evacuated Americans from the CIA annex to the airport in Benghazi had not been previously allied with U.S. officials.

“Some of the very individuals the United States had helped remove from power during the Libyan revolution were the only Libyans that came to the assistance of the United States on the night of the Benghazi attack,” the report said.

As for then-Secretary of State Hillary Clinton, in public she continued to blame the violence on the YouTube video that was stirring tensions in some Muslim cities, but in private, she pinned the blame on Islamic terrorists, telling the prime minister of Egypt the next day that it “had nothing to do with the film.”

As for then-U.N. Ambassador Susan Rice, even some State Department officials were miffed over her appearances on Sunday talk shows after the attack, during which she called the assaults spontaneous, with officials saying her accounts appeared to be divorced from reality.

“I think Rice was off the reservation on this one,” a senior Libya desk officer wrote in an email.

“Off the reservation on five networks!” responded another State Department official.

“[White House] very worried about the politics.  This was all their doing,” said a third.

Editorial / Wall Street Journal

“Democrats have succeeded in persuading the Washington press corps that what happened when four Americans died at Benghazi, Libya, on Sept. 11, 2012 isn’t a story.  But the House report released Monday about that night and its aftermath contains details that ought to concern Americans who care about political accountability....

“The report’s most disturbing facts concern the way the Obama Administration and then-Secretary of State Hillary Clinton spun an alternative narrative that is contradicted by their private statements and the intelligence from the scene.

“We learn from the report that the day after Mr. Stevens became the first American ambassador killed in the line of duty since 1979, President Obama decided to skip his daily intelligence briefing.

“We also learn that on the day of the attack, in a 5 p.m. meeting that included Defense Secretary Leon Panetta, Mr. Obama said the U.S. should use all available resources. After that meeting, Mr. Panetta returned to the Pentagon to discuss what military resources were available. The Defense Secretary then issued an order to deploy military assets to Libya.

“But nothing was sent to Benghazi, and nothing was even in route when the last two Americans were killed almost eight hours after the attacks began.  The holdup seems to have been caused in part by something else we learn from this report: a 7:30 p.m. teleconference of Defense and State officials, including Mrs. Clinton....

“(They) debated whether they needed Libya’s permission to deploy American troops to defend endangered Americans, whether Marines should wear uniforms or civilian clothes, and so on.

“Even more telling: Though there was no evidence linking the Benghazi attacks to a YouTube video mocking Islam, of the 10 ‘action items’ from the notes of that meeting, five referred to the video.

“Mrs. Clinton referred to the video more than once in her public statements.  At 10:08 p.m. on the night of the attack, she issued a public statement on Benghazi: ‘Some have sought to justify this vicious behavior as a response to inflammatory material posted on the Internet.  The United States deplores any intentional effort to denigrate the religious beliefs of others.’  She repeated the point the next day at the State Department.

“That’s not what she was saying in private.  On the night of the attack, at 6:49 p.m. Washington time, Mrs. Clinton called Libya’s president to say the attack on the diplomatic compound in Benghazi was planned and that an Islamist terror group had claimed responsibility. A few hours later, she emailed her daughter that ‘an Al Qaeda-like group’ was responsible.

“The next afternoon Mrs. Clinton was even more categorical. In a phone call with the Egyptian Prime Minister, she said the Benghazi attack ‘had nothing to do with the film. It was a planned attack – not a protest.’  She added that the Benghazi attackers were believed affiliated with al Qaeda.

“On Monday this week on the campaign trail, Mrs. Clinton admitted that lots of Americans don’t trust her.  ‘I personally know I have work to do on this front,’ she told her audience.  This report shows she has earned that mistrust.”

Democrats called the Benghazi inquiry a witch hunt and the two sides refused to sign each other’s reports or even share them before release.

Speaking at a campaign event, Clinton said the committee had “found nothing to contradict” the findings of a State Department-named accountability board or previous congressional inquiries.

“So while this unfortunately took on a partisan tinge, I want us to stay focused on what I’ve always wanted us to stay focused on, which is the work of diplomacy and development.

“I’ll leave it to others to characterize this report, but I think it’s pretty clear it’s time to move on,” she added.

--According to a survey conducted by the Pew Research Center of 10 European Union countries, Hillary Clinton has the confidence of 59 percent of Europeans when it comes to her foreign policy, but just 9% feel confident that Donald Trump would “do the right thing regarding world affairs.”  [Barack Obama sits at 77%.]

In the UK the breakdown is 12% have confidence in Trump compared to 66% for Clinton and 79% for Obama.

Separately, Angela Merkel has the confidence of 83% of those in the Netherlands, but just 10% in Greece and 33% in Italy.

Vladimir Putin has the confidence of 53% in China and in Greece, but just 7% in Poland.

Putin sits at 20% among Britons, compared to 59% for Merkel.

--David A. Fahrenthold of the Washington Post did a deep-dive into Donald Trump’s charitable giving.  In the 15 years prior to his recent $1 million donation to a nonprofit group helping veterans’ families, “Trump promised to donate earnings from a wide variety of his moneymaking enterprise: ‘The Apprentice.’  Trump Vodka.  Trump University.  A book.  Another book.  If he had honored all those pledges, Trump’s gifts to charity would have topped $8.5 million.

“But in the 15 years prior to the veterans’ gift, public records show that Trump donated about $2.8 million through a foundation set up to give his money away – less than a third of the pledged amount – and nothing since 2009.  Records show Trump has given nothing to his foundation since 2008....

“Trump and his staff are adamant that he has given away millions privately, off the foundation’s books.  Trump won’t release his tax returns, which would confirm such gifts, and his staff won’t supply details.”

The Post goes into great detail and the bottom line is it’s embarrassing.

--According to the Washington Post, Newt Gingrich and New Jersey Gov. Chris Christie are on Trump’s shortlist of candidates for vice president.  Indiana Gov. Mike Pence is also meeting with Trump this weekend.

--It is really unbelievable that Bill Clinton had an encounter on the tarmac at Phoenix airport with Attorney General Loretta Lynch – a meeting she described as “primarily social,” but one that drew immediate attention because of the Justice Department’s ongoing investigation into Hillary Clinton’s email practices while she was secretary of state.

Lynch confirmed the meeting, saying it occurred when her plane landed for a stop on a nationwide tour of law enforcement agencies.

It was Bill Clinton who discovered his own plane was parked next to hers and according to reports surprised Lynch (who was traveling with her husband), when he just hopped aboard and the two chatted about 30 minutes, according to aides from both camps.

Friday, a contrite Lynch said she understands how her meeting with the former president “casts a shadow” over the perception of independence in the investigation and that she will accept whatever outcome investigators come up with at the end of the probe, though she is not formally recusing herself.

--Columnist and pundit George Will announced he has left the Republican Party because Donald Trump is the party’s presumptive presidential nominee.  Will said in an interview he had switched his party registration to unaffiliated this month, adding Republicans should “grit their teeth” during a Hillary Clinton presidency and then hope to beat her in 2020.

Earlier, in his Washington Post column, Will wrote: “Only (Trump) knows what he is hiding by being the first presidential nominee in two generations not to release his tax returns.  It is reasonable to assume that the returns would refute many of his assertions about his net worth, his charitableness and his supposed business wizardry.  They might also reveal some awkwardly small tax payments.”

--It is absurd that CNN hired former Trump campaign manager Corey Lewandowski and I can see why fellow staffers would be fuming, especially given the rumored salary of $500,000.  [CNN honcho Jeff Zucker denies the figure.]  What’s stupid about the deal is that Lewandowski has a nondisclosure agreement whereby he is legally prevented from criticizing Trump.

--Defense Secretary Ashton Carter on Thursday removed one of the final barriers to military service by lifting the Pentagon’s ban on transgender people.

I have to admit I was surprised to learn that when Carter ordered an examination of what would need to be done to lift the prohibition, there were already thousands of transgender people in the military (2,450 by one estimate).  But until Thursday, they had to keep things secret to avoid being discharged.

--In a new report from the Pew Research Center on views on racial discrimination and race in the U.S., most blacks say they are treated unfairly and do not feel that racial equality has been achieved in the country.

88% of blacks surveyed think the country must change, but only 55% of whites do. 

51% of blacks surveyed say President Obama has improved race relations.  34% say he has tried, but failed to make progress.

32% of whites say Obama has made things worse.  28% of whites say he has made things better.

--At the halfway point of the year, homicides in Chicago have jumped 49 percent to 312 through Tuesday, reaching levels unseen since the 1990s.  Through June 19, Chicago had more homicides than Los Angeles and New York combined.

--Heart disease remains the No. 1 cause of death for Americans, according to a new report from the CDC, killing 614,348 people in 2014.  Cancer came in second, causing 591,699 deaths, per a government analysis of all death certificates filed in the country that year.  Together, the two diseases accounted for 45.9% of all deaths in the U.S.

The next three leading causes of death – chronic lower respiratory diseases, accidents and unintentional injuries, and stroke – accounted for 15.8% of U.S. deaths in 2014.

But No. 6, Alzheimer’s, saw a jump of 10.5% in deaths in 2014 compared with the previous year.

--Chris Mooney / Washington Post:

“In a major new paper in the influential journal Science, a team of researchers report strikingly good news about a thirty year old environmental problem.  The Antarctic ozone ‘hole’ – which, when it was first identified in the mid-1980s, focused public attention like few other pieces of environmental news – has begun, in their words, to finally ‘heal.’

“ ‘If you use the medical analogy, first the patient was getting worse and worse, and then the patient is stabilized, and now, the really encouraging thing, is that the patient is really starting to get better,’ said MIT atmospheric scientist Susan Solomon, lead author of the study, and former co-chair of the United Nations’ Intergovernmental Panel on Climate Change.

“And moreover, that patient – the Earth’s vital ozone layer – is getting better directly because of our choices and policies.

“The initial, Nobel Prize winning discovery that ozone depleting chemicals called chlorofluorocarbons (CFCs) carried in refrigerants, spray cans, foams and other substances could damage the stratospheric layer that protects us from ultraviolet solar radiation (and thus, skin cancer) came in 1974.  But it wasn’t until the sudden discovery of a vast seasonal ozone ‘hole’ over Antarctica in 1985 that the world was shocked into action....

“Discovery of the ‘hole’ galvanized action and in 1987, the Montreal Protocol, which is still today hailed as the epitome of a successful environmental agreement, led to a phase out of the use of ozone depleting chemicals.  Here was a case that now appears so very different from the story of climate change, because everything basically functioned like it was supposed to – scientists identified a problem, the public grew concerned, and politicians acted to solve it.”

--How tough has it been for Britain recently?  If you don’t follow football (soccer), just trust me.  Iceland’s defeat of England, 2-1, in the Euro 2016 knockout round was one of the two or three biggest upsets in the history of the sport. 

--The population of the U.S. grew to 321,418,820 last year, up less than 1% over 2014, per new census figures.

--Finally, Friday marked the 100th anniversary of one of history’s bloodiest clashes, the Battle of the Somme.  During the nearly five-month battle, about a million British, French and German troops lost their lives.

Some 20,000 British forces died on the first day, when the whistle blew at 7:30 a.m. and tens of thousands of troops clambered out of their trenches only to be mowed down by German forces.

Over the five months, the frontline barely moved, in a battle that came to symbolize the horrors of trench warfare and the futility of World War I.

---

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

Happy Birthday, America!

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Gold $1339...best two quarters since 2007
Oil $48.99...up 80%+ from mid-Feb. low

Returns for the week 6/27-7/1

Dow Jones  +3.2%  [17949]
S&P 500  +3.2%  [2102]
S&P MidCap  +2.9%
Russell 2000  +2.6%
Nasdaq  +3.3%  [4862]

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

Dow Jones  +3.0%
S&P 500  +2.9%
S&P MidCap  +7.3%
Russell 2000  +1.8%
Nasdaq  -2.9%

Bulls  41.6
Bears 23.8 [Source: Investors Intelligence]

Enjoy the long weekend.

Check out Dr. Bortrum’s new column...he has a great Muhammad Ali story at the end.

Brian Trumbore

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