Don't write off a text message from the president as a prank: It's an emergency and he might just save your life... By Daily Mail * New SMS system will send alerts to mobiles during terrorist attacks * They'll get through even if phone lines are swamped * But citizens will be able to filter out warnings - unless they come straight from Obama It's easy to ignore a phone message from someone you don't know that well. But when Barack Obama sends you a text, you listen. A national emergency alert system that will send messages to mobile phones during disasters is set to launch in New York City and Washington by the end of year. The Commercial Mobile Alert System will direct emergency messages to mobile phones in case of a terrorist attack, natural disaster or other serious emergencies. Early warning: People watch as the second of the two World Trade Center towers collapse on 9/11. A new SMS sytem will warn of an imminent attack Citizens can opt out of receiving most of the messages, unless they are from the President himself. 'If there=s a terrorist bomb set to off in Times Square, you=d be able to tell everyone in the vicinity to get out of there,' one New York official to the New York Post. The alert plan was approved by Congress in 2006 under the Warning Alert and Response Network Act. Reaching people in the midst of disasters such as the September 11 terrorist attacks or Hurricane Katrina in 2005, when cell phone networks were overwhelmed or otherwise out of service, has been an ongoing concern for emergency personnel around the country. Local and state governments have been increasingly turning to text messages to alert residents to everything from snow days closing schools to traffic blocking local roadways. But the volume of messages can be overwhelming or too late to be of much help. Federal Communications Commission Chairman Julius Genachowski and Federal Emergency Management Agency administrator Craig Fugate said the new national system will be selective in what it sends out. 'These are really focused on the highest levels of alerts, and those that require urgent action,' Mr Fugate said. Attention: The Commercial Mobile Alert System will direct emergency messages to mobile phones Mr Genachowski added that officials expect the alerts 'to be very limited'. There will be at least three levels of messages, ranging from a critical national alert from the President to warnings about impending or occurring national disasters to alerts about missing or abducted children. People will be able to opt out of receiving all but the presidential alerts, Mr Genachowski said. A special chip is required to allow the phone to receive the messages, and all new phones will soon have the technology. Some smart phones already have the chip and software updates will be available when the network goes online later this year, Mr Genachowski said. Mr Fugate said that mobile phones turned on in the direct vicinity of a disaster - an evacuation zone, for instance - would receive a message warning them of the impending danger. The alert would show up on the phone's front screen, instead of the traditional text message inbox, and would arrive with a distinct ring and likely a vibration. Messages are expected to get through even if traditional phone lines are swamped. 'Network congestion in times of major disasters is a real issue,' Mr Genachowski said. 'This plan ... makes sure emergency alerts can get through even if the network is congested.'

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Ticket-Fixing: A New Twist in an Inquiry The New York Times Ticket-fixing was so prevalent among police officers in the Bronx that even a highway officer whose job was to administer Breathalyzer tests C the very tool used to determine if a driver is drunk C was himself caught on a wiretap trying to fix a ticket for someone, according to a person with knowledge of the contents of the wiretap. The officer, Harrington Marshall, wondered if he would owe anything to the officer who took care of the ticket, a person with knowledge of the request said. But Officer Marshall was told that there would be no debt to pay, said the person, who insisted on anonymity because the investigation was continuing. For more than a year, the office of the Bronx district attorney and the Internal Affairs Bureau of the Police Department have been investigating the widespread practice of ticket-fixing among officers. No officers have yet been charged. The inquiry is examining the actions of dozens of officers and is focused on allegations that some officers accepted some form of benefit in exchange for fixing tickets. Several people briefed on the matter have said that perhaps two dozen or more officers could face criminal charges as the result of the inquiry. Only those who received a benefit in exchange for fixing tickets, or who may have destroyed police paperwork or committed perjury, face possible criminal charges, people who were briefed said. Those charges could come as early as this month or June, said people who know of the grand jury=s proceedings. The Police Department is preparing for hundreds of internal disciplinary proceedings against officers who may have engaged in the practice but escaped criminal charges. As many as 300 officers are expected to face departmental charges. The scope of the investigation has taken the police unions, as well as rank-and-file officers, by surprise. Many New York police officers say ticket-fixing has long been a commonplace, if risky, activity, and does not involve any payment. The president of the Sergeants Benevolent Association has called the practice a courtesy. Paul London, a lawyer for Officer Marshall, declined to comment. Prosecutors learned that Officer Marshall had sought to have a ticket fixed from a wiretap on a phone belonging to the police officer from whom Officer Marshall is said to have sought help, according to a person familiar with the wiretap. The second officer=s identity could not be learned. The ticket-fixing request Officer Marshall is suspected to have made is a potential issue in a drunken-driving case now in State Supreme Court in the Bronx. In that case, Officer Marshall gave the Breathalyzer test to the defendant, Stephen Lopresti. Prosecutors have given Mr. Lopresti=s defense lawyers information relating to the ticket-fixing request that Officer Marshall was said to have been heard making because it could be relevant to the officer=s credibility as a witness. Officer Marshall=s willingness to seek favors from other officers could call into question his impartiality in administering breath tests to drivers. Mr. Lopresti=s case suggests just how common ticket-fixing requests are among officers. A second witness in the case, Julissa Goris, the police officer who arrested Mr. Lopresti, in December 2006, was caught on a wiretap discussing two tickets she had sought to have fixed, she testified in court last month. A lawyer for Mr. Lopresti declined to comment. Several details about the request of which Officer Marshall is suspected remain unknown, including who received the ticket he is suspected of trying to get fixed, and what offense it was for. Officer Marshall, 44, has been with the Police Department for 16 years. In 2000, he was shot in the arm after confronting a man who had kidnapped his estranged girlfriend, according to published reports. He now works with a city highway patrol unit in the Bronx. He did not respond on Tuesday to a note requesting comment that was left at his home in Brooklyn. 'DWI' prosecutor's 'drunken boast' New York Post

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The Bronx prosecutor busted for drunk driving on the Major Deegan bragged to cops that a top boss in her office took care of her previous DWI -- and would make this one disappear, too, The Post has learned. "Call Nestor; he'll take care of this. He took care of it the last time," a stumbling, slurring Jennifer Troiano told officers during her arrest last August, a police source said yesterday. She was referring to Nestor Ferreiro Jr., chief of narcotics in the Bronx DA's Office, the source said. Internal Affairs cops are investigating the alleged free pass, and last week hauled at least two of the arresting officers in the August bust in for questioning. "They were asked specifically if she said anything about the previous incident in which she allegedly got off, and why they didn't report that she tried to get out of the arrest that night," a police source said. "They're trying to figure out if somebody gave her a break." A spokesman for Bronx DA Robert Johnson said Ferreiro claims he didn't do anything to bail out Troiano, 34, in the August bust, or help her avoid a potential felony DWI in December 2009. "He has not advocated to the police on her behalf on either her August 2010 arrest or any other matter," spokesman Steven Reed said. Troiano, a six-year veteran, was picked up on suspicion of drunken driving in 2009 after leaving a holiday party for narcotics detectives. Ferreiro threw a party that year for his bureau at the former Jet Set Café -- a Bronx dance club where DJ's spin reggaeton and salsa. Troiano refused a Breathalyzer test and was brought to the 44th Precinct, where word got around about where she worked, the source said. Somebody was called, and the charge went away, he said. When an allegedly drunk Troiano called Ferreiro after the August crash, he told her to tell her boss about the bust, not him, Reed said. Ferreiro has worked for the Bronx DA for 29 years, and earned $175,000 in 2009, records show. His wife, Cari Ferreiro, also works for the DA as director of litigation training in Johnson's office, earning about $143,000 in 2009. Troiano has kept her job, although she has been transferred to the appeals division, and is no longer trying cases. She has declined comment. Her lawyer, Howard Weiswasser, denied there was any incident in 2009, and predicted she'd be cleared in the 2010 case. Her next court date is June 23. The revelation came as the DA and IAB are investigating a department-wide ticket-fixing scandal. As many as 40 or more cops could face criminal charges for fixing tickets for friends and family, sources said, and 500 could face disciplinary action. Prosecution in Rape Trial Assails Story of Officer The New York Times

A prosecutor on Tuesday grilled a police officer accused of rape on numerous minuscule details of the night in question. How long did it take him to think of a scheme to place a false 911 call? Did he help the woman try to find her telephone in her apartment? Did he ever think to open the bathroom window so the woman could get some fresh air? While the questions may have seemed innocuous at times, the prosecutor, Coleen Balbert, appeared to be trying to shred the account of the officer, Kenneth Moreno, who is on trial on rape charges in State Supreme Court in Manhattan. Officer Moreno=s partner, Franklin Mata, is also charged with rape, accused of aiding his partner. The officers were called to help a drunken woman into her East Village apartment in the early hours of Dec. 7, 2008. After escorting her in, they returned three times and, prosecutors say, Officer Moreno raped her while Officer Mata stood guard. But Officer Moreno, who began his testimony on Monday, has insisted that he did not have sex with the woman. Rather, he said, he counseled her on her drinking problem, drawing on experience from his own struggle with alcoholism. Ms. Balbert on Tuesday questioned Officer Moreno=s claim that he was an alcoholic and had attended Alcoholics Anonymous meetings for several years. Aren=t people in Alcoholics Anonymous told not to counsel people who are intoxicated because they are emotional and vulnerable, Ms. Balbert asked. AYou=re not supposed to, but they don=t tell you not to, either,@ said Officer Moreno, 43, of Brooklyn, who has been on the force for 20 years and is on paid suspension. With no physical evidence linking Officer Moreno to a rape, credibility is at the heart of the case. The woman said that despite having blackouts on the night of the encounters, she vividly remembered an officer raping her as she lay face down on her bed. Officer Moreno, meanwhile, said that the woman came on to him, and that he shunned her advances while comforting her by singing Bon Jovi=s ALivin= on a Prayer.@ Ms. Balbert pressed Officer Moreno to concede that he broke the law when he made a false 911 call to get dispatchers to send him back to the woman=s apartment after he had left the first time. AIt was to help her,@ Officer Moreno said. Ms. Balbert shouted back, AIt was to help yourself and your partner so that you could go back there time and time again to take advantage of that drunk, helpless girl.@ AI did not take advantage of her,@ Officer Moreno said. Ms. Balbert also asked Officer Moreno why, if he truly cared about the woman, he had left her in her apartment knowing that she could not find her cellphone if she needed to call for help. And after Officer Moreno said the woman had mentioned going to get breakfast, perhaps because she wanted to get fresh air, Ms. Balbert asked him if he ever opened the bathroom window for her while she was vomiting. He said he had not. Before cross-examination, Officer Moreno, finishing up questioning from his lawyer, tried to explain why days later he told the woman he had used a condom that night. (The woman secretly taped the conversation.) AI didn=t want her to worry about anything,@ Officer Moreno said, adding that he felt bad for her, because it seemed that she Amight really think that something happened.@ Fugitive New York cabbie accused of conning 2,500 riders is caught in Kansas City   3  34    

Wasim Khalid Cheema is accused of scamming passengers out of $11,690 by charging out- of- town rates for rides within the city limits. A fugitive New York cabbie accused of conning 2,500 riders with a crooked fare scheme has been nabbed in Missouri. Wasim Khalid Cheema, 23, was picked up in Kansas City and extradited to New York yesterday to face fraud charges. "Taxi drivers who con New York City passengers are headed for one destination: arrest, prosecution and possible jail time," said city Investigation Commissioner Rose Gill Hearn. She said Cheema scammed passengers out of $11,690 by charging out-of-town rates for rides within the city limits. The commissioner said 45 city cab drivers have pleaded guilty to illegally manipulating the meter. Officials Warn of New Drug of Choice on Long Island Opana ER (Courtesy of Nassau County officials and advocates have issued a public health alert that a new drug of choice has emerged among substance abusers that is twice as strong and a fraction of the cost of its predecessor. Opana, known also by its generic name, Oxymorphone, is a prescription painkiller that, like OxyContin, abusers crush up and snortCwhich can be especially dangerous with extended release tablets. Officials said a decrease in prescriptions for OxyContin and an increase in prescriptions in Opana comes just as OxyContin manufacturers changed to formula to make it harder to abuse. AWe are deeply concerned at the rapid rise of Opana ER prescriptions,@ Nassau County Ed Mangano said Monday. There has been a 43-percent decrease in Medicaid prescriptions for OxyContin between August and February and a 45-percent increase in Medicaid prescriptions for Opana ER during the same time period. The health alert follows a recent law enforcement intelligence bulletin that Nassau County police issued department wide warning officers to be on a lookout for the drug. Mangano called a news conference at his Mineola office to make sure parents, educators and the public also heeds the warning, although there were no reported deaths in the county related to the drug. Opana ER is sold on the black market for prices starting at $1 per milligram and is known on the street as Mrs. O, Octagon and Blues. Abusers typical use a washcloth or razor to remove the coating before crushing it up and snorting it. The new development comes as Long Island continues its war on heroin, to which prescription drug abuse is often a stepping stone. Local law enforcement have been regularly scheduling Atake back days@ for anonymous prescription drug disposal to ensure unwanted or unused pills don=t fall in the wrong hands while languishing in medicine cabinets. AIt=s more potent than OxyContin and lacks the tamper-proof mechanisms that have begun to limit the abuse of other painkillers,@ said Jeffrey Reynolds, executive director of the Long Island Council on Alcoholism & Drug Dependence. AAwareness is absolutely key if we are to address the national epidemic of prescription abuse that=s hit Nassau County hard.@ Suffolk home prices drop, Nassau's climb Friday Newsday

Driven by foreclosures, the median home closing price in Suffolk fell under $300,000 last month for the first time since 2003; meanwhile, prices show Nassau may be on the road to recovery, a new report said. According to figures from the Multiple Listing Service of Long Island , Suffolk's $290,750 median closing price in April was an 8.6 percent drop from $318,000 a year earlier, the report said. Except for June, Suffolk closing prices dropped year-over-year for the past 12 months, data show. The last time Suffolk's median fell under $300,000 was May 2003, when it was $280,000, MLS data show. For Nassau, the median closing price was $406,250, 2.8 percent up from $395,000 a year ago, the report said. The county has shown year-over-year jumps for seven out of the past 12 months, figures show. The median closing price for Long Island and Queens together was $348,500, a 0.4 percent dip that would have been a deeper drop if it hadn't been for Queens ' 7.7 percent increase, according to MLSLI figures. Liz English, president of the Long Island Board of Realtors, said the April data indicate Nassau and Queens might be recovering from the housing crisis, while Suffolk's fate is unclear. "Suffolk is still in distress," she said. "There are distressed sales that are bringing down the better numbers." When foreclosures sell at discounts, that often leads to lower appraisals of nearby homes for sale -- a cycle that can feed on itself, federal housing officials and local industry veterans have said. Nassau's market is more competitive due to its proximity to New York City, agents said. "Anything that is closer to the city is always a little higher," said Dianne Scalza, president of the Women's Council of Realtors' Long Island chapter. But contrary to the usual trend for the house-hunting season, Long Island and Queens closings fell 11 percent from March to April and contracts fell 2 percent, the report said. To real estate agent Tom Malanga, it's proof of an uncertain market. That's why he organized a Sunday open house of 21 town homes at   4  34    

the 487-unit Park Row community in Central Islip . Each listing's agent will be there, and each home toured from noon to 3 p.m. will score the house hunter a chance at a $100 dinner certificate. Malanga, a resident there and associate broker at Century 21 North End Realty in St. James , hopes this will draw buyers from their computer searches and into potential homes: "We need to make it easier for buyers to come and experience," he said Officials: LIRR woes through Friday Newsday

LIRR disruptions to and from Penn Station will last into Friday as repairs to damage caused by a Sunday Amtrak derailment continue longer than expected, officials said Tuesday. Although Amtrak officials said Tuesday afternoon that they were trying to have repairs completed by Thursday morning, Long Island Rail Road spokesman Joe Calderone said Tuesday night that Amtrak and the LIRR agreed they'd need an extra day. "We're obviously disappointed," Calderone said. "We know this is going to further inconvenience our customers. They've had a difficult week." Calderone said moving materials and crews into and out of the cramped East River tunnel where an Amtrak train derailed Sunday has proved "logistically difficult" and "more time consuming than anticipated." By 5 p.m. Tuesday, Amtrak officials told LIRR officials they'd replaced 160 of the 275 wooden rail ties damaged in the derailment, the LIRR said. Calderone said the LIRR expects to have service fully restored in time for the Friday morning commute. LIRR president Helena Williams said in a statement that she was disappointed "that Amtrak was not able to complete their repair work in time to meet the goal of returning to normal service by Thursday." "However," she added, "I believe that Amtrak is making every effort to return the tunnel back to service as quickly as possible." LIRR officials said Tuesday that it took longer than expected to begin the repair work. Sunday's five-car train, which carried no passengers when it derailed while going 60 mph, was not cleared out of the tunnel until Monday evening. Amtrak hoped to begin the repairs Monday afternoon. Amtrak crews are working around the clock on the repairs. "We've been working on it since we cleared the fifth car [Monday]," Amtrak spokesman Cliff Cole said. While Amtrak crews toiled inside the narrow confines of the tunnel just underneath First Avenue Tuesday, thousands of LIRR commuters endured the second day of rush-hour cancellations, major delays and crowded train cars. The train, starting around 7th Ave, was able to accelerate to 60 mph by 1st Ave? The LIRR, once again, plans to cancel or divert 22 trains during Wednesday morning's commute, and cancel 20 at today's evening rush. Officials said commuters should allow for an extra 10 to 20 minutes of travel time due to delays. Westbound service into Penn Station from Woodside and Jamaica also remains suspended during evening peak hours. "I think I just suffered the first panic attack of my life," said Joe Natoli, 51, of Inwood , who was en route to Kew Gardens but got off a stop early at Jamaica to take the subway because his train was so packed Tuesday. Meanwhile, Williams Tuesday weighed in on calls from some Metropolitan Transportation Authority board members for the LIRR to try to take over maintenance of the Penn Station tracks and the East River tunnels. She said she didn't see that changing. Williams said LIRR ridership was down about 5 percent Monday due to the disruptions. Experts say remains found on Long Island beach likely the work of one killer, not two DAILY NEWS Police mark crime scene near where human remains were found on Long Island; the bodies of Maureen Brainard Barnes (top left), Melissa Barthelemy (top right), Amber Lynn Costello (bottom right) and Megan Waterman (bottom left) were found in December. Long Island authorities suggested two killers are murdering hookers and dumping them on the same beach - but some experts think one monster is responsible. "I wouldn't be so quick to be talking about multiple killers," said Vernon Geberth, a retired NYPD detective who has written textbooks on homicide investigations. "The probability of having two serial killers using the same dumping ground is very, very remote to the point where I don't buy into it." N.G. Berrill, a forensic psychologist, agreed - but cautioned it's possible. "That coincidence, in and of itself, would be remarkable," he said. Suffolk County investigators said this week that four craigslist   5  34    

hookers found on Gilgo Beach were killed by the same person, who dumped their intact, burlap-wrapped bodies. They noted that two other women found nearby - one of them identified as a prostitute - were dismembered years before the craigslist women went missing. Their body parts were left in two locations: near Gilgo and in Manorville. Two more bodies - a baby girl and an Asian man - have been found, along with two sets of bones. They have not been linked to the hooker cases. Geberth said two methods of disposing of the women didn't mean two killers. "I am looking at a serial killer who has basically progressed," he said. "He has become more effective at disposing of the bodies. He doesn't have to go through all the work of decapitating his victims." Berrill, executive director of the consulting group New York Forensic, said the killer may have tried and abandoned dismemberment. "If it doesn't satisfy them or it doesn't turn them on, then they may return to a more typical way of murdering these people and getting rid of these bodies," he said. But Barbara Kirwin, a clinical and forensic psychologist, thinks there are two killers. "We are not talking about a person as much as we are talking about a place," said Kirwin. "That desolate stretch of Gilgo Beach is a haunted graveyard, and what holds it all together is that it is an unpatrolled, completely private and deserted place where you can dump a body." . Experts: Big hurdles to ID Gilgo victims Newsday

Investigators trying to solve the deaths of 10 people dumped in the Gilgo Beach area face a big hurdle in putting names to the five unidentified sets of remains, law enforcement and forensic experts said Tuesday. The bones were dumped on a windswept barrier beach, in some cases years ago, and exposed to elements that degrade DNA -- salt air, ultraviolet light, heat and humidity. Some of the remains, such as those found in Nassau , are merely partial skeletons -- a skull, legs and other bones, sources have said -- that provide few clues to identity other than whatever DNA can be extracted. Once a DNA profile is compiled, detectives have an incomplete database of missing people for comparison. Suffolk District Attorney Thomas Spota said Tuesday that DNA profiles were still being compiled for two of the Suffolk finds. Nassau police have been awaiting results for the two sets of bones found there. "Once you have DNA, you need someone to match it to," said John Fudenberg, the president elect of the International Association of Coroners and Medical Examiners. "That's what people don't understand. Even if you can get DNA, that doesn't solve a case by itself." The original four sets of remains found in December -- all women who worked as prostitutes -- were identified through DNA and are believed to be victims of the same killer. Of the remains found in March and April, only one name is known -- Jessica Taylor , 20, who was identified through a tattoo after her torso was found in Manorville in 2003. "Getting those identifications are critically important to pursue the cases further," said Lawrence Kobilinsky, a professor of forensic science at John Jay College of Criminal Justice in Manhattan. "It's a real difficult problem. This case is a long way from being solved." Along with Taylor, another woman's bones were found both in Manorville and in the Gilgo area. She has been unidentified since her torso was discovered in 2000. Authorities believe she and Taylor were victims of a second killer. There is also an Asian man, thought to have been in his late teens or early 20s, who was slain by what authorities believe is a third killer, and a female toddler not labeled a homicide. A New Hyde Park family wondered Tuesday whether the Asian remains could be Yim Yeung Tsui, a Stony Brook University junior whose disappearance in August 1998 at age 20 remains unsolved. Tsui is the only Asian male from New York listed in a publicly available federal database of missing persons. "If it's him, then it is a relief," said his brother, Tom Tsui. "It's been very bad for the family and even some of his friends still ask about him. Just don't know how to answer those questions." But investigators voiced doubt the remains are Tsui's. A law enforcement source said Tuesday that a preliminary visual exam of the remains revealed some differences from Tsui's physical description. DNA analysis is still under way. Without Concessions, Connecticut Starts Layoff Process HARTFORD C A week after shepherding into law the largest tax increase in Connecticut history, Gov. Dannel P. Malloy began issuing layoff notices on Tuesday to the first of more than 4,700 state employees facing dismissal, after two months of negotiations with unions failed to reach an agreement on worker concessions and budget cuts. Both sides said talks would continue and expressed hope for a breakthrough, but the notices marked an impasse that might have seemed unlikely when Mr. Malloy, a Democrat, was elected in November with heavy union support. The governor has warned of layoffs and wrenching program cuts since he announced his proposed spending plan on Feb. 16, saying that significant concessions from state workers and substantial program cuts were needed to produce a balanced budget. Last week, the legislature passed a two-year, $40.1 billion budget that assumed $1 billion each year in concessions. The notices sent on Tuesday were a reminder that those savings are still assumed rather than real, and that the alternative is thousands of layoffs, which the governor said would save the state about $455 million, as well as $545 million in additional spending cuts across state government. AI want to be clear that this is not the road I wanted to go down,@ Mr. Malloy said in a statement. AI didn=t want to lay people off, and I   6  34    

didn=t want to make additional spending cuts beyond the $780 million in spending we=ve already cut. But I have no choice.@ AI promised to deliver a budget that is balanced with no gimmicks,@ he added, Aand I will.@ The notices went to the first of 4,742 employees singled out for layoffs, which would be effective in the new fiscal year, beginning July 1. Program cuts are likely to push the number to more than 5,000 out of a full-time work force of more than 46,000. But rather than a decisive line in the sand, the layoff notices were described by both sides as part of a process that seems to be unfolding in the traditional, protracted rhythms of labor negotiations. Neither side seemed inclined to set rigid deadlines. AWe=re going to keep talking until we reach a mutual agreement,@ said Matt O=Connor, a spokesman for the consortium of unions negotiating with the state. AThe hope,@ he added, Ais we reach a mutual agreement sooner rather than later, but that=s been the hope all along.@ Roy Occhiogrosso, a Malloy spokesman, said the governor sent out the notices reluctantly. AI think he has the sense that not enough progress has been made to warrant delaying another day or two, and he felt it was important to begin this process in an orderly fashion in case no deal is reached,@ Mr. Occhiogrosso said. AYou can=t wait until the very end of the process and then do all the catching up.@ The layoffs vary across departments and agencies. The most would come at the Education Department, which would lose 1,413 of its 1,706 employees, including large numbers of teachers at vocational-technical schools. Also included in the cuts are 471 jobs in higher education, including the Connecticut state university system, and an additional 285 jobs at the University of Connecticut. With the state trying to maximize tax collections, largely spared is the Department of Revenue Services, where only 1.6 percent of the work force would be laid off. Union officials said the layoffs would be disastrous at a time of widespread unemployment. ALayoffs aren=t good for the economy; whether they=re private sector or public sector, it doesn=t make a difference,@ Mr. O=Connor said. AThe last thing Connecticut needs is more job cuts.@ Mr. Malloy said the concessions he sought in wages, health care and pension benefits were aimed at both the short-term savings necessary to balance this budget and the long-term structural savings needed to make state government sustainable. AThe state employee representatives have thus far not offered enough,@ he said Arnold and Maria's Split -- A Long Time Coming

Maria Shriver has been "miserable" in her marriage for a long, long time, sources connected with the couple tell TMZ ... and it's all about Arnold Schwarzenegger's "craziness." We're told Maria moved out of the couple's L.A. mansion months ago. Sources tell us she's been extremely unhappy in her marriage for years, complaining about Arnold's out of control ego, as well as his womanizing. We're also told Maria feels Arnold has ignored her for years and she's felt terribly unappreciated. Sources say the couple has spent "very little time together" for several years. Maria was frequently absent from Sacramento while Arnold was Governor. The situation got worse once Arnold left office and decided he wanted to resurrect his movie career. Maria felt Arnold was becoming more erratic -- more "unstable." Our sources say Maria's religious views caused her deep distress over whether to split and/or divorce. As one source put it: "She's been a lost soul for a long time." Maria -- Contemplated Divorce for Nearly 2 Years Maria Shriver has been deciding whether to DIVORCE Arnold Schwarzenegger since 2009 ... but sources with direct knowledge tell TMZ, she's been "extremely conflicted." We're told Maria has been unhappy with Arnold for years ... and first planned to split with him back in 2009 ... but her mother passed away and Maria decided to hold off. Then, we're told, Maria wanted to try to break it off again in January 2011 ... but her father died ... once again putting the split on hold. Our source tells us Maria is fed up with Arnold's infidelities ... coupled with the fact he's been "impossible" to live with. We're told Maria's kids acknowledge the issues -and have pushed their mother to call off the marriage. People who have spoken with Maria tell us ... despite her STRONG public persona, Maria has become a "shell of the woman" she appears to be because she is "terrified" of Arnold ... but in an emotional, not a physical way. However, once Maria finally decided to separate from Arnold -- and moved into a fancy Beverly Hills hotel -we're told Arnold pulled a 180 ... and he's been "working extremely hard" to win her back. As one source says, "He could not be sweeter now that she's left him." To make things even more complicated, Arnold and Maria have been spending LOTS of time together lately ... hanging out during Easter, Mother's Day and even their   7  34    

25th anniversary ... which they celebrated together at an expensive hotel. A source close to the couple tells us ... despite their differences, Arnold and Maria have "serious chemistry between them" ... which is why she has such ambivalence about the break-up. But ambivalence aside, Maria has been "miserable" in the marriage and has taken a big step to end the relationship. Maria Shriver and Arnold Schwarzenegger may be getting divorced but two still see each other DAILY NEWS Maria Shriver walked out on Arnold Schwarzenegger within the last "few weeks" but still sees him "all the time," a source close to the family told the Daily News Tuesday. "They spent their 25th wedding anniversary together [on April 26]. They were together all day on Mother's Day, going to church and brunch in Santa Monica," the source said. "They talk all the time and it's extremely amicable. They're working on the future." The insider said there was no "aha" moment that led to the separation, which came soon after Schwarzenegger's exit from his seven-year run as California's Governator. Sources told Shriver's been "miserable" for years and considered divorce as far back as 2009. The 55-year-old TV journalist was fed up with the "Terminator" star's "erratic" behavior and only held off on leaving because she was dealing with the deaths of her parents in 2009 and 2011, TMZ said. "She's been a lost soul for a long time," one source told the gossip site. Schwarzenegger, 63, and Shriver, a member of the Kennedy dynasty, announced their split Monday. The unraveling of the Schwarzenegger-Shriver marriage Some close to Arnold Schwarzenegger speak of a loving marriage that slowly foundered. Friends of Maria Shriver see her as trapped for years in an unhappy relationship that hit a breaking point after her parents' deaths.The partnership of Maria Shriver and Arnold Schwarzenegger was a collision of two worlds, an unlikely but watchable match. Twenty five years ago, when they married, Shriver was a child of American Democratic political royalty C pedigreed, pampered and with a professional ambition unusual for the women of her clan. Schwarzenegger was a fading strongman and minor movie actor with immigrant dreams as outlandishly big as his biceps. Maria Shriver and Gov. Arnold Schwarzenegger at the Century Plaza Hotel in L.A. after his 2003 election. Schwarzenegger, 63, would go on to world domination C of the cinematic sort, as a top international box office star C and then the California governor's office. Shriver, 55, who became a top talent in NBC's news division, dialed back her career to care for their four children, then relinquished her job altogether when her husband became governor in 2003. It was a bond that survived its share of tests. Schwarzenegger and Shriver announced their separation Monday, a split that marks the foundering of one of America's most famous marriages, and signals that each will face a future absent the partnership that had so defined them. While many friends said they were surprised by the announcement, two distinctly different narratives were emerging Tuesday about the breakup. Some close to Schwarzenegger spoke of a loving marriage that slowly broke apart over time. Friends of Shriver portrayed her as trapped for years in an unhappy relationship that reached a breaking point after the deaths of her parents and a difficult transition back to private life. "Everyone who's shocked by this is reacting to the fairy-tale picture that was promoted," said a friend who has been a frequent visitor to the couple's Brentwood mansion and did not want to be identified as breaching the couple's confidence. The death in August 2009 of Shriver's mother, Eunice Kennedy Shriver, said this friend, marked a turning point. Her father, Sargent Shriver, the Peace Corps founder, died in January. "There was such a void," said the friend, "and when she looked around, she realized her husband could never even think of filling it." When asked why Shriver stayed in the marriage for so long if she was so unhappy, the friend responded: "Part of it is family legacy, part of it is Catholicism. But the most important thing was their four kids." It is not clear when Shriver moved out, but a former Schwarzenegger administration official said he had heard about the couple's split in January. He said that although the pair had a complicated relationship, they were affectionate and showed "a genuine, deep love." Family was Schwarzenegger's top priority, said the former official. "When she called, everything would stop. If the kids called, everything would stop," this person said. "They were very focused on raising the kids." Several who worked for the governor said that during Schwarzenegger's first term, he spent about three nights a week in Sacramento, but that once he was reelected in 2006, he spent less time in the capital. At his wife's request, said one, Schwarzenegger would usually fly from Brentwood to Sacramento in the morning and be home by evening.The oldest children, Katherine, 21, and Christina, 19, are at college. Patrick, 17, is a high school senior. Christopher is 13.   8  34    

On Tuesday, Patrick tweeted about his family drama: "Appreciate all your messages. Small speed bump I'n life, luckily we own hummers, we will cruise right over it. All will be okay. #peace." Shriver has been living at a Beverly Hills hotel for the last several weeks. The couple's joint statement said they were living apart "while we work on the future of our relationship." Recently, the pair has been spotted around town together. In mid-February, during NBA All-Star weekend, they were together at a benefit party at the downtown Los Angeles restaurant Katsuya. On April 23, they visited an ice cream shop at Brentwood Country Mart. On Saturday, they attended the graduation of a nephew from Loyola Marymount University. On Sunday, Mother's Day, the family gathered at Santa Monica's Ivy at the Shore. But Shriver and Schwarzenegger left in separate cars. Like many famous couples, they have had an ambivalent attitude about media coverage of their marriage and family. While Schwarzenegger has generally tried to control it, Shriver was uncomfortable unless the subject was one of her causes, such as the annual Women's Conference she organized as first lady. But the profound differences in their backgrounds, as well as the bipartisan dynamic of their relationship, ensured a continuing fascination by the public. In a 2005 Vanity Fair profile of the couple, Shriver said she surprised her friends and family by falling in love with Schwarzenegger rather than some American blue blood. "You married the other side of the tracks," was how she described her friends' reaction. "They have trouble with the class thing," she said. Schwarzenegger, a Republican whose moderation alienated his party once he was in office, often made light of having married into the Kennedy clan. But despite their divergent politics, she put aside partisan leanings to be at his side during both his gubernatorial campaigns. When Schwarzenegger made a well received speech at the Republican presidential convention in 2004, however, Shriver made a point of saying she attended only to support her spouse. In 2008, while he campaigned for Republican John McCain for president, she made a much publicized last-minute decision to appear onstage at UCLA's Pauley Pavilion at a Barack Obama rally with Michelle Obama, Shriver's cousin Caroline Kennedy and Oprah Winfrey, one of her best friends. There were always hints that life with Schwarzenegger was challenging C and not just in the normal domestic ways. In the midst of his first political campaign in 2003, at least 15 women came forward to accuse Schwarzenegger of sexual misconduct over a three-decade period. He first denied the allegations, then apologized, conceding, "Where there's smoke, there's fire." Shriver took an active role in pushing back. "I know I would not be where I am today without his support," she told a rally of supporters. "You cross Arnold, and Maria will cut your head off," her brother Bobby Shriver, now a Santa Monica city councilman, told a Times reporter in 2003. Despite the times, and his professions of support for women's rights, Schwarzenegger expressed some old-fashioned notions about the sexes. For instance, he told Playboy magazine in 1988 that he did not like women to wear pants. His father, he said, did not allow his mother to wear pants, and he did not allow Shriver to wear pants when they went out. "Maria would never wear pants," he said at the time. "Believe me." Shriver, who has often been photographed wearing slacks, seemed to take her outlandish husband in stride. "I would have had to have been deaf, blind and incredibly stupid not to see that he was more than a handful," Shriver wrote in the introduction to her 2000 book, "10 Things I Wish I'd Known Before I Went Out Into the Real World." In a recent interview with Newsweek, Schwarzenegger acknowledged that life in the public glare had taken a toll on his wife. "My life is not the cleanest in town, so there were places where people could attack," he said. Since leaving office early this year, Schwarzenegger has plunged ahead with typical brio, while Shriver seemed to be somewhat at sea. Last month, he announced he would star in an animated children's series, "The Governator," about a superhero with an everyday family life. He told The Times he was ready to reclaim his former Hollywood glory and to make sequels of his greatest hits, including "Terminator," "True Lies" and "Kindergarten Cop." Shriver, for her part, has seemed less certain of what awaited her. "It is so stressful to not know what you're doing next," Shriver said in a YouTube video she posted March 28. "I'd like to hear from other people in transition.... How did you get through it? What were three things that enabled you to get through your transition?"This year, she has worked on her women's empowerment website, guest edited an issue of O, Winfrey's magazine, and promoted causes near to her heart, such as Alzheimer's research. (Her father died after a long bout with the ailment.) On April 14, she tweeted an upbeat message: "Loved lunching with my bro @lancearmstrong. He gave me lots of good advice. Says he will help guide me in my life. Stay tuned." Overcapacity Means You Can Nab a Cruise at up to 80% Off A luxury cruise is one of life=s pure joys. Today=s modern cruise liners are engineering marvels; floating 5-star hotels that offer the best service, accommodation, cuisine, and activities. They visit exotic locales, with non-stop relaxation or stimulation, depending on your pleasure. Over the past few years, cruise companies have spared no expense and literally invested billions in jaw-dropping super ships. Even if you=ve cruised before, you probably have not experienced anything like these new marvels. But, the best news is that due to the slowdown in travel caused by the recession and significant overcapacity in the industry, savvy travelers can now book once-in-a-lifetime cruises at insanely low prices. How does 80 percent off the brochure price sound? Believe it or not, it's possible through a company called Vacations To Go, one of America's Largest Cruise Agencies. Founded more than 25 years ago, Vacations To   9  34    

Go realized that taking a cruise vacation was a new experience for many. They set out to build an online service to help people learn everything they need to know to find the best possible cruise vacation, at the best possible price. Vacations To Go is now home to an extensive selection of top-brand cruise vacations, and in-depth information about every cruise line and cruise ship. Customers can browse the latest in new promotions and offers, shop by category, and compare prices at a glance. But, what about the discounts? Because of the huge costs involved in building and operating today=s luxury ships, cruise lines want their ships to sail with as few empty cabins as possible. So, they turn to trusted partners like Vacations To Go to sell this Aexcess@ inventory at deep discounts, allowing the cruise companies to still get full fare on the travel packages that they sell directly. The discounts they authorize Vacations To Go to offer can be as much as 80 percent off the full price fare. What it means for you: Simply put, it is the opportunity to take a once-in-a-lifetime luxury cruise for a price that makes it affordable on any budget. Vacations To Go has also developed a Best Price & Service Guarantee that guarantees they will meet any other authorized price--so, if getting the best deal is important, look no further. If you are not ready to book your cruise immediately, signing up for Vacations To Go=s free newsletter can help you stay informed of all the spectacular discounts that become available, as cruise lines seek to fill their remaining empty cabins before their cruises depart. This year, it seems like everyone is cruising--and, for good reason. After several years of austerity, people are realizing that a cruise vacation is now one of the great values in travel. Gallup Poll: 52% of Republicans Want Third Party

More than half of Republicans B 52 percent B say there should be a third political party, a new Gallup Poll says. The poll, released Monday, also found that 33 percent of Democrats want a third party. Gallup said it=s the first time its polls have found a significantly larger number of Republicans than Democrats favoring a third party. The poll found that 52 percent of all Americans want a third party, down slightly from 58 percent in August. Gallup said the increasing desire among Republicans for a third party could be an outgrowth of the rise of the tea party movement. The poll found 60 percent of Americans who identify themselves as tea party members want a new party. AGiven that a majority of Americans see a need for a third party, and their level of satisfaction with the way things are going in the country is fairly low, it would not be surprising if a third-party candidate emerged@ as a factor in the 2012 presidential race, Gallup=s Jeffrey M. Jones wrote. Prices of Imported Goods Increase as the Dollar Declines By BLOOMBERG NEWS Prices of goods imported into the United States rose 2.2 percent in April, more than forecast, as a slumping dollar and growing economies overseas pushed up the cost of fuel and food. The increase in the import-price index came after a revised 2.6 percent gain in March, according to figures from the Labor Department on Tuesday. Other reports showed distributors raised inventories and small businesses lost confidence. The median forecast of 51 economists surveyed by Bloomberg News called for a 1.8 percent increase in import prices last month. Projections ranged from increases of 1 percent to 2.5 percent. Compared with a year earlier, import prices increased 11 percent, exceeding the 10 percent increase projected by economists surveyed and the biggest 12-month gain in a year. The increase in prices from overseas may put pressure on companies to pass on higher costs. The report on small businesses showed the share of those surveyed who planned to raise prices held in April at the highest level in 30 months. AWhile many policy makers have described recent commodity cost increases as >transitory,= the reality is that even at the small-business level, producers are increasingly more confident in their ability to pass on costs to customers,@ Joseph LaVorgna, chief United States economist at Deutsche Bank Securities in New York, said in a note to clients. After a two-day meeting in Washington last month, Fed officials said the effect on inflation from the jump in fuel and other commodities will probably be Atransitory,@ according to a statement released April 27. The officials also lowered their forecasts for growth, saying the economy is recovering at a Amoderate pace,@ and agreed to finish $600 billion of bond purchases on schedule in June. Confidence among small companies fell to a seven-month low in April, damped by a deteriorating outlook for the economy, a report from the National Federation of Independent Business showed. The group=s optimism index decreased to 91.2, the lowest since September, from 91.9 the prior month. Seven of the measure=s 10 components dropped. Small businesses planning to increase prices held at a net 24 percent of owners for a second month, according to the report. Increasing sales are also prompting wholesalers to increase stockpiles, according to figures from the Commerce Department. Inventories climbed 1.1 percent in March as sales jumped 2.9 percent. At the current pace of sales, distributors had enough goods on hand to last 1.13 months, matching the level in June 2008 as the lowest on record. The report on prices from overseas showed the cost of imported oil increased 7.2 percent from the previous month and was up 37 percent from a year earlier. Excluding all fuels, import prices climbed 4.3 percent from April 2010, matching the prior month=s 12-month increase as the biggest since October 2008. Imported food was 1.8 percent costlier last month and was up 20 percent from a year earlier, the biggest 12-month increase since records began in 1977.

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Banks Float $5 Billion Deal to End Foreclosure Probe

The nation's biggest banks are willing to pay as much as $5 billion to settle claims by federal and state officials of improper mortgage-servicing practices, according to people familiar with the situation. Such an offer is considerably less than the amounts sought by state and federal officials, some of whom are asking for more than $20 billion in penalties. The banks' figure comes as mortgage companies and state and federal officials continue their efforts to strike a settlement of investigations sparked by allegations of "robo-signing" and other questionable foreclosure practices that came to light last fall. Bank representatives met Tuesday with state and federal officials in the latest round of negotiations. On Friday, banks received revised term sheets from government negotiators. One sheet revised proposed changes in mortgage-servicing practices. The second term sheet governs how penalties would be allocated; among other things, it details how they would have to reduce loan balances for certain borrowers. "It sets forth a structure that establishes how funds would be disbursed both on the state and federal levels," said a spokesman for Iowa Attorney General Tom Miller. The size of the penalties is a key point of contention as banks and state and federal officials try to hammer out a deal. Government officials haven't yet settled on a specific dollar figure, but they are set to begin discussions with banks on how those penalties would be applied, according to people familiar with the matter. Banks also are opposed to any broad-based write-down of principal balances, saying it will provide an incentive for borrowers to default. Iowa Attorney General Tom Miller The banks intend to propose that as much as $5 billion be used to compensate any borrowers previously wronged in the foreclosure process and provide transition assistance for borrowers who are ousted from their homes, according to people familiar with the matter. One idea is that foreclosed borrowers could receive several months of free rent once they find new housing, one of these people said. All sides want a settlement to resolve widespread eakdowns in foreclosure procedures but any agreement must satisfy an unwieldy mix of parties, including state attorneys general, the Federal Trade Commission and the Department of Housing and Urban Development. They must also reach an agreement on the claims state officials and federal regulators will surrender as part of any settlement. Banks are less likely to sign off on any deal that doesn't provide a broad release of claims from state attorneys general in the most populous states. In April, bank regulators sent 14 institutions orders that required the banks to improve foreclosure practices but didn't include fines. Banks have 60 days to set up plans that would clean up their mortgage-servicing processes. They also have to hire an independent third-party consultant that will examine all foreclosure cases in 2009 and 2010 for any errors. Partisan Rifts Harden on U.S. Debt-Ceiling Deal as Options Get Ruled Out Bloomberg Democratic Senator Michael Bennet Lawmakers in both parties said their options are narrowing for reaching an accord on reducing long- term deficits, as congressional leaders rejected key ingredients of a potential bipartisan deal to raise the U.S. debt limit. Republicans said they wouldn=t agree to any measure that raised taxes or contemplated automatic tax increases to rein in future deficits. Democrats continued to insist that Social Security cuts be omitted from the discussions. At the same time, both camps sketched out disastrous consequences from failing to get some agreement in the coming months to reduce the federal debt, which lawmakers in both parties and President Barack Obama have said will be necessary to win support to raise the government=s legal borrowing limit. Senator Lindsey Graham, a South Carolina Republican, summarized the frustration among some lawmakers over various programs and proposals being taken off the table as negotiations intensify over government spending. AIf you can=t do Medicare, you can=t do Social Security, you can=t do Medicaid, you can=t raise taxes, you can=t lower taxes, we=re just going to sit here and talk to each other,@ Graham said. The government is scheduled to hit its $14.3 trillion debt ceiling next week and will run out of options for avoiding default by early August, according to projections by Treasury Secretary Timothy Geithner. For now, there is little sign of consensus. ATaxes will not be on the table in the discussions@ among congressional leaders and Vice President Joe Biden aimed at paving the way for a vote in Congress to raise the limit, said Senate Republican leader Mitch McConnell of Kentucky, scarcely an hour before the group held its second gathering across from the White House. McConnell, who called the nation=s debt Aa looming crisis,@ also said he doubted separate negotiations by a bipartisan group of six senators could yield a deal. AWith all due respect to the Gang of Six,@ McConnell said, Athe discussions that can lead to a result between now and August are the talks@ among   11  34    

Biden and congressional leaders. Senate Majority Leader Harry Reid, a Nevada Democrat, minutes later said changes to Social Security shouldn=t be part of any debt-reduction deal. He also said Republicans would have to accept tax increases as part of any compromise. AWe should not be drawing lines in the sand,@ Reid said, even as he made the comment about Social Security. The Afair@ way to reach agreement, he added, is to Acut spending -- we know we have to do that -- but also to make the tax code a little more fair.@ Biden said after today=s meeting that the group was Amaking real progress,@ and that AI remain optimistic@ about prospects for an agreement. He said Aoptimism is an occupational requirement@ for his job. Some Republicans said it was counterproductive to reject debt-reduction options at this point. ASome of us are saying, even though we have our own preferences, we need to keep everything on the table,@ said Senator Rob Portman of Ohio. AAt this stage we shouldn=t be talking about limiting the debate, we should be talking about a genuine discussion over the entire gamut of issues.@ Raising tax revenue and curbing the growth of entitlement programs such as Social Security and Medicare are at the core of talks that the Gang of Six have been conducting for four months. Led by Democratic Senator Mark Warner of Virginia and Republican Senator Saxby Chambliss of Georgia, the group has been trying to reach a compromise based on last year=s proposal by the leaders of Obama=s bipartisan debt commission. Warner has said the group is weighing a plan to cut $3 in federal spending for every $1 of new revenue. AWe=re going to be in tough shape if the Gang of Six can=t produce something, because there really is not a Plan B,@ Senator Michael Bennet, a Colorado Democrat, said at a breakfast in the Bloomberg News Washington bureau. AWe need to surface the work product from these guys, and then we need to have a debate about it. And we need to do it now.@ While Bennet gave the bipartisan group Abetter than even@ odds of reaching a deal, other lawmakers said the group might miss its opportunity to produce a bipartisan plan. AThey=re at real risk of having history pass them by if they don=t get a real proposal on the table shortly,@ said Democratic Senator Chris Coons of Delaware, a member of the Senate Budget Committee. Coons said he saw a Astrong likelihood@ that Democrats who control the Senate would present their own budget blueprint that would receive no Republican support, rather than Aa budget that has a real chance of moving forward, where we all come to the middle, and we give some and they give some.@ Democratic Senator Kent Conrad of North Dakota, the Budget Committee chairman, today showed colleagues a fiscal blueprint that would shave $4 trillion over 10 years from the debt -- half through tax hikes and half through spending cuts, Reid said. Republicans who control the House have stressed that they would reject any plan that includes tax increases. House Speaker John Boehner of Ohio reiterated that position yesterday in a speech to the Economic Club of New York, saying all means for reducing the government=s debt -- except raising taxes -- should be considered. Tough Issues Talks by the Gang of Six have been hung up over politically difficult questions about how to handle changes to entitlement programs such as Medicare and Social Security, as well as the details of any tax overhaul. Warner and Chambliss said in brief interviews today that their group is making Aprogress,@ while declining to reveal any details or say when they might present their plan. AWe=re still at it,@ Warner said. Boehner in his speech yesterday outlined the parameters for the Republican position on any agreement to raise the debt limit. He called for an agreement that reduces spending by Atrillions@ in exchange for any borrowing increase, and said the cuts must exceed the debt-limit boost. He argued that it would be more irresponsible for Congress to fail to slash spending and rein in the debt than it would be to allow the nation to default on its obligations. Representative Steny Hoyer of Maryland, the House=s second- ranking Democrat, said that Boehner, by ruling out any tax increases, was abandoning what many consider a crucial element of any debt-reduction plan. Obama=s debt commission and others Ahave made it clear that without using revenues, you cannot get there in a reasonable way, and certainly politically, you probably couldn=t get there either,@ Hoyer told reporters. Still, Hoyer said he wasn=t Aoverly pessimistic@ about the prospect for an agreement to emerge from the Biden meetings. Senator Max Baucus, a Montana Democrat and chairman of the Senate Finance Committee, said the session Biden hosted today was Aa good one,@ while providing no specifics. He said participants agreed to meet again on May 12. The Republican members of the group -- Senator Jon Kyl of Arizona and Representative Eric Cantor of Virginia -- offered no assessment of today=s meeting. Bennet dismissed as Autterly predictable@ the conditions some Democrats and Republicans are placing on any debt-reduction agreement. AThe question is going to be, >Can we construct a center here that can hold?=@ Bennet said. AThe alternative is really terrifying.@ Terror Worries Ride Rails Plot Detailed in bin Laden Trove Renews Concerns About Sector's Vulnerability PITTSBURGHCLong before papers found at Osama bin Laden's Pakistani hideout revealed a plot to attack U.S. railroads, security experts warned that the nation's 140,000 miles of track presented an attractiveCand difficult   12  34    

to protectCterror target. An Amtrak police officer Monday at New York's Penn Station. Passengers riding Amtrak, commuter rail or subway systems face little of the routine security screening Americans have come to know at airports. And once out of the station, every mile of track presents a potential security vulnerability. The much-larger freight-railroad system also presents a daunting set of security challenges. Hazardous materials crisscross the U.S. and pass through major cities, often on tracks protected by little more than no-trespassing signs. Yet for every $50 the Transportation Security Administration spends on aviation security, th e agency budgets $1 to protect surface transportation. In addition to that money, the Department of Homeland Security distributes grants of between $300 million and $400 million annually for security of surface transportation, which includes railroads and buses. In the U.S., there have been six high-profile plots to attack surface transport since 9/11, though none have succeeded. That includes the 2009 plan to blow up subway cars in New York City and a 2010 plot, foiled by a sting operation, to blow up metro trains near Washington. Rail transport has often been a target for terrorists world-wide, including deadly bombings on Madrid commuter trains in 2004, subway and bus bombings in London in 2005, a rail assault in Mumbai in 2006, and more recent subways bombings in Moscow. "Terrorists see surface transport as a killing field," said Brian Jenkins, the director of the National Transportation Security Center at the Mineta Transportation Institute in San Jose, Calif. "We know that derailment and bombs on crowded trains are in their playbook." Globally, there are more than 90 terrorist and guerrilla attacks a month on surface transportation, with about a third of those targeting trains, according to the Mineta Transportation Institute. Since 9/11, there have been 1,738 attacks world-wide on trains, subways, and buses that have killed 3,749 people, according to the Security experts say the absence of such attacks in the U.S. largely reflects terrorists' wider failings. Al Qaeda-inspired terrorists haven't carried out any major attack against the West since 2005, notes Mr. Jenkins, though among their many failed plots broken up by law enforcement have been several plans to attack transit systems. The plot sketched out by al Qaeda in February 2010, discovered by U.S. intelligence analysts poring over the cache brought back from Pakistan, involved plans to derail a U.S. passenger train. Since 1996, terrorists world-wide have tried to derail trains almost 150 times, and sometimes succeeded, Mr. Jenkins said. "As homegrown threats develop, this will be more of an issue," said Jena McNeill, a homeland-security analyst at the Heritage Foundation in Washington. She highlighted the danger of homegrown extremists inspired by American-born Yemeni cleric Anwar al-Awlaki, now one of al Qaeda's top remaining leaders. "He is an American and can think somewhat more strategically about our vulnerabilities," she said. Railroad-security efforts focus largely on deterrence, including patrols of rail and subway stations by police officers and canine teams. Some rail and subway systems also use random bag checks. Freight railroads have their police officers patrolling along rights-of-way, and the railroads track hazardous materials, along with restricting access at some facilities. CSX Corp. one of the largest U.S. railroads, maintains the only team in the U.S. dedicated to countering terrorism threats to railroads. Members of the Rapid Response Team, an 18-man unit of CSX police officers created in 2004, spend most of the year helping protecting CSX's huge rail network. But for about 30 days a year, the team travels on a custom-built, one-of-a-kind locomotive, teaching SWAT teams how to blow the doors and windows off trains and storm down narrow aisles gunning for bad guys. "Seven minutes to clear the entire train, outstanding!" cheered Robert Flake, the team's chief, after watching trainees storm through four rail cars during a recent exercise in Pittsburgh. Mr. Flake wasn't surprised to hear of al Qaeda's latest plot to target trains. "We have the events of London, Madrid and Mumbai to remind us that terrorist groups including al Qaeda have looked at using rail transportation to further violent pursuits," he said. In a three-day training course in September, the Rapid Response Team, with help from German officers, taught 16 SWAT members from 10 police forces how to use a shotgun to breach train doors, mix the right amount of explosives to pop windows out of their frames without harming passengers, cut steam lines to cripple trains, and man a locomotive's control panel. One scenario involved an Amtrak train taken over by a handful of assailants with hostages on board. Trainees quickly drew up an assault plan, rigged flash-bang diversionary grenades and four-man ladders, and sneaked along the sides of the train. On cue, some stormed through locked doors using bolt cutters while others blew out windows and poured into carriages, long guns drawn.Other courses zero in on different threats, such as improvised-explosive device attacks against tank cars loaded with hazardous chemicals. The team gets more than 90 training requests a year; it is already booked through the end of 2011. Postal Service loses $2.2 billion in second quarter   13  34    

The U.S. Postal Service reported $2.2 billion in losses during its second quarter, continuing several quarters of historic losses amid declining mail volume and financial obligations to prefund worker retirement benefits. Postal officials said Tuesday that the mail agency is still on course to lose about $7 billion when its fiscal year ends in September. Revenue in mail deliveries totaled $14 billion in the second quarter, down about $568 million, or 3.9 percent, from the same time last year. Shipping revenues also dropped to about $2.2 billion, a 5 percent drop from 2010. Year-to-year, total mail volume dropped 3 percent to 41 billion pieces in the second quarter, led by ongoing drops in first class mail. Postmaster General Patrick R. Donahoe renewed his hope that Congress will act soon to give him more flexibility to set delivery routes and repeal a law requiring USPS to pay about $5.4 billion to prefund future retiree benefits.AThe Postal Service may return to financial stability only through significant changes to the laws that limit flexibility and impose undue financial burdens,@ Donahoe said Tuesday in a statement. Postal officials have long argued that without that law, its losses would be much less significant. Despite the losses, USPS also cut about 9.6 million work hours; the total postal workforce numbered 571,566 in March, a drop of about 6,700 from the previous year, officials said. The Postal Service plans to cut about 7,500 administrative and postmaster positions by next spring. So far, about 2,000 staffers have taken buyouts. Toyota Profit Slips 77 Percent By REUTERS

TOKYO C Toyota Motor posted a 77 percent fall in quarterly net profit, to 25.4 billion yen, or $314 million, on Wednesday and gave no annual forecasts, as expected, as it struggled to measure the scope of the disruption to production after the March 11 earthquake. The world=s biggest automaker is facing another tough year, with a severe shortage of parts hammering production just as it was putting its recall problems behind it. Toyota=s president, Akio Toyoda, said Wednesday the automaker should see a pickup in output beginning in June to 70 percent of volume planned before the quake. It is now operating at less than half capacity. Last month, it forecast a return to full production by November or December. On Tuesday, Toyota denied a report in The Nikkei newspaper that normal production would come two to three months earlier than planned. The massive hit to production will almost certainly mean Toyota will fall behind General Motors and possibly Volkswagen to rank third in global vehicle sales this year. With inventory tight and supply short for popular models like the Prius hybrid, Toyota is losing consumers to rivals like Hyundai Motor, which has been nipping at its heels for the past several years. Toyota said Wednesday that its operating profit for the January-to-March period C its financial fourth quarter C fell 52 percent, to 46.1 billion yen, or $570 million, compared with an average estimate of 94.6 billion yen from 17 analysts who revised their numbers after the quake, according to Thomson Reuters I/B/E/S. For Toyota=s current business year, which ends next March, analysts forecast an average operating profit of 307.5 billion yen, down 34 percent from 468 billion yen last year. Uncertainties over the broken supply chain have yielded a wide range, from a loss of 25 billion yen to a profit of 846 billion yen. Analysts say the disruption is a temporary one caused by the shortage of supply, not demand, and that Japanese automakers should reverse the trend next business year. Toyota=s shares have led a fall in Japanese auto stocks since the disaster, losing 11 percent, compared with 9.9 percent at Honda and 5.8 percent at Nissan as of the Tuesday close. G.M. to Spend $2 Billion in Hiring and to Upgrade U.S. Plants TOLEDO, Ohio C General Motors said Tuesday that it would invest $2 billion in its factories in the United States to meet gradually growing demand for its products in the aftermath of its government-sponsored bankruptcy. The company said its plans to upgrade 17 plants in eight states would create or save more than 4,000 jobs. G.M.=s chief executive, Daniel F. Akerson, made the announcement at a transmission plant in this northern Ohio city, where the company will spend $204 million and retain 250 jobs. AWe are doing this because we are confident about demand for our vehicles and the economy,@ Mr. Akerson said. G.M. did not specify where and when it would make all the investments, preferring to announce positive news periodically to underscore its recovery from its 2009 bankruptcy. AThere=s always going to be naysayers and there=s always going to be people who buy a G.M. product no matter what,@ said Rebecca Lindland, an analyst with the research firm IHS Automotive. AIt=s about influencing those people who are in the middle.@ About 1,350 of the jobs cited will be filled by current G.M. employees who are on layoff. Once those workers are recalled, the remaining positions will go to new hires at a lower wage rate. The company=s contract with the United Auto Workers union allows it to hire new workers at wages of $14 an hour C half what it pays existing hourly employees. The two-tier wage scale is expected to be a major topic at the bargaining table this summer, when G.M., Ford and Chrysler all negotiate new contracts with the U.A.W. The current four-year agreements expire in mid-September. The U.A.W. vice president in charge of the G.M. division, Joe Ashton, said he expected all the laid-off workers to be recalled before the contract expired. Mr. Ashton declined to say what changes the union might seek in the two-tier system during the negotiations. AThey will be discussed at the table,@ he said.   14  34    

Workers at a General Motors transmission plant in Toledo, Ohio, cheered an announcement on Tuesday that the company would invest $205 million there. Looks like their employees drink a lot of soft drinks with high fructose corn syrup. The union=s president, Bob King, has said the U.A.W. hopes to get back some of the concessions it made during the last round of negotiations, in 2007, when Detroit=s Big Three were in dire financial condition. Since then, both G.M. and Chrysler were bailed out by the American taxpayers and drastically restructured in bankruptcy court. Ford recovered on its own without federal assistance and has reported healthy profits over the last two years. G.M.=s announcement of new jobs and investments came after the company=s announcement last week that it earned $3.2 billion in the first quarter of this year. The company has been steadily revamping its product lineup since emerging from bankruptcy in the summer of 2009, adding more fuel-efficient small cars and crossover vehicles. The transformation is starting to produce better sales and greater market share against rivals. G.M. reported domestic market share of 19.6 percent in the first four months of this year, compared to 18.7 percent for the same period a year ago. AFor the first time in a generation, in the last year we took market share,@ said Mr. Akerson. G.M. has 49,000 hourly workers in the United States C less than half the number it had five years ago. Since emerging from Chapter 11 bankruptcy protection in July 2009, G.M. had committed to investing $3.4 billion in its plants and to creating or preserving an estimated 9,000 jobs. Tuesday=s announcement of an additional $2 billion in investment is another step in the rebuilding process. In addition to the improvements in Toledo, the company said last week that it would spend $131 million at an assembly plant in Kentucky. The United States government still owns a 26 percent stake in the automaker as part of the $50 billion taxpayer bailout. The Treasury Department could begin selling some of its remaining shares as soon as May 22, the first day it will be permitted to sell them under terms of G.M.=s initial public stock offering. G.M. has ample cash reserves of more than $36 billion to upgrade and expand manufacturing facilities such as the Toledo plant. AThey=re spending money so they can make money,@ said Ms. Lindland. AAnd the more profitable they are, the better chance they have of decreasing the ownership of the government.@ HSBC to Cut Costs, Review U.S. Cards

LONDONCHSBC Holdings PLC Wednesday said it will cut costs, sell businesses and retreat from retail banking in markets where it doesn't have scale, as new Chief Executive Stuart Gulliver tries to improve returns in tough regulatory and economic conditions that have been dragging on its profit. Mr. Gulliver said the bank will review its U.S. credit-cards business and retail networkCits remaining toeholds in the country since an ill-fated 2003 purchase thereCand focus on emerging markets such as Mexico and Brazil to grow retail-banking revenue. Analysts estimate the U.S. disposals could raise $25 billion. Costs across the group are to be cut by $2.5 billion to $3.5 billion over the next three years, through measures that include moving technology development to low-cost countries and reducing local and regional office staff. The bank will also lend more from its deposits, aiming for a maximum ratio of 90% loans to deposits, from 79% now. Tapping wealthy customers in 18 target markets should add another $4 billion in additional revenue, Mr. Gulliver said. HSBC said the steps will help it meet its previously stated targets of a 12% to 15% return on equity and a cost-income ratio of 48% to 52%. The measures come after HSBC posted lackluster first-quarter results Monday that showed rising costs and flat revenue. Mr. Gulliver said the steps will also allow the bank to prepare for coming international bank regulations known as Basel 3. HSBC estimates will wipe between 2.5 percentage points and 3.0 percentage points from its 10.5% Tier 1 capital ratio if it doesn't take any mitigating actions. Under the new plan, it foresees a loss of around 1.2 percentage points from Basel 3. "We face important challenges and to capture this opportunity we must step up the pace and intensity of change," Mr. Gulliver said in a statement. "This is not about shrinking the business but about creating capacity to re-invest in growth markets and to provide a buffer against regulatory and inflationary headwinds," he said. The move to cut costs highlights HSBC's challenges in mature markets like the U.S. and Europe, and its focus on Asia and emerging markets. Mr. Gulliver said 19 of the world's 30 largest economies by 2050 will be those currently classified as "emerging markets." HSBC is one of the world's biggest banks, with large operations in Hong Kong, Asia-Pacific and Europe, and has a presence in 87 countries.

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It did better than many of its peers through the financial crisis but concerns have grown about the underperformance of some of its units and business lines, and its high group costs relative to revenue. It is also having to grapple with a raft of new regulations that makes it harder for all banks to make money. The bank said it will continue to invest in markets with "strategic relevance" and "high actual or potential returns" and will either turn around or dispose other businesses. "Our strategy is to be the leading international bank, concentrating on commercial and wholesale banking in globally connected markets," said Mr. Gulliver. Mr. Gulliver is slated to present more details on the bank's plans at its Canary Wharf headquarters in London at 4:00 a.m. ET. Daily Stock Alert Dennis Slothower Tuesday, May 10, 2011

Stocks rose supported by rising commodities, sending the Standard & Poor's 500 Index up for a third consecutive day, while gasoline prices surged as flooding along the Mississippi River threatened to cut supplies. Stocks rose today. Volume was extremely thin (yesterday was the lowest this year). But no matter, the Fed provided $6.6 billion in POMO injections today and over $7 billion yesterday, helping the primary dealers bid up stock prices. This is a game - you need to decide whether you want to gamble with the primary dealers right now, who decided yesterday that oil prices now need to be brought back up again. Last week's steep commodity drop caught a lot of speculators by surprise and raised a lot of concerns about a recession, given oil's sudden drop. Bringing up the crude oil market again gives institutions a chance to make adjustments and work out of positions where they quickly got into trouble last week, particularly those with commodity positions on margin. One of the unknowns right now is the Commodity Mercantile Exchange (CME). Yesterday, the CME increased the margin requirements for crude oil by another 25%, which reduces the amount of buying power a speculator can use in a margin account. How many more increases do they have ahead of them? It is a serious warning to oil speculators that risk of commodity collapse is a serious danger to them. A margin requirement increase is designed to slow speculative fever in commodities, as we saw in silver recently, by rapidly constraining what money is available in borrowing power. This becomes a very big issue in a highly volatile market, particularly the future's market. Many a speculator has been wiped out when their buying power rapidly changes under fast market conditions. A quick series of unexpected margin hikes in a few days as we saw in silver can quickly dampen enthusiasm and require you to liquidate at a loss. Changing the margin requirement doesn't mean you can't still buy, but it means the risk of sudden margin calls can come quickly if you are wrong about the market, which can force you out of positions, causing you to realize losses whether you want to or not. So, this CME margin hike tactic is a game changer. The pros are not stupid. They know JP Morgan and GS statements are designed to temporarily lift crude oil prices (and other commodity prices and equity prices) to help them adjust. But you need to understand they are not blind to what higher margin requirements mean. The big boys are getting ready to lower their exposure and so should you. As you can see from this long-term chart crude oil looks toppy, with the RSI values hitting over 75%. As we discussed earlier this week, the reason this matters so much is that the price direction of crude oil has an 88% correlation to the S&P 500. When the Fed takes the punch bowl away, trust me - capital will soon dry up, just as the economy sees the second and third quarter double dip into recession territory again. Heaven help us if gasoline prices only go higher into fall. I hate to be so bearish but the market is in transition ahead of QE2's end. For now this is a game of Russian roulette with gasoline prices at $4 a gallon that could quickly end here in May -or- we could see the Fed attempt to attract as many moths to the flame as possible.

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INSIDER SELLING 565 to 1 Zero pointed out that insiders are selling aggressively now. Notice the spike in April. Insiders knew QE2 liquidity injections would continue through the end of June - but getting out ahead of a contraction (this summer?) for some strange reason seems to make sense to this group. This should not be a surprise to anyone. Market breadth continues to look ragged. Remain extremely cautious. Tepco turns to government for cash Embattled Tokyo Electric Co. President Masataka Shimizu officially asked the government Tuesday to help shoulder the burden of compensating people affected by the disaster at the Fukushima No. 1 nuclear plant. The utility is facing trillions of yen in payouts to residents and local governments around the plant, which has been leaking radiation since the March 11 earthquake and tsunami. Unlikely able to afford the compensation on its own, Tepco must also spend tens of billions of yen to decommission the reactors at the stricken plant. At a meeting with Chief Cabinet Secretary Yukio Edano and Banri Kaieda, minister of economy, trade and industry, Shimizu promised that Tepco would raise as much money as possible but asked the government to help cover the expected outlays. "Our company is doing whatever it can to streamline the management," Shimizu said in a written statement submitted to the government Tuesday. "We would like to ask the support of the government to ensure that compensation is given fairly and swiftly to the victims." According to Shimizu, the government didn't give him an immediate answer. After the meeting, Shimizu told reporters that Tepco executives, including himself and Chairman Tsunehisa Katsumata, would forfeit their salaries and sell off company assets. He added that payroll cuts aren't out of the question."We are considering further cost-cutting measures to swiftly pay damages and to seek the understanding of the public," Shimizu said. "We will not consider any area sacrosanct." In April, Tepco announced it would cut compensation to board members by 50 percent, managers' salaries by 25 percent, and rank-and-file workers' wages by 20 percent. But some Cabinet ministers and lawmakers of the Democratic Party of Japan have expressed dissatisfaction with Tepco's restructuring efforts and demanded that it take further steps to secure capital. The government, meanwhile, has been discussing a special law to set up a new entity to cover the compensation shortfall. The entity would collect contributions from nuclear power plant operators to prepare for future accidents. Hamaoka impact will be far-flung The decision by Chubu Electric Power Co. to shut down the Hamaoka nuclear power plant in Shizuoka Prefecture is testament to the long-lasting and far-reaching impact of the March 11 megaquake. In fact, the shutdown, decided Monday, may signal an inevitable shift away from a policy of nuclear dependence. Financially speaking, the move affects not only the utility company but also Japan's core manufacturing sector. "There is no doubt the shutdown (of Hamaoka) has a negative impact on manufacturers such as Toyota Motor Corp. and Suzuki Motor Corp., which operate factories in the Chubu region," Daiwa Securities Co. analyst Takahiko Makabe told The Japan Times on Tuesday. An expert on the automobile and utilities industries, Makabe said that although other utilities are likely to provide extra power to Chubu Electric, Toyota and other manufacturers may shift their production overseas to avoid possible rolling blackouts. "It will speed up the hollowing out of Japanese industries," Makabe warned. Located in Omaezaki, Shizuoka Prefecture, the Hamaoka nuclear power plant boasts five nuclear reactors. Reactors 1 and 2, which went into operation in March 1976 and November 1978, were deactivated in January 2009 after more than three decades of service. Reactors 3 and 4 went online in the '80s and '90s. The newest reactor, No. 5, was commissioned in 2005 and provides 1.38 million kw for the Chubu region. In contrast, the maximum output of each of the damaged Nos. 2, 3 and 4 reactors at the Fukushima No. 1 plant was 784,000 kwWhat makes Hamaoka "the most dangerous nuclear power plant in Japan" is its location. There is a whopping 87 percent chance the area will be struck by a major earthquake within 30 years, according to the government. Hamaoka sits in the projected epicenter of what is already referred to as the Tokai earth- quake. Government simulations based on a magnitude 8 temblor in the region project a death toll of about 10,000. "The impact of an earthquake in the Tokai region, which could cripple the reactors in Hamaoka, is extremely severe," Katsuhiko Ishibashi, a professor emeritus at Kobe University, told The Japan Times last month. The seismology expert said that prevailing westerly winds would carry radioactive substances toward Tokyo, unavoidably affecting areas in between, including U.S. military bases in Zama, Atsugi and Yokosuka. "It is clear to anyone's eyes that Hamaoka is the most dangerous (nuclear power plant)," Ishibashi stressed. Since 2003, locals have sought the closure of the plant through the courts. The Shizuoka District Court in 2007 ruled in favor of the utility on the grounds that safety precautions taken at site were adequate. The case is under appeal at the Tokyo High Court. "Even if (Hamaoka) shuts down, it should not be restarted," Masayuki Aoyama, a lawyer for the plaintiffs, said at a news conference Monday following the announcement that Chubu Electric would halt operations in Hamaoka. The nuclear power plant is "literally defenseless against tsunami," he charged. At a news conference Monday, Akihisa Mizuno, president of Chubu Electric, warned the company will likely go   17  34    

into the red. Last month, Chubu Electric estimated a net profit of -130 billion in the fiscal year ending next March. But this will be more than offset by extra fuel costs to fire thermal power plants, expected to run about -250 billion. Also, Chubu Electric, which already saw its stock price take a 10 percent hit after the announcement of the shutdown, could see a major class-action suit by stockholders if the dividend is cut. Daiwa Securities' Makabe said he expects Prime Minister Naoto Kan's administration to provide financial support to Chubu Electric because the government effectively ordered the shutdown of the plant. Chief Cabinet Secretary Yukio Edano said the government will continue to subsidize prefectural and municipal governments near Hamaoka. However, he added the government won't consider compensating Chubu Electric for any losses until it receives a request from the company. But the question remains: Can Kan continue to support electricity providers if the chain of shutdowns is nationwide? Although the government insists that Hamaoka is an exception and that other nuclear plants won't be asked to shut down, Baku Nishio, who coheads the NPO Citizens' Nuclear Information Center, said others may face a similar fate as thorough safety measures are implemented. "The government requested Hamaoka's shutdown because of the high likelihood of a major earthquake in the region," Nishio said. "But the odds at the Fukushima No. 1 nuclear power plant were much lower. (Japan) is prone to earthquakes even where the probability is low," he said, arguing that it doesn't make sense to shut down only Hamaoka. The government should freeze plans to build new nuclear power plants and gradually shut down existing ones, all the while cutting back on energy consumption by introducing energy-efficient technologies and promoting conservation, Nishio said. "After experiencing the March 11 twin disasters, the only way ahead is to shift away from nuclear power," Nishio said. Spanish Revenues Collapse by 16.8%, GDP Misses Target; Is a Bailout of Spain in the Cards? Every day I get emails from a friend Bran who lives in Spain. Today Bran writes ... Hello Mish The big news here today is with government accounts. GDP is lower than expected, and revenue are down way more than expected (down 16.2% compared with a predicted drop of 12.8%). Therefore, the government is looking at another few billion in borrowing this year and its schedule of deficit targets is thrown out of line. Spain's budget is already tight after spending cuts and salary reductions, so the article suggests higher taxes might be need to get back on target. All the best, Bran. Google offers a rough translation Zapatero, heading to a tax increase for failing to meet growth from which it is easy to glean a few more facts. * * * * * * * The deficit compromises growth objectives for 2012 through 2014. Staff reductions are increasingly difficult. Spain is in a very problematic situation. Personal income taxes are down 19.4% Corporate incomes taxes are down 42.7% VAT collection is down 22.4% Excise duties are down 40%

Judging from the above, I am wondering how overall revenues are down only 16.2%. I am also wondering how soon the interest rates in Spain soar as they did in Greece, then Ireland, then Portugal. Spain 10-Year Government Bond Yield If the Spanish economy continues to deteriorate (and I believe it will), don't expect that "low" yield to last. "Low" is in comparison to Greece where 10-year government bonds yield 15.4% as opposed to Germany where 10-year bonds yield a mere 3.12%. Is a bailout of Spain in the cards, or is Spain simply too big to bail? We will have our answer in due time. Mike "Mish" Shedlock Germany Rejects Talk of Easing Bailout Terms BERLIN C Ignoring mounting criticism from Greece and Ireland over the terms of their bailouts, Chancellor Angela Merkel of Germany refused Tuesday to commit her country to any changes and insisted that Abold reforms@ were the only way to make their economies stronger. George Papandreou of Greece, who is seeking more help, with Angela Merkel of Germany, who wants to see more reforms. Debt-ridden Greece wants international lenders to further ease terms of the 110 billion euro, or roughly $160 billion, bailout granted a year ago by the International Monetary Fund and the European Union. It will most likely need additional assistance to plug a 27 billion euro hole next year. On Tuesday, a day after Standard & Poor=s cut Greece=s credit rating again, the country sold 1.62 billion euros of six-month treasury bills at 4.9 percent, up from 4.8 percent in April.   18  34    

The Irish government, meanwhile, is watching to see what concessions Greece might win in hopes of softening Ireland=s 85 billion euro rescue package.But Mrs. Merkel, as leader of Europe=s strongest economy and the biggest contributor to the rescue package, gave no indication that Germany would be willing to grant more aid C and certainly not at a meeting of European finance ministers next week. She said she would wait until officials from the European Union, the European Central Bank and the International Monetary Fund completed their assessment of Greece=s progress, particularly concerning how it was carrying out its Abold reforms.@ That report is due in June. First we need to hear what the status is,@ Mrs. Merkel told reporters in Berlin. AOnly then can I decide what, if anything, needs to be done. We don=t do Greece any favors by speculating about more aid.@ She said that Greece had made progress over the last year and that it was always known that Ait would be a difficult path.@ But she said efforts to improve competitiveness and reduce deficits must continue. AEvery country should continue with them,@ she said. Mrs. Merkel faced enormous pressure at home last year not to grant a single euro in aid to Greece until Athens agreed to a tough austerity package and a radical savings program across the public sector. While such public opposition has subsided, Mrs. Merkel now faces opposition within her own coalition. The Free Democrats, her junior partners, want to push through a motion at their party congress this weekend to prevent any more rescue packages for indebted euro states. Mrs. Merkel brushed aside this opposition, saying she was convinced the Free Democrats would support the overall package. Indeed, with Philipp Rösler expected to be elected the new leader of the Free Democrats this weekend C succeeding the foreign minister, Guido Westerwelle C and also taking over the Economics Ministry, Mrs. Merkel can expect more unity inside the coalition, government officials said Tuesday. A new plan may include pushing back Greece=s budget goals, giving it additional aid and mildly restructuring its sovereign debt, officials and analysts have said. Irish officials insist that their country=s debt burden, expected by the I.M.F. to peak at 125 percent of gross domestic product in 2013, is manageable C for now. A leading Irish economist wrote in The Irish Times on Saturday that the country=s debt would hit 250 billion euros by 2014, bringing Ireland=s debt-to-G.D.P. ratio closer to Greece=s. The economist, Morgan Kelly, who has been called Ireland=s Doctor Doom for his gloomy predictions, said the country faced bankruptcy because of the European Union and I.M.F. bailout. Mr. Kelly accused Patrick Honohan, Ireland=s central bank governor, of putting the European Central Bank=s interests over those of Ireland, which Mr. Honohan denied. AThe heavy debt and the growth of that debt is a serious problem and needs to be managed in discussion and in negotiation with our European partners,@ Mr. Honohan said in an interview with the state broadcaster RTE. Pat Rabbitte, the Irish energy minister, told RTE that the interest rate of 5.8 percent that Ireland is paying on its European loans Amust be reduced, and in my own view the debt must also be rescheduled.@ Prime Minister Enda Kenny said in Dublin on Tuesday that talks on reducing that rate were under way with Ireland=s European partners. European finance ministers will take up the issue on Monday and Tuesday in Brussels. Irish officials are hoping for a reduction of one percentage point. AAfter the meeting next week, we will know whether a conclusion can be reached,@ Mr. Kenny said, according to Reuters. German officials, however, backed by the French, have been seeking some concession from the Irish in return for a reduction like the one given earlier to Greece, particularly regarding Ireland=s relatively low corporate tax rate. The Germans want the Irish to come up with some initiative, like agreeing to work on realigning the corporate tax base. Housing Adjusted CPI, Gold, and the Deflation Grand Supercycle Theory I am a firm believer that housing prices belong in the CPI. I have discussed this at length before, and in light of reported inflation (as measured by prices but certainly not credit), it's time to take another look at a CPI adjusted for housing prices. Here are a couple of chart from my friend "TC" that show the relation between the CPI, a Case-Shiller adjusted CPI, and the   19  34    

Fed Funds Rate. For more on the rationale behind the following charts please see What's the Real CPI? Case-ShillerAdjusted CPI (CS-CPI) vs. CPI Less Food and Energy That chart is for comparison purposes only. I do not mean to imply as Bernanke does, that one can exclude food and energy prices to make things appear benign when they aren't. Moreover, I certainly do not think the Fed should ignore housing prices as the Fed did from 2002-2006. CS-CPI vs. CPI-U vs. Fed Funds Rate Huge Inflation? When? Those screaming inflation have a point, provided they are talking about 2002-2006.The lines to pay attention to are the lines in red and green. The Fed Funds Rate was above or identical to CS-CPI until January 2002. At that point housing prices shot up, along this the stock market, commodities, and everything else until late 2007. As measured by CS-CPI, the Fed Funds rate went negative to the tune of 6% or so at various spots on the curve. Fed Sponsored Housing Bubble Normal Fed policy would be for the Fed Funds Rate to be a couple points higher than the CPI. With real interest rates running at -6%, is it any wonder the housing bubble got as big as it did? Thus, Fed policy sponsored a housing bubble that Greenspan then Bernanke ignored every step of the way. Finally, when the bubble did bust, the Fed cut rates to zero in a series of panic moves hoping to stop the housing crash. The Fed failed. Factoring in home prices, CS-CPI dipped to -6% in January of 2009. Deflationists Got It Correct Not only was there a credit bust, there was nearly 1.5 years of CS-CPI deflation, and near a year of CPI-All Items (CPI-U), deflation. Whether you define deflation in terms of credit, in terms of purchasing power of the dollar, in terms of the CPI, or in terms of the Case-Shiller CPI, to the complete consternation of screaming hyperinflationists, those predicting deflation got it correct. Where to From Here? Should we get another credit crunch, and I think that is likely, I foresee another round of deflation. Thus my prediction has been and remains, the US will go in and out of deflation for a number of years. I see no reason to change that forecast. Please note that I do not buy into the grand supercycle theory of deflation where the DOW drops to 1000 and the S&P 500 to 200 or lower. I do not know if the bottom in equities is in or not, but no one else does either. Nonetheless, I see no sense in predicting something for 30 years that has not happened and still seems unlikely today. Moreover, supercycle deflation calls for gold at $250 seem preposterous although in theory darn near anything can happen. Why Gold? As I predicted (unlike what other deflationists were saying), gold soared in response to Central Bank rate-cutting and liquidity moves. Notice I said Central Bank, not just the Fed. Moreover, the sovereign debt crisis in Europe, the massive housing bubble in China and especially the credit bubble in China offer still more reasons to own gold. Those calling for deflation and for gold to crash with it, blew the call. Hyperinflationists blew the call as well. I will address the silliness of hyperinflation theories in a subsequent post. Mike "Mish" Shedlock Not All Bad?

Are things really that bad? Sure, there's plenty of negative news out there, including reports like these: "New Breed of Americans Going Hungry" (USA Today) The recession may officially be over, but Sonia Cruz of Issaquah, Wash., a suburb of Seattle, still finds herself having to say "no" to many things. No to the kids' request to go to the movies with friends. No to $1 Redbox movies. And definitely no to those trips to Cold Stone Creamery for ice cream. "There's no way we can afford that anymore," she says. Cutting back became a necessity for many American families during and after the recession. But what the Cruz family and a growing   20  34    

number of other once-thriving middle-class families didn't expect was to find themselves qualifying for C and needing C the support of federally funded food assistance programs. After job losses, home foreclosures, mounting debt and bills some can no longer afford to pay, families such as theirs have become part of the new face of hunger in America. "Home Values Show Sharpest Quarterly Decline Since 2008; Negative Equity Rises to 28.4% According to Q1 2011 Zillow7 Real Estate Market Reports" (PR Newswire) Key facts: - U.S. home values posted their largest quarter-over-quarter decline since Q42008, falling 3 percent. Home values have fallen 29.5 percent from their peak in June 2006. - Negative equity reached a new high with 28.4 percent of all single-family homes with mortgages underwater, up from 27 percent in Q4 2010, due to accelerating home value declines. - New data reveals bottom in home values unlikely to appear in 2011. Zillow has revised its forecast and now predicts a bottom in 2012 at the earliest. "Number of People Using Food Stamps on the Rise?" ( Nation-wide the number of people using food stamps is rising and Pennsylvania is no exception. The report is coming from the US Dept of Agriculture who just released the study. People here say without looking at a study they think the number of people on food stamps is rising. During the height of the recession food stamps ballooned as more Americans lost their jobs. AThe trend started about three years ago and it has increased significantly we have some stores up 40% from last year,@ said Scott Karns owner of seven Karns Supermarkets in central PA. Karns said he was shocked to see more reported in his stores. The national average is up more than 14 percent, PA is behind at a little over 13 percent. AYou have to wait in line sometimes two hours, sometimes it takes your whole day,@ said Donna Harber who relies on the food stamps. "Caring for Poor, Hospitals Reach Brink of Closure" (Associated Press) CHICAGO - Two charity hospitals in Illinois are facing a life-or-death decision. There's not much left of either of them - one in Chicago's south suburbs, the other in impoverished East St. Louis - aside from emergency rooms crowded with patients seeking free care. Now they would like the state's permission to shut down. The institutions, which have served low-income people in the state for more than 100 years, represent a significant development that's gone largely unnoticed as the nation climbs out of the recession. Many charity hospitals, already struggling with rising costs, are on the brink of failure because of looming budget cuts, increasing numbers of uninsured patients and a slow economic recovery. "With economic downturns, you can finesse them for 12 months or 24 months," said Jim Tallon, president of the nonprofit United Hospital Fund of New York, a research and philanthropic organization. "But now everybody's used up all their tricks. That's when people throw their hands up in the air and say we're not going to be able to continue operating. "Homeless Count Skyrockets, Recession Blamed" (Inland News Today) RIVERSIDE B Homelessness has skyrocketed, according to results of a new census. Ron Stewart, DPSS deputy director of Riverside County=s homeless programs, isn=t surprised. AIt=s another result of this down turned economy. We=re gonna take a look at why some cities have a worse problem than others.@ "After Recession, Teens Still Find Jobs in Short Supply" (The Star-Ledger) Summer, that most-awaited season for teens itching to get out of school, is also a traditional chance to make some cash from jobs like summer camp counselor or amusement park worker. Getting summer work can be a job in itself for teensCthe overall unemployment rate in the United States is 9 percent, but nearly a quarter of those between 16 and 19 are unemployed. "If we think about the iconic job in New Jersey, somebody who works on the boardwalk, if the young woman worked there last year, graduated from high school and is in college, she might still want to work there," said Carl Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers. "That forecloses opportunities for the younger workers, the kid who=s still in high school, the kid who just graduated. It=s not that 45-year-olds are competing for those jobs, but certainly the 20-somethings can push out the teenagers."Van Horn wouldn=t get any arguments from Carlos Mejias, a 17-year-old sophomore at Arts High School in Newark, who said 45 percent or so of his friends want jobs but can=t find them. "I applied for Walmart, Kmart, a lot of places," Mejias said. "They say they=ll call me back and they never do. It=s crazy." "Gallup: Consumer Spending Flat in April" ( Consumer spending in the U.S. remained level in April, according to a Gallup poll released this week, as high gas, food and other commodity prices likely restrained Americans' purchasing habits According to the report, consumers' self-reported daily spending in stores, restaurants, gas stations, and online averaged $65 per day last month, compared to $64 in March - a statistically insignificant difference. "Consumer spending over the first four months of 2011 is virtually unchanged from the same period last year and in 2009," wrote Dennis Jacobe, Chief Economist at Gallup. "Nearly two years after economists declared the recession over, spending remains far below the   21  34    

pre-economic-crisis levels of early 2008." "Rate of Insured Workers Hit by Economy" (Sacramento Business Journal) The 2007-2009 recession has taken a toll on employment-based health coverage, a new report by the Employee Benefit Research Institute concludesThe percentage of workers with coverage through their own job fell to 52 percent in 2009 from 53.2 percent in 2008. The percentage of workers with coverage as a dependent fell to 16.3 percent in 2009 from 17 percent in 2008. Rising unemployment and fact that some business owners have responded to the economic squeeze by dropping health benefits, scaling them back or asking workers to pay more caused the decline, according to the report. "Small-Business Pessimism Deepens" (Real Time Economics) mall-business owner pessimism worsened in April for a second consecutive month, even though current sales performance was the best in 40 months, according to data released Tuesday. The National Federation of Independent Business>s small-business optimism index dropped 0.7 point to 91.2 in April. That followed a 2.6-point decline to 91.9 in March. The NFIB called the April index Aa disappointing outcome following the March decline.@ The report said the weak economy and political uncertainty were dimming the outlook. The drags mentioned by NFIB members included the government deficit, a potential inflation threat, and rising gas prices. The subindex of expected business conditions in the next six months fell 3 percentage points to -8%, and the expected higher real sales index slipped 1 point to 5%. "Mall Vacancies at Highest Level in a Decade" (Bloomberg via Worcester Telegram) Vacancies at U.S. regional malls rose to the highest in at least a decade in the first quarter, a sign that landlords are struggling to keep tenants after the recession even as retail sales increased, Reis Inc. said. The vacancy rate climbed to 9.1 percent from 8.9 percent a year earlier and 8.7 percent in the fourth quarter, the New York-based research firm said in a recent report. It was the highest since Reis began publishing data on regional malls in 2000. "The Underfunding of State and Local Pension Plans" (Congressional Budget Office via Docuticker) From the summary: The recent financial crisis and economic recession have left many states and localities with extraordinary budgetary difficulties for the next few years, but structural shortfalls in their pension plans pose a problem that is likely to endure for much longer. This issue brief discusses alternative approaches to assessing the size of those shortfalls and the implications of those approaches for funding decisions:By any measure, nearly all state and local pension plans are underfunded, which means that the value of the plans' assets is less than their accrued pension liabilities for current workers and retirees. But there are exceptions. Here are a few examples: "CEO Pay Exceeds Pre-Recession Level" (Associated Press) In the boardroom, it's as if the Great Recession never happened. CEOs at the nation's largest companies were paid better last year than they were in 2007, when the economy was booming, the stock market set a record high and unemployment was roughly half what it is today. The typical pay package for the head of a company in the Standard & Poor's 500 was $9 million in 2010, according to an analysis by The Associated Press using data provided by Equilar, an executive compensation research firm. That was 24 percent higher than a year earlier, reversing two years of declines. Executives were showered with more pay of all types C salaries, bonuses, stock, options and perks. The biggest gains came in cash bonuses: Two-thirds of executives got a bigger one than they had in 2009, some more than three times as big. CEOs were rewarded because corporate profits soared in 2010 as the economy gradually got stronger and companies continued to cut costs. Profit for the companies in the AP analysis rose 41 percent last year. "U.S. Luxury Spending by Rich to Rise" (Reuters) Spending by rich Americans on luxury goods is set to grow by $26.6 billion in 2011, with the number of affluent families planning to spend more almost doubling in the past three years, a poll found on Friday. As the United States gradually emerges from its worst economic crisis in decades, the American Express Publishing and Harrison Group survey forecast spending on luxury goods to increase nearly 8 percent to $359 billion this year compared to 2010. "It is a relief to finally be able to see a significant return of affluent consumers to the luxury marketplace," Jim Taylor, vice-chairman of Harrison Group, said in a statement. ">Squatter Rent= May Boost Spending as Mortgage Holders Bail on Payments" (Bloomberg) Melissa White and her husband stopped paying their mortgage in May 2008 after it reset to $3,200 a month, more than double the original rate. That gave them extra cash to pay off debts and spend on staples until their Las Vegas home sold two years later for less than they owed. AWe didn=t pay it for about 24 months,@ said White, who quit her job as a beautician during that period after becoming pregnant with her first child and experiencing medical complications. AWhat we had, we could put towards food and the truck payments and insurance and health things I was dealing with.@ Millions of Americans have more money to spend since they fell delinquent on their mortgages amid the worst housing collapse since the Great Depression. They are staying in their homes for free about a year and a half on average, buying time to restructure their finances and providing an unexpected support for consumer spending, which makes up about 70 percent of the economy. So-called Asquatter=s rent,@ or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The extra cash could represent a boost to spending   22  34    

that=s equal to about half the estimated savings generated by cuts to payroll withholding in December=s bipartisan tax plan. "U.S. Stocks Carry Gains into Third Day" (MarketWatch) U.S. stocks tallied robust gains Tuesday to extend a winning run into a third session after Microsoft Corp. said it would buy Internet-phone company Skype for $8.5 billion. The deal bolstered expectations of more buyouts to come. ASmall-cap [and] midcap stocks have been leading the market and continue to do so. Today=s deal is a perfect example,@ said Paul Nolte, managing director at Dearborn Partners. AAll of the deal activity is occurring in the midcap space, so if you=re an investor that is where you are seeing companies purchased and some of that outperformance now,@ he said. Perhaps we all need to stop focusing on the negatives and start looking at the bright side. Yeah, right. Rip In >Space-Time Vortex= Over Russian City Shocks Scientists By: Sorcha Faal, and as reported to her Western Subscribers Russian scientists are reported in shock today after reviewing the report prepared by the Federal Space Agency (FKA/RKA) that says the Afabric@ of our Earth=s Aspace-time vortex@ was Aripped apart@ [photo top left] this past week over Yekaterinburg (also known as Ekaterinburg) , the biggest city in Russia's Ural Mountains, and the fourth largest in all the Motherland. The existence of a space-time vortex around our planet Earth [photo 2nd left] was first postulated by the great German-born theoretical physicist who developed the theory of General Relativity, Albert Einstein (1879-1955), and which was recently confirmed for the first time in history by US space scientists working on the longest running project in NASA=s history (since 1963) called the Gravity Probe B According to Stanford University physicist Francis Everitt, principal investigator of the Gravity Probe B mission, AThe space-time around Earth appears to be distorted just as general relativity predicts.@ Clifford Will of Washington University in St. Louis, and one of the world=s top experts in Einstein's theories, further says of these new findings discovered by the Gravity Probe B that, AThis is an epic result . . One day this will be written up in textbooks as one of the classic experiments in the history of physics.@ This massive rip in our Earth=s space-time vortex was witnessed by hundreds of thousands of Yekaterinburg residents who photographed and video taped this event extensively too. [See more photos here] Once the shocking visual images of this rip in our Earth=s space-time vortex reached the West, however, their propaganda media organs went into quick disinformation mode stating that this event was caused by a Russian Soyuz rocket military communications satellite being shot into orbit. What these Western media propaganda reports failed to mention (as they know their readers have virtually no independent thoughts) was that even though there was in the hours preceding the events in Yekaterinburg a launch of a Meridian 4 Satellite from the Plesetsk Cosmodrome in northern Russia, the distance of nearly 2,500 km from this Arctic space site to the Urals, especially with a satellite shot into polar orbit, makes it beyond absurd that anyone could see such a thing . [Note: The Plesetsk Cosmodrome is located 800km north of Moscow above the Arctic Circle while Yekaterinburg is situated on the border of Europe and Asia, 1,667km east of Moscow, on the eastern side of the Ural Mountains.] To the cause of this rip in our Earth=s space-time vortex Russian scientists blame the massive and Comet Elenin (C/2010 X1) discovered on December 10, 2010 by Russian astronomer Leonid Elenin of the Institute of Applied Mathematics that has trailing it two-rows each of four perfectly aligned Aobjects@ [photo 3rd left] Chinese scientists warn may very well be Aalien spacecraft@. In our previous report AKnights Templar Prepare To Unite US-Iran For >Final= World Battle@ we listed numerous links about Comet Elenin and its traveling companions 2010 SO16 and 2005 YU55, all of whom are nearing our Earth and should be read to maintain the proper context of this report. Further to note is our report AMillions Of Chinese Stunned After Government Makes Obama UFO Statement@ wherein we noted the growing concern of the American authorities in releasing the truth about the ancient Agods@ before their people discover this information independently. Since the first observances of these massive space-time disturbances began to appear (See our January 19th report: AGreenland Sunrise Shocks World As Superstorms Pound Planet@) the cost to our planet from the Atoo many to count@ Superstorms wrecking havoc upon Earth have reached such a dire state that US Secretary of State Hillary Clinton warned this   23  34    

past week that the ability our world to feed itself is in Agrave danger@ as crop losses mount to historic levels. Equally as worse, and as we had reported on in our December 10, 2010 report AMassive Earthquake Fears Rise After Mysterious Object Moves Nearer To Earth@, the worst fears of Russian scientists were realized on March 11, 2011, when one of the greatest earthquakes in all of history shattered the island nation of Japan leaving over 25,000 dead or missing. One of the world=s top seismic scientists, Dr. Mensur Omerbashich, PhD of Cornell University, further warns that Comet Elenin has the possibility of causing even more catastrophic earthquakes, and as we can read from his report AAstronomical alignments as the cause of ~M6+ seismicity@, and which, in part, says: AI here demonstrate empirically my georesonator concept in which tidally induced magnification of Earth masses' resonance causes seismicity. To that end, I show that all strong (~M6+) earthquakes of 2010 occurred during the Earth's long (t>3 day) astronomical alignments within our solar system. I then show that the same holds true for all very strong (~M8+) earthquakes of the decade of 2000s. Finally, the strongest (M8.6+) earthquakes of the past century are shown to have occurred during the Earth's multiple long alignments, whereas half of the high-strongest (M9+) ones occurred during the Full Moon. I used the comet C/2010 X1 (Elenin), as it has been adding to robustness in terms of very strong seismicity since 2007 (in terms of strongest seismicity: since 1965). The Elenin will continue intensifying the Earth's very strong seismicity until August-October, 2011. Approximate forecast of earthquakes based on my discoveries is feasible. This demonstration proves my hyperresonator concept, arrived at earlier as a mathematical-physical solution to the most general extension of the georesonator concept possible.@ To the fears that many may have of these present, and seemingly, insurmountable calamities surrounding these present times there is, perhaps, a reason to give cheer, for according to Nick Bostrom of the Department of Philosophy at Oxford University everything we experience may be nothing more than a computer simulation anyway. Bostrom in his theoretical paper titled AAre You Living in a Computer Simulation?@ states in his Abstract:AThis paper argues that at least one of the following propositions is true: (1) the human species is very likely to go extinct before reaching a Aposthuman@ stage; (2) any posthuman civilization is extremely unlikely to run a significant number of simulations of their evolutionary history (or variations thereof); (3) we are almost certainly living in a computer simulation. It follows that the belief that there is a significant chance that we will one day become posthumans who run ancestor-simulations is false, unless we are currently living in a simulation. A number of other consequences of this result are also discussed.@ [Read full paper here.] To those wishing to believe such things as Bostrom postulates one can truly say it takes faith, like all religions do. To all others, however, one would be equally correct in suggesting that if one is not prepared for what is to come, it can only be their fault as they can never say they weren=t warnedYonly that they didn=t listen, or in listening didn=t believe. The Horrendous Decline in Labor Income Over the Past 4 Decades by: David Hunkar May 9, 2011 The official unemployment rate in the U.S. stood at 9.0% in April. 13.7 million Americans are out of work. Even the lucky ones who hold a job are finding it difficult to make a decent living due to rising cost of living and stagnant to down wages. While equity markets have soared from the depths of the recent financial crisis in the developed world, the majority of workers have not benefited. Most of the spoils of this recovery have not gone to average workers. rom an article titled AThe tipping point in labour=s share of the spoils looms@ by Shaun Le Roux of PSG Asset management of South Africa: The fact is, the benefits of the global economic recovery have accrued to the wealthy. As The Economist put it in a recent article, Athe benefits of recovery seem to have been distributed almost entirely to the owners of capital rather than workers. In America total real wages have risen by $168 billion since the recovery began, but that has been far outstripped by a $528 billion jump in profits. Dhaval Joshi of BCA Research reckons that this is the first time profits have outperformed wages in absolute terms in 50 years. In Germany profits have increased by i113 billion since the start of the recovery, and employee pay has risen by just i36 billion. Things look even worse for workers in Britain, where profits have risen by ,14 billion but aggregate real wages have fallen by ,2 billion. A study by the Institute for Fiscal Studies, a think-tank, found that the median British household had suffered the biggest three-year fall in real living standards since the early 1980s.@ (o) As the chart below demonstrates, labour=s share of income in the US (represented as a % of GDP) has been in a steady decline for forty years. Now, some of this decline can be attributed to productivity gains and structural changes in the US=s drivers of output, but, at the same time that labour=s share has been declining, profit margins have been widening. This trend cannot be sustained indefinitely and the catalyst for a change in this state of affairs is likely to be inflationary pressure spilling over into demand for higher wages. The West has enjoyed three decades of remarkably benign inflation; globalization and the entry of cheaper emerging markets (amongst other things) have helped constrain cost pressures. But, this status quo looks about to change. As discussed above, wage pressures are building in the developing world, raw material costs have been rising and the world is no longer awash with cheap goods from the East. Inflation is coming. Income almost 60% in 73; now 54.5%. Meanwhile U.S. companies hoard billions of dollars in cash. According to a Bloomberg report last October, U.S. firm held almost $1 Trillion in cash and other equivalents on their   24  34    

balance sheets. Another factor to consider in evaluating why U.S. workers are not enjoying the benefits of economic growth in recent decades is that firms are getting rid of workers in the U.S. and moving those jobs abroad where wages are cheap and government regulations lax. Globalization pits U.S. workers against third-workers who can work for $2 per day easily making U.S. workers unable to compete in the global market. As more and more workers find their jobs offshore-able any day, companies are able to squeeze more productivity and generate higher profits for their owners. The threat of losing their jobs in the current depressed labor market keeps the U.S. workforce docile and unable to demand higher wages. From ABig U.S. Firms Shift Hiring Abroad@ in The Wall Street Journal: U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home, sharpening the debate over globalization=s effect on the U.S. economy. The companies cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show. That=s a big switch from the 1990s, when they added jobs everywhere: 4.4 million in the U.S. and 2.7 million abroad. (emphasis added) In all, U.S. multinationals employed 21.1 million people at home in 2009 and 10.3 million elsewhere, including increasing numbers of higher-skilled foreign workers. The trend highlights the growing importance of other economies, particularly in rapidly growing Asia, to big U.S. businesses such as General Electric Co., Caterpillar Inc., Microsoft Corp. and Wal-Mart Stores Inc. The data also underscore the vulnerability of the U.S. economy, particularly at a time when unemployment is high and wages aren=t rising. Jobs at multinationals tend to pay above-average wages and, for decades, sustained the American middle class. As of today, the above article has generated 678 comments on the Journal=s site. So unless structural changes are made by bold and responsible politicians, high unemployment and stagnant wages will continue to strangle the U.S. economy. For investors this gives another reason to invest abroad. What Boeing Says About the U.S. Economy by: Marc Chandler May 9, 2011 Given the size of the US economy, it is usual for a particular company to impact macro economic data. Yet Boeing's (BA) report before the weekend has a negative implication for April durable and factory orders data, and to a less extent US exports. Arguably the Boeing report was overshadowed by the US jobs report and the speculation about Greece's tenure in EMU. However, Boeing news was dramatic. Total orders in April collapsed to just two from the outsized 98 orders in March. The 3-month average in March was 51 orders. Moreover, it is the first month since January there were no foreign orders. Boeing's news then has negative implications for durable goods orders and factory goods orders. News that foreign shipments were light at 26 down from 33 in March also suggests a headwind on US April exports. Boeing orders and shipments may be volatile, impacting high frequency time series. However, the data is sufficiently noisy that the April and March figures combined do not appear to show a deterioration of the underlying trends. During the first four months of the year, Boeing shipped 106 planes to foreign customers compared with 97 in the previous four months. Orders data have shown a marked slowdown. The three month average is now half the average of last November. There could be various factors at work and should be monitored going forward. Global PMI Scorecard: Growth Slowing Sharply by: Prieur du Plessis May 9, 2011 The PMIs for April indicate that, while the global economy is still expanding, the pace has moderated considerably. The JPMorgan Global Composite PMI, where the manufacturing and non-manufacturing/services are both taken into account, dropped to 51.8 from 54.7 in March (a number above 50 indicates expansion) due to the ripple effect of the contraction of Japan's economy following the twin disaster in that country. The contraction in Japan has worsened with the Markit composite PMI falling to 35.0 from 36.1 in March as both the manufacturing and service sectors contracted further. Economic activity in the U.S. has slowed significantly with my ISM GDP-weighted composite PMI at 54.6, the lowest since September last year. Despite the fact that the manufacturing PMI held up reasonably well at a robust 60.4 compared to 61.2 in March, the non-manufacturing PMI sank to 52.8 from 57.3. The eurozone's economy remains resilient, though, with my GDP-weighted composite PMI coming in at 57.1 compared to 57.3 in March. France's robust economy continues to accelerate at an increasing rate, while Germany's robust growth rate has moderated slightly. The U.K. and Hong Kong also felt the aftershocks as their composite PMIs moderated strongly.

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*Japan is off the screen due to the impact of the disaster on the numbers. (Click to enlarge)

Sources: ISM; Markit; CFLP; Plexus Asset Management.


GDP-weighted/ Composite PMI Apr-11 Mar-11 Trend 54.6 57.1 59.2 58.2 57.3 60.4 62.4 54.4 Expansion moderated sharply Expansion moderating slightly, robust Expansion moderating slightly, robust 59.1 Robust pace accelerated further 57.1 Expansion decelerated sharply 35.0 36.1 Contracting severely 57.5 Above-trend seasonal acceleration 54.0 Expansion moderating 60.0 Robust pace accelerated further Expansion accelerated Expansion moderating   26  34    

U.S. *** eurozone* Germany* France* U.K.**** Japan* Emerging Economies China** Brazil* India* Russia* Hong Kong*

55.4 52.9

58.7 52.5 60.7 55.1 54.9

UAE* Saudi Arabia* 62.7 JPMorgan Global Composite* Expansion moderated sharply

57.5 62.8 51.8

54.7 Expansion quickened, robust Robust 54.7

Despite a slight easing, growth in the global manufacturing sector held up well, except in the case of Japan, where the contraction deepened. My GDP-weighted manufacturing PMI for the major economies dropped 0.5 points to 55.5 in April B the lowest in four months. The pace of expansion in the U.S. A.'s manufacturing sector eased slightly to a still robust 60.4 in April from 61.2 in March. The manufacturing sector's pace in the eurozone accelerated to a buoyant 58.0 from 57.5, with stronger growth in France and Germany in particular. Greece continues to see a further moderation of the contraction in its manufacturing sector, but Spain is approaching contraction again. Ireland's expansion is holding up well, but the moderation in the U.K.'s manufacturing sector intensified with the PMI dropping to 54.6 in April from 57.1 in March. This compares to a robust 61.5 in February. As argued in a previous article, I think the moderate decline from 53.2 to 52.9 in China's CFLP manufacturing PMI is rather flattering. April is normally a seasonally "high" month and it therefore shows the great impact that Japan's twin disasters is having on China's economy and especially the manufacturing sector. The Japanese situation has also rubbed off on the manufacturing sectors of emerging economies such as Russia, Turkey, South Korea, Russia and South Africa. (Click to enlarge)

Manufacturing PMI Country Apr-11 Mar-11 Trend U.S.***** eurozone* Germany* 60.4 58.0 62.0 61.2 57.5 60.9 Somewhat slower, robust Expansion accelerating, robust Expansion accelerating, robust   27  34    

France* 57.5 55.4 Greece* 46.8 Italy* Spain* Ireland* 56.0 55.7 U.K.* Japan* 45.7 Australia* 48.4 Emerging Economies Brazil* 50.7 China** 52.9 Czech* 59.0 Poland* 54.4 54.8 Turkey* 52.7 India* Russia* 52.1 55.6 Taiwan* 58.2 55.6 RSA*** 56.4 S Korea 51.7 52.8 Global**** 55.5

Expansion accelerating, robust 45.4 Contraction eased 55.5 56.2 Expansion moderated, strong 50.6 51.6 Expansion moderated Expansion accelerating, robust 54.6 57.1 Expansion moderated 46.4 Contraction accelerating 47.9 Contraction moderated 53.2 Expansion moderated sharply 53.4 Expanding, sharply below seasonal trend 58.6 Expansion accelerating, robust Expansion moderated 56.1 Expansion moderated sharply 58.0 57.9 Expansion accelerating, robust Expansion moderated sharply Expansion accelerating, robust 57.2 Expansion moderated, robust Expansion decelerated 56.0 Expansion decelerated, robust

Sources: *Markit; **Li & Fung; ***Kagiso; ****Plexus Asset Management; *****ISM. (Click to enlarge)

Where the still relatively robust global manufacturing PMI numbers were likely to lead to improved global industrial production growth through end June, a hiccup is on its way.

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Sources: Markit; Li & Fung; Plexus Asset Management; ISM; I-Net Bridge.

The immediate outlook for growth in industrial metal prices is therefore cloudy, especially in view of the possibility that the Chinese manufacturing industry could be significantly overstocked.

Sources: Markit; Li & Fung; Plexus Asset Management; ISM; I-Net Bridge. Non-manufact uring/Services PMIs The JPMorgan Global Services PMI for April sank to 51.0 from 54.0 in March after a robust 59.3 in February. The U.S. ISM non-manufacturing PMI fell to its lowest level since August last year to 52.8 from 57.3 in March after reaching a 66-month high of 59.7 in February this year. The eurozone PMI moderated somewhat to 56.7, but the acceleration in the already robust services sector in France masked a significant drop in Germany's PMI from 60.1 to 56.8 in April. Spain managed to eke out some growth, but Ireland again teeters on the brink of contraction. Growth in the UK's services sector eased materially to 54.3 from 57.1 in March, while the pace of contraction in Japan increased. The rate of expansion in the services sectors of India and Russia quickened, though, while the robust pace of growth in China's non-manufacturing sector came in at the upper level of the April seasonal high. The contraction in Australia's services sector ended with the PMI increasing to 51.5 from 46.5 in February.

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(Click to enlarge) *Japan is off the screen due to the impact of the disaster on the numbers. (Click to enlarge)

Sources: ISM; Markit; CFLP; Plexus Asset Management

Country Apr-11 U.S.** Eurozone Germany France Italy

Non-manufacturing/ Services PMI Mar-11 TREND 52.8 57.3 Expansion decelerated sharply 56.7 57.2 Expansion moderated, robust 56.8 60.1 Expansion decelerated sharply, robust 62.9 60.4 Robust pace accelerated further 52.2 53.3 Expansion moderated   30  34    

Spain 50.4 48.7 Expanding again Ireland 50.2 51.1 On edge of contraction U.K. 54.3 57.1 Expansion decelerated sharply Japan 35.0 35.3 Severe contraction continues Australia 51.5 46.5 Expanding again Emerging Economies Brazil 53.2 53.5 Expansion moderated slightly China* 62.5 60.2 Seasonal acceleration, robust India 59.2 58.8 Robust pace accelerated further Russia 55.8 53.3 Expansion quickened, robust JPMorgan Global Services 51.0 54.0 Pace of expansion decelerated sharply, on edge of contraction Summary U.S. economy: GDP growth accelerating My GDP-weighted ISM PMI for the U.S. leads U.S. real GDP growth by a quarter. The advance estimate of first-quarter GDP growth came in at 2.3% compared to my estimate of 3% on a year-ago basis. I do think, however, that the actual number may come in closer to 3%. I initially thought that, if the robust manufacturing and non-manufacturing PMIs held up through end June barring any fallout of the Japanese disaster, the year-on-year GDP growth could reach 4% and beyond in the second quarter, but the fallout has shown its hand. If there is no further deterioration in the PMIs, I am of the opinion that second-quarter growth could come in at approximately 3.0 to 3.5%. Sources: ISM; FRED; Plexus Asset Management. Eurozone: GDP growth to gain momentum in Q2 The PMIs during the fourth quarter of last year indicates that GDP growth in the first quarter is likely to come in at approximately 2.5% compared to a year ago and to accelerate to 3% in the second quarter. Sources: Markit (various internet sources); I-Net; Plexus Asset Management. China: Still going strong! My GDP-weighted PMI for April was virtually unchanged from last year's level despite China's disappointing manufacturing PMI that fell to 52.9 from 53.4 in May, principally as a result of the aftershocks of Japan's twin disasters. (Click to enlarge) Sources: CFLP; Plexus Asset Management From a forecasting point of view, the CFLP manufacturing PMI gives a better picture of underlying GDP growth   31  34    

due to lower seasonality. China's year-on-year GDP growth of 9.8% in the first quarter of this year was in line with my estimate of 10% based on the manufacturing PMI's trend in the last quarter of last year. It is evident to me that China's year-on-year GDP growth in the first quarter is still running at between 9.5% and 10%. Japanese economy: to get worse before recovering? In Japan, the jury is out on what impact the twin disasters will have on the economy. The manufacturing sector is holding up reasonably well, but this may give a distorted view of the eventual impact on the economy, especially in view of the severe contraction in the services sector. U.K. economy: Continuing to gaining traction YFirst-quarter GDP growth came in at 1.8% compared to my estimate of approximately 2.0% year-on-year based on my GDP-weighted PMI. It is evident that growth in the second quarter will accelerate to approximately 2.5% to 3.0%, but the fallout from the Japanese disaster may shave 0.5% off this number. Conclusion The onset of a declining trend in the Global PMIs is now a fact. The flock of black swans in the global pond is growing and there is no evidence yet that conditions may be easing. The situation has been expanded by the terrible natural disaster in Japan, and exacerbated in the short term by the killing of Osama bin Laden. The geopolitical situation in the Middle East and North Africa is slightly improving, but is likely to put a floor under oil prices. The PBoC has again tightened its monetary policy, but my hunch is that more needs to be done to reign in the Chinese economy and especially the services sector. The potential contagion of the debt crisis in the eurozone and the impact of austerity measures on the eurozone economies are still major uncertainties. These black swans and their evolvement are likely to continue to drive markets and influence and prescribe the policies of central bankers globally. Why the U.S. and China Want a Cheap Dollar by: Jeb Handwerger May 9, 2011

In early January of 2011, a top secret candlelight dinner was held at the White House. There was no fanfare. Present were the industrial, military and governmental heads of both China and the United States. Our government had just digested the failures of Lehman Brothers, AIG and other corporate icons by creating massive bailouts and running up trillion dollar budgetary deficits. China was also concerned about inflation and soaring prices due to the intentional debasement of the U.S. currency by the Federal Reserve. Both sides reached a modus vivendi, so they could mutually profit from these agreements. Please see my January 2011   32  34    

article on the "Chinamese Twins" to understand these past few weeks. Since my January article was published, the yuan has steadily risen versus the greenback. China had long wanted to enter the American financial markets. It had abundant U.S. dollars to make acquisitions and at the same time needed to diversify out of its enormous U.S. debt position. The solution was simple: the U.S. would deliberately weaken the U.S. dollar in order to hope to fortify the proposed elevation of the yuan. Consider the cleverness of these stratagems. A bolstered yuan could allow the growing Chinese middle class to improve their lifestyle. In addition, China would now be able to go on a buying spree for foreign companies, particularly in the area of commodities and natural resources. With the improved yuan they would now be able to acquire foreign companies at more attractive prices then heretofore. An elevated yuan would allow them entree into American institutions and banks. It would also allow U.S. citizens to transfer their cheap U.S. dollars into the yuan at bank windows right here in the United States. Remember that noises have been made establishing the yuan as the world's reserve currency. The agreement was to facilitate Chinese acquisitions and financial entry into the U.S. markets and thus establish a pro quid pro with the United States. Conversely, America would also benefit by being able to sell products at advantageous prices and pay off our colossal trillion dollar debt with cheap dollars. Basically, this was the scheme achieved by China and the United States at that candlelight dinner. The game-plan was conceived in Washington in early January of 2011and delivered by Bernanke in Washington at the end of April with his grand debut in front of the media. The head of the Fed could regale his audience with phrases like interest rates, transitory inflation and other tropes. One question remained that no one would dare to ask: If there is no concern over rising silver prices and the falling dollar, why are precious metals, especially silver, soaring into new highs? Obviously, the plan to devalue the dollar had seen silver -- poor man's gold and a highly speculative market made up of mostly retail investors -- reach record heights. The weapon to combat this "bad inflation" would come not in the form of interest rate hikes to slow down the acceleration of the dollar decline, but through a series of margin rate increases which would cause a temporary shakeout of speculators. Raising the costs of owning silver began a quick de-leveraging by risky traders taking on too much risk at frothy levels. This has sent fear throughout the commodity sector. This correction should be short lived as strong hands will come in and silver will regain its footing and find support after the washout has concluded. I have researched natural resource assets that might prove to be attractive to the Chinese. On our list are companies, some of which already have Chinese participation. Just this year alone Minmetals was outbid by Barrick (ABX) to take over copper miner Equinox (EQNMF.PK). Jinchuan is making a bid for base metal producer Lundin (LUNCF.PK) Mining. General Moly (GMO) has received major assistance to build North America's largest molybdenum mine in Nevada. General Moly is currently writing its feasibility study in Chinese to secure the necessary financing. The Chinese are very willing to partake in these world class assets and are not hiding that fact. This aggressive search for strategic metals may transfer into the rare earth sector as well. Prices are continuing to soar and hybrid car manufacturers are looking for supply over the next 3-5 years as demand is rapidly advancing for the crucial heavy rare earths used in the fuel efficient engines. Manufacturers are trying to get all the ore they can. After our supply runs out, I expect some off take deals to occur in late 2011, with some of these key rare earth assets in North America and Europe. Let us not forget that China made an unsuccessful bid for Lynas (LYSCF.PK) not too long ago. We expect China to now aggressively pursue these strategic metal mining companies as part of this little publicized arrangement between these two powerful nations which I have called the "Chinamese Twins" -- now conjoined intimately. Copper's Price Action Is a Bad Sign for Stocks The breakdown in copper last week is a bad sign for stock prices. Copper and the S&P 500 have been trading in tandem for the past few years. In fact, the price of copper seems to lead stock prices by about two weeks. Traders can use the action in copper to gauge buy and sell signals for stocks. I wrote about this relationship several weeks ago. Back then, the S&P 500 had just suffered a sharp correction. But copper was bouncing off its lows. That was a good indication the stock market correction had run its course. Here's what I wrote at the timeY If you want to know where stocks are headed next,   33  34    

keep an eye on the chart of copper. Right now, copper's bumping into resistance near 440. If it breaks above that level, it should be able to challenge its February highs, and stocks should continue to rally. On the other hand, if resistance holds, support at 420 becomes the critical level. But if copper fails to hold at support, the rally in stocks should fail as well. Copper didn't hold up. It broke below critical support at 420 and is now resting on secondary support near 400. Take a look at this updated chartY This is a bad sign for stocks. With copper now trading below its March-correction low, the S&P is likely to follow suit. In other words, last week's selloff in stocks isn't just a one- or two-day affair. It's probably the start of a several-week correction that should push the S&P 500 below its March low of 1,254. Based on the following chart, 1,225 looks like a reasonable downside targetY Stocks have bounced a bit over the past couple days. And there may be a little more upside to the bounce B if only to work off the oversold condition created by last week's decline. But unless copper rallies hard immediately, traders should sell stocks into any strength and use this as an opportunity to add short-side exposure. It looks like there's more downside ahead for the stock market. Best regards and good trading, Jeff Clar

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