ASIA MARKETS: Asian Markets Retreat; Strong Yen Weighs On Japan

Asian stock markets fell on Wednesday, staying weak after data showing Chinese manufacturing growth cooled in April, with Japanese stocks retreating as the yen strengthened, and Australian shares pulling back from near five-year highs.

Trading volumes were light as many regional markets were closed for Labor Day or other local holidays — including those in mainland China, Hong Kong, India, South Korea, Taiwan and Singapore. Investors were also cautious ahead key central-bank meetings this week.

“It certainly feels like there is a ‘calm before the storm’ effect at the moment. The [European Central Bank] and the [Federal Open Market Committee] will both sit down this week and nut out cash rates and policy positions alike, and this will drive the May markets,” said IG Markets strategist Evan Lucas.

Japan’s Nikkei Stock Average fell 0.3%, and the broader Topix index lost 0.4%.

Australia’s SP/ASX 200 dropped 0.5%, retreating a day after the benchmark ended at its highest level since June 2008.

Both markets retained their early weakness after an the official version of China’s manufacturing Purchasing Managers’ Index (PMI) eased to 50.6 in April from 50.9 in March.

“A careful analysis of breakdown reveals stabilized domestic demand and will help alleviate some concerns. Despite the weaker-than-expected PMI today, we still expect major activity indicators to show a moderate growth recovery in April and the second quarter,” said Bank of America Merrill Lynch chief China economist Ting Lu.

“On policies, we expect overall monetary and fiscal policies to remain accommodative, though we see no need for significant stimulus,” Lu said.

The FOMC was due to announce its monetary policy decision later Wednesday, while the ECB was widely expected to cut its benchmark interest rate by a quarter-point to a record low of 0.5%.

The decline in Tokyo and Sydney came even as the SP 500 Index (SPX) ended at a record level for a second straight day overnight in the U.S, aided by corporate earnings.

For Japanese stocks, the weak start to May followed a spectacular performance in April, when the Nikkei Average surged nearly 12% to tower over other regional benchmarks, driven by hopes an aggressive monetary policy would weaken the yen and boost corporate profits.

Among the major movers in Tokyo on Wednesday, shares of Sharp Corp. (SHCAY) tumbled 4.4% after the Nikkei newspaper reported the company may suffer a bigger net loss than it had forecast for the last financial year ended March 31.

Several other exporters also retreated as the U.S. dollar (USDJPY) slipped further against the yen, fetching Yen97.31, versus Yen97.48 late Tuesday in North America.

Shares of Nissan Motor Co. (NSANY) lost 1.6%, and Canon Inc. (CAJ) gave up 1.6%.

Airline stocks retreated on worries about the financial impact from the grounding of the Boeing Dreamliner jet fleet. Japan Airlines Co. lost 4%, and ANA Holdings Co. (ALNPY) shed 1.4%.

The drop came even as ANA reported a 53% jump in annual profits Tuesday, while Japan Airlines posted a better-than-forecast annual profit of Yen171.67 billion after nearly three years in bankruptcy.

Daihatsu Motor Co. (7262.TO) shed 0.9% following a Nikkei newspaper report that the company has missed out on sales of 17,000 units of a new compact car due to delays by the Indonesian government.

In Sydney, resource-sector stocks remained downbeat after the Chinese PMI data, with diversified mining giant BHP Billiton Ltd. (BHP) off 1.7% and iron-ore producer Fortescue Metals Group Ltd. (FSUGY) losing 2%.

Banks retreated a day after strong results from Australia New Zealand Banking Group Ltd. (ANZBY) pushed the sector sharply higher.

ANZ shares were down 0.2%, while Commonwealth Bank of Australia (CBAUY) gave up 0.8%.

Subscribe to WSJ:

Copyright © 2013 Dow Jones Newswires

Neil Macdonald: The illusion of growth

Mark Grant sits on the aft deck of his yacht in South Florida’s spring sun, ostentatiously relishing his wealth as only an American does, and dispensing advice. He’s made his money, and he likes to wear it.

Grant’s personality is as big as his mansion and as flashy as his collection of exotic cars — he actually calls himself “The Wizard,” a tribute to his own financial acumen.

While we are talking, his cellphone rings intermittently, and the callers are usually serious moneymen. Bill Gross of Pimco, the world’s largest bond agency, is a friend; his praise adorns the dust jacket of Grant’s recent book.

Inevitably, the callers are seeking investment advice.

A nearly 40-year Wall Street veteran, Grant is currently the managing director of a Texas-based investment bank and the author of a daily must-read investment commentary called Out of the Box.

His advice these days to tycoons and small investors alike is simple and direct. For heaven’s sake, seek safety. Preserve your capital. “Keep what you have.”

To Grant, the central banks’ money printing has distorted the financial universe beyond any sensible dimensions.

The Federal Reserve alone is churning out $85 billion a month, or just over a $1 trillion a year. The combined balance sheets (which reflect created money) for the European Central Bank and the 17 individual banks of the eurozone stand at $3.45 trillion.

The Bank of England, the most energetic money printer in the world relative to the size of the economy it serves, has printed £375 billion (roughly $576 billion US), and is probably going to print more. The Bank of Japan has just launched an aggressive money-printing program of its own, planning to double the size of its balance sheet within two years.

The surge in 'new money' on central bank balance sheets since 2008.The surge in ‘new money’ on central bank balance sheets since 2008. (International Monetary Fund)

In all, at the end of 2012, the balance sheets of the world’s largest central banks, those of the G20 nations and the eurozone, including Sweden and Switzerland, totalled $17.4 trillion US, according to Bank of Canada calculations from publicly available data.

That is nearly a quarter of global GDP, and slightly more than double the $8.5 trillion these same institutions were holding at the end of 2007, before the financial crisis hit.

The idea behind all this central bank largesse is to reflate the world’s money supply after the disastrous meltdown of 2008 and, at the same time, push interest rates down as far as possible in an attempt to get people — and companies — borrowing and spending again.

To date, however, the results have been mixed. The U.S. economy has been inching forward, while Britain’s is teetering on a triple dip into recession. Much of Europe is also deep in recession and sinking under the weight of high unemployment.

Whether the massive money-printing program known as quantitative easing has prevented an even worse situation is debatable. But this much is certain: It’s simply impossible to unleash such economic forces without serious consequences, intended and unintended.

Bubble economies

Just about everyone agrees the Dow Jones industrial average — the measure of blue-chip America — did not reach an all-time high recently because of vibrant economic growth or fabulous performance by the companies listed in that index.

Markets are where they are principally because the Federal Reserve has been gobbling up U.S. treasury bills, the safest investment on Earth, in a deliberate attempt to force private investors into riskier assets, like stocks.

It’s a high-stakes form of market engineering.

The Fed has been acting in rare concert with central banks worldwide to encourage borrowing and spending — and risk. And because all the new money being unleashed has to flow somewhere, it’s been flowing, among other places, into the equity markets.

At the same time, the super-low interest rates resulting from all this money printing have heated up real estate markets in big cities worldwide — Toronto and Vancouver being perfect examples.

Grant says the markets and governments have developed an addiction to easy, cheap money to finance irresponsible borrowing.

“All this printing of money is creating a market that rests on a fantasy,” he says.

For the first time ever, there isn’t a single bubble out there, but an “entire world in a bubble. Every asset class, everything you can think of. Everything is in a bubble and something is going to prick it.

“The party,” he says with great certainty, “is going to end.”

An enormous bet

Think-tank economists, who rely on econometric models and speak a language so encoded as to be incomprehensible to most people, tend to look down their noses at analysts like Grant, referring to them as “the newsletter crowd.”

Cheap credit is fuelling stock market runs and new home buying in much of North America. But in places like Spain, bank problems have led to repossessed homes, little construction and huge protests in the streets.Cheap credit is fuelling stock market runs and new home buying in much of North America. But in places like Spain, bank problems have led to repossessed homes, little construction and huge protests in the streets. (Associated Press / Reuters / Reuters)

But Grant has shown prescience. He was among the very first to predict Greece’s financial implosion, and he has correctly pointed up the book-cooking and outright fraud in other eurozone economies.

He is also far from the only one contemplating a bad ending.

Recently, the Bank of International Settlement in Basel echoed Grant’s concern that markets are developing an easy-money habit; and the International Monetary Fund just published a paper acknowledging the possibility of all this money printing (which it calls “monetary policy plus”) creating widespread bubbles and difficult adjustments down the road.

Ros Altmann, a pension manager and a governor of the London School of Economics, compares quantitative easing to treating a sick patient with medication that doesn’t work, and then, when the patient gets sicker, administering even more.

“It must stop,” she says. “It is hugely dangerous. I think history will judge this period very harshly.”

Still, the central bankers have at least as many fans as they do critics.

Don Johnston, the former president of the Treasury Board in the Trudeau government and a former director of the Organization for Economic Co-operation and Development, admires them greatly.

“I think they have more credibility than politicians,” he says, “and it’s been very fortunate that nearly all central banks are independent of the political arm.”

Johnston concedes that the central banks’ power at the moment is “immense.” But he adds: “We had a big fire, and they absolutely had a critical role to play, and they played it, I think, extremely well.”

Still, even Johnston, with his deep experience in government finances, allows that he doesn’t fully understand the complexities of today’s monetary policy, and the arguments for or against opening the spigots as much as they have been.

By acting in concert to push the world in the same direction, the central bankers have made some enormous bets. And, says Johnson, “they’d better be right.”

The trouble is, they’ve been wrong in the recent past.

Central bank economic forecasts in recent years have sometimes been well off the mark, meaning they, too, can be acting on mistaken assumptions.

Also, even someone as seemingly omniscient as Alan Greenspan, the Federal Reserve chief through the Bill Clinton and George W. Bush years, publicly admitted his blunder in refusing to regulate the murky world of credit default swaps, which acted as accelerant in the 2008 disaster.

How to ‘unwind’

Conservative economists have predicted for years that expanding the money supply will inevitably lead to inflation, or even hyperinflation. That, of course, has not happened in this instance, mainly because there’s been so little economic growth and because the world is awash in the production of consumer goods.

But the big question, nearly everyone agrees, is whether the central banks can “unwind” the unprecedented situation they’ve created without massive disruption (not least to their own balance sheets, which are now stuffed with long-term, low-interest bearing bonds as part of the quantitative easing).

It’s an impossible question to answer.

The financial markets scrutinize the abbreviated minutes after every meeting of the Federal Reserve committee that authorizes QE, looking for any sign money printing is about to end.

That ending would signal a rise, perhaps even a sharp one, in interest rates, which could hit the housing market hard.

Homeowners with only a small amount of equity and who are already stretched to the limit would be sorely stressed.

Significant interest rate changes could also affect banks, pension funds and insurance companies, as well as small businesses that have been relying on cheap credit to expand payrolls.

And higher interest rates would also slam into government budgets. Politicians have come to rely on cheap money to finance their borrowing and spending.

Of course, the top people at the Bank of England, the Federal Reserve and the Bank of Canada all argue a return to normalcy can be managed.

Just as the central banks have the power to create money, says Canada’s Mark Carney, they have the power to pull money out of the system, and will, slowly, as growth returns.

They can begin selling off the assets they’ve bought with all this new money, and they have the all-important power to set central interest rates. If growth takes off, in fact, they will have to do those things in order to contain inflation.

But no “unwind” will happen soon, says Carney. “The repair is ongoing.”

The Monarchs of Money
6 key central bankers in profile

In Florida, Mark Grant tells his clients that there are no good endings to all this, “only less bad endings.”

One of the big causes of the 2008 meltdown was too much cheap money, he notes, “and there’s a lot more now.”

Mainstream economists can’t agree on whether an orderly unwind can happen. But then, as Don Johnston points out, “economists don’t know what they don’t know.”

Meanwhile, the central bankers all seem to have landed on the same side of the issue, and are marching in step, urging people to borrow and spend for the good of all.

“Ultimately,” says Carney, “history will judge whether we got this right.”

Boston bombing suspect disappeared after Toronto militant killed

Russian agents placed the elder Boston bombing suspect under surveillance during a six-month visit to southern Russia last year, then scrambled to find him when he suddenly disappeared after police killed a Canadian militant, a security official told The Associated Press.

U.S. law enforcement officials have been trying to determine whether Tamerlan Tsarnaev was indoctrinated or trained by militants during his visit to Dagestan, a Caspian Sea province that has become the centre of a simmering Islamic insurgency.

The security official with the Anti-Extremism Center, a federal agency under Russia’s Interior Ministry, confirmed the Russians shared their concerns.

He told the AP that Russian agents were watching Tsarnaev, and that they searched for him when he disappeared two days after the July 2012 death of the Canadian man, who had joined the Islamic insurgency in the region. The official spoke only on condition of anonymity because he was not authorized to speak to the news media.

Security officials suspected ties between Tsarnaev and the Canadian — an ethnic Russian named William Plotnikov — according to the Novaya Gazeta newspaper, which is known for its independence and investigative reporting and cited an unnamed official with the Anti-Extremism Center, which tracks militants.

The newspaper said the men had social networking ties that brought Tsarnaev to the attention of Russian security services for the first time in late 2010.

It certainly wouldn’t be surprising if the men had met. Both were amateur boxers of roughly the same age whose families had moved from Russia to North America when they were teenagers. In recent years, both had turned to Islam and expressed radical beliefs. And both had travelled to Dagestan, a republic of some three million people.

The AP could not independently confirm whether the two men had communicated on social networks or crossed paths either in Dagestan or in Toronto, where Plotnikov had lived with his parents and where Tsarnaev had an aunt.

After Plotnikov was killed, Tsarnaev left suddenly for the U.S., not waiting to pick up his new Russian passport — ostensibly one of his main reasons for coming to Russia. The official said his sudden departure was considered suspicious.

Father told CBC he lost contact with son

Plotnikov’s father told the CBC News on Monday that his son had broken off contact when he returned to Russia in 2010 and he had no way of knowing whether his son knew Tsarnaev.

In an August interview with the Canadian newspaper National Post, Vitaly Plotnikov said his son, who was 23 when he died, had converted to Islam in 2009 and quickly became radicalized. But he said he fully understood what his son was up to in Russia only when he received photographs and videos after his death.

In one photo, a smiling William Plotnikov is shown posing in the woods, an automatic rifle slung over his shoulder and a camouflage ammunition belt around his waist. In the videos, which the National Post reporter watched with the father, the younger Plotnikov talked openly of planning to kill in the name of Allah.

Plotnikov had been detained in Dagestan in December 2010 on suspicion of having ties to the militants and during his interrogation was forced to hand over a list of social networking friends from the United States and Canada who like him had once lived in Russia, Novaya Gazeta reported.

The newspaper said Tsarnaev’s name was on that list, bringing him for the first time to the attention of Russia’s secret services.

The Islamic insurgency in Dagestan grew out of the fierce fighting between Russian troops and separatists in neighbouring Chechnya that raged in the 1990s. Attacks now are carried out almost daily in Dagestan against police and security forces, who respond with special operations of their own to wipe out the militants.

Plotnikov was among seven suspected militants killed on July 14 during a standoff with police in the Dagestani village of Utamysh, according to the official police record.

Lost track of Tsarnaev

After Plotnikov’s death, Russian security agents lost track of Tsarnaev and went to see his father in Makhachkala, the capital of Dagestan, who told them that his son had returned to the U.S., Novaya Gazeta said.

The agents did not believe the father, since Tsarnaev had left without picking up his new Russian passport, and they continued to search for him, the newspaper reported.

The Russians later determined that Tsarnaev had flown to Moscow on July 16 and to the United States the following day, the newspaper said. Tsarnaev arrived in New York on July 17.

Russian migration officials have said they were puzzled that Tsarnaev applied for the passport but left before it was ready.

His father, Anzhor Tsarnaev, said last week that his elder son stayed with him while waiting for the passport to be processed. He could not be reached Tuesday for comment on the Novaya Gazeta report.

The Tsarnaev family had lived briefly in Dagestan before moving to the United States a decade ago. Both parents returned to Dagestan last year.

The official with Russia’s Anti-Extremism Center said Tsarnaev was filmed attending a mosque in Makhachkala whose worshippers adhere to a more radical strain of Islam. The official would give no further details about what the Russian security services knew about Tsarnaev’s activities in Dagestan or about any possible connection to Plotnikov.

The AP was unable to determine whether the official was the same one who provided the information to Novaya Gazeta.

Plotnikov had settled in Utamysh, a small village about 70 kilometres from Makhachkala. It was not known whether he had spent any significant amount of time in Dagestan’s capital.

© The Associated Press, 2013
The Canadian Press

Canada can’t account for $3.1B in anti-terror funding, AG finds

The federal government needs to do better at tracking and evaluating some of its program spending to ensure taxpayer dollars are being well-spent, Auditor General Michael Ferguson found in his spring report released today, and one of the most striking examples is that it can’t account for $3.1 billion in anti-terrorism funding.

The lack of information on spending and on results achieved for money spent is a common theme throughout Ferguson’s report, which includes 11 chapters in total.

In his audit of the Public Security and Anti-Terrorism (PSAT) Initiative, Ferguson suggested there should have been a government-wide review of spending by 35 departments and of the results for the program that was funded between 2001 and 2009.

He found that departments reported spending $9.8 billion of the $12.9 billion allocated for security and anti-terrorism measures under the program but he couldn’t determine where the other $3.1 billion went. The Treasury Board had no clear answers for him.

Auditor General Michael Ferguson speaks to reporters in the National Press Theatre in Ottawa following the release of his spring report. Auditor General Michael Ferguson speaks to reporters in the National Press Theatre in Ottawa following the release of his spring report. (Sean Kilpatrick/Canadian Press)

Ferguson said he’s not concerned the money is missing, it’s the information about it that can’t be nailed down.

“It’s a matter of missing that last link in putting that information together,” he said at a news conference in Ottawa Tuesday morning. If the money was reallocated from the anti-terrorism program to another program, there should have been approval for that, he added.

“We don’t have enough information to say whether that happened,” he said.

The NDP jumped on the accounting gap as a sign the Conservatives can’t manage the public purse.

“It is really scandalous that [the government] can’t account for the $3.1 billion,” NDP MP Malcolm Allen said. NDP Leader Tom Mulcair called the unaccounted for money a “$3-billion boondoggle.”

Prime Minister Stephen Harper said the issue raised by Ferguson has nothing to do with the improper use of money, but rather with the categorization of spending by different departments over the years.

“There’s some lack of clarity, the auditor general’s made some suggestions on how we can be more clear in our tracking in the future. We will do that,” Harper said in question period. “Unlike the NDP, we remain fully committed to legislation and to expenditures to protect Canadians from terrorism.”

Treasury Board president Tony Clement said there are no allegations of misspent or misallocated money and that Parliament was “in the loop” on how money was spent.

“All government spending, every nickel and dime is reported to Parliament and accounted for each and every year in the public accounts,” he told reporters.

Clement said he accepts the auditor general’s recommendation for his department to provide a clear picture of spending and results for government-wide programs.

Some of the other main findings in the report include:

  • Some departments, including National Defence, aren’t always doing proper security clearances for people and companies hired on contract.
  • The Truth and Reconciliation Commission and the government are not acting in a spirit of reconciliation to create a complete historical record of the residential school system, and there is no plan on how to resolve their disputes.
  • The Public Health Agency of Canada is doing a poor job of managing the Canadian Diabetes Strategy and the impact of the program is unknown.
  • The Canada Revenue Agency is doing better at collecting unpaid taxes, but needs to do more given there are arrears of $29 billion.
  • Better reporting on how development aid money is spent and what results are being achieved is needed.
  • There are concerns over the sustainability of search and rescue activities because of aging equipment and personnel shortages.
  • Human Resources and Skills Development Canada (HRSDC) is doing better at cutting down employment insurance overpayments, but still losing millions a year.

Ferguson’s report on anti-terrorism spending comes at a time when the subject is dominating public debate and Parliament Hill. Anti-terrorism measures were debated in the House of Commons last week, on the same day that arrests were announced by the RCMP. A man from Toronto and another man from Montreal are accused of plotting a terrorist attack on a Via passenger train.

Search and rescue management questioned

Safety and security were also raised in other chapters of Ferguson’s report. He found that some departments, including National Defence, are not following proper procedures for security clearances when outside people or companies are hired on contract. In some cases people were awarded contracts who did not have appropriate security clearances.

Auditor General Michael Ferguson says he has concerns about the sustainability of federal search and rescue activities because of aging equipment and personnel shortages. Auditor General Michael Ferguson says he has concerns about the sustainability of federal search and rescue activities because of aging equipment and personnel shortages. (Andrew Vaughan/Canadian Press)

Defence Minister Peter MacKay’s department is also singled out in the spring report for its management of search and rescue (SAR) activities. Ferguson said he has concerns about the sustainability of SAR activities because of aging equipment and personnel shortages.

The government has been trying to acquire new SAR aircraft since 2002, but the replacement project has been plagued with problems and controversy. A contract to replace the Hercules and Buffalo planes won’t be signed until next year at the earliest and in the meantime, money has to be spent on upgrading and maintaining the older aircraft.

Ferguson also has concerns about the information management system used to manage SAR cases, saying it is “nearing its breaking point.” A replacement system isn’t expected until 2015-16.

MacKay acknowledged there have been ongoing delays with the procurement process and said he accepts the report’s recommendations.

“The reality is that while the process is underway it has not delivered the aircraft that we need,” he told reporters. He also said he is acting on the security clearance concerns identified in the report.

Ferguson’s office also looked at how some departments are doing at implementing Treasury Board requirements to evaluate their programs.

“Overall, we found many areas where the government should improve on the results that it achieves with taxpayers’ dollars,” Ferguson said.

‘Significant weaknesses’ in evaluating programs

Ferguson found that at Agriculture and Agri-Food Canada, Fisheries and Oceans Canada, HRSDC and Treasury Board, there are “significant weaknesses” when it comes to using program evaluations in decision-making.

“As a result, decisions have been made about programs and related expenditures with incomplete information on their effectiveness,” said Ferguson. HRSDC and Agriculture and Agri-Food Canada did not evaluate their ongoing grant and contribution programs over a five-year period, the audit also found.

There is also limited information on the results of spending on international development assistance, Ferguson’s report said. He said the annual report to Parliament on how the money given to multilateral organizations is spent “lacks clarity, and we identified some inaccuracies.”

According to the legislation governing official development assistance, programs are supposed to have a focus on poverty reduction, take into account the perspectives of the poor and meet international human rights standards. Ferguson’s audit raised concerns about those last two provisions.

“Decision makers do not have all the information they would need to determine that the conditions in the act are respected,” he wrote.

About $5.2 billion was spent on development aid in 2010-11.

Ferguson also looked at how the Public Health Agency of Canada (PHAC), Health Canada and the Canadian Institutes of Health Research have implemented the Canadian Diabetes Strategy. What he found is a poorly managed program that hasn’t defined a strategy, priorities, performance measures, timelines or expected results.

PHAC gets $18 million per year for the pan-Canadian diabetes strategy, but according to Ferguson, it’s not keeping tabs on whether its activities are helping to prevent and treat diabetes. The government also funded $44 million in research in 2011-12.

Ongoing disputes over residential schools records

Another chapter in the spring audit report focuses on whether the Truth and Reconciliation Commission, created as part of the settlement over the Indian residential schools system, is getting what it needs from the federal government.

“The Truth and Reconciliation Commission and Aboriginal Affairs and Northern Development Canada have been unable to co-operate, in the spirit of reconciliation, to create as complete as possible a historical record of the Indian residential school system and its legacy,” he said.

The commission has a $60-million budget and five-year mandate that ends in July 2014, and is responsible for collecting records and setting up a national research centre. The problems that have plagued the commission so far don’t show signs of being resolved, according to the audit, which found no detailed plan to resolve the issues.

The spring report said the CRA is making satisfactory progress on tax collection, but “given tax arrears of $29 billion, the agency needs to continue to work to refine and improve its tools.”

Human Resources Minister Diane Finley’s department is also doing better at reducing EI overpayments, but is “missing opportunities” to minimize costs to the program, the audit found. Close to $10 million per year isn’t being recovered because cases are being processed too slowly, he noted.

Obama hints at potential military action in Syria

U.S. President Barack Obama signaled Tuesday he would consider U.S. military action against Syria if “hard, effective evidence” is found to bolster intelligence that chemical weapons have been used in the two-year-old civil war. Among the potential options being readied for him: weapons and ammunition for the Syrian rebels.

Despite such planning, Obama appealed for patience during a White House news conference, saying he needed more conclusive evidence about how and when chemical weapons detected by U.S. intelligence agencies were used and who deployed them. If those questions can be answered, Obama said he would consider actions the Pentagon and intelligence community have prepared for him in the event Syria has crossed his chemical weapons “red line.”

“There are options that are available to me that are on the shelf right now that we have not deployed,” he told reporters packed into the White House briefing room.

Beyond lethal aid to the rebels, several government agencies are also drafting plans for establishing a protective “no-fly zone” over Syria and for targeted missile strikes, according to officials familiar with the planning. However, the officials, who spoke only on condition of anonymity because they were not authorized to publicly discuss the internal deliberations, stressed that Obama had not yet decided to proceed on any of the plans.

Hezbollah stands ready to aid Assad

As Obama raised the prospect of deeper U.S. involvement, Hezbollah’s leader said Tuesday that his Iranian-backed militant group stood ready to aid Syrian President Bashar al-Assad. And new violence in Syria hit the capital of Damascus, as a powerful bomb ripped through a bustling commercial district, killing at least 14 people.

Mindful that any military intervention in the combustible Middle East would be complicated and dangerous, Obama hinted the U.S. would probably avoid taking action unilaterally. Part of the rationale for building a stronger chemical weapons case against Assad, Obama said, is to avoid being in a position “where we can’t mobilize the international community to support what we do.”

Obama has resisted calls to expand U.S. assistance beyond the nonlethal aid the government is providing the rebels. That has frustrated some allies as well as some U.S. lawmakers, who say the deaths of 70,000 Syrians should warrant a more robust American response.

Security personnel walk in front of the former Syrian Interior Ministry building after a deadly blast at Marjeh Square in Damascus. Security personnel walk in front of the former Syrian Interior Ministry building after a deadly blast at Marjeh Square in Damascus. (Khaled al-Hariri/Reuters)

Tuesday’s wide-ranging news conference coincided with the 100-day mark of Obama’s second term. It’s a stretch that has been defined by the defeat of gun control legislation he supported, as well as the continuation of old disputes that marked the president’s first four years in office, including the Syria conflict and the launching of his controversial health care overhaul. Asked if he still had “the juice” to get legislation approved, he smiled and paraphrased Mark Twain’s famous line, saying, “Rumors of my demise may be a little exaggerated at this point.”

Another issue that frustrated Obama in his first term resurfaced when he was pressed about the hunger strike at Guantanamo Bay, the detention centre he promised to close but hasn’t been able to. Obama said he would make another run at it, though he was vague about how.

“I’m going to go back at this,” he said. “I’ve asked my team to review everything that’s currently being done in Guantanamo, everything that we can do administratively, and I’m going to re-engage with Congress to try to make the case that this is not something that’s in the best interest of the American people.”

The president also took questions for the first time about the investigation into the Boston Marathon bombings that rattled the nation two weeks ago. He defended the FBI’s 2011 investigation into Tamerlan Tsarnaev, the suspect who was killed, a probe that resulted in the bureau finding no evidence that he was a threat to the United States.

Russia has since provided more information about Tsarnaev and his mother — both ethnic Chechens— that could have resulted in a more rigorous FBI investigation.

Obama pointedly said that Moscow has been co-operative “since the Boston bombings.” He made no reference to information being held back ahead of the attack, but he did say, “Old habits die hard. There are still suspicions sometimes between our intelligence and law enforcement agencies that date back 10, 20, 30 years, back to the Cold War.”

Chemical weapons questions

Russia has also stymied U.S. efforts at the United Nations to mount pressure against Assad’s embattled government in Syria.

Assad has refused to let a UN team into the areas near Damascus and Aleppo where chemical weapons are believed to have been used. The White House says the team is standing by and could deploy to Syria within 48 hours if Assad allows it in. Given the unlikelihood of Assad giving the inspectors access, the U.S. says it is also seeking answers on its own and through international partners.

Polling suggests war-weary Americans are reluctant to see the U.S. get involved in another conflict in the Middle East. A CBS News/New York Times poll out Tuesday shows 62 percent of Americans say the country does not have a responsibility to intervene in the fighting in Syria, while 24 percent say the government does have that responsibility.

While Obama insists all options are on the table when it comes to dealing with Syria, the White House has little appetite for putting American soldiers into combat there. Even Arizona’s Republican Senator John McCain, who has pressed for aggressive U.S. involvement, has said putting U.S. troops on the ground in Syria would be a mistake.

Underscoring the danger that could await, the leader of Lebanon’s Hezbollah militant group said Tuesday that Syrian rebels will not be able to defeat Assad’s forces by themselves, suggesting the government’s friends, including his Iranian-backed group would intervene on the government side if necessary.

Hezbollah and Iran are close allies of Assad, both accused by rebels of sending fighters to assist Syrian troops.

© The Associated Press, 2013
The Canadian Press

Jail guard union reaches deal with Alberta to end strike

The union representing striking Alberta prison guards has reached a deal with the provincial government which will end the five-day-old illegal strike.

The Alberta Union of Provincial Employees (AUPE) announced in a news release Tuesday night that the province has agreed to deal with safety issues raised by the guards at the Edmonton Remand Centre.

Individual members of the union will not face retribution for walking off the job. Workers will start returning to their jobs at 7 a.m. Wednesday.

The announcement comes after prison guards and sheriffs remained on strike Tuesday despite a court ruling that fined AUPE hundreds of thousand dollars each day workers defied a ruling ordering them back to work.

The union is holding a news conference in Edmonton at 9:45 p.m. MT.

Deputy Solicitor General Tim Grant said at a press conference Tuesday afternoon that all the court sheriffs in Calgary have returned to work and he expected all sheriffs in the province to return to work by the end of the day.

Pickets keep warm outside the Edmonton Remand Centre as an illegal strike moved into its fifth day Tuesday. Pickets keep warm outside the Edmonton Remand Centre as an illegal strike moved into its fifth day Tuesday. (CBC)

But Susan Slade of AUPE says that isn’t completely true.

She said sheriffs in Calgary have not returned, and are in for the long haul.

“I think that’s kind of a scare tactic to intimidate our workers to go back into work, saying that there are people who are crossing right now,” said Slade.

“The sheriffs are still out in Calgary and Edmonton, and as far as I know they are planning to stay out.”

Grant said all the court services staff in Edmonton and Calgary and all the probation officers in rural areas of Alberta have returned to work.

Contradicting statements

Provincial officials said roughly 50 per cent of probation officers in Edmonton and Calgary remain off the job, as well as six court workers in Peace River.

About 42 staff from the jails have crossed the picket line and returned to work, Grant said. He also said the Medicine Hat Correctional Centre is back to normal operations today.

However, he said “a reasonably significant” number of people have called in sick.

“We haven’t tracked those numbers, but that’s an indication in my mind that they want to come back to work but they’re scared to cross the picket line,” Grant said.

AUPE was fined $100,000 Monday night after a judge found it in contempt of court for ignoring a back-to-work order issued Saturday to striking correctional officers.

The judge said the union would pay another $250,000 if the strike did not end by noon today. Each additional day the workers are out will cost $500,000.

As for the workers themselves, Grant said that the province isn’t looking to single them out.

“We’re not seeking to seek retribution against individual members of the union,” he said.

All staff ordered back to work

Striking prison guards, who walked off the job on Friday, were joined Monday by provincial sheriffs, probation officers, court workers and social workers, effectively shutting down court proceedings in Edmonton and Calgary.

All other striking workers were ordered back to work by the Alberta Labour Relations Board on Monday night.

AUPE president Guy Smith said he met with Deputy Premier Thomas Lukaszuk late Monday for a “couple of hours” of productive discussions around some of the issues that prompted guards to walk off the job Friday in an illegal strike that’s now into its fifth day.

Throughout the strike, Lukaszuk has denied there are any safety issues at the Edmonton Remand Centre, saying the dispute was about a guard “not liking their boss.”

“There was animosity, and I think we had to cut through that, and sit down face to face and get to the bare facts of what we have to deal with,” Smith said Tuesday morning.

Neither Lukaszuk nor Public Service Commissioner Dwight Dibben appeared at the Tuesday afternoon briefing. Dibben was scheduled to attend but was called away for unspecified reasons.

But government lawyer Dwayne Chomyn denied that any negotiations were going on behind the scenes.

“There are no negotiations going on. It has always been the government’s position that the union follow the orders of the court and obey the law,” Chomyn said.

“That doesn’t mean that people don’t have discussions to understand each other’s positions.”

However, in a news release sent late Tuesday afternoon, AUPE confirmed that they were in talks with the province.

Fines against union could go to $500K a day

Dozens of pickets remained outside the Edmonton courthouse, with more at the Edmonton Remand Centre Tuesday morning.

About 40 sheriffs were seen picketing at the Calgary Courts Centre earlier this morning, but left to meet a block away to decide what to do next. Court clerks held a separate meeting.

Despite a cease-and-desist order from the Alberta Labour Relations Board to end the walkout, pickets remained up past the noon deadline.

Smith expected to have more discussions with the government.

“Hopefully we can conclude those today,” Smith said. “There still needs to be some work done on that.”

Smith said the fines are the cost of doing business.

“It’s costing the union money, but that’s why we have a defence fund and that’s why we stand behind our members who take action.”

Cease and Desist Order (PDF)

Cease and Desist Order (Text)

Eurozone jobless rise raises hopes of rate cut

The ECB will meet for its monthly meeting tomorrow with analysts suggesting that the economic data may persuade the central bank, headed by Mario Draghi, to cut its main borrowing rate to 0.5 per cent, down from 0.75 per cent, in order to help stimulate a recovery on the Continent.

“If the ECB does hold fire on interest rates it is very likely only delaying the inevitable,” said Howard Archer of IHS Global Insight.

The ECB has been the most hawkish of the major central banks on inflation, easing policy by much less than the US Federal Reserve and the Bank of England. But the fall in the annual rate of inflation from 1.7 per cent in March to 1.2 per cent in April, its lowest level since February 2010, emphasises the lack of inflationary pressure in the bloc and will put the wind in the sails of those members of the governing council proposing a cut.

But Holger Schmieding of Berenberg bank warned that a rate cut might not actually do much good for struggling European borrowers. “A rate cut does little to ease the credit crunch at the euro periphery,” he said. “More direct interventions into the peripheral credit markets would be needed for that.”

The rise in the unemployment rate reflects the rising pain throughout the eurozone, which has been contracting since late 2011. Some 19.2 million people across the single currency area are now out of work. Joblessness in Spain and Greece has reached around 27 per cent of the working age population.

However, highlighting the economic divergence between the fortunes of the core and the periphery, in Germany the unemployment rate last month was just 5.4 per cent. In Austria joblessness was just 4.7 per cent.

The official Spanish statistics agency said yesterday that the state’s economic slump dragged on between January and March, with the economy contracting by a further 0.5 per cent in the first quarter of 2013.