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For the week 8/31-9/4
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Washington and Wall Street
The pattern of an up week followed by a down one continues, with the major averages tumbling anew. The week started off with more concerns over weak data in China (covered below) and ended with further uncertainty concerning the next move by the Federal Reserve, whose Open Market Committee meets Sept. 16-17.
Friday’s August jobs report gave the Fed all the ammunition it needed to finally raise interest rates in 12 days as the unemployment rate fell to 5.1%, the lowest since March 2008, while 173,000 jobs were created, which while below expectations is almost always revised upwards (August, specifically). The figures for June and July were also revised up to 245,000 each, so the three-month average is 221,000, very solid.
And while the labor participation rate of 62.6% is still the lowest since 1977, average hourly earnings rose 0.3%, the best pace since January, and are now up 2.2% year over year, handily above the inflation rate. Earlier this week, the Fed’s ‘beige book’ of regional economic activity revealed that some districts were reporting tighter labor markets and beginning to see wage increases, which is exactly what the Fed wants before it raised rates.
Speaking to a local merchants group Friday morning before release of the employment data, Federal Reserve Bank of Richmond President Jeffrey Lacker, a voting member on the FOMC, noted the unemployment rate “has fallen more rapidly than many people expected” from its Great Recession peak of 10% in October 2009, and that with “slow but steady” economic growth and inflation showing signs of picking up, “It’s time to align our monetary policy with the significant progress we have made,” he said.
Of course the Fed should have begun the normalization process long ago, but barring true global market turmoil the next week (rather than just moves normal for a correction), it will be outrageous if the Fed doesn’t act on the 17th.
There were other notes on the economy this week that were solid. July construction spending, up 0.7%, and factory orders, up 0.4%, were both in line with expectations. And then the Chicago purchasing managers’ survey came in at a solid 54.8. The national ISM figure on manufacturing, 51.1, was the lowest since May 2013, but the services reading was a robust 59.0.
“Super-size August movements in global stocks are but one sign that something may be amiss in the global economy itself – China notwithstanding. There’s the timing and the eventual ‘size’ of the Fed’s ‘tightening’ cycle that I have long advocated but which now seems to be destined to be labeled ‘too little, too late.’ The ‘too late’ refers to the fact that they may have missed their window of opportunity in early 2015, and the ‘too little’ speaks to my concept of a new neutral policy rate which should be closer to 2% nominal, but now cannot be approached without spooking markets further and creating self-inflicted ‘financial instability.’ The Fed, however, seems intent on raising (rates) if only to prove that they can begin the journey to ‘normalization.’ They should, but their September meeting language must be so careful, that ‘one and done’ represents an increasing possibility – at least for the next six months. The Fed is beginning to recognize that 6 years of zero bound interest rates have negative influences on the real economy – it destroys historical business models essential to capitalism such as pension funds, insurance companies, and the willingness to save money itself. If savings wither then so too does its Siamese Twin – investment – and with it, long term productivity – the decline of which we have seen not just in the U.S. but worldwide.”
Gross’ recommendation? Cash. “The reward is not much, but as Will Rogers once said during the Great Depression – ‘I’m not so much concerned about the return on my money as the return of my money.’”
Lastly, Congress has returned and aside from the debate over the Iran nuclear deal (if it actually materializes...see below), you have the contentious visit of Chinese President Xi and then some major budget issues. The Republican leadership wants to keep the spending caps in place (while Democrats want to lift them) and pass a stopgap spending bill that would roll all federal appropriations into one package, but many Republicans, especially those in the Senate running for president, will want to attach amendments aimed at changing policy from immigration to funding for Planned Parenthood.
Bottom line, while no one wants to see a government shutdown, unless a continuing resolution (CR) is passed there is a possibility we could see one and the markets wouldn’t handle that well. House Speaker John Boehner and Senate Majority Leader Mitch McConnell have their work cut out for them as they seek to limit intraparty strife.
Still to come the following month, the current short-term transportation bill expires Oct. 30, with the federal highway trust fund perilously low on cash, while sometime in November or December, the government will need to increase the debt ceiling.
Europe and Asia
There was a slew of data this week. The eurozone manufacturing PMI for August came in at 52.3 vs. 52.4 in July (50 being the dividing line between growth and contraction). Germany was a strong 53.3 (51.8 in July), a 16-mo. high, but France fell to 48.3 from 49.6. Spain and Italy also dipped though to 53.2 and 53.8, respectively. Greece was a still putrid 39.1, up from the dismal 30.2 of July.
On the service side, Germany registered a 54.9 for August vs. 53.8 the prior month, while France fell to 50.6 from 52.0. Spain registered a robust 59.6.
The final eurozone composite (manufacturing and services) was 54.3 in August, the highest since May 2011. [All the preceding from Markit.]
Eurozone retail sales were up 0.4% in July over June, up 2.7% year over year.
On the employment front, the unemployment rate for the eurozone unexpectedly fell to 10.9% in July from 11.1% in June, the lowest since February 2012, as reported by Eurostat.
Germany remained at a record low 4.7% (the government reports it at 6.4%), while France came in at 10.4% (10.3% a year ago). Spain is at 22.2%, down from 24.3% year over year, while Greece is at 25.0% (May). Portugal is down to 12.1% from 14.1% July 2014, and Italy registered a significant decline from 12.5% in June to 12.0% in July, down from 12.9% a year ago.
Youth unemployment rates are still sky high in Greece, 51.8% (May), Spain 48.6% (though down from 54.1% a year earlier), and Italy 40.5%.
A few other numbers on Germany: Retail sales rose 1.4% month on month in July, up 3.3% year over year, but factory orders fell by 1.4%, month on month. Factory gate, or producer prices, fell a 25th straight month, down 1.3% from a year ago.
So with all the above in mind, the European Central Bank’s Governing Council met and ECB President Mario Draghi, in a most downbeat assessment, signaled the bank will beef up its quantitative easing (bond-buying) package should the global market rout threaten the eurozone’s recovery, while noting “there are downside risks” to inflation. Currently the ECB is buying 60bn euro worth of mostly government bonds each month until September 2016, which Draghi could easily extend.
Draghi also downgraded the ECB’s quarterly projections for inflation and growth. Inflation forecasts for this year were revised downwards to 0.1 percent from the 0.3 percent estimate made in June, and just 1.1 percent next year from 1.5 percent. The ECB wants to see inflation of 2 percent.
Growth forecasts were revised down to 1.4 percent this year, from 1.5 percent, 1.7 percent in 2016 from 1.9 percent, and 1.8 percent in 2017 from 2 percent.
The ECB held its benchmark refinancing rate at essentially zero.
In Greece, the snap election is a mere two weeks from now, Sept. 20, and six opinion polls give Syriza just a 1.5 to 2.5-point lead over center-right New Democracy. Back in June the margin was 12-15 points.
Former Prime Minister Alexis Tsipras has seen his approval rating plunge from 61% to 29% in just the past month. A poll by Alco, a research company, has 79% of voters being disappointed by Tsipras’ performance during his seven months in office.
Tsipras stepped down and called the snap vote because he saw his then high approval numbers overcoming any displeasure with the new austerity measures contained in the third bailout, but now this election is totally up in the air and, today, it does not look like a viable coalition could be formed after the vote. To be continued....
And we have the migration issue, which as I projected long ago threatens to tear Europe apart. Even with the photos of the 3-year-old Syrian boy who washed up on the beach, Aylan Kurdi, rocking the continent, and British Prime Minister David Cameron giving in on his tough stance on the migrants, offering to take in thousands more Syrians after accepting just a few hundred since 2014 (vs. 40,000+ for Germany), tensions between east and west in Europe are sky high and there is no unified policy.
The leaders of Poland, Hungary, Czech Republic and Slovakia, for example, met for a crisis meeting in Prague on Friday and reiterated their stance against mandatory quotas to share migrants among EU members, a blow to the European Commission’s plans to share as many as 160,000 people among member states.
“Preserving the voluntary nature of EU solidarity measures – so that each member State may build on its experience, best practices and available resources....any proposal leading to introduction of mandatory and permanent quota for solidarity measures would be unacceptable,” the leaders said in a joint statement. [Financial Times]
Earlier Hungarian Prime Minister Viktor Orban said the unfolding crisis in central Europe is a “German problem.... All of them would like to go to Germany.”
German Chancellor Angela Merkel countered, “If Europe has solidarity and we have also shown solidarity towards others, then we need to show solidarity now. Everything must move quickly.”
Merkel’s Interior Minister Thomas de Maiziere added, “We are a country of immigration....We need migrants because we have too few children. It is, as ever, a question of the degree.”
Merkel added later: “If Europe fails on the question of refugees, if this close link with universal civil rights is broken, then it won’t be the Europe we wished for.”
It is expected 800,000 migrants will arrive in Germany this year; a record 104,000 having done so last month, which is straining the resources of German towns and villages.
“The wrenching photographs of Aylan Kurdi...are an emblem of the moral and legal abdication of Western nations in the face of the worst refugee crisis the world has seen in decades. “Hundreds of thousands of desperate Syrians, Afghans, Iraqis, Somalis and others have embarked this summer on dangerous voyages across the Mediterranean or arduous treks through southeastern Europe in the hope that rich, democratic nations will grant them safe harbor, in keeping with international law and their own commitments. To a shocking degree, they have been met with indifference, disregard or the cold hostility of razor wire and racism....
“The response to the crisis from leaders whose nations boast of their humanitarianism almost beggars belief. Britain has resettled just more than 200 of the 4 million Syrians who have fled the country, yet Prime Minister David Cameron this week claimed his government was taking its fair share. [Ed. written before he changed his mind.] So far this year, Hungary has granted asylum to 278 out of 148,000 applicants, according to the United Nations, even though two-thirds or more of those applying are fleeing war zones and have a right to refuge under international conventions.
“While Aylan’s body was washing ashore, another disgraceful drama was playing out at Budapest’s main train station, where authorities refused to allow thousands of refugees to board trains for Germany – even though German authorities stood ready to receive them. Hungarian Prime Minister Viktor Orban...has been shockingly blunt about his motivations: to defend ‘Europe’s Christian culture’ from an influx of Muslims.
“Such attitudes reveal the deeper stakes of the refugee crisis for the West. If intolerant demagogues such as Mr. Orban are allowed to prevail, then the European Union’s identity as a community of states committed to human rights and the rule of law will be shattered.”
That’s what I’ve been saying. On a certain level, I also remain sympathetic with some who don’t want the refugees in their backyard.
Though a reminder, in the case of Hungary, under EU rules the responsibility for assessing asylum claims rests on the country where a migrant first arrives.
And late Friday, Austria and Germany announced they would take in the refugees now in Hungary.
“Sceptics (note) that the cultural impact of migration is profoundly unsettling, and that Europe is neither willing nor able to absorb big inflows. Europeans recoil when they see crowds of unassimilated, jobless immigrants, as in parts of Paris or Malmo. And they fear Islamist terrorism, especially after the massacre at Charlie Hebdo and the disarming of a gun-wielding Moroccan on a French train last week.
“Not all who express such fears are bigots. And it is clear that monitoring of jihadist groups needs to be stepped up. But the answer to the broader question – how can Europe assimilate migrants better? – can be summarized in three words: let them work. This formula does well in London, New York and Vancouver. Jobs keep young men out of trouble. In the workplace, migrants have to rub along with locals and learn their customs, and vice versa. Which is why policies that keep newcomers idle are so destructive, from Britain’s restrictions on asylum-seekers working to Sweden’s rigid labor laws that make it uneconomic to hire the unskilled. A more open Europe with more flexible labor markets could turn the refugee crisis into an opportunity, just as America did with successive waves of refugees in the 20th century, including plenty from Europe. Let them in, and let them earn.”
One more. From Ishaan Tharoor of the Washington Post:
“As Amnesty International recently pointed out, the ‘six Gulf countries – Qatar, United Arab Emirates, Saudi Arabia, Kuwait, Oman and Bahrain – have offered zero resettlement places to Syrian refugees.’”
Turning to China, stocks, as measured by the Shanghai Composite, declined another 2% this week as the index fell 12% in August after plunging 14.3% in July. The government has been unable to stop the slide, which they wanted to do in the worst way ahead of Thursday’s big military parade.
The numbers on the economy continue to be very poor, with the Caixin manufacturing PMI coming in at 47.3 in August vs. 47.8 in July, the lowest level since March 2009. The services PMI was 51.5 vs. 53.8, also not good.
The government’s official manufacturing PMI was 49.7 in August vs. 50.0 the prior month, worst since Aug. 2012, while the services figure was 53.4 vs. 53.9.
Caixin, formerly known as the HSBC number, measures small- and medium-sized enterprises, while the government looks at large state-owned companies. Both surveys show factories continue to lay off workers, also not good in any way.
“As recent events have demonstrated, China’s stock market crash is not the work of malicious financial journalists and short-selling hedge funds, but a signal of difficult times ahead and perhaps even of an economic road-crash to come. After nearly 35 years of spectacular progress, the Chinese economy faces multiple challenges on many fronts which are not going to be solved by denying harsh realities and imprisoning journalists.
“The progress of recent decades belies an industrial sector which in truth has become quite seriously uncompetitive by international standards. Many of China’s factories need complete retooling to keep up with developments in robotics and other forms of mechanization. Yet if industry is to get less labor intensive, this only further steepens the challenge of employment creation.
“It is reckoned that China needs to create some 20 million jobs a year just to keep pace with employment demand as the population shifts from land to town, eight million of them in high-end professions to cater to the country’s burgeoning output of graduates. China’s modernization has created a monster which it is struggling to feed.
“As the export-growth story waned, China compensated by unleashing a massive investment boom, which internal demand is now struggling to keep up with, rendering many of the country’s shiny new constructs uneconomic and overburdened with bad debts.
“The Chinese leadership looks to growth in consumption and service industries to plug the gap, but these new sources of demand can’t do so without further free-market reform, which in turn requires further loosening of the shackles of political control. Without growth, the Communist Party loses its political legitimacy, yet the old growth model is broken, and to achieve a new one, the authorities must cede the very power and influence that sustains them. Rumor-mongering journalists and short-selling speculators can only be blamed for so long.”
In Japan, the manufacturing PMI was 51.7 in August vs. 51.2 in July. Separately, exports fell 14.7% in August year over year, the biggest decline since Aug. 2009. China is one-quarter of Japan’s exports and they were off 8.8% in the period.
But regular wages in Japan rose 0.6% in July from a year earlier, the biggest increase since Nov. 2005. Adjusted for inflation wages were up 0.3%, the first rise in more than two years. This is good, especially for Prime Minister Shinzo Abe.
--The Dow had its second worst week of the year, down 3.3% to 16102, while the S&P 500 fell 3.4% and Nasdaq 3%.
For the month of August, the Dow was down 6.6%, its worst month since May 2010, while the S&P decline of 6.3% and Nasdaq’s, 6.9%, represented the worst for these two since May 2012.
Germany’s DAX benchmark fell 9.4% in August, its worst month in four years, while the Paris CAC 40 fell 8.7%.
I haven’t made much of the market declines myself because I never change my yearly forecast and back in this space on 1/3/15, I said the Dow and S&P would rise 2% and Nasdaq 5%. December rallies the past decade or so have been seemingly inevitable and we’ll see where this all shakes out.
The market I was adamant on was China and here I was spot on. I said it would crash and it has.
--U.S. Treasury Yields
6-mo. 0.24% 2-yr. 0.71% 10-yr. 2.12% 30-yr. 2.88%
Despite the market volatility and uncertainty over the Fed’s next move, Treasuries finished the week largely unchanged.
--International Monetary Fund Managing Director Christine Lagarde said Tuesday the global expansion outlook is worse than the lender anticipated less than two months ago. “This reflects two forces: a weaker than expected recovery in advanced economies, and a further slowdown in emerging economics, especially in Latin America.”
--The price of oil has been incredibly volatile. About ten days ago it bottomed at $37.75, intraday, on West Texas Intermediate (the price quoted below), and then oil staged its biggest 3-day rally since 1990 to a Monday close of $49.20. Tuesday it then cratered to $45.40, before settling down some the rest of the way and ending the week at $46.05.
The national average for the price of gasoline heading into this holiday weekend is $2.44 per gallon, or 99 cents less than a year ago and the lowest Labor Day gas price since 2004.
--Canada’s economy officially slipped into recession owing to its heavy dependence on the energy sector and collapsing oil prices. The economy shrank 0.5 percent in the second quarter, annualized, after a 0.8 percent decline in the first. Investment in machinery and equipment was down 4.6 percent. This is not good for their immediate neighbors to the south.
The unemployment rate rose to 7.0% in August from 6.8%, though the economy added 12,000 jobs.
But if the Toronto Blue Jays make a good run in the baseball playoffs, that could boost the economy in a huuuuge way...kind of.
--U.S. passenger car sales fell 10% in August vs. a year ago levels, but sales of light trucks and SUVs rose 9%, which led to a 0.5% overall decline, according to Autodata.
Ford sales increased 6%, owing to its best August for SUVs in 12 years, Fiat Chrysler posted a 2% gain and GM’s overall sales fell 0.7%.
Toyota witnessed a 9% decline for the month, while Honda dropped 7%.
Daimler’s Mercedes-Benz sales rose 4.8%, while BMW’s increased 2% and Volkswagen AG’s Audi brand reported sales rose nearly 10%.
The seasonally adjusted annual rate of sales for light vehicles rose to 17.8 million compared with 17.3 million a year earlier and was the highest since July 2005, also according to Autodata.
--India reported GDP rose 7% in the second quarter, matching China’s figure, though no one really believes in the latter, while the former confused matters when the Central Statistics Office said earlier this year it was revising the way it calculates GDP. India’s Q2 figure was down from 7.5% in the first quarter.
--Macau, the semi-autonomous region of China dependent on gambling, reported its second-quarter GDP plunged 26.4%, following declines of 24.5% and 17.2% in the prior two quarters as Beijing cracks down on corruption, which has scared off high-rollers.
Gambling represents half of Macau’s economy, but revenue from VIP rooms accounts for around two-thirds of the gaming take.
--Snapchat has doubled the number of video views it receives per day to 4 billion, according to the company, which puts it on equal footing with Facebook, which announced it was at the 4 billion daily views mark in the first quarter.
--Shares in GoPro Inc. have tumbled from a high of $98 to $37 over fears wearable-camera sales are on a decline, though the shares are still above the IPO price of $24 a share.
--Noted hedge-fund manager David Einhorn’s $11 billion Greenlight Capital fund is down 14% for the year. Bill Ackman’s $20 billion Pershing Square is now flat after losing 9% in August.
--Rebekah Brooks made a surprising return to News Corp as CEO of its UK division, a year after being cleared of charges related to the phone-hacking scandal.
--McDonald’s confirmed it will introduce all-day breakfast beginning Oct. 6. Egg McMuffins, hotcakes, sausage burritos, hash browns and biscuits will be available. It’s a great move. I’m certainly more apt to go there; an Egg McMuffin being good anytime of the day.
But if I were McDonald’s, I’d start marketing pancakes and sausage as a sweet....like dessert.
--Walmart is slashing the hours at 300 of its 24-hour stores – closing them during the graveyard shift for five or six hours “to allow the stores to be in great condition during peak shopping hours,” according to a spokesman.
--Summer movie sales are expected to be up 8% over last summer when the Labor Day weekend finishes up, which would tie it for the second-best summer ever. As noted in the Los Angeles Times, this comes despite dire predictions young people would forsake movies for streaming services. Wrong. The young, still the most frequent moviegoers, showed up, and this despite some major bombs, like “Fantastic Four” and Adam Sandler’s latest dud.
“Jurassic World” was the biggest summer release at $642 million.
--According to Politico, Saudi King Salman bought out the entire Four Seasons in Georgetown for his visit to Washington and meeting with President Obama. Of course I recommend the roasted cod and spring veggie ragout for his entourage.
The king’s delegation took the entire 222 rooms to themselves. Local hookers...actually, I probably shouldn’t go there. And so we move on....
Iran: President Obama secured a major victory this week when more Senate Democrats announced they were supporting the nuclear deal with Iran, denying opponents the two-thirds supermajority margin needed to override Obama’s promised veto of any legislative attempt to dismantle the pact.
But just as importantly for Republicans, who’ve known they wouldn’t secure 67 votes to override a veto, is that they are unlikely to get the 60 votes needed to overcome a filibuster.
Republican Sen. Lindsey Graham (S.C.) said in response to Maryland Democratic Sen. Barbara Mikulski announcing her support, which was the clinching 34th, “The only reason the Ayatollah and his henchmen aren’t dancing in the streets of Tehran is they don’t believe in dancing.”
Secretary of State John Kerry, responding to criticism of the deal, called Israel’s security “sacrosanct” and said the U.S. and Israel were working on a memorandum of understanding to “cement for the next decade” what he described as “unprecedented levels of military assistance.”
“Rejecting this agreement would not be sending a signal of resolve to Iran, it would be broadcasting a message so puzzling that most people across the globe would find it impossible to comprehend,” he said in a speech this week.
“It’s hard to conceive of a quicker or more self-destructive blow to our nation’s credibility and leadership,” Kerry added, “not only with respect to this one issue, but across the board, economically, politically, militarily, even morally. We would pay an immeasurable price for this unilateral reversal.” [Washington Post]
By the way, just 26 percent of U.S. national security workers believe that the nuclear agreement is good for America, a new Defense One survey shows. 71% believe it will have a somewhat or mostly negative impact on the security of Israel.
A new Quinnipiac University poll released Monday has 55 percent of voters opposing the nuclear accord, with just 25 percent supporting it.
Iran’s Supreme Leader Ayatollah Khamenei said on Thursday he backed a parliamentary vote on the nuclear deal and called on the sanctions to be lifted completely rather than suspended, as reported by state television.
President Hassan Rouhani, though, opposes a vote in parliament, saying it would hamper the deal’s implementation.
Khamenei said, “I have told the president that it is not in our interest to not let our lawmakers review the deal.” He has yet to publicly endorse or voice opposition to it. [Jerusalem Post]
Separately, in a meeting with top military commanders on Tuesday, Khamenei told them: “Upgrade your preparedness and options constantly for countering all types of threats” and to identify the enemy’s “vulnerable points” and devise plans for countering them. [Tehran Times]
The next day, a senior Revolutionary Guard commander said: “They (the U.S. and the Zionists) should know that the Islamic Revolution will continue enhancing its preparedness until it overthrows Israel and liberates Palestine...
“We will continue defending not just our own country, but also all the oppressed people of the world, especially those countries that are standing on the forefront of confrontation with the Zionists,” he said.
The Iranian Parliament Speaker’s Adviser for International Affairs said: “Our positions against the usurper Zionist regime have not changed at all; Israel should be annihilated and this is our ultimate slogan.”
[Former senators] Richard G. Lugar and Sam Nunn / Nuclear Threat Initiative
“At the height of the Cold War, the Soviet Union had thousands of nuclear warheads aimed at American cities, and the Soviets were subject to numerous arms control agreements. But progress was hard-fought and incremental at best. In an ideal world, the Soviet Union would have agreed to more severe constraints than those agreed by Presidents Kennedy, Nixon, Ford, Carter, Reagan and Bush, for example. It would have dismantled all of its nuclear weapons, stopped its human rights abuses and halted its meddling around the world.
“But, as all of these presidents – Democratic and Republican – understood, holding out for the impossible is a recipe for no progress at all. Congress should take the same approach today to the Iran nuclear deal....
“Although there are no absolute guarantees, nor can there be in diplomatic accords, our bottom line is that the (nuclear) agreement makes it far less likely that the Iranians will acquire a nuclear weapon over the next 15 years.
“As to risks in going forward with the agreement, Congress must listen carefully to both our intelligence community and the IAEA’s views on any possible weaknesses in the verification regime, and then work with these entities to mitigate any vulnerabilities, both now and in the years ahead....
“Opponents of this agreement have offered criticism that sanctions relief would provide Iran with additional resources that would enable it to intensify its destabilizing behavior in the region. This is a risk, but the argument that this risk can be avoided or reduced by the defeat of this agreement rests on a patently false assumption.
“Anyone believing that the present effective economic sanctions will be continued by Russia, China, India and other nations if Congress rejects this agreement is in a dream world. This agreement and the alliance that brought Iran to the negotiating table through sanctions have focused on Iran’s nuclear activities, not its regional behavior, though both are serious dangers. This alliance could never have been brought or held together to pursue a broad, nuclear and regional agenda on which alliance partners themselves strongly disagree.”
“By enlisting Barbara Mikulski as the 34th Senate vote for his disastrous nuclear deal with Iran, enough to sustain his veto of a resolution of disapproval, President Obama has scored a political victory – but a hollow one.
“That’s because his agreement, the most important foreign-policy measure in decades, will take effect with the support of only a third of Congress – and a similar minority of the American people.
“The president won’t win approval of his odious deal; a majority of Congress remains firmly opposed. He’s simply manipulated the process by demonizing his opponents as warmongers.
“Yes, Obama’s rallied enough Democrats to back him in a show of blind partisan loyalty. But his ‘supporters’ all stress their serious misgivings on the deal....
“Obama may leave office with a ‘win’ on his signature foreign-policy goal, but his successors will have to deal with the dangerous consequences long after he’s gone.”
“As with ObamaCare, the polls now show more than half of the public is opposed to the Iran deal – despite Mr. Obama’s vigorous promotion and a cheerleading media. Also like ObamaCare, the President is assuring Democrats that public support will improve once the pact goes into effect.
“But this makes Democrats hostage to Iran’s behavior. This means hostage to Supreme Leader Ayatollah Ali Khamenei, who recently said that ‘even after this deal our policy toward the arrogant U.S. will not change.’...
“And it means hostage to Qasem Soleimani, head of the Quds Force of Iran’s Revolutionary Guard Corps, which will receive billions of dollars in cash once sanctions are lifted. Mr. Soleimani is likely to deploy that cash to fund terrorism and proxies fighting in Iraq, Syria, Lebanon, Yemen and Gaza. Democrats will have essentially voted to finance Iran’s combination of Persian imperialism and Shiite messianism....
“(All) evidence suggests that Iranian leaders are bent on building a bomb, and without a democratic revolution they will look for loopholes in the deal to exploit. All the more so because they view the agreement as an Iranian negotiating triumph. That habit of the regime is to treat weaker opponents with contempt, which means they will cheat in small ways and dare the U.S. to do something about it.
“Meantime, Democrats will also have to worry how Saudi Arabia, Turkey and Egypt respond to Iran becoming a nuclear-threshold state. Democrats are accountable if a nuclear arms race breaks out in the Middle East.
“The Iran deal is one of those watershed foreign-policy moments when history will remember where politicians stood. Mr. Obama has said as much by conceding that if Iran gets a nuclear weapon, ‘it’s my name on this.’ By forming a partisan phalanx to let Mr. Obama overcome bipartisan opposition, Democrats have also put their names on it.”
Iraq/ISIS/Syria: Syrian President Bashar Assad apparently agreed to early parliamentary elections and to establish contacts with the “healthy opposition,” according to Russian President Vladimir Putin. Speaking to reporters on Friday, Putin said Russia would consider participating in an international coalition to combat Islamic State, with Putin adding he has already discussed this with President Obama, Turkish President Erdogan and Egyptian President al-Sisi.
There have been reports Russian troops are fighting with Assad’s forces and there have been published photographs of Russian planes and drones in the skies over Syria. [On Friday, Putin denied Russian forces were in Syria. Of course he’s denied they were in Ukraine, too.]
Meanwhile, ISIS continued to destroy ancient temples and tombs at Palmyra, including the most important temple at the Syrian site, the 2,000-year-old Temple of Bel.
Yemen: A suicide bombing in a Shiite Muslim mosque, coupled with a car bomb outside the mosque to hit rescuers, killed at least 35 people in the capital of Sana, which remains under the control of Shiite-rooted Houthi rebels. ISIS claimed responsibility. Two Yemeni Red Cross workers were killed in a separate attack near Sana.
Then Friday it was reported 22 UAE troops, operating as part of the Saudi-led coalition, were killed in a missile strike. That’s a big loss for a small nation.
Egypt: Three journalists with al-Jazeera were convicted of “spreading false news” and sentenced to three years in prison at their retrial in Cairo. One, an Australian who was deported back to Australia earlier this year, was tried again in absentia.
The three are accused of aiding the banned Muslim Brotherhood, which they strenuously deny.
China: According to the Pentagon, five Chinese navy ships passed through U.S. territorial waters as they made their first foray off the coast of Alaska, this coming as President Obama visited the state. The ships didn’t do anything threatening.
During China’s huge military parade in Beijing on Thursday, which marked the surrender of Japanese forces at the end of World War II, many of the missiles designed for China’s “blue-water” navy were on display.
In a speech on Thursday, China’s President Xi Jinping said the size of the People’s Liberation Army would be reduced from its current 2.3 million to 2 million, adding the country’s military was “loyally committed to the sacred duty of safeguarding world peace.” [You can stop laughing.]
But the PLA employs tens of thousands of personal drivers and troupes of dancers and entertainers so cutting 300,000 non-combat personnel is not that big a task and it’s all part of Xi’s modernization efforts and a shift to the air force and navy and away from its massive ill-trained, ill-equipped land forces.
Back to the parade, China showed off its newest missiles, including the DF-21D antiship ballistic missile known as the “carrier killer” for its potential to disable U.S. aircraft carriers, and the DF-26 intermediate ballistic missile that can strike U.S. bases as far away as Guam. “Safeguarding world peace” my butt, Xi.
“The Chinese government has called the parade to mark the 70th anniversary of ‘victory in the war of Japanese aggression.’ But, in the 21st century, it is potential Chinese aggression that is worrying many Asian countries. China has unresolved territorial disputes with several of its neighbors. Vietnam, India, Japan and the Philippines have all complained about Chinese incursions, backed by military force, into these disputed areas. This year China has also engaged in ‘land reclamation’ projects in the South China Sea – creating entire islands that are likely to be equipped with airstrips and military facilities, to reinforce Beijing’s claims to territorial waters thousands of miles from the Chinese mainland.
“Such overt militarism is a risky course. If it goes wrong, it could destroy the international order that has provided the basis for China’s stunning economic success over the past 40 years. Ever since the late 1970s, successive Chinese leaders have realized that the economic transformation of their country depended on globalization and peaceful relations with their major trading partners. To get the message across, Chinese leaders parroted slogans such as ‘peaceful rise’ and ‘harmonious world.’
“Under President Xi Jinping, however, China seems inclined to take a more assertive approach in territorial disputes that it regards as part of its ‘core national interests.’ This is a reflection of both strength and weakness....
“(Ever since the 1989 Tiananmen Square crackdown), the Community party has based its legitimacy on two pillars. The first is strong economic growth. The second is nationalism, or what Mr. Xi calls the ‘great rejuvenation of the Chinese people.’ With growth faltering, there is clearly a strong temptation to rely even further on nationalism. [Ed. sound familiar?]
“However, playing the nationalism card creates new risks. The evidence can be seen in a palpable rise in tensions across the Asia-Pacific region....
“Of course, compared with the violent chaos across the Middle East, or even the warfare in Ukraine, the situation in the Asia-Pacific region remains enviably calm. But while the tensions in Asia are lower than in the Middle East, the stakes are higher. The military tensions there involve China, the U.S. and Japan – the three largest economies in the world.
“Mr. Xi and his colleagues surely know that a serious military conflict would be a tragic mistake for China. The real risk is not that China will choose war, but that its leadership might miscalculate the reactions of its neighbors or the U.S. – and that a territorial dispute or an unplanned military clash at sea then escalates into a major international incident. Even if such a crisis were swiftly defused, the political fallout could inflict lasting damage on both China and the global economy.”
A view from Australia...John Garnaut / Sydney Morning Herald:
“China has won the first round of its contest for control in the South China Sea by completing construction of an archipelago of artificial islands, say senior Australian sources.
“And there is little that will stop China from winning the next round, too, as an indecisive U.S. administration and allies including Australia struggle to follow through on earlier promises to challenge unlawful Chinese claims with ‘freedom of navigation’ exercises, the sources say.
“By 2017, military analysts expect China will have equipped its new sand islands with ports, barracks, battlements, artillery, air strips and long-range radar systems that will enable it to project military and paramilitary power into the furthest and most hotly-contested reaches of the South China Sea.
“Those facilities would give China the ability to obstruct other claimant countries and potentially disrupt sea lanes that carry more than three-fifths of Australia’s merchandise trade, according to military analysts.
“ ‘This is a huge strategic victory for China,’ said one official source.
“ ‘They’ve won Round 1,’ said another. ‘It’s hard to see how they will be stopped from winning the next round too.’”
Separately, in preparation for President Xi’s visit to Washington, the Obama administration is developing a package of economic sanctions against Chinese companies and individuals who have benefited from the Chinese government’s industrial espionage efforts, including cybertheft of valuable trade secrets, that could be levied in the coming days, which some say sends a message to China and Xi that we are serious about cracking down on such bad behavior, but at the same time there’s no telling how Xi will react so soon before his arrival and whether China retaliates in any big way. That said, the U.S. must take these steps.
Lastly, the Los Angeles Times reported spy services in China and Russia “are aggressively aggregating and cross-indexing hacked U.S. computer databases – including security clearance applications, airline records and medical insurance forms – to identify U.S. intelligence officers and agents,” according to U.S. officials.
Russia: The economy may shrink as much as 6% this year, according to some Russian experts, which is what the Russian central bank predicted would happen if oil fell to $40 a barrel. Owing to high oil and natural gas prices, Russia’s economy had average growth of 7% from 1999 to 2008.
The current situation doesn’t enhance President Putin’s standing. As I’ve been predicting Putin’s ouster from within, the Sept. 7-14 issue of TIME has an extensive report by Simon Shuster on “The dangerous rise of Kremlin hard-liners.”
“Known in Russia as the siloviki, or ‘men of force,’ this coterie of generals and KGB veterans has come to fully dominate political life in Russia in the year and a half since the war in Ukraine ruptured Moscow’s relations with the West. Their rise has contributed to what several current and former advisers to the Kremlin describe as an atmosphere of paranoia and aggression. Officials seen as sympathetic toward the West have been mostly sidelined and discredited, limiting the voices Putin hears on matters of national and global security. The result is a regime in Moscow that looks increasingly antagonistic to the West and appears prone to ill-considered and dangerous decisions.”
A survey by the state-owned Public Opinion Research Center revealed most Russians “believe the United States is an immoral and unequal country where people are not warm to each other or are openly racist,” as reported by the Moscow Times’ Ivan Nichepurenko. A majority of Russians genuinely see the U.S. as an enemy, as well.
One analyst interviewed by the Moscow Times said that regarding this last point, “There is a demand in the society to construct an enemy that would explain the worsening living conditions and also boost peoples’ self-esteem.”
70% of Russians have a negative view of the U.S., though this is down from 81% in January in the same survey.
Separately, a poll by the Public Opinion Foundation showed 72% of Russians would have voted for Putin in August, down from 76% in May, and 81% in January. [U.S. politicians would kill for such ‘approval’ numbers.]
In Ukraine, three died in a massive protest outside the country’s parliament in Kiev on Monday, as fighting broke out between protesters and law-enforcement officers after a vote on a bill to amend Ukraine’s constitution and hand greater autonomy to local governments. The measure is part of the peace deal reached between Kiev and the separatists in the east that was brokered in February.
Opponents say it grants too much autonomy to rebel-held regions. It is believed a demonstrator from the far-right Svoboda party threw an explosive that killed a National Guardsman instantly (two others dying later of their injuries).
This is exactly what the Kremlin wants to see...further internal dissent and instability and Putin will do all he can to foment it.
Nigeria: At least 56 people were killed in a suspected Boko Haram attack on a village in the northeastern part of the country. One resident of the village who escaped later said the insurgents arrived on horseback and killed at least 68.
Sierra Leone: 1,000 people have been put under quarantine following the death of a 67-year-old woman who tested positive for Ebola. The quarantine will last for three weeks, provided no new cases are recorded. Sierra Leone was in the midst of a countdown to be officially declared Ebola-free.
Malaysia: Former Prime Minister Mahathir Mohamad has been leading protesters on the streets of Kuala Lumpur calling for the removal of Prime Minister Najib Razak. Protesters are angered by a $700m payment made to Najib’s bank account from unnamed foreign donors, as I reported when the story first broke months ago.
Mahathir led Malaysia from 1981-2003 and has become a fierce critic of Najib.
Guatemala: There was a rather startling development here this week. Hours after resigning his post as the president, Otto Perez Molina, a former general and the country’s most powerful figure, was sent to jail to await the conclusion of a hearing into his role in a multimillion dollar customs fraud.
Perez Molina tendered his resignation Wednesday night and by midmorning Thursday, the Congress had accepted it. He then appeared in court for the evidentiary hearing, at which point prosecutors produced six hours of wiretapped conversations.
On his way out of the courtroom, Perez Molina told reporters, “All Guatemalans have to respect the law, and I assure you I will respect the law and this process.” [New York Times]
--In a Monmouth University Poll of likely Iowa Republican caucusgoers, Ben Carson and Donald Trump were tied for the top spot at 23%, but then it’s Carly Fiorina (10%), Ted Cruz (9%), Scott Walker (7%), Jeb Bush (5%) and John Kasich and Marco Rubio at 4%.
Carson has a huge 81% favorable rating among Iowa Republicans compared with just 6% unfavorable, while Trump is at 52% favorable, 33% unfavorable...slight improvements from July. Bush’s splits are awful...32% favorable and 51% unfavorable. Carly Fiorina is 67% favorable, 8% unfavorable.
New Jersey Gov. Chris Christie is gaining zero traction in this critical state...1% in both July and August in this survey, despite the large crowd and positive response for him that I saw the other day at the Iowa State Fair.
In a Bloomberg Politics/Des Moines Register Iowa Poll of likely caucusgoers, Trump led Carson 23 to 18. Cruz and Walker were at 8%, Rubio and Bush at 6%, Fiorina at 5%.
But in a Monmouth University national survey released Thursday, Trump took 30%, four points better than the same survey before the first GOP debate, with Ben Carson a distant second at 18%, though a big improvement for him over the 5% he received in early August.
Then it’s the same story as above...Bush and Cruz take 8%, followed by Rubio at 5% and Fiorina and Mike Huckabee at 4%.
Scott Walker received only 3% in this national poll. He was in third at 11% before the first debate.
On the Democratic side, the Bloomberg/Des Moines Register survey has Hillary Clinton with just a 7-point lead over Vermont Sen. Bernie Sanders, 37-30. Joe Biden, who has yet to decide whether to join the race, captures 14%. For Clinton, it was the first time she dropped below 50% in this particular poll this year.
[Biden said on Thursday he “would not hesitate” to enter the race if he weren’t going through a trying emotional time and that the “most relevant factor” holding him back is his – and his family’s – grief over the recent death of his son.]
And this late national poll on Friday, Gallup has Trump at a net favorability rating of 32, up 16 from mid-August. Gallup said in a statement: “This marks a significant shift. Trump’s image previous to the last two weeks had been relatively stable despite the extraordinary media attention his candidacy has engendered.” [68% of Republicans have a favorable view, 31% an unfavorable one.] Trump also is the most familiar Republican candidate at 94%, followed by Jeb Bush at 85%.
--In the latest ABC News/Washington Post poll, Hillary Clinton’s favorability is under water again: 45% now see her favorably, down 7 percentage points since midsummer, while 53% rate her unfavorably, up 8.
Donald Trump is rated favorably by 37% of Americans and unfavorably by 59%, a 4-point rise in favorability since mid-July. But Jeb Bush is seen almost as negatively, 38-55%.
--On Thursday, Trump signed the “loyalty pledge” after a brief meeting with RNC Chairman Reince Priebus, so at least for now, Trump won’t launch a third-party bid were he not to get the Republican nomination.
But does this hurt him with his base? It shatters the image he’s not beholden to anyone and perhaps emboldens some of the other candidates to attack him further.
As for the Hugh Hewitt interview bit on foreign policy, yes, Trump muffed it (though I wouldn’t have remembered Julani is al-Nusra’s chief myself), but both Trump and Carson are quick studies and I’ve heard Trump give some good foreign policy answers in the past.
--CNN is tweaking the way it determines which GOP candidates can participate in the Sept. 16 presidential debate; the bottom line being they needed to make sure Carly Fiorina was on the stage. The criteria CNN originally talked about would have relied too heavily on polls from mid-July, prior to the first debate on Aug. 6 when Fiorina did well in the happy hour debate, which helped fuel her recent poll numbers. Don’t be surprised if there are now 11 on stage, however.
--In the latest trove of Hillary Clinton’s emails while she was secretary of state, it’s clear longtime Clinton aide Sidney Blumenthal had an outsize role in advising her even though the Obama White House had blocked Clinton’s efforts to give him a permanent job in the State Department. Instead, as Byron Tau writes in the Wall Street Journal, “(Blumenthal) served as political wise man, occasional gate keeper and one-man intelligence service – feeding Mrs. Clinton a steady diet of political advice, foreign-intelligence information, capital gossip and electoral insight in quick email blasts, long memorandums and late-night phone calls.”
In one of his emails, Blumenthal described future House Speaker John Boehner as a “louche, alcoholic, lazy, and without any commitment to any principle.” He also said David Axelrod, a top adviser to President Obama, was out of his realm in foreign policy.
Of the emails released on Monday, 150 messages included information that was deemed to be “confidential” – the classification given to the least sensitive level of secret information – after the fact. The FBI, which has possession of the private server, is trying to recover her deleted emails and determine if it was hacked.
“It’s true that many officials have at one time sent emails over a personal instead of official account. But a personal email does not require a personal server. Nor does the Colin-Powell-Did-It defense apply here, because while Mr. Powell as secretary of state did send some work emails over his personal email, he never set up his own server.
“Only one explanation makes any sense: Mrs. Clinton entered the Obama administration determined to put in place a system to help her avoid accountability. Democratic operative James Carville admitted as much on ABC’s ‘This Week’ in March when he said: ‘I suspect she didn’t want Louie Gohmert’ – a Republican congressman from Texas – ‘rifling through her emails.’
“Remember, a private server has nothing to do with the convenience of having all your email accounts on one smartphone, Mrs. Clinton’s original excuse for mixing personal and official emails. It has nothing to do with whether classified information is marked. And it has nothing to do with whether her emails were about yoga or Chelsea’s wedding – or Benghazi or some looming Clinton Foundation conflict of interest.
“Mrs. Clinton’s private server was about one thing: control. She used it to ensure she would be in a position to thwart effective oversight and accountability....
“She continues to benefit, moreover, from the way she, the Obama administration and the FBI have dragged their feet, even as a new Quinnipiac poll reveals that the top three words voters associate with her are ‘liar,’ ‘dishonest’ and ‘untrustworthy.’ The point is, even though we know that she used her personal email accounts to carry out State Department business, most emails may well remain hidden through the 2016 election – which she could win.”
--Donald Trump has been ripping longtime Clinton aide Huma Abedin, whose husband is Anthony Weiner.
“So Huma is getting classified secrets,” Trump said. “She’s married to Anthony Weiner, who’s a perv....
“Do you think there’s even a five percent chance that she’s not telling Anthony Weiner...what the hell is coming across?”
--From Maureen Dowd’s column in the New York Times, former Bush #43 adviser Matthew Dowd (no relation) said the other day: “The prospect of Hillary and Jeb as the nominees created a huge opening for something like (the rise of Trump). The American public looked at it and said, ‘I do not want that.’’
Maureen Dowd: “Dowd said Friday that everyone should stop being in denial and start accepting that Trump could be the nominee.
“ ‘Do I think that Trump should be president?’ Dowd asked. ‘No. Do I think he can be the badly needed match that burns down the status quo? Yes. Do I think he could precipitate an advent of a real third party? Yes.’
“He thinks the other candidates don’t know how to deal with Trump. ‘They should treat him like an alien visitor,’ he said, ‘and, like judo, use his own weight – in this case, his self-absorption and hair-trigger reactions – against him. He doesn’t care if you say he’s not a real conservative.’”
--Bernie Sanders and the other Democratic candidates certainly have a good point when they complain about the Democratic National Committee’s limiting the number of debates. I forgot to mention last time that when I was in Iowa, the speaker before Chris Christie was Debbie Wasserman Schultz, chair of the DNC. She was awful. But there were more than a few in the audience carrying placards “Allow Debate” (Actually #AllowDebate). The first one with the Democratic candidates is not until Oct. 13 in Nevada.
--In a Pew Research Center survey of U.S. Catholics and Family Life, six-in-ten Catholics say working to help the poor and needy is essential to their Catholic identity, while only about half as many say the same about working to address climate change, which isn’t what Pope Francis would want to hear.
84% say it is acceptable for unmarried parents who live together to bring up children. Fully two-thirds of American Catholics think it is acceptable for same-sex couples to raise children, including 43% who say a gay or lesbian couple with children is just as good as any other kind of family.
85% think it is acceptable for a man and woman to live together as a couple outside of marriage.
But those who attend Mass regularly are more inclined to hew to the traditional teachings of the church. 59% in this group, for example, say homosexual behavior is a sin.
62% felt that the church should allow priests to marry, while 59% of Catholics surveyed thought women should be allowed to become priests.
Meanwhile, 77% of those who were raised Catholic but no longer identify with the religion said they could not envision themselves eventually returning to the church.
Catholics have long made up about a quarter of the U.S. population, but that has fallen to about 21%.
--Shannon J. Miles, the black man accused of capital murder for gunning down Harris County (Tex.) Deputy Sheriff Darren Goforth, was found to have shot Goforth in the back of the head, firing a total of 15 times. While no motive has been revealed, a sheriff involved in the investigation said, “Our assumption is that he (Goforth) was a target because he wore a uniform.”
Sheriff Ron Hickman said, “We’ve heard Black Lives Matter, All Lives Matter. Well, cops’ lives matter, too.”
--Homicides spiked in Los Angeles in August to 39, the deadliest August since 2007. Many were attributed to gang crime in South L.A. Cities such as Baltimore, Milwaukee and Hartford, Conn., have already seen more homicides in 2015 than they did in all of 2014.
--For all the quality of life issues in New York City that sicken the denizens of Gotham, for the period between June and August, there were just 82 homicides and 345 shootings in the five boroughs, the lowest for both data points since the NYPD began keeping detailed records two decades ago. As of Monday, for the year there were 13 more homicides in 2015 from 2014, a 6% rise, which is insignificant.
--In the most successful four-day sweep of its kind, 244 foreign nationals were taken into federal custody last week across Southern California; the majority of them with at least one felony conviction on their record, authorities said. 191 were from Mexico.
In the past it was easier for ICE agents to locate and deport immigrants who had been convicted of crimes by contacting local jails and asking such inmates to be held until ICE arrives.
But last year a federal judge found the practice illegal and so now ICE has to conduct dangerous manhunts or multi-day sweeps. [Los Angeles Times]
“So the most famous county clerk in America is now in jail. Kim Davis is the clerk for Kentucky’s Rowan County who says her Christian beliefs preclude her from issuing marriage licenses for gay couples. She maintains this position notwithstanding the Supreme Court’s June decision finding a constitutional right to same-sex marriage, and an August ruling by federal Judge David Bunning ordering her to issue these licenses....
“Judge Bunning’s principle – that Americans, and especially government officials, do not get to pick which laws and orders they will follow – is certainly right.
“Yet the Davis case also underscores a glaring double standard. In response to Judge Bunning’s decision to jail Ms. Davis, White House spokesman Josh Earnest said, ‘The success of our democracy depends on the rule of law, and there is no public official that is above the rule of law.’
“We don’t recall President Obama insisting on ‘the rule of law’ when his then Attorney General, Eric Holder, announced in 2011 that he wouldn’t defend challenges to what was then the law – the Defense of Marriage Act signed by President Bill Clinton – in the courts. Nor did we hear about upholding the law when mayors such as Gavin Newsom in San Francisco issued marriage licenses to same-sex couples in defiance of state laws.
“Officials such as Messrs. Holder and Newsom were as guilty as Ms. Davis of elevating personal preferences over the law. Yet they were lionized by those now holding up an obscure Kentucky clerk as a national villain. Meanwhile, five of Rowan County’s six deputy clerks say they will start processing licenses for same-sex couples Friday, but Miss Davis says she will not authorize them.”
--The National Park Service, prior to the Labor Day weekend, had recorded 5 million more visitors to its parks this summer vs. last year. Needless to say there have been traffic nightmares, with many arriving at the Grand Canyon, for example, only to turn around because there was no parking.
--At the start of his Alaska adventure, President Obama changed the name of North America’s tallest peak, Mount McKinley, to Denali, its traditional Athabascan name.
Well, various Ohio lawmakers were none too pleased that their native son, former President William McKinley, was being stripped of the honor. But I have more important things to worry about.
--I run five days a week and am building up to my annual half-marathon down in Kiawah, S.C. in December, but Donald Trump would call me a low-energy person because I take 3 naps a day.
Pray for the men and women of our armed forces...and all the fallen.
Gold closed at $1121
Returns for the week 8/31-9/4
Dow Jones -3.3% 
S&P 500 -3.4% 
S&P MidCap -2.8%
Russell 2000 -2.3%
Nasdaq -3.0% 
Returns for the period 1/1/15-9/4/15
Dow Jones -9.7%
S&P 500 -6.7%
S&P MidCap -4.6%
Russell 2000 -5.7%
Bears 26.8 [Source: Investors Intelligence...bull figure is lowest since March 2009, the bottom.; bears highest since Fall 2011.]
Dr. Bortrum posted a new column.
Thank you for your support. Have a great week.