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Week in Review

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05/21/2016

For the week 5/16-5/20

**Posted 3:30 PM ET...Friday...due to travel.  I will fill in the closing data and add a brief market commentary later.** 

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Edition 893

Washington and Wall Street

Global markets sloughed off the latest suspected terror incident, the downing of EgyptAir Flight 804.  Outside of the Middle East, there has never been an immediate follow-on incident since 9/11 and that’s the sole reason for the complacency.  One of these days, though, there will be two concurrent large-scale attacks, in two different cities or on two different planes, and sentiment will change, likely in a big way. For starters, tourism and business travel  are large components of the global economy.

But in the U.S., for this past week the big story was the Federal Reserve and growing talk from Fed officials that a rate increase at the June14-15 meeting is back on the table after the probability of one had been reduced to about 3%.

Nope, the Fed minutes from the April meeting were released the other day and they revealed that the Fed’s Open Market Committee thought an interest rate increase was appropriate in June if the data continues to improve.  After a putrid 0.5% first quarter on the GDP front, the second quarter is looking more like 2.5%.

“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the [Fed’s] 2% objective, then it likely would be appropriate for the [Fed] to increase the target range for the federal funds rate in June,” said the minutes.

Officials also toned down concerns over the risks posed by global economic and financial conditions.

“Participants generally agreed that the risks to the economic outlook posed by global economic and financial developments had receded over the intermeeting period,” the minutes said.

Several Fed presidents have delivered speeches in recent days expressing concern the markets were underestimating the odds of a rate increase next month.

But while the data has largely been better lately, it’s going to be tough for the Fed to move right before the June 23 Brexit referendum (covered below), so I’m now in the camp that believes the Fed could act at the July 27 confab.  After that you have to wait until Sept. 21 (unless there is a move in the interim, which is always possible), and that would be too close to the election.

Speaking of data, housing starts were better than expected for the month of April, 1.172 million annualized, up 6.6% over the month before, while April existing home sales also came in stronger than forecast, 5.45 million, up 1.7%.  But the median price, $232,500 on an existing home, is up 6.3% from a year earlier, which is not good since this is significantly greater than wage growth.

April industrial production rose a robust 0.7%.

And consumer prices for last month were up 0.4%, in line, with the core rate, ex-food and energy, up 0.2%.  Year-over-year, the CPI is up 1.1%, though up 2.1% on core, so that’s a string of numbers over the Fed’s key 2% barometer, though admittedly not the Fed’s preferred benchmark.

That said, you also have 2%+ wage growth recently, so there is inflation and that is supposed to be the Fed’s number one mandate, price stability.

One more key employment report before the Fed next meets and if it is reasonably strong, at the very least expect a statement from the Fed on June 15 that it is about to act, which would signal July.

Europe and Asia

The suspected bombing of EgyptAir Flight 804, bound for Cairo from Paris, will only add to the unease across France, in particular, as host for the Euro 2016 soccer championships that start next month.  According to France’s spy chief, Patrick Calvar, in rare remarks he spelled out “a new form of attack...characterized by placing explosive devices in places where there are large crowds and repeating this type of action to create a climate of maximum panic.”

It is feared ISIL will launch a “spectacular” against “soft target” football fans.  Calvar warned: “Clearly, France is the most threatened and we know that Daesh (ISIL) is planning new attacks.”

Calvar said the militant group had the numbers to launch the new attacks, including some 645 French citizens or residents currently in Syria or Iraq, of which 400 were fighters.  A further 201 were either in transit to or from the region, he added.

With the group under pressure in Syria, however, Calvar said ISIS would want to hit back in Europe, “as quickly as possible and as hard as possible.”

Euro 2016 starts on June 10 and runs for a month at 10 stadiums across France, 51 matches involving 24 teams, with 2.5 million spectators expected.  One example of the popularity...70,000 Irish football fans will be heading over for the competition.  [Irish Independent]

[One consequence of previous terror attacks in Paris and Brussels, Eurostar has reported a fall in passengers using the high-speed rail service, saying travelers “remain cautious,” with a particular slowdown in travelers from the U.S. and Asia.  But, Eurostar also said it saw a surge in tickets ahead of the Euro 2016 tournament.]

---

On the economic front, just a little data for the eurozone.  Inflation in the EA19 is back in deflation mode, -0.2% annualized in April compared to unchanged in March, according to Eurostat.  Germany was at -0.3%, Spain -1.2%, and Italy -0.4%. Romania was -2.6%.

Car sales in the European Union rose 9.1% in April to 1.3 million vehicles (the best month since April 2008), according to the European Auto Manufacturers Association.

Italy’s health minister brought up a topic that affects all of Europe, the “apocalyptic” decline in birth rates.  In Italy’s case just 488,000 babies were born in 2015, fewer than in any year since the modern state was founded in 1861.  Italian women gave birth to 1.39 children each on average, compared with an EU average of 1.58 (2014 data), while the replacement rate is 2.1 to keep a population stable.  [Or else you need a lot of migrants and that’s a problem of a different sort.]

So the health minister, Beatrice Lorenzin, said Italy’s bonus for lower income families should be twice the current $90 per month.

Retail sales for the month of April in the U.K. were very solid, up 1.3% from March, double forecasts, which was encouraging since other recent data has been poor, sentiment hurt by the uncertainty created by the looming vote.

Speaking of which, Brexit and the June 23 referendum in Britain on staying in or leaving the EU, the British pound had  a strong week as a number of polls showed growing support for remaining ‘In.’  A Times of London survey had it 44-40 for staying, while an Ipsos Mori survey had it 48-35 in favor, while an ORB/Telegraph poll showed 55% In, 40% Out.  But a TNS survey had it 38% In, 41% Out.

Overall, though, the trend has definitely been in favor of the In camp.

European Council president Donald Tusk said the only alternative to the EU is “political chaos” should Britain leave.  Brexit campaigner Boris Johnson compared the EU’s aims with Hitler’s, to which Tusk said of the ex-London mayor: “When I hear the EU being compared to the plans and projects of Adolf Hitler I cannot remain silent.”  Tusk said the EU remained a “firewall” against conflict between European countries, saying the “banal” truth was “the only alternative for the Union is political chaos, the return to national egoisms, and in consequence, the triumph of anti-democratic tendencies, which can lead to history repeating itself.”

Regarding the Greek debt crisis, eurozone finance ministers meet on Tuesday, May 24, though the IMF’s latest recommendations to be presented then have leaked, of course. 

The IMF is repeating it will only take part in the 86bn euro bailout if its European partners can prove “the numbers add up,” according to the Financial Times.

In order for this to happen, the fund must be assured Greece’s humongous debt is placed on a sustainable downward path.

Heretofore, the IMF has said that without any debt relief, Greece’s debt would hit 294% of GDP by 2060, which is absurd...making such a long-range forecast, but that’s certainly the path the country is on from its current 172% of GDP figure.

So the IMF wants to see a moratorium on payments until 2040 – meaning Greece would pay none of the costs of servicing any of its bonds or loans for the next 24 years.

And the IMF wants to see maturities extended to 2080 for loans owed to Greece’s fellow member states (known as the Greek loan facility) from the current 2040.

And to cap interest rates at no more than 1.5% of GDP every year until 2045.

But the IMF doesn’t mention the politics of it all and there are large hurdles associated with such changes, such as needing approval from various member states’ parliaments, even though outright haircuts on Greek bonds have been ruled out by both the IMF and the Europeans.

On the migration front, Greece has been struggling to return recent arrivals to Turkey per the standing agreement.  As reported by the Wall Street Journal’s Nektaria Stamouli, “Two months after the European Union’s controversial deal with Turkey came into effect, still no refugees have been sent back from Greece to Turkey under terms of the new pact.  Meanwhile, Greek authorities have so far rejected only about 30% of the asylum claims they have processed, bucking expectations that nearly all claims would be dismissed on the grounds that Turkey would be deemed a safe place for the migrants.  Greek officials are determining the safety question on a case-by-case basis.”

The low rejection rate is a blow to German Chancellor Angela Merkel who championed the deal as a way of stopping the wave of migrants.  But if Greece doesn’t start deporting new arrivals quickly, a new surge could ensue.  Deportations were supposed to act as a deterrent.

Huge event on Sunday, as Austrians vote for the office of president, with far-right Freedom Party leader, Norbert Hofer, favored in a runoff.  Hofer took 35 percent in the first round, knocking out the two mainstream parties from the runoff.  Should Hofer win, it would be the first time since World War II that a far-right head of state had been democratically elected in Europe.

Far-right populist movements have joined governing coalitions in Finland and Norway, and they wield great influence in Denmark and the Netherlands.  In France, National Front leader Marine Le Pen could win the presidential election next April. Anti-immigration party Alternative for Germany has made big strides there.  Poland and Slovakia are now ruled by populist, anti-immigration, euroskeptic parties.  Ditto Hungary, where much of the movement started with leader Viktor Orban.

Finally, back to Euro 2016, talk about soft targets...huge throngs outside the stadiums waiting to go through what will be super-tight security checks before they get inside, let alone all the pubs near the stadium that will attract the throngs.  It is very possible some of the contests will be conducted without any spectators in attendance depending on the threat assessment.

It didn’t help that the Manchester United-Bournemouth Premier League game was canceled last Sunday after a dummy bomb left over from a training exercise was found, just as play was about to commence and the stadium packed.  Officials didn’t know it was a dummy device until a forced evacuation took place.  As the police said, the whole episode was a “fiasco,” and spoke ill of stadium security that such a device, that could easily have been real, was not found in a security sweep prior to letting fans inside.  [It was taped to a toilet door.]

Add all the above up and Europe faces a truly tumultuous summer.  It must negotiate a deal with Turkey on immigration, figure out what to do with Greece, Brexit in just four weeks’ time, another big Spanish election, a constitutional vote in Italy that one expert told the FT “might turn out to be a referendum on the popularity of the European Union as a whole,” and the ongoing terror threat; let alone the impact of events in the U.S., including potential Fed action, on European markets.

Turning to Asia, China’s National Bureau of Statistics released a slew of important data this week.  Industrial production in April was 6% year-over-year, while retail sales rose 10.1% last month, yoy, and fixed-asset investment (trains, highways, airports) increased 10.5% for January-April.  All of these, while looking strong, were less than expected.

The NBS also reported housing sales rose a robust 61.4% the first four months of the year vs. the corresponding period for 2015.  New-home sales rose 63.5% in April (this one as projected by Bloomberg, looking at the NBS data).  Construction starts rose 21.4%.

But housing is a declining percentage of GDP.

Separately, in the ongoing discussion of China’s massive debt, BlackRock Inc. CEO Laurence D. Fink, who oversees the world’s largest money manager with $4.7 trillion of client assets, said “we all have to be worried,” while remaining bullish on China’s longer-term prospects.

“You can’t grow at 6% and have your balance sheets grow faster,” Fink said in an interview with Bloomberg.  “In the future, I would prefer seeing the economy growing 6% with some form of deleveraging,” he said.

Total debt from companies, governments and households was 247% of GDP last year, up from 164% in 2008, according to data compiled by Bloomberg.  Not good.

In Japan, the government reported first-quarter GDP rose 1.7% annualized over the previous three months, better than forecast, but most expect the economy to stall in the current quarter due to China’s slowdown. Friday, it was reported April department store sales fell 3.8% year-on-year, continuing the trend from March. Household electronics sales tumbled 20.2% last month, yoy.

In Q1 there was strong household spending but weak business spending, -1.4% over Q4 for the latter.

In terms of balancing Japan’s books, the government of Shinzo Abe has already delayed a second sales tax increase to 2017 and is under pressure to do so again, but it must be implemented.  The impact is a surge in activity before it is enacted and then a severe slump in spending right after.

Meanwhile, the government is pushing for a weaker yen to spur exports, especially out of the auto sector, but the yen, despite the Bank of Japan’s negative interest rate policy, has been surging, with firms reporting falling exports and lower profits, leading to growing pressure for the Abe government to devalue the currency, but that would mean job losses and factory closures in the U.S.

U.S. economists and officials, such as Treasury Secretary Jacob Lew, fear yen intervention could trigger a chain reaction of currency devaluations.  The topic is at the top of the agenda as G-7 finance ministers meet this weekend.

The BoJ is threatening to buy foreign currency and sell the yen to weaken theirs.  More on this topic next week.

Street Bytes

--It's been one year since the S&P 500 hit its record high of 2130.  Today the  index is at 2052, or down about 4%; a year of going nowhere.

This week the S&P broke a 3-week losing streak with a gain of 0.3%, while the Dow Jones extended its losses to four consecutive weeks, down 0.2%.  The Nasdaq registered its first gain, 1.1%, in five.

The trailing P/E on the S&P, by the way, is a rather hefty 23.7.

--U.S. Treasury Yields [3:00 p.m. yields]

6-mo. 0.44%  2-yr. 0.88%  10-yr. 1.84%  30-yr. 2.64%

It was a rough week for the bond market, following release of the Fed minutes and prospects for a second hike in the funds rate, with the yield on the 10-year rising 14 basis points, the worst performance in six months.

--Oil prices rose again this week to the highest levels since last October amid turmoil in Nigeria, crisis in Venezuela and bankruptcies in the shale sector in the United States.  But inventories across the world are still sky high.

That said, disruptions around the world amount to 2.5 million barrels of daily production, virtually erasing the production overhang that had pulled down prices over 70 percent between 2014 and early 2016.

In North America, U.S. crude oil output has fallen to 8.79mbd from a peak of more than 9.6 million, as a wave of bankruptcies hits producers.

In Canada, production was reduced by about 1 million barrels in daily production due to the fires in the oil sands region, but output is gradually coming back online.

Output from Venezuela is also falling as its state-owned oil company PDVSA struggles with a cash squeeze amid the deepening political crisis there.  The estimated shortfall is currently at 200,000mbd.

But high inventory levels, along with high output from the Middle East and Russia, are preventing prices from going even higher.

Demand is growing, though.  The U.S. Energy Information Administration said in its latest weekly petroleum report that American motorists burned through 9.755m barrels per day of gasoline last week, the second most of any week on record; and this is prior to the summer driving season.  [The previous record was set in August 2007.]

Last week, the International Energy Agency said it was more likely to increase, rather than cut, its demand growth forecast because of the booming global gasoline market and India’s increasing thirst for crude.

[Regarding the fires in northern Alberta, the media has left the scene but the fires continue.  However, residents of Fort McMurray are being told they can return as early as June 1.  Of 19,244 buildings and homes in the city assessed for damage so far, 1,921 were destroyed and 17,156 were deemed fit to occupy.]

--Home Depot raised its guidance for the year, and its revenues for the quarter rose 9% to $22.3 billion, while same-store sales climbed 6.5% year-over-year.  But the shares took a hit when the company disclosed comp sales declined each month in the quarter – 10.2% in February, 6.7% in March and 4.3% in April.

Profit was $1.8 billion, up from $1.58bn a year earlier, as revenue climbed 9% to $22.76 billion.

--Home Depot rival Lowe’s Cos. beat earnings expectations in the latest quarter and lifted guidance for the year.  Lowe’s reported same-store sales climbed 7.3% (7.5% U.S.), which means on the latter Lowe’s beat HD for the first time in a decade.

--Target Corp. reported same-store sales rose 1.2% in the quarter ended April 30, with the company warning the metric would be flat to down 2% in the current quarter, which if the figure is negative would be a first for Target under CEO Brian Cornell since he took over in 2014.  The company also guided lower on earnings.

Target shares fell sharply in response, joining the likes of Macy’s and Nordstrom who the week before reported lousy results.

--But then Thursday, shares in Wal-Mart had their best day since October 2008, soaring nearly 10%, as the world’s biggest retailer posted an unexpected increase in revenue, a whopping 1%, though it said sales in existing stores would rise this quarter as well.  But that was enough for the Street.

To be fair, Wal-Mart’s move to increase pay for its employees has to have helped in the sales effort, with lower fuel prices aiding the retailer’s customers as well.

The thing is the number of people visiting Wal-Mart stores rose 1.5% last quarter, but profit fell 7.8%.  So the numbers aren’t great at all, but it’s the old game of beating the Street and the company did.

Total revenue was $115.9 billion, including overseas stores and its Sam’s Club warehouse chain.

--Cisco Systems said fiscal third-quarter net income declined nearly 4%, with revenue down 1% for the period ending in April, but both were better than the Street expected, plus the company gave solid guidance for the current quarter, so the shares rose.

But Cisco’s biggest businesses – switching and routing systems – continued to decline, with revenue in the former down 3% and in the latter 5%.  Its other businesses, though, such as in videoconferencing, saw revenue climb 10%, while revenue from security products and services was up 17%.

Surprisingly, Cisco said revenue in China rose 22% in the period, but this is off a low base as business there had been sliding precipitously.

Frankly, I don’t know why the shares rallied.  Its guidance for the current quarter, including revenue that is projected to be flat to up 3%, is hardly exciting to yours truly.

--The agriculture sector is still a problem and John Deere was forced to lower earnings guidance for a second time this year as weak grain prices force farmers to rein in spending.

For the recent quarter, Deere reported a 28% drop in net income on a 4% drop in revenues, with sales of construction and forestry equipment tumbling 16%, while agriculture equipment sales held steady, though Deer cautioned:

“Industry sales for agricultural equipment in the U.S. and Canada are forecast to be down 15 to 20 percent for 2016.”

Deere stock was whacked 5% following the release.

--Tesla Motors Inc. plans to sell $2 billion worth of stock - $1.4bn held by the company and the rest by CEO Elon Musk – all to fund faster production of the Model 3 sedan.

In an SEC filing, Tesla said it would begin “volume production and delivery” of the battery electric car in late 2017.  But in an earlier filing, the automaker acknowledged it “may experience delays in realizing our projected timelines and cost and volume targets for the production, launch and ramp of our Model 3 vehicle.”

After losing a number of key executives, Tesla did say it hired a veteran Audi exec to be its new head of production.

--Warren Buffett’s Berkshire Hathaway took a $1bn-plus stake in Apple, though this wasn’t Buffett’s direct decision, the Oracle long admitting he doesn’t understand how to value most tech stocks, though he first took a stake in IBM in 2011 and that has been a mess, down about 20%.  Rather the Apple call was the decision of one of Buffett’s two deputies, Todd Combs or Ted Weschler.

Of course others, such as Carl Icahn and hedge fund king David Tepper, have recently been selling their Apple stakes.

At the same time it emerged Buffett is backing a bid for the core business of Yahoo, whereby Buffett would provide debt financing to a consortium of investors led by Cleveland Cavaliers and Quicken Loans owner, Dan Gilbert.

--Speaking of Apple, the New York Times reported: “Chinese authorities are quietly scrutinizing technology products sold in China by Apple and other big foreign companies, focusing on whether they pose potential security threats to the country and its consumers and opening up a new front in an already tense relationship with Washington over digital security....

“Ultimately, the reviews could be used to block products without explanation or to extract trade secrets in exchange for market access.  Those secrets could be leaked to Chinese competitors or expose vulnerabilities, which, in turn, Chinese hackers could exploit.

“Further, tech companies are concerned that the reviews could set a precedent and that other countries will follow suit, each demanding different checks that would not only be costly but also put the companies at risk of having to hand over further secrets in exchange for market access....

“Apple has seen new pressure in China as regulators have shut down its iBooks and iTunes Movies stores there.  Last week, Apple disclosed that it was investing $1 billion in the Chinese ride-hailing app Didi Chuxing, a move that some technology experts said appeared aimed at currying favor with Beijing.”

Last month, Chinese President Xi Jinping said some of the following:

“(For foreign companies), one viewpoint holds that we must close ourselves off, make a fresh start, thoroughly shake off our reliance on foreign technology and rely on indigenous innovation to pursue development.  Otherwise, we would always follow in the footsteps of others, and would never be able to catch up.”

Like I’ve been saying for a long time now, Apple and others of its ilk are so screwed if they think China is the future for them.

[This week, Apple CEO Tim Cook was in Beijing, kissing butts.  I didn’t see exactly who he met with.]

--According to a report from Moody’s, U.S. companies currently have a total of $1.7 trillion in cash, with just five companies – Apple, Microsoft, Alphabet (Google), Cisco and Oracle – holding $504bn of it as of the end of 2015.

Moody’s says that overseas cash, worth $1.2tn, would remain there until the election provides some clarity...if any.

Capital spending, such as on new equipment, slipped 3% last year to $885bn – the first decline since the end of the recession – with energy and mining groups continuing to retrench in the face of sharply lower commodity prices.

But a separate report from S&P showed total debts rose nearly $850bn to $6.6tn.  [S&P puts overall cash a little higher than Moody’s at $1.8tn.]

--The Obama administration announced rules to ensure millions of workers will receive overtime pay, a victory for unions pushing for reform, with the rule doubling the salary threshold to $47,476 per year under which most salaried workers are guaranteed overtime when working more than 40 hours a week.

But David French of the National Retail Federation said the rules would block upward career mobility, hit businesses with administrative costs and fail to generate an increase in take-home earnings, with employers limiting hours or cutting base bay.

--The former chairman of Dean Foods Co. leaked inside information to legendary sports bettor William “Billy” Walters, who allegedly then passed it on to golfer Phil Mickelson, according to the FBI and the SEC. The announcement by the feds on Thursday came after a five-year investigation.

Walters is accused of earning illicit profits and avoiding losses of more than $40 million, while the former Dean Foods chairman, Thomas C. Davis, pleaded guilty Monday and is cooperating against Mr. Walters, a longtime friend.

Mickelson wasn’t charged with any wrongdoing, but he agreed to return nearly $1 million in profits he made off the tip from Walters.

Mickelson and Davis were deep in debt to Walters and, in the case of Mickelson at least, he repaid part of it with profits from the Dean Foods trading.

Walters was arrested in Las Vegas and faces 10 criminal charges, including securities fraud.

But these kinds of cases are hard to prove and Walters himself has been indicted four other times related to his gambling, but he has never been convicted.

Back to “Phil the Thrill,” in a statement he said he felt “vindicated” he was not accused of wrongdoing, adding he agreed to return the profits from the trades considered “questionable.”  Thus far, his many sponsors are sticking with him.

--Applebee’s announced it is looking to modernize the chain, with the company saying it needed to break out of the “sea of sameness” in the casual dining category.

With sales decreasing 3.7% in the most recent quarter, Applebee’s announced it would install wood fire grills in all 2,000-plus locations across the U.S. – a $40 million investment.  The grills will completely change much of the menu’s meal preparation.

--Clean power supplied all of Germany’s power demand for the first time last Sunday. When you fly over Germany, especially in the north, all you see are wind farms, but now the grid is being pressured by the increased flows.  Luckily, Germany has export cables.

--Editorial / New York Post...on the chaos at the airports.

“Blame the TSA. It cut back on screeners this year in anticipation of the brilliant success of its PreCheck program – which naturally worked just as well as every other bright TSA idea for the last two decades.  Cue record holdups at security checkpoints.

“The TSA is, of course, blaming...you.  ‘Individuals who come to the TSA checkpoint unprepared for a trip can have a negative impact on the time it takes to complete the screening process,’ the agency sniffs.

“Worse, complains the TSA, is that more people are traveling – as if that doesn’t happen every summer.  Also, it notes, travelers insist on carry-ons, slowing everything down – another huge surprise.

“The solution? That’s up to you, too: ‘Passenger preparedness can have a significant impact on wait times,’ explains a TSA press release.

“Which is laughable: Some TSA preparedness would be even nicer.

“The TSA is asking for emergency funds to end the current crisis. But the Transportation Security Agency is a perpetual crisis – and it’s past time Congress looked to end it.”

--Southwest Airlines pilots have been picketing various locations these days, including the annual shareholders meeting in Chicago this week, where they were joined by flight attendants and mechanics after years of contract negotiations.  Said one union leader: “There’s very much a belief amongst the employee groups in general, that as Southwest has grown and expanded, management has gotten away from that culture and the priorities that our airline was founded on.”

Five of the airline’s unions are in negotiations or mediation; the pilots for more than four years.

--From Andrea Peterson / Washington Post

“Nearly one in two Internet users say privacy and security concerns have now stopped them from doing basic things online – such as posting to social networks, expressing opinions in forums or even buying things from websites, according to a new government survey released Friday.

“This chilling effect, pulled out of a survey of 41,000 U.S. households who use the Internet, shows the insecurity of the Web is beginning to have consequences that stretch beyond the direct fall-out of an individual losing personal data in a breach.  The research suggests some consumers are reaching a tipping point where they feel they can no longer trust using the Internet for everyday activities.”

--Fox News anchor Megyn Kelly’s first prime-time special featuring a sit-down with Donald Trump drew 4.8 million viewers on the Fox network Tuesday.  While this isn’t a monster figure, and a fraction of some of the debate audiences that Trump has drawn, it is nonetheless twice Kelly’s average night for her program on Fox News Channel.

But it was 1 million below Fox’s prime-time season average of 5.8 million viewers. 

Personally, I did not watch it, nor do I like Ms. Kelly.  You want to know one reason why?  I’m appalled that she thinks it’s funny how she knows nothing about sports.  Zero respect for that for someone in her position.  [Anderson Cooper is the same way.  I’ll never forget one New Year’s Eve with Kathy Griffin when she asked him about Tony Romo and Anderson had no idea what she was talking about.]

How can you be in the news business and not know some basics just through osmosis?!

And that’s a memo...Charles Krauthammer is here...Charles, what say you?

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: The death toll from a weeks-long series of ISIS attacks and bombings in Baghdad continues to soar, with at least 72 killed in the latest wave on Tuesday.  One suicide bombing killed 38 in a marketplace. A car bomb in Sadr City killed at least 28, and another car blew up in a separate neighborhood.  The prior week, ISIS attacks killed over 100 in and around the capital. Last weekend, ISIS attacked a gas factory near Baghdad, killing at least 14.

There are real concerns the government could collapse amid the threat of another sectarian-motivated bloodletting.  While ISIS has not sought to try to take Baghdad, you could see a situation where they control parts of the capital, even as the Iraqi Army wages a counter offensive, with some success, against the group.

In Syria, a senior Israeli official said the Syrian regime used sarin nerve gas for the first time since 2013 in an attack on ISIS fighters outside Damascus; this despite an agreement that supposedly disarmed Syria of its chemical arsenal.

The deal was reached after the regime used sarin and VX gas to kill as many 1,400 people in rebel-held areas of Damascus on Aug. 21, 2013. That was supposed to be President Obama’s “red line” that would trigger U.S. air strikes.  It wasn’t.

Fighting between rival Islamist rebel factions to control a key opposition stronghold near Damascus in recent weeks has killed more than 300 fighters, according to the Syrian Observatory for Human Rights.  The clashes in Eastern Ghouta pit the Saudi-backed Jaish al-Islam faction against two groups led by the Nusra Front, Syria’s al-Qaeda affiliate.

Despite pledging to withdraw its forces from Syria back in March, the Pentagon said this week that the Russian military remains firmly entrenched in the country.  A spokesman for the U.S.-led campaign against the Islamic State, Army Col. Steve Warren, said, “They continue to have air power there, they continue to have ground forces, they continue to have artillery.”

Warren added Russia is building up a forward operating base near the ancient city of Palmyra after it was retaken by Syrian and Iranian forces, backed by Russian airstrikes and Special Operations forces.

Meanwhile, major world powers are trying to restart peace talks in Geneva by the start of June, but this seems to be a fruitless effort.

And in Turkey, as reported by the Wall Street Journal’s Don Nissenbaum this week, the generals are making a comeback.

“(President) Erdogan’s moves to sideline political opponents – he forced out his handpicked prime minister this month amid a power struggle – has cleared the way for Turkey’s generals to play a greater role in shaping Mr. Erdogan’s attempts to extend his global influence.

“Turkish generals are tempering Mr. Erdogan’s push to send troops into Syria, managing a controversial military campaign against Kurdish insurgents, and protecting Turkey’s relations with Western allies who view the president with suspicion.  By steering clear of politics, they reemerged as a central player in national security decisions.”

While the army is against any extensive invasion of Syria, it has sent thousands of troops to the border in an attempt to shut down routes Islamic State is using to send terrorists to European capitals.

Lastly, Hizbullah said its top military commander in Syria, Mustafa Amine Badreddine, was killed in artillery fire by jihadists.  His death had been announced last Friday and was initially blamed on Israel.

But this was a man with many enemies and it’s really not clear who killed him.  Badreddine has been involved in terrorist attacks going back to at least 1983, having a role in the bombing of the U.S. Marine Corps barracks in Beirut that killed 241 people.

Israel: Defense Minister Moshe Yaalon announced his resignation on Friday, citing a lack of ‘trust’ in Prime Minister Benjamin Netanyahu.

Posting on Facebook, Yaalon said he told Netanyahu that “following his conduct in recent developments and in light of the lack of trust in him, I am resigning from the government and the Knesset (Israel’s parliament) and taking a time out from political life.”

It is expected Netanyahu will appoint hardliner Avigdor Lieberman to the post.  This week, Netanyahu invited Lieberman’s party Yisrael Beitenu to join his narrow coalition.

Separately, Netanyahu welcomed Egyptian President Sisi’s call for an effort to advance a peace process between Israel and the Palestinians.

“Israel is prepared to cooperate with Egypt and with other Arab states to advance the diplomatic process and the stability in the region,” Netanyahu said.

“I appreciate President Sisi’s actions and am encouraged by the leadership that he is displaying, including on this important issue,” he added.

Egypt: It is one crisis after another here: the economy; hardline, repressive governments; an ISIS-affiliated insurgency; air disasters/terrorist attacks, all when tourism is a major key to the well-being of the people.

But at least with the EgyptAir incident the government has been more open.

Libya: The U.S. and other world powers have said they are ready to arm Libya’s UN-backed unity government to help in their battle against ISIS.  U.S. Secretary of State John Kerry said IS was a “new threat” to Libya and it was “imperative” it was stopped. 

If this wasn’t so tragic, it would be laughable.  Kerry’s words are beyond meaningless at this point.  Oh, he’s right.  It’s just that nothing ever happens after he speaks.

What is clear, though, is that this Government of National Accord (GNA), as it’s called, is the only entity that has a chance of unifying the country, but ISIS has been building up a new stronghold there.

The GNA needs support, yesterday.  We’ll see how long it takes to deliver the weapons.

China/Taiwan: Friday, new Taiwan President Tsai Ing-wen omitted mentioning the one-China policy in her inaugural address, in a move that will anger Beijing, which claims Taiwan as its own.

Tsai said she respected the “joint acknowledgements and understandings” reached between the two sides at a landmark 1992 meeting seen by China as underpinning all subsequent contacts and agreements.

But Tsai did not mention the concept that Taiwan is a part of China, which Beijing insists is the key to the relationship overall.

Tsai called for the two sides to “set aside the baggage of history, and engage in positive dialogue, for the benefit of the people on both sides.” But she added, the will of Taiwan’s 23 million people and its democratic system must be respected in any cross-strait dialogue.

Tsai’s predecessor, Ma Ying-jeou, repeatedly endorsed the one-China principle in reaching a series of economic and civil agreements that significantly increased interactions between the two sides.

China maintains Taiwan must unify with the mainland eventually, by force if necessary.  But public opinion in Taiwan is strongly against any unification.

I’ve been warning this could be the surprise conflict, not an incident in the South China Sea. This week China conducted war games along the coastline facing Taiwan, including landing exercises on the Fujian coast, which I am very familiar with.

Not that the South China Sea couldn’t still be a flashpoint for armed conflict between the U.S. and China.  Two Chinese fighter jets carried out an “unsafe” intercept of a U.S. military aircraft that was flying over the South China Sea, in international airspace, the Pentagon said on Wednesday.  The prior week, China scrambled fighter jets after a U.S. warship sailed close to a land feature claimed by China, one of its reclamation projects.

President Obama is visiting Vietnam next week and there is a story he may offer military aid for the first time, which will also displease Beijing.  [Obama is then going to Japan, with an historic side trip to Hiroshima.]

Russia: Russians are losing interest in traveling to Crimea, with demand for flights to Simferopol down by more than 25 percent this year.  Travelers cite the lack of service infrastructure on the peninsula, vs. the quality of services that can be found in popular resorts for Russian travelers in Egypt and Turkey, as well as Sochi.  The number of tourist traveling to this last spot is up 40 percent.

Ukraine: The Eurovision Song Contest is a huge deal across the continent each year and this time there was a major political overtone as Ukraine took the top prize, specifically, singer Jamala and her song, “1944,” about wartime deportation of Crimean Tatars.

Needless to say this ticked off Russia to no end, with several Russian politicians and commentators blaming the result on hostility towards their country.

Jamala was the first Crimean Tatar to perform at the event, which this year was held in Stockholm.

“1944” references the year when Joseph Stalin deported almost all of the Tatar ethnic group.

Ukrainian President Petro Poroshenko hailed Jamala’s “unbelievable performance!  All of Ukraine gives you its heartfelt thanks, Jamala.”

The song is somber, to say the least, and it was a surprise it won. Political songs are not allowed at Eurovision, but this one was permitted because it is based on historic fact.

Next year’s contest is in Ukraine.  This could be interesting.

Venezuela: The country was plunged further into chaos this week as police and opponents of President Nicolas Maduro clashed on the streets of Caracas after Maduro threatened to make the opposition-controlled National Assembly “disappear.”

Venezuela is essentially a failed state, with shortages of basic goods and electricity.  Finding food is increasingly difficult.

Maduro’s approval rating has dropped to as low as 15% in recent polls, “and U.S. intelligence officials last week warned that the country is in danger of collapsing into waves of deadly violence.”  [Los Angeles Times]

Opposition members collected the required number of signatures supporting a referendum on Maduro’s removal from office, but the national election council is using delaying tactics to derail the campaign.

Maduro, a total idiot, and I mean that in the truest sense of the word, extended a state of emergency another 60 days, threatening to seize idle factories.

“An idle plant is a plant the people will take.  We will take all the actions necessary to activate production, which is being paralyzed by the bourgeoisie.”

Nigeria: Back in April 2014, Boko Harem militants seized more than 200 girls in what became a big global story, the kidnapping of the Chibok girls.  “Bring back our girls,” was the hue and cry, including from the likes of First Lady Michelle Obama.

This week the first two of these 200+ girls was found in a village not far from where they were originally abducted.

Bangladesh: So you know how they say you have a better chance of getting hit by lightning than winning the lottery?  Not in Bangladesh recently.  From AAP and the Sydney Morning Herald:

“More than 60 people have reportedly been killed by lightning in two days as tropical storms batter Bangladesh.  Two of those killed were students playing football in the capital Dhaka, but the majority were farmers.  Leading Bengali-language newspapers reported 64 people were killed by lightning since Thursday (May 12).”

Random Musings

Primary Results

Democrats

Kentucky

Hillary Clinton 46.8%
Bernie Sanders 46.3

Oregon

Sanders 56
Clinton 44

Delegates (2,383 needed)

Clinton 2,293
Sanders 1,533

Republicans

Oregon

Donald Trump 67%
Ted Cruz 17
John Kasich 16

Delegates (1,237 needed)

Trump 1,160
Cruz 566

Not that anyone should care much about national polls at this point, but for the record an NBC News/Survey Monkey online poll has Clinton leading Trump 48-45.   

But a Fox News national survey has Trump leading Clinton 45-42. Clinton would win among women in this one 50-36, but Trump would win 55-33 among men.  Clinton leads by 90-7 among blacks and 62-23 among Hispanics.  Trump leads 55-31 among whites, including a 9-point lead among white women.  Trump also leads by 16 points among independents, according to the poll.

Clinton led Trump in the same Fox poll a month ago 48-41.

A CBS News/New York Times national survey has Clinton leading Trump 47-41 (which I think is more like it...today...).  Last month she led by 10 points.  [Sanders leads Trump 51-38.]

Eight in 10 Republican voters in the CBS poll said their leaders should support Mr. Trump even if they disagree with him on important issues.  Unfavorable views toward Trump among Republican voters have plummeted 15 percentage points since last month; 21 percent now express an unfavorable view of him, down from 36 percent in an April survey.

--Robert Kagan / Washington Post

“We’re supposed to believe that Trump’s support stems from economic stagnation or dislocation.  Maybe some of it does.  But what Trump offers his followers are not economic remedies – his proposals change daily. What he offers is an attitude, an aura of crude strength and machismo, a boasting disrespect for the niceties of the democratic culture that he claims, and his followers believe, has produced national weakness and incompetence.  His incoherent and contradictory utterances have one thing in common: They provoke and play on feelings of resentment and disdain, intermingled with bits of fear, hatred and anger.  His public  discourse consists of attacking or ridiculing a wide range of ‘others’ – Muslims, Hispanics, women, Chinese, Mexicans, Europeans, Arabs, immigrants, refugees – whom he depicts either as threats or as objects of derision. His program, such as it is, consists chiefly of promises to get tough with foreigners and people of nonwhite complexion. He will deport them, bar them, get them to knuckle under, make them pay up or make them shut up.

“That this tough-guy, get-mad-and-get-even approach has gained him an increasingly large and enthusiastic following has probably surprised Trump as much as it has everyone else.  Trump himself is simply and quite literally an egomaniac. But the phenomenon he has created and now leads has become something larger than him, and something far more dangerous.

“Republican politicians marvel at how he has ‘tapped into’ a hitherto unknown swath of the voting public.  But what he has tapped into is what the founders most feared when they established the democratic republic: the popular passions unleashed, the ‘mobocracy.’  Conservatives have been warning for decades about government suffocating liberty. But here is the other threat to liberty that Alexis de Tocqueville and the ancient philosophers warned about: that the people in a democracy, excited, angry and unconstrained, might run roughshod over even the institutions created to preserve their freedoms....

“This phenomenon has arisen in other democratic and quasi-democratic countries over the past century, and it has generally been called ‘fascism.’  Fascist movements, too, had no coherent ideology, no clear set of prescriptions for what ailed society....

“What (Trump’s supporters) do not or will not see is that, once in power, Trump will owe them and their party nothing.  He will have ridden to power despite the party, catapulted into the White House by a mass following devoted only to him.  By then that following will have grown dramatically.  Today, less than 5 percent of eligible voters have voted for Trump.  But if he wins the election, his legions will comprise a majority of the nation.  Imagine the power he would wield then. In addition to all that comes from being the leader of a mass following, he would also have the immense powers of the American presidency at his command: the Justice Department, the FBI, the intelligence services, the military.  Who would dare to oppose him then?....

“This is how fascism comes to America, not with jackboots and salutes...but with a television huckster, a phony billionaire, a textbook egomaniac ‘tapping into’ popular resentments and insecurities, and with an entire national political party – out of ambition or blind party loyalty, or simply out of fear – falling into line behind him.”

--Meanwhile, despite the denials of top Democratic party officials, there is polling evidence that a decent percentage of supporters of Bernie Sanders could vote for Donald Trump; 30% according to exit polls this week.  Even if that total was, say, 10% to 15%, that could be a significant number and tip the scales in a key state or two.

And after the fiasco at the Democratic state convention in Nevada last weekend, there is growing concern the national gathering in Philadelphia could be rather raucous.  Pro-Sanders supporters have been grabbing the available formal permit applications to hold demonstrations during the four-day event, as reported by the Wall Street Journal, while no applications have been filed yet by supporters of Hillary.

Doug Schoen, a former advisor to President Bill Clinton and a polling expert, told the Journal the divisions within the party “appear to be widening, not narrowing, in ways that could be calamitous, particularly if there is ongoing chaos at the Democratic convention.”

In Nevada, Sanders’ supporters, angered by a delegate allocation process that favored Clinton, “began shouting, throwing chairs and issuing death threats to the state party chairwoman.”  [WSJ]

But instead of being a calming influence, Sanders “inflamed tensions by issuing a complicated statement that condemned violence, justified his supporters’ frustrations and railed against the party’s process for selecting a nominee.”

California Sen. Dianne Feinstein expressed her concerns about Philadelphia, scolding Sanders for not sending a clearer message to his supporters that what happened in Nevada won’t be tolerated anymore.

“I don’t want to go back to the ’68 convention,” she told CNN.  “I worry about what it does to the electorate as a whole, and he should, too.”

--John Podhoretz / New York Post

“Many Democrats are disenchanted with (Hillary Clinton) ideologically, but that’s not the only reason she’s suffering. Hillary is a politician in the John Kerry mold – she does inexplicably self-destructive things without actually having an impetuous, id-driven self-destructive streak.

“Who else but a tone-deaf bumbler would have spoken the insanely infelicitous words – ‘we are going to put a lot of coal miners and coal companies out of business’ – that destroyed her in West Virginia and made Kentucky so hard for her Tuesday night? 

“We all know she wanted to sell herself to environmentalists, but surely she could have found a way to do so without celebrating the elimination of working-class jobs during the Populist-Resentment Olympics that constitute the 2016 election cycle.  Surely this has to be counted among the dumbest self-inflicted political errors of our time.

“But forget that recent boner.  How about the fact that she took giant speaking fees from banks and hedge funds and Wall Street in 2013 and 2014 knowing full well she was about to run for president in a party that hates banks and hedge funds and Wall Street?

“And did so, moreover, when it was money she didn’t need, given that her family net worth was north of $100 million when she did so?

“Just imagine if she had denied Sanders that issue by never having taken the dough in the first place; his candidacy might never have taken off had it not been for the way he hammered her over her refusal to release the texts of her Goldman Sachs speeches.

“Call it greed if you like, but idiocy is another suitable word for it.”

--In an attempt to assuage conservatives, Trump released a list of 11 potential Supreme Court nominees he would appoint as president.

--President Obama delivered a commencement speech at Rutgers University on Sunday and he took the opportunity to knock Donald Trump without naming him, eliciting applause from lines like the world is becoming more interconnected and “building walls won’t change that.”

Obama mocked Trump’s call to “Make America Great Again,” saying there was never a better time to be alive on the planet and in America, which of course is part of Obama’s legacy shaping mantra these days...how, in his mind, historians will no doubt say he left the nation and the world a better place, which makes me want to throw up.

I do agree with the president, though, when he talks of a strain of anti-intellectualism in American politics.

But then you had his major applause line.  Clearly referring to Trump and congressional Republicans who decry efforts to combat global warming, Obama warned that “in politics and in life, ignorance is not a virtue.”

“It’s not cool to not know what you are talking about,” he said, lapsing into his ghetto/Joe Cool voice.  “That’s not keeping it real or telling it like it is. That’s not challenging political correctness. That’s just not knowing what you are talking about.”

Obama also wondered why in today’s political climate “in our public lives we suddenly think, ‘I don’t want someone who has done it before.’”  As if the president had a lot of experience when he was hired.

He called on graduates to hold leaders accountable and expect them “to know what the heck they are talking about.”

--Richard Benedetto / Wall Street Journal

“At a time when large numbers of Americans say they are fed up with politics and politicians, why is it that the nation’s chief politician, President Obama, seems to skate above it unscathed?

“Usually when an incumbent president is leaving office and a slew of candidates are battling for his job, that departing chief executive’s record is a major campaign issue....

“But not this year, even though two of three Americans say the country is on the wrong track, job creation is sluggish, income inequality continues to rise and Mr. Obama’s job approval barely tops 50%.  Moreover, approval of his handling of the war on terror and Islamic State is underwater, and a majority of Americans – white and black – say race relations are getting worse, not better....

“(A big reason) why Mr. Obama is able to avoid being a target is that he is a deft manipulator of the media, probably more skillful at it than any president ever.  He heads a savvy public-relations machine that markets him like a Hollywood celebrity, a role he obligingly and successfully plays.  One of the machine’s key tactics is to place Mr. Obama in as many positive news and photo situations as possible. Ronald Reagan’s advisers were considered masters of putting their man in the best possible light, but they look like amateurs compared with the Obama operation – which has the added advantage of a particularly obliging news media....

“A picture may be worth a thousand words, but with Mr. Obama you also get the thousand words.

“Yet at the same time we (are) seeing those nice photos, videos and articles, a lot of other important stuff was going on where Mr. Obama was hardly mentioned, seen or questioned.  For example, the U.S. economy grew at a meager 0.5% in the  first quarter of 2016; Russian military planes lately have been buzzing U.S. Navy ships; and China is building its military forces and expanding their reach in the South China Sea.  Early in May, a Navy SEAL was killed in Iraq (the president has assured the American public that U.S. troops there, increasing in numbers, are not in combat roles).  Islamic State terrorist attacks in Baghdad in recent weeks have killed scores of civilians. The Taliban are on the march in Afghanistan. The vicious war in Syria continues. The Middle East refugee crisis shows no sign of diminishing.  Military provocations by Iran and North Korea keep coming.

“President Obama’s media handlers try to keep the president as far away from these crises as possible, leaving others...to be their public face. That way the problems don’t appear to be Mr. Obama’s problem, and he is free to bask in the good news.

“One of the news media’s main jobs is to hold public officials accountable, from the president on down.  But Mr. Obama is the beneficiary of news-media managers and reporters who mostly like his style and agree with his policies, from his reluctance to make strong military commitments to his advocacy for LGBT rights, fighting climate change and supporting tougher gun-control laws....

“With Donald Trump now the media obsession – and most in the media don’t like him – it is easy to see why Mr. Obama’s performance over the past seven-plus years is still not a major issue in the 2016 campaign. And that’s the way he likes it.”

--Hillary Clinton seems to have narrowed her veep search, at least for today, down to Senators Tim Kaine (Va.) and Sherrod Brown (Ohio).  I prefer Kaine over Brown; not that I would be voting for this ticket.

--A new Quinnipiac poll shows New Jersey Gov. Chris Christie’s standing among us residents continues to plummet, with his approval rating hitting another all-time low, 29 percent, compared with 64 percent who disapprove.

--George Will / Washington Post

“Academia’s descent into perpetual hysteria and incipient tyranny is partly fueled by the fiction that 1 in 5 college students is sexually assaulted and that campuses require minute federal supervision to cure this.  Encouraged by the government’s misuse of discredited social science (one survey supposedly proving this 1-in-5 fiction), colleges and universities are implementing unconstitutional procedures mandated by the government.

“The 2006 Duke lacrosse rape case fit the narrative about campuses permeated by a ‘rape culture.’ Except there was no rape. In 2014, the University of Virginia was convulsed by a magazine’s lurid report of a rape that buttressed the narrative that fraternities foment the sexual predation supposedly pandemic in ‘male supremacist’ America. Except there was no rape.  Now, Colorado State University at Pueblo has punished the supposed rapist of a woman who says she was not raped.”

The supposed victim exonerated the suspected rapist, saying “he’s a good guy,” but one of her classmates had noticed a hickey on the woman’s neck and, assuming an assault must have taken place, told school officials that one had occurred...even as the ‘victim’ told school officials the sex was consensual.

“Undeterred, CSU Pueblo mixed hearsay evidence with multiple due process violations, thereby ruining a young man’s present and blighting his future.”

--A research report published in the journal Nature talks of the threat posed by the Totten Glacier in Antarctica, a far bigger threat than the smaller West Antarctic ice sheet where scientists have focused most of their attention in terms of warming seas and rising waters should one of these break off and melt. 

The Totten Glacier is 90 miles by 22 miles in area, but the entire region, in what is called a “catchment,” that could someday flow into the ocean, is over 200,000 square miles in size – bigger than California.  Plus it’s 2.5 miles thick in parts.

Bottom line, if the Totten Glacier and catchment were to break off, sea levels could rise as much as 13 feet.

But fear not...we’ll all be dead before this could happen.  Like the researchers are talking 500 years, or as Roseanne Roseannadanna would say, “Never mind.”

--But in the here and now, I do need to note for the record that NASA data released last weekend shows the Earth’s streak of record-warm months hit seven in April.  The average temperature of the planet was 2.0 degrees Fahrenheit above the long-term average.  NOAA said the streak of record-warm months extends even longer. In April it reached 12 straight.

2016’s average global temperature is so far out in front of any preceding year that climate scientists say there’s basically no way it won’t become the warmest ever recorded.

--Speaking of hot...a city in India’s Rajasthan state broke the country’s temperature record on Friday, registering 51C, the highest since records began, according to India’s weather office.

What is 51C?  Nearly 124F. 

---

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

God bless America.

---

Gold $1251
Oil $47.75

Returns for the week 5/16-5/20

Dow Jones  -0.2%  [17500]
S&P 500  +0.3%  [2052]
S&P MidCap  +0.7%
Russell 2000  +0.9%
Nasdaq  +1.1%

Returns for the period 1/1/16-5/20/16

Dow Jones  +0.4%
S&P 500  +0.4%
S&P MidCap  +3.7%
Russell 2000  -2.1%
Nasdaq  -4.8%

Bulls 40.2
Bears  21.7  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore



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Week in Review

05/21/2016

For the week 5/16-5/20

**Posted 3:30 PM ET...Friday...due to travel.  I will fill in the closing data and add a brief market commentary later.** 

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

Edition 893

Washington and Wall Street

Global markets sloughed off the latest suspected terror incident, the downing of EgyptAir Flight 804.  Outside of the Middle East, there has never been an immediate follow-on incident since 9/11 and that’s the sole reason for the complacency.  One of these days, though, there will be two concurrent large-scale attacks, in two different cities or on two different planes, and sentiment will change, likely in a big way. For starters, tourism and business travel  are large components of the global economy.

But in the U.S., for this past week the big story was the Federal Reserve and growing talk from Fed officials that a rate increase at the June14-15 meeting is back on the table after the probability of one had been reduced to about 3%.

Nope, the Fed minutes from the April meeting were released the other day and they revealed that the Fed’s Open Market Committee thought an interest rate increase was appropriate in June if the data continues to improve.  After a putrid 0.5% first quarter on the GDP front, the second quarter is looking more like 2.5%.

“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the [Fed’s] 2% objective, then it likely would be appropriate for the [Fed] to increase the target range for the federal funds rate in June,” said the minutes.

Officials also toned down concerns over the risks posed by global economic and financial conditions.

“Participants generally agreed that the risks to the economic outlook posed by global economic and financial developments had receded over the intermeeting period,” the minutes said.

Several Fed presidents have delivered speeches in recent days expressing concern the markets were underestimating the odds of a rate increase next month.

But while the data has largely been better lately, it’s going to be tough for the Fed to move right before the June 23 Brexit referendum (covered below), so I’m now in the camp that believes the Fed could act at the July 27 confab.  After that you have to wait until Sept. 21 (unless there is a move in the interim, which is always possible), and that would be too close to the election.

Speaking of data, housing starts were better than expected for the month of April, 1.172 million annualized, up 6.6% over the month before, while April existing home sales also came in stronger than forecast, 5.45 million, up 1.7%.  But the median price, $232,500 on an existing home, is up 6.3% from a year earlier, which is not good since this is significantly greater than wage growth.

April industrial production rose a robust 0.7%.

And consumer prices for last month were up 0.4%, in line, with the core rate, ex-food and energy, up 0.2%.  Year-over-year, the CPI is up 1.1%, though up 2.1% on core, so that’s a string of numbers over the Fed’s key 2% barometer, though admittedly not the Fed’s preferred benchmark.

That said, you also have 2%+ wage growth recently, so there is inflation and that is supposed to be the Fed’s number one mandate, price stability.

One more key employment report before the Fed next meets and if it is reasonably strong, at the very least expect a statement from the Fed on June 15 that it is about to act, which would signal July.

Europe and Asia

The suspected bombing of EgyptAir Flight 804, bound for Cairo from Paris, will only add to the unease across France, in particular, as host for the Euro 2016 soccer championships that start next month.  According to France’s spy chief, Patrick Calvar, in rare remarks he spelled out “a new form of attack...characterized by placing explosive devices in places where there are large crowds and repeating this type of action to create a climate of maximum panic.”

It is feared ISIL will launch a “spectacular” against “soft target” football fans.  Calvar warned: “Clearly, France is the most threatened and we know that Daesh (ISIL) is planning new attacks.”

Calvar said the militant group had the numbers to launch the new attacks, including some 645 French citizens or residents currently in Syria or Iraq, of which 400 were fighters.  A further 201 were either in transit to or from the region, he added.

With the group under pressure in Syria, however, Calvar said ISIS would want to hit back in Europe, “as quickly as possible and as hard as possible.”

Euro 2016 starts on June 10 and runs for a month at 10 stadiums across France, 51 matches involving 24 teams, with 2.5 million spectators expected.  One example of the popularity...70,000 Irish football fans will be heading over for the competition.  [Irish Independent]

[One consequence of previous terror attacks in Paris and Brussels, Eurostar has reported a fall in passengers using the high-speed rail service, saying travelers “remain cautious,” with a particular slowdown in travelers from the U.S. and Asia.  But, Eurostar also said it saw a surge in tickets ahead of the Euro 2016 tournament.]

---

On the economic front, just a little data for the eurozone.  Inflation in the EA19 is back in deflation mode, -0.2% annualized in April compared to unchanged in March, according to Eurostat.  Germany was at -0.3%, Spain -1.2%, and Italy -0.4%. Romania was -2.6%.

Car sales in the European Union rose 9.1% in April to 1.3 million vehicles (the best month since April 2008), according to the European Auto Manufacturers Association.

Italy’s health minister brought up a topic that affects all of Europe, the “apocalyptic” decline in birth rates.  In Italy’s case just 488,000 babies were born in 2015, fewer than in any year since the modern state was founded in 1861.  Italian women gave birth to 1.39 children each on average, compared with an EU average of 1.58 (2014 data), while the replacement rate is 2.1 to keep a population stable.  [Or else you need a lot of migrants and that’s a problem of a different sort.]

So the health minister, Beatrice Lorenzin, said Italy’s bonus for lower income families should be twice the current $90 per month.

Retail sales for the month of April in the U.K. were very solid, up 1.3% from March, double forecasts, which was encouraging since other recent data has been poor, sentiment hurt by the uncertainty created by the looming vote.

Speaking of which, Brexit and the June 23 referendum in Britain on staying in or leaving the EU, the British pound had  a strong week as a number of polls showed growing support for remaining ‘In.’  A Times of London survey had it 44-40 for staying, while an Ipsos Mori survey had it 48-35 in favor, while an ORB/Telegraph poll showed 55% In, 40% Out.  But a TNS survey had it 38% In, 41% Out.

Overall, though, the trend has definitely been in favor of the In camp.

European Council president Donald Tusk said the only alternative to the EU is “political chaos” should Britain leave.  Brexit campaigner Boris Johnson compared the EU’s aims with Hitler’s, to which Tusk said of the ex-London mayor: “When I hear the EU being compared to the plans and projects of Adolf Hitler I cannot remain silent.”  Tusk said the EU remained a “firewall” against conflict between European countries, saying the “banal” truth was “the only alternative for the Union is political chaos, the return to national egoisms, and in consequence, the triumph of anti-democratic tendencies, which can lead to history repeating itself.”

Regarding the Greek debt crisis, eurozone finance ministers meet on Tuesday, May 24, though the IMF’s latest recommendations to be presented then have leaked, of course. 

The IMF is repeating it will only take part in the 86bn euro bailout if its European partners can prove “the numbers add up,” according to the Financial Times.

In order for this to happen, the fund must be assured Greece’s humongous debt is placed on a sustainable downward path.

Heretofore, the IMF has said that without any debt relief, Greece’s debt would hit 294% of GDP by 2060, which is absurd...making such a long-range forecast, but that’s certainly the path the country is on from its current 172% of GDP figure.

So the IMF wants to see a moratorium on payments until 2040 – meaning Greece would pay none of the costs of servicing any of its bonds or loans for the next 24 years.

And the IMF wants to see maturities extended to 2080 for loans owed to Greece’s fellow member states (known as the Greek loan facility) from the current 2040.

And to cap interest rates at no more than 1.5% of GDP every year until 2045.

But the IMF doesn’t mention the politics of it all and there are large hurdles associated with such changes, such as needing approval from various member states’ parliaments, even though outright haircuts on Greek bonds have been ruled out by both the IMF and the Europeans.

On the migration front, Greece has been struggling to return recent arrivals to Turkey per the standing agreement.  As reported by the Wall Street Journal’s Nektaria Stamouli, “Two months after the European Union’s controversial deal with Turkey came into effect, still no refugees have been sent back from Greece to Turkey under terms of the new pact.  Meanwhile, Greek authorities have so far rejected only about 30% of the asylum claims they have processed, bucking expectations that nearly all claims would be dismissed on the grounds that Turkey would be deemed a safe place for the migrants.  Greek officials are determining the safety question on a case-by-case basis.”

The low rejection rate is a blow to German Chancellor Angela Merkel who championed the deal as a way of stopping the wave of migrants.  But if Greece doesn’t start deporting new arrivals quickly, a new surge could ensue.  Deportations were supposed to act as a deterrent.

Huge event on Sunday, as Austrians vote for the office of president, with far-right Freedom Party leader, Norbert Hofer, favored in a runoff.  Hofer took 35 percent in the first round, knocking out the two mainstream parties from the runoff.  Should Hofer win, it would be the first time since World War II that a far-right head of state had been democratically elected in Europe.

Far-right populist movements have joined governing coalitions in Finland and Norway, and they wield great influence in Denmark and the Netherlands.  In France, National Front leader Marine Le Pen could win the presidential election next April. Anti-immigration party Alternative for Germany has made big strides there.  Poland and Slovakia are now ruled by populist, anti-immigration, euroskeptic parties.  Ditto Hungary, where much of the movement started with leader Viktor Orban.

Finally, back to Euro 2016, talk about soft targets...huge throngs outside the stadiums waiting to go through what will be super-tight security checks before they get inside, let alone all the pubs near the stadium that will attract the throngs.  It is very possible some of the contests will be conducted without any spectators in attendance depending on the threat assessment.

It didn’t help that the Manchester United-Bournemouth Premier League game was canceled last Sunday after a dummy bomb left over from a training exercise was found, just as play was about to commence and the stadium packed.  Officials didn’t know it was a dummy device until a forced evacuation took place.  As the police said, the whole episode was a “fiasco,” and spoke ill of stadium security that such a device, that could easily have been real, was not found in a security sweep prior to letting fans inside.  [It was taped to a toilet door.]

Add all the above up and Europe faces a truly tumultuous summer.  It must negotiate a deal with Turkey on immigration, figure out what to do with Greece, Brexit in just four weeks’ time, another big Spanish election, a constitutional vote in Italy that one expert told the FT “might turn out to be a referendum on the popularity of the European Union as a whole,” and the ongoing terror threat; let alone the impact of events in the U.S., including potential Fed action, on European markets.

Turning to Asia, China’s National Bureau of Statistics released a slew of important data this week.  Industrial production in April was 6% year-over-year, while retail sales rose 10.1% last month, yoy, and fixed-asset investment (trains, highways, airports) increased 10.5% for January-April.  All of these, while looking strong, were less than expected.

The NBS also reported housing sales rose a robust 61.4% the first four months of the year vs. the corresponding period for 2015.  New-home sales rose 63.5% in April (this one as projected by Bloomberg, looking at the NBS data).  Construction starts rose 21.4%.

But housing is a declining percentage of GDP.

Separately, in the ongoing discussion of China’s massive debt, BlackRock Inc. CEO Laurence D. Fink, who oversees the world’s largest money manager with $4.7 trillion of client assets, said “we all have to be worried,” while remaining bullish on China’s longer-term prospects.

“You can’t grow at 6% and have your balance sheets grow faster,” Fink said in an interview with Bloomberg.  “In the future, I would prefer seeing the economy growing 6% with some form of deleveraging,” he said.

Total debt from companies, governments and households was 247% of GDP last year, up from 164% in 2008, according to data compiled by Bloomberg.  Not good.

In Japan, the government reported first-quarter GDP rose 1.7% annualized over the previous three months, better than forecast, but most expect the economy to stall in the current quarter due to China’s slowdown. Friday, it was reported April department store sales fell 3.8% year-on-year, continuing the trend from March. Household electronics sales tumbled 20.2% last month, yoy.

In Q1 there was strong household spending but weak business spending, -1.4% over Q4 for the latter.

In terms of balancing Japan’s books, the government of Shinzo Abe has already delayed a second sales tax increase to 2017 and is under pressure to do so again, but it must be implemented.  The impact is a surge in activity before it is enacted and then a severe slump in spending right after.

Meanwhile, the government is pushing for a weaker yen to spur exports, especially out of the auto sector, but the yen, despite the Bank of Japan’s negative interest rate policy, has been surging, with firms reporting falling exports and lower profits, leading to growing pressure for the Abe government to devalue the currency, but that would mean job losses and factory closures in the U.S.

U.S. economists and officials, such as Treasury Secretary Jacob Lew, fear yen intervention could trigger a chain reaction of currency devaluations.  The topic is at the top of the agenda as G-7 finance ministers meet this weekend.

The BoJ is threatening to buy foreign currency and sell the yen to weaken theirs.  More on this topic next week.

Street Bytes

--It's been one year since the S&P 500 hit its record high of 2130.  Today the  index is at 2052, or down about 4%; a year of going nowhere.

This week the S&P broke a 3-week losing streak with a gain of 0.3%, while the Dow Jones extended its losses to four consecutive weeks, down 0.2%.  The Nasdaq registered its first gain, 1.1%, in five.

The trailing P/E on the S&P, by the way, is a rather hefty 23.7.

--U.S. Treasury Yields [3:00 p.m. yields]

6-mo. 0.44%  2-yr. 0.88%  10-yr. 1.84%  30-yr. 2.64%

It was a rough week for the bond market, following release of the Fed minutes and prospects for a second hike in the funds rate, with the yield on the 10-year rising 14 basis points, the worst performance in six months.

--Oil prices rose again this week to the highest levels since last October amid turmoil in Nigeria, crisis in Venezuela and bankruptcies in the shale sector in the United States.  But inventories across the world are still sky high.

That said, disruptions around the world amount to 2.5 million barrels of daily production, virtually erasing the production overhang that had pulled down prices over 70 percent between 2014 and early 2016.

In North America, U.S. crude oil output has fallen to 8.79mbd from a peak of more than 9.6 million, as a wave of bankruptcies hits producers.

In Canada, production was reduced by about 1 million barrels in daily production due to the fires in the oil sands region, but output is gradually coming back online.

Output from Venezuela is also falling as its state-owned oil company PDVSA struggles with a cash squeeze amid the deepening political crisis there.  The estimated shortfall is currently at 200,000mbd.

But high inventory levels, along with high output from the Middle East and Russia, are preventing prices from going even higher.

Demand is growing, though.  The U.S. Energy Information Administration said in its latest weekly petroleum report that American motorists burned through 9.755m barrels per day of gasoline last week, the second most of any week on record; and this is prior to the summer driving season.  [The previous record was set in August 2007.]

Last week, the International Energy Agency said it was more likely to increase, rather than cut, its demand growth forecast because of the booming global gasoline market and India’s increasing thirst for crude.

[Regarding the fires in northern Alberta, the media has left the scene but the fires continue.  However, residents of Fort McMurray are being told they can return as early as June 1.  Of 19,244 buildings and homes in the city assessed for damage so far, 1,921 were destroyed and 17,156 were deemed fit to occupy.]

--Home Depot raised its guidance for the year, and its revenues for the quarter rose 9% to $22.3 billion, while same-store sales climbed 6.5% year-over-year.  But the shares took a hit when the company disclosed comp sales declined each month in the quarter – 10.2% in February, 6.7% in March and 4.3% in April.

Profit was $1.8 billion, up from $1.58bn a year earlier, as revenue climbed 9% to $22.76 billion.

--Home Depot rival Lowe’s Cos. beat earnings expectations in the latest quarter and lifted guidance for the year.  Lowe’s reported same-store sales climbed 7.3% (7.5% U.S.), which means on the latter Lowe’s beat HD for the first time in a decade.

--Target Corp. reported same-store sales rose 1.2% in the quarter ended April 30, with the company warning the metric would be flat to down 2% in the current quarter, which if the figure is negative would be a first for Target under CEO Brian Cornell since he took over in 2014.  The company also guided lower on earnings.

Target shares fell sharply in response, joining the likes of Macy’s and Nordstrom who the week before reported lousy results.

--But then Thursday, shares in Wal-Mart had their best day since October 2008, soaring nearly 10%, as the world’s biggest retailer posted an unexpected increase in revenue, a whopping 1%, though it said sales in existing stores would rise this quarter as well.  But that was enough for the Street.

To be fair, Wal-Mart’s move to increase pay for its employees has to have helped in the sales effort, with lower fuel prices aiding the retailer’s customers as well.

The thing is the number of people visiting Wal-Mart stores rose 1.5% last quarter, but profit fell 7.8%.  So the numbers aren’t great at all, but it’s the old game of beating the Street and the company did.

Total revenue was $115.9 billion, including overseas stores and its Sam’s Club warehouse chain.

--Cisco Systems said fiscal third-quarter net income declined nearly 4%, with revenue down 1% for the period ending in April, but both were better than the Street expected, plus the company gave solid guidance for the current quarter, so the shares rose.

But Cisco’s biggest businesses – switching and routing systems – continued to decline, with revenue in the former down 3% and in the latter 5%.  Its other businesses, though, such as in videoconferencing, saw revenue climb 10%, while revenue from security products and services was up 17%.

Surprisingly, Cisco said revenue in China rose 22% in the period, but this is off a low base as business there had been sliding precipitously.

Frankly, I don’t know why the shares rallied.  Its guidance for the current quarter, including revenue that is projected to be flat to up 3%, is hardly exciting to yours truly.

--The agriculture sector is still a problem and John Deere was forced to lower earnings guidance for a second time this year as weak grain prices force farmers to rein in spending.

For the recent quarter, Deere reported a 28% drop in net income on a 4% drop in revenues, with sales of construction and forestry equipment tumbling 16%, while agriculture equipment sales held steady, though Deer cautioned:

“Industry sales for agricultural equipment in the U.S. and Canada are forecast to be down 15 to 20 percent for 2016.”

Deere stock was whacked 5% following the release.

--Tesla Motors Inc. plans to sell $2 billion worth of stock - $1.4bn held by the company and the rest by CEO Elon Musk – all to fund faster production of the Model 3 sedan.

In an SEC filing, Tesla said it would begin “volume production and delivery” of the battery electric car in late 2017.  But in an earlier filing, the automaker acknowledged it “may experience delays in realizing our projected timelines and cost and volume targets for the production, launch and ramp of our Model 3 vehicle.”

After losing a number of key executives, Tesla did say it hired a veteran Audi exec to be its new head of production.

--Warren Buffett’s Berkshire Hathaway took a $1bn-plus stake in Apple, though this wasn’t Buffett’s direct decision, the Oracle long admitting he doesn’t understand how to value most tech stocks, though he first took a stake in IBM in 2011 and that has been a mess, down about 20%.  Rather the Apple call was the decision of one of Buffett’s two deputies, Todd Combs or Ted Weschler.

Of course others, such as Carl Icahn and hedge fund king David Tepper, have recently been selling their Apple stakes.

At the same time it emerged Buffett is backing a bid for the core business of Yahoo, whereby Buffett would provide debt financing to a consortium of investors led by Cleveland Cavaliers and Quicken Loans owner, Dan Gilbert.

--Speaking of Apple, the New York Times reported: “Chinese authorities are quietly scrutinizing technology products sold in China by Apple and other big foreign companies, focusing on whether they pose potential security threats to the country and its consumers and opening up a new front in an already tense relationship with Washington over digital security....

“Ultimately, the reviews could be used to block products without explanation or to extract trade secrets in exchange for market access.  Those secrets could be leaked to Chinese competitors or expose vulnerabilities, which, in turn, Chinese hackers could exploit.

“Further, tech companies are concerned that the reviews could set a precedent and that other countries will follow suit, each demanding different checks that would not only be costly but also put the companies at risk of having to hand over further secrets in exchange for market access....

“Apple has seen new pressure in China as regulators have shut down its iBooks and iTunes Movies stores there.  Last week, Apple disclosed that it was investing $1 billion in the Chinese ride-hailing app Didi Chuxing, a move that some technology experts said appeared aimed at currying favor with Beijing.”

Last month, Chinese President Xi Jinping said some of the following:

“(For foreign companies), one viewpoint holds that we must close ourselves off, make a fresh start, thoroughly shake off our reliance on foreign technology and rely on indigenous innovation to pursue development.  Otherwise, we would always follow in the footsteps of others, and would never be able to catch up.”

Like I’ve been saying for a long time now, Apple and others of its ilk are so screwed if they think China is the future for them.

[This week, Apple CEO Tim Cook was in Beijing, kissing butts.  I didn’t see exactly who he met with.]

--According to a report from Moody’s, U.S. companies currently have a total of $1.7 trillion in cash, with just five companies – Apple, Microsoft, Alphabet (Google), Cisco and Oracle – holding $504bn of it as of the end of 2015.

Moody’s says that overseas cash, worth $1.2tn, would remain there until the election provides some clarity...if any.

Capital spending, such as on new equipment, slipped 3% last year to $885bn – the first decline since the end of the recession – with energy and mining groups continuing to retrench in the face of sharply lower commodity prices.

But a separate report from S&P showed total debts rose nearly $850bn to $6.6tn.  [S&P puts overall cash a little higher than Moody’s at $1.8tn.]

--The Obama administration announced rules to ensure millions of workers will receive overtime pay, a victory for unions pushing for reform, with the rule doubling the salary threshold to $47,476 per year under which most salaried workers are guaranteed overtime when working more than 40 hours a week.

But David French of the National Retail Federation said the rules would block upward career mobility, hit businesses with administrative costs and fail to generate an increase in take-home earnings, with employers limiting hours or cutting base bay.

--The former chairman of Dean Foods Co. leaked inside information to legendary sports bettor William “Billy” Walters, who allegedly then passed it on to golfer Phil Mickelson, according to the FBI and the SEC. The announcement by the feds on Thursday came after a five-year investigation.

Walters is accused of earning illicit profits and avoiding losses of more than $40 million, while the former Dean Foods chairman, Thomas C. Davis, pleaded guilty Monday and is cooperating against Mr. Walters, a longtime friend.

Mickelson wasn’t charged with any wrongdoing, but he agreed to return nearly $1 million in profits he made off the tip from Walters.

Mickelson and Davis were deep in debt to Walters and, in the case of Mickelson at least, he repaid part of it with profits from the Dean Foods trading.

Walters was arrested in Las Vegas and faces 10 criminal charges, including securities fraud.

But these kinds of cases are hard to prove and Walters himself has been indicted four other times related to his gambling, but he has never been convicted.

Back to “Phil the Thrill,” in a statement he said he felt “vindicated” he was not accused of wrongdoing, adding he agreed to return the profits from the trades considered “questionable.”  Thus far, his many sponsors are sticking with him.

--Applebee’s announced it is looking to modernize the chain, with the company saying it needed to break out of the “sea of sameness” in the casual dining category.

With sales decreasing 3.7% in the most recent quarter, Applebee’s announced it would install wood fire grills in all 2,000-plus locations across the U.S. – a $40 million investment.  The grills will completely change much of the menu’s meal preparation.

--Clean power supplied all of Germany’s power demand for the first time last Sunday. When you fly over Germany, especially in the north, all you see are wind farms, but now the grid is being pressured by the increased flows.  Luckily, Germany has export cables.

--Editorial / New York Post...on the chaos at the airports.

“Blame the TSA. It cut back on screeners this year in anticipation of the brilliant success of its PreCheck program – which naturally worked just as well as every other bright TSA idea for the last two decades.  Cue record holdups at security checkpoints.

“The TSA is, of course, blaming...you.  ‘Individuals who come to the TSA checkpoint unprepared for a trip can have a negative impact on the time it takes to complete the screening process,’ the agency sniffs.

“Worse, complains the TSA, is that more people are traveling – as if that doesn’t happen every summer.  Also, it notes, travelers insist on carry-ons, slowing everything down – another huge surprise.

“The solution? That’s up to you, too: ‘Passenger preparedness can have a significant impact on wait times,’ explains a TSA press release.

“Which is laughable: Some TSA preparedness would be even nicer.

“The TSA is asking for emergency funds to end the current crisis. But the Transportation Security Agency is a perpetual crisis – and it’s past time Congress looked to end it.”

--Southwest Airlines pilots have been picketing various locations these days, including the annual shareholders meeting in Chicago this week, where they were joined by flight attendants and mechanics after years of contract negotiations.  Said one union leader: “There’s very much a belief amongst the employee groups in general, that as Southwest has grown and expanded, management has gotten away from that culture and the priorities that our airline was founded on.”

Five of the airline’s unions are in negotiations or mediation; the pilots for more than four years.

--From Andrea Peterson / Washington Post

“Nearly one in two Internet users say privacy and security concerns have now stopped them from doing basic things online – such as posting to social networks, expressing opinions in forums or even buying things from websites, according to a new government survey released Friday.

“This chilling effect, pulled out of a survey of 41,000 U.S. households who use the Internet, shows the insecurity of the Web is beginning to have consequences that stretch beyond the direct fall-out of an individual losing personal data in a breach.  The research suggests some consumers are reaching a tipping point where they feel they can no longer trust using the Internet for everyday activities.”

--Fox News anchor Megyn Kelly’s first prime-time special featuring a sit-down with Donald Trump drew 4.8 million viewers on the Fox network Tuesday.  While this isn’t a monster figure, and a fraction of some of the debate audiences that Trump has drawn, it is nonetheless twice Kelly’s average night for her program on Fox News Channel.

But it was 1 million below Fox’s prime-time season average of 5.8 million viewers. 

Personally, I did not watch it, nor do I like Ms. Kelly.  You want to know one reason why?  I’m appalled that she thinks it’s funny how she knows nothing about sports.  Zero respect for that for someone in her position.  [Anderson Cooper is the same way.  I’ll never forget one New Year’s Eve with Kathy Griffin when she asked him about Tony Romo and Anderson had no idea what she was talking about.]

How can you be in the news business and not know some basics just through osmosis?!

And that’s a memo...Charles Krauthammer is here...Charles, what say you?

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: The death toll from a weeks-long series of ISIS attacks and bombings in Baghdad continues to soar, with at least 72 killed in the latest wave on Tuesday.  One suicide bombing killed 38 in a marketplace. A car bomb in Sadr City killed at least 28, and another car blew up in a separate neighborhood.  The prior week, ISIS attacks killed over 100 in and around the capital. Last weekend, ISIS attacked a gas factory near Baghdad, killing at least 14.

There are real concerns the government could collapse amid the threat of another sectarian-motivated bloodletting.  While ISIS has not sought to try to take Baghdad, you could see a situation where they control parts of the capital, even as the Iraqi Army wages a counter offensive, with some success, against the group.

In Syria, a senior Israeli official said the Syrian regime used sarin nerve gas for the first time since 2013 in an attack on ISIS fighters outside Damascus; this despite an agreement that supposedly disarmed Syria of its chemical arsenal.

The deal was reached after the regime used sarin and VX gas to kill as many 1,400 people in rebel-held areas of Damascus on Aug. 21, 2013. That was supposed to be President Obama’s “red line” that would trigger U.S. air strikes.  It wasn’t.

Fighting between rival Islamist rebel factions to control a key opposition stronghold near Damascus in recent weeks has killed more than 300 fighters, according to the Syrian Observatory for Human Rights.  The clashes in Eastern Ghouta pit the Saudi-backed Jaish al-Islam faction against two groups led by the Nusra Front, Syria’s al-Qaeda affiliate.

Despite pledging to withdraw its forces from Syria back in March, the Pentagon said this week that the Russian military remains firmly entrenched in the country.  A spokesman for the U.S.-led campaign against the Islamic State, Army Col. Steve Warren, said, “They continue to have air power there, they continue to have ground forces, they continue to have artillery.”

Warren added Russia is building up a forward operating base near the ancient city of Palmyra after it was retaken by Syrian and Iranian forces, backed by Russian airstrikes and Special Operations forces.

Meanwhile, major world powers are trying to restart peace talks in Geneva by the start of June, but this seems to be a fruitless effort.

And in Turkey, as reported by the Wall Street Journal’s Don Nissenbaum this week, the generals are making a comeback.

“(President) Erdogan’s moves to sideline political opponents – he forced out his handpicked prime minister this month amid a power struggle – has cleared the way for Turkey’s generals to play a greater role in shaping Mr. Erdogan’s attempts to extend his global influence.

“Turkish generals are tempering Mr. Erdogan’s push to send troops into Syria, managing a controversial military campaign against Kurdish insurgents, and protecting Turkey’s relations with Western allies who view the president with suspicion.  By steering clear of politics, they reemerged as a central player in national security decisions.”

While the army is against any extensive invasion of Syria, it has sent thousands of troops to the border in an attempt to shut down routes Islamic State is using to send terrorists to European capitals.

Lastly, Hizbullah said its top military commander in Syria, Mustafa Amine Badreddine, was killed in artillery fire by jihadists.  His death had been announced last Friday and was initially blamed on Israel.

But this was a man with many enemies and it’s really not clear who killed him.  Badreddine has been involved in terrorist attacks going back to at least 1983, having a role in the bombing of the U.S. Marine Corps barracks in Beirut that killed 241 people.

Israel: Defense Minister Moshe Yaalon announced his resignation on Friday, citing a lack of ‘trust’ in Prime Minister Benjamin Netanyahu.

Posting on Facebook, Yaalon said he told Netanyahu that “following his conduct in recent developments and in light of the lack of trust in him, I am resigning from the government and the Knesset (Israel’s parliament) and taking a time out from political life.”

It is expected Netanyahu will appoint hardliner Avigdor Lieberman to the post.  This week, Netanyahu invited Lieberman’s party Yisrael Beitenu to join his narrow coalition.

Separately, Netanyahu welcomed Egyptian President Sisi’s call for an effort to advance a peace process between Israel and the Palestinians.

“Israel is prepared to cooperate with Egypt and with other Arab states to advance the diplomatic process and the stability in the region,” Netanyahu said.

“I appreciate President Sisi’s actions and am encouraged by the leadership that he is displaying, including on this important issue,” he added.

Egypt: It is one crisis after another here: the economy; hardline, repressive governments; an ISIS-affiliated insurgency; air disasters/terrorist attacks, all when tourism is a major key to the well-being of the people.

But at least with the EgyptAir incident the government has been more open.

Libya: The U.S. and other world powers have said they are ready to arm Libya’s UN-backed unity government to help in their battle against ISIS.  U.S. Secretary of State John Kerry said IS was a “new threat” to Libya and it was “imperative” it was stopped. 

If this wasn’t so tragic, it would be laughable.  Kerry’s words are beyond meaningless at this point.  Oh, he’s right.  It’s just that nothing ever happens after he speaks.

What is clear, though, is that this Government of National Accord (GNA), as it’s called, is the only entity that has a chance of unifying the country, but ISIS has been building up a new stronghold there.

The GNA needs support, yesterday.  We’ll see how long it takes to deliver the weapons.

China/Taiwan: Friday, new Taiwan President Tsai Ing-wen omitted mentioning the one-China policy in her inaugural address, in a move that will anger Beijing, which claims Taiwan as its own.

Tsai said she respected the “joint acknowledgements and understandings” reached between the two sides at a landmark 1992 meeting seen by China as underpinning all subsequent contacts and agreements.

But Tsai did not mention the concept that Taiwan is a part of China, which Beijing insists is the key to the relationship overall.

Tsai called for the two sides to “set aside the baggage of history, and engage in positive dialogue, for the benefit of the people on both sides.” But she added, the will of Taiwan’s 23 million people and its democratic system must be respected in any cross-strait dialogue.

Tsai’s predecessor, Ma Ying-jeou, repeatedly endorsed the one-China principle in reaching a series of economic and civil agreements that significantly increased interactions between the two sides.

China maintains Taiwan must unify with the mainland eventually, by force if necessary.  But public opinion in Taiwan is strongly against any unification.

I’ve been warning this could be the surprise conflict, not an incident in the South China Sea. This week China conducted war games along the coastline facing Taiwan, including landing exercises on the Fujian coast, which I am very familiar with.

Not that the South China Sea couldn’t still be a flashpoint for armed conflict between the U.S. and China.  Two Chinese fighter jets carried out an “unsafe” intercept of a U.S. military aircraft that was flying over the South China Sea, in international airspace, the Pentagon said on Wednesday.  The prior week, China scrambled fighter jets after a U.S. warship sailed close to a land feature claimed by China, one of its reclamation projects.

President Obama is visiting Vietnam next week and there is a story he may offer military aid for the first time, which will also displease Beijing.  [Obama is then going to Japan, with an historic side trip to Hiroshima.]

Russia: Russians are losing interest in traveling to Crimea, with demand for flights to Simferopol down by more than 25 percent this year.  Travelers cite the lack of service infrastructure on the peninsula, vs. the quality of services that can be found in popular resorts for Russian travelers in Egypt and Turkey, as well as Sochi.  The number of tourist traveling to this last spot is up 40 percent.

Ukraine: The Eurovision Song Contest is a huge deal across the continent each year and this time there was a major political overtone as Ukraine took the top prize, specifically, singer Jamala and her song, “1944,” about wartime deportation of Crimean Tatars.

Needless to say this ticked off Russia to no end, with several Russian politicians and commentators blaming the result on hostility towards their country.

Jamala was the first Crimean Tatar to perform at the event, which this year was held in Stockholm.

“1944” references the year when Joseph Stalin deported almost all of the Tatar ethnic group.

Ukrainian President Petro Poroshenko hailed Jamala’s “unbelievable performance!  All of Ukraine gives you its heartfelt thanks, Jamala.”

The song is somber, to say the least, and it was a surprise it won. Political songs are not allowed at Eurovision, but this one was permitted because it is based on historic fact.

Next year’s contest is in Ukraine.  This could be interesting.

Venezuela: The country was plunged further into chaos this week as police and opponents of President Nicolas Maduro clashed on the streets of Caracas after Maduro threatened to make the opposition-controlled National Assembly “disappear.”

Venezuela is essentially a failed state, with shortages of basic goods and electricity.  Finding food is increasingly difficult.

Maduro’s approval rating has dropped to as low as 15% in recent polls, “and U.S. intelligence officials last week warned that the country is in danger of collapsing into waves of deadly violence.”  [Los Angeles Times]

Opposition members collected the required number of signatures supporting a referendum on Maduro’s removal from office, but the national election council is using delaying tactics to derail the campaign.

Maduro, a total idiot, and I mean that in the truest sense of the word, extended a state of emergency another 60 days, threatening to seize idle factories.

“An idle plant is a plant the people will take.  We will take all the actions necessary to activate production, which is being paralyzed by the bourgeoisie.”

Nigeria: Back in April 2014, Boko Harem militants seized more than 200 girls in what became a big global story, the kidnapping of the Chibok girls.  “Bring back our girls,” was the hue and cry, including from the likes of First Lady Michelle Obama.

This week the first two of these 200+ girls was found in a village not far from where they were originally abducted.

Bangladesh: So you know how they say you have a better chance of getting hit by lightning than winning the lottery?  Not in Bangladesh recently.  From AAP and the Sydney Morning Herald:

“More than 60 people have reportedly been killed by lightning in two days as tropical storms batter Bangladesh.  Two of those killed were students playing football in the capital Dhaka, but the majority were farmers.  Leading Bengali-language newspapers reported 64 people were killed by lightning since Thursday (May 12).”

Random Musings

Primary Results

Democrats

Kentucky

Hillary Clinton 46.8%
Bernie Sanders 46.3

Oregon

Sanders 56
Clinton 44

Delegates (2,383 needed)

Clinton 2,293
Sanders 1,533

Republicans

Oregon

Donald Trump 67%
Ted Cruz 17
John Kasich 16

Delegates (1,237 needed)

Trump 1,160
Cruz 566

Not that anyone should care much about national polls at this point, but for the record an NBC News/Survey Monkey online poll has Clinton leading Trump 48-45.   

But a Fox News national survey has Trump leading Clinton 45-42. Clinton would win among women in this one 50-36, but Trump would win 55-33 among men.  Clinton leads by 90-7 among blacks and 62-23 among Hispanics.  Trump leads 55-31 among whites, including a 9-point lead among white women.  Trump also leads by 16 points among independents, according to the poll.

Clinton led Trump in the same Fox poll a month ago 48-41.

A CBS News/New York Times national survey has Clinton leading Trump 47-41 (which I think is more like it...today...).  Last month she led by 10 points.  [Sanders leads Trump 51-38.]

Eight in 10 Republican voters in the CBS poll said their leaders should support Mr. Trump even if they disagree with him on important issues.  Unfavorable views toward Trump among Republican voters have plummeted 15 percentage points since last month; 21 percent now express an unfavorable view of him, down from 36 percent in an April survey.

--Robert Kagan / Washington Post

“We’re supposed to believe that Trump’s support stems from economic stagnation or dislocation.  Maybe some of it does.  But what Trump offers his followers are not economic remedies – his proposals change daily. What he offers is an attitude, an aura of crude strength and machismo, a boasting disrespect for the niceties of the democratic culture that he claims, and his followers believe, has produced national weakness and incompetence.  His incoherent and contradictory utterances have one thing in common: They provoke and play on feelings of resentment and disdain, intermingled with bits of fear, hatred and anger.  His public  discourse consists of attacking or ridiculing a wide range of ‘others’ – Muslims, Hispanics, women, Chinese, Mexicans, Europeans, Arabs, immigrants, refugees – whom he depicts either as threats or as objects of derision. His program, such as it is, consists chiefly of promises to get tough with foreigners and people of nonwhite complexion. He will deport them, bar them, get them to knuckle under, make them pay up or make them shut up.

“That this tough-guy, get-mad-and-get-even approach has gained him an increasingly large and enthusiastic following has probably surprised Trump as much as it has everyone else.  Trump himself is simply and quite literally an egomaniac. But the phenomenon he has created and now leads has become something larger than him, and something far more dangerous.

“Republican politicians marvel at how he has ‘tapped into’ a hitherto unknown swath of the voting public.  But what he has tapped into is what the founders most feared when they established the democratic republic: the popular passions unleashed, the ‘mobocracy.’  Conservatives have been warning for decades about government suffocating liberty. But here is the other threat to liberty that Alexis de Tocqueville and the ancient philosophers warned about: that the people in a democracy, excited, angry and unconstrained, might run roughshod over even the institutions created to preserve their freedoms....

“This phenomenon has arisen in other democratic and quasi-democratic countries over the past century, and it has generally been called ‘fascism.’  Fascist movements, too, had no coherent ideology, no clear set of prescriptions for what ailed society....

“What (Trump’s supporters) do not or will not see is that, once in power, Trump will owe them and their party nothing.  He will have ridden to power despite the party, catapulted into the White House by a mass following devoted only to him.  By then that following will have grown dramatically.  Today, less than 5 percent of eligible voters have voted for Trump.  But if he wins the election, his legions will comprise a majority of the nation.  Imagine the power he would wield then. In addition to all that comes from being the leader of a mass following, he would also have the immense powers of the American presidency at his command: the Justice Department, the FBI, the intelligence services, the military.  Who would dare to oppose him then?....

“This is how fascism comes to America, not with jackboots and salutes...but with a television huckster, a phony billionaire, a textbook egomaniac ‘tapping into’ popular resentments and insecurities, and with an entire national political party – out of ambition or blind party loyalty, or simply out of fear – falling into line behind him.”

--Meanwhile, despite the denials of top Democratic party officials, there is polling evidence that a decent percentage of supporters of Bernie Sanders could vote for Donald Trump; 30% according to exit polls this week.  Even if that total was, say, 10% to 15%, that could be a significant number and tip the scales in a key state or two.

And after the fiasco at the Democratic state convention in Nevada last weekend, there is growing concern the national gathering in Philadelphia could be rather raucous.  Pro-Sanders supporters have been grabbing the available formal permit applications to hold demonstrations during the four-day event, as reported by the Wall Street Journal, while no applications have been filed yet by supporters of Hillary.

Doug Schoen, a former advisor to President Bill Clinton and a polling expert, told the Journal the divisions within the party “appear to be widening, not narrowing, in ways that could be calamitous, particularly if there is ongoing chaos at the Democratic convention.”

In Nevada, Sanders’ supporters, angered by a delegate allocation process that favored Clinton, “began shouting, throwing chairs and issuing death threats to the state party chairwoman.”  [WSJ]

But instead of being a calming influence, Sanders “inflamed tensions by issuing a complicated statement that condemned violence, justified his supporters’ frustrations and railed against the party’s process for selecting a nominee.”

California Sen. Dianne Feinstein expressed her concerns about Philadelphia, scolding Sanders for not sending a clearer message to his supporters that what happened in Nevada won’t be tolerated anymore.

“I don’t want to go back to the ’68 convention,” she told CNN.  “I worry about what it does to the electorate as a whole, and he should, too.”

--John Podhoretz / New York Post

“Many Democrats are disenchanted with (Hillary Clinton) ideologically, but that’s not the only reason she’s suffering. Hillary is a politician in the John Kerry mold – she does inexplicably self-destructive things without actually having an impetuous, id-driven self-destructive streak.

“Who else but a tone-deaf bumbler would have spoken the insanely infelicitous words – ‘we are going to put a lot of coal miners and coal companies out of business’ – that destroyed her in West Virginia and made Kentucky so hard for her Tuesday night? 

“We all know she wanted to sell herself to environmentalists, but surely she could have found a way to do so without celebrating the elimination of working-class jobs during the Populist-Resentment Olympics that constitute the 2016 election cycle.  Surely this has to be counted among the dumbest self-inflicted political errors of our time.

“But forget that recent boner.  How about the fact that she took giant speaking fees from banks and hedge funds and Wall Street in 2013 and 2014 knowing full well she was about to run for president in a party that hates banks and hedge funds and Wall Street?

“And did so, moreover, when it was money she didn’t need, given that her family net worth was north of $100 million when she did so?

“Just imagine if she had denied Sanders that issue by never having taken the dough in the first place; his candidacy might never have taken off had it not been for the way he hammered her over her refusal to release the texts of her Goldman Sachs speeches.

“Call it greed if you like, but idiocy is another suitable word for it.”

--In an attempt to assuage conservatives, Trump released a list of 11 potential Supreme Court nominees he would appoint as president.

--President Obama delivered a commencement speech at Rutgers University on Sunday and he took the opportunity to knock Donald Trump without naming him, eliciting applause from lines like the world is becoming more interconnected and “building walls won’t change that.”

Obama mocked Trump’s call to “Make America Great Again,” saying there was never a better time to be alive on the planet and in America, which of course is part of Obama’s legacy shaping mantra these days...how, in his mind, historians will no doubt say he left the nation and the world a better place, which makes me want to throw up.

I do agree with the president, though, when he talks of a strain of anti-intellectualism in American politics.

But then you had his major applause line.  Clearly referring to Trump and congressional Republicans who decry efforts to combat global warming, Obama warned that “in politics and in life, ignorance is not a virtue.”

“It’s not cool to not know what you are talking about,” he said, lapsing into his ghetto/Joe Cool voice.  “That’s not keeping it real or telling it like it is. That’s not challenging political correctness. That’s just not knowing what you are talking about.”

Obama also wondered why in today’s political climate “in our public lives we suddenly think, ‘I don’t want someone who has done it before.’”  As if the president had a lot of experience when he was hired.

He called on graduates to hold leaders accountable and expect them “to know what the heck they are talking about.”

--Richard Benedetto / Wall Street Journal

“At a time when large numbers of Americans say they are fed up with politics and politicians, why is it that the nation’s chief politician, President Obama, seems to skate above it unscathed?

“Usually when an incumbent president is leaving office and a slew of candidates are battling for his job, that departing chief executive’s record is a major campaign issue....

“But not this year, even though two of three Americans say the country is on the wrong track, job creation is sluggish, income inequality continues to rise and Mr. Obama’s job approval barely tops 50%.  Moreover, approval of his handling of the war on terror and Islamic State is underwater, and a majority of Americans – white and black – say race relations are getting worse, not better....

“(A big reason) why Mr. Obama is able to avoid being a target is that he is a deft manipulator of the media, probably more skillful at it than any president ever.  He heads a savvy public-relations machine that markets him like a Hollywood celebrity, a role he obligingly and successfully plays.  One of the machine’s key tactics is to place Mr. Obama in as many positive news and photo situations as possible. Ronald Reagan’s advisers were considered masters of putting their man in the best possible light, but they look like amateurs compared with the Obama operation – which has the added advantage of a particularly obliging news media....

“A picture may be worth a thousand words, but with Mr. Obama you also get the thousand words.

“Yet at the same time we (are) seeing those nice photos, videos and articles, a lot of other important stuff was going on where Mr. Obama was hardly mentioned, seen or questioned.  For example, the U.S. economy grew at a meager 0.5% in the  first quarter of 2016; Russian military planes lately have been buzzing U.S. Navy ships; and China is building its military forces and expanding their reach in the South China Sea.  Early in May, a Navy SEAL was killed in Iraq (the president has assured the American public that U.S. troops there, increasing in numbers, are not in combat roles).  Islamic State terrorist attacks in Baghdad in recent weeks have killed scores of civilians. The Taliban are on the march in Afghanistan. The vicious war in Syria continues. The Middle East refugee crisis shows no sign of diminishing.  Military provocations by Iran and North Korea keep coming.

“President Obama’s media handlers try to keep the president as far away from these crises as possible, leaving others...to be their public face. That way the problems don’t appear to be Mr. Obama’s problem, and he is free to bask in the good news.

“One of the news media’s main jobs is to hold public officials accountable, from the president on down.  But Mr. Obama is the beneficiary of news-media managers and reporters who mostly like his style and agree with his policies, from his reluctance to make strong military commitments to his advocacy for LGBT rights, fighting climate change and supporting tougher gun-control laws....

“With Donald Trump now the media obsession – and most in the media don’t like him – it is easy to see why Mr. Obama’s performance over the past seven-plus years is still not a major issue in the 2016 campaign. And that’s the way he likes it.”

--Hillary Clinton seems to have narrowed her veep search, at least for today, down to Senators Tim Kaine (Va.) and Sherrod Brown (Ohio).  I prefer Kaine over Brown; not that I would be voting for this ticket.

--A new Quinnipiac poll shows New Jersey Gov. Chris Christie’s standing among us residents continues to plummet, with his approval rating hitting another all-time low, 29 percent, compared with 64 percent who disapprove.

--George Will / Washington Post

“Academia’s descent into perpetual hysteria and incipient tyranny is partly fueled by the fiction that 1 in 5 college students is sexually assaulted and that campuses require minute federal supervision to cure this.  Encouraged by the government’s misuse of discredited social science (one survey supposedly proving this 1-in-5 fiction), colleges and universities are implementing unconstitutional procedures mandated by the government.

“The 2006 Duke lacrosse rape case fit the narrative about campuses permeated by a ‘rape culture.’ Except there was no rape. In 2014, the University of Virginia was convulsed by a magazine’s lurid report of a rape that buttressed the narrative that fraternities foment the sexual predation supposedly pandemic in ‘male supremacist’ America. Except there was no rape.  Now, Colorado State University at Pueblo has punished the supposed rapist of a woman who says she was not raped.”

The supposed victim exonerated the suspected rapist, saying “he’s a good guy,” but one of her classmates had noticed a hickey on the woman’s neck and, assuming an assault must have taken place, told school officials that one had occurred...even as the ‘victim’ told school officials the sex was consensual.

“Undeterred, CSU Pueblo mixed hearsay evidence with multiple due process violations, thereby ruining a young man’s present and blighting his future.”

--A research report published in the journal Nature talks of the threat posed by the Totten Glacier in Antarctica, a far bigger threat than the smaller West Antarctic ice sheet where scientists have focused most of their attention in terms of warming seas and rising waters should one of these break off and melt. 

The Totten Glacier is 90 miles by 22 miles in area, but the entire region, in what is called a “catchment,” that could someday flow into the ocean, is over 200,000 square miles in size – bigger than California.  Plus it’s 2.5 miles thick in parts.

Bottom line, if the Totten Glacier and catchment were to break off, sea levels could rise as much as 13 feet.

But fear not...we’ll all be dead before this could happen.  Like the researchers are talking 500 years, or as Roseanne Roseannadanna would say, “Never mind.”

--But in the here and now, I do need to note for the record that NASA data released last weekend shows the Earth’s streak of record-warm months hit seven in April.  The average temperature of the planet was 2.0 degrees Fahrenheit above the long-term average.  NOAA said the streak of record-warm months extends even longer. In April it reached 12 straight.

2016’s average global temperature is so far out in front of any preceding year that climate scientists say there’s basically no way it won’t become the warmest ever recorded.

--Speaking of hot...a city in India’s Rajasthan state broke the country’s temperature record on Friday, registering 51C, the highest since records began, according to India’s weather office.

What is 51C?  Nearly 124F. 

---

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

God bless America.

---

Gold $1251
Oil $47.75

Returns for the week 5/16-5/20

Dow Jones  -0.2%  [17500]
S&P 500  +0.3%  [2052]
S&P MidCap  +0.7%
Russell 2000  +0.9%
Nasdaq  +1.1%

Returns for the period 1/1/16-5/20/16

Dow Jones  +0.4%
S&P 500  +0.4%
S&P MidCap  +3.7%
Russell 2000  -2.1%
Nasdaq  -4.8%

Bulls 40.2
Bears  21.7  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore