Week in Review

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Week in Review

06/11/2016

For the week 6/6-6/10

[Posted 11:00 PM ET, Friday]

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Edition 896

Washington and Wall Street

If there was any shred of doubt the Federal Reserve was going to hold the line on interest rates when the Open Market Committee meets next week, Chair Janet Yellen dispelled the notion in a speech to the World Affairs Council of Philadelphia: “The increase in employment over the past several years has contributed to higher household incomes and strengthening consumer confidence,” she said.  And “rising equity and house prices have helped restore households’ wealth.”

But, while remaining “cautiously optimistic,” Yellen also sees numerous potential drags on the economy.

Although lower oil prices have “likely been a positive influence on the U.S. economy overall, they also have had a negative side” because energy-sector employment has been hurt, while overall business investment has been weak, and “the latest labor market data raise the less favorable possibility that firms may instead have decided to expand their operations more slowly.”

So, specifically on rates, Yellen said, “I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run,” which was less specific than her previous remarks, May 27, at Harvard University when she said an increase would be appropriate in “coming months,” a phrase she didn’t repeat Monday.

Ergo, with June off the table, I still say the Fed could move in July assuming the Brits opt to stay in the European Union on June 23 and the June jobs report is solid.  Those who believe the Fed will move in September instead are nuts.  There is no way the Fed is moving that close to the election.  Which means if they don’t move in July, it’s December at the earliest.  At least that is my semi-educated opinion.

Otherwise, there was zero economic news of note this week so aside from the Fed, the dominant discussion was over growing concern with central bank policy in Europe and Japan and benchmark interest rates below zero, that with investors’ appetite for bonds has pushed the yields of more than $10 trillion in sovereign debt into negative territory.

Janus Capital’s Bill Gross tweeted on Thursday:

“Global yields lowest in 500 years of recorded history...This is a supernova that will explode one day.”

The average yield of the global government bond market has slipped to a new record low of 0.67 percent, according to Bank of America Merrill Lynch indices, and the overall value of sovereign debt with negative yields rose 5 percent in May to $10.4 trillion, according to Fitch. [Financial Times]

Even a relatively small rise in rates could result in big losses for investors (let alone traders). Goldman Sachs, for example, estimated an unexpected 1 percentage point rise in U.S. Treasury yields would trigger $1 trillion of losses, exceeding the financial crisis losses from mortgage-backed bonds.  [FT]

For example, the yield on the German 10-year bund closed the week at a record low of 0.02% (yes, 2 basis points).  April of 2015 the bund hit its previous record low of 0.049% and then shot above 1.00% within six weeks, causing major pain.

Recently, Jeffrey Gundlach, another big bond guy, said negative interest rates “are the stupidest idea I have ever experienced,” warning “the next major event [for markets] will be the moment when central banks in Japan and in Europe give up and cancel the experiment.”

I can’t help but repeat again that I was warning of the dangers of low interest rates years ago, before they went negative.

The bottom line is that the action of the central banks has done nothing to juice growth; witness Europe, Japan and the U.S.   Even a kindergarten graduate could tell you that much (and congrats to all our kindergarten grads out there...good luck in grade school...stay off social media...and go outside every day to play as soon as you get home...but I digress...)

Goldman Sachs warned, “With the S&P 500 close to all-time highs, stretched valuations and a lack of growth, drawdown risk appears elevated.”  Plus you have the possibility of Brexit, the U.S. election and a Fed that seems hellbent on raising rates at some point and there is a lot of event risk, according to Goldman’s Christian Mueller-Glissman, who adds: “While ‘buying the dip’ has worked since 2014, investors are increasingly concerned about the recovery catalyst in the next drawdown as central bank capacity is increasingly questioned and global growth and inflation remain stubbornly low.”

It’s been awhile since I gave Paul Krugman of the New York Times the floor; this time in addressing the poor May jobs report of June 3, wherein only 38,000 jobs were added, a major step down from what had been about a 200,000 monthly average since Jan. 2013.

“(All) the evidence points to slowing growth.  It’s not a recession, at least not yet, but it is definitely a pause in the economy’s progress.

“Should this pause worry you?  Yes.  Because if it does turn into a recession, or even if it goes on for a long time, it’s very hard to envision an effective policy response....

“So what is causing the economy to slow?  My guess is that the biggest factor is the recent sharp rise in the dollar, which has made U.S. goods less competitive on world markets.  The dollar’s rise, in turn, largely reflected misguided talk by the Federal Reserve about the need to raise interest rates.

“In a way, however, it hardly matters why the economy is losing steam. After all, stuff always happens.  America has been experiencing major economic downturns at irregular intervals at least since the 1870s, for a variety of reasons.  Whatever the cause of a downturn, the economy can recover quickly if policy makers can and do take useful action.  For example, both the 1974-5 recession and the 1981-2 recession were followed by rapid, ‘V-shaped’ recoveries, because the Fed drastically loosened monetary policy and slashed interest rates.

“But that won’t – in fact, can’t – happen this time. Short-term interest rates, which the Fed more or less controls, are still very low despite the small rate hike last December.  We now know that it’s possible for rates to go slightly below zero, but there still isn’t much room for a rate cut.

“That said there are other policies that could easily reverse an economic downturn. And if Hillary Clinton wins the election, the U.S. government will understand perfectly well what the options are.... The problem is politics.

“For the simplest, most effective answer to a downturn would be fiscal stimulus – preferably government spending on much-needed infrastructure, but maybe also temporary tax cuts for lower- and middle-income households, who would spend the money.  Infrastructure spending makes especially good sense given the federal government’s incredibly low borrowing costs: The interest rate on inflation-protected bonds is barely above zero.

“But unless the coming election delivers Democratic control of the House, which is unlikely, Republicans would almost surely block anything along those lines....

“If not fiscal stimulus, then what? For much of the past six years the Fed, unable to cut interest rates further, has tried to boost the economy through large-scale purchases of things like long-term government debt and mortgage-backed securities.  But it’s unclear how much difference that made – and meanwhile, this policy faced constant attacks and vilification from the right, with claims that it was debasing the dollar and/or illegitimately bailing out a fiscally irresponsible president.  We can guess that the Fed will be very reluctant to resume the program, and face accusations that it’s in the pocket of ‘corrupt Hilary.’

“So the evidence of a U.S. slowdown should worry you.  I don’t see anything like the 2008 crisis on the horizon (he says with fingers crossed behind his back), but even a smaller negative shock could turn into very bad news, given our political gridlock.”

Robert J. Samuelson / Washington Post

“Most people consider globalization an economic phenomenon, signifying the spread of technology, the growth of trade, and the threats to U.S. workers and firms from many sources – low wages, manipulated exchange rates, government subsidies and pure competitive advantage. It is all of these things, but also much more. If there was an organizing principle to U.S. foreign policy after the Cold War, it was globalization.

“The general idea was that, as countries traded with each other, their populations would become richer – in poor countries, middle classes would emerge – and nations’ interests would become intertwined. The threat of major wars would recede, because middle-class societies prefer commerce to conflict.  The new world order would have tensions and feuds, but they would be manageable precisely because they occurred in a context of shared interests.

“With hindsight, we know that this vision was simplistic and flawed. Expectations were unrealistic. Three defects stand out.

“First, globalization overestimated its capacity to suppress ethnic, religious and nationalistic strife. For proof, see the Middle East ablaze.

“Second, it optimistically presumed strong and steady economic growth.  Markets were assumed to be self-correcting, so slumps and stock declines – while inevitable – would be short and mild. The devastating 2008-2009 financial crisis and Great Recession punctured this premise.

“Finally, the economic benefits of more trade and open financial markets were considered so obvious that globalization would enjoy strong political support.  Not so. It represents a loss of national sovereignty.  Countries accept this when the rewards – prosperity and rising living standards – seem high.  When gains fade, the bargain becomes less tenable....

“(But) just because globalization is flawed doesn’t mean that its nationalistic substitute is superior.  Creeping protectionism reduces the efficiencies created by large international markets.  This would limit the possibility of lowering prices of traded goods and services.  It would also foster more trade conflicts as countries aided local firms with more subsidies and protectionism.

“For all its shortcomings, globalization has contributed to a huge reduction in worldwide poverty over the past quarter-century.  We ought to be more realistic about its limits and should police its vulnerabilities – particularly the danger of financial breakdowns.  But as an organizing principle for U.S. foreign policy, we shouldn’t abandon it until we have something better. We don’t.”

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Finally, regarding the election, I have a ton in the random musings section below.  But I have to note here that I kept my word from last week.  I did not vote for president in the New Jersey primary on Tuesday.

Oh, I was the first one at the polling booth at 6:00 a.m. (I got a kick out of the woman signing me in who said “I’ve been waiting for you Mr. Trumbore” and I honestly have no idea who she is).  But I was there to vote for my Republican congressman (Leonard Lance), facing another primary fight, and some other local candidates.  At the last second I thought about pushing the button for John Kasich but opted not to.

I’m just incredibly torqued off at my party and at the presumptive nominee of same.

So a good friend of mine from high school, Bobby C., a Marine and current commercial airline pilot with Southwest, wrote to say he had just finished reading Nathaniel Philbrick’s book, “Valiant Ambition,” about George Washington and Benedict Arnold, and Bob noted a quote from the epilogue, titled “A Nation of Traitors,” that had Bob thinking of the state of affairs with our choice for president.  [I see Bob now and then when his work brings him back home and over a few beers we basically share the same opinions.]

“As Arnold had demonstrated, the real enemy was not Great Britain, but those Americans who sought to undercut their fellow citizens’ commitment to one another.  Whether it was Joseph Reed’s willingness to promote his state’s interests at the expense of what was best for the country as a whole or Arnold’s decision to sell his loyalty to the highest bidder, the greatest danger to America’s future came from self-serving opportunism masquerading as patriotism.” [Italics Bob’s.]

Bobby C. said when he thinks of the Clinton Global Initiative and Trump, these words ring loud and clear.

I couldn’t agree more.

Europe and Asia

European Central Bank President Mario Draghi stepped up his calls for governments to do something, reform their economies, because there is only so much the ECB can do and without reforms there could be permanent economic damage.

Draghi, addressing an audience in Brussels on Thursday, said the ECB’s unprecedented stimulus measures had been fighting a number of buffers blocking the transmission of monetary policy into the real economy, which would soon succumb to a demographic trap.

As the Financial Times’ Mehreen Khan and Claire Jones write: “(Draghi) argued that restrictive fiscal policy, high levels of bad banking loans, and fears over the institutional stability of the euro-area had dampened the stimulus effects of negative interest rates and mass bond-buying.”

Draghi continues to pound the table that better reform efforts would have enhanced the effects of ECB policy, warning that the eurozone’s demographic time bomb will “soon start to bite,” reducing potential growth.

For an example of what Draghi is referring to, look at the current demonstrations and labor unrest in France after the government enacted truly minimal reforms meant to enhance productivity and give employers more flexibility in hiring and firing.  The labor unions are fighting back with a vengeance. What hope is there when even the slightest of reforms is batted down?

Meanwhile, as alluded to above, the ECB’s bond-buying program has seen interest rates plummet across the eurozone and Britain as the outlook for subdued growth and prices has raised the prospect of even further stimulus measures before the end of the year – which would be bullish for long-dated European government debt. 

Forget the 10-year German bund.  Around two-thirds of all outstanding German government debt yields below the ECB’s threshold of -0.4 percent, making it ineligible for purchase.

There is also some question just how much corporate bond-buying the ECB is doing, this facet of its quantitative easing program having commenced this week.  The ECB will be releasing its full data on exactly what it is buying in July and there is talk the corporate bond-buying is short of expectations.  Investors have piled into the corporate sector on the promise of ECB purchases.

Here’s the fear.  There is only so much the ECB and other central banks can buy.  If the volume is less than first thought, guaranteed there will be a very sharp selloff in the sector.

And as we see in the German bond market, there is a limit to the sovereign paper the ECB can pick up.

On the economic front, Eurostat reported that GDP in the eurozone (EA19) was revised up to 0.6% in the first quarter over the fourth, up 1.7% year-on-year.  The ECB is looking at a growth rate of 1.6% for 2016.

The retail PMI for May was 50.6 (50 being the dividing line between growth and contraction), according to Markit, with Germany at 54.0, France 50.6, and Italy 45.2.

German exports were unchanged in April as Europe’s strongest economy showed signs of stagnation.

And the Bank of Italy lowered its estimate of GDP growth this year to 1.1% from an earlier forecast of 1.5%, citing the continued weakness of the emerging economies “and a less florid recovery in the advanced ones,” it said in a statement.  Plus, “if geopolitical tensions worsen, volatility in the financial markets and in risk premiums could increase sharply.”

Which brings us to Brexit.  European equities were hit hard as polls suddenly showed a reversal to the ‘Leave’ camp, with a YouGov Plc survey now at 45% wish to ‘Leave,’ 41% ‘Remain’ or stay in the European Union. A TNS poll had it 43% Leave, 41% Remain.  A June 5 Financial Times poll of polls, though, put it 45-43 Stay.  But then late Friday, a new Orb/Independent poll moved the markets as it had the Leave camp leading 55-45.

So there is a lot of talk that if the British people opt to leave, other EU members will hold similar referendums and there would be a rush for the door.  Hardly.  It won’t happen that quickly.

It also needs to be noted that should Brits opt to go, actual change in existing ties with the EU, including trade deals, will be negotiated over years, not weeks or months.  Article 50 of the EU’s Lisbon Treaty governs the process for leaving the union and as pro-Brexit justice secretary Michael Gove puts it, the process would be one of “evolution not revolution.”

“The British people will simply have given their instruction to the government to make arrangements for us to leave the EU,” he said.  “It will be in Britain’s hands how we manage it and how long it takes.”  [BBC News]

Article 50 sets the clock ticking on a final break two years later – unless all the other 27 member states agree to an extension of negotiations.

Under Gove’s plan for exiting (and he would be a critical figure should this come to pass), Britain would retain all the advantages of EU membership while it carried out negotiations on a new sort of relationship, including on trade.  Formal Article 50 talks would come later.

The problem is you’d have a political revolution in Britain, first, with Prime Minister David Cameron being jettisoned (despite his claims to the contrary), while various European governments would take a hard line on any negotiations with the U.K.

In other words, there is a process for an orderly exit, but it won’t be orderly in the least and the markets will indeed be convulsed over the uncertainty.  As I’ve noted since the issue first came to the fore, the first thing you would see in the U.K. is investment drying up.  What corporate CEO is going to make any large-scale commitment given that environment?

On the other hand, pro-Brexit figure Boris Johnson, the former mayor of London and a man who wants Cameron’s job, said the risks of remaining in the EU are massive.

“It is a triple whammy of woe: the eurozone is being strangled by stagnation, unemployment and a lack of growth, it could explode at any time and we will be forced to bail it out.  The botched bureaucratic response to the migration crisis means the Eurocrats are demanding even more of our money.  And now we find that there is (about a $30bn) black hole in the EU’s finances.”  [BBC]

Ian Bremmer (Eurasia Group) / TIME

“Markets like good news and dislike bad news.  But they detest uncertainty, because it undermines the confidence of business leaders and investors that they can predict where and when to place their bets.  The outcome of Britain’s referendum remains very much in doubt, but it’s easy to predict that a vote to leave would create damaging uncertainties that would reverberate for years to come.”

Lastly, a new Pew Research Center report published Tuesday shows “The EU is again experiencing a sharp dip in public support in a number of its largest member states.”

In France, for example, the proportion of people with a favorable view of the EU has plummeted to 38 percent this year from 69 percent in 2004.  In Spain, support has dropped to 47 percent from 80 percent.

In Greece, 94 percent reject the bloc’s handling of the migration issue, while 2,000 miles away in Sweden, 88 percent feel the same way; Sweden’s generous welfare state making it an attractive destination with the government now overwhelmed.

In Asia, China reported dollar-denominated exports in May declined 4.1% year-over-year, compared with a 1.8% decline in April, while imports fell 0.4%, as weak external demand continues, which has helped lead to exports contracting 14 of 17 months since the beginning of 2015.

One decent indicator of growth, or lack thereof, on the export front is the outlook from Taiwan, whose numbers are deemed to be pretty transparent.  Exports fell 9.6% yoy in May, after falling 6.5% in April.  Yes, sluggish global demand, particularly from neighboring China.

But fake invoicing continues to be a problem with Hong Kong, as imports from there rose 242.6%, even as exports to HK fell 7%.  The fake invoicing is about disguising speculation on the yuan and attempts to hide capital flight (it’s complicated).

The import figure of -0.4% overall, though, wasn’t that awful as it showed commodity import volumes were picking up some, plus prices picked up so the year-over-year comparisons were better.

China’s foreign exchange reserves fell by $28 billion in May to $3.19 trillion, the lowest in more than four years.

China’s central bank said the economy will still grow 6.8% this year, as it sees the domestic recovery on track even if exports remain weak.  Fixed assets investment is estimated to rise 11%, with inflation at 2.4%, 0.7% higher than initially forecast.

Meanwhile, consumer prices in China rose 2% year-on-year in May, according to China’s National Bureau of Statistics, below consensus, with pork prices rising 33.6% year-on-year, while vegetable prices rose 6.4%.

Core inflation, which excludes food and fuel, was up 1.6% annualized.

Producer (or factory gate) prices fell 2.8% year-on-year last month, an improvement from April’s reading of -3.4%.

This weekend we see further important data from China on retail sales and industrial production and investment.

But as I note down below, this week U.S. and Chinese officials met for their annual talks, this time in Beijing, and Treasury Secretary Jack Lew said, “Concerns about the business climate have grown in recent years, with foreign businesses confronting a more complex regulatory environment and questioning whether they are welcome in China.”

Gee, where have you heard that before?

The Financial Times notes that only 47 percent of European businesses plan to expand their China operations, according to the European Chamber of Commerce in China’s annual Business Confidence Survey, which is down from 56 percent last year and 86 percent in 2013.

In Japan, producer prices contracted 4.2% year-on-year in May, holding steady from April.  The last instance of annualized PPI growth came in March 2015.  Separately, a key measure of investment here, machine orders, fell 11% month-on-month in April from a 5.5% rise in March.

Street Bytes

--Stocks were mixed a second straight week as declines on Thursday and Friday wiped out earlier solid gains, the Dow Jones edging up 0.3% to 17865, while the S&P 500 fell 0.1% and Nasdaq 1%.

Global bond yields crashed anew Thursday and Friday to record lows, which didn’t help sentiment, and concerns over the Brexit vote mounted.

--U.S. Treasury Yields

6-mo.  0.41%  2-yr.  0.73%  10-yr. 1.64%  30-yr.  2.45%

The 10-year close of 1.64% (1.639) is the lowest settlement in three years, since May 2013, after the 10-year had previously traded as low as 1.66% twice in 2016.  The third time it broke through with the German bund at 0.02%, the U.K. 10-year at a record low of 1.23%, and Japan’s 10-year at -0.17%.  Eegads.

Separately, the World Bank lowered its estimate of global growth for the year to just 2.4%, after an earlier forecast in January of 2.9%, the WB citing persistently low commodity prices and subdued global trade.

The World Bank now forecasts advanced economies will grow only 1.7% this year vs. an initial estimate of 2.2%.

The U.S. is at 1.9% (vs. 2.7% in January), the eurozone 1.6%, China 6.7%, and India 7.6%.

But Latin America is now forecast to contract 1.3% (after -0.5% in 2015), with Brazil -4.0%.

--Oil prices rose early in the week to above $50 (West Texas Intermediate) before finishing at $49.07 as industry data showed a larger-than-expected drawdown in U.S. crude inventories, while ongoing attacks on Nigeria’s oil industry has hit supply.  Additionally, Chinese trade data showed its crude oil imports rose nearly 39% in May from a year ago – the biggest jump in more than six years, adding to hope the economy is stabilizing.

Regarding Nigeria, Royal Dutch Shell Plc said it won’t attempt to repair a pipeline there until it can ensure security, after militants now known as the Niger Delta Avengers attacked it a second time.  It’s been too dangerous for repair crews.

The Avengers claim to represent the people of the oil-rich region and seek to bring production to zero, but there is a long history here and at some point they’ll sell out to the government for jobs securing the very sites they seek now to destroy.

For now, Nigeria’s production is down about 600,000 barrels a day, from a normal peak of around 2.2mbd.

--Legendary trader George Soros, the 85-year-old billionaire, has been lured back to the game by opportunities to profit from what he sees as looming troubles.

Soros Fund Management LLC, which manages $30 billion for Mr. Soros and his family, has sold stocks and bought gold and shares in gold miners as Soros himself directed a series of big, bearish bets.

While in recent years he has been focused on his philanthropic and public policy endeavors, including as a major backer to the super PAC supporting Hillary Clinton and other Democrats, early this year he began spending more time in the office directing trades.

Soros has turned gloomy over the global scene and political issues in China, Europe and elsewhere.  He remains particularly skeptical over the Chinese economy.

In an email to the Wall Street Journal, Soros said: “China continues to suffer from capital flight and has been depleting its foreign currency reserves while other  Asian countries have been accumulating foreign currency.  China is facing internal conflict within its political leadership, and over the coming year this will complicate its ability to deal with financial issues.”

I couldn’t agree more over the “internal conflict” aspect.  Soros is concerned China doesn’t seem willing to embrace a transparent political system.

Soros also believes there is a good chance the European Union will collapse under the weight of the migrant crisis, along with ongoing challenges in Greece and the potential for Brexit.  But he does not feel Brits will choose to opt out of the EU.  [At least that’s how he felt early in the week.]

Meanwhile, fellow billionaire trader Stanley Druckenmiller has said “the bull market is exhausting itself” and hedge-fund manager Leon Cooperman said “the bubble is in fixed income,” as reported by the Journal’s Gregory Zuckerman.

--More bad news on the Zika virus front.  If you are downplaying this threat you are nuts.  It’s not that this is a killer and civilization itself is threatened, as if it were some global plague.  It’s the fact that if you’re pregnant and your baby contracts it, you’ll never forgive yourself. 

Betsy McKay / Wall Street Journal...from Puerto Rico

“The Zika virus is creeping north toward the continental U.S., and Alberto de la Vega has started to detect its signs.

“In ultrasounds he gives pregnant women who are infected with the virus in this American territory, he has seen a 22-week-old fetus with serious brain damage and two others with stunted growth.   He is bracing for more.

“ ‘If you ask me in a month,’ says Dr. de la Vega, an obstetrician-gynecologist and chief of a high-risk-pregnancy unit at the capital’s University Hospital, ‘we may have 10 times the detection rate.’”

More than 1,350 people have tested positive for Zika in Puerto Rico thus far, including 168 pregnant women.  One patient died.

“Today” anchor Savannah Guthrie said on Tuesday that she was pregnant and, as a result, would not participate in NBC’s coverage of the Olympics in Rio owing to Zika concerns.  “The doctors say we shouldn’t (go).”

--In a significant move, the U.S. and India agreed to move ahead with the construction of six nuclear reactors in India by Westinghouse Electric Co., a U.S. unit of Toshiba Corp;  the first such move since the countries signed a civil nuclear deal back in 2008.

The breakthrough came during a visit to the White House by Indian Prime Minister Narendra Modi, as our two nations seek closer cooperation on a number of fronts to counterbalance China. 

--Texas Republican Rep. Jeb Hensarling, in remarks to the Economic Club of New York on June 7, on the issue of Dodd-Frank and Republican plans to replace it.

“When they voted for it, supporters of Dodd-Frank told us it would ‘promote financial stability,’ ‘end too big to fail,’ and ‘lift the economy.’  None of this has come to pass.

“Today the big banks are bigger and the small banks are fewer. In other words, even more banking assets are now concentrated in the so-called ‘Too Big to Fail’ firms.  Pray tell, how does this promote financial stability?

“Dodd-Frank codified into law Too Big to Fail and taxpayer-funded bailouts.  This is bad policy and worse economics. It erodes market discipline and risks even further bailouts.  It becomes a self-fulfilling prophecy, helping make firms bigger and riskier than they otherwise would be....

“Additionally, Dodd-Frank’s Volcker Rule and provisions of Basel have led to dramatic bond market illiquidity and volatility. Many believe this could well be the source of the next financial panic. When it comes to systemic risk, regulatory micromanagement is no substitute for market discipline.

“Next, instead of lifting our economy as Dodd-Frank’s supporters claimed it would, it has made us less prosperous.  Small business lending has dropped since Dodd-Frank was passed – stifling entrepreneurship and causing economic growth to suffer....

“But perhaps more ominously than making us either less prosperous or less stable, Dodd-Frank has also made us less free. Dodd-Frank moves us away from the equal protection offered by the impartial rule of law towards the unequal and victimizing rule of political bureaucrats.

“It represents a breathtaking, unconstitutional outsourcing of legislative powers to the executive branch, with the Orwellian-named Consumer Financial Protection Bureau (CFPB) and the Financial Stability Oversight Council (FSOC) the two prime beneficiaries....

“I fear Dodd-Frank’s ultimate purpose is to eventually render effective control of our capital markets to the state; to turn large money-center banks into functional utilities, so that the state can allocate credit within our economy to politically favored classes. In other words, to take over the commanding heights of our economy.

“This must not be allowed to stand.”  [Wall Street Journal]

--The wealth of Americans reached a record $88.1 trillion in the first quarter, thanks to rising home values that offset weakness in the stock market at the start of the year.

--Oklahoma City police investigating the death of oilman Aubrey McClendon in a fiery car crash in March found no evidence suggesting he committed suicide, but acknowledged his state of mind at the time of the accident was unknowable.

McClendon’s Chevy Tahoe slammed into a concrete bridge abutment at 88mph, one day after federal prosecutors indicted him for violating anti-trust laws by rigging bids for oil lands.  He had denied the charges.

--Shares in Tesla, which rallied on news value investor Ron Baron was building a large position in the company, gave back all the gains after the U.S. National Highway Traffic Safety Administration said it was reviewing reports of suspension problems in Tesla’s Model S and was seeking additional information from vehicle owners and the company.

But Tesla said there was no safety defect and that it had cooperated fully with the NHTSA as part of a “routine screening” on suspensions and that the agency did not ask for any further information.  The market for today believes otherwise.

--In the first five months of 2016, General Motors and its joint venture partners in China sold 1,593,913 vehicles there, up 4.3% from January through May 2015.  [Financial Times]

--As Hugo Martin of the Los Angeles Times notes, the airline business may be reaping record profits these days, but the profit margin is still pretty puny.

The International Air Transport Assn. revised its annual profit outlook to $39.4 billion for 2016, which equates to a 5.6% profit margin on revenue of $709 billion.  North American carriers are expected to generate $22.9 billion of the total.

--Bill Gross’ Janus Global Unconstrained Bond Fund finally had solid inflows, $144 million into it in May; the most new money going into his mutual fund since Dec. 2014.  The fund is outperforming 76% of its peers, according to data compiled by Bloomberg.

It’s taken Gross a while to reestablish his reputation for investing following his departure from PIMCO in 2014.

--According to a new study, Internet users are abandoning Facebook and Instagram for more private apps such as WhatsApp and Telegram.

In terms of global usage, the study conducted by web analytics company Similar Web tracked activity on hundreds of thousands of Android phones from January to March 2016 and compared it with the same period in 2015.  Anonymous users from nine countries, including the UK, France, Germany and Spain (but not the U.S.) were studied.

The findings?  Instagram showed the biggest drop in global usage, down 23.7 percent year-on-year. Twitter usage was next, down 23.4 percent, Snapchat 15.7 percent and Facebook by 8 percent.  Facebook was the most used with people spending an average of 34 minutes in its app daily.

According to the author of the report, the reason for this drop in social media use could be two-fold.

First, there are a slew of smaller, more niche social media apps such as video app Periscope and encrypted messenger Telegram that are competing for users’ attention.  Also Whisper and Yik Yak where people can chat anonymously.  Plus there’s been a big surge in apps like WhatsApp, that are beginning to replace public social networks.  [Daily Telegraph]

--On Thursday, scientists declared El Nino to be dead. This version became one of the largest in recorded history and it delivered much-needed rain and snow to drought-stricken California, but, unlike early forecasts, it did not end the drought in the southern half of the state, though largely did in the northern half and snowfall amounts were generally above normal for the first time in a while.  According to the U.S. Drought Monitor, nearly 84% of the state remains in some stage of drought.  One meteorologist graded El Nino with an A- in the north, but just a C in the Southern California.

La Nina, the cooler kid sister to El Nino, is expected to take shape late summer.

--Charles Fleming / Los Angeles Times

“The L.A.-Long Beach-Anaheim metropolitan area saw a total of 57,247 cars stolen last year, according to the National Insurance Crime Bureau, almost twice as many as closest rival San Francisco’s 30,554 and more than double Houston’s 25,433 or New York-New Jersey’s 22,391.”

--Tom Perkins, a Silicon Valley venture capitalist who helped establish a firm that went on to dominate the start-up financing landscape, died at the age of 84. Perkins set up Kleiner Perkins Caufield & Byers with the Austrian-born engineer Eugene Kleiner in 1972.  An example of their initial work was pioneering biotech company Genentech, which Kleiner Perkins backed with a $100,000 initial investment in 1976.  Perkins later served as chairman and Genentech was eventually sold to Roche more than three decades later for $47bn.

--Gawker Media, under pressure from a $140 million legal judgment in an invasion-of-privacy lawsuit by former wrestler Hulk Hogan, is putting itself up for sale.  The company filed for Chapter 11 bankruptcy on Friday, after Gawker was denied a stay under terms the company could meet.

Gawker still plans to appeal the case.

--JPMorgan Chase announced in a letter to its 237,000 employees that it was making business casual its everyday dress code, in yet another nod to the informal tech industry.  General Electric and IBM have also moved to casual garb.

In JPM’s memo from its operating committee, as reported by the Wall Street Journal, “More clients are dressing informally, and many parts of our business are already business casual.  And while it may not be possible to dress business casual at all times or in all areas, we believe having a firm wide guideline is the right thing to do.”

But no “tightfitting stretch pants,” girls.  And no “beachwear, halter tops, tank tops or crop tops.”

I’m also guessing no “Game of Thrones” garb.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey:  Iraq’s elite counter-terrorism units (elite is a relative term when it comes to Iraq’s forces, I hasten to add) have apparently moved to within a few miles of central Fallujah on Friday as they consolidate their positions in the south of the city, according to Agence France Presse.  The operation’s commander told AFP, “ISIS wanted the battle to take place outside the city but we have moved in, and retaken all this area in eight days.”

Lieut. Gen. al-Saadi vowed to be in the city center “in days, not weeks.”

The operation to retake Fallujah (30 miles west of Baghdad), was launched on May 22-23 and according to Saadi, “More than 500 ISIS members have already been killed.”

According to the Norwegian Refugee Council, some 20,000 residents have managed to flee the fighting thus far, but the Iraqi military and government is not ready to take care of them and many face starvation without immediate aid.

For its part, ISIS launched another series of terror attacks in Baghdad on Thursday, killing at least 25.

In Syria, U.S.-backed forces fighting ISIS near the Syrian-Turkish border said Thursday they had reached the militants’ last main route in and out of their stronghold in the area, the city of Manbij.

The Syria Democratic Forces – which include the Kurdish YPG militia and Arab allies – are leading the way as Washington hopes the operation will cut off ISIS’ last major link to the outside world.

130 ISIS fighters have been killed and 20 SDF fighters, according to the Syrian Observatory for Human Rights as civilians flee into the countryside.  U.S. Special Forces are assisting in the battle.

Meanwhile, at least 15 civilians were killed and dozens wounded in a series of air strikes on rebel-held areas in the city of Aleppo, with one strike near a hospital, a favored target of the Assad regime.

In a defiant speech on Tuesday, President Assad vowed to retake “every inch” of the country from his opponents.

Aleppo, he said, would be “the graveyard where the hopes and dreams” of Turkey’s President Erdogan – a key backer of the rebels – would be “buried.”

Assad addressed Syria’s newly-elected parliament in his first major speech since U.N.-brokered peace talks broke down in April.

Assad thanked Russia, Iran, China and Hizbullah for the support they had provided.

The Syrian army is mounting an offensive in Raqqa province, home to the de facto capital of ISIS, with heavy Russian support.

Editorial / Washington Post

“It’s been nearly six months since the U.N. Security Council passed a resolution demanding an end to the bombing and shelling of civilian areas in Syria and calling for immediate humanitarian access to besieged areas.  It’s been four months since Secretary of State John F. Kerry described the sieges as a ‘catastrophe’ of a dimension unseen since World War II and said that ‘all parties to the conflict have a duty to facilitate humanitarian access to Syrians in desperate need.’

“Three weeks ago, a diplomatic conference on Syria joined by Mr. Kerry issued a statement saying it ‘insisted on concrete steps to enable the provision of urgent humanitarian deliveries,’ and warning that if none were taken, it would support airdrops to besieged towns beginning on June 1.

“By Monday, there still have been no food deliveries to Daraya in the Damascus suburbs, the al-Waer district of Homs of several other of the 19 besieged areas, with a population of more than 500,000, identified by the United Nations.  Nor had there been airdrops.  None have been organized, and U.N. officials say none are likely in the coming days.  Another deadline has been blown, another red line crossed – and children in the besieged towns are still starving....

“The Syrian Observatory for Human Rights said 500 civilians, including 105 children, had been killed in 45 consecutive days of bombing in Aleppo.  The ‘cessation of hostilities’ negotiated by Mr. Kerry in February, which was never fully observed by Russia and Syria, has been shredded.

“And the Obama administration’s response?  It is still waiting patiently for the regime of Bashar al-Assad to stop dropping barrel bombs from helicopters on hospitals and allow passage to aid convoys. It is still asking politely for Russia to stop bombing Western-backed rebel units and to compel the Assad regime to follow suit.  ‘We expect the regime to live up to its commitments,’ said a State Department statement Monday.  ‘We ask Russia to use its influence to end this inhumane policy.’ As for airdrops, ‘that’s a very complex question,’ said a spokeswoman....

“People in the besieged towns ‘are eating leaves and grass or animals of one kind or another that they manage to capture,’ Mr. Kerry declared.  Humanitarian access, he said, ‘has to happen not a week from now...it ought to happen in the first days.’  That was on Feb. 2.”

In another air attack this week, this one by Russian warplanes, on the Syrian town of Ashara, 17 more civilians were killed, including eight children.

And in Turkey, a car bomb targeted a police bus in central Istanbul, killing at least 11, including four civilians.  Kurdish separatists are suspected.

On a totally separate note, the 2016 Global Peace Index found that terrorist attacks are at an all-time high and there are more refugees now than at any time since the Second World War.

Deaths from conflict were at a 25-year high, according to researchers at the Institute for Economics and Peace, which produces the index.

More than 100,000 people were killed in conflict in 2014, up from nearly 20,000 in 2008.  Syria, where nearly 67,000 people were killed in 2014, accounted for the bulk of the increase.

The United Nations has said the number of displaced people is likely to have ‘far surpassed’ a record 60 million last year.

But here’s something telling. According to the research, the breadth of terrorism has spread to such an extent that there are now only 10 countries considered completely free from conflict: Botswana, Chile, Costa Rica, Japan, Mauritius, Panama, Qatar, Switzerland, Uruguay and Vietnam.  [Daily Telegraph]

Iran: The Iranian Foreign Ministry has strongly reacted to the U.S. State Department’s annual report on global terrorist activity which has branded Iran as ‘the foremost state sponsor of terrorism in 2015,’ calling it ‘illusory.’

“Had it not been for the U.S. military interventions and its destructive supports for terrorist groups in Iraq, Afghanistan, Syria, Libya, and Yemen, the global community would not have incurred heavy costs of worldwide confrontation with the terrorist groups,” Iranian Foreign Ministry spokesman Hossein Jaberi Ansari said in a communique issued on Saturday.

“The United States’ instrumental use of terrorism and its blatant disregard for atrocities committed by terrorist groups against civilians have caused terrorism to put down roots, making it more difficult to deal with,” Ansari added.  [Tehran Times]

Israel: A terror attack on a popular Tel Aviv market left four people dead and 16 wounded.  Two Palestinians, dressed to blend in as patrons, suddenly got up from their table and opened fire.  Both were quickly apprehended.  The level of sophistication and access in such a secure city is no doubt disconcerting to Israeli officials.

Jordan: The kingdom has not had to deal with direct terror attacks on the scale of its neighbors, but on Monday, three Jordanian intelligence officers and two security personnel were killed in an attack on a security office in a Palestinian refugee camp on the outskirts of Amman.  The camp, Baqaa, is where a large percentage of the country’s over seven million who are descendants of Palestinian refugees who fled in the creation of Israel in 1948 live.

Afghanistan: The Taliban killed at least five in an attack on a courthouse in eastern Afghanistan, this as President Obama approved a request from Gen. John Nicholson, commander of U.S. forces in the country, to more aggressively attack Taliban fighters with airstrikes, while loosening some of the rules allowing U.S. troops to accompany conventional Afghan forces, which commanders on the ground said have hamstrung efforts to go after the militants.

But Gen. Nicholson will not have carte blanche to strike as he sees fit, which means there is still a bureaucratic process he and others in the command will have to go through before acting.  

Separately, the Obama administration believes that 12 detainees released from Guantanamo Bay have launched attacks against U.S. or allied forces in Afghanistan, killing about a half-dozen Americans, as reported by the Washington Post.

Back in March, a senior Pentagon official testified to a congressional committee he acknowledged former Guantanamo inmates were responsible for the deaths of Americans overseas, though Paul Lewis provided no details and the administration hasn’t done so either because the information is classified.  But the Washington Post has since learned some specifics, including that a female aid worker was targeted in 2008.

All of the detainees involved were released during the Bush administration but it calls into question the eventual impact from the large numbers released during the Obama years.  700 in all have been released from Guantanamo since the prison opened in 2002, with just 80 remaining.

Officials say nearly 21 percent of those released prior to 2009 have reengaged in militancy, compared with about 4.5 percent of the 158 released by Obama, according to administration officials. But who the heck knows where the truth lies.  I don’t trust anything our government says on the topic.  We’re in legacy building mode, after all.

China: Editorial / Wall Street Journal

“Defense Secretary Ash Carter told the Shangri-La security conference in Singapore this weekend that the impending United Nations tribunal verdict on the South China Sea is ‘an opportunity for China’ to recommit to ‘diplomacy and to lowering tensions, rather than raising them.’  Chinese military leaders in attendance were having none of it.

“Admiral Sun Jianguo insisted China is a victim of bullying by its smaller neighbors and the U.S., as the arbitration case was filed by the Philippines, a U.S. ally.  ‘The South China Sea issue has become overheated,’ he said, ‘because of the provocation of certain countries for their own selfish interests.’  Admiral Guan Youfei, director of foreign affairs for China’s Defense ministry, flatly dismissed the arbitration as illegal.  ‘We  do not participate in it nor accept it.’

“The bluster didn’t convince other delegations. The deputy defense minister of Vietnam, which has seen China cut the cables of its survey ships and plant an oil rig in its waters, warned that Chinese ‘unilateralism and coercion’ would ‘lead to armed crisis’ if it continues.  French defense chief Jean-Yves Le Drian underscored the global stakes: ‘If the law of the sea is not respected today in the China seas, it will be threatened tomorrow in the Arctic, the Mediterranean or elsewhere.’

“Hence the danger that Beijing will answer a rebuke from the tribunal with further efforts to expand its maritime footprint.  China could attempt to build an artificial island atop Scarborough Shoal, which it seized from Philippine control in 2012.  It could also declare a unilateral air-defense identification zone (ADIZ) over the South China Sea, as it did two years ago over the East China Sea....

“The U.S. and its allies need countermeasures ready for the likely event that Chinese dredgers, ships and military aircraft turn the U.N. verdict into a dead letter.”

So the above was in Monday’s Journal.

Tuesday, a U.S. spy plane was buzzed by Chinese jets as it flew over the East China Sea, with one of the fighter planes approaching in an “unsafe” manner, according to the U.S. military; the second such incident in three weeks.

China responded by accusing the United States of “hyping” the incident.

Chinese Foreign Ministry spokesman Hong Lei insisted that his nation’s pilots always act responsibly and professionally.

“Judging by the report, the U.S. side is again deliberately hyping up the issue of the close surveillance of China by U.S. military aircraft....China has the right to take defensive measures against it.  We demand the U.S. side stop close reconnaissance activities and avoid the reoccurrence of such things.”  [Washington Post]

And on Thursday, Japan’s foreign ministry summoned the Chinese ambassador to Tokyo at 1:00 a.m. to register a formal protest after the Chinese navy made an unprecedented entry into waters around the disputed Senkaku Islands, called Diaoyu in China, in the East China Sea.  Three Russian naval vessels also sailed through the zone surrounding the islands, which Japan has administered since 1895.  China regards them as part of its territory.

With all this going on, Chinese President Xi Jinping, in his opening statement to the annual China-U.S. Strategic and Economic Dialogue in Beijing, said the nations should cultivate mutual trust and cooperation.

“The fundamental thing is the two sides should stick to the principles of no conflict or confrontation, mutual respect and win-win cooperation,” he said.

Meanwhile, on Saturday, Taiwan’s President Tsai Ing-wen, speaking on the 27th anniversary of the June 4 crackdown against the 1989 pro-democracy protests, said:

“As a president, I’m not finger-pointing at the political system on the mainland, but sincerely sharing the experience of the democratization of Taiwan.  If the mainland could give the people more rights, the world would pay it more respect.”

I’m sure Beijing was just thrilled by these truthful remarks.

North Korea: David Ignatius / Washington Post

“Sometime during the coming several years, the next U.S. president could confront a genuinely dangerous threat from a faraway place: a North Korean missile that could hit U.S. territory with a nuclear warhead.

“Led by an impulsive and brutal young man, North Korea may pose the most direct nuclear risk for the United States.  Kim Jong Un is a weak leader in every respect but one: He pushes ahead relentlessly on a program to build missiles carrying miniaturized nuclear warheads that could reach Guam and other U.S. targets.

“A nuclear North Korea, remote as it may seem, poses what Pentagon planners see as an urgent challenge for the United States.  Officials say the situation requires close monitoring and contingency plans for how to respond to a range of scenarios in which a reckless or imploding Pyongyang might attack....

“Despite the growing international concern (Ed. including from Japan and South Korea), North Korea keeps pushing ahead....

“The (latest) U.N. sanctions seem to have had no effect in curbing (Pyongyang’s) provocative actions.  The Security Council last week condemned recent missile tests as a “grave” and “flagrant” violation of its March resolution and called for countries to ‘strengthen enforcement.’  But the United Nations left open the question of how to get tougher....

“The Middle East and Europe are on any new president’s agenda.  But in January, it may be North Korea and the surrounding Asian theater that deserve the most urgent look from the new commander in chief.”

Russia: This is laughable.  President Vladimir Putin actually urged governments around the world to protect the freedom of the press, the TASS news agency reported Tuesday.

“There can’t be a situation where some governments talk about freedom of information when they like what they are hearing, yet immediately decry information they don’t like as propaganda of a political group or foreign state,” Putin said at a media forum.

Putin said that the news should be objective and free from repression, naming honesty and truth as being at the heart of good reporting.

In a recent poll, 58% of Russians now believe there is pro-government censorship on the Russian television channels.  At the same time, 60% of respondents said they watch television news every day.  [Moscow Times]

Brazil: If you still want to go to the Olympics, know that the number of homicides in Rio state was up 15 percent in the first four months of 2016 compared with last year, although the figure dropped some in May, according to Dom Phillips of the Washington Post.    Street robbery has climbed 24 percent this year.

Brazil insists the Games will be safe for visitors (forgetting the Zika threat and water quality), with 85,000 armed soldiers and police officers guarding Rio’s streets.

But the growth in crime is largely because of the severe recession/depression the nation finds itself in.

Random Musings

Democratic Primary

Hillary Clinton wrapped up the needed 2,383 delegates for nomination a day prior to Tuesday’s primary, according to the Associated Press’ delegate count, much to Bernie Sanders’ chagrin.

Then on Tuesday....

California: Clinton 56%, Sanders 43%
Montana: Sanders 51, Clinton 45
New Jersey: Clinton 63, Sanders 37
New Mexico: Clinton 52, Sanders 48
North Dakota: Sanders 64, Clinton 26 [10% others]
South Dakota: Clinton 51, Sanders 49

As of week’s end, Clinton had 2,784 delegates to Sanders’ 1,877.

Ms. Clinton said Tuesday night after clinching victory with her early wins that evening: “Thanks to you, we have reached a milestone, the first time in our nation’s history that a woman will be a major party’s nominee.  Tonight’s victory is not about one person.  It belongs to generations of women and men who struggled and sacrificed and made this moment possible.”

In her speech, she appealed to Sanders supporters to join her and said the Democratic Party had been bolstered by his campaign for eradicating income inequality, which has commanded huge crowds and galvanized younger voters.

Clinton then said: “The stakes in this election are high and the choice is clear.  Donald Trump is temperamentally unfit to be president and commander-in-chief.”

On Twitter, Clinton said: “To every little girl who dreams big: Yes, you can be anything you want – even president.  Tonight is for you.”  [I’m biting my tongue.]

Sanders, though, in a defiant speech to supporters in California, said he would continue the fight through next Tuesday’s primary in Washington, D.C., and on to July’s Democratic convention in Philadelphia.

“I am pretty good in arithmetic and I know the fight in front of us is a very, very steep fight,” Sanders said.  “But we will continue to fight for every vote and every delegate.”

President Obama sent a clear signal the Democratic Party race is over in calling Clinton to congratulate her, while setting up a meeting on Thursday with Sanders at the White House.  There, Obama told Sanders to channel the energy of his campaign’s millions of supporters behind Clinton, saying Sanders would play a central role in shaping the Democratic agenda if he did.

[It is not only pitiful that Obama taped his endorsement for Clinton before Tuesday’s primary results were in, but that he endorsed a candidate who is under investigation by his own Justice Department.]

Meanwhile, Clinton met with Massachusetts Sen. Elizabeth Warren at her Washington home on Friday, Warren now seen as a top candidate to be Hillary’s veep pick, though I’m guessing she goes with Sen. Tim Kaine.  [If Warren were selected, I’m committing hari-kari, except a friend in North Carolina has my sword and won’t send it back to me.]

--On Tuesday night, Donald Trump railed against free-trade deals that have “stripped” the U.S. of jobs.  He said Clinton and her husband “have turned the politics of self-enrichment into an art form.”

Trump also told voters who had supported Sanders but were now “left out in the cold by a rigged system” to consider backing his campaign.

But earlier, Trump said U.S. District Judge Gonzalo Curiel should recuse himself from presiding over two lawsuits against the Trump University for-profit education business because “he’s a Mexican.”

Days later, Trump sought to temper criticism without issuing an apology, saying in part that it is “unfortunate that my comments have been misconstrued as a categorical attack against people of Mexican heritage.  I am friends with and employ thousands of people of Mexican and Hispanic descent.”

Trump added that he does not believe that “one’s heritage makes them incapable of being impartial” but he echoed remarks that in his own case Curiel had shown bias.

“[But],” he said, “based on the rulings that I have received in the Trump University civil case, I feel justified in questioning whether I am receiving a fair trial.”

Trump said he will no longer comment on the case, though he immediately did so in an interview.

House Speakere Paul Ryan (R-Wis.) said Tuesday that Donald Trump’s criticism of Judge Gonzalo Curiel over his ethnicity was “the textbook definition of racist comments.  I regret these comments that he made.  I think that should be absolutely disavowed.”

“I’m not going to even pretend to defend them,” Ryan said.  “I’m going to defend our ideas.  I’m going to defend our agenda.  What matters to us most is our principles and the policies that come from those principles and our ability to give the people of this country a better way forward.”

Ryan repeatedly said that he was backing Trump because he believes the nation is far better off with the Republican nominee than Hillary Clinton as president.

Ryan also made a plea for  unity, saying the party would be “doomed to fail” if it is divided in November and that GOP ideas, such as the poverty reform proposals he unveiled this week, had a better chance of becoming law if Republicans are unified.

--Daniel Henninger / Wall Street Journal

“There is a reason why Hillary Clinton’s milestone as the U.S.’s first female presidential nominee is having trouble reaching elevation. The reason is that her victory is not the most significant event of the Democratic primaries.

“The real claim to Democratic Party history belongs to Bernie Sanders.  Sen. Sanders has recentered the Democrats, once and for all, as a party of the political left.  He has reimagined the Democrats – almost with the force of his personality – as a party of the state, of government and of redistribution.  Period.....

“The Democrats are now the party of Bernie Sanders, the progressive icon Sen. Elizabeth Warren and – make no mistake – of Barack Obama, a man of the left from day one. Rather than distrust the private sector, they disdain and even loathe it.

“In this milieu, Hillary Clinton was the odd woman out.  If she’d had any credibility as an authentic member of the party’s new Sanders-Warren center, she would have overwhelmed this obscure Vermont senator in the Iowa caucuses.  Instead, liberals under 40, especially millennials, don’t believe she is one of them.

“The policies of John Kennedy and Bill Clinton, now in disrepute, ensured that annual economic growth remained at its postwar average of about 3%.  Those Democrats understood the private sector, even if they distrusted it.

“That understanding is gone, as proven by the seven-year Obama growth rate between zero and little more than 2%.  If Hillary Clinton utters the phrase ‘corporate tax reform,’ she will lose the election.  The Sanders wing of the Obama coalition will walk away from her.

“In the new Democratic Party, defined by the substance of Sen. Sanders’ campaign, the role of the private sector is to transmit revenue to the public purse.  Private business has become an exotic abstraction....

“Ralph Nader this week told the Washington Post that Sen. Sanders had broken the taboo on the word ‘socialism.’  Bernie, said Mr. Nader, ‘has brought the word into the mainstream and made class distinctions central to his campaign.’

“But not even Sen. Sanders used the S-word much, preferring the euphemisms of ‘income inequality’ and ‘social justice,’ which are gentler on American ears.  Mrs. Clinton will use most of the Sanders vocabulary....

“(Bernie) has something close to veto power. Sen. Sanders has disconnected Mrs. Clinton from most of the party’s younger voters.  They’re listening to him, not her, and maybe not even to Barack Obama anymore....

“Bernie’s brigades should hold out for more than writing platform boilerplate.  If Sen. Sanders forced Hillary to pick Elizabeth Warren as her running mate, it would be the capstone to Bernie’s career.  History would record him as someone who decisively shifted the locus of a major American party, rather than just another eccentric candidate who briefly caught fire.

“Plus, we’d get the spectacle of Donald Trump battling two women, not least Sen. Warren, progressivism’s central processing unit.

“We are all in a five-month skydive, so it might as well be fun.  Even for Bernie Sanders.”

--Editorial / Washington Post

“(Hillary Clinton) and her primary rival, Sen. Bernie Sanders, deserve credit for competing largely on issues rather than insults.  From here, she will have to contend with a Republican opponent, Donald Trump, who has sent every signal that he will run a campaign that is entirely disrespectful – of her personally, of the truth, of minority groups, of the media and of a variety of basic democratic norms.

“As her recent speech attacking Mr. Trump on foreign policy showed, Ms. Clinton will argue that she is steady and reasonable where Mr. Trump is temperamental and unhinged – and she will have plenty of reasons and opportunities to argue that he is unfit to be president.  Yet if she is going to be the candidate of dignity and political responsibility, she will have to do some things differently if she does not also want to be the candidate of rank hypocrisy.

“One of the many political norms that Mr. Trump has set about eroding is transparency, with his fidelity to certain lies and his refusal to release his tax returns, despite decades of contrary precedent.  Ms. Clinton has released a trove of tax records but for months has declined to honor another essential expectation of the nation’s leaders and would-be leaders: She has not held a real news conference since December.

“In response to criticism of this inaccessibility, Ms. Clinton says she has offered some 300 personal interviews since her last news conference, and her campaign points out that she has held a handful of short, informal ‘gaggles’ with the traveling press this year.  Neither is a reasonable substitute for regularly facing the media. Candidates are less likely to face wide-ranging and tough questions and follow-ups in carefully managed interviews, where time is often limited and there is usually only one interlocutor, than they are from a room full of reporters for an extended period of time....

“If Ms. Clinton is unavailable to legitimate questioning now, what hope would there be once she is in office?”

--Molly Roberts / Washington Post [Ms. Roberts just graduated from Harvard University]

“A female presidential candidate has clinched a major-party nomination for the first time in U.S. history.  No one seems to care – at least not many people in my millennial generation.  Not even women, although they should.

“Maybe my cohort is caught up in the moment of Donald Trump: Millennial liberals may think it’s more vital to ward off an age of authoritarianism than to usher in a new era for feminism.  Certainly, we’ve been distracted by Bernie Sanders: For idealistic young voters, a rabble-rousing revolutionary feels more alluring than a political pragmatist, even one with two X chromosomes.

“College campuses buzz these days with talk of ‘intersectionality,’ the notion that different forms of discrimination interact and overlap. So to many voters of my generation, being a woman alone might not seem like enough, if you’re also white, straight, rich and, by the way, a Clinton.

“Carrying that name means carrying a lot of baggage. Clinton has gotten flak for policies her husband championed while president, when today’s youngest voters hadn’t even reached preschool.  Detractors point to the anti-crime and welfare reform efforts that took a greater toll on African Americans than any other population – and for which Hillary Clinton has since apologized.

“Now, as Clinton champions an extension of the policies of the past eight years over Sanders’ radical revisionism, many millennials are convinced she will always align herself at the center of the established order – wherever that is at any given moment....

“My generation underrates not only Clinton’s past efforts but also her present significance.  Our mothers faced gender barriers; their mothers faced even more.  In the 1960s and early ‘70s, when many of our mothers were children, the most obvious career choice for a woman was housewife.   For those who did work outside the home, the gender pay ratio hovered around 60 percent.

“Women of my generation, on the other hand, grew up being taught – including by our mothers – that we could do anything....

“Our parents may have been surprised – our mothers were  probably pleased – that Clinton secured an office in the West Wing at all.  We see it as inevitable that one day a woman will occupy the one that is oval-shaped.

“So the necessity of having that occupant be Hillary Clinton, or of having that moment occur in 2017, feels less urgent.  And the notion of the first female major-party presidential nominee is greeted with a collective millennial yawn.”

--Charles Krauthammer / Washington Post

“The morning after, the nation awakes asking: What have we done?

“Both parties seem intent on throwing the election away. The Democrats, running against a man with highest-ever negatives, are poised to nominate a candidate with second-highest-ever negatives.  Hillary Clinton started with every possible advantage – money, experience, name recognition, residual goodwill from her husband’s successful 1990s – yet could not put away until this week an obscure, fringy, socialist backbencher in a country uniquely allergic to socialism.

“Bernie Sanders did have one advantage.  He had something to say.  She had nuthin’.  Her Tuesday victory speech was a pudding without a theme for a campaign without a cause.  After 14 months, she still can’t get past the famous question asked of Ted Kennedy in 1979: Why do you want to be president?

“So whom do they Republicans put up? They had 17 candidates. Any of a dozen could have taken down the near-fatally weak Clinton, unloved, untrusted, living under the shadow of an FBI investigation.

“Instead, they nominate Donald Trump – conspiracy theorist (from Barack Obama’s Kenyan birth to Ted Cruz’s father’s involvement with Lee Harvey Oswald), fabulist (from his own invented opposition to the Iraq War and the Libya intervention to the ‘thousands and thousands’ of New Jersey Muslims celebrating 9/11), admirer of strongmen (from Vladimir Putin to the butchers of Tiananmen).

“His outrageous provocations have been brilliantly sequenced so that the shock of the new extinguishes the memory of the last.  Though perhaps not his most recent – his gratuitous attack on a ‘Mexican’ federal judge (born and bred in Indiana) for inherent bias because of his ethnicity....

“Trump promptly doubled down, expanding the universe of the not-to-be-trusted among us by adding American Muslims to the list of those who might be inherently biased.

“Yet Trump is the party’s chosen. He won the primary contest fair and square. The people have spoken. What to do?”

--Thomas Friedman / New York Times

“If a party could declare moral bankruptcy, today’s Republican Party could be in Chapter 11.

“This party needs to just shut itself down and start over – now. Seriously, someone please start a New Republican Party!

“America needs a healthy two-party system.  America needs a healthy center-right party to ensure that the Democrats remain a healthy center-left party. America needs a center-right party ready to offer market-based solutions to issues like climate change. America needs a center-right party that will support common-sense fiscal policy.  America needs a center-right party to support both free trade and aid to workers impacted by it. America needs a center-right party that appreciates how much more complicated foreign policy is today, when you have to manage weak and collapsing nations, not just muscle strong ones.

“But this Republican Party is none of those things. Today’s G.O.P. is to governing what Trump University is to education – an ethnically challenged enterprise that enriches and perpetuates itself by shedding all pretense of standing for real principles, or a truly relevant value proposition, and instead plays on the ignorance and fears of the public....

“It becomes instead a coalition of men and women who sell pieces of their brand to whoever can most energize their base in order for them to get reelected in order for them to sell more pieces of their brand in order to get reelected.

“And we know just how little they are attached to any principles, because today’s Republican Party’s elders have told us so by being so willing to throw their support behind a presidential candidate whom they know is utterly ignorant of policy, has done no homework, has engaged in racist attacks on a sitting judge, has mocked a disabled reporter, has impugned an entire religious community, and has tossed off ignorant proposals for walls, for letting allies go it alone and go nuclear and for overturning trade treaties, rules of war and nuclear agreements in ways that would be wildly destabilizing if he took office.

“Despite that, all top G.O.P. leaders say they will still support Donald Trump – even if he’s dabbled in a ‘textbook definition’ of racism, as House Speaker Paul Ryan described it – because he will sign off on their agenda and can do only limited damage given our checks and balances.

“Really?  Mr. Speaker, your agenda is a mess, Trump will pay even less attention to you if he is president and, as Senator Lindsey Graham rightly put it, there has to be a time ‘when the love of country will trump hatred of Hillary.’”

Holman W. Jenkins, Jr. / Wall Street Journal

“(Trump’s) improper remarks about the judge follow his improper threats against Jeff Bezos, owner of the Washington Post. There’s a connection: A petition from the Post brought last week’s release of embarrassing trial documents, featuring testimony by former Trump U employees who came to regard his real-estate school as a swindle, that brought Mr. Trump’s furious charges that Judge Curiel was biased and a hater of Donald Trump.

“The Trump explosion comes just in time to humiliate Paul Ryan, after the House speaker’s reluctant endorsement of Mr. Trump. It comes just in time to humiliate John McCain (again), who faintly praised Mr. Trump as a candidate he could live with because America’s constitutional protections mean we won’t become ‘Romania.’

“Nowhere to be seen is Paul Manafort, the Republican wise man who was supposed to set the Trump campaign on a path to November electability.  As a Washington Post headline put it: ‘GOP can stop waiting for the ‘new’ Trump to emerge.’

“Meanwhile, Mr. Trump is still obsessing over the growth in his Twitter, Facebook and Instagram followings.  In an interview with media provocateur Michael Wolff in the Hollywood Reporter, he can’t be beyond wonder at the phenomenon that has swept him up.  ‘Middle of the pack,’ he recently admitted, is where he expected to rank in the GOP field.

“We come again to the Trump-as-democratic-accident problem.  Mr. Trump has always been an interesting American specimen, enriching our national pageant, but he has left his natural sphere. He lacks the qualities to rise to the occasion in which he finds himself....

“Though the AP curiously awarded the Democratic nomination to Mrs. Clinton on Monday based on her superdelegate commitments, superdelegates aren’t bound.  They can change their allegiances as many times as they want.  Just conceivably, victory this year might end up going to whichever party is ruthless enough to dump its current nominee-apparent.”

--Editorial / Wall Street Journal

“Donald Trump throttled back his racial attacks on a federal judge on Tuesday, and presumably he’ll now follow his normal M.O. of displacing one self-created controversy by creating another. But the episode has renewed Republican doubts about his candidacy, and the presumptive presidential nominee is in more political peril than he thinks.

“Mr. Trump said in a statement that it is ‘unfortunate’ that his claims about Judge Gonzalo Curiel – an American, Indiana-born – have been ‘misconstrued as a categorical attack against people of Mexican heritage.’  He said he merely meant that he wasn’t getting a fair trial in the civil-fraud case over Trump University, and his statement included a lengthy defense of the now-defunct real-estate seminars.

“Before this welcome turnabout, Mr. Trump tripled down on his comments, suggesting that maybe Muslim and female judges would be prejudiced against him too.  As recently as Monday afternoon, Bloomberg reported, Mr. Trump told his cast of cable-TV surrogates to assail Judge Curiel’s integrity as well.  He repudiated a campaign memo, which he learned about on the call, telling supporters to downplay Trump U.

“ ‘Take that order and throw it the hell out,’ Mr. Trump said.  ‘Are there any other stupid letters that were sent to you folks? That’s one of the reasons I want to have this call, because you guys are getting sometimes stupid information from people that aren’t so smart.’....

“If Mr. Trump doesn’t start to act like a political leader, and his poll numbers collapse between now and the July convention, he may start to hear rumblings that delegates are looking for someone else to nominate.  As traumatic as that would be, the Republican desire to avoid a landslide defeat that costs the House and Senate might be stronger.”

--Michael Goodwin / New York Post

“Trump’s criticism of the judge is not racism by any definition.  But it is strategically dumb and self-defeating.

“This is hardly the first time Trump has flirted with disaster, and earlier predictions of his demise were premature. But playing demolition derby with a large field of Republican rivals was the minor leagues compared with facing off against Clinton. There is little margin for errors, and none for compounding them....

“His flame-throwing at the media was in response to critical stories about how much money he raised for veterans groups, an issue he created way back when the campaign was in Iowa. When he didn’t get the praise he wanted, he went ballistic.

“The attack on the federal judge is more of the same.  Judge Gonzalo Curiel has ruled against him in some pretrial issues, and Trump responded by saying the judge couldn’t be fair because he is the son of Mexican immigrants and Trump has taken a hard line on illegal immigration.

“Even if Trump has the kernel of a point in both cases, so what?  How does either issue help Americans who are looking for a job and a reason to believe in the nation’s future again?  It doesn’t, and that’s why Trump is wrong to elevate his feuds.”

--Former House speaker Newt Gingirch said of Trump’s attack on Judge Curiel: “This is one of the worst mistakes Trump has made, and I think it’s inexcusable.  This judge was born in Indiana. He is an American, period. When you come to America, you get to become an American.”

--Bret Stephens / Wall Street Journal

“A dozen Mexican states held elections on Sunday, and – ho-hum – the center-right National Action Party, or PAN, appears to have won seven of the races.  The Journal reports that voters in the world’s 15th-largest economy were turned off by the ruling party’s failure to cut debt and tackle crime, and by a boy-wonder president, Enrique Pena Nieto, whom they now regard as more boy than wonder.

“I mention this to illustrate that Mexico is a functioning democracy whose voters tend to favor pro-business conservatives, not a North American version of Libya, exporting jihad and boat people to its neighbors.  Somebody ought to explain this to Republican voters, whose brains, like pickles in brine, have marinated too long in anti-Mexican nonsense.

“Elements of that nonsense:

“Mexico is a failed state.  Mexico’s struggles with drug cartels – whose existence is almost entirely a function of America’s appetite for dope – are serious and well known. So are its deep-seated institutional weaknesses, especially the police forces that collude with the cartels and terrorize rural areas.

“Then again, Mexico’s 2014 homicide rate of about 16 murders per 100,000 means that it is about as dangerous as Philadelphia (15.9) and considerably safer than Miami (19.2) or Atlanta (20.5).  Are these ‘failed cities’ that you don’t dare visit and that should be walled off from the rest of America?....

“This is a foul electoral season, one conservative voters (or their children) will look back on with political regret and personal remorse.  Mr. Trump’s ‘Mexican’ slur about federal judge Gonzalo Curiel is the most shameful word uttered by a major presidential candidate since Dixiecrat Strom Thurmond thundered in 1948 against the ‘Nigra race.’ As in 1948, Mr. Trump is appealing to constituents who have stuffed themselves on a diet of bad statistics and misleading anecdotes – people who fancy themselves victims but behave like bigots.  Republican leaders who think they can co-opt or tame Mr. Trump will instead find themselves stained by him.

“Meanwhile, let’s state clearly what shouldn’t need saying but does; Americans are blessed to have Mexico as our neighbor and Hispanics as our citizens.  On this point, disagreement is indecency.”

--Alexander Bolton of The Hill had a list of the 10 most vulnerable Senate seats; 9 of them in the  GOP as it needs to protect 24 seats this election cycle, the Democrats only 10.

1. Mark Kirk (R-Ill.).  No mystery why he quickly distanced himself from Trump after the latter’s idiotic comments on Judge Curiel.  Kirk is running in a state that President Obama won by 17 and 25 percentage points in 2012 and 2008, respectively.  Kirk is running against Rep. Tammy Duckworth, the Democrats’ top recruit, though she apparently has some issues of her own; specifically accused of retaliating against two former employees of the state’s Department of Veteran Affairs while she headed the agency.  A trial date is set for August.

2. Sen. Ron Johnson (R-Wis.) is viewed as second most vulnerable, especially since he is facing Democrat Russ Feingold, the former senator Johnson defeated in 2010 in the Republican wave that was fueled by opposition to ObamaCare.  A recent poll has Feingold leading by 10 points.

3. The vacant seat of Sen. Marco Rubio of Florida, who refuses to change his mind and run for reelection.  Senate Majority Leader Mitch McConnell said he is “doing everything” to get Rubio to run.

I think Rubio, with financial issues, wants a cushy Wall Street, see Harold Ford.  Rubio can still come back down the road after his family is financially secure.

4. Sen. Kelly Ayotte of New Hampshire faces the most highly touted Democratic challenger in sitting Gov. Maggie Hassan.  I like Ayotte.  Would hate to see her go down, but she is formidable and up to the challenge.

Among the other Republicans in some discomfort these days are Pat Toomey (Pa.), Rob Portman (Ohio), Richard Burr (N.C.) and John McCain (Ariz.).

--In the latest New York City corruption case, Manhattan U.S. Attorney Preet Bharara charged longtime correction officers’ union head Norman Seabrook with fraud for allegedly taking a $60,000 kickback for orchestrating a union pension-fund investment.

Seabrook steered $20 million from his union’s $81 million retirement fund to a hedge fund run by Murray Huberfeld, according to court documents.  In return, Seabrook received the $60,000 in cash, delivered in a Salvatore Ferragamo bag.  Huberfeld was also arrested.

But what makes this latest Bharara arrest really important is there was a confidential witness, identified as Jonah Rechnitz, who is connected to the investigation into Mayor Bill de Blasio, Rechnitz having contributed to the mayor’s campaign and nonprofit group, which are also under investigation, according to the Wall Street Journal.

The mayor said he hardly knew Rechnitz, but the donor’s contributions earned him a spot on de Blasio’s transition team in late 2013.

For his part, Bharara said he intends to “be aggressive as ever” in his office’s crusade against corruption, adding that “it is too bad that we seem to find it everywhere we look.”

Bharara has already indicted two political giants in the state, Assembly Speaker Sheldon Silver and Senate Majority Leader Dean Skelos, with both receiving long prison sentences.  And there is no doubt Bharara’s office is teeing up both Gov. Andrew Cuomo and Mayor de Blasio.

--A California jury found Stanford University student Brock Turner, 20, guilty on three counts, including intent to commit rape of an intoxicated and unconscious person, penetration of an intoxicated person and penetration of an unconscious person, for a January 2015 assault.  Two graduate students, riding by on bicycles, stopped the assault and tackled Turner.

But at a hearing last week, Superior Court Judge Aaron Persky handed down a sentence of six months in a county jail with three years of probation.

The victim, who has chosen not to reveal her identity, directly addressed Turner at the sentencing in a lengthy, emotional statement that she provided to BuzzFeed, which has received nearly 10 million views in the first five days.

Turner’s father, Dan, did his son’s cause zero good (at least in the court of public opinion) in writing a plea to the judge that Brock shouldn’t do hard time because it would be “a steep price...for 20 minutes of action.”

“As it stands now, Brock’s life has been deeply altered forever by the events of Jan. 17th and 18th,” Dan Turner wrote.

“He will never be his happy-go-lucky self with that easygoing personality and welcoming smile.  His every waking moment is consumed with worry, anxiety, fear, and depression.”

Dan Turner also complained that his son – a three-time All-American swimmer who used to enjoy tearing into a “big ribeye steak” and devouring bags of pretzels and chips – now “barely consumes any food and eats only to exist.”

“His life will never be the one that he dreamed about and worked so hard to achieve,” the father wrote.

“That is a steep price to pay for 20 minutes of action out of his 20 plus years of life.”

Dan Turner further said his son was “totally committed to educating other college students about the dangers of alcohol consumption and sexual promiscuity.”

The letter was sent to Judge Persky ahead of Brock Turner’s sentencing.

Female lawmakers expressed their outrage over the decision to hand Turner a light sentence.

Sen. Claire McCaskill (D-Mo.), who used to prosecute sexual assault cases as a lawyer, said that the six-month jail sentence didn’t appear to provide adequate punishment.

“Typically, that would be considered an inappropriate sentence,” she said.  But McCaskill tore into Dan Turner and his letter to the judge.

“I thought the comments of the father were beyond inappropriate,” McCaskill said.  “You don’t characterize someone who has been convicted of sexual assault as having ’20 minutes of action.’ That’s not what you say.”

Since the sentencing, we have learned that Brock Turner lied to the judge about his past behavior, and that he was nothing but a big partier, per his social media postings that the judge apparently wasn’t aware of.  Turner is also only scheduled to serve three months.

--Miriam Jordan and Douglas Belkin / Wall Street Journal

“At Ohio State University, a Chinese student took tests for Chinese classmates for cash last year, guaranteeing an A.

“At the University of California, Irvine, some international students used a lost-ID-card ruse to let impersonators take exams in place of others.

“At the University of Arizona, a professor told of Chinese students handing in multiple copies of the same incorrect test answers.

“A flood of foreign undergraduates on America’s campuses is improving the financial health of universities. It also sometimes clashes with a fundamental value of U.S. scholarship; academic integrity.

“A Wall Street Journal analysis of data from more than a dozen large U.S. public universities found that in the 2014-15 school year, the schools recorded 5.1 reports of alleged cheating for every 100 international students. They recorded one such report per 100 domestic students.

“Students from China were singled out by many faculty members interviewed.  ‘Cheating among Chinese students, especially those with poor language skills, is a huge problem,’ said Beth Mitchneck, a University of Arizona professor of geography and development.

“In the academic year just ending, 586,208 international undergraduate students attended U.S. colleges and universities, according to the Department of Homeland Security.  More than 165,000 were from China.  South Korea and Saudi Arabia were the source of nearly 50,000 each and India of about 23,500.

“Faculty and domestic students interviewed said it appears that substantial numbers of international students either don’t comprehend or don’t’ accept U.S. standards of academic integrity.”

This should infuriate each and every one of you.

--In a poll by Public Polling Policy, the Phillie Phanatic mascot garnered more support than Donald Trump in Pennsylvania.  Only 34% of the state’s voters view him favorably with 59% having a negative opinion, but when people were asked who they thought was more qualified to be President – him or the Phanatic – the Phanatic prevailed 46-40.  [NJ.com]

I’ve gotta tell ya.  I think the Phanatic would get my vote over both Trump and Hillary. He might not be an effective president, but a laugh riot at press conferences for starters.

--So I was glancing through my latest Wake Forest alumni magazine and saw that a classmate, Clinton Forrest Faison III, was promoted to vice admiral (three star) and selected to be the 38th surgeon general of the U.S. Navy.

One thing about Wake was that the class size (about 800 if I remember right) allowed you to basically get to know almost everyone, including casually, over the course of four years and I remember Forrest as being a real good guy.

So I just wanted to extend my congratulations to the vice admiral.  America is all the better with his service.

--Finally, I have a ton on the passing of Muhammad Ali on my Bar Chat link, specifically the 6/6 edition.  Just click on the archives.

I loved the man and I hope his story is told to young people over the coming decades.  He was one of a kind. 

Indeed the above Chinese students could learn a thing or two about integrity from Ali.  He could easily have gone to Canada to fight after he was prohibited by U.S. boxing officials from doing so here when he refused to enter the draft and was arrested.  Instead he gave up 3 ½ years of his prime on principle by staying home.

Ali was a flawed figure, no doubt, but as Gerald Early wrote in the Washington Post the other day:

“What we should remember Ali for is his will to win, his willingness to defend his ideas publicly against considerable opposition, and his acceptance of his flaws and his twilight as a pummeled god.  We should all wear our scars with such glorious indifference to the cost of doing life’s business.”

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

God bless America.

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Gold closed at $1274
Oil $49.07

Returns for the week 6/6-6/10

Dow Jones  +0.3%  [17865]
S&P 500  -0.1%  [2096]
S&P MidCap  -1.8%
Russell 2000  -0.2%
Nasdaq  -1.0%  [4894]

Returns for the period 1/1/16-6/10/16

Dow Jones  +2.5%
S&P 500  +2.6%
S&P MidCap  +7.2%
Russell 2000  +2.5%
Nasdaq  -2.3%

Bulls  47.3
Bears 23.8  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore

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