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12/10/2016

For the week 12/5-12/9

[Posted 11:30 PM ET, Friday...Kiawah, S.C.]

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Edition 922

The Trump Transition, Washington and Wall Street

We have to start out this week with a discussion of Trump, Taiwan and China.

As I went to post last time, I had just learned that only a few hours earlier Donald Trump and Taiwan’s President Tsai Ing-wen had held a phone call, the first time a U.S. president or president-elect had spoken to Taiwan’s leader directly since 1979.

I’m the “wait 24 hours” guy but in this case I couldn’t.  I had to say something so I wrote this:

“While I personally am a big supporter of the island, and I believe the United States should be more vocal on the matter, this was a huge mistake.

“Ironically, I’ve been writing something you haven’t seen anywhere else for months…that China could invade Taiwan, sooner than later, because Tsai has been uncooperative since taking office.

“What Donald Trump did could actually precipitate such an action.”

But by Saturday morning we learned that Tsai initiated the call, which didn’t change my opinion any.  After all, you don’t have to take it.  Like in Trump World, sometimes it almost seems as if his assistant announces: “Mr. Trump, Kim Jong un is on” and you’d almost expect the president-elect to go, “Put  him on…Kim, Donald Trump.  How are you?”  Later… “You have a great country…would love to visit…OK, take care.”

But it wasn’t until 72 hours later that we learned definitively that the call between Trump and Tsai had been in the works for a while through the lobbying efforts of former senator and Republican presidential candidate Bob Dole, who is acting as a foreign agent for Taipei.  [A lucrative gig for the former war hero who also ran the single worst campaign for president in the history of mankind….next to Hillary’s.]

Well what does this change?  Nothing, as far as I’m concerned.  I just think until Trump is actually president he needs to avoid being reckless.

Here’s the other thing.  I’m sorry, but I just don’t believe Donald Trump understands the history of the Taiwan-China relationship, the Taiwan Relations Act and other stuff.   Like where the hundreds of missiles targeting Taiwan are based on the mainland (my old province of Fujian, which was why I bought into that failed investment of mine…partly because it was the shortest point between Taipei and the mainland).

I know something about this topic.  I’ve only written of it constantly since day one of StocksandNews.  Plug in “Taiwan” into my search engine and over 650 references appear.  I have written extensively of the Taiwan Relations Act, which codified, as much as one can in this murky relationship, that the United States recognizes “one China,” the mainland, the PROC, but that the U.S. is obligated to provide Taiwan with enough weapons to defense itself.

But does that mean we should come to Taiwan’s defense if they come under attack?  No.

And it’s for this reason, before we learned there would be a phone conversation between Tsai Ing-wen and Donald Trump, that I said Chinese President Xi Jinping, seeing a window of opportunity and a lame duck Barack Obama before Trump took over, could make a move on Taiwan.

Xi would do this because Tsai, who was elected because she favors independence for Taiwan (which will never happen), has not ameliorated her hard line stance one bit, and it’s ticking Xi and China off to no end.

The bottom line is, if Tsai ever announced “Taiwan is now fully and officially a sovereign nation,” I imagine the missiles from Fujian would be launched within the hour.  Taiwan would fall in a nanosecond, and the United States would just sit back.

So this is why I think Trump’s call was reckless.  Yes, Madame Tsai loves it.  It only helps her with her already sliding popularity back home.

I love Taiwan. I spent a week there about 13 years ago.  The people were terrific and I would love a day when they are truly independent. 

At the same time, I loathe everything about China.  It’s not only personal, but I have detailed chapter and verse just how dangerous Xi Jinping is.  [As I write below, though, I hope Iowa Gov. Branstad, the new ambassador-elect to China, can work some sense into his ‘old friend,’ though I’m not holding my breath.]

This is as important a topic over the coming year or two as there is when it comes to U.S. foreign policy and the administration.  At least Gen. Mattis can perhaps set Trump straight quickly.

This is not a time to press Xi’s buttons.  Arm Taiwan more than we already have?  Absolutely.  But do it as quietly as possible.  And always remember, the last thing we want to see is war between China and Taiwan, because it will get so ugly, so fast, we are bound to get involved (think Kim Jong un trying to take advantage of the situation) and with all the weaponry the U.S. and China have…you just don’t want to contemplate where it could go.

[One consequence of Trump’s call with Tsai, the South China Morning Post is reporting the Chinese air force is likely to step up the number of flights close to Taiwan, which can lead to a mistake.  For its part, Japan will no doubt shadow any increased flights by Chinese fighter jets.]

One more…not only is Bob Dole a paid foreign agent of Taiwan’s, so is former House majority leader Richard Gephardt (Mo.-D), who according to the New York Times signed a $25,000-a-month contract to represent the Taipei office this year. 

Global Times (Chinese Communist Party mouthpiece):

“The Trump-Tsai phone call has rocked and confounded the world.  All U.S. mainstream media have pointed out that the Taiwan question is among the most sensitive issues in East Asia, and any mishandling of it could lead to war.  Trump’s jaw-dropping move has raised many doubts about whether it is in line with the U.S.’ long-term interests.

“It seems that Trump is still taking advantage of his perceived fickleness and unpredictability to make some choppy waves in the Taiwan Straits to see if he can gain some bargaining chips before he is sworn in.

“The U.S. is losing its competitive advantage against China, to say nothing of acquiring new leverage.  Trump might be looking for some opportunities by making waves.   However, he has zero diplomatic experience and is unaware of the repercussions of shaking up Sino-U.S. relations.”

In a separate Global Times editorial:

“Trump’s reckless remarks [Ed. referring to his ensuing Tweet storm] against a major power show his lack of experience in diplomacy. He may have overestimated the power of the U.S.   He may have already been obsessed with the power he is about to have a grip on, and wishes the whole world should follow his lead.  He may also believe that if China, the biggest power after the U.S., is awed by Washington, it will solve all other problems.

“No matter what Trump thinks, China must be determined to upset his unreasonable requests at his early time in office, and fight back if his moves harm China’s interests, regardless of the consequences to the dynamics of the Sino-U.S. relationship….

“China should brace itself for the possible fluctuations of the Sino-U.S. relationship after Trump is sworn in.  We must confront Trump’s provocations head-on, and make sure he won’t take advantage of China at the beginning of his tenure. This initial period will set the foundation for the Sino-U.S. relationship in the next four years.”

Wall Street

Monday marked the 20th anniversary of Alan Greenspan’s famous speech about “irrational exuberance,” in which he wondered whether asset prices were reaching unsustainable levels amid a roaring bull market.  Asset prices, though, continued to rise for three more years before topping off.

Greenspan today admits he was way off with that original forecast, but today he isn’t as worried about stocks as he is the bond market. Specifically, he says the “odds are better than 50/50” that the economy could be headed for a period of stagflation – rising prices coinciding with weak growth.

Well as of today it sure looks as if Mr. Greenspan is wrong again.  Last week I wrote how the Trump rally wasn’t all it was cranked up to be and that the S&P 500 was only ahead 2.4% since the election.

But I cannot make that claim now after the past week’s action.  All the major indices are at new all-time highs, with the Dow Jones and S&P up 3.1% the past five days and Nasdaq up 3.6%.  [The Russell 2000 small-cap index rose 5.6% this week and is up 22.2% for the year.]

Nothing changed.  It’s still all about tax cuts, regulatory rollbacks and fiscal stimulus once Donald Trump and the Republicans fully take control on Jan. 20, and the fact the Federal Reserve will finally be raising interest rates this coming week for the first time in a year doesn’t seem to matter…it’s been long discounted. The financial sector, which will profit from higher rates and a bigger spread between the short and long end of the yield curve, rose another 4.8% this week and is now up 19% since Trump shocked the world.  No wonder The Donald is complaining that he wants  everyone to give him credit for the rally since the vote and not his record in the financial markets after he takes office.

Yes, sentiment has changed.  Animal spirits are back on Wall Street.  Enjoy it while you can.  Given the still highly troubling geopolitical scene, this can all change in a flash.

[The Bull / Bear readings down below are close to an outright ‘Sell’ signal, and could reach that this coming week,]

Europe and Asia

The reading on third-quarter GDP in the eurozone came in at 0.3%, 1.7% annualized, as reported by Eurostats, the same annualized pace for both the first and second quarters. 

Germany’s Q3 GDP was 0.2%, but 1.7% ann., France was 0.2% (1.1%), Italy 0.3% (1.0%), Spain 0.7% (3.2%) and Greece 0.8% (1.0%).

The service-sector PMI for the eurozone was 53.8 in November vs. 52.8 in October (50 being the dividing line between growth and contraction), with Germany at 55.1 for last month, France 51.4, Italy 53.3, Spain 55.1, and the U.K. 55.2, as strong consumer demand in Britain continues to trump Brexit fears.

So despite the Italian referendum results (below), even Italy’s PMI reading was solid.

Chris Williamson, chief economist at IHS Markit:

“Rather than fretting about political risk, companies appear to be gearing up for further expansion.  Employment is rising at one of the fastest rates seen over the past five years.  Employers’ appetite to hire is being whetted by a further accumulation of unfinished work.”

Meanwhile, the European Central Bank  announced it was scaling back the amount of bonds it buys every month from 80bn euro to 60bn, but ECB President Mario Draghi insisted the board’s move did not amount to a tapering of its quantitative easing program.

The bank confirmed it would buy 80bn a month of bonds until March, but that it would prolong its purchases until year end 2017 at a lower rate.

Draghi said the extension through year end shows that the central bank is committed to remain active in the markets “for a long time.”

Euro bond markets, including Italy’s, had a mild reaction to Draghi’s pronouncement.  Super Mario (I maintain the guy is largely irrelevant at this point, but we’ll give him another moment in the spotlight) said the “deflation risk has largely disappeared,” but that inflation is far from a concern.  Inflation is, however, ticking up across Euroland month by month.

Finally, the ECB sees growth in the eurozone of 1.7% in 2016 and 2017.

On the Greek debt relief front, euro area finance ministers approved short term measures that provide some relief but they failed to reach a broader accord that could enable the IMF to move closer to joining the bailout, so the question of full IMF participation has been punted, once again, into 2017.

But the yield on Greece’s 10-year bond was unchanged after a strong rally that was more about some of the political changes in the government of Alexis Tsipras than any debt relief.  Tsipras has been replacing hard-core leftists with moderates and the market likes that.

As for Italy’s referendum on constitutional reform, Prime Minister Matteo Renzi lost, about 59% to 41%, worse than the polls had forecast, and he resigned as he said he would, staying on a few days until the country passed a new budget.

But whereas I said weeks ago that global markets would take the referendum in stride, and indeed they did, the concern has been with Italy’s banks, which remain a mess, but the sector rallied 15% this week on optimism of an ECB-led bailout of some sort, especially for its most troubled lender, Monte dei paschi.  We’ll see.

For now, Italy will form a caretaker government, possibly this weekend, and then at some point early next year, there will be another election and this is the one that will bear watching as the anti-euro 5-Star Movement could gain power, though their prospects are slim.

“The Italians rejected Renzi and the EU,” Marine Le Pen of France’s far-right National Front said on Twitter.

But in Austria, the far-right suffered a defeat  at the hands of an independent, Alexander Van der Bellen, who beat Freedom Party candidate Norbert Hofer, 53-47, in a re-vote of last spring’s election for the largely ceremonial post of president.

While in France, Prime Minister Manuel Valls stepped down to run for president as the Socialist candidate, now that Francois Hollande announced he would not seek another term.  Bernard Cazeneuve, the interior minister, has been tasked to form a new government.

Commentary:

Editorial / Wall Street Journal

(Renzi) was handed a stinging defeat Sunday in a referendum on proposed constitutional changes on which he had staked his premiership.  Mr. Renzi argued that the changes, above all a smaller and less powerful Senate, were necessary to streamline the political system and make economic reform possible.

“The argument had some merit, but Italians were underwhelmed….

“Mr. Renzi came to office in 2014 offering ‘a radical program of reform,’ and early signs were promising….

“But despite an energetic personality, Mr. Renzi’s reforms usually came up short.  Italy’s ranking on the World Economic Forum’s labor-market efficiency table – third-to-last before Mr. Renzi’s reforms – crept up 14 places to 126th out of 140 this year.  New hiring slowed as government incentives to employers dried up.  Mr. Renzi also left in place extensive and expensive protections for employers at smaller companies, a killer in an economy of boutique enterprises.

“As for Italy’s banks, Mr. Renzi’s idea was to cobble together $6.4bn for various recapitalization funds.  But no Rube Goldberg contraption is going to save a banking system with up to 360bn euro of bad loans, depending on how you count, and no Italian politician is going to punish retail savers for the failures of the banks.  Given the European Union’s no-bailout rule that means the only salvation for the banks lies in strong economic growth.”

And on that score, Italy has consistently fallen short.

Gideon Rachman / Financial Times

“(Even) if the Italians manage to patch together a new government and avoid a banking crisis, the broader picture is bleak.  Italy’s economy is stagnating and its political center is disintegrating.  Nationalists and populists are also on the rise in EU countries including Spain, Poland, France and the Netherlands.  Britain has promised to submit its formal notification of the decision to leave the EU next March. That same month, the union’s leaders are meant to gather in Italy to celebrate the 60th anniversary of the signature of the Treaty of Rome.  [Where the original six nations formed what has become the EU.]  At this rate, it will be more of a wake than a party.”

Former British Prime Minister Tony Blair warned that political upheaval from Brexit to the collapse of the Italian government signals the most dangerous time for Western democracies in decades.

“It does feel perilous, actually, because I think there are decisions that are being taken of vast moment in circumstances where systems are fragile.  And that is troubling,” Blair told an audience in Washington.

Of particular concern to him is a “longing” for an authoritarian leader.

“It’s amazing how many people you will find who will reference a style of leadership of President Putin in a positive way.  I think people want their country moving and they think that if the present system is not moving it, and not making the changes that they want to see, then maybe someone who just says, ‘I don’t care what anyone thinks; I’m just going to go for it, and this is what I’m going to do’ – that has a certain attraction.

“If the center isn’t a place of strength and vitality, and it looks kind of flabby and just managing the status quo, then you’re at risk of someone coming along and doing that.”

Finally, German Chancellor Angela Merkel, facing a highly contested election next fall, called for a ban on the burka “wherever possible” in Germany and said there can be no repeat of last year’s migrant crisis, in a speech launching her campaign.

“German law takes precedence over sharia,” she said at her party’s annual congress.  “The full-face veil should be banned, wherever legally possible.”

Merkel has been under fire for an “open doors” approach to the refugee crisis.  She is finally seeing the light.

Turning to Asia...China’s export/import picture brightened some in November, with exports up 0.1%, the first gain since March, and far better than October’s 7.3% decline.  Imports rose 6.7% after a 1.4% fall the prior month, the fastest pace in two years.  Imports of major commodities surged.

But Morgan Stanley issued a bearish forecast on the Chinese auto market the other day, projecting growth of just 4.3% in 2017 vs. a previous forecast of 8%, and an estimated 14.8% for 2016. The forecast assumes the government won’t keep the existing 5% auto sales tax in place and will hike it to 7.5%.  But regardless, the market is due to slow down, according to MS.  Actually, if the tax is set at 7.5%, Morgan Stanley sees growth of just 3%.

Street Bytes

--After this week’s action on Wall Street, we can officially say that 2017 has been a very good year, should the gains hold another few weeks. The Dow is now up 13.3%, with the S&P up  10.6^ and Nasdaq 8.7%.

Moreover, the holiday shopping season is looking solid…perhaps 4% sales growth.

--U.S. Treasury Yields

6-mo. 0.63%  2-yr. 1.13%  10-yr. 2.47%  30-yr. 3.15%

--Compared to the prior week, crude oil traded in a relatively narrow range of about $50-$52 as the market digests OPEC’s agreement of 11/30 to cut production and whether there will be actual compliance, let alone cooperation from non-OPEC producers.  There is some question on what the actual demand level will be in 2017 as well.

For example, output from OPEC countries rose by 370,000 barrels per day in November, putting total OPEC production at 34.190 million barrels, when the production target going into effect on Jan. 1 is 32.5mbd.

Former Saudi Oil Minister Ali al-Naimi said of the potential to balance the oil market:

“The only tool they have is to constrain production,” he said at an event in Washington.  “The unfortunate part is we tend to cheat.”

Al-Naimi also expressed skepticism that non-OPEC Russia would cut 300,000 barrels a day as they said they would.  “I don’t know.  In the past, they didn’t.”

--In the latest example of his carrot-and-stick approach to U.S. business and manufacturing, President-elect Donald Trump called for cancelling Boeing Co.’s work on a new version of Air Force One.

“The plane is totally out of control,” Trump said in remarks at Trump Tower, adding, “We want Boeing to make a lot of money but not that much money.”

Using Twitter, Trump said the cost for the new planes for future presidents was “more than $4 billion.  Cancel order!”

Defense experts said it was too early to identify the final tally until the Pentagon, White House and Secret Service had weighed in on what equipment to install on the fleet of up to three jets.  The planes, which wouldn’t be in the fleet until 2024 at the earliest, are supposed to be designed to withstand a nuclear attack.

Earlier Trump announced the Carrier unit of United Technologies Corp. would retain as many as 1,100 jobs in the U.S. And he’s talked since the campaign of imposing a 35% tariff on companies that move jobs overseas and then ship goods into the U.S.

--Meanwhile, after his Boeing threat, Trump and Masayoshi Son, CEO of Japan’s SoftBank, appeared together in the Trump Tower lobby and Son pledged to invest $50 billion in the United States, a move that he said would create 50,000 jobs.

But these funds are coming from the company’s previously announced venture fund, Vision, which is actually a $100 billion vehicle for investing in technology companies worldwide.

The fund – which includes Trump target Saudi Arabia – was always expected to invest in the United States, specifically start-ups.

But Trump declared on Twitter: “Masa said he would never do this had we not won the election!”

SoftBank is majority owner of wireless operator Sprint, which two years earlier unsuccessfully pursued T-Mobile; blocked by the Obama administration on antitrust grounds, so it’s assumed this topic came up between Son and Trump.

Meanwhile, as Quentin Webb of Reuters points out, “creating 50,000 jobs in the thinly staffed tech industry won’t come easy.”

--Appearing on “60 Minutes,” House Speaker Paul Ryan said repealing ObamaCare will be the first priority of congressional Republicans once Trump takes office.

“Well, the first bill we’re going to be working on is our ObamaCare legislation.  We want to make sure that we have a good transition period, so that people can get better coverage at a better price.”

There will be a multi-year transition phase, no doubt.  And Ryan, like Trump, favors maintaining provisions that allow children to stay on their parents’ healthcare plans until the age of 26, while preventing health insurance companies from denying care to those with preexisting conditions.

--The Army Corps of Engineers is halting construction of the Dakota Access Pipeline that had become a front page story and which I hinted last week could become an explosive issue for the Obama administration in its final weeks.

48 hours later, wouldn’t you know the Corps halted the project.  Why now?  The Corps could have made this move long ago.  Or as Church Lady would have said, “How conveeenient.”

Editorial / Wall Street Journal

“The U.S. Army Corps of Engineers on Sunday delivered a symbolic victory to the environmental left by denying a permit to complete the 1,200-mile Dakota Access oil pipeline. The political obstruction illustrates why it’s so hard to build anything in America these days.

“Construction is almost complete on the Dakota Access, which aims to transport a half million barrels of oil each day from the Bakken Shale in North Dakota to Illinois for delivery to refiners on the East and Gulf coasts.  About 99% of the pipeline doesn’t require federal permitting because it traverses private lands.  But the corps must sign off on an easement to drill under Lake Oahe that dams the Missouri River.

“After an exhaustive consultation with Native American tribes, the Corps in July issued an environmental assessment of ‘no significant impact.’  Construction is unlikely to harm tribal totems because the Dakota Access would parallel an existing gas pipeline.  The route has been modified 140 times in North Dakota to avoid upsetting sacred cultural resources.

“After largely refusing to engage in the Corps’ review, the Standing Rock Sioux sued.  A federal court in September rejected the tribe’s claims, only to be overruled by the Obama Administration, which ordered a temporary suspension to work around Lake Oahe.  Although the D.C. Circuit Court of Appeals in October refused to enjoin construction on the pipeline, the Corps has maintained its administrative injunction.”

Well tensions then escalated, as you saw, but now the issue has been kicked down the road.

“(The) Corps’ switcheroo has jeopardized its integrity and created a legal quagmire by requiring an exhaustive new environmental impact statement that considers alternative routes.  This process could take years and is not normally required when an environmental assessment concludes no significant impact.

“The pipeline builder Energy Transfer Partners could sue the Corps for violating due process, though a judge might rule the company lacks standing since the government hasn’t made a final determination. Energy Transfer is likely better off waiting for the Trump Administration.”

This is going to be an interesting test case of Donald Trump.  He has long supported the project.  Will he waffle in the face of thousands of protesters and the potential for violence?

--The Supreme Court unanimously ruled in favor of prosecutors in a major insider trading case, saying that gifts of confidential information from business executives to relatives violates securities laws.  Justice Samuel A. Alito Jr., writing for the court, said the issue was easy.  Giving a gift to a friend or relative, whether in the form of cash or in the form of a tip, benefited the insider.

I won’t get into the specifics of the case, but a U.S. Court of Appeals for the Second Circuit made it harder to prosecute insider trading cases; at the time a big setback for Preet Bharara, the U.S. attorney in Manhattan, whose office oversaw a sweeping crackdown on insider trading in the hedge fund industry.

But now Bharara has been proved right.

“The court stood up for common sense and affirmed what we have been arguing from the outset – that the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public,” Bharara said in a statement.  “Today’s decision is a victory for fair markets and those who believe that the system should not be rigged.”

You go, Preet!

--The CEOs of AT&T and Time Warner on Wednesday defended their proposed $85 billion merger to lawmakers, with president-elect Trump having previously expressed hostility to the deal, though he has said nothing since the election.

The combination of AT&T and Time Warner puts together the country’s largest pay-TV provider with one of the biggest content providers, with AT&T’s Randall Stephenson and Time Warner’s Jeff Bewkes positioning the deal as a way to increase competition with entrenched cable-distribution companies, while Google and Facebook dominate online advertising and are pushing into video services.

--SunPower Corp. announced it was cutting 2,500 jobs, including 200 in California, with the cuts representing 25% of the workforce.  Most of the losses, though, are overseas, such as in the Philippines, where the company was closing a solar cell factory.

--Last Friday night, the Treasury Dept. announced it was blocking a Chinese investment fund from acquiring the U.S. business of German semiconductor equipment maker Aixtron because the deal posed a risk to American national security. This was done through an executive order by President Obama, and it’s based on concerns China would gain access to the secrets of producing a material called gallium nitride used in military equipment.

--Amazon unveiled a futuristic grocery store without any cashiers, in the company’s latest plan to automate workers out of existence.

At a Seattle food market, high-tech sensors and artificial intelligence are allowing shoppers to swipe an app when they enter, then roam the aisles and grab staples like bread and milk, chocolate and ready-made meals.  The items plucked off the shelves get added to a virtual cart on the app – and subtracted if they put them back – with receipts e-mailed to them once they leave, according to the company.

This test store is for Amazon employees only, but the company plans to start letting the public in next year.

Amazon is also testing out “large, multifunction stores with curbside pickup capability” and “drive-through prototype locations,” sources told the Wall Street Journal.

Amazon then wants to open more than 2,000 brick-and-mortar grocery stores, compared with about 2,800 operated by The Kroger Co., now the nation’s largest full-service grocery retailer.

As of May 2015, the latest available data through the Labor Department, there were 856,850 cashiers at grocery stores, with one analyst believing Amazon’s technology could eventually wipe out 75% of these positions.

In New York City, the introduction of MetroCard vending machines led the MTA to eliminate 600 token-booth jobs in 2010, although the workers were all reassigned to other tasks.

According to a study last year by Ball State University’s Center for Business and Economic Research, the use of robots and other manufacturing efficiencies were responsible for 88 percent of the 7 million factory jobs the U.S. has lost since peak employment in 1979.  [Dr. Whit and I were talking about this between shots on the golf course Friday…a serious round of golf…cough cough…]

--MGM CEO Jim Murren said he expects Atlantic City to stop hemorrhaging casinos and begin traveling on the road to recovery.

“Atlantic City’s darker days are behind it,” Murren said in Washington.

A.C. has faced bankruptcy as five casinos shut down, MGM owning one of those left standing, Borgata, the top-performing one.

MGM wouldn’t have bought out Boyd Gaming’s share of the Borgata if the company didn’t expect improvements in the seaside resort, Murren added.

A key is getting sports betting approved, with various parties continuing to press the issue, after an August federal appeals court ruled that a 2014 law signed by Gov. Chris Christie violated a 1992 federal ban on sports wagering.  This whole topic pisses me off to no end.

Murren, too.  He said things have changed since sports betting was banned in all states but Nevada, Delaware, Montana, and Oregon.  Look at Las Vegas.  It is getting an NHL team.

“People love to bet on sports,” Murren said.  “Let’s regulate and give the American public what it wants.”

Hear hear!

--Sotheby’s is the first big auction house to create its own forensic art analysis department, as it addresses the very real reputational threat forgeries are posing to $multimillion art market sales.

This year, Sotheby’s had to repay a U.S. buyer nearly $11 million for a painting they had sold as the work of the Dutch artist Frans Hals, but Orion Analytical, which Sotheby’s just acquired, discovered the presence of modern materials that could not have been used in the 17th century.

The founder of Orion Analytical, James Martin, has carried out more than 1,800 investigations for auction houses, museums, collectors and the FBI.  [James Pickford / Financial Times]

I’d be afraid to have Mr. Martin look at some of my rock ‘n’ roll autographed albums.  “That’s not Brian Jones’ signature, Mr. Trumbore.”  “Nooo!!!”

--Less than 10 percent of all U.S. fund managers are women, according to a new report from Morningstar, with the percentage in slow decline since 2008, when 11.4 percent of fund managers were.  Other countries have more, led by Singapore at 30 percent.

Research suggests women tend to hold onto investments longer, which can lead to better long-term returns.

--SeaWorld Entertainment Inc. announced it is eliminating 320 jobs as part of its ongoing efforts to slash costs.   60 will be laid off in Southern California.

Two years ago, SeaWorld laid off more than 300 (100 in San Diego).

The company is still struggling to right itself amid the slump in attendance and declining revenue, all related to the 2013 release of CNN’s “Blackfish” documentary that focused on the parks’ treatment of its orcas.  [L.A. Times]

--Megyn Kelly’s contract with Fox News Channel is up in July and it currently pays her $15 million a year.  But while she probably thought her services would be much in demand on the open market, according to Stephen Battaglio of the L.A. Times, if she was thinking of leaving Fox, she’ll likely have to accept less, not more, money.  Fox has apparently offered her Matt Lauer / Bill O’Reilly money to stay, $20 million a year.

One thing against her is the fact that if she left, O’Reilly wouldn’t be her lead-in.

CNN’s Jeff Zucker does want Kelly, but not at the price she’s looking for.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: Government forces continued to take control of vast swaths of eastern Aleppo, over 35 districts previously controlled by rebels for years. The forces of President Bashar al-Assad have been moving to split the remains of the rebel enclave in Syria’s second city.  But tens of thousands of civilians are still trapped in the last of the rebel-held districts.  There are no functioning hospitals and zero food.

In an interview on Wednesday, Assad said recent advances in Aleppo will completely change the course of the battle in all of Syria. Assad described Aleppo as the “last hope” of the rebels and their backers, “after their failure in the battles of Damascus and Homs.”

“The decision to liberate all of Syria is taken and Aleppo is part of it,” he told al-Watan newspaper.

A Russian military adviser was among the casualties, as reported by the Russian defense ministry.

On Friday, though, the U.N. said hundreds of men and boys were missing, after they left rebel held areas.

In Iraq, ISIS has been urging its supporters in the flashpoint town of Tal Afar, near Mosul, not to flee as the group fights offensives on different fronts.  “Destroy their vehicles, raid them...in their shelters so they can taste some of your misery and do not talk yourselves into fleeing,” ISIL’s new spokesman said in an audio recording posted online.  Abi al-Hassan al-Muhajer also said Islamic State supporters would target the Turkish government.

I take you back to Nov. 14, 2016, and President Obama’s press conference prior to his final overseas trip (Europe and then Peru).

“With respect to Syria  - in Benghazi, we had an international mandate.  We had a U.N. Security Council resolution. We had a broad-based coalition, and we were able to carry out a support mission that achieved the initial goal of preventing Benghazi from being slaughtered fairly quickly. It’s no secret – that Syria is a much more messy situation, with proxies coming from every direction.

“And so I wish that I could bring this to a halt immediately.  We have made every effort to try to bring about a political resolution to this challenge.  John Kerry has spent an infinite amount of time trying to negotiate with Russians and Iranians and Gulf States and other parties to try to end the killing there.  But if what you’re asking is do we have the capacity to carry out the same kinds of military action in Syria that we did in Libya, the situation is obviously different. We don’t have that option easily available to us.

“And we’re going to have to continue to pursue, as best we can, a political solution and, in the interim, put as much pressure as we can on the parties to arrive at humanitarian safe spaces and ceasefires that at least alleviate the suffering that’s on the ground.

“I recognize that that has not worked.  And it is something that I continue to think about every day, and we continue to try to find some formula that would allow us to see that suffering end. But I think it’s not surprising to you, because you study this deeply, that if you have a Syrian military that is committed to killing its people indiscriminately, as necessary, and it is supported by Russia that now have substantial military assets on the ground and are actively supporting that regime, and Iran actively supporting that regime, and we are supporting what has to be our number-one national security priority, which is going after ISIL both in Mosul and ultimately in Raqqa – that the situation is not the same as it was in Libya.

“And obviously there are some who question the steps we took in Libya. I continue to believe that was the right thing to do, although, as I indicated before, in the aftermath of that campaign, I think the world community did not sufficiently support the need for some sort of security structures there and now is a situation that we have to get back into a better place.”

What a mess.  If you take one of Obama’s college courses in the future, though, this is what you’ll be paying for.

Editorial / New York Post

“Secretary of State John Kerry told a painful truth on Sunday, admitting that President Obama’s ‘red line’ fiasco in Syria ‘cost us significantly’ by leading other nations to see America as weak.

“Obama drew the line in August 2012 – as a way to avoid getting involved in Syria’s civil war without having to actually justify that restraint. He did so by saying he would intervene if the government did the truly awful, by using chemical weapons.

“ ‘We have been very clear to the Assad regime...that a red line for us is we start seeing a whole bunch of chemical weapons moving around or being utilized,’ he said, also calling ‘chem’ use a ‘game-changer.’

“It was universally seen as a threat of massive consequences for Bashar al-Assad if he crossed the line. But when Assad did launch chemical attacks a year later, Obama stalled....

“The president had blinked at making good on his own threat. Around the globe, U.S. allies and enemies were on notice that America might not live up to its word.

“It’s no coincidence that Russia took control of Crimea within a year, and later intervened decisively in Syria to save Assad.  Nor that Iran was able to virtually dictate the terms of its nuclear deal with Team Obama.

“Kerry on Sunday fell back on two excuses. First he argued that it was a ‘misperception’ that Washington had been weak, since Assad did give up (many of) his chems. But even he had to admit that ‘it doesn’t matter.  It cost.  Perception can often just be the reality.’

“He also faulted Congress for not immediately OK’ing the use of force once the president asked – without noting that Obama, in the year after he drew the red line, never laid a bit of groundwork with Congress (or with America’s allies) for enforcing it.

“If you issue a threat, then don’t even prepare to make good on it, all you’ve really made is...an empty bluff.”

Libya: Forces loyal to the U.N.-backed government said Monday they had seized full control of the city of Sirte from ISIS.   This battle took six months, far longer than expected, and cost the lives of 700 loyalist troops.  But a big blow for ISIS nonetheless, whose death toll in Sirte is unknown.

South Korea: The nation’s military cyber command, set up to guard against hacking, was breached by North Korea, the military said.  A spokesman said classified information was thought to have been stolen, although it is not clear exactly what was accessed, but the fear is war plans were.

Pyongyang has previously been accused of hacking into banks and media outlets but never the South’s military. According to police, some 140,000 computers at 160 companies were compromised up until this June.

As for the impeachment proceedings against President Park Geun-hye, she said she would accept the result of the process, which would be lengthy, but Park was defying pressure to resign immediately.

The National Assembly on Thursday then introduced an impeachment motion which passed on Friday, 234-56, thus forcing Park from office temporarily, with the nation’s prime minister, Hwang Kyo-ahn, taking over while the country now awaits a ruling by the constitutional court that could take as long as six months. 

Malaysia: The government has described the violence against Myanmar’s Muslim Rohingya minority as “ethnic cleansing,” with protests being held in Kuala Lumpur led by Prime Minister Najib Razak.  But Myanmar told Malaysia to mind its own business.

Finland: Awful crime here.  Three women – a local politician and two journalists – were shot dead with a rifle in front of a restaurant in the small Finnish town of Imatra near the Russian border, police said.

One of the women was the chair of the town council and the two others were local reporters.  Police, however, believe the victims were chosen at random as the killer was a 23-year-old local man with a record of violent crime.

Random Musings

--Donald Trump was named TIME magazine’s Person of the Year, in one of the easiest selections in history.  Trump told NBC’s “Today” show, “It’s a great honor.  It means a lot.”

You can expect a blow-up of the cover to be over Donald and Melania’s bed shortly.

--The Trump people told Rudy Giuliani he wasn’t going to be secretary of state, so Rudy said today he was withdrawing his name from consideration, which is amusing.

Now we’ve learned the front-runner is Exxon Mobil CEO Rex Tillerson.

--Even Ben Carson is wondering what he is doing in charge of the Department of Housing and Urban Development. 

In a more serious selection, Trump picked retired Marine Gen. John F. Kelly as secretary of homeland security, which makes for three former members of the military’s brass in the Trump administraion; Kelly joining defense secretary nominee James Mattis, a retired Marine general, and retired Army Lt. Gen. Michael T. Flynn, Trump’s pick for national security adviser.  And retired Army Gen. David Petraeus is still in the picture for secretary of state.

Too many generals?  Not yet.  But even I would be a little uncomfortable if Petraeus were tabbed (I like him...just a little unsure about military overload).

That said, Gen. Kelly is an excellent pick, especially since he knows the border threats as well as anyone in the country.

Trump also selected Iowa governor Terry Branstad to be his ambassador to China.  Branstad has been governor of Iowa in his second stint in the job, the first being from 1983 to 1999.  He has a long relationship with China through Iowa’s business interests and is said to be friendly with Xi Jinping.  I like Branstad.  Good pick.  [But his influence on Xi will be minimal at best.]

Trump also selected Oklahoma attorney general Scott Pruitt to be the new chief at the Environmental Protection Agency.  With Pruitt a close ally of the fossil fuel industry and a harsh critic of the Obama administration’s climate change policies, this is a controversial pick.

Pruitt could be expected to attempt to substantially weaken, delay or slowly dismantle various regulations aimed at forcing power plants to significantly reduce their emissions of planet-warming carbon dioxide pollution.

--House Minority Leader Nancy Pelosi may have experience in passing, and blocking, legislation after all her many years, but boy she can really look rather foolish at her advanced age.  Like last Sunday on CBS’ “Face the Nation,” she insisted Democrats aren’t looking for a “new direction.”

“I don’t think people want a new direction.  Our values unify us and our values are about supporting America’s working families.”

Pelosi, who beat back a surprising challenge from Ohio Rep. Tim Ryan, who argued the Dems must do more to speak to working class voters in the rust belt and not just coastal liberal elites, was questioned about the dire straits of Democrats, who have suffered massive losses in both Congress and at the state level during the eight years of Barack Obama.

“Let me just put that in perspective,” Pelosi said, as I watched thinking ‘this will be good.’  “When President Clinton was elected, Republicans came in big in the next election. When President Bush was president, we came in big in the subsequent election. When President Obama became president, the Republicans came in big in the next election.”

She then said losing the White House and control of Congress has a silver lining – the jobless Dems go back home and run for state seats and governor.

Republican leadership was rooting big time for Pelosi.  It helps their brand, after all.

--George F. Will / Washington Post

“So, this is the new conservatism’s recipe for restored greatness: Political coercion shall supplant economic calculation in shaping decisions by companies in what is called, with diminishing accuracy, the private sector. This will be done partly as conservatism’s challenge to liberalism’s supremacy in the victimhood sweepstakes, telling aggrieved groups that they are helpless victims of vast, impersonal forces, against which they can be protected only by government interventions.

“Responding to political threats larded with the money of other people, Carrier has somewhat modified its planned transfers of some manufacturing to Mexico.   This represents the dawn of bipartisanship: The Republican Party now shares one of progressivism’s defining aspirations – government industrial policy, with the political class picking winners and losers within, and between, economic sectors.  This always involves the essence of socialism – capital allocation, whereby government overrides market signals about the efficient allocation of scarce resources.  Therefore it inevitably subtracts from economic vitality and job creation....

“When, speaking at the Carrier plant, Vice President-elect Mike Pence said, ‘The free market has been sorting it out and America’s been losing,’ Donald Trump chimed in, ‘Every time, every time.’ When Republican leaders denounce the free market as consistently harmful to Americans, they are repudiating almost everything conservatism has affirmed: Edmund Burke taught that respect for a free society’s spontaneous order would immunize politics from ruinous overreaching – from the hubris of believing that we have the information and power to order society by political willfulness.  In an analogous argument, Friedrich Hayek warned against the ‘fatal conceit’ of believing that wielders of political power can supplant the market’s ‘efficient mechanism for digesting dispersed information.’  The Republican Party is saying goodbye to all that....

“What formerly was called conservatism resisted the permeation of society by politics, and particularly by the sort of unconstrained executive power that has been wielded by the 44th president.  The man who will be the 45th forthrightly and comprehensively repudiates the traditional conservative agenda and, in reversing it, embraces his predecessor’s executive swagger.”

--Michael Goodwin / New York Post...on Trump’s recent Cincinnati speech, which he gave after journeying to the Carrier plant in Indianapolis. 

“First, Trump is not forgiving the national liberal media for its savage bias.  Several times he referred to the press corps in the arena as ‘dishonest,’ and each time the crowd followed his cue with loud, sustained booing.

“In response, Chris Cillizza of the Washington Post, who was tweeting snarky lines all night, said on Twitter: ‘Boo the press if you want.  Then imagine what society would be like without a free press.’

“The self-righteousness is hilarious, and Cillizza’s contempt for Trump and his supporters is unprofessional.  He and others like him abandoned basic journalism standards to engage in partisan warfare, and haven’t stopped.

“They hide behind the Frist Amendment as if, without them, America would be lost.  In fact, democracy prevailed despite them. They violated the public trust and have forfeited any claim to represent anyone except themselves.  The national media is just another special-interest group and should be treated as such.

“Trump did just that by making an important announcement at the rally: that retired Marine Gen. James ‘Mad Dog’ Mattis was his pick to be secretary of defense.

“Never before has such an important decision been released directly to the public without being filtered through the media.  This time, the media got the news the same time the crowd and live TV audience did, and the public got Trump’s boisterous praise for Mattis before the media could interject knee-jerk put downs....

“My second main takeaway is that Trump expanded his theme of ‘America First’ from a slogan into a potential blueprint for a national revival.

“ ‘We hear a lot of talk about how we are becoming a ‘globalized world,’’ he said.  ‘But the relationships that people value in this country are local.

“ ‘There is no global anthem. No global currency.  No certificate of global citizenship.  We pledge allegiance to one flag, and that flag is the American flag.  From now on, it is going to be: America First...Never again will any other interests come before the interest of the American people.’*

“Those are gigantic ideas with enormous policy implications. While isolationism would be a mistake, there is a righteous demand from a broad range of voters that America take better care of the homeland.

“Because presidents can set a national agenda beyond government, the social-wide potential is endless.

“Imagine if the left woke up and realized that America isn’t such an imperialist, hateful, racist nation after all. That could mean more colleges, many of which offer year-abroad study programs as part of their globalism perspective, would also offer students a year to study in an inner city, in the Rust Belt or in Appalachian coal country.

“A gap year also could be spent in America.

“Imagine what those kids could learn about their country and fellow countrymen, and what they might do as a result. Knowing the history of industry, the rise and fall of unions, immigration and migration patterns, housing, education and health issues, the impact of federal regulations and local laws might lead students to decide to help America first before saving the world.

“And think of the possibilities if the working class and home-grown poverty become as cool as African poverty or rain-forest preservation.  If more celebrities and business titans decide that charity begins at home, they could direct their dollars and talent to solving problems in America’s heartland; tech wizards could create jobs in Detroit instead of Asia.

“The election offers many hopes, but nothing is guaranteed.  The only thing certain is that America won the chance to rise again.”

*This topic came up on the golf course, as one of our caddies said exactly what Trump has been espousing.  It’s more about ‘local’ than ‘global.’  I didn’t tell my playing partners, or the caddie, what I was going to be writing about but I had to chuckle under my breath.  The kid was emblematic of how everything played out this election cycle.

On the other side of the media issue....

Kathleen Parker / Washington Post

“Most disturbing is the absence of objections (to Trump’s attacks) from the right. Where are the Republicans when the leader of their party speaks so dismissively toward our principles of freedom and the journalists, many of whom they know personally, who practice in good faith the spirit of the law?

“How long before Trump’s words persuade some off-balanced Second Amendment ‘patriot’ to take out a ‘crooked’ media person, fully expecting to be applauded by the president-elect?

“We the people believe in free speech and a free press not so that we can burn flags but so that we can expose government corruption, protest oppression and express opinions that others may find disagreeable without fear of repercussion.

“As offensive as flag burning is to patriotic Americans, it also can be an act of patriotism, a proposition I offer as argument, not endorsement. If you love your country and fear that it’s being led toward tyranny, you might well burn a flag to demonstrate such concerns.  To the extent that the flag is a symbol of freedom, burning it is also a symbolic act. I would argue that many if not most veterans, including those in my family, fought, suffered and died for the right of all Americans to speak freely.

“Indeed, it is the objectionable expression that is the true test of the strength of our freedoms.  We don’t need a First Amendment to protect get-well cards or love letters. We don’t need it to protect Christmas carols.  But should someone challenge the latter, given its religious content, wouldn’t many of those Ohioans cheering Trump’s demagogic illogic be grateful that free speech protects their right to stroll the streets singing songs of praise?....

“It should be obvious that without the so-called mainstream media, especially newspapers such as the New York Times and The Post, no one would know anything that has any basis in objective fact – and yes there is such a thing.  We will rue the day we forgot that newsgathering is a profession with demanding standards regarding performance and ethics.  Notwithstanding the billion-member global newsroom, it’s nice to have smart, well-educated, experienced reporters and editors to pluck the pearls from the muck.

“Therefore, the highest service the president of the United States could perform would be to actively engage the media in the national interest of nurturing an informed populace, without which a democratic Republic cannot long survive.

“To do otherwise is the first act of the dictator.”

--According to a report by Craig Whitlock and Bob Woodward in the Washington Post, “The Pentagon has buried an internal study that exposed $125 billion in administrative waste in its business operations amid fears Congress would use the findings as an excuse to slash the defense budget, according to interviews and confidential memos obtained by The Washington Post.

“Pentagon leaders had requested the study to help make their enormous back-office bureaucracy more efficient and reinvest any savings in combat power.  But after the project documented far more wasteful spending than expected, senior defense officials moved swiftly to kill it by discrediting and suppressing the results.

“The report, issued in January 2015, identified ‘a clear path’ for the Defense Department to save $125 billion over five years. The plan would not have required layoffs of civil servants or reductions in military personnel.  Instead, it would have streamlined the bureaucracy through attrition and early retirements, curtailed high-priced contractors and made better use of information technology.  The study was produced last year by the Defense Business Board, a federal advisory panel of corporate executives, and consultants from McKinsey and Company.  Based on reams of personnel and cost data, their report revealed for the first time that the Pentagon was spending almost a quarter of its $580 billion budget on overhead and core business operations such as accounting, human resources, logistics and property management.

“The data showed that the Defense Department was paying a staggering number of people – 1,014,000 contractors, civilians and uniformed personnel – to fill back-office jobs far from the front lines.  That workforce supports 1.3 million troops on active duty, the fewest since 1940.

“The cost-cutting study could find a receptive audience with President-elect Donald Trump.”

Some Pentagon leaders were worried that highlighting the report would undermine their assertions austerity had gutted the armed forces, and that Congress and the White House would cut further.

--New Jersey Gov. Chris Christie’s approval rating hit another all-time low...19 percent in a Quinnipiac University Poll.  Quinnipiac polls in 11 states and this is the lowest approval rating for any governor in the more than 20 years they have been conducting surveys.  58 percent give Christie a “D” or “F”.

--Japanese Prime Minister Shinzo Abe will become the first sitting Japanese leader to visit Pearl Harbor, making a symbolic visit with President Obama during a trip to Hawaii on Dec. 26 and 27.

By doing so, Abe is reciprocating a trip made earlier this year by Obama to Hiroshima.

“We must never repeat the horror of war,” Abe said.  “I want to express that determination as we look to the future, and at the same time send a message about the value of U.S.-Japanese reconciliation.”

--Pope Francis, in an interview with a Belgian Catholic weekly, Tertio, said that spreading disinformation was “probably the greatest damage that the media can do,” adding that the media focuses on scandals and spreads fake news to smear politicians, which risks, in his own graphic language, falling prey to coprophilia, or arousal from excrement, and consumers of these media risked coprophagia, or eating excrement.

The pope excused himself for using such graphic terms but he wanted to get his point across, including the use of media to slander political rivals.

I’m going to have my own personal take on the fake news issue next week.

--The Centers for Disease Control and Prevention, in a final report for 2015, revealed life expectancy for Americans was shorter last year than it was the year before.

A person born in the U.S. in 2015 could expect to live 78.8 years, on average.  That’s 0.1 years – or 36.5 days – less than in 2014.

The main reason for the decline is that eight of the nation’s 10 leading causes of death were deadlier in 2015 than in years past: Heart disease, chronic lower respiratory diseases, unintentional injuries, stroke, Alzheimer’s disease, diabetes, kidney disease and suicide all claimed more lives last year.

--Finally, we note the passing of a great American hero…John Glenn, 95, the last of the Mercury Seven astronauts, the first American to orbit the Earth, and also the oldest to go into space in 1998 at age  77.  Hopefully for generations to come, Americans will associate “Godspeed” with him.  I know when I watched  the news following reports of his passing, I couldn’t help but smile seeing those old films from 1962 and hearing those famous words as Friendship Seven blasted off.

---

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

God bless America.

---

Gold $1161
Oil $51.48

Returns for the week 12/5-12/9

Dow Jones  +3.1%  [19756]
S&P 500  +3.1%  [2259]
S&P MidCap  +4.2%
Russell 2000  +5.6%
Nasdaq  +3.6%

Returns for the period 1/1/16-12/9/16

Dow Jones  +13.3%
S&P 500  +10.6%
S&P MidCap  +21.1%
Russell 2000  +22.2%
Nasdaq  +8.7%

Bulls 58.8
Bears 19.6 [Source: Investors Intelligence...Bear reading in danger territory; when Bulls hit 60 that will be another danger signal.]

Have a great week.

Brian Trumbore

 



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Week in Review

12/10/2016

For the week 12/5-12/9

[Posted 11:30 PM ET, Friday...Kiawah, S.C.]

Note: StocksandNews has major ongoing costs and your support is greatly appreciated.  Please click on the gofundme link or send a check to PO Box 990, New Providence, NJ 07974.

Edition 922

The Trump Transition, Washington and Wall Street

We have to start out this week with a discussion of Trump, Taiwan and China.

As I went to post last time, I had just learned that only a few hours earlier Donald Trump and Taiwan’s President Tsai Ing-wen had held a phone call, the first time a U.S. president or president-elect had spoken to Taiwan’s leader directly since 1979.

I’m the “wait 24 hours” guy but in this case I couldn’t.  I had to say something so I wrote this:

“While I personally am a big supporter of the island, and I believe the United States should be more vocal on the matter, this was a huge mistake.

“Ironically, I’ve been writing something you haven’t seen anywhere else for months…that China could invade Taiwan, sooner than later, because Tsai has been uncooperative since taking office.

“What Donald Trump did could actually precipitate such an action.”

But by Saturday morning we learned that Tsai initiated the call, which didn’t change my opinion any.  After all, you don’t have to take it.  Like in Trump World, sometimes it almost seems as if his assistant announces: “Mr. Trump, Kim Jong un is on” and you’d almost expect the president-elect to go, “Put  him on…Kim, Donald Trump.  How are you?”  Later… “You have a great country…would love to visit…OK, take care.”

But it wasn’t until 72 hours later that we learned definitively that the call between Trump and Tsai had been in the works for a while through the lobbying efforts of former senator and Republican presidential candidate Bob Dole, who is acting as a foreign agent for Taipei.  [A lucrative gig for the former war hero who also ran the single worst campaign for president in the history of mankind….next to Hillary’s.]

Well what does this change?  Nothing, as far as I’m concerned.  I just think until Trump is actually president he needs to avoid being reckless.

Here’s the other thing.  I’m sorry, but I just don’t believe Donald Trump understands the history of the Taiwan-China relationship, the Taiwan Relations Act and other stuff.   Like where the hundreds of missiles targeting Taiwan are based on the mainland (my old province of Fujian, which was why I bought into that failed investment of mine…partly because it was the shortest point between Taipei and the mainland).

I know something about this topic.  I’ve only written of it constantly since day one of StocksandNews.  Plug in “Taiwan” into my search engine and over 650 references appear.  I have written extensively of the Taiwan Relations Act, which codified, as much as one can in this murky relationship, that the United States recognizes “one China,” the mainland, the PROC, but that the U.S. is obligated to provide Taiwan with enough weapons to defense itself.

But does that mean we should come to Taiwan’s defense if they come under attack?  No.

And it’s for this reason, before we learned there would be a phone conversation between Tsai Ing-wen and Donald Trump, that I said Chinese President Xi Jinping, seeing a window of opportunity and a lame duck Barack Obama before Trump took over, could make a move on Taiwan.

Xi would do this because Tsai, who was elected because she favors independence for Taiwan (which will never happen), has not ameliorated her hard line stance one bit, and it’s ticking Xi and China off to no end.

The bottom line is, if Tsai ever announced “Taiwan is now fully and officially a sovereign nation,” I imagine the missiles from Fujian would be launched within the hour.  Taiwan would fall in a nanosecond, and the United States would just sit back.

So this is why I think Trump’s call was reckless.  Yes, Madame Tsai loves it.  It only helps her with her already sliding popularity back home.

I love Taiwan. I spent a week there about 13 years ago.  The people were terrific and I would love a day when they are truly independent. 

At the same time, I loathe everything about China.  It’s not only personal, but I have detailed chapter and verse just how dangerous Xi Jinping is.  [As I write below, though, I hope Iowa Gov. Branstad, the new ambassador-elect to China, can work some sense into his ‘old friend,’ though I’m not holding my breath.]

This is as important a topic over the coming year or two as there is when it comes to U.S. foreign policy and the administration.  At least Gen. Mattis can perhaps set Trump straight quickly.

This is not a time to press Xi’s buttons.  Arm Taiwan more than we already have?  Absolutely.  But do it as quietly as possible.  And always remember, the last thing we want to see is war between China and Taiwan, because it will get so ugly, so fast, we are bound to get involved (think Kim Jong un trying to take advantage of the situation) and with all the weaponry the U.S. and China have…you just don’t want to contemplate where it could go.

[One consequence of Trump’s call with Tsai, the South China Morning Post is reporting the Chinese air force is likely to step up the number of flights close to Taiwan, which can lead to a mistake.  For its part, Japan will no doubt shadow any increased flights by Chinese fighter jets.]

One more…not only is Bob Dole a paid foreign agent of Taiwan’s, so is former House majority leader Richard Gephardt (Mo.-D), who according to the New York Times signed a $25,000-a-month contract to represent the Taipei office this year. 

Global Times (Chinese Communist Party mouthpiece):

“The Trump-Tsai phone call has rocked and confounded the world.  All U.S. mainstream media have pointed out that the Taiwan question is among the most sensitive issues in East Asia, and any mishandling of it could lead to war.  Trump’s jaw-dropping move has raised many doubts about whether it is in line with the U.S.’ long-term interests.

“It seems that Trump is still taking advantage of his perceived fickleness and unpredictability to make some choppy waves in the Taiwan Straits to see if he can gain some bargaining chips before he is sworn in.

“The U.S. is losing its competitive advantage against China, to say nothing of acquiring new leverage.  Trump might be looking for some opportunities by making waves.   However, he has zero diplomatic experience and is unaware of the repercussions of shaking up Sino-U.S. relations.”

In a separate Global Times editorial:

“Trump’s reckless remarks [Ed. referring to his ensuing Tweet storm] against a major power show his lack of experience in diplomacy. He may have overestimated the power of the U.S.   He may have already been obsessed with the power he is about to have a grip on, and wishes the whole world should follow his lead.  He may also believe that if China, the biggest power after the U.S., is awed by Washington, it will solve all other problems.

“No matter what Trump thinks, China must be determined to upset his unreasonable requests at his early time in office, and fight back if his moves harm China’s interests, regardless of the consequences to the dynamics of the Sino-U.S. relationship….

“China should brace itself for the possible fluctuations of the Sino-U.S. relationship after Trump is sworn in.  We must confront Trump’s provocations head-on, and make sure he won’t take advantage of China at the beginning of his tenure. This initial period will set the foundation for the Sino-U.S. relationship in the next four years.”

Wall Street

Monday marked the 20th anniversary of Alan Greenspan’s famous speech about “irrational exuberance,” in which he wondered whether asset prices were reaching unsustainable levels amid a roaring bull market.  Asset prices, though, continued to rise for three more years before topping off.

Greenspan today admits he was way off with that original forecast, but today he isn’t as worried about stocks as he is the bond market. Specifically, he says the “odds are better than 50/50” that the economy could be headed for a period of stagflation – rising prices coinciding with weak growth.

Well as of today it sure looks as if Mr. Greenspan is wrong again.  Last week I wrote how the Trump rally wasn’t all it was cranked up to be and that the S&P 500 was only ahead 2.4% since the election.

But I cannot make that claim now after the past week’s action.  All the major indices are at new all-time highs, with the Dow Jones and S&P up 3.1% the past five days and Nasdaq up 3.6%.  [The Russell 2000 small-cap index rose 5.6% this week and is up 22.2% for the year.]

Nothing changed.  It’s still all about tax cuts, regulatory rollbacks and fiscal stimulus once Donald Trump and the Republicans fully take control on Jan. 20, and the fact the Federal Reserve will finally be raising interest rates this coming week for the first time in a year doesn’t seem to matter…it’s been long discounted. The financial sector, which will profit from higher rates and a bigger spread between the short and long end of the yield curve, rose another 4.8% this week and is now up 19% since Trump shocked the world.  No wonder The Donald is complaining that he wants  everyone to give him credit for the rally since the vote and not his record in the financial markets after he takes office.

Yes, sentiment has changed.  Animal spirits are back on Wall Street.  Enjoy it while you can.  Given the still highly troubling geopolitical scene, this can all change in a flash.

[The Bull / Bear readings down below are close to an outright ‘Sell’ signal, and could reach that this coming week,]

Europe and Asia

The reading on third-quarter GDP in the eurozone came in at 0.3%, 1.7% annualized, as reported by Eurostats, the same annualized pace for both the first and second quarters. 

Germany’s Q3 GDP was 0.2%, but 1.7% ann., France was 0.2% (1.1%), Italy 0.3% (1.0%), Spain 0.7% (3.2%) and Greece 0.8% (1.0%).

The service-sector PMI for the eurozone was 53.8 in November vs. 52.8 in October (50 being the dividing line between growth and contraction), with Germany at 55.1 for last month, France 51.4, Italy 53.3, Spain 55.1, and the U.K. 55.2, as strong consumer demand in Britain continues to trump Brexit fears.

So despite the Italian referendum results (below), even Italy’s PMI reading was solid.

Chris Williamson, chief economist at IHS Markit:

“Rather than fretting about political risk, companies appear to be gearing up for further expansion.  Employment is rising at one of the fastest rates seen over the past five years.  Employers’ appetite to hire is being whetted by a further accumulation of unfinished work.”

Meanwhile, the European Central Bank  announced it was scaling back the amount of bonds it buys every month from 80bn euro to 60bn, but ECB President Mario Draghi insisted the board’s move did not amount to a tapering of its quantitative easing program.

The bank confirmed it would buy 80bn a month of bonds until March, but that it would prolong its purchases until year end 2017 at a lower rate.

Draghi said the extension through year end shows that the central bank is committed to remain active in the markets “for a long time.”

Euro bond markets, including Italy’s, had a mild reaction to Draghi’s pronouncement.  Super Mario (I maintain the guy is largely irrelevant at this point, but we’ll give him another moment in the spotlight) said the “deflation risk has largely disappeared,” but that inflation is far from a concern.  Inflation is, however, ticking up across Euroland month by month.

Finally, the ECB sees growth in the eurozone of 1.7% in 2016 and 2017.

On the Greek debt relief front, euro area finance ministers approved short term measures that provide some relief but they failed to reach a broader accord that could enable the IMF to move closer to joining the bailout, so the question of full IMF participation has been punted, once again, into 2017.

But the yield on Greece’s 10-year bond was unchanged after a strong rally that was more about some of the political changes in the government of Alexis Tsipras than any debt relief.  Tsipras has been replacing hard-core leftists with moderates and the market likes that.

As for Italy’s referendum on constitutional reform, Prime Minister Matteo Renzi lost, about 59% to 41%, worse than the polls had forecast, and he resigned as he said he would, staying on a few days until the country passed a new budget.

But whereas I said weeks ago that global markets would take the referendum in stride, and indeed they did, the concern has been with Italy’s banks, which remain a mess, but the sector rallied 15% this week on optimism of an ECB-led bailout of some sort, especially for its most troubled lender, Monte dei paschi.  We’ll see.

For now, Italy will form a caretaker government, possibly this weekend, and then at some point early next year, there will be another election and this is the one that will bear watching as the anti-euro 5-Star Movement could gain power, though their prospects are slim.

“The Italians rejected Renzi and the EU,” Marine Le Pen of France’s far-right National Front said on Twitter.

But in Austria, the far-right suffered a defeat  at the hands of an independent, Alexander Van der Bellen, who beat Freedom Party candidate Norbert Hofer, 53-47, in a re-vote of last spring’s election for the largely ceremonial post of president.

While in France, Prime Minister Manuel Valls stepped down to run for president as the Socialist candidate, now that Francois Hollande announced he would not seek another term.  Bernard Cazeneuve, the interior minister, has been tasked to form a new government.

Commentary:

Editorial / Wall Street Journal

(Renzi) was handed a stinging defeat Sunday in a referendum on proposed constitutional changes on which he had staked his premiership.  Mr. Renzi argued that the changes, above all a smaller and less powerful Senate, were necessary to streamline the political system and make economic reform possible.

“The argument had some merit, but Italians were underwhelmed….

“Mr. Renzi came to office in 2014 offering ‘a radical program of reform,’ and early signs were promising….

“But despite an energetic personality, Mr. Renzi’s reforms usually came up short.  Italy’s ranking on the World Economic Forum’s labor-market efficiency table – third-to-last before Mr. Renzi’s reforms – crept up 14 places to 126th out of 140 this year.  New hiring slowed as government incentives to employers dried up.  Mr. Renzi also left in place extensive and expensive protections for employers at smaller companies, a killer in an economy of boutique enterprises.

“As for Italy’s banks, Mr. Renzi’s idea was to cobble together $6.4bn for various recapitalization funds.  But no Rube Goldberg contraption is going to save a banking system with up to 360bn euro of bad loans, depending on how you count, and no Italian politician is going to punish retail savers for the failures of the banks.  Given the European Union’s no-bailout rule that means the only salvation for the banks lies in strong economic growth.”

And on that score, Italy has consistently fallen short.

Gideon Rachman / Financial Times

“(Even) if the Italians manage to patch together a new government and avoid a banking crisis, the broader picture is bleak.  Italy’s economy is stagnating and its political center is disintegrating.  Nationalists and populists are also on the rise in EU countries including Spain, Poland, France and the Netherlands.  Britain has promised to submit its formal notification of the decision to leave the EU next March. That same month, the union’s leaders are meant to gather in Italy to celebrate the 60th anniversary of the signature of the Treaty of Rome.  [Where the original six nations formed what has become the EU.]  At this rate, it will be more of a wake than a party.”

Former British Prime Minister Tony Blair warned that political upheaval from Brexit to the collapse of the Italian government signals the most dangerous time for Western democracies in decades.

“It does feel perilous, actually, because I think there are decisions that are being taken of vast moment in circumstances where systems are fragile.  And that is troubling,” Blair told an audience in Washington.

Of particular concern to him is a “longing” for an authoritarian leader.

“It’s amazing how many people you will find who will reference a style of leadership of President Putin in a positive way.  I think people want their country moving and they think that if the present system is not moving it, and not making the changes that they want to see, then maybe someone who just says, ‘I don’t care what anyone thinks; I’m just going to go for it, and this is what I’m going to do’ – that has a certain attraction.

“If the center isn’t a place of strength and vitality, and it looks kind of flabby and just managing the status quo, then you’re at risk of someone coming along and doing that.”

Finally, German Chancellor Angela Merkel, facing a highly contested election next fall, called for a ban on the burka “wherever possible” in Germany and said there can be no repeat of last year’s migrant crisis, in a speech launching her campaign.

“German law takes precedence over sharia,” she said at her party’s annual congress.  “The full-face veil should be banned, wherever legally possible.”

Merkel has been under fire for an “open doors” approach to the refugee crisis.  She is finally seeing the light.

Turning to Asia...China’s export/import picture brightened some in November, with exports up 0.1%, the first gain since March, and far better than October’s 7.3% decline.  Imports rose 6.7% after a 1.4% fall the prior month, the fastest pace in two years.  Imports of major commodities surged.

But Morgan Stanley issued a bearish forecast on the Chinese auto market the other day, projecting growth of just 4.3% in 2017 vs. a previous forecast of 8%, and an estimated 14.8% for 2016. The forecast assumes the government won’t keep the existing 5% auto sales tax in place and will hike it to 7.5%.  But regardless, the market is due to slow down, according to MS.  Actually, if the tax is set at 7.5%, Morgan Stanley sees growth of just 3%.

Street Bytes

--After this week’s action on Wall Street, we can officially say that 2017 has been a very good year, should the gains hold another few weeks. The Dow is now up 13.3%, with the S&P up  10.6^ and Nasdaq 8.7%.

Moreover, the holiday shopping season is looking solid…perhaps 4% sales growth.

--U.S. Treasury Yields

6-mo. 0.63%  2-yr. 1.13%  10-yr. 2.47%  30-yr. 3.15%

--Compared to the prior week, crude oil traded in a relatively narrow range of about $50-$52 as the market digests OPEC’s agreement of 11/30 to cut production and whether there will be actual compliance, let alone cooperation from non-OPEC producers.  There is some question on what the actual demand level will be in 2017 as well.

For example, output from OPEC countries rose by 370,000 barrels per day in November, putting total OPEC production at 34.190 million barrels, when the production target going into effect on Jan. 1 is 32.5mbd.

Former Saudi Oil Minister Ali al-Naimi said of the potential to balance the oil market:

“The only tool they have is to constrain production,” he said at an event in Washington.  “The unfortunate part is we tend to cheat.”

Al-Naimi also expressed skepticism that non-OPEC Russia would cut 300,000 barrels a day as they said they would.  “I don’t know.  In the past, they didn’t.”

--In the latest example of his carrot-and-stick approach to U.S. business and manufacturing, President-elect Donald Trump called for cancelling Boeing Co.’s work on a new version of Air Force One.

“The plane is totally out of control,” Trump said in remarks at Trump Tower, adding, “We want Boeing to make a lot of money but not that much money.”

Using Twitter, Trump said the cost for the new planes for future presidents was “more than $4 billion.  Cancel order!”

Defense experts said it was too early to identify the final tally until the Pentagon, White House and Secret Service had weighed in on what equipment to install on the fleet of up to three jets.  The planes, which wouldn’t be in the fleet until 2024 at the earliest, are supposed to be designed to withstand a nuclear attack.

Earlier Trump announced the Carrier unit of United Technologies Corp. would retain as many as 1,100 jobs in the U.S. And he’s talked since the campaign of imposing a 35% tariff on companies that move jobs overseas and then ship goods into the U.S.

--Meanwhile, after his Boeing threat, Trump and Masayoshi Son, CEO of Japan’s SoftBank, appeared together in the Trump Tower lobby and Son pledged to invest $50 billion in the United States, a move that he said would create 50,000 jobs.

But these funds are coming from the company’s previously announced venture fund, Vision, which is actually a $100 billion vehicle for investing in technology companies worldwide.

The fund – which includes Trump target Saudi Arabia – was always expected to invest in the United States, specifically start-ups.

But Trump declared on Twitter: “Masa said he would never do this had we not won the election!”

SoftBank is majority owner of wireless operator Sprint, which two years earlier unsuccessfully pursued T-Mobile; blocked by the Obama administration on antitrust grounds, so it’s assumed this topic came up between Son and Trump.

Meanwhile, as Quentin Webb of Reuters points out, “creating 50,000 jobs in the thinly staffed tech industry won’t come easy.”

--Appearing on “60 Minutes,” House Speaker Paul Ryan said repealing ObamaCare will be the first priority of congressional Republicans once Trump takes office.

“Well, the first bill we’re going to be working on is our ObamaCare legislation.  We want to make sure that we have a good transition period, so that people can get better coverage at a better price.”

There will be a multi-year transition phase, no doubt.  And Ryan, like Trump, favors maintaining provisions that allow children to stay on their parents’ healthcare plans until the age of 26, while preventing health insurance companies from denying care to those with preexisting conditions.

--The Army Corps of Engineers is halting construction of the Dakota Access Pipeline that had become a front page story and which I hinted last week could become an explosive issue for the Obama administration in its final weeks.

48 hours later, wouldn’t you know the Corps halted the project.  Why now?  The Corps could have made this move long ago.  Or as Church Lady would have said, “How conveeenient.”

Editorial / Wall Street Journal

“The U.S. Army Corps of Engineers on Sunday delivered a symbolic victory to the environmental left by denying a permit to complete the 1,200-mile Dakota Access oil pipeline. The political obstruction illustrates why it’s so hard to build anything in America these days.

“Construction is almost complete on the Dakota Access, which aims to transport a half million barrels of oil each day from the Bakken Shale in North Dakota to Illinois for delivery to refiners on the East and Gulf coasts.  About 99% of the pipeline doesn’t require federal permitting because it traverses private lands.  But the corps must sign off on an easement to drill under Lake Oahe that dams the Missouri River.

“After an exhaustive consultation with Native American tribes, the Corps in July issued an environmental assessment of ‘no significant impact.’  Construction is unlikely to harm tribal totems because the Dakota Access would parallel an existing gas pipeline.  The route has been modified 140 times in North Dakota to avoid upsetting sacred cultural resources.

“After largely refusing to engage in the Corps’ review, the Standing Rock Sioux sued.  A federal court in September rejected the tribe’s claims, only to be overruled by the Obama Administration, which ordered a temporary suspension to work around Lake Oahe.  Although the D.C. Circuit Court of Appeals in October refused to enjoin construction on the pipeline, the Corps has maintained its administrative injunction.”

Well tensions then escalated, as you saw, but now the issue has been kicked down the road.

“(The) Corps’ switcheroo has jeopardized its integrity and created a legal quagmire by requiring an exhaustive new environmental impact statement that considers alternative routes.  This process could take years and is not normally required when an environmental assessment concludes no significant impact.

“The pipeline builder Energy Transfer Partners could sue the Corps for violating due process, though a judge might rule the company lacks standing since the government hasn’t made a final determination. Energy Transfer is likely better off waiting for the Trump Administration.”

This is going to be an interesting test case of Donald Trump.  He has long supported the project.  Will he waffle in the face of thousands of protesters and the potential for violence?

--The Supreme Court unanimously ruled in favor of prosecutors in a major insider trading case, saying that gifts of confidential information from business executives to relatives violates securities laws.  Justice Samuel A. Alito Jr., writing for the court, said the issue was easy.  Giving a gift to a friend or relative, whether in the form of cash or in the form of a tip, benefited the insider.

I won’t get into the specifics of the case, but a U.S. Court of Appeals for the Second Circuit made it harder to prosecute insider trading cases; at the time a big setback for Preet Bharara, the U.S. attorney in Manhattan, whose office oversaw a sweeping crackdown on insider trading in the hedge fund industry.

But now Bharara has been proved right.

“The court stood up for common sense and affirmed what we have been arguing from the outset – that the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public,” Bharara said in a statement.  “Today’s decision is a victory for fair markets and those who believe that the system should not be rigged.”

You go, Preet!

--The CEOs of AT&T and Time Warner on Wednesday defended their proposed $85 billion merger to lawmakers, with president-elect Trump having previously expressed hostility to the deal, though he has said nothing since the election.

The combination of AT&T and Time Warner puts together the country’s largest pay-TV provider with one of the biggest content providers, with AT&T’s Randall Stephenson and Time Warner’s Jeff Bewkes positioning the deal as a way to increase competition with entrenched cable-distribution companies, while Google and Facebook dominate online advertising and are pushing into video services.

--SunPower Corp. announced it was cutting 2,500 jobs, including 200 in California, with the cuts representing 25% of the workforce.  Most of the losses, though, are overseas, such as in the Philippines, where the company was closing a solar cell factory.

--Last Friday night, the Treasury Dept. announced it was blocking a Chinese investment fund from acquiring the U.S. business of German semiconductor equipment maker Aixtron because the deal posed a risk to American national security. This was done through an executive order by President Obama, and it’s based on concerns China would gain access to the secrets of producing a material called gallium nitride used in military equipment.

--Amazon unveiled a futuristic grocery store without any cashiers, in the company’s latest plan to automate workers out of existence.

At a Seattle food market, high-tech sensors and artificial intelligence are allowing shoppers to swipe an app when they enter, then roam the aisles and grab staples like bread and milk, chocolate and ready-made meals.  The items plucked off the shelves get added to a virtual cart on the app – and subtracted if they put them back – with receipts e-mailed to them once they leave, according to the company.

This test store is for Amazon employees only, but the company plans to start letting the public in next year.

Amazon is also testing out “large, multifunction stores with curbside pickup capability” and “drive-through prototype locations,” sources told the Wall Street Journal.

Amazon then wants to open more than 2,000 brick-and-mortar grocery stores, compared with about 2,800 operated by The Kroger Co., now the nation’s largest full-service grocery retailer.

As of May 2015, the latest available data through the Labor Department, there were 856,850 cashiers at grocery stores, with one analyst believing Amazon’s technology could eventually wipe out 75% of these positions.

In New York City, the introduction of MetroCard vending machines led the MTA to eliminate 600 token-booth jobs in 2010, although the workers were all reassigned to other tasks.

According to a study last year by Ball State University’s Center for Business and Economic Research, the use of robots and other manufacturing efficiencies were responsible for 88 percent of the 7 million factory jobs the U.S. has lost since peak employment in 1979.  [Dr. Whit and I were talking about this between shots on the golf course Friday…a serious round of golf…cough cough…]

--MGM CEO Jim Murren said he expects Atlantic City to stop hemorrhaging casinos and begin traveling on the road to recovery.

“Atlantic City’s darker days are behind it,” Murren said in Washington.

A.C. has faced bankruptcy as five casinos shut down, MGM owning one of those left standing, Borgata, the top-performing one.

MGM wouldn’t have bought out Boyd Gaming’s share of the Borgata if the company didn’t expect improvements in the seaside resort, Murren added.

A key is getting sports betting approved, with various parties continuing to press the issue, after an August federal appeals court ruled that a 2014 law signed by Gov. Chris Christie violated a 1992 federal ban on sports wagering.  This whole topic pisses me off to no end.

Murren, too.  He said things have changed since sports betting was banned in all states but Nevada, Delaware, Montana, and Oregon.  Look at Las Vegas.  It is getting an NHL team.

“People love to bet on sports,” Murren said.  “Let’s regulate and give the American public what it wants.”

Hear hear!

--Sotheby’s is the first big auction house to create its own forensic art analysis department, as it addresses the very real reputational threat forgeries are posing to $multimillion art market sales.

This year, Sotheby’s had to repay a U.S. buyer nearly $11 million for a painting they had sold as the work of the Dutch artist Frans Hals, but Orion Analytical, which Sotheby’s just acquired, discovered the presence of modern materials that could not have been used in the 17th century.

The founder of Orion Analytical, James Martin, has carried out more than 1,800 investigations for auction houses, museums, collectors and the FBI.  [James Pickford / Financial Times]

I’d be afraid to have Mr. Martin look at some of my rock ‘n’ roll autographed albums.  “That’s not Brian Jones’ signature, Mr. Trumbore.”  “Nooo!!!”

--Less than 10 percent of all U.S. fund managers are women, according to a new report from Morningstar, with the percentage in slow decline since 2008, when 11.4 percent of fund managers were.  Other countries have more, led by Singapore at 30 percent.

Research suggests women tend to hold onto investments longer, which can lead to better long-term returns.

--SeaWorld Entertainment Inc. announced it is eliminating 320 jobs as part of its ongoing efforts to slash costs.   60 will be laid off in Southern California.

Two years ago, SeaWorld laid off more than 300 (100 in San Diego).

The company is still struggling to right itself amid the slump in attendance and declining revenue, all related to the 2013 release of CNN’s “Blackfish” documentary that focused on the parks’ treatment of its orcas.  [L.A. Times]

--Megyn Kelly’s contract with Fox News Channel is up in July and it currently pays her $15 million a year.  But while she probably thought her services would be much in demand on the open market, according to Stephen Battaglio of the L.A. Times, if she was thinking of leaving Fox, she’ll likely have to accept less, not more, money.  Fox has apparently offered her Matt Lauer / Bill O’Reilly money to stay, $20 million a year.

One thing against her is the fact that if she left, O’Reilly wouldn’t be her lead-in.

CNN’s Jeff Zucker does want Kelly, but not at the price she’s looking for.

Foreign Affairs

Iraq/Syria/ISIS/Russia/Turkey: Government forces continued to take control of vast swaths of eastern Aleppo, over 35 districts previously controlled by rebels for years. The forces of President Bashar al-Assad have been moving to split the remains of the rebel enclave in Syria’s second city.  But tens of thousands of civilians are still trapped in the last of the rebel-held districts.  There are no functioning hospitals and zero food.

In an interview on Wednesday, Assad said recent advances in Aleppo will completely change the course of the battle in all of Syria. Assad described Aleppo as the “last hope” of the rebels and their backers, “after their failure in the battles of Damascus and Homs.”

“The decision to liberate all of Syria is taken and Aleppo is part of it,” he told al-Watan newspaper.

A Russian military adviser was among the casualties, as reported by the Russian defense ministry.

On Friday, though, the U.N. said hundreds of men and boys were missing, after they left rebel held areas.

In Iraq, ISIS has been urging its supporters in the flashpoint town of Tal Afar, near Mosul, not to flee as the group fights offensives on different fronts.  “Destroy their vehicles, raid them...in their shelters so they can taste some of your misery and do not talk yourselves into fleeing,” ISIL’s new spokesman said in an audio recording posted online.  Abi al-Hassan al-Muhajer also said Islamic State supporters would target the Turkish government.

I take you back to Nov. 14, 2016, and President Obama’s press conference prior to his final overseas trip (Europe and then Peru).

“With respect to Syria  - in Benghazi, we had an international mandate.  We had a U.N. Security Council resolution. We had a broad-based coalition, and we were able to carry out a support mission that achieved the initial goal of preventing Benghazi from being slaughtered fairly quickly. It’s no secret – that Syria is a much more messy situation, with proxies coming from every direction.

“And so I wish that I could bring this to a halt immediately.  We have made every effort to try to bring about a political resolution to this challenge.  John Kerry has spent an infinite amount of time trying to negotiate with Russians and Iranians and Gulf States and other parties to try to end the killing there.  But if what you’re asking is do we have the capacity to carry out the same kinds of military action in Syria that we did in Libya, the situation is obviously different. We don’t have that option easily available to us.

“And we’re going to have to continue to pursue, as best we can, a political solution and, in the interim, put as much pressure as we can on the parties to arrive at humanitarian safe spaces and ceasefires that at least alleviate the suffering that’s on the ground.

“I recognize that that has not worked.  And it is something that I continue to think about every day, and we continue to try to find some formula that would allow us to see that suffering end. But I think it’s not surprising to you, because you study this deeply, that if you have a Syrian military that is committed to killing its people indiscriminately, as necessary, and it is supported by Russia that now have substantial military assets on the ground and are actively supporting that regime, and Iran actively supporting that regime, and we are supporting what has to be our number-one national security priority, which is going after ISIL both in Mosul and ultimately in Raqqa – that the situation is not the same as it was in Libya.

“And obviously there are some who question the steps we took in Libya. I continue to believe that was the right thing to do, although, as I indicated before, in the aftermath of that campaign, I think the world community did not sufficiently support the need for some sort of security structures there and now is a situation that we have to get back into a better place.”

What a mess.  If you take one of Obama’s college courses in the future, though, this is what you’ll be paying for.

Editorial / New York Post

“Secretary of State John Kerry told a painful truth on Sunday, admitting that President Obama’s ‘red line’ fiasco in Syria ‘cost us significantly’ by leading other nations to see America as weak.

“Obama drew the line in August 2012 – as a way to avoid getting involved in Syria’s civil war without having to actually justify that restraint. He did so by saying he would intervene if the government did the truly awful, by using chemical weapons.

“ ‘We have been very clear to the Assad regime...that a red line for us is we start seeing a whole bunch of chemical weapons moving around or being utilized,’ he said, also calling ‘chem’ use a ‘game-changer.’

“It was universally seen as a threat of massive consequences for Bashar al-Assad if he crossed the line. But when Assad did launch chemical attacks a year later, Obama stalled....

“The president had blinked at making good on his own threat. Around the globe, U.S. allies and enemies were on notice that America might not live up to its word.

“It’s no coincidence that Russia took control of Crimea within a year, and later intervened decisively in Syria to save Assad.  Nor that Iran was able to virtually dictate the terms of its nuclear deal with Team Obama.

“Kerry on Sunday fell back on two excuses. First he argued that it was a ‘misperception’ that Washington had been weak, since Assad did give up (many of) his chems. But even he had to admit that ‘it doesn’t matter.  It cost.  Perception can often just be the reality.’

“He also faulted Congress for not immediately OK’ing the use of force once the president asked – without noting that Obama, in the year after he drew the red line, never laid a bit of groundwork with Congress (or with America’s allies) for enforcing it.

“If you issue a threat, then don’t even prepare to make good on it, all you’ve really made is...an empty bluff.”

Libya: Forces loyal to the U.N.-backed government said Monday they had seized full control of the city of Sirte from ISIS.   This battle took six months, far longer than expected, and cost the lives of 700 loyalist troops.  But a big blow for ISIS nonetheless, whose death toll in Sirte is unknown.

South Korea: The nation’s military cyber command, set up to guard against hacking, was breached by North Korea, the military said.  A spokesman said classified information was thought to have been stolen, although it is not clear exactly what was accessed, but the fear is war plans were.

Pyongyang has previously been accused of hacking into banks and media outlets but never the South’s military. According to police, some 140,000 computers at 160 companies were compromised up until this June.

As for the impeachment proceedings against President Park Geun-hye, she said she would accept the result of the process, which would be lengthy, but Park was defying pressure to resign immediately.

The National Assembly on Thursday then introduced an impeachment motion which passed on Friday, 234-56, thus forcing Park from office temporarily, with the nation’s prime minister, Hwang Kyo-ahn, taking over while the country now awaits a ruling by the constitutional court that could take as long as six months. 

Malaysia: The government has described the violence against Myanmar’s Muslim Rohingya minority as “ethnic cleansing,” with protests being held in Kuala Lumpur led by Prime Minister Najib Razak.  But Myanmar told Malaysia to mind its own business.

Finland: Awful crime here.  Three women – a local politician and two journalists – were shot dead with a rifle in front of a restaurant in the small Finnish town of Imatra near the Russian border, police said.

One of the women was the chair of the town council and the two others were local reporters.  Police, however, believe the victims were chosen at random as the killer was a 23-year-old local man with a record of violent crime.

Random Musings

--Donald Trump was named TIME magazine’s Person of the Year, in one of the easiest selections in history.  Trump told NBC’s “Today” show, “It’s a great honor.  It means a lot.”

You can expect a blow-up of the cover to be over Donald and Melania’s bed shortly.

--The Trump people told Rudy Giuliani he wasn’t going to be secretary of state, so Rudy said today he was withdrawing his name from consideration, which is amusing.

Now we’ve learned the front-runner is Exxon Mobil CEO Rex Tillerson.

--Even Ben Carson is wondering what he is doing in charge of the Department of Housing and Urban Development. 

In a more serious selection, Trump picked retired Marine Gen. John F. Kelly as secretary of homeland security, which makes for three former members of the military’s brass in the Trump administraion; Kelly joining defense secretary nominee James Mattis, a retired Marine general, and retired Army Lt. Gen. Michael T. Flynn, Trump’s pick for national security adviser.  And retired Army Gen. David Petraeus is still in the picture for secretary of state.

Too many generals?  Not yet.  But even I would be a little uncomfortable if Petraeus were tabbed (I like him...just a little unsure about military overload).

That said, Gen. Kelly is an excellent pick, especially since he knows the border threats as well as anyone in the country.

Trump also selected Iowa governor Terry Branstad to be his ambassador to China.  Branstad has been governor of Iowa in his second stint in the job, the first being from 1983 to 1999.  He has a long relationship with China through Iowa’s business interests and is said to be friendly with Xi Jinping.  I like Branstad.  Good pick.  [But his influence on Xi will be minimal at best.]

Trump also selected Oklahoma attorney general Scott Pruitt to be the new chief at the Environmental Protection Agency.  With Pruitt a close ally of the fossil fuel industry and a harsh critic of the Obama administration’s climate change policies, this is a controversial pick.

Pruitt could be expected to attempt to substantially weaken, delay or slowly dismantle various regulations aimed at forcing power plants to significantly reduce their emissions of planet-warming carbon dioxide pollution.

--House Minority Leader Nancy Pelosi may have experience in passing, and blocking, legislation after all her many years, but boy she can really look rather foolish at her advanced age.  Like last Sunday on CBS’ “Face the Nation,” she insisted Democrats aren’t looking for a “new direction.”

“I don’t think people want a new direction.  Our values unify us and our values are about supporting America’s working families.”

Pelosi, who beat back a surprising challenge from Ohio Rep. Tim Ryan, who argued the Dems must do more to speak to working class voters in the rust belt and not just coastal liberal elites, was questioned about the dire straits of Democrats, who have suffered massive losses in both Congress and at the state level during the eight years of Barack Obama.

“Let me just put that in perspective,” Pelosi said, as I watched thinking ‘this will be good.’  “When President Clinton was elected, Republicans came in big in the next election. When President Bush was president, we came in big in the subsequent election. When President Obama became president, the Republicans came in big in the next election.”

She then said losing the White House and control of Congress has a silver lining – the jobless Dems go back home and run for state seats and governor.

Republican leadership was rooting big time for Pelosi.  It helps their brand, after all.

--George F. Will / Washington Post

“So, this is the new conservatism’s recipe for restored greatness: Political coercion shall supplant economic calculation in shaping decisions by companies in what is called, with diminishing accuracy, the private sector. This will be done partly as conservatism’s challenge to liberalism’s supremacy in the victimhood sweepstakes, telling aggrieved groups that they are helpless victims of vast, impersonal forces, against which they can be protected only by government interventions.

“Responding to political threats larded with the money of other people, Carrier has somewhat modified its planned transfers of some manufacturing to Mexico.   This represents the dawn of bipartisanship: The Republican Party now shares one of progressivism’s defining aspirations – government industrial policy, with the political class picking winners and losers within, and between, economic sectors.  This always involves the essence of socialism – capital allocation, whereby government overrides market signals about the efficient allocation of scarce resources.  Therefore it inevitably subtracts from economic vitality and job creation....

“When, speaking at the Carrier plant, Vice President-elect Mike Pence said, ‘The free market has been sorting it out and America’s been losing,’ Donald Trump chimed in, ‘Every time, every time.’ When Republican leaders denounce the free market as consistently harmful to Americans, they are repudiating almost everything conservatism has affirmed: Edmund Burke taught that respect for a free society’s spontaneous order would immunize politics from ruinous overreaching – from the hubris of believing that we have the information and power to order society by political willfulness.  In an analogous argument, Friedrich Hayek warned against the ‘fatal conceit’ of believing that wielders of political power can supplant the market’s ‘efficient mechanism for digesting dispersed information.’  The Republican Party is saying goodbye to all that....

“What formerly was called conservatism resisted the permeation of society by politics, and particularly by the sort of unconstrained executive power that has been wielded by the 44th president.  The man who will be the 45th forthrightly and comprehensively repudiates the traditional conservative agenda and, in reversing it, embraces his predecessor’s executive swagger.”

--Michael Goodwin / New York Post...on Trump’s recent Cincinnati speech, which he gave after journeying to the Carrier plant in Indianapolis. 

“First, Trump is not forgiving the national liberal media for its savage bias.  Several times he referred to the press corps in the arena as ‘dishonest,’ and each time the crowd followed his cue with loud, sustained booing.

“In response, Chris Cillizza of the Washington Post, who was tweeting snarky lines all night, said on Twitter: ‘Boo the press if you want.  Then imagine what society would be like without a free press.’

“The self-righteousness is hilarious, and Cillizza’s contempt for Trump and his supporters is unprofessional.  He and others like him abandoned basic journalism standards to engage in partisan warfare, and haven’t stopped.

“They hide behind the Frist Amendment as if, without them, America would be lost.  In fact, democracy prevailed despite them. They violated the public trust and have forfeited any claim to represent anyone except themselves.  The national media is just another special-interest group and should be treated as such.

“Trump did just that by making an important announcement at the rally: that retired Marine Gen. James ‘Mad Dog’ Mattis was his pick to be secretary of defense.

“Never before has such an important decision been released directly to the public without being filtered through the media.  This time, the media got the news the same time the crowd and live TV audience did, and the public got Trump’s boisterous praise for Mattis before the media could interject knee-jerk put downs....

“My second main takeaway is that Trump expanded his theme of ‘America First’ from a slogan into a potential blueprint for a national revival.

“ ‘We hear a lot of talk about how we are becoming a ‘globalized world,’’ he said.  ‘But the relationships that people value in this country are local.

“ ‘There is no global anthem. No global currency.  No certificate of global citizenship.  We pledge allegiance to one flag, and that flag is the American flag.  From now on, it is going to be: America First...Never again will any other interests come before the interest of the American people.’*

“Those are gigantic ideas with enormous policy implications. While isolationism would be a mistake, there is a righteous demand from a broad range of voters that America take better care of the homeland.

“Because presidents can set a national agenda beyond government, the social-wide potential is endless.

“Imagine if the left woke up and realized that America isn’t such an imperialist, hateful, racist nation after all. That could mean more colleges, many of which offer year-abroad study programs as part of their globalism perspective, would also offer students a year to study in an inner city, in the Rust Belt or in Appalachian coal country.

“A gap year also could be spent in America.

“Imagine what those kids could learn about their country and fellow countrymen, and what they might do as a result. Knowing the history of industry, the rise and fall of unions, immigration and migration patterns, housing, education and health issues, the impact of federal regulations and local laws might lead students to decide to help America first before saving the world.

“And think of the possibilities if the working class and home-grown poverty become as cool as African poverty or rain-forest preservation.  If more celebrities and business titans decide that charity begins at home, they could direct their dollars and talent to solving problems in America’s heartland; tech wizards could create jobs in Detroit instead of Asia.

“The election offers many hopes, but nothing is guaranteed.  The only thing certain is that America won the chance to rise again.”

*This topic came up on the golf course, as one of our caddies said exactly what Trump has been espousing.  It’s more about ‘local’ than ‘global.’  I didn’t tell my playing partners, or the caddie, what I was going to be writing about but I had to chuckle under my breath.  The kid was emblematic of how everything played out this election cycle.

On the other side of the media issue....

Kathleen Parker / Washington Post

“Most disturbing is the absence of objections (to Trump’s attacks) from the right. Where are the Republicans when the leader of their party speaks so dismissively toward our principles of freedom and the journalists, many of whom they know personally, who practice in good faith the spirit of the law?

“How long before Trump’s words persuade some off-balanced Second Amendment ‘patriot’ to take out a ‘crooked’ media person, fully expecting to be applauded by the president-elect?

“We the people believe in free speech and a free press not so that we can burn flags but so that we can expose government corruption, protest oppression and express opinions that others may find disagreeable without fear of repercussion.

“As offensive as flag burning is to patriotic Americans, it also can be an act of patriotism, a proposition I offer as argument, not endorsement. If you love your country and fear that it’s being led toward tyranny, you might well burn a flag to demonstrate such concerns.  To the extent that the flag is a symbol of freedom, burning it is also a symbolic act. I would argue that many if not most veterans, including those in my family, fought, suffered and died for the right of all Americans to speak freely.

“Indeed, it is the objectionable expression that is the true test of the strength of our freedoms.  We don’t need a First Amendment to protect get-well cards or love letters. We don’t need it to protect Christmas carols.  But should someone challenge the latter, given its religious content, wouldn’t many of those Ohioans cheering Trump’s demagogic illogic be grateful that free speech protects their right to stroll the streets singing songs of praise?....

“It should be obvious that without the so-called mainstream media, especially newspapers such as the New York Times and The Post, no one would know anything that has any basis in objective fact – and yes there is such a thing.  We will rue the day we forgot that newsgathering is a profession with demanding standards regarding performance and ethics.  Notwithstanding the billion-member global newsroom, it’s nice to have smart, well-educated, experienced reporters and editors to pluck the pearls from the muck.

“Therefore, the highest service the president of the United States could perform would be to actively engage the media in the national interest of nurturing an informed populace, without which a democratic Republic cannot long survive.

“To do otherwise is the first act of the dictator.”

--According to a report by Craig Whitlock and Bob Woodward in the Washington Post, “The Pentagon has buried an internal study that exposed $125 billion in administrative waste in its business operations amid fears Congress would use the findings as an excuse to slash the defense budget, according to interviews and confidential memos obtained by The Washington Post.

“Pentagon leaders had requested the study to help make their enormous back-office bureaucracy more efficient and reinvest any savings in combat power.  But after the project documented far more wasteful spending than expected, senior defense officials moved swiftly to kill it by discrediting and suppressing the results.

“The report, issued in January 2015, identified ‘a clear path’ for the Defense Department to save $125 billion over five years. The plan would not have required layoffs of civil servants or reductions in military personnel.  Instead, it would have streamlined the bureaucracy through attrition and early retirements, curtailed high-priced contractors and made better use of information technology.  The study was produced last year by the Defense Business Board, a federal advisory panel of corporate executives, and consultants from McKinsey and Company.  Based on reams of personnel and cost data, their report revealed for the first time that the Pentagon was spending almost a quarter of its $580 billion budget on overhead and core business operations such as accounting, human resources, logistics and property management.

“The data showed that the Defense Department was paying a staggering number of people – 1,014,000 contractors, civilians and uniformed personnel – to fill back-office jobs far from the front lines.  That workforce supports 1.3 million troops on active duty, the fewest since 1940.

“The cost-cutting study could find a receptive audience with President-elect Donald Trump.”

Some Pentagon leaders were worried that highlighting the report would undermine their assertions austerity had gutted the armed forces, and that Congress and the White House would cut further.

--New Jersey Gov. Chris Christie’s approval rating hit another all-time low...19 percent in a Quinnipiac University Poll.  Quinnipiac polls in 11 states and this is the lowest approval rating for any governor in the more than 20 years they have been conducting surveys.  58 percent give Christie a “D” or “F”.

--Japanese Prime Minister Shinzo Abe will become the first sitting Japanese leader to visit Pearl Harbor, making a symbolic visit with President Obama during a trip to Hawaii on Dec. 26 and 27.

By doing so, Abe is reciprocating a trip made earlier this year by Obama to Hiroshima.

“We must never repeat the horror of war,” Abe said.  “I want to express that determination as we look to the future, and at the same time send a message about the value of U.S.-Japanese reconciliation.”

--Pope Francis, in an interview with a Belgian Catholic weekly, Tertio, said that spreading disinformation was “probably the greatest damage that the media can do,” adding that the media focuses on scandals and spreads fake news to smear politicians, which risks, in his own graphic language, falling prey to coprophilia, or arousal from excrement, and consumers of these media risked coprophagia, or eating excrement.

The pope excused himself for using such graphic terms but he wanted to get his point across, including the use of media to slander political rivals.

I’m going to have my own personal take on the fake news issue next week.

--The Centers for Disease Control and Prevention, in a final report for 2015, revealed life expectancy for Americans was shorter last year than it was the year before.

A person born in the U.S. in 2015 could expect to live 78.8 years, on average.  That’s 0.1 years – or 36.5 days – less than in 2014.

The main reason for the decline is that eight of the nation’s 10 leading causes of death were deadlier in 2015 than in years past: Heart disease, chronic lower respiratory diseases, unintentional injuries, stroke, Alzheimer’s disease, diabetes, kidney disease and suicide all claimed more lives last year.

--Finally, we note the passing of a great American hero…John Glenn, 95, the last of the Mercury Seven astronauts, the first American to orbit the Earth, and also the oldest to go into space in 1998 at age  77.  Hopefully for generations to come, Americans will associate “Godspeed” with him.  I know when I watched  the news following reports of his passing, I couldn’t help but smile seeing those old films from 1962 and hearing those famous words as Friendship Seven blasted off.

---

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

God bless America.

---

Gold $1161
Oil $51.48

Returns for the week 12/5-12/9

Dow Jones  +3.1%  [19756]
S&P 500  +3.1%  [2259]
S&P MidCap  +4.2%
Russell 2000  +5.6%
Nasdaq  +3.6%

Returns for the period 1/1/16-12/9/16

Dow Jones  +13.3%
S&P 500  +10.6%
S&P MidCap  +21.1%
Russell 2000  +22.2%
Nasdaq  +8.7%

Bulls 58.8
Bears 19.6 [Source: Investors Intelligence...Bear reading in danger territory; when Bulls hit 60 that will be another danger signal.]

Have a great week.

Brian Trumbore