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07/08/2017

For the week 7/3-7/7

[Posted 11:30 PM ET, Friday]

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Edition 952

North Korea

I nailed Pyongyang’s ballistic missile test for July 4 long ago.  Yes, they didn’t target Guam directly, but the first-ever ICBM had a range exceeding the distance between North Korea and the island.  No one else called it like I did, and this isn’t the first time I’ve predicted major issues concerning foreign policy, or the markets for that matter.

Most importantly, U.S. intelligence is sorely lacking, as I point out in one of the following posts as well.

WIR, 9/24/2016

North Korea: Pyongyang claimed it successfully tested a high-powered rocket engine for launching satellites, which is of course part of the North’s long-range ballistic missile program.

I’m amazed at how some “experts” in the U.S. continue to say that North Korea won’t have the capability to threaten the U.S. with a nuclear weapon until 2020, but these same folks can’t deny the speed at which Kim Jong Un and his Orcs appear to be progressing towards their goal of a full nuclear arsenal.  Depending on the success of coming ballistic missile tests, I have been arguing a realistic target for Pyongyang would be Guam and our heavy military presence there.  That’s a far shorter route than the U.S. west coast...or Hawaii.  [Guam, from North Korea, is roughly the distance from New York to Las Vegas.]

And I would worry Kim could have the capacity to hit Guam by the end of next year (I’ve said Fourth of July).

Remember, U.S. intelligence missed both India and Pakistan’s first nuclear weapons tests.

Japan’s Defense Minister Tomomi Inada said this week that “the speed of North Korea’s development” meant it was important to “take all possible measures” to ensure Japan’s defenses were sufficient and to reinforce the Japan-U.S. alliance.

WIR, 1/7/2017

I maintain a position I took about six months ago.  That while Kim is out to create some kind of disturbance around Inauguration Day, I believe he could target a U.S. possession (Guam) directly around Fourth of July, especially assuming testing continues over the coming months.

WIR, 5/20/2017...[following another intermediate-range ballistic missile test]

China urged restraint from all parties on the “complex and sensitive” situation on the Korean peninsula.  Japanese Prime Minister Shinzo Abe told reporters the test was “a serious threat to Japan.”

What did I tell you last fall; watch Fourth of July and Guam.  Yes, these rockets are hardly accurate, and we still don’t know whether North Korea has the ability to make their nuclear weapons small enough to be mounted on a rocket of this kind, and it has never tested a long-range ICBM that could reach the U.S.

But I’ve been pounding the table, saying Pyongyang was making far more rapid progress than the “experts” in the field believed, and now we know this is indeed the case.

---

So this is what I’ve been writing and then late Monday (Tuesday, July 4, in North Korea), Pyongyang launched a missile that the U.S. first said was another intermediate-range test.  But upon further review was seen to be an intercontinental ballistic missile. 

In a TV broadcast Monday, North Korean officials proclaimed that the country had achieved an ICBM capability that would safeguard the government from attacks by the United States and other adversaries.  The missile was dubbed the Hwasong-14.  Now it’s about extending its range and reliability, as well as tipping it with a nuke.

 “This is a big deal: It’s an ICBM, not a ‘kind of ICBM,’” said Jeffrey Lewis, director of the East Asia program at the Center for Nonproliferation Studies.  “And there’s no reason to think that this is going to be the maximum range.”

The U.S. tracked the missile’s path for 37 minutes as it traveled 1,700 miles in the air.  A flatter trajectory might give it a range of almost 4,200 miles – a big improvement on previous tests and a range that would put Alaska within reach.

[Any missile that exceeds a range of 3,400 miles is considered an ICBM.]

In Thursday’s press conference in Warsaw, Trump spoke of a “very severe” response if North Korea escalated its military threat, but he did not go into detail.

Earlier, the test was confirmed to be an ICBM by U.S. Secretary of State Rex Tillerson, who said it marked “a new escalation of the threat to the world.”

Tillerson called Pyongyang’s government “a dangerous regime” and said the United States would seek “stronger measures” at the U.N. Security Council to hold the North Koreans accountable for the latest test.

The Pentagon stated it was prepared to defend the U.S. and its allies and to use all capabilities necessary against the growing North Korea threat.

U.N. Ambassador Nikki Haley chided Moscow and Beijing over their opposition to a Security Council resolution condemning North Korea.  She also said Pyongyang was “quickly closing off the possibility of a diplomatic solution” and suggested the U.S. would continue to consider military action if necessary.

“One of our capabilities lies with our considerable military forces,” Haley said during a Security Council meeting.  “We will use them if we must, but we prefer not to have to go in that direction.”

President Trump expressed his frustration with China, tweeting: “Trade between China and North Korea grew almost 40% in the first quarter. So much for China working with us – but we had to give it a try!”  [Chinese trade data had trade between the two growing 37.4% despite its claim it is complying with U.N. sanctions and stopped buying North Korean coal....I didn’t buy the coal bit for a second.]

North Korea’s Academy of Defense Science claimed the test marked the “final step” in creating a “confident and powerful nuclear state that can strike anywhere on Earth.”

Charles Krauthammer / Washington Post

“Across 25 years and five administrations, we have kicked the North Korean can down the road.  We are now out of road.

“On July 4, North Korea tested an intercontinental ballistic missile apparently capable of hitting the United States. As yet, only Alaska.  Soon, every American city.

“Moreover, Pyongyang claims to have already fitted miniaturized nuclear warheads on intermediate-range missiles.  Soon, on ICBMs.

“Secretary of State Rex Tillerson’s initial reaction to this game changer was not encouraging.  ‘Global action is required to stop a global threat,’ he declared.

“This, in diplo-speak, is a cry for (multilateral) help. Alas, there will be none.  Because, while this is indeed a global threat, there is no such thing as global interests. There are individual national interests and they diverge.  In this case, radically.

“Take Russia and China.  If there were to be external pressure on North Korea, it would come from them. Will it?  On Tuesday, they issued a joint statement proposing a deal: North Korea freezes nuclear and missile testing in return for America abandoning large-scale joint exercises with South Korea.

“This is a total non-starter. The exercises have been the backbone of the U.S.-South Korean alliance for half a century. Abandonment would signal the end of an enduring relationship that stabilizes the region and guarantees South Korean independence. In exchange for what?

“A testing freeze? The offer doesn’t even pretend to dismantle North Korea’s nuclear program, which has to be our minimal objective.  Moreover, we’ve negotiated multiple freezes over the years with Pyongyang.  It has violated every one.

“The fact that Russia and China would, amid a burning crisis, propose such a dead-on-arrival proposal demonstrates that their real interest is not denuclearization. Their real interest is cutting America down to size by breaking our South Korean alliance and weakening our influence in the Pacific Rim.

“These are going to be our partners in solving the crisis?....

“How many times must we be taught that Beijing does not share our view of denuclearizing North Korea?  It prefers a divided peninsula, i.e., sustaining its client state as a guarantee against a unified Korea (possibly nuclear) allied with the West and sitting on its border.

“Nukes assure regime survival.  That’s why the Kims have so single-mindedly pursued them.  The lessons are clear.  Saddam Hussein, no nukes: hanged.  Moammar Gaddafi, gave up his nuclear program: killed by his own people.  The Kim dynasty, possessing an arsenal of 10 to 16 bombs: untouched, soon untouchable.

“What are our choices?  Trump has threatened that if China doesn’t help we’ll have to go it alone. If so, the choice is binary: acquiescence or war.

“War is almost unthinkable, given the proximity of the Demilitarized Zone to the 10 million people of Seoul.  A mere conventional war would be devastating. And could rapidly go nuclear.

“Acquiescence is not unthinkable.  After all, we did it when China went nuclear under Mao Zedong, whose regime promptly went insane under the Cultural Revolution....

“If we want to decisively alter the strategic balance, we could return U.S. tactical nukes (withdrawn in 1991) to South Korea.  Or we could encourage Japan to build a nuclear deterrent of its own.  Nothing would get more quick attention from the Chinese. They would face a radically new strategic dilemma: Is preserving North Korea worth a nuclear Japan?

“We do have powerful alternatives. But each is dangerous and highly unpredictable.  Which is why the most likely ultimate outcome, by far, is acquiescence.”

[Check out my current edition of “Hot Spots,” posted 12 hours before the missile test.  Acquiescence, or “acceptance,” is indeed the route we are likely to take.]

Korea Tidbits....

--South Korean President Moon Jae-in said he’s willing to meet Kim Jong Un.  Moon also proposed the two Koreas resume reunions of families separated by war, stop hostile activities along their heavily fortified border and cooperate on the 2018 Winter Olympics to be held in Pyeongchang, South Korea.  [What a mess the Games could be. They also may not come off as planned.]

--Russia blocked a U.N. condemnation of North Korea on Thursday at the Security Council because the U.S.-drafted statement referred to it as an intercontinental ballistic missile (ICBM), diplomats said.  Moscow says it was an intermediate-range missile. Security Council statements have to be signed off by all 15 members. 

Earlier, Foreign Minister Sergei Lavrov said, “The task of the denuclearization of the entire Korean peninsula cannot and should not be used as a disguise for attempts to change North Korea’s regime.”

After a meeting at the Kremlin between Presidents Putin and China’s Xi, the two issued a statement declaring the United States should immediately halt its deployment of the THAAD anti-missile system to South Korea.  [Of course they would.]

--Kim Jong Un taunted the United States Wednesday, saying the ICBM test was a “gift” to “American bastards” on their independence day.

The state-run Korea Central News Agency (KCNA) cited Mr. Kim as saying, “we should send (the U.S.) gifts once in a while to help break their boredom.”

--The Pentagon claimed it was capable of defending the United States against the “nascent” threat posed by North Korea.  The Pentagon also conceded the ICBM was a new type of missile that “we’ve not seen before.”  [There are varying reports as to whether the missile was on display at North Korea’s recent massive military parade.]

But just how confident can the Pentagon be?  A special report on Friday by the Los Angeles Times’ David Willman concluded the supposedly successful test of our missile defense system on May 30, that we were told was conducted under “very realistic” conditions, faithfully simulating an attack by North Korea, hardly was, if you are to believe the Times’ investigation.

David Willman: “In key aspects, however, the carefully scripted test posed much less of a challenge for U.S. missile defenses than would an actual attack....

“As a result, the successful intercept provides little if any confidence that the troubled Ground-based Midcourse Defense System, or GMD, would be able to thwart a sneak attack by North Korea, according to missile defense experts familiar with details of the test.”

Among the many issues concerning the conditions of the test, “a giant, ship-borne (radar) whose home port is Pearl Harbor, was moved to a particular spot in the Pacific specifically for the test, U.S. officials said.

“The result was that the radars had excellent lines of sight to follow the target beginning shortly after launch – an advantage U.S. forces likely would not have during an actual attack.”

--South Korea’s defense minister said Wednesday he sees a high possibility of North Korea conducting a sixth nuclear test in the wake of the ICBM launch.

--Is North Korea far richer than we thought?  Back in 2012, a South Korean research institute valued North Korea’s mineral wealth as high as $10 trillion, The Economist then reported.

This week there were reports that the untapped iron, gold, magnesite, zinc, copper, limestone, molybdenum and graphite were worth at least $6 trillion.  But taking advantage of this hidden wealth is a different matter.

China...and Hong Kong

U.S. bombers flew over the disputed South China Sea a day ahead of joint drills with Japanese fighter jets over the East China Sea, the U.S. military announced on Friday as Washington stepped up pressure on Beijing over North Korea’s intransigence.

In another deployment, the U.S. 7th Fleet along with the aircraft carrier USS Nimitz began an 11-day exercise with Indian and Japanese forces in the Bay of Bengal today.

Chinese foreign ministry spokesman Geng Shuang said on Friday that China opposed the use of freedom of overflight as an excuse to harm its security, in remarks given in response to the U.S. bombers.

There was another big issue last weekend.  President Xi Jinping, in his first trip to Hong Kong, warned the citizens against “impermissible” challenges to Beijing’s authority over Hong Kong.

Speaking Saturday on the 20th anniversary of its return to China, Xi warned opponents in Hong Kong not to cross a “red line,” as Xi recalled how Britain’s victory in the First Opium War of 1839-42 – when Hong Kong Island was ceded to the British Empire – set in motion decades of humiliation for China.

“Any attempt to endanger China’s sovereignty and security, challenge the power of the central government...or use Hong Kong to carry out infiltration and sabotage against the mainland is an act that crosses the red line and is absolutely impermissible,” Xi said.

[Earlier Xi said that the joint declaration signed by Margaret Thatcher in 1984 that supposedly guarantees Hong Kong’s unique rights until 2047, had “no practical significance.”  Britain replied it was “committed to monitoring its implementation closely.”]

“After the Opium War, China has been repeatedly defeated by countries which were smaller and less populous,” Xi said. Xi also said Hong Kong needed to do more to boost “patriotic education,” which has been opposed by locals who fear losing their identity.  [Daily Telegraph]

Trump World...Europe, G20, Putin and ObamaCare

Thursday in Warsaw, Trump defended Western civilization in a speech to a highly-supportive crowd (bussed in in part by the right-wing leadership), while earlier in a rare press conference, Trump blasted the media (especially CNN for going after him for his ‘lighthearted’ tweet depicting him body-slamming a figure whose head was replaced by the CNN logo) and our intelligence agencies, as well as Barack Obama.

Pressed about Russian interference in the American election, Trump said that “nobody really knows” if other countries might have been involved

In the speech, the president said “radical Islamic terrorism” threatened “our civilization and our way of life.”

Trump said nothing about Poland’s right-wing government and its crackdown on judges, the press and opposition parties, which deeply concerns some EU leaders.

And what has the local Jewish community in Warsaw upset is Trump skipping a museum devoted to a 1943 uprising by Jews who were forced into a ghetto, the “Warsaw Ghetto Uprising.”  Daughter Ivanka, Jewish, went instead.  [An Israeli publication, Haaretz, blasted Trump.  “In his speech in Warsaw, Trump mentioned Polish suffering and the Polish victims of the nation’s bloody history but elegantly avoided the unpleasant stories of the Jewish victims of those same Polish victims.  For instance, he noted the Katyn Forest massacre, where the Soviets murdered tens of thousands of Poles in 1940, but forgot to mention the massacre in Jedwabne (1941) and the pogrom in Kielce (1946), when Poles murdered their Jewish neighbors under the Nazi and Soviet occupations, respectively.  Trump didn’t bother to refer to them in a single word.”]

Trump praised Poland, a NATO ally, “as an example for others who seek freedom, and who wish to summon the courage and the will to defend our civilization.”

Trump also talked in life and death terms.

“The fundamental question of our time is whether the West has the will to survive.  Do we have the confidence in our values to defend them at any cost?  Do we have enough respect for our citizens to protect our borders?  Do we have the desire and the courage to preserve our civilization in the face of those who would subvert and destroy it?”

And Trump denounced “the steady creep of government bureaucracy that drains the vitality and wealth of the people.”

But perhaps most importantly, unlike in his first visit to Europe as president in May when he conspicuously failed to reaffirm U.S. commitment to NATO’s mutual defense clause, Article 5, Trump said some of the following.

“To those who would criticize our tough stance (Ed. that member states pay their full and fair share of financial obligations), I would point out that the U.S. has demonstrated not merely with words but with its actions that we stand firmly behind Article 5, the mutual defense commitment.  Words are easy but actions are what matters.  And for its own protection, Europe must do more.  Europe must demonstrate that it believes in its future by investing its money to secure that future.”

Editorial / Wall Street Journal

“(Mr. Trump’s) remarks were directed at the people of the world. Six months into his first term of office, Mr. Trump finally offered the core of what could become a governing philosophy.  It is a determined and affirmative defense of the Western tradition.

“To be sure, Mr. Trump’s speech also contained several pointed and welcome foreign-policy statements. He assured Poland it would not be held hostage to a single supplier of energy, meaning Russia. He exhorted Russia to stop destabilizing Ukraine ‘and elsewhere,’ to stop supporting Syria and Iran and ‘instead join the community of responsible nations.’  He explicitly committed to NATO’s Article 5 on mutual defense.

“But – and this shocked Washington – the speech aimed higher.  Like the best presidential speeches, it contained affirmations of ideas and principles and related them to the current political moment.  ‘Americans, Poles and the nations of Europe value individual freedom and sovereignty,’ he said. This was more than a speech, though. It was an argument.  One might even call it an apologia for the West....

“During and after the war, Poland survived threats to its existence from Nazi Germany and the Soviet Union. Mr. Trump believes that the West today confronts threats of a different sort, threats both physical and cultural.  ‘This continent,’ said Mr. Trump, ‘no longer confronts the specter of communism. But today we’re in the West, and we have to say there are dire threats to our security and to our ways of life.’

“He identified the most immediate security threat as an ‘oppressive ideology.’  He was talking about radical Islam, but it is worth noting that he never mentioned radical Islam or Islamic State.  Instead, he described the recent commitment by Saudi Arabia and other Muslim nations to combat an ideological menace that threatens the world with terrorism. He compared this idea of mutual defense to the alliance of free nations that defeated Nazism and communism.

“But the speech’s most provocative argument was about our way of life. It came when he described how a million Poles stood with Pope John Paul II in Victory Square in 1979 to resist Soviet rule by chanting, ‘We want God!’

“ ‘With that powerful declaration of who you are,’ Mr. Trump said, ‘you came to understand what to do and how to live.’

“This is a warning to the West and a call to action.  By remembering the Poles’ invocation of God, Mr. Trump is clearly aligning himself with the same warning issued to Europe some years ago by Cardinal Joseph Ratzinger, who became Pope Benedict.

“Cardinal Ratzinger’s argument was that Europe needed to recognize that its turn toward aggressive secularism posed a real threat to its survival....

“Mr. Trump is taking a clear stand against the kind of gauzy globalism and vague multiculturalism represented by the worldview of, say, Barack Obama and most contemporary Western intellectuals, who are willing, even eager, to concede the argument to critics of the West’s traditions.

“This is the speech Mr. Trump should have given to introduce himself to the world at his Inauguration.  In place of that speech’s resentments, his Warsaw talk offered a better form of nationalism.  It is a nationalism rooted in values and beliefs – the rule of law, freedom of expression, religious faith and freedom from oppressive government – that let Europe and then America rise to prominence.  This, Mr. Trump is saying, is worth whatever it takes to preserve and protect.

“It was an important and, we hope, a defining speech – for the Trump Presidency and for Donald Trump himself.”

Editorial / Washington Post

“ ‘Do we have the confidence in our values to defend them at any cost?’ President Trump asked during his speech in Warsaw on Thursday. That’s an important question, and so is this: Which values is he summoning us to defend?

“There were encouraging elements in his address suggesting that he was referring to the universal values that America celebrated earlier this week, on the anniversary of its declaration of independence.  Repeatedly, Mr. Trump invoked the parallel Polish and American devotion to freedom.  He spoke of ‘America’s commitment to your security and your place in a strong and democratic Europe.’

“Unlike during his first trip to Europe as president, he embraced NATO’s Article 5, which binds the United States and its allies to treat an attack on one as an attack on all....

“Perhaps what gives the most doubt is that he celebrated ‘the right to free speech and free expression’ without mentioning that the government welcoming him has worked worryingly to narrow those freedoms, along with the independence of its judiciary – and without mentioning that, at home, Mr. Trump himself has been far from a tribune of the free press.  ‘Above all,’ he said, ‘we value the dignity of every human life, protect the rights of every person and share the hope of every soul to live in freedom.’  Many people will cheer those words – and will watch to see how his administration lives up to them in its interactions with Saudi Arabia and China, Russia and Egypt, and at home.”

So then Trump and Putin held their first meeting, with Secretary of State Rex Tillerson and Foreign Minister Sergei Lavrov in attendance (along with interpreters).

It will take a while for the truth to come out (if ever), but what we are being told for now is that Trump confronted Putin about election meddling right at the start of what would turn out to be a 2 hour, 15 minute discussion when it was originally scheduled for 30 minutes.

Tillerson, who gave the U.S. ‘read’ after, said Trump raised “the concerns of the American people regarding Russian interference in the 2016 election.”

Putin denied Russian involvement, Tillerson said, but Trump “pressed” him on the matter “on more than one occasion.”

Trump and Putin then agreed to explore a “framework” around which they can work to better understand these types of cyberthreats, according to Tillerson.

“The two leaders agreed that this is a substantial hindrance on the ability of us to move Russian-U.S. relationships forward and agreed to exchange further work regarding commitments of noninterference in the affairs of the United States and our democratic process as well as those of other countries.  So more work to be done in that regard.”

I don’t even want to continue.  Trump has an attention span of about 30 seconds, and he was prepped with just a 3-page outline, supposedly, of one liners on policy, and we’re supposed to believe he was actually engaged with Putin for over 2 hours?  I shudder to think what Trump was saying during this time, given his failure to say anything bad about Russia or its leader for two years now.

Tillerson at least admitted that Putin’s insistence that Russia did not interfere would leave the two countries at an impasse for now.

Trump and Putin did apparently reach an agreement on a ceasefire in the southwest corner of Syria, but you know my attitude here.  We had our chance in this country back in 2012, Barack Obama blew it royally then, and the world will continue to pay a price for decades to come as a result.  Anything supposed success in Syria from here on is underwhelming, save for the fact, as discussed below, Iran won.

For his part, Foreign Minister Lavrov, in his comments to the press after, said President Trump “accepts” Putin’s denial that Russia meddled in the elections.

“President Trump has said that he has heard clear declarations from Mr. Putin that Russian leadership and Russian government have not interfered with in the elections and he accepts the things Mr. Putin has said,” Lavrov said.

Finally, ahead of his meeting with Donald Trump on Saturday, Chinese President Xi took a swipe at the U.S. for retreating from globalization.

“Major developed countries have significantly backtracked positions on trade, climate change and other issues,” Xi said.

ObamaCare

Conservatives in the Republican Party are at odds over healthcare reform, with Sen. Ted Cruz (R-Tex.) reemerging as an antagonist of Senate Majority Leader Mitch McConnell (R-Ky.), with Cruz and his allies wanting a proposal that would allow insurance companies the freedom to sell any kinds of health plans they want as long as they also sell at least one plan that qualifies under the requirements of the Affordable Care Act.

The week had started with Senate Republicans still working to secure 50 votes for a repeal bill. Another growing debate within was whether to keep a tax on high earners that was created to help pay for the legislation; the 3.8% tax on net investment income for individuals making more than $250,000 a year that Democrats found rather easy to slam.

Separately, McConnell told GOP colleagues that the current bill would not touch pre-existing conditions.

But few expect a vote next week.  As I’ve been writing for awhile now, though, it’s really all about Medicaid.

Thomas G. Donlan / Barron’s

“There is an important thing to be accomplished with the debate over the Republican health-insurance bills: It should awaken more people to the long-term problems of Medicaid.  Most of them have been ignored for decades, but especially since the Democrats were inventing the Patient Protection and Affordable Care Act, or ObamaCare, in 2009 and 2010.

“Lawmakers have been in such deep denial that they have piled more people, with their fiscal and medical burdens, onto the program.

“With its coverage mandates on individuals and employers, its sweeping definition of minimum standards for health-insurance benefits, and its subsidies financed by a wide variety of small tax increases, ObamaCare provided something that felt like private insurance for individuals.  It gave the semblance of self-respect to a welfare program.

“Unfortunately for those who need to purchase insurance as an individual rather than as a member of an employer-sponsored group, the ObamaCare mandates, and the penalties for ignoring them, have been too weak to force younger, healthier people to support the new insurance pools.

“ObamaCare as enacted couldn’t cover the true cost of health care for older people, people with pre-existing conditions, and others who are likely to need insurance coverage for expensive care. The result is the death spiral that Republicans deplore, Democrats deny, and neither side knows how to cure.

“When the new health-insurance bill constructed by Majority Leader Mitch McConnell reached the Senate floor the other day, Democrats harshly criticized it on several grounds, but the most important citation came from Minority Leader Chuck Schumer (D-N.Y.).  He made a point rarely acknowledged by members of either party:

“ ‘Medicaid isn’t just a health-insurance program for those struggling in poverty, though that is important.  Medicaid is increasingly a middle-class program.  Medicaid is how many Americans are able to access opioid-abuse treatment.  Medicaid foots the bill for over two-thirds of all Americans living in nursing homes.’

“Taxpayers should wonder how a poverty program has become a middle-class program. To answer plainly, Medicaid has two purposes: There’s the intentional program of medical care for impoverished Americans.  And there’s an unintended program of payments for the undeserving not-poor, who hide their money and pretend to be destitute so the government will pay for their nursing-home care.  The second program starves the first one of resources....

“Medicaid is in long-term trouble, anyway.  About 74.5 million Americans are enrolled in Medicaid, including 36 million children.  An estimated eight million people could enroll but haven’t.  Presumably, they’re still healthy and will enroll when they need to.  That’s more than 20% of all Americans.  Medicaid beneficiaries include 39% of all children, 12% of all adults, 64% of all nursing-home residents, 30% of all adults with disabilities, and 60% of all children with disabilities.

“The Medicaid program is costing the federal government about $389 billion in the current fiscal year.  Total spending by federal and state governments in 2016 was $553 billion, of which $118 billion was on long-term care – home health care and personal assistance, as well as nursing homes.

“In 10 years, as surviving members of the baby-boom generation age into their 80s, the federal expenditure, including Affordable Care Act coverage, is projected to be $650 billion, rising from there after 2027.

“If a Republican health-care bill is enacted... The Congressional Budget Office estimates that in 2026, federal spending on Medicaid will still reach about $470 billion with repeal of Medicaid expansion and capping the growth rate of spending for the remaining beneficiaries.

“This is a problem that some Congress will have to face someday.  If not now, when?”

Dan Balz / Washington Post

“(President Trump) appears to have no commitment to an explicit strategy for getting a health-care bill to his desk, only a desire for victory and limited patience for the legislative process. He also has no fixed views on the substance of health-care reform, having made contradictory statements about the topic throughout his campaign and since....

“Presidential leadership on these big domestic initiatives generally requires a combination of two things.  The president is expected to act as the leading salesperson, making the public case while legislators make the sausage.  Behind the scenes, a president works to bring along the last wavering lawmakers, calling, cajoling and applying the pressure.  Sometimes it doesn’t work, but those responsibilities are part of the job description of the presidency.

“Former president Barack Obama spent months publicly advocating in favor of the Affordable Care Act and the value of expanded coverage and trying to slow the growth of medical inflation.  Despite his limited enthusiasm for interacting with Congress, he also spent hours in private conversations with legislators, including some Republicans.  He never won GOP support, nor was his measure publicly popular while he was in office, but not for lack of effort.

“Through the first five months of his presidency, Trump has yet to deliver a single comprehensive speech on the topic or subjected himself to extensive questioning from reporters that would give him a forum to make his case.  Nor is there evidence that the president has proven effective with many individual lawmakers.”

Wall Street

Friday’s jobs report for June was solid, 222,000, solidly ahead of the Street’s forecast for 170,000.  Plus revisions to April and May added another 47,000 and the bottom line is the 3-month average is up to 194,000, with the average for the first six months of 2017 at a respectable 180,000, but essentially the same as all of 2016.

The unemployment rate ticked up to 4.4% from 4.3%, as more people reentered the labor force, a good sign, while the underemployment rate, U6, rose to 8.6% from 8.4%.

But average hourly earnings gained only 0.2% for June and are up 2.5% year-over-year (just 2% on a 3-month annualized basis). As I’ve noted before, in a solid economic expansion, wages should be growing at 3.5%+.

Separately, the ISM data on manufacturing and services came in at 57.8 and 57.4, respectively (50 being the dividing line between growth and contraction). Regarding the former, the highest since August 2014.  [May construction spending was unchanged, while May factory orders fell 0.8%.]

So what will the Federal Reserve do with this data? Well, for starters they don’t have to do anything for a while, the next realistic time for them to consider raising rates being September 19-20.  [They won’t do anything at the July 25-26 confab, where they just sit around drinking iced tea and eating shrimp at this mid-summer deal.]

Minutes from the June meeting released Wednesday revealed there is still a big debate among board members over how soon the Fed should begin to reduce its securities portfolio, or balance sheet.  Officials seem divided about whether to start the reduction in September or wait until December.

They also disagree over the impact of balance sheet maneuvering and whether it acts as a substitute for rate increases.

The minutes also acknowledge inflation is “surprisingly low,” but that most officials continue to expect a return to normal.

Europe and Asia

There was a slew of economic data this week and the eurozone continued to show signs of solid growth with the EA19 composite reading for June 56.3 vs. 56.8 in May, marking the best quarter in six years.  Manufacturing was 57.4 (57.0 in May), while the services reading was 55.4 vs. 56.3. [IHS Markit]

Individually for June....

Germany 59.6 mfg., 74-mo-high, 54.0 services
France 54.8 mfg., 56.9 services
Italy 55.2 mfg., 53.6 services
Spain 54.7 mfg., 58.3 services
Greece 50.5 mfg., 37-mo. high, above 50 for first time since Aug. 2016
Netherlands 58.6 mfg., 74-mo. high

[In non-euro U.K., the manufacturing PMI fell to 54.3 from 56.3 in May, a sharp decline, 53.4 for services last month vs. 53.8.  What is clear is that business confidence is slipping: by one measure to the weakest level since Dec. 2011 due to uncertainties created by Brexit.  New car sales fell last month for the third month in a row, -4.8%.  But June retail sales were surprisingly strong.]

In other EA19 news, the unemployment rate was 9.3% in May vs. 10.2% a year earlier. [Eurostats]

Germany is 3.9%, France 9.6%, Spain 17.7% (but a big come down from a peak of 25%+), Italy 11.3%, Ireland 6.4% and Greece 22.5% (March).

The youth unemployment rate is still high in Spain, 38.6% but vs. 46.7% a year earlier, Italy, 37.0%, and Greece, 46.6% (March).

Retail trade in the eurozone rose 0.4% in May over April, +2.6% year-over-year.  [Eurostats]

Chris Williamson, chief economist, IHS Markt

“Eurozone manufacturing growth gained further momentum in June, rounding off the best quarter for just over six years.  At current levels, the PMI is indicative of factory output growing at an annual rate of some 5%, which in turn indicates the goods-producing sector will have made a strong positive contribution to second quarter economic growth.

“Exports continue to play a major role in driving the expansion, increasing in recent months at rates not seen for six years, buoyed in part by the weak euro. But it’s also clear that factories are benefiting from ongoing strong demand from domestic customers.

“Input cost inflation has eased markedly since earlier in the year but remains elevated, causing manufacturers to hike their selling prices sharply again.  Increasingly widespread supply chain shortages mean pricing power is being regained, hinting at some upward pressures to core inflation.

“There’s no sign of the impressive performance ending any time soon.”

So just as in the case of the U.S. Federal Reserve and its next policy move, what does the European Central Bank do with all the solid data?  Minutes from their June policy meeting, released this week, showed that senior officials were warning of moving too fast to begin to normalize monetary policy because inflation is still non-existent.

The minutes show that ECB members thought “it was necessary to avoid signals that could trigger a premature tightening of financial conditions” that might undo recent progress on inflation.

But the euro bond market has been roiled the past two weeks after president Mario Draghi’s bullish comments on the central bank’s fight against deflation, even if he tried to qualify them and walk back some of the optimism contained therein.  The fact is inflation remains below their target and wage pressures are non-existent.  [Eurozone inflation is at 1.3% annualized and is only expected to rise to 1.6% in 2019.  Any strength in the euro exerts downward pressure.]

That said, the German 10-yr. Bund saw its yield rise to 0.57% from 0.25% two weeks ago.  France’s 10-year yield has soared from 0.60% to 0.93% over the same period.

So is this it?  The end of central bank free money around the world?  Is the global bond rout now on?  Many leading fixed-income and hedge fund types now believe so (though maybe not a rout).  For example, the consensus is clearly that the yield on the U.S. 10-year won’t hit 2.00% again.

Lastly, the European Union and Japan formally agreed to a free-trade deal, at least the outline of one, after four years of negotiating. This is big.

Two of the most important sectors being negotiated over are Japanese cars and EU farming and getting such goods into the other.

Donald Tusk, president of the European Council, said the agreement showed the EU’s commitment to world trade.

Editorial / Wall Street Journal

“Japanese and European Union leaders on Thursday announced an agreement in principle to remove tariffs on 99% of goods as well as other barriers to trade.  While it will be phased in over many years and some obstacles remain, the deal overcomes Japan’s reluctance to open its market to food products as well as Europe’s resistance to a free market for Japanese cars.  Some have dubbed the deal ‘cars for cheese,’ but its effects will be more far-reaching than bilateral trade.

“In particular it contains a message for Donald Trump, who pulled the U.S. out of the Trans-Pacific Partnership deal with Japan and 10 other Pacific nations and has halted negotiations with Europe on the Transatlantic Trade and Investment Partnership.  Trade will go on around the world whether or not the U.S. decides to participate. Had the U.S. remained in the Pacific pact, American farmers and other exporters could have enjoyed the increased sales to Japan that are now on offer to Europeans.

“Meanwhile, the Trump Administration is considering punitive tariffs on imported steel and other products under an obscure provision of a 1962 law.  This could lead to tit-for-tat sanctions against American exporters, tie up the U.S. in cases at the World Trade Organization and make it more difficult to secure the opening of foreign markets to American goods.

“If the U.S. continues on this protectionist path while the rest of the world pursues far-reaching trade deals, the effects are predictable.  American exporters will have to pay more for their materials and face higher barriers than their competitors. Consumers will pay higher prices.  This will cost American jobs and reduce incomes....

“If Washington cedes trade leadership, it risks being left behind as other countries set the rules and expand trade among themselves.

“The irony is that the productivity of American manufacturers leads the world, and employment is rebounding.  At a moment when U.S. firms could grow their exports, the Trump Administration is burning bridges. The EU-Japan deal is a warning that others will take up trade leadership and capture the prosperity that Americans should enjoy.”

Eurobits....

--On the Brexit front...the EU’s chief negotiator, Michel Barnier, said Britain has yet to “face the facts” on the negative consequences of their move to leave the EU and that trade talks will not start without progress on a financial settlement, strongly hinting little is going to get done before autumn.  Barnier said he also wants progress on the issue of citizen rights as well as Northern Ireland.

Barnier said, “I have heard some people in the U.K. argue that one can leave the single market and keep all of its benefits – that is not possible.

“I have heard some people in the U.K. argue that one can leave the single market and build a customs union to achieve ‘frictionless trade’ – that is not possible.”

Meanwhile, U.K. Labour Party leader Jeremy Corbyn said he will meet with Michel Barnier next week in just an awful move for both Prime Minister May as well as the outlook for the negotiations overall because it shows the EU even further how split Britain is, its instability, and how it’s not negotiating from any kind of position of strength.

Corbyn said he wants to “outline what our issues are,” and to tell Barnier he stands ready for a snap election that could make him the next prime minister.

Corbyn is convinced he can exploit the weakness of the Conservatives and emerge on top on his call to end austerity. This is a really dirty move at this time.

--Italy announced it reached agreement with the European Union to approve 5.4bn euros ($6.1 billion) in aid for Banca Monte dei Paschi di Siena, Europe’s oldest, which, coupled with the prior week’s commitments to wind down Banca Popolare di Vicenza and Veneto Banca, removes the major sources of turmoil in the country’s financial system...for now.

Monte Paschi is being recapitalized, with shareholders and junior creditors contributing 4.3 billion euros to minimize the costs to taxpayers.  Once the operation is complete, Italy will hold 70 percent of the bank, with the government looking to exit in 2021.

But as part of the rescue plan, the lender is reducing headcount 5,500 and closing 600 branches, while disposing of some $30bn in bad loans by 2021.

--French far-left leader Jean-Luc Melenchon called for a nationwide day of protest next week, July 12, against government plans for spending cuts and pro-business tax and labor reforms.  This is exactly what I’ve said you’ll see increasing levels of through the fall.  It will be interesting if Melenchon’s call is heeded and if protests are peaceful. 

Melenchon said that President Emmanuel Macron was getting drunk on power and was trying to undo decades of progress on crucial workers’ rights.

“He thinks he can fix all the problems by force.  He is wrong.”

--The two main political parties in Northern Ireland failed to reach a new power-sharing agreement, the government having collapsed in January.  Irish Catholic nationalist Sinn Fein and the Protestant pro-British Democratic Unionist Party (DUP) have been in talks since a March election.  Each is blaming the other for the ongoing impasse.

Sinn Fein leader Gerry Adams said, “The Sinn Fein electorate will not consent to be governed by DUP on DUP terms.”

The fear is that there could be a return to violence.

--In Germany, an election poll for the big vote in September has Angela Merkel’s coalition receiving 39% to just 24% for the Social Democrats.  It’s in the bag for the chancellor.

--Lastly, there is a serious immigration rift between Austria and Italy, with the Austrians putting 750 troops on the border to keep the latest wave of immigrants piling into Italy, largely from North Africa, from moving into Austria.

The European Union approved an extra 35 million euro in aid to Italy but this is a pittance compared to the estimate of 4bn euro that the Italian government has said it needs to handle the renewed crush.

Italy has rescued and brought to its shore over 85,000 migrants this year, compared with 71,000 over the same period of time last year, according to the International Organization for Migration.

According to the United Nations’ refugee agency, just 30% of the people arriving in Italy are eligible for asylum, the rest being so-called economic migrants who are supposed to be sent back home.

There are allegations nongovernmental organizations (NGOs) are colluding with migrant smugglers to facilitate their journey to Europe.  For example, the UN says, 41% of the people rescued at sea have been rescued by private ships operated by NGOs.

Well, you know my stance. I fully respect Austria’s right, and that of its Eastern Europe brethren, to do all they can to severely limit migration until this cycle runs its course (and this is all dependent largely on some kind of stability in Syria and Libya in particular).

Turning to Asia....

China’s official manufacturing PMI for June was 51.7 vs. 51.2 in May, with services at 54.9 vs. 54.5, so continued stability and slow growth.

The Caixin Markit private index, though, was 50.4 on the manufacturing side vs. 49.6 in May, services at 51.1 vs. 52.8.  For this last one, the second-lowest reading in over a year.

China’s ongoing deleveraging efforts will impact growth, which was at 6.9% in the first quarter, but is expected to be around 6.5% in the second, with the government setting a target of 6.5% for all of 2017.

In Japan, the June manufacturing PMI was 52.4 vs. 53.1 in May, down but still respectable, while the services figure was at 53.3 vs. 53.0.

A key wage component in Japan, ‘regular pay,’ which accounts for the bulk of total pay and determines base salaries, jumped 0.9% in May from a year earlier, the biggest rise since March 2000, according to the labor ministry.

Elsewhere in the region...India’s manufacturing PMI was 50.9 in June (services 53.1), South Korea’s 50.1, and Taiwan’s 53.3.

I do have to note that despite the increased tension on the Korean peninsula, South Korea’s exports posted double-digit growth for a sixth month in a row in June, up 13.7%, while imports rose 18%.  [Exports to the U.S. slipped 1.1% year-on-year, while they were up 5.1% to China and up 21.1% to the EU.]  The main components of the export surge have been semiconductors, shipbuilding and petrochemical goods, with exports of semiconductors soaring 53% yoy.

Back to Japan, the other day I wrote of their demographic crisis and a shrinking population.  This week, the Internal Affairs Ministry said the number of Japanese fell 308,084 in 2016, a record decline, though there was a rise of 148,959 foreign residents owing to students and guest workers.

So in the two figures you see the quandary. Will Japan allow immigration to sustain overall population growth or accept a decline to preserve ethnic purity.

Street Bytes

--The three major indexes registered fractional gains on the holiday-shortened week, with the Dow Jones up 0.3% to 21414, while the S&P 500 edged up 0.1% and Nasdaq tacked on 0.2%.

It’s all about earnings the next few weeks.  Focus in on revenues, which have been strong.

--U.S. Treasury Yields

6-mo. 1.13%  2-yr. 1.40%  10-yr. 2.39%  30-yr. 2.93%

While the yield on the 10-year has been rising off its 2.14% low for the year in just the last two weeks, 2.39% is still below the 12/31/16  close of 2.44%.  Some bond mavens are targeting 2.60% as a key level.  Break through that and it’s on to 3.00%.

--The U.S. energy industry has been targeted by hackers, as announced by the homeland security department and the FBI Thursday.  Among those breached was a nuclear facility by a potential nation state hacker.  A spokesman for DHS said there was “no indication of threat to public safety, as any potential impact appears to be limited to administrative and business networks.”

Bloomberg reported the nuclear facility under attack was Wolf Creek in Kansas.  DHS is now warning of more such attacks to come.

--Warren Buffett’s Berkshire Hathaway Inc. struck a deal to buy one of the country’s biggest power-transmission companies, bankrupt Energy Future Holdings Corp. for $9 billion in cash, giving Buffett its Texas-based subsidiary Oncor.

Oncor would mesh with Buffett’s other energy businesses, including the former MidAmerican Energy Holdings Co., now Berkshire Hathaway Energy.  Berkshire said it is the second-biggest utility in the U.S. by 2016 net income and serves customers in 18 western and Midwestern states as well as in the U.K. and Canada.

Oncor operates the largest electrical-distribution network in Texas.

--June auto sales are in and after looking at a first half showing a steady decline, it’s clear 2017 isn’t going to top 2016’s all-time record of 17.6 million units sold.

But it’s hardly disaster, with auto sales down 2.1% through the first six months of 2017, compared to 2016, according to Autodata.  Carmakers will continue to make hefty profits.

[The slide in the first half was the first decline since 2009 and the financial crisis.]

Most experts are forecasting around 17 million units for the year.

For the first six months, GM was down 1.8%, Ford fell 3.8% and Fiat Chrysler declined 6.9%, according to Autodata.  Toyota sales fell 3.6%, Honda’s 0.1% and Nissan’s rose 2.7%.

June sales fell 3% from a year earlier (car sales down 13%, trucks and SUVs up 4%, according to Autodata), as consumers continued to abandon compacts for SUVs and pickup trucks.  [For the first half, mid-size SUVs and crossovers saw their market share rise to 12.8%, while mid-size cars saw theirs fall to 10.9%, according to Kelley Blue Book.]

GM -4.7% last month, year-over-year; Ford -5.1%; Fiat Chrysler -7.4%; Toyota +2.1%; Honda +0.8%; Nissan +2%; Hyundai -19.3%, but this is owing to a massive reduction in fleet sales; Kia -10.3%; Volkswagen Group +15%, amid ongoing recovery from the emissions scandal; Subaru +11.7%

--Shares in Tesla, with a 52-week high of $387 and a close of $383 as recently as June 23, closed down 7%, $25.50, to $327.90 on Wednesday, on the heels of a Goldman Sachs downgrade, with GS having a price target of $180. It then fell another 5%+ on Thursday to $308.80, hurt in no small part by a safety test on the Model S that had it coming up short vs. prior results.  [Friday the stock recovered a little to $315.]

It’s about deliveries and once again the company fell short of Wall Street expectations in the second quarter, even as it is set to start delivering its Model 3 sedan, targeting mass-market consumers, as early as today, at least the first few, increasing later this month.

What’s been confusing is that CEO and founder Elon Musk keeps talking about all these new products and successes, which Teslareans eat up, and then reality hits investors in the face with another delivery miss...actual performance.

Tesla is pinning its hopes on its new Gigafactory (and others of its ilk to follow) being able to produce batteries on a mass scale, with production of new vehicles at 20,000 a month by the end of the year.

But Goldman argues demand for Tesla’s Model S sedan and its Model X SUV appears to have peaked.

So Tesla announced it would deliver 22,000 vehicles in the second quarter, overall, fewer than the record 25,000 cars in the first quarter as the company admitted it had issues with the largest battery pack for Tesla’s electric cars.

As for the Model 3, few now believe Tesla will hit its production targets for the balance of 2017.  But let’s just say Elon Musk needs to because if it has the problems that plagued other Tesla cars with their introductions, the company could have trouble getting new financing and the shares would plunge further. 

--And it doesn’t help Tesla’s long-term prospects when you have an announcement like that out of Volvo this week, the company saying that every model from 2019 onwards would have an electric motor, thus becoming the first traditional automaker to say it would totally stop powering its vehicles with an internal combustion engine.

Volvo said Wednesday that it would put electrification at the core of its business and from 2019 would only make three types of cars: pure-electric, plug-in hybrids, and “mild” hybrids that combine a small gas engine with a large battery.

CEO Hakan Samuelsson said: “This announcement marks the end of the solely combustible engine-powered car.

“Volvo Cars has stated that it plans to have sold a total of 1m electrified cars by 2025. When we said it, we meant it. This is how we are going to do it.”

Globally, the market for pure-electric cars is still less than 1 percent of sales, as of 2016, but sales rose 40% in the first quarter, according to EV-Volumes.com.

As reported by Patrick McGee of the Financial Times: “If the growth rate since 2013 were to continue, then eight out of 10 cars sold in 2030 would be plug-ins.”

So we go back to Tesla, which hopes to produce 1m cars a year by 2020, but the premium electric car market will soon become crowded.  Audi recently announced it would sell two premium electric cars in 2019, the same year Mercedes is launching its new electric SUV. And later this year, BMW is expected to announce its new electric model, part of its best-selling 3-Series.

--General Motors announced its sales rose in China in June after two consecutive down months.  The automaker said it was going to rejuvenate its China market with 10 new or refreshed models in the second half of 2017.

GM sold 285,191 vehicles last month there, it being the second-largest foreign brand behind Volkswagen AG.  But from January through June, sales declined 2.5%.

--I’ve warned this can happen to the United States, to the likes of Apple, Microsoft, and GM, for instance, but Hyundai Motors said its problems in China are worsening amid China’s backlash over the deployment of a controversial missile shield in South Korea.

Hyundai Motor, and its Kia Motors affiliate, said their China sales dropped more than 60% last month.  This is a critical market for the South Korean-based automaker, 20% of overall sales volume, the company said.  It’s about the Chinese ginning up anti-Korean sentiment, which then keeps potential buyers out of the showroom.  [Japan has had similar problems in the past.]

--Microsoft employees were bracing Thursday for word on how many layoffs there would be as news began to seep out earlier that the software giant is reorganizing its global sales group as it retunes to focus on selling its Azure cloud-computing services and away from boxed software sales.

Azure is emerging as a top competitor to Amazon Web Services, although it is still just 25% Amazon’s size in the space, as reported by Reuters, citing Deutsche Bank’s estimates.

So the number of layoffs now being floated is 3-4,000 employees, with Microsoft not specifying a number, though the restructuring largely affects sales operations outside the U.S.

Microsoft employs 121,567 people worldwide, and 71,594 in the U.S.

--Samsung Electronics said its second-quarter operating profit will likely hit $12.11 billion, its highest ever and better than analysts are forecasting.  Revenue is to be up 18% from a year earlier, though Samsung said it would formally release earnings later this month.

--The median price of a Manhattan home hit a record $1.2 million during the second quarter, as reported by Douglas Elliman Real Estate (and Crain’s New York Business), a bit of a surprise.

But part of the market’s strong performance apparently stemmed from sellers coming down in price in order to meet buyers’ expectations.

--So I literally live across the street from one of Celgene’s two Summit, N.J. campuses, and I’ve been marveling at how fast they’ve been filling up the massive site once occupied by Merck (and before that Schering-Plough, and before that Ciba-Geigy).

Analysts are looking for good things from the company as it enters an 18-month stretch during which results are expected form 17 late-stage trials.  By 2020, the company sees the potential for $21 billion in yearly revenue – nearly double what it booked last year.

Today, though, the company is highly dependent on one drug, Revlimid for blood cancers and conditions, with sales of the drug 62% of the company’s total in 2016.

But by year end they will have four with $1 billion in sales: Abraxane for breast cancer, Pomalyst for blood cancer, and Otezia for psoriasis.  [I didn’t see the fourth one.]

And then Wednesday I saw a news release, “Celgene Enters Into Global Strategic Immuno-Oncology Collaboration with BeiGene (Beijing) to Advance PD-1 Inhibitor Program for Solid Tumor Cancers,” a deal whereby Celgene gains the worldwide rights outside Asia, while BeiGene acquires Celgene’s commercial operations in China.

--One of my long-time favorite economic barometers for China, Macau casino revenues, jumped 26% in June, posting an 11-month winning streak, as demand from high-roller VIPS surged despite the ongoing corruption crackdown.

Macau is still the only place in China where gambling is legal and revenues have been recovering from a two-year slide when President Xi Jinping announced his big attack on corruption.

The VIP sector, however, is still very controversial, with continued scrutiny over money laundering.

--Canada issued a strong jobs report today for June, the economy adding 45,300, topping economists’ forecasts for a gain of just 10,000.  The unemployment rate dipped to 6.5%.

Canada is still in the process of recovering from the hit it took two years ago during the collapse in oil prices.

--According to the Department of Agriculture, Americans ate an average 55.6 pounds of beef in 2016, up from 54 pounds in 2015.  Comeback time!!!

This is after a decade during which beef consumption plunged 15% amid all those switching to supposedly more healthy diets.

It also helps these days that beef prices are generally lower when they had been consistently rising, some 50% between 2006 and 2016.  [Chicken during that time also rose, but not as much.]

--Liberty Interactive, the media company that owns the home shopping channel QVC, said on Thursday it was acquiring rival Home Shopping Network in an all stock deal worth $2.1bn as the battle against Amazon ramps up.  Liberty is buying the remaining 61.8 percent of HSN shares that it did not already own.  HSN shareholders will receive 1.65 shares of QVC’s series A common for each HSN share.  The deal represented a 29% premium to the company’s closing price on Wednesday.

--The above deal makes eminent sense, as does Cirque du Soleil’s announcement it was acquiring the Blue Man Group. I mean these two are clearly made for each other.

--Fox Sports announced it had abruptly fired Jamie Horowitz, a top executive, amid a company investigation into claims of sexual harassment, as reported by various news and sports agencies.

Eric Shanks, the president of Fox Sports, said in an email to employees: “Everyone at FOX Sports, no matter what role we play, or what business, function or show we contribute to – should act with respect and adhere to professional conduct at all times. These values are non-negotiable.”

So yet another division of 21st Century Fox is being battered by sexual harassment claims, the other of course being Fox News.

Horowitz was hired in May 2015 to revamp the flagship channel FS1 and he steered it away from news and attempting to compete with ESPN’s “SportsCenter,” hiring instead the likes of Skip Bayless, Colin Cowherd and Jason Whitlock for its daytime lineup.

And he just laid off two weeks ago about 20 online writers and editors at Fox Sports’ digital operation, opting for more video content from Fox Sports personalities.

But as if the Horowitz move wasn’t bad enough, Friday we learned Fox Business Network host Charles Payne was suspended while the company investigates sexual harassment allegations made against him.

As first reported by the Los Angeles Times, Payne has acknowledged what he described as a three-year “romantic relationship” with a married female political analyst who frequently appeared on Fox Business and the Fox News Channel from 2013 to 2016.  Payne is married with children.  He has vowed to fight the suspension.

Foreign Affairs

Iraq / Syria: The Syrian Observatory for Human Rights said U.S.-led coalition air strikes have killed at least 224 civilians since the Syrian forces it backs entered the ISIS stronghold of Raqqa a month ago.  The Observatory has been the most reliable source on casualties in Syria from the beginning of the war.  The battle for Raqqa continues. 

In the battle for Mosul in Iraq, some 300 ISIS fighters are said to be holed up in a small patch of territory in the Old City, with a large number of civilians still trapped in the enclave.  Satellite images show the Old City is totally destroyed.

But as territory is taken by the Iraqi Army, and the citizens emerge, militants are managing to escape with them.  An Iraqi special forces general told the Associated Press, “They just shave their beards and walk out.”

[Friday, ISIS launched a diversionary attack on a village south of Mosul, killing two Iraqi journalists and others.]

Ralph Peters / New York Post

“The good news is that, although hard fighting remains, the Islamic State’s caliphate in Syria and Iraq has been devastated. Soon, it will be entirely destroyed.  Islamist terror will continue to gnaw societies around the world, but the vision of a totalitarian blood-cult ruling in the name of a gory god has been discredited among the Middle East’s Muslims and beyond.

“The bad news is that, with ISIS crushed as a quasi-state and conventional fighting force, we’ll face a new Persian Empire stretching to the Mediterranean – and bordering Israel.  The trans-national Shia-Sunni religious war will return to prominence. Dysfunctional borders still will plague the region.  Traditional U.S. allies will find themselves newly vulnerable. And Americans will no longer be welcome in Syria or Iraq.

“When it comes to the greater Middle East, we did not have a strategy; we do not have a strategy; and it’s unlikely that we’ll have an effective strategy in the future. Washington does emergency surgery, not preventive medicine.”

Peters notes the Winners.

“Iran, Iran and Iran.

“Can’t help repeating the cliché: The Persians invented chess, and we play jailbird checkers. Tehran is creating a new empire that bears an uncanny resemblance to the empires of Darius and Xerxes 2,500 years ago, stretching from what’s now western Afghanistan, through Iran (Persia) and on through Iraq, to Syria, Lebanon and to the Mediterranean.

“We helped build it.

“It’s a military maxim never to underestimate your opponent, but when it comes to Iran, we did just that.  As the dust settles – and the blood congeals – in Syria and Iraq, Iran, not the U.S. or Russia, will be the regional hegemon. And Iran has achieved this with a minimal investment of blood or treasure.

“As you read this, the U.S. Ari Force is – unwittingly – flying anti-ISIS missions that serve Iran, above all.  Russia’s Air Force is flying combat missions against the Syrian freedom fighters battling Assad. Those sorties, too, serve Iran’s ends.  It’s a neat division of labor achieved by the Tehran regime, which doesn’t have a strong air force of its own. You don’t need one, if we’ll lend you ours.

“Militarily weak, Iran harnessed the might of others, even of its enemies. That, ladies and gentlemen, is strategy.

“When ISIS is gone, only the Kurds will ask us to remain.  Russia will be rewarded with a couple of show-off bases of little strategic value. The others will ask us to leave. And if we don’t just go, they’ll force us out.”

Hizbullah and the Kurds are other ‘winners,’ the latter the only piece of good news out of this mess.

Israel is among the ‘losers.’

Ralph Peters: “Iran now has a military presence on Israel’s northern border.  Hizbullah is bigger and much tougher than ever. Should another war break out, it may prove to be Israel’s hardest campaign since 1973.”

Egypt: 23 Egyptian soldiers, including a special forces colonel, were killed by a suicide car bomber and heavy gunfire at a military checkpoint in northeastern Sinai on Friday. At least 20 were wounded.  Egypt faces an Islamist insurgency in North Sinai led by Islamic State.

Qatar vs. Saudi Arabia et al: The four Arab states that have imposed an extensive embargo on Qatar, blasted Doha this week for its “negative” response to their demands in a sign the month-long diplomatic crisis is deepening.  The foreign ministers of Saudi Arabia, the UAE, Bahrain and Egypt said Qatar’s response showed “a lack of seriousness in dealing with the roots of the problem” and a “failure to appreciate the dangers in the situation.”

The crisis began when the four states cut diplomatic ties and transport links with Qatar over its supposed funding of terrorism. Among the demands this week were that Qatar pay reparations, cease all support for the Muslim Brotherhood and close Al Jazeera, the satellite channel.

Qatar says it won’t be dictated to by its neighbors.

Kuwait is mediating the dispute.  This is going nowhere fast.

Afghanistan: President Trump recently gave Secretary of Defense Jim Mattis chief authority to send thousands of American troops to Afghanistan at his own discretion, but the White House has now sent classified guidance that effectively limits the number of forces to no more than 3,900 troops without having to go back to the White House for further discussions, as reported by the Wall Street Journal’s Dion Nissenbaum.

So once again we have conflicting messages reflecting divisions inside the administration.  There had been talk of 4,000+, but we have not heard of Mattis’ final plan which he is to present to the White House soon.

Separately, an insurgent attack left one U.S. soldier dead and two others wounded in Afghanistan’s southern Helmand province, where hundreds of U.S. troops are deployed in the fight against the Taliban. The 19-year-old was killed in a rocket attack.  Seven U.S. soldiers have been killed in action this year in the country.

U.S. senators visiting Kabul this week, including Republican John McCain, criticized Secretary of State Tillerson’s handling of policy in Afghanistan, saying the lack of a strategy undermines any anticipated troop surge.

Venezuela: In a despicable display, rowdy groups of supporters of President Nicolas Maduro stormed the opposition-controlled National Assembly on Wednesday, bloodying several lawmakers and journalists, as photos and videos later showed.

And Maduro has initiated a sham poll for July 30, where people are to vote for candidates to his new superbody assembly, Constituent Assembly, with powers to reform the constitution and supersede the National Assembly and other institutions.  The opposition is planning a rival, unofficial referendum on July 16 to give Venezuelans a say on his plan.

90 have died in protests the last three months.  Far more are about to in the coming weeks.

Mexico: Within 24 hours, at least 26 people were killed Wednesday in northern Mexico during a gun battle between warring crime gangs, part of an escalation in deadly violence across the country the past year in particular. Days earlier, a similar battle between gangs in Sinaloa state killed at least 30.

There were 2,186 homicide investigations opened in May, more than in any month since the government began publishing homicide statistics in the 1990s.  11,155 were murdered in Mexico in the first five months of 2017, according to government statistics, a staggering 31% jump from a year ago.

2011 saw the highest body count in Mexico’s peacetime history, 27,213.

So Thursday, fighting between rival gangs inside a state prison in Acapulco killed at least 28 inmates.  Remind me not to be convicted of playing DraftKings in Mexico.

Random Musings

--President Trump’s voter fraud commission may have ignored federal requirements governing requests for information from states.

The Presidential Advisory Commission on Elections Integrity, asked all 50 states for full information on their voters, including names, addresses, party registration and the last four digits of Social Security numbers.

44 states as of Wednesday, as reported by The Hill, led by both Republicans and Democrats, are resisting turning over information and I sure as hell wouldn’t either.

Kris Kobach, the Kansas secretary of State who is heading the advisory panel, said it is more like 20 states that have agreed with the request and 16 others are considering it.  He said only 14 and the District of Columbia have refused the Commission’s request for information that he says is already public.

But there is a 1980 law, the Paperwork Reduction Act, that requires requests from agencies and other federal entities to first go through the Office of Management and Budget’s Office of Information and Regulatory Affairs and that they are to then seek public input, including through a comment period.

Thus far, there is no public record of the Commission remotely following proper procedures.  It’s a fraud.

Michael Chertoff / Washington Post

“(Whatever) the political, legal and constitutional issues raised by this data request, one issue has barely been part of the public discussion: national security.  If this sensitive data is to be collected and aggregated by the federal government, then the administration should honor its own recent cybersecurity executive order and ensure that the data is not stolen by hackers or insiders.

“We know that voting information has been the target of hackers.  News reports indicate that election-related systems in as many as 39 states were penetrated, focusing on campaign finance, registration and even personal data of the type being sought by the election integrity commission.    Ironically, although many of these individual databases are vulnerable, there is some protection in the fact that U.S. voting systems are distributed among thousands of jurisdictions.  As data-security experts will tell you, widespread distribution of individual data elements in multiple separate repositories is one way to reduce the vulnerability of the overall database.

“That’s why the commission’s call to assemble all this voter data in federal hands raises the question: What is the plan to protect it? We know that a database of personal information from all voting Americans would be attractive not only to adversaries seeking to affect voting but to criminals who could use the identifying information as a wedge into identity theft.  We also know that foreign intelligence agencies seek large databases on Americans for intelligence and counterintelligence purposes.  That is why the theft of more than 20 million personnel files from the U.S. Office of Personnel Management and the hacking of more than half a billion Yahoo accounts were such troubling incidents....

“In May, President Trump signed the executive order on cybersecurity to instill tough security in federal offices that handle critical government data. That order is a commendable initiative to hold officials accountable for safeguarding sensitive personal information, such as voter information. The president’s election integrity commission should live up to the president’s own directive.”

Hear hear!

--According to a Politico-Morning Consult poll, 37% of American voters said they “strongly supported” the new U.S. State Department guidelines that would deny visas to citizens of Iran, Libya, Syria, Somalia, Sudan and Yemen who do not have close relatives in the United States.  Another 23% said they “somewhat support” the guidelines.

The poll was conducted in the days after the Supreme Court ruling upholding most of the ban.

83% of Republicans approved, while only 46% of Democrats opposed it.

--NPR legal affairs reporter Nina Totenberg reported that Supreme Court Justice Anthony Kennedy probably isn’t retiring that soon, but it seems that while he long ago hired his law clerks for the coming term, starting this fall, he hasn’t done so for the one beginning Oct. 2018, telling applicants that he is considering retirement, with that term beginning Oct. 2018.

So for Republicans this is huge.  Let’s say Kennedy announces his retirement in June 2018 after the term ends.  Republicans could just fill it before the 2018 mid-term. And if for some reason they can’t fill it until after November 2018, it’s not easy for Democrats to be able to win three seats the way the races are setting up thus far.

What seems clear is that Kennedy isn’t sticking around for Trump’s full term.

--Despite President Trump’s claims to the contrary, according to Nielsen’s second quarter ratings, MSNBC’s total viewers are up 73% year-over-year, with primetime viewership up 86%, and thanks in part to Rachel Maddow, MSNBC’s share of the coveted 25 to 54 demographic grew 78% in primetime over last year.

[Separately, Nielsen reported on Wednesday that Joe and Mika reached their biggest audience ever when they talked last Friday about President Trump’s tweets about their show; 1.66 million people watched them the day after.]

But CNN has had a rough stretch, stung by stories it had to retract and related dismissals, plus sting videos.

Yet CNN has still grown 25% in total viewers and 10% in primetime year-over-year.

Fox News remains the frontrunner in the cable wars, with its audience growing 19% between 8pm and 11 pm.  [Jonathan Easley / The Hill]

--Trump defended his use of social media in a series of tweets last Saturday.

“My use of social media is not presidential – it’s modern day presidential.”

“The FAKE & FRAUDULENT NEWS MEDIA is working hard to convince Republicans and others I should not use social media,” he tweeted: “But remember, I won the 2016 election with interviews, speeches and social media.”

--The New York Post’s Michael Goodwin recently delivered a speech at a Hillsdale College National Leadership Seminar in Atlanta, which the Post released in its paper this week. Following is an interesting excerpt on the New York Times and how it seems to have ‘lost its way.’

“I say this with great sadness.  I was blessed to grow up at the Times, getting a clerical job right out of college and working my way onto the reporting staff, where I worked for a decade.  It was the formative experience of my career where I learned most of what I know about reporting and writing.  Alas, it was a different newspaper then. Abe Rosenthal was the editor in those days, and long before we’d ever heard the phrase ‘zero tolerance,’ that’s what Abe practiced toward conflicts of interest and reporters’ opinions. He set the rules and everybody knew it.

“Here is a true story about how Abe Rosenthal resolved a conflict of interest. A young woman was hired by the Times from one of the Philadelphia newspapers. But soon after she arrived in New York, a story broke in Philly that she had had a romantic affair with a political figure she had covered, and that she had accepted a fur coat and other expensive gifts from him.  When he saw the story, Abe called the woman into his office and asked her if it were true. When she said yes, he told her to clean out her desk – that she was finished at the Times and would never work there again. As word spread through the newsroom, some reporters took the woman’s side and rushed in to tell Abe that firing her was too harsh.  He listened for about 30 seconds and said, in so many words, ‘I don’t care if you f—k an elephant on your personal time, but then you can’t cover the circus for the paper.’ Case closed. The conflict of interest policy was clear, absolute, and unforgettable....

“Sadly, the Times’ high standards were buried with Abe Rosenthal.”

--Robert Samuelson, from his perch at the Washington Post, has the following point concerning the ‘middle’ in America, as per attitudes uncovered in a recent Pew poll that found that “public trust in government remains near historic lows.”  Just 20 percent of Americans trust the government to “do the right thing just about always or most of the time.”  It was as high as 80 percent in the early 1960s and has been on an inexorable decline.

Samuelson:

“By Pew’s estimate, this messy middle – meaning that its members have a ‘roughly equal number of liberal and conservative positions’ – remained the largest bloc of Americans at about 40 percent of the total in 2014.  Here is what Pew says about the anomalous position of people in the middle:

“ ‘The majority do not have uniformly conservative or liberal views. Most do not see either party as a threat to the nation. And more believe their representatives in government should meet halfway to resolve contentious disputes rather than hold out for more of what they want.

“ ‘Yet many of those in the center remain on the edges of the political playing field, relatively distant and disengaged, while the most ideologically oriented and politically rancorous Americans make their voices heard through greater participation in every stage of the political process’ – voting, contributing, volunteering.

“The stabilizing center of U.S. politics is marginalized.  Its considerable power is dissipated and silently flows to activists of both parties, who increasingly define themselves by demonizing their opponents.  Cooperation becomes harder, because the gulf between them becomes larger and the contempt of each for the other grows. The activists in both parties are the troublemakers – not all of them, but enough to matter....

“What’s worrisome and not especially recognized is that many members of the political class – again, the pundits, journalists and scholars as well as elected officials, lobbyists and activists – have a vested interest in the status quo of division.  Who they’re against defines who they are on both left and right.  This protects elected officials against primary challenges by even greater ideological purists; it generates audiences and incomes for pundits; it makes activists feel morally superior. Who wants to give that up?

“Not surprisingly, the system has become self-perpetuating.  It feeds on mutual recriminations.  On this July 4, the founders – who had deep disagreements, but compromised – would doubtlessly disapprove.”

--Related to the above, a new NPR/PBS NewsHour/Marist Poll found that seven in ten Americans, 70%, think the tone between Republicans and Democrats has gotten worse, twice the percentage, 35%, who reported in a 2009 Gallup poll that civility in the nation’s capital had declined after the election of President Barack Obama.

Only 50% have confidence in our voting system, and 47% do not.

60% trust the intelligence community.

37% trust the Trump administration, which is better than the media, 30%, and Congress, 29%.

84% of Republicans trust the administration, only 8% of Democrats do.

--My personal congressman here in New Jersey is Republican Leonard Lance, who sits on the Energy and Commerce Committee but he didn’t know recently that the White House was holding “Energy Week.”

As The Hill disclosed the other day, other Republican congressmen have no clue what the message of the week, or day, is supposed to be because the White House doesn’t tell them.

It’s so bad, one Republican, Rep. Thomas Massie of Kentucky, said, “It might as well be Easter Bunny Week.”

--Us New Jerseyans can’t wait for Gov. Chris Christie to leave office next January.  There’s a reason why his approval rating is at 15%.  He’s an a-hole.

I voted for the guy twice, but his second term has been an unmitigated disaster as his bullying ways have gotten in the way of real policy and it all culminated in the picture that spread around the world, or at least the U.S., of the governor sitting on the empty beach with family and friends at what was one of the state parks that was closed to every other resident of this state due to failure between Democrats and Republicans to reach a budget deal, which they did finally do in time for the Fourth of July after three outrageous days of closure.

After the deal was reached late Monday night, Christie remained unapologetic about the optics of his spending time at a state beach that had been shuttered, at a beautiful residence provided to his family by the state.

Among his arguments: “Let’s be really clear: that’s our residence. And we have a right to be there whenever we want to be there.”

The state is giving it to you!  It’s not yours.  It’s ours.  We’re just letting you stay there.  [Friday, legislators proposed various ways of taking it away, and Christie’s Lt. Gov., Kim Guadagno, who is running to replace him, said the house should be sold.]

--Another true jerk, New York Mayor Bill de Blasio, defended his decision to jet to Germany to take part in protests against the G-20 summit, saying it had become “incumbent” upon him to speak out against President Trump.  He said he was in Hamburg at the invitation of other local government officials to talk about matters such as climate change and Middle Eastern immigration, given Trump’s positions.

De Blasio said he was aware of his responsibilities regarding the next story, but that he had a duty to “amplify democratic values” at events like an anti-nationalist gathering he will keynote Saturday.  Oh brother.  It’s too bad the Republican Party in Gotham is beyond pathetic.  No one can challenge him.

--A NYPD veteran of 12 years, Miosotis Familia, was assassinated while she sat in a police vehicle, killed by a 34-year-old drifter with an extensive rap sheet, who then in turn was quickly tracked down and killed himself.  Miosotis, 48, was a mother of three.

--Chicago saw one of its most violent Fourth of July weekends in recent years, with at least 101 people shot between Friday afternoon and early Wednesday, 14 of them having died.

--Baltimore had its second-deadliest first half of the year with 170 homicides, ranking only after 1992, when the city had 116,000 more residents.

--Sunday, on CNN’s “State of the Union” with Jake Tapper, Tapper asked Nebraska Republican Sen. Ben Sasse how he felt about President Trump relentlessly attacking journalists, including the one recently on MSNBC’s Mike Brzezinski.

Sasse: “There’s an important distinction to draw between bad stories or crappy coverage and the right that citizens have to argue about that and complain about that and trying to weaponize distrust.

“The First Amendment is the beating heart of the American experiment. And you don’t get to separate the freedoms that are in there. There are five freedoms in the First Amendment: religion, speech, press, assembly, and protest.

“And you don’t have religion without assembly.  You don’t have speech without press.  We all need to celebrate all five of those freedoms, because that’s how the e pluribus unum stuff works, right?  We differ about really big and important things in this country, and then we come together around the First Amendment, which is an affirmation of the fact that people are free before government.

“I mean, this is the Fourth of July weekend. The Declaration of Independence is pretty dang clear about this, that we think government is just our shared tool to secure those rights that we have by nature.  And so we need to affirm those rights.  We need to do that civic and catechetical stuff to teach the next generation what America is about.

“So, we need more of that from everybody in this conversation....

“Journalism is really going to change a lot more in the digital era.

“And we have a risk of getting to a place where we don’t have shared public facts.  A republic will not work if we don’t have shared facts....

“I’m the third most conservative guy in the Senate by voting record, but I sit in Daniel Patrick Moynihan’s desk on the floor of the U.S. Senate on purpose, because he’s the author of that famous quote that you’re entitled to your own opinions, but you’re not entitled to your own facts.”

Sasse adds, “It is going to be possible in the next three and five and 10 years for people to surround themselves only with echo chambers and silos of people that already believe only what they believe.  It’s a recipe for a new kind of tribalism. And America won’t work if we do that.”

--Another new NPR/PBS NewsHour/Marist Poll reveals what we already knew, that many Americans still don’t know their basic history.  While 77% of residents cite Great Britain as the country from which the United States declared its independence, nearly one in four, 23%, either mention another country, 8%, or are unsure, 15%.  This is little changed from the last time this question was asked in 2011.

Nearly nine in ten Americans with a college education or income above $50,000 are able to identify Great Britain correctly, while 84% of whites can, 70% of Latinos, and 53% of African Americans. Age makes little difference.

Three in ten Americans, 30%, do not know the year in which the United States declared its independence.  What’s kind of strange is that in 2011, 42% of U.S. residents were unaware of the year we broke away from Great Britain.

---

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

God bless America.

---

Gold $1211
Oil $44.33

Returns for the week 7/3-7/7

Dow Jones  +0.3%  [21414]
S&P 500  +0.1%  [2425]
S&P MidCap  unch
Russell 2000  unch
Nasdaq  +0.2%  [6153]

Returns for the period 1/1/17-7/7/17

Dow Jones  +8.4%
S&P 500  +8.3%
S&P MidCap  +5.2%
Russell 2000  +4.3%
Nasdaq  +14.3%

Bulls 52.5
Bears 18.8  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore



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Week in Review

07/08/2017

For the week 7/3-7/7

[Posted 11:30 PM ET, Friday]

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

Edition 952

North Korea

I nailed Pyongyang’s ballistic missile test for July 4 long ago.  Yes, they didn’t target Guam directly, but the first-ever ICBM had a range exceeding the distance between North Korea and the island.  No one else called it like I did, and this isn’t the first time I’ve predicted major issues concerning foreign policy, or the markets for that matter.

Most importantly, U.S. intelligence is sorely lacking, as I point out in one of the following posts as well.

WIR, 9/24/2016

North Korea: Pyongyang claimed it successfully tested a high-powered rocket engine for launching satellites, which is of course part of the North’s long-range ballistic missile program.

I’m amazed at how some “experts” in the U.S. continue to say that North Korea won’t have the capability to threaten the U.S. with a nuclear weapon until 2020, but these same folks can’t deny the speed at which Kim Jong Un and his Orcs appear to be progressing towards their goal of a full nuclear arsenal.  Depending on the success of coming ballistic missile tests, I have been arguing a realistic target for Pyongyang would be Guam and our heavy military presence there.  That’s a far shorter route than the U.S. west coast...or Hawaii.  [Guam, from North Korea, is roughly the distance from New York to Las Vegas.]

And I would worry Kim could have the capacity to hit Guam by the end of next year (I’ve said Fourth of July).

Remember, U.S. intelligence missed both India and Pakistan’s first nuclear weapons tests.

Japan’s Defense Minister Tomomi Inada said this week that “the speed of North Korea’s development” meant it was important to “take all possible measures” to ensure Japan’s defenses were sufficient and to reinforce the Japan-U.S. alliance.

WIR, 1/7/2017

I maintain a position I took about six months ago.  That while Kim is out to create some kind of disturbance around Inauguration Day, I believe he could target a U.S. possession (Guam) directly around Fourth of July, especially assuming testing continues over the coming months.

WIR, 5/20/2017...[following another intermediate-range ballistic missile test]

China urged restraint from all parties on the “complex and sensitive” situation on the Korean peninsula.  Japanese Prime Minister Shinzo Abe told reporters the test was “a serious threat to Japan.”

What did I tell you last fall; watch Fourth of July and Guam.  Yes, these rockets are hardly accurate, and we still don’t know whether North Korea has the ability to make their nuclear weapons small enough to be mounted on a rocket of this kind, and it has never tested a long-range ICBM that could reach the U.S.

But I’ve been pounding the table, saying Pyongyang was making far more rapid progress than the “experts” in the field believed, and now we know this is indeed the case.

---

So this is what I’ve been writing and then late Monday (Tuesday, July 4, in North Korea), Pyongyang launched a missile that the U.S. first said was another intermediate-range test.  But upon further review was seen to be an intercontinental ballistic missile. 

In a TV broadcast Monday, North Korean officials proclaimed that the country had achieved an ICBM capability that would safeguard the government from attacks by the United States and other adversaries.  The missile was dubbed the Hwasong-14.  Now it’s about extending its range and reliability, as well as tipping it with a nuke.

 “This is a big deal: It’s an ICBM, not a ‘kind of ICBM,’” said Jeffrey Lewis, director of the East Asia program at the Center for Nonproliferation Studies.  “And there’s no reason to think that this is going to be the maximum range.”

The U.S. tracked the missile’s path for 37 minutes as it traveled 1,700 miles in the air.  A flatter trajectory might give it a range of almost 4,200 miles – a big improvement on previous tests and a range that would put Alaska within reach.

[Any missile that exceeds a range of 3,400 miles is considered an ICBM.]

In Thursday’s press conference in Warsaw, Trump spoke of a “very severe” response if North Korea escalated its military threat, but he did not go into detail.

Earlier, the test was confirmed to be an ICBM by U.S. Secretary of State Rex Tillerson, who said it marked “a new escalation of the threat to the world.”

Tillerson called Pyongyang’s government “a dangerous regime” and said the United States would seek “stronger measures” at the U.N. Security Council to hold the North Koreans accountable for the latest test.

The Pentagon stated it was prepared to defend the U.S. and its allies and to use all capabilities necessary against the growing North Korea threat.

U.N. Ambassador Nikki Haley chided Moscow and Beijing over their opposition to a Security Council resolution condemning North Korea.  She also said Pyongyang was “quickly closing off the possibility of a diplomatic solution” and suggested the U.S. would continue to consider military action if necessary.

“One of our capabilities lies with our considerable military forces,” Haley said during a Security Council meeting.  “We will use them if we must, but we prefer not to have to go in that direction.”

President Trump expressed his frustration with China, tweeting: “Trade between China and North Korea grew almost 40% in the first quarter. So much for China working with us – but we had to give it a try!”  [Chinese trade data had trade between the two growing 37.4% despite its claim it is complying with U.N. sanctions and stopped buying North Korean coal....I didn’t buy the coal bit for a second.]

North Korea’s Academy of Defense Science claimed the test marked the “final step” in creating a “confident and powerful nuclear state that can strike anywhere on Earth.”

Charles Krauthammer / Washington Post

“Across 25 years and five administrations, we have kicked the North Korean can down the road.  We are now out of road.

“On July 4, North Korea tested an intercontinental ballistic missile apparently capable of hitting the United States. As yet, only Alaska.  Soon, every American city.

“Moreover, Pyongyang claims to have already fitted miniaturized nuclear warheads on intermediate-range missiles.  Soon, on ICBMs.

“Secretary of State Rex Tillerson’s initial reaction to this game changer was not encouraging.  ‘Global action is required to stop a global threat,’ he declared.

“This, in diplo-speak, is a cry for (multilateral) help. Alas, there will be none.  Because, while this is indeed a global threat, there is no such thing as global interests. There are individual national interests and they diverge.  In this case, radically.

“Take Russia and China.  If there were to be external pressure on North Korea, it would come from them. Will it?  On Tuesday, they issued a joint statement proposing a deal: North Korea freezes nuclear and missile testing in return for America abandoning large-scale joint exercises with South Korea.

“This is a total non-starter. The exercises have been the backbone of the U.S.-South Korean alliance for half a century. Abandonment would signal the end of an enduring relationship that stabilizes the region and guarantees South Korean independence. In exchange for what?

“A testing freeze? The offer doesn’t even pretend to dismantle North Korea’s nuclear program, which has to be our minimal objective.  Moreover, we’ve negotiated multiple freezes over the years with Pyongyang.  It has violated every one.

“The fact that Russia and China would, amid a burning crisis, propose such a dead-on-arrival proposal demonstrates that their real interest is not denuclearization. Their real interest is cutting America down to size by breaking our South Korean alliance and weakening our influence in the Pacific Rim.

“These are going to be our partners in solving the crisis?....

“How many times must we be taught that Beijing does not share our view of denuclearizing North Korea?  It prefers a divided peninsula, i.e., sustaining its client state as a guarantee against a unified Korea (possibly nuclear) allied with the West and sitting on its border.

“Nukes assure regime survival.  That’s why the Kims have so single-mindedly pursued them.  The lessons are clear.  Saddam Hussein, no nukes: hanged.  Moammar Gaddafi, gave up his nuclear program: killed by his own people.  The Kim dynasty, possessing an arsenal of 10 to 16 bombs: untouched, soon untouchable.

“What are our choices?  Trump has threatened that if China doesn’t help we’ll have to go it alone. If so, the choice is binary: acquiescence or war.

“War is almost unthinkable, given the proximity of the Demilitarized Zone to the 10 million people of Seoul.  A mere conventional war would be devastating. And could rapidly go nuclear.

“Acquiescence is not unthinkable.  After all, we did it when China went nuclear under Mao Zedong, whose regime promptly went insane under the Cultural Revolution....

“If we want to decisively alter the strategic balance, we could return U.S. tactical nukes (withdrawn in 1991) to South Korea.  Or we could encourage Japan to build a nuclear deterrent of its own.  Nothing would get more quick attention from the Chinese. They would face a radically new strategic dilemma: Is preserving North Korea worth a nuclear Japan?

“We do have powerful alternatives. But each is dangerous and highly unpredictable.  Which is why the most likely ultimate outcome, by far, is acquiescence.”

[Check out my current edition of “Hot Spots,” posted 12 hours before the missile test.  Acquiescence, or “acceptance,” is indeed the route we are likely to take.]

Korea Tidbits....

--South Korean President Moon Jae-in said he’s willing to meet Kim Jong Un.  Moon also proposed the two Koreas resume reunions of families separated by war, stop hostile activities along their heavily fortified border and cooperate on the 2018 Winter Olympics to be held in Pyeongchang, South Korea.  [What a mess the Games could be. They also may not come off as planned.]

--Russia blocked a U.N. condemnation of North Korea on Thursday at the Security Council because the U.S.-drafted statement referred to it as an intercontinental ballistic missile (ICBM), diplomats said.  Moscow says it was an intermediate-range missile. Security Council statements have to be signed off by all 15 members. 

Earlier, Foreign Minister Sergei Lavrov said, “The task of the denuclearization of the entire Korean peninsula cannot and should not be used as a disguise for attempts to change North Korea’s regime.”

After a meeting at the Kremlin between Presidents Putin and China’s Xi, the two issued a statement declaring the United States should immediately halt its deployment of the THAAD anti-missile system to South Korea.  [Of course they would.]

--Kim Jong Un taunted the United States Wednesday, saying the ICBM test was a “gift” to “American bastards” on their independence day.

The state-run Korea Central News Agency (KCNA) cited Mr. Kim as saying, “we should send (the U.S.) gifts once in a while to help break their boredom.”

--The Pentagon claimed it was capable of defending the United States against the “nascent” threat posed by North Korea.  The Pentagon also conceded the ICBM was a new type of missile that “we’ve not seen before.”  [There are varying reports as to whether the missile was on display at North Korea’s recent massive military parade.]

But just how confident can the Pentagon be?  A special report on Friday by the Los Angeles Times’ David Willman concluded the supposedly successful test of our missile defense system on May 30, that we were told was conducted under “very realistic” conditions, faithfully simulating an attack by North Korea, hardly was, if you are to believe the Times’ investigation.

David Willman: “In key aspects, however, the carefully scripted test posed much less of a challenge for U.S. missile defenses than would an actual attack....

“As a result, the successful intercept provides little if any confidence that the troubled Ground-based Midcourse Defense System, or GMD, would be able to thwart a sneak attack by North Korea, according to missile defense experts familiar with details of the test.”

Among the many issues concerning the conditions of the test, “a giant, ship-borne (radar) whose home port is Pearl Harbor, was moved to a particular spot in the Pacific specifically for the test, U.S. officials said.

“The result was that the radars had excellent lines of sight to follow the target beginning shortly after launch – an advantage U.S. forces likely would not have during an actual attack.”

--South Korea’s defense minister said Wednesday he sees a high possibility of North Korea conducting a sixth nuclear test in the wake of the ICBM launch.

--Is North Korea far richer than we thought?  Back in 2012, a South Korean research institute valued North Korea’s mineral wealth as high as $10 trillion, The Economist then reported.

This week there were reports that the untapped iron, gold, magnesite, zinc, copper, limestone, molybdenum and graphite were worth at least $6 trillion.  But taking advantage of this hidden wealth is a different matter.

China...and Hong Kong

U.S. bombers flew over the disputed South China Sea a day ahead of joint drills with Japanese fighter jets over the East China Sea, the U.S. military announced on Friday as Washington stepped up pressure on Beijing over North Korea’s intransigence.

In another deployment, the U.S. 7th Fleet along with the aircraft carrier USS Nimitz began an 11-day exercise with Indian and Japanese forces in the Bay of Bengal today.

Chinese foreign ministry spokesman Geng Shuang said on Friday that China opposed the use of freedom of overflight as an excuse to harm its security, in remarks given in response to the U.S. bombers.

There was another big issue last weekend.  President Xi Jinping, in his first trip to Hong Kong, warned the citizens against “impermissible” challenges to Beijing’s authority over Hong Kong.

Speaking Saturday on the 20th anniversary of its return to China, Xi warned opponents in Hong Kong not to cross a “red line,” as Xi recalled how Britain’s victory in the First Opium War of 1839-42 – when Hong Kong Island was ceded to the British Empire – set in motion decades of humiliation for China.

“Any attempt to endanger China’s sovereignty and security, challenge the power of the central government...or use Hong Kong to carry out infiltration and sabotage against the mainland is an act that crosses the red line and is absolutely impermissible,” Xi said.

[Earlier Xi said that the joint declaration signed by Margaret Thatcher in 1984 that supposedly guarantees Hong Kong’s unique rights until 2047, had “no practical significance.”  Britain replied it was “committed to monitoring its implementation closely.”]

“After the Opium War, China has been repeatedly defeated by countries which were smaller and less populous,” Xi said. Xi also said Hong Kong needed to do more to boost “patriotic education,” which has been opposed by locals who fear losing their identity.  [Daily Telegraph]

Trump World...Europe, G20, Putin and ObamaCare

Thursday in Warsaw, Trump defended Western civilization in a speech to a highly-supportive crowd (bussed in in part by the right-wing leadership), while earlier in a rare press conference, Trump blasted the media (especially CNN for going after him for his ‘lighthearted’ tweet depicting him body-slamming a figure whose head was replaced by the CNN logo) and our intelligence agencies, as well as Barack Obama.

Pressed about Russian interference in the American election, Trump said that “nobody really knows” if other countries might have been involved

In the speech, the president said “radical Islamic terrorism” threatened “our civilization and our way of life.”

Trump said nothing about Poland’s right-wing government and its crackdown on judges, the press and opposition parties, which deeply concerns some EU leaders.

And what has the local Jewish community in Warsaw upset is Trump skipping a museum devoted to a 1943 uprising by Jews who were forced into a ghetto, the “Warsaw Ghetto Uprising.”  Daughter Ivanka, Jewish, went instead.  [An Israeli publication, Haaretz, blasted Trump.  “In his speech in Warsaw, Trump mentioned Polish suffering and the Polish victims of the nation’s bloody history but elegantly avoided the unpleasant stories of the Jewish victims of those same Polish victims.  For instance, he noted the Katyn Forest massacre, where the Soviets murdered tens of thousands of Poles in 1940, but forgot to mention the massacre in Jedwabne (1941) and the pogrom in Kielce (1946), when Poles murdered their Jewish neighbors under the Nazi and Soviet occupations, respectively.  Trump didn’t bother to refer to them in a single word.”]

Trump praised Poland, a NATO ally, “as an example for others who seek freedom, and who wish to summon the courage and the will to defend our civilization.”

Trump also talked in life and death terms.

“The fundamental question of our time is whether the West has the will to survive.  Do we have the confidence in our values to defend them at any cost?  Do we have enough respect for our citizens to protect our borders?  Do we have the desire and the courage to preserve our civilization in the face of those who would subvert and destroy it?”

And Trump denounced “the steady creep of government bureaucracy that drains the vitality and wealth of the people.”

But perhaps most importantly, unlike in his first visit to Europe as president in May when he conspicuously failed to reaffirm U.S. commitment to NATO’s mutual defense clause, Article 5, Trump said some of the following.

“To those who would criticize our tough stance (Ed. that member states pay their full and fair share of financial obligations), I would point out that the U.S. has demonstrated not merely with words but with its actions that we stand firmly behind Article 5, the mutual defense commitment.  Words are easy but actions are what matters.  And for its own protection, Europe must do more.  Europe must demonstrate that it believes in its future by investing its money to secure that future.”

Editorial / Wall Street Journal

“(Mr. Trump’s) remarks were directed at the people of the world. Six months into his first term of office, Mr. Trump finally offered the core of what could become a governing philosophy.  It is a determined and affirmative defense of the Western tradition.

“To be sure, Mr. Trump’s speech also contained several pointed and welcome foreign-policy statements. He assured Poland it would not be held hostage to a single supplier of energy, meaning Russia. He exhorted Russia to stop destabilizing Ukraine ‘and elsewhere,’ to stop supporting Syria and Iran and ‘instead join the community of responsible nations.’  He explicitly committed to NATO’s Article 5 on mutual defense.

“But – and this shocked Washington – the speech aimed higher.  Like the best presidential speeches, it contained affirmations of ideas and principles and related them to the current political moment.  ‘Americans, Poles and the nations of Europe value individual freedom and sovereignty,’ he said. This was more than a speech, though. It was an argument.  One might even call it an apologia for the West....

“During and after the war, Poland survived threats to its existence from Nazi Germany and the Soviet Union. Mr. Trump believes that the West today confronts threats of a different sort, threats both physical and cultural.  ‘This continent,’ said Mr. Trump, ‘no longer confronts the specter of communism. But today we’re in the West, and we have to say there are dire threats to our security and to our ways of life.’

“He identified the most immediate security threat as an ‘oppressive ideology.’  He was talking about radical Islam, but it is worth noting that he never mentioned radical Islam or Islamic State.  Instead, he described the recent commitment by Saudi Arabia and other Muslim nations to combat an ideological menace that threatens the world with terrorism. He compared this idea of mutual defense to the alliance of free nations that defeated Nazism and communism.

“But the speech’s most provocative argument was about our way of life. It came when he described how a million Poles stood with Pope John Paul II in Victory Square in 1979 to resist Soviet rule by chanting, ‘We want God!’

“ ‘With that powerful declaration of who you are,’ Mr. Trump said, ‘you came to understand what to do and how to live.’

“This is a warning to the West and a call to action.  By remembering the Poles’ invocation of God, Mr. Trump is clearly aligning himself with the same warning issued to Europe some years ago by Cardinal Joseph Ratzinger, who became Pope Benedict.

“Cardinal Ratzinger’s argument was that Europe needed to recognize that its turn toward aggressive secularism posed a real threat to its survival....

“Mr. Trump is taking a clear stand against the kind of gauzy globalism and vague multiculturalism represented by the worldview of, say, Barack Obama and most contemporary Western intellectuals, who are willing, even eager, to concede the argument to critics of the West’s traditions.

“This is the speech Mr. Trump should have given to introduce himself to the world at his Inauguration.  In place of that speech’s resentments, his Warsaw talk offered a better form of nationalism.  It is a nationalism rooted in values and beliefs – the rule of law, freedom of expression, religious faith and freedom from oppressive government – that let Europe and then America rise to prominence.  This, Mr. Trump is saying, is worth whatever it takes to preserve and protect.

“It was an important and, we hope, a defining speech – for the Trump Presidency and for Donald Trump himself.”

Editorial / Washington Post

“ ‘Do we have the confidence in our values to defend them at any cost?’ President Trump asked during his speech in Warsaw on Thursday. That’s an important question, and so is this: Which values is he summoning us to defend?

“There were encouraging elements in his address suggesting that he was referring to the universal values that America celebrated earlier this week, on the anniversary of its declaration of independence.  Repeatedly, Mr. Trump invoked the parallel Polish and American devotion to freedom.  He spoke of ‘America’s commitment to your security and your place in a strong and democratic Europe.’

“Unlike during his first trip to Europe as president, he embraced NATO’s Article 5, which binds the United States and its allies to treat an attack on one as an attack on all....

“Perhaps what gives the most doubt is that he celebrated ‘the right to free speech and free expression’ without mentioning that the government welcoming him has worked worryingly to narrow those freedoms, along with the independence of its judiciary – and without mentioning that, at home, Mr. Trump himself has been far from a tribune of the free press.  ‘Above all,’ he said, ‘we value the dignity of every human life, protect the rights of every person and share the hope of every soul to live in freedom.’  Many people will cheer those words – and will watch to see how his administration lives up to them in its interactions with Saudi Arabia and China, Russia and Egypt, and at home.”

So then Trump and Putin held their first meeting, with Secretary of State Rex Tillerson and Foreign Minister Sergei Lavrov in attendance (along with interpreters).

It will take a while for the truth to come out (if ever), but what we are being told for now is that Trump confronted Putin about election meddling right at the start of what would turn out to be a 2 hour, 15 minute discussion when it was originally scheduled for 30 minutes.

Tillerson, who gave the U.S. ‘read’ after, said Trump raised “the concerns of the American people regarding Russian interference in the 2016 election.”

Putin denied Russian involvement, Tillerson said, but Trump “pressed” him on the matter “on more than one occasion.”

Trump and Putin then agreed to explore a “framework” around which they can work to better understand these types of cyberthreats, according to Tillerson.

“The two leaders agreed that this is a substantial hindrance on the ability of us to move Russian-U.S. relationships forward and agreed to exchange further work regarding commitments of noninterference in the affairs of the United States and our democratic process as well as those of other countries.  So more work to be done in that regard.”

I don’t even want to continue.  Trump has an attention span of about 30 seconds, and he was prepped with just a 3-page outline, supposedly, of one liners on policy, and we’re supposed to believe he was actually engaged with Putin for over 2 hours?  I shudder to think what Trump was saying during this time, given his failure to say anything bad about Russia or its leader for two years now.

Tillerson at least admitted that Putin’s insistence that Russia did not interfere would leave the two countries at an impasse for now.

Trump and Putin did apparently reach an agreement on a ceasefire in the southwest corner of Syria, but you know my attitude here.  We had our chance in this country back in 2012, Barack Obama blew it royally then, and the world will continue to pay a price for decades to come as a result.  Anything supposed success in Syria from here on is underwhelming, save for the fact, as discussed below, Iran won.

For his part, Foreign Minister Lavrov, in his comments to the press after, said President Trump “accepts” Putin’s denial that Russia meddled in the elections.

“President Trump has said that he has heard clear declarations from Mr. Putin that Russian leadership and Russian government have not interfered with in the elections and he accepts the things Mr. Putin has said,” Lavrov said.

Finally, ahead of his meeting with Donald Trump on Saturday, Chinese President Xi took a swipe at the U.S. for retreating from globalization.

“Major developed countries have significantly backtracked positions on trade, climate change and other issues,” Xi said.

ObamaCare

Conservatives in the Republican Party are at odds over healthcare reform, with Sen. Ted Cruz (R-Tex.) reemerging as an antagonist of Senate Majority Leader Mitch McConnell (R-Ky.), with Cruz and his allies wanting a proposal that would allow insurance companies the freedom to sell any kinds of health plans they want as long as they also sell at least one plan that qualifies under the requirements of the Affordable Care Act.

The week had started with Senate Republicans still working to secure 50 votes for a repeal bill. Another growing debate within was whether to keep a tax on high earners that was created to help pay for the legislation; the 3.8% tax on net investment income for individuals making more than $250,000 a year that Democrats found rather easy to slam.

Separately, McConnell told GOP colleagues that the current bill would not touch pre-existing conditions.

But few expect a vote next week.  As I’ve been writing for awhile now, though, it’s really all about Medicaid.

Thomas G. Donlan / Barron’s

“There is an important thing to be accomplished with the debate over the Republican health-insurance bills: It should awaken more people to the long-term problems of Medicaid.  Most of them have been ignored for decades, but especially since the Democrats were inventing the Patient Protection and Affordable Care Act, or ObamaCare, in 2009 and 2010.

“Lawmakers have been in such deep denial that they have piled more people, with their fiscal and medical burdens, onto the program.

“With its coverage mandates on individuals and employers, its sweeping definition of minimum standards for health-insurance benefits, and its subsidies financed by a wide variety of small tax increases, ObamaCare provided something that felt like private insurance for individuals.  It gave the semblance of self-respect to a welfare program.

“Unfortunately for those who need to purchase insurance as an individual rather than as a member of an employer-sponsored group, the ObamaCare mandates, and the penalties for ignoring them, have been too weak to force younger, healthier people to support the new insurance pools.

“ObamaCare as enacted couldn’t cover the true cost of health care for older people, people with pre-existing conditions, and others who are likely to need insurance coverage for expensive care. The result is the death spiral that Republicans deplore, Democrats deny, and neither side knows how to cure.

“When the new health-insurance bill constructed by Majority Leader Mitch McConnell reached the Senate floor the other day, Democrats harshly criticized it on several grounds, but the most important citation came from Minority Leader Chuck Schumer (D-N.Y.).  He made a point rarely acknowledged by members of either party:

“ ‘Medicaid isn’t just a health-insurance program for those struggling in poverty, though that is important.  Medicaid is increasingly a middle-class program.  Medicaid is how many Americans are able to access opioid-abuse treatment.  Medicaid foots the bill for over two-thirds of all Americans living in nursing homes.’

“Taxpayers should wonder how a poverty program has become a middle-class program. To answer plainly, Medicaid has two purposes: There’s the intentional program of medical care for impoverished Americans.  And there’s an unintended program of payments for the undeserving not-poor, who hide their money and pretend to be destitute so the government will pay for their nursing-home care.  The second program starves the first one of resources....

“Medicaid is in long-term trouble, anyway.  About 74.5 million Americans are enrolled in Medicaid, including 36 million children.  An estimated eight million people could enroll but haven’t.  Presumably, they’re still healthy and will enroll when they need to.  That’s more than 20% of all Americans.  Medicaid beneficiaries include 39% of all children, 12% of all adults, 64% of all nursing-home residents, 30% of all adults with disabilities, and 60% of all children with disabilities.

“The Medicaid program is costing the federal government about $389 billion in the current fiscal year.  Total spending by federal and state governments in 2016 was $553 billion, of which $118 billion was on long-term care – home health care and personal assistance, as well as nursing homes.

“In 10 years, as surviving members of the baby-boom generation age into their 80s, the federal expenditure, including Affordable Care Act coverage, is projected to be $650 billion, rising from there after 2027.

“If a Republican health-care bill is enacted... The Congressional Budget Office estimates that in 2026, federal spending on Medicaid will still reach about $470 billion with repeal of Medicaid expansion and capping the growth rate of spending for the remaining beneficiaries.

“This is a problem that some Congress will have to face someday.  If not now, when?”

Dan Balz / Washington Post

“(President Trump) appears to have no commitment to an explicit strategy for getting a health-care bill to his desk, only a desire for victory and limited patience for the legislative process. He also has no fixed views on the substance of health-care reform, having made contradictory statements about the topic throughout his campaign and since....

“Presidential leadership on these big domestic initiatives generally requires a combination of two things.  The president is expected to act as the leading salesperson, making the public case while legislators make the sausage.  Behind the scenes, a president works to bring along the last wavering lawmakers, calling, cajoling and applying the pressure.  Sometimes it doesn’t work, but those responsibilities are part of the job description of the presidency.

“Former president Barack Obama spent months publicly advocating in favor of the Affordable Care Act and the value of expanded coverage and trying to slow the growth of medical inflation.  Despite his limited enthusiasm for interacting with Congress, he also spent hours in private conversations with legislators, including some Republicans.  He never won GOP support, nor was his measure publicly popular while he was in office, but not for lack of effort.

“Through the first five months of his presidency, Trump has yet to deliver a single comprehensive speech on the topic or subjected himself to extensive questioning from reporters that would give him a forum to make his case.  Nor is there evidence that the president has proven effective with many individual lawmakers.”

Wall Street

Friday’s jobs report for June was solid, 222,000, solidly ahead of the Street’s forecast for 170,000.  Plus revisions to April and May added another 47,000 and the bottom line is the 3-month average is up to 194,000, with the average for the first six months of 2017 at a respectable 180,000, but essentially the same as all of 2016.

The unemployment rate ticked up to 4.4% from 4.3%, as more people reentered the labor force, a good sign, while the underemployment rate, U6, rose to 8.6% from 8.4%.

But average hourly earnings gained only 0.2% for June and are up 2.5% year-over-year (just 2% on a 3-month annualized basis). As I’ve noted before, in a solid economic expansion, wages should be growing at 3.5%+.

Separately, the ISM data on manufacturing and services came in at 57.8 and 57.4, respectively (50 being the dividing line between growth and contraction). Regarding the former, the highest since August 2014.  [May construction spending was unchanged, while May factory orders fell 0.8%.]

So what will the Federal Reserve do with this data? Well, for starters they don’t have to do anything for a while, the next realistic time for them to consider raising rates being September 19-20.  [They won’t do anything at the July 25-26 confab, where they just sit around drinking iced tea and eating shrimp at this mid-summer deal.]

Minutes from the June meeting released Wednesday revealed there is still a big debate among board members over how soon the Fed should begin to reduce its securities portfolio, or balance sheet.  Officials seem divided about whether to start the reduction in September or wait until December.

They also disagree over the impact of balance sheet maneuvering and whether it acts as a substitute for rate increases.

The minutes also acknowledge inflation is “surprisingly low,” but that most officials continue to expect a return to normal.

Europe and Asia

There was a slew of economic data this week and the eurozone continued to show signs of solid growth with the EA19 composite reading for June 56.3 vs. 56.8 in May, marking the best quarter in six years.  Manufacturing was 57.4 (57.0 in May), while the services reading was 55.4 vs. 56.3. [IHS Markit]

Individually for June....

Germany 59.6 mfg., 74-mo-high, 54.0 services
France 54.8 mfg., 56.9 services
Italy 55.2 mfg., 53.6 services
Spain 54.7 mfg., 58.3 services
Greece 50.5 mfg., 37-mo. high, above 50 for first time since Aug. 2016
Netherlands 58.6 mfg., 74-mo. high

[In non-euro U.K., the manufacturing PMI fell to 54.3 from 56.3 in May, a sharp decline, 53.4 for services last month vs. 53.8.  What is clear is that business confidence is slipping: by one measure to the weakest level since Dec. 2011 due to uncertainties created by Brexit.  New car sales fell last month for the third month in a row, -4.8%.  But June retail sales were surprisingly strong.]

In other EA19 news, the unemployment rate was 9.3% in May vs. 10.2% a year earlier. [Eurostats]

Germany is 3.9%, France 9.6%, Spain 17.7% (but a big come down from a peak of 25%+), Italy 11.3%, Ireland 6.4% and Greece 22.5% (March).

The youth unemployment rate is still high in Spain, 38.6% but vs. 46.7% a year earlier, Italy, 37.0%, and Greece, 46.6% (March).

Retail trade in the eurozone rose 0.4% in May over April, +2.6% year-over-year.  [Eurostats]

Chris Williamson, chief economist, IHS Markt

“Eurozone manufacturing growth gained further momentum in June, rounding off the best quarter for just over six years.  At current levels, the PMI is indicative of factory output growing at an annual rate of some 5%, which in turn indicates the goods-producing sector will have made a strong positive contribution to second quarter economic growth.

“Exports continue to play a major role in driving the expansion, increasing in recent months at rates not seen for six years, buoyed in part by the weak euro. But it’s also clear that factories are benefiting from ongoing strong demand from domestic customers.

“Input cost inflation has eased markedly since earlier in the year but remains elevated, causing manufacturers to hike their selling prices sharply again.  Increasingly widespread supply chain shortages mean pricing power is being regained, hinting at some upward pressures to core inflation.

“There’s no sign of the impressive performance ending any time soon.”

So just as in the case of the U.S. Federal Reserve and its next policy move, what does the European Central Bank do with all the solid data?  Minutes from their June policy meeting, released this week, showed that senior officials were warning of moving too fast to begin to normalize monetary policy because inflation is still non-existent.

The minutes show that ECB members thought “it was necessary to avoid signals that could trigger a premature tightening of financial conditions” that might undo recent progress on inflation.

But the euro bond market has been roiled the past two weeks after president Mario Draghi’s bullish comments on the central bank’s fight against deflation, even if he tried to qualify them and walk back some of the optimism contained therein.  The fact is inflation remains below their target and wage pressures are non-existent.  [Eurozone inflation is at 1.3% annualized and is only expected to rise to 1.6% in 2019.  Any strength in the euro exerts downward pressure.]

That said, the German 10-yr. Bund saw its yield rise to 0.57% from 0.25% two weeks ago.  France’s 10-year yield has soared from 0.60% to 0.93% over the same period.

So is this it?  The end of central bank free money around the world?  Is the global bond rout now on?  Many leading fixed-income and hedge fund types now believe so (though maybe not a rout).  For example, the consensus is clearly that the yield on the U.S. 10-year won’t hit 2.00% again.

Lastly, the European Union and Japan formally agreed to a free-trade deal, at least the outline of one, after four years of negotiating. This is big.

Two of the most important sectors being negotiated over are Japanese cars and EU farming and getting such goods into the other.

Donald Tusk, president of the European Council, said the agreement showed the EU’s commitment to world trade.

Editorial / Wall Street Journal

“Japanese and European Union leaders on Thursday announced an agreement in principle to remove tariffs on 99% of goods as well as other barriers to trade.  While it will be phased in over many years and some obstacles remain, the deal overcomes Japan’s reluctance to open its market to food products as well as Europe’s resistance to a free market for Japanese cars.  Some have dubbed the deal ‘cars for cheese,’ but its effects will be more far-reaching than bilateral trade.

“In particular it contains a message for Donald Trump, who pulled the U.S. out of the Trans-Pacific Partnership deal with Japan and 10 other Pacific nations and has halted negotiations with Europe on the Transatlantic Trade and Investment Partnership.  Trade will go on around the world whether or not the U.S. decides to participate. Had the U.S. remained in the Pacific pact, American farmers and other exporters could have enjoyed the increased sales to Japan that are now on offer to Europeans.

“Meanwhile, the Trump Administration is considering punitive tariffs on imported steel and other products under an obscure provision of a 1962 law.  This could lead to tit-for-tat sanctions against American exporters, tie up the U.S. in cases at the World Trade Organization and make it more difficult to secure the opening of foreign markets to American goods.

“If the U.S. continues on this protectionist path while the rest of the world pursues far-reaching trade deals, the effects are predictable.  American exporters will have to pay more for their materials and face higher barriers than their competitors. Consumers will pay higher prices.  This will cost American jobs and reduce incomes....

“If Washington cedes trade leadership, it risks being left behind as other countries set the rules and expand trade among themselves.

“The irony is that the productivity of American manufacturers leads the world, and employment is rebounding.  At a moment when U.S. firms could grow their exports, the Trump Administration is burning bridges. The EU-Japan deal is a warning that others will take up trade leadership and capture the prosperity that Americans should enjoy.”

Eurobits....

--On the Brexit front...the EU’s chief negotiator, Michel Barnier, said Britain has yet to “face the facts” on the negative consequences of their move to leave the EU and that trade talks will not start without progress on a financial settlement, strongly hinting little is going to get done before autumn.  Barnier said he also wants progress on the issue of citizen rights as well as Northern Ireland.

Barnier said, “I have heard some people in the U.K. argue that one can leave the single market and keep all of its benefits – that is not possible.

“I have heard some people in the U.K. argue that one can leave the single market and build a customs union to achieve ‘frictionless trade’ – that is not possible.”

Meanwhile, U.K. Labour Party leader Jeremy Corbyn said he will meet with Michel Barnier next week in just an awful move for both Prime Minister May as well as the outlook for the negotiations overall because it shows the EU even further how split Britain is, its instability, and how it’s not negotiating from any kind of position of strength.

Corbyn said he wants to “outline what our issues are,” and to tell Barnier he stands ready for a snap election that could make him the next prime minister.

Corbyn is convinced he can exploit the weakness of the Conservatives and emerge on top on his call to end austerity. This is a really dirty move at this time.

--Italy announced it reached agreement with the European Union to approve 5.4bn euros ($6.1 billion) in aid for Banca Monte dei Paschi di Siena, Europe’s oldest, which, coupled with the prior week’s commitments to wind down Banca Popolare di Vicenza and Veneto Banca, removes the major sources of turmoil in the country’s financial system...for now.

Monte Paschi is being recapitalized, with shareholders and junior creditors contributing 4.3 billion euros to minimize the costs to taxpayers.  Once the operation is complete, Italy will hold 70 percent of the bank, with the government looking to exit in 2021.

But as part of the rescue plan, the lender is reducing headcount 5,500 and closing 600 branches, while disposing of some $30bn in bad loans by 2021.

--French far-left leader Jean-Luc Melenchon called for a nationwide day of protest next week, July 12, against government plans for spending cuts and pro-business tax and labor reforms.  This is exactly what I’ve said you’ll see increasing levels of through the fall.  It will be interesting if Melenchon’s call is heeded and if protests are peaceful. 

Melenchon said that President Emmanuel Macron was getting drunk on power and was trying to undo decades of progress on crucial workers’ rights.

“He thinks he can fix all the problems by force.  He is wrong.”

--The two main political parties in Northern Ireland failed to reach a new power-sharing agreement, the government having collapsed in January.  Irish Catholic nationalist Sinn Fein and the Protestant pro-British Democratic Unionist Party (DUP) have been in talks since a March election.  Each is blaming the other for the ongoing impasse.

Sinn Fein leader Gerry Adams said, “The Sinn Fein electorate will not consent to be governed by DUP on DUP terms.”

The fear is that there could be a return to violence.

--In Germany, an election poll for the big vote in September has Angela Merkel’s coalition receiving 39% to just 24% for the Social Democrats.  It’s in the bag for the chancellor.

--Lastly, there is a serious immigration rift between Austria and Italy, with the Austrians putting 750 troops on the border to keep the latest wave of immigrants piling into Italy, largely from North Africa, from moving into Austria.

The European Union approved an extra 35 million euro in aid to Italy but this is a pittance compared to the estimate of 4bn euro that the Italian government has said it needs to handle the renewed crush.

Italy has rescued and brought to its shore over 85,000 migrants this year, compared with 71,000 over the same period of time last year, according to the International Organization for Migration.

According to the United Nations’ refugee agency, just 30% of the people arriving in Italy are eligible for asylum, the rest being so-called economic migrants who are supposed to be sent back home.

There are allegations nongovernmental organizations (NGOs) are colluding with migrant smugglers to facilitate their journey to Europe.  For example, the UN says, 41% of the people rescued at sea have been rescued by private ships operated by NGOs.

Well, you know my stance. I fully respect Austria’s right, and that of its Eastern Europe brethren, to do all they can to severely limit migration until this cycle runs its course (and this is all dependent largely on some kind of stability in Syria and Libya in particular).

Turning to Asia....

China’s official manufacturing PMI for June was 51.7 vs. 51.2 in May, with services at 54.9 vs. 54.5, so continued stability and slow growth.

The Caixin Markit private index, though, was 50.4 on the manufacturing side vs. 49.6 in May, services at 51.1 vs. 52.8.  For this last one, the second-lowest reading in over a year.

China’s ongoing deleveraging efforts will impact growth, which was at 6.9% in the first quarter, but is expected to be around 6.5% in the second, with the government setting a target of 6.5% for all of 2017.

In Japan, the June manufacturing PMI was 52.4 vs. 53.1 in May, down but still respectable, while the services figure was at 53.3 vs. 53.0.

A key wage component in Japan, ‘regular pay,’ which accounts for the bulk of total pay and determines base salaries, jumped 0.9% in May from a year earlier, the biggest rise since March 2000, according to the labor ministry.

Elsewhere in the region...India’s manufacturing PMI was 50.9 in June (services 53.1), South Korea’s 50.1, and Taiwan’s 53.3.

I do have to note that despite the increased tension on the Korean peninsula, South Korea’s exports posted double-digit growth for a sixth month in a row in June, up 13.7%, while imports rose 18%.  [Exports to the U.S. slipped 1.1% year-on-year, while they were up 5.1% to China and up 21.1% to the EU.]  The main components of the export surge have been semiconductors, shipbuilding and petrochemical goods, with exports of semiconductors soaring 53% yoy.

Back to Japan, the other day I wrote of their demographic crisis and a shrinking population.  This week, the Internal Affairs Ministry said the number of Japanese fell 308,084 in 2016, a record decline, though there was a rise of 148,959 foreign residents owing to students and guest workers.

So in the two figures you see the quandary. Will Japan allow immigration to sustain overall population growth or accept a decline to preserve ethnic purity.

Street Bytes

--The three major indexes registered fractional gains on the holiday-shortened week, with the Dow Jones up 0.3% to 21414, while the S&P 500 edged up 0.1% and Nasdaq tacked on 0.2%.

It’s all about earnings the next few weeks.  Focus in on revenues, which have been strong.

--U.S. Treasury Yields

6-mo. 1.13%  2-yr. 1.40%  10-yr. 2.39%  30-yr. 2.93%

While the yield on the 10-year has been rising off its 2.14% low for the year in just the last two weeks, 2.39% is still below the 12/31/16  close of 2.44%.  Some bond mavens are targeting 2.60% as a key level.  Break through that and it’s on to 3.00%.

--The U.S. energy industry has been targeted by hackers, as announced by the homeland security department and the FBI Thursday.  Among those breached was a nuclear facility by a potential nation state hacker.  A spokesman for DHS said there was “no indication of threat to public safety, as any potential impact appears to be limited to administrative and business networks.”

Bloomberg reported the nuclear facility under attack was Wolf Creek in Kansas.  DHS is now warning of more such attacks to come.

--Warren Buffett’s Berkshire Hathaway Inc. struck a deal to buy one of the country’s biggest power-transmission companies, bankrupt Energy Future Holdings Corp. for $9 billion in cash, giving Buffett its Texas-based subsidiary Oncor.

Oncor would mesh with Buffett’s other energy businesses, including the former MidAmerican Energy Holdings Co., now Berkshire Hathaway Energy.  Berkshire said it is the second-biggest utility in the U.S. by 2016 net income and serves customers in 18 western and Midwestern states as well as in the U.K. and Canada.

Oncor operates the largest electrical-distribution network in Texas.

--June auto sales are in and after looking at a first half showing a steady decline, it’s clear 2017 isn’t going to top 2016’s all-time record of 17.6 million units sold.

But it’s hardly disaster, with auto sales down 2.1% through the first six months of 2017, compared to 2016, according to Autodata.  Carmakers will continue to make hefty profits.

[The slide in the first half was the first decline since 2009 and the financial crisis.]

Most experts are forecasting around 17 million units for the year.

For the first six months, GM was down 1.8%, Ford fell 3.8% and Fiat Chrysler declined 6.9%, according to Autodata.  Toyota sales fell 3.6%, Honda’s 0.1% and Nissan’s rose 2.7%.

June sales fell 3% from a year earlier (car sales down 13%, trucks and SUVs up 4%, according to Autodata), as consumers continued to abandon compacts for SUVs and pickup trucks.  [For the first half, mid-size SUVs and crossovers saw their market share rise to 12.8%, while mid-size cars saw theirs fall to 10.9%, according to Kelley Blue Book.]

GM -4.7% last month, year-over-year; Ford -5.1%; Fiat Chrysler -7.4%; Toyota +2.1%; Honda +0.8%; Nissan +2%; Hyundai -19.3%, but this is owing to a massive reduction in fleet sales; Kia -10.3%; Volkswagen Group +15%, amid ongoing recovery from the emissions scandal; Subaru +11.7%

--Shares in Tesla, with a 52-week high of $387 and a close of $383 as recently as June 23, closed down 7%, $25.50, to $327.90 on Wednesday, on the heels of a Goldman Sachs downgrade, with GS having a price target of $180. It then fell another 5%+ on Thursday to $308.80, hurt in no small part by a safety test on the Model S that had it coming up short vs. prior results.  [Friday the stock recovered a little to $315.]

It’s about deliveries and once again the company fell short of Wall Street expectations in the second quarter, even as it is set to start delivering its Model 3 sedan, targeting mass-market consumers, as early as today, at least the first few, increasing later this month.

What’s been confusing is that CEO and founder Elon Musk keeps talking about all these new products and successes, which Teslareans eat up, and then reality hits investors in the face with another delivery miss...actual performance.

Tesla is pinning its hopes on its new Gigafactory (and others of its ilk to follow) being able to produce batteries on a mass scale, with production of new vehicles at 20,000 a month by the end of the year.

But Goldman argues demand for Tesla’s Model S sedan and its Model X SUV appears to have peaked.

So Tesla announced it would deliver 22,000 vehicles in the second quarter, overall, fewer than the record 25,000 cars in the first quarter as the company admitted it had issues with the largest battery pack for Tesla’s electric cars.

As for the Model 3, few now believe Tesla will hit its production targets for the balance of 2017.  But let’s just say Elon Musk needs to because if it has the problems that plagued other Tesla cars with their introductions, the company could have trouble getting new financing and the shares would plunge further. 

--And it doesn’t help Tesla’s long-term prospects when you have an announcement like that out of Volvo this week, the company saying that every model from 2019 onwards would have an electric motor, thus becoming the first traditional automaker to say it would totally stop powering its vehicles with an internal combustion engine.

Volvo said Wednesday that it would put electrification at the core of its business and from 2019 would only make three types of cars: pure-electric, plug-in hybrids, and “mild” hybrids that combine a small gas engine with a large battery.

CEO Hakan Samuelsson said: “This announcement marks the end of the solely combustible engine-powered car.

“Volvo Cars has stated that it plans to have sold a total of 1m electrified cars by 2025. When we said it, we meant it. This is how we are going to do it.”

Globally, the market for pure-electric cars is still less than 1 percent of sales, as of 2016, but sales rose 40% in the first quarter, according to EV-Volumes.com.

As reported by Patrick McGee of the Financial Times: “If the growth rate since 2013 were to continue, then eight out of 10 cars sold in 2030 would be plug-ins.”

So we go back to Tesla, which hopes to produce 1m cars a year by 2020, but the premium electric car market will soon become crowded.  Audi recently announced it would sell two premium electric cars in 2019, the same year Mercedes is launching its new electric SUV. And later this year, BMW is expected to announce its new electric model, part of its best-selling 3-Series.

--General Motors announced its sales rose in China in June after two consecutive down months.  The automaker said it was going to rejuvenate its China market with 10 new or refreshed models in the second half of 2017.

GM sold 285,191 vehicles last month there, it being the second-largest foreign brand behind Volkswagen AG.  But from January through June, sales declined 2.5%.

--I’ve warned this can happen to the United States, to the likes of Apple, Microsoft, and GM, for instance, but Hyundai Motors said its problems in China are worsening amid China’s backlash over the deployment of a controversial missile shield in South Korea.

Hyundai Motor, and its Kia Motors affiliate, said their China sales dropped more than 60% last month.  This is a critical market for the South Korean-based automaker, 20% of overall sales volume, the company said.  It’s about the Chinese ginning up anti-Korean sentiment, which then keeps potential buyers out of the showroom.  [Japan has had similar problems in the past.]

--Microsoft employees were bracing Thursday for word on how many layoffs there would be as news began to seep out earlier that the software giant is reorganizing its global sales group as it retunes to focus on selling its Azure cloud-computing services and away from boxed software sales.

Azure is emerging as a top competitor to Amazon Web Services, although it is still just 25% Amazon’s size in the space, as reported by Reuters, citing Deutsche Bank’s estimates.

So the number of layoffs now being floated is 3-4,000 employees, with Microsoft not specifying a number, though the restructuring largely affects sales operations outside the U.S.

Microsoft employs 121,567 people worldwide, and 71,594 in the U.S.

--Samsung Electronics said its second-quarter operating profit will likely hit $12.11 billion, its highest ever and better than analysts are forecasting.  Revenue is to be up 18% from a year earlier, though Samsung said it would formally release earnings later this month.

--The median price of a Manhattan home hit a record $1.2 million during the second quarter, as reported by Douglas Elliman Real Estate (and Crain’s New York Business), a bit of a surprise.

But part of the market’s strong performance apparently stemmed from sellers coming down in price in order to meet buyers’ expectations.

--So I literally live across the street from one of Celgene’s two Summit, N.J. campuses, and I’ve been marveling at how fast they’ve been filling up the massive site once occupied by Merck (and before that Schering-Plough, and before that Ciba-Geigy).

Analysts are looking for good things from the company as it enters an 18-month stretch during which results are expected form 17 late-stage trials.  By 2020, the company sees the potential for $21 billion in yearly revenue – nearly double what it booked last year.

Today, though, the company is highly dependent on one drug, Revlimid for blood cancers and conditions, with sales of the drug 62% of the company’s total in 2016.

But by year end they will have four with $1 billion in sales: Abraxane for breast cancer, Pomalyst for blood cancer, and Otezia for psoriasis.  [I didn’t see the fourth one.]

And then Wednesday I saw a news release, “Celgene Enters Into Global Strategic Immuno-Oncology Collaboration with BeiGene (Beijing) to Advance PD-1 Inhibitor Program for Solid Tumor Cancers,” a deal whereby Celgene gains the worldwide rights outside Asia, while BeiGene acquires Celgene’s commercial operations in China.

--One of my long-time favorite economic barometers for China, Macau casino revenues, jumped 26% in June, posting an 11-month winning streak, as demand from high-roller VIPS surged despite the ongoing corruption crackdown.

Macau is still the only place in China where gambling is legal and revenues have been recovering from a two-year slide when President Xi Jinping announced his big attack on corruption.

The VIP sector, however, is still very controversial, with continued scrutiny over money laundering.

--Canada issued a strong jobs report today for June, the economy adding 45,300, topping economists’ forecasts for a gain of just 10,000.  The unemployment rate dipped to 6.5%.

Canada is still in the process of recovering from the hit it took two years ago during the collapse in oil prices.

--According to the Department of Agriculture, Americans ate an average 55.6 pounds of beef in 2016, up from 54 pounds in 2015.  Comeback time!!!

This is after a decade during which beef consumption plunged 15% amid all those switching to supposedly more healthy diets.

It also helps these days that beef prices are generally lower when they had been consistently rising, some 50% between 2006 and 2016.  [Chicken during that time also rose, but not as much.]

--Liberty Interactive, the media company that owns the home shopping channel QVC, said on Thursday it was acquiring rival Home Shopping Network in an all stock deal worth $2.1bn as the battle against Amazon ramps up.  Liberty is buying the remaining 61.8 percent of HSN shares that it did not already own.  HSN shareholders will receive 1.65 shares of QVC’s series A common for each HSN share.  The deal represented a 29% premium to the company’s closing price on Wednesday.

--The above deal makes eminent sense, as does Cirque du Soleil’s announcement it was acquiring the Blue Man Group. I mean these two are clearly made for each other.

--Fox Sports announced it had abruptly fired Jamie Horowitz, a top executive, amid a company investigation into claims of sexual harassment, as reported by various news and sports agencies.

Eric Shanks, the president of Fox Sports, said in an email to employees: “Everyone at FOX Sports, no matter what role we play, or what business, function or show we contribute to – should act with respect and adhere to professional conduct at all times. These values are non-negotiable.”

So yet another division of 21st Century Fox is being battered by sexual harassment claims, the other of course being Fox News.

Horowitz was hired in May 2015 to revamp the flagship channel FS1 and he steered it away from news and attempting to compete with ESPN’s “SportsCenter,” hiring instead the likes of Skip Bayless, Colin Cowherd and Jason Whitlock for its daytime lineup.

And he just laid off two weeks ago about 20 online writers and editors at Fox Sports’ digital operation, opting for more video content from Fox Sports personalities.

But as if the Horowitz move wasn’t bad enough, Friday we learned Fox Business Network host Charles Payne was suspended while the company investigates sexual harassment allegations made against him.

As first reported by the Los Angeles Times, Payne has acknowledged what he described as a three-year “romantic relationship” with a married female political analyst who frequently appeared on Fox Business and the Fox News Channel from 2013 to 2016.  Payne is married with children.  He has vowed to fight the suspension.

Foreign Affairs

Iraq / Syria: The Syrian Observatory for Human Rights said U.S.-led coalition air strikes have killed at least 224 civilians since the Syrian forces it backs entered the ISIS stronghold of Raqqa a month ago.  The Observatory has been the most reliable source on casualties in Syria from the beginning of the war.  The battle for Raqqa continues. 

In the battle for Mosul in Iraq, some 300 ISIS fighters are said to be holed up in a small patch of territory in the Old City, with a large number of civilians still trapped in the enclave.  Satellite images show the Old City is totally destroyed.

But as territory is taken by the Iraqi Army, and the citizens emerge, militants are managing to escape with them.  An Iraqi special forces general told the Associated Press, “They just shave their beards and walk out.”

[Friday, ISIS launched a diversionary attack on a village south of Mosul, killing two Iraqi journalists and others.]

Ralph Peters / New York Post

“The good news is that, although hard fighting remains, the Islamic State’s caliphate in Syria and Iraq has been devastated. Soon, it will be entirely destroyed.  Islamist terror will continue to gnaw societies around the world, but the vision of a totalitarian blood-cult ruling in the name of a gory god has been discredited among the Middle East’s Muslims and beyond.

“The bad news is that, with ISIS crushed as a quasi-state and conventional fighting force, we’ll face a new Persian Empire stretching to the Mediterranean – and bordering Israel.  The trans-national Shia-Sunni religious war will return to prominence. Dysfunctional borders still will plague the region.  Traditional U.S. allies will find themselves newly vulnerable. And Americans will no longer be welcome in Syria or Iraq.

“When it comes to the greater Middle East, we did not have a strategy; we do not have a strategy; and it’s unlikely that we’ll have an effective strategy in the future. Washington does emergency surgery, not preventive medicine.”

Peters notes the Winners.

“Iran, Iran and Iran.

“Can’t help repeating the cliché: The Persians invented chess, and we play jailbird checkers. Tehran is creating a new empire that bears an uncanny resemblance to the empires of Darius and Xerxes 2,500 years ago, stretching from what’s now western Afghanistan, through Iran (Persia) and on through Iraq, to Syria, Lebanon and to the Mediterranean.

“We helped build it.

“It’s a military maxim never to underestimate your opponent, but when it comes to Iran, we did just that.  As the dust settles – and the blood congeals – in Syria and Iraq, Iran, not the U.S. or Russia, will be the regional hegemon. And Iran has achieved this with a minimal investment of blood or treasure.

“As you read this, the U.S. Ari Force is – unwittingly – flying anti-ISIS missions that serve Iran, above all.  Russia’s Air Force is flying combat missions against the Syrian freedom fighters battling Assad. Those sorties, too, serve Iran’s ends.  It’s a neat division of labor achieved by the Tehran regime, which doesn’t have a strong air force of its own. You don’t need one, if we’ll lend you ours.

“Militarily weak, Iran harnessed the might of others, even of its enemies. That, ladies and gentlemen, is strategy.

“When ISIS is gone, only the Kurds will ask us to remain.  Russia will be rewarded with a couple of show-off bases of little strategic value. The others will ask us to leave. And if we don’t just go, they’ll force us out.”

Hizbullah and the Kurds are other ‘winners,’ the latter the only piece of good news out of this mess.

Israel is among the ‘losers.’

Ralph Peters: “Iran now has a military presence on Israel’s northern border.  Hizbullah is bigger and much tougher than ever. Should another war break out, it may prove to be Israel’s hardest campaign since 1973.”

Egypt: 23 Egyptian soldiers, including a special forces colonel, were killed by a suicide car bomber and heavy gunfire at a military checkpoint in northeastern Sinai on Friday. At least 20 were wounded.  Egypt faces an Islamist insurgency in North Sinai led by Islamic State.

Qatar vs. Saudi Arabia et al: The four Arab states that have imposed an extensive embargo on Qatar, blasted Doha this week for its “negative” response to their demands in a sign the month-long diplomatic crisis is deepening.  The foreign ministers of Saudi Arabia, the UAE, Bahrain and Egypt said Qatar’s response showed “a lack of seriousness in dealing with the roots of the problem” and a “failure to appreciate the dangers in the situation.”

The crisis began when the four states cut diplomatic ties and transport links with Qatar over its supposed funding of terrorism. Among the demands this week were that Qatar pay reparations, cease all support for the Muslim Brotherhood and close Al Jazeera, the satellite channel.

Qatar says it won’t be dictated to by its neighbors.

Kuwait is mediating the dispute.  This is going nowhere fast.

Afghanistan: President Trump recently gave Secretary of Defense Jim Mattis chief authority to send thousands of American troops to Afghanistan at his own discretion, but the White House has now sent classified guidance that effectively limits the number of forces to no more than 3,900 troops without having to go back to the White House for further discussions, as reported by the Wall Street Journal’s Dion Nissenbaum.

So once again we have conflicting messages reflecting divisions inside the administration.  There had been talk of 4,000+, but we have not heard of Mattis’ final plan which he is to present to the White House soon.

Separately, an insurgent attack left one U.S. soldier dead and two others wounded in Afghanistan’s southern Helmand province, where hundreds of U.S. troops are deployed in the fight against the Taliban. The 19-year-old was killed in a rocket attack.  Seven U.S. soldiers have been killed in action this year in the country.

U.S. senators visiting Kabul this week, including Republican John McCain, criticized Secretary of State Tillerson’s handling of policy in Afghanistan, saying the lack of a strategy undermines any anticipated troop surge.

Venezuela: In a despicable display, rowdy groups of supporters of President Nicolas Maduro stormed the opposition-controlled National Assembly on Wednesday, bloodying several lawmakers and journalists, as photos and videos later showed.

And Maduro has initiated a sham poll for July 30, where people are to vote for candidates to his new superbody assembly, Constituent Assembly, with powers to reform the constitution and supersede the National Assembly and other institutions.  The opposition is planning a rival, unofficial referendum on July 16 to give Venezuelans a say on his plan.

90 have died in protests the last three months.  Far more are about to in the coming weeks.

Mexico: Within 24 hours, at least 26 people were killed Wednesday in northern Mexico during a gun battle between warring crime gangs, part of an escalation in deadly violence across the country the past year in particular. Days earlier, a similar battle between gangs in Sinaloa state killed at least 30.

There were 2,186 homicide investigations opened in May, more than in any month since the government began publishing homicide statistics in the 1990s.  11,155 were murdered in Mexico in the first five months of 2017, according to government statistics, a staggering 31% jump from a year ago.

2011 saw the highest body count in Mexico’s peacetime history, 27,213.

So Thursday, fighting between rival gangs inside a state prison in Acapulco killed at least 28 inmates.  Remind me not to be convicted of playing DraftKings in Mexico.

Random Musings

--President Trump’s voter fraud commission may have ignored federal requirements governing requests for information from states.

The Presidential Advisory Commission on Elections Integrity, asked all 50 states for full information on their voters, including names, addresses, party registration and the last four digits of Social Security numbers.

44 states as of Wednesday, as reported by The Hill, led by both Republicans and Democrats, are resisting turning over information and I sure as hell wouldn’t either.

Kris Kobach, the Kansas secretary of State who is heading the advisory panel, said it is more like 20 states that have agreed with the request and 16 others are considering it.  He said only 14 and the District of Columbia have refused the Commission’s request for information that he says is already public.

But there is a 1980 law, the Paperwork Reduction Act, that requires requests from agencies and other federal entities to first go through the Office of Management and Budget’s Office of Information and Regulatory Affairs and that they are to then seek public input, including through a comment period.

Thus far, there is no public record of the Commission remotely following proper procedures.  It’s a fraud.

Michael Chertoff / Washington Post

“(Whatever) the political, legal and constitutional issues raised by this data request, one issue has barely been part of the public discussion: national security.  If this sensitive data is to be collected and aggregated by the federal government, then the administration should honor its own recent cybersecurity executive order and ensure that the data is not stolen by hackers or insiders.

“We know that voting information has been the target of hackers.  News reports indicate that election-related systems in as many as 39 states were penetrated, focusing on campaign finance, registration and even personal data of the type being sought by the election integrity commission.    Ironically, although many of these individual databases are vulnerable, there is some protection in the fact that U.S. voting systems are distributed among thousands of jurisdictions.  As data-security experts will tell you, widespread distribution of individual data elements in multiple separate repositories is one way to reduce the vulnerability of the overall database.

“That’s why the commission’s call to assemble all this voter data in federal hands raises the question: What is the plan to protect it? We know that a database of personal information from all voting Americans would be attractive not only to adversaries seeking to affect voting but to criminals who could use the identifying information as a wedge into identity theft.  We also know that foreign intelligence agencies seek large databases on Americans for intelligence and counterintelligence purposes.  That is why the theft of more than 20 million personnel files from the U.S. Office of Personnel Management and the hacking of more than half a billion Yahoo accounts were such troubling incidents....

“In May, President Trump signed the executive order on cybersecurity to instill tough security in federal offices that handle critical government data. That order is a commendable initiative to hold officials accountable for safeguarding sensitive personal information, such as voter information. The president’s election integrity commission should live up to the president’s own directive.”

Hear hear!

--According to a Politico-Morning Consult poll, 37% of American voters said they “strongly supported” the new U.S. State Department guidelines that would deny visas to citizens of Iran, Libya, Syria, Somalia, Sudan and Yemen who do not have close relatives in the United States.  Another 23% said they “somewhat support” the guidelines.

The poll was conducted in the days after the Supreme Court ruling upholding most of the ban.

83% of Republicans approved, while only 46% of Democrats opposed it.

--NPR legal affairs reporter Nina Totenberg reported that Supreme Court Justice Anthony Kennedy probably isn’t retiring that soon, but it seems that while he long ago hired his law clerks for the coming term, starting this fall, he hasn’t done so for the one beginning Oct. 2018, telling applicants that he is considering retirement, with that term beginning Oct. 2018.

So for Republicans this is huge.  Let’s say Kennedy announces his retirement in June 2018 after the term ends.  Republicans could just fill it before the 2018 mid-term. And if for some reason they can’t fill it until after November 2018, it’s not easy for Democrats to be able to win three seats the way the races are setting up thus far.

What seems clear is that Kennedy isn’t sticking around for Trump’s full term.

--Despite President Trump’s claims to the contrary, according to Nielsen’s second quarter ratings, MSNBC’s total viewers are up 73% year-over-year, with primetime viewership up 86%, and thanks in part to Rachel Maddow, MSNBC’s share of the coveted 25 to 54 demographic grew 78% in primetime over last year.

[Separately, Nielsen reported on Wednesday that Joe and Mika reached their biggest audience ever when they talked last Friday about President Trump’s tweets about their show; 1.66 million people watched them the day after.]

But CNN has had a rough stretch, stung by stories it had to retract and related dismissals, plus sting videos.

Yet CNN has still grown 25% in total viewers and 10% in primetime year-over-year.

Fox News remains the frontrunner in the cable wars, with its audience growing 19% between 8pm and 11 pm.  [Jonathan Easley / The Hill]

--Trump defended his use of social media in a series of tweets last Saturday.

“My use of social media is not presidential – it’s modern day presidential.”

“The FAKE & FRAUDULENT NEWS MEDIA is working hard to convince Republicans and others I should not use social media,” he tweeted: “But remember, I won the 2016 election with interviews, speeches and social media.”

--The New York Post’s Michael Goodwin recently delivered a speech at a Hillsdale College National Leadership Seminar in Atlanta, which the Post released in its paper this week. Following is an interesting excerpt on the New York Times and how it seems to have ‘lost its way.’

“I say this with great sadness.  I was blessed to grow up at the Times, getting a clerical job right out of college and working my way onto the reporting staff, where I worked for a decade.  It was the formative experience of my career where I learned most of what I know about reporting and writing.  Alas, it was a different newspaper then. Abe Rosenthal was the editor in those days, and long before we’d ever heard the phrase ‘zero tolerance,’ that’s what Abe practiced toward conflicts of interest and reporters’ opinions. He set the rules and everybody knew it.

“Here is a true story about how Abe Rosenthal resolved a conflict of interest. A young woman was hired by the Times from one of the Philadelphia newspapers. But soon after she arrived in New York, a story broke in Philly that she had had a romantic affair with a political figure she had covered, and that she had accepted a fur coat and other expensive gifts from him.  When he saw the story, Abe called the woman into his office and asked her if it were true. When she said yes, he told her to clean out her desk – that she was finished at the Times and would never work there again. As word spread through the newsroom, some reporters took the woman’s side and rushed in to tell Abe that firing her was too harsh.  He listened for about 30 seconds and said, in so many words, ‘I don’t care if you f—k an elephant on your personal time, but then you can’t cover the circus for the paper.’ Case closed. The conflict of interest policy was clear, absolute, and unforgettable....

“Sadly, the Times’ high standards were buried with Abe Rosenthal.”

--Robert Samuelson, from his perch at the Washington Post, has the following point concerning the ‘middle’ in America, as per attitudes uncovered in a recent Pew poll that found that “public trust in government remains near historic lows.”  Just 20 percent of Americans trust the government to “do the right thing just about always or most of the time.”  It was as high as 80 percent in the early 1960s and has been on an inexorable decline.

Samuelson:

“By Pew’s estimate, this messy middle – meaning that its members have a ‘roughly equal number of liberal and conservative positions’ – remained the largest bloc of Americans at about 40 percent of the total in 2014.  Here is what Pew says about the anomalous position of people in the middle:

“ ‘The majority do not have uniformly conservative or liberal views. Most do not see either party as a threat to the nation. And more believe their representatives in government should meet halfway to resolve contentious disputes rather than hold out for more of what they want.

“ ‘Yet many of those in the center remain on the edges of the political playing field, relatively distant and disengaged, while the most ideologically oriented and politically rancorous Americans make their voices heard through greater participation in every stage of the political process’ – voting, contributing, volunteering.

“The stabilizing center of U.S. politics is marginalized.  Its considerable power is dissipated and silently flows to activists of both parties, who increasingly define themselves by demonizing their opponents.  Cooperation becomes harder, because the gulf between them becomes larger and the contempt of each for the other grows. The activists in both parties are the troublemakers – not all of them, but enough to matter....

“What’s worrisome and not especially recognized is that many members of the political class – again, the pundits, journalists and scholars as well as elected officials, lobbyists and activists – have a vested interest in the status quo of division.  Who they’re against defines who they are on both left and right.  This protects elected officials against primary challenges by even greater ideological purists; it generates audiences and incomes for pundits; it makes activists feel morally superior. Who wants to give that up?

“Not surprisingly, the system has become self-perpetuating.  It feeds on mutual recriminations.  On this July 4, the founders – who had deep disagreements, but compromised – would doubtlessly disapprove.”

--Related to the above, a new NPR/PBS NewsHour/Marist Poll found that seven in ten Americans, 70%, think the tone between Republicans and Democrats has gotten worse, twice the percentage, 35%, who reported in a 2009 Gallup poll that civility in the nation’s capital had declined after the election of President Barack Obama.

Only 50% have confidence in our voting system, and 47% do not.

60% trust the intelligence community.

37% trust the Trump administration, which is better than the media, 30%, and Congress, 29%.

84% of Republicans trust the administration, only 8% of Democrats do.

--My personal congressman here in New Jersey is Republican Leonard Lance, who sits on the Energy and Commerce Committee but he didn’t know recently that the White House was holding “Energy Week.”

As The Hill disclosed the other day, other Republican congressmen have no clue what the message of the week, or day, is supposed to be because the White House doesn’t tell them.

It’s so bad, one Republican, Rep. Thomas Massie of Kentucky, said, “It might as well be Easter Bunny Week.”

--Us New Jerseyans can’t wait for Gov. Chris Christie to leave office next January.  There’s a reason why his approval rating is at 15%.  He’s an a-hole.

I voted for the guy twice, but his second term has been an unmitigated disaster as his bullying ways have gotten in the way of real policy and it all culminated in the picture that spread around the world, or at least the U.S., of the governor sitting on the empty beach with family and friends at what was one of the state parks that was closed to every other resident of this state due to failure between Democrats and Republicans to reach a budget deal, which they did finally do in time for the Fourth of July after three outrageous days of closure.

After the deal was reached late Monday night, Christie remained unapologetic about the optics of his spending time at a state beach that had been shuttered, at a beautiful residence provided to his family by the state.

Among his arguments: “Let’s be really clear: that’s our residence. And we have a right to be there whenever we want to be there.”

The state is giving it to you!  It’s not yours.  It’s ours.  We’re just letting you stay there.  [Friday, legislators proposed various ways of taking it away, and Christie’s Lt. Gov., Kim Guadagno, who is running to replace him, said the house should be sold.]

--Another true jerk, New York Mayor Bill de Blasio, defended his decision to jet to Germany to take part in protests against the G-20 summit, saying it had become “incumbent” upon him to speak out against President Trump.  He said he was in Hamburg at the invitation of other local government officials to talk about matters such as climate change and Middle Eastern immigration, given Trump’s positions.

De Blasio said he was aware of his responsibilities regarding the next story, but that he had a duty to “amplify democratic values” at events like an anti-nationalist gathering he will keynote Saturday.  Oh brother.  It’s too bad the Republican Party in Gotham is beyond pathetic.  No one can challenge him.

--A NYPD veteran of 12 years, Miosotis Familia, was assassinated while she sat in a police vehicle, killed by a 34-year-old drifter with an extensive rap sheet, who then in turn was quickly tracked down and killed himself.  Miosotis, 48, was a mother of three.

--Chicago saw one of its most violent Fourth of July weekends in recent years, with at least 101 people shot between Friday afternoon and early Wednesday, 14 of them having died.

--Baltimore had its second-deadliest first half of the year with 170 homicides, ranking only after 1992, when the city had 116,000 more residents.

--Sunday, on CNN’s “State of the Union” with Jake Tapper, Tapper asked Nebraska Republican Sen. Ben Sasse how he felt about President Trump relentlessly attacking journalists, including the one recently on MSNBC’s Mike Brzezinski.

Sasse: “There’s an important distinction to draw between bad stories or crappy coverage and the right that citizens have to argue about that and complain about that and trying to weaponize distrust.

“The First Amendment is the beating heart of the American experiment. And you don’t get to separate the freedoms that are in there. There are five freedoms in the First Amendment: religion, speech, press, assembly, and protest.

“And you don’t have religion without assembly.  You don’t have speech without press.  We all need to celebrate all five of those freedoms, because that’s how the e pluribus unum stuff works, right?  We differ about really big and important things in this country, and then we come together around the First Amendment, which is an affirmation of the fact that people are free before government.

“I mean, this is the Fourth of July weekend. The Declaration of Independence is pretty dang clear about this, that we think government is just our shared tool to secure those rights that we have by nature.  And so we need to affirm those rights.  We need to do that civic and catechetical stuff to teach the next generation what America is about.

“So, we need more of that from everybody in this conversation....

“Journalism is really going to change a lot more in the digital era.

“And we have a risk of getting to a place where we don’t have shared public facts.  A republic will not work if we don’t have shared facts....

“I’m the third most conservative guy in the Senate by voting record, but I sit in Daniel Patrick Moynihan’s desk on the floor of the U.S. Senate on purpose, because he’s the author of that famous quote that you’re entitled to your own opinions, but you’re not entitled to your own facts.”

Sasse adds, “It is going to be possible in the next three and five and 10 years for people to surround themselves only with echo chambers and silos of people that already believe only what they believe.  It’s a recipe for a new kind of tribalism. And America won’t work if we do that.”

--Another new NPR/PBS NewsHour/Marist Poll reveals what we already knew, that many Americans still don’t know their basic history.  While 77% of residents cite Great Britain as the country from which the United States declared its independence, nearly one in four, 23%, either mention another country, 8%, or are unsure, 15%.  This is little changed from the last time this question was asked in 2011.

Nearly nine in ten Americans with a college education or income above $50,000 are able to identify Great Britain correctly, while 84% of whites can, 70% of Latinos, and 53% of African Americans. Age makes little difference.

Three in ten Americans, 30%, do not know the year in which the United States declared its independence.  What’s kind of strange is that in 2011, 42% of U.S. residents were unaware of the year we broke away from Great Britain.

---

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

God bless America.

---

Gold $1211
Oil $44.33

Returns for the week 7/3-7/7

Dow Jones  +0.3%  [21414]
S&P 500  +0.1%  [2425]
S&P MidCap  unch
Russell 2000  unch
Nasdaq  +0.2%  [6153]

Returns for the period 1/1/17-7/7/17

Dow Jones  +8.4%
S&P 500  +8.3%
S&P MidCap  +5.2%
Russell 2000  +4.3%
Nasdaq  +14.3%

Bulls 52.5
Bears 18.8  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore