Week in Review

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Week in Review

07/22/2017

For the week 7/17-7/21

[Posted 11:30 PM ET, Friday]

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Edition 954

Trump World...Republican Healthcare Effort Down in Flames....

It’s unending.  Another effort to repeal and replace ObamaCare failed, with presidential leadership non-existent; the president, out of nowhere, lights into his attorney general for recusing himself in the Russia investigation (late Friday, the Washington Post is reporting Jeff Sessions was not forthcoming earlier about what took place when he saw Russian ambassador Sergey Kislyak...as in his discussions were intercepted by U.S. intelligence agencies); Republican stalwart John McCain was revealed to have a brain tumor (prognosis not good), which rocked the Senate; and the president is asking for advice on pardons.

Bottom line, it’s pretty apparent President Trump could go his entire first year without accomplishing a single part of his agenda, save deregulation, which is significant, but it’s not healthcare or tax reform.  Let alone do we have tax reform or an infrastructure program everyone knows we desperately need, and there’s a budget to pass and a debt ceiling to deal with, all in less than 12 weeks on the legislative calendar.

But Trump keeps tweeting:

Stock Market hit another all-time high yesterday – despite the Russian hoax story!  Also, jobs numbers are starting to look very good!  [Ed. they’re the same as the past few years.]

As I have always said, let ObamaCare fail and then come together and do a great healthcare plan.  Stay tuned!

We were let down by all of the Democrats and a few Republicans.  Most Republicans were loyal, terrific & worked really hard. We will return!

Republicans should just REPEAL failing ObamaCare now & work on a new Healthcare Plan that will start from a clean slate. Dems will join in!

The Fake News is becoming more and more dishonest! Even a dinner arranged for top 20 leaders in Germany is made to look sinister!

Fake News story of secret dinner with Putin is “sick.” All G 20 leaders, and spouses, were invited by the Chancellor of Germany.  Press knew!

So on the ObamaCare front, Republicans are vowing as of today to hold a vote to repeal it early next week, even though they lack the votes for anything that has been put on the table. In fact the critical vote would be Tuesday, to decide on whether to begin debate, but senators aren’t clear what they’d be debating on.

The two leading options are a repeal-only bill or an updated version of the Senate’s repeal and replacement measure.

The thing is, there is an open amendment process on this legislation so Republican leaders are stressing just vote on the “motion to proceed” to get the process going in some form.

One potential good sign, Sen. Rand Paul (R-Ky.), previously a firm “no” vote on even proceeding, said he could vote to proceed if he is guaranteed a subsequent vote on the repeal-only measure.

*However, late Friday, the Senate’s parliamentarian, Elizabeth MacDonough, ruled that portions of the bill to repeal and replace would require 60 votes, not a simple majority, which means this bill is unlikely to survive on the floor regardless of whether the Republicans could get to 50 (Vice President Pence being the tie-breaker).  I’ll get into the details as warranted next time.

White House officials have been fuming at Senate Majority Leader Mitch McConnell for failing to get repeal-and-replace legislation over the goal line, while GOP leaders are saying Trump failed to provide any real leadership.

One GOP senator told The Hill, “He was of no help.”  Hell, Trump literally doesn’t have a clue as to the details on the issue, let alone particulars in each proposal. He just keeps saying, “I’m sitting in the Oval Office, pen in hand, waiting to sign something.”  He doesn’t care what’s in the bill...he just wants to claim victory and hit the trail saying he is giving Americans “beautiful healthcare.”

Sen. Steve Daines (R-Mont.), describing a meeting Trump held in the White House Monday evening to pressure holdout GOP senators, recalled, “The president talked about France and Bastille Day.”

Right after the dinner, two more Republican senators announced they were bolting from the healthcare bill and it was once again back to the drawing board.

The next day, Tuesday, Trump told reporters, “I think we’re probably in that position where we’ll let ObamaCare fail.  We’re not going to own it.  I’m not going to own it.  I can tell you the Republicans are not going to own it. We’ll let ObamaCare fail and then the Democrats are going to come to us.”

I fault Republicans in a big way for wimping out on the leadership front, especially on the Medicaid issue, senators like Rob Portman of Ohio, who I used to respect, but at the same time, President Trump has to get involved in the policy details...on something! 

In the case of ObamaCare, the president also seems to issue a different directive every 24 hours.  And he’s dividing the Republican Party by threatening to “primary” anyone who goes against what he wants, but no one knows what he really wants when it’s like helter-skelter in that brain of his.

Meanwhile, House Speaker Paul Ryan has vowed to plow ahead on tax reform, the effort spearheaded by House Ways and Means Committee Chairman Kevin Brady (R-TX).

On the Senate side, Finance Committee Chairman Orrin Hatch (R-UT) said that while he’s worried about how much time healthcare reform is taking, he’s pushing ahead with tax reform.  Whatever.

Jeff Sessions....

In a surprise interview granted to the New York Times, Wednesday evening, President Trump, shockingly, threw his own Attorney General under the bus, saying he would not have chosen Jeff Sessions to serve as AG had he known Sessions would recuse himself from the investigation into Russian election meddling.

“Sessions should have never recused himself, and if he was going to recuse himself, he should have told me before he took the job and I would have picked somebody else,” Trump said.

“How do you take a job and then recuse yourself?  If he would have recused himself before the job, I would have said, ‘Thanks, Jeff, but I’m not going to take you,’” Trump continued.  “It’s extremely unfair – and that’s a mild word – to the president.”

Attorney General Sessions said he plans to continue to serve in his post “as long as that is appropriate.”

“I have the honor of serving as attorney general.  It’s something that goes beyond any thought I would have ever had for myself,” he said during a press conference.

“We love this job, we love this department and I plan to continue to do so as long as that is appropriate.”

Incredibly, President Trump clearly believes the Justice Department is there to do his bidding and not that of the people.  He also issued a veiled threat to special counsel Robert Mueller not to delve into his family business, which of course Mueller is doing anyway.

Trumpets....

--The White House acknowledged on Tuesday that President Trump had a second, previously undisclosed, private conversation with President Vladimir Putin, and while there were conflicting reports on how long the meeting was, here is what is disturbing to yours truly. Trump didn’t even have an interpreter with him, while Putin did, according to those in the know, so while the Russians have an official accounting of the meeting, the U.S. doesn’t.  And in light of everything else going on this is important.

Ian Bremmer, president of the Eurasia Group, a Washington-based research and consulting firm, claims some of those who were aware of the meeting and attended the dinner in question, called him.

“Pretty much everyone at the dinner thought this was really weird, that here is the president of the United States, who clearly wants to display that he has a better relationship with President Putin than any of us, or simply doesn’t care.  They were flummoxed, they were confused and they were startled.”

Separately, we learned that there were more attendees at the controversial June 9, 2016, meeting at Trump Tower led by Donald Jr.  All the Russians now known to be there claim it was much ado about nothing, as does Don Jr. and his father.

I’m just letting it all sort itself out.  Don Jr. and Paul Manafort are supposed to testify this coming week before the Senate Judiciary Committee, while Jared Kushner is to answer questions in a closed-door session of the Senate Intelligence Committee. [They could still refuse to appear.]

For the record, President Trump tweeted: “Most politicians would have gone to a meeting like the one Don jr attended in order to get info on an opponent. That’s politics!”

No they wouldn’t.

Editorial / Wall Street Journal

“Even if the ultimate truth of this tale is merely that Don Jr. is a political dunce who took a meeting that went nowhere – the best case – the Trumps made it appear as if they have something to hide. They have created the appearance of a conspiracy that on the evidence Don Jr. lacks the wit to concoct. And they handed their opponents another of the swords that by now could arm a Roman legion.

“Don’t you get it, guys?  Special counsel Robert Mueller and the House and Senate intelligence committees are investigating the Russia story. Everything that is potentially damaging to the Trumps will come out, one way or another. Everything. Denouncing leaks as ‘fake news’ won’t wash as a counter-strategy beyond the President’s base, as Mr. Trump’s latest 36% approval rating shows....

“Mr. Trump somehow seems to believe that his outsize personality and social-media following make him larger than the Presidency. He’s wrong.  He and his family seem oblivious to the brutal realities of Washington politics. Those realities will destroy Mr. Trump, his family and their business reputation unless they change their strategy toward the Russia probe.  They don’t have much more time to do it.”

--The New York Times reported that President Trump’s lawyers and aides are investigating the backgrounds of those hired by special counsel Robert Mueller, looking for conflicts of interest they can use to either discredit the investigation or build a case for firing Mueller.

President Trump, in his interview with the Times on Wednesday, had hinted of this.  He is also reorganizing his legal team, with longtime New York lawyer Marc Kasowitz seeing his responsibilities reduced, while Washington defense lawyer John Dowd takes the lead in representing the president for the Russia inquiry.  [Firebrand Jay Sekulow being part of this effort.]

--White House press secretary Sean Spicer resigned on Friday, telling President Trump he vehemently disagreed with the appointment of New York financier Anthony Scaramucci to be the new White House communications director.

Trump offered Scaramucci the job in the morning, then requested Spicer stay on, but Spicer told him the appointment was a mistake.

Opinion....

Holman W. Jenkins, Jr.

“It’s no excuse for Republican ineptitude, but there is little market in America, and none in the GOP apparently, for coherent health-care policy, to the modest degree that such a description can even apply in Washington.

“Republicans, and arguably American voters, don’t want an individual mandate. They do want coverage of pre-existing conditions.

“There is a term for a system in which you are covered if you are sick, but you don’t need to buy coverage and the government promises to make it affordable.  It’s health care on demand, with taxpayers footing the bill. It’s single-payer – at least for the sizable portion of the population who can’t be induced through a giant tax incentive to accept insurance from their employer, or who aren’t already under some version of proto-single-payer such as Medicare, Medicaid, etc.

“ObamaCare was a dog’s breakfast, but at least it was coherent on this fundamental point.

“Here’s how health care would sooner or later (most likely sooner) come to work in a system in which pre-exiting conditions are covered but there is no individual mandate, as the GOP bill proposed.

“You develop a symptom. You show up at the doctor and, in addition to the other forms, you fill out a form applying for insurance, which you cancel as soon as your treatment is complete.

“If this is insurance, the cost is identical to the cost of treatment, which for some reason your insurance company fingers briefly (and takes a cut) before passing along to your doctor.

“This is not insurance.  Nor is it a viable business model for insurance companies, except as  a receptor into which to pour taxpayer money to cover the cost of everyone’s health care.  Now it can be told: The GOP plan that almost certainly now is dead would have been more of an express route to single-payer than ObamaCare ever was.

“Republicans, though inconvenienced by John McCain’s keyhole craniotomy, could have passed something.  It would have made no sense, except for the highly useful GOP curbs on Medicaid – which were worth the price of admission.

“Every administration passes a health-care bill, knowing it won’t be the last word, certain in the knowledge they haven’t fixed anything fundamental in American health care.  Reagan gave us Cobra to allow certain employees to keep their insurance after leaving their jobs. Clinton failed to give us HillaryCare but gave us the Children’s Health Insurance Program.  George W. Bush gave us the Medicare drug entitlement. Obama gave us you-know-what.  Only George H.W. Bush failed to enact the obligatory expansion of health-care entitlements for somebody somewhere.  He was a one-term president.”

John Podhoretz / New York Post

“Why can’t Republicans in Congress pass health-care reform?  This is the question to ask after the Republican Senate leadership’s plan was stabbed to death by conservative Senate Republicans.

“The answer is shockingly simple: Republican voters do not actually want health-care reform – and these elected officials are just doing the bidding of their constituents.

“Those voters could have been led to support the Republican efforts on Capitol Hill by a new president who carefully and conscientiously laid out the fatal problems of ObamaCare and how a new plan would fix what was broken and even create a new path to America’s long-term fiscal health.

“Republican policy wonks have been designing plans to do just that from the moment ObamaCare became law in 2010.  Both the House bill that passed in June and the Senate bill that just died are chock-full of sensible policy fixes.

“But wonky policy has to be sold. People have to be told why what happens next will be better than what is happening now.  When the Congressional Budget Office offers an analysis of the bill that makes it look bad, someone has to stand up and explain why the CBO is wrong and what’s missing.

“Most important, leaders have to explain to their constituents why certain types of hard choices were made so that the constituents who want to support the bill because it’s the bill that was devised by their team can make the right arguments for it.

“But we don’t live on an alternate earth, one in which almost any other 2016 Republican candidate for president was elected. We live on this earth, and on Monday, the day that the health-care bill died, the new president was literally playing around in a firetruck on the White House lawn.

“President Trump’s power with Republican voters is such that they are even giving him the benefit of the doubt on most of the Russia revelations.  Imagine if he had worked to rally them behind the ObamaCare repeal-and-replace efforts on the Hill.

“He didn’t.  There was no one with a powerful enough national profile doing any such thing....

“Is it any wonder a controversial piece of legislation with no champions would poll around 20 percent?....

“Trump has acted more like a loudmouth kibitzer than the leader of a country and the leader of a party – or the leader of anything.....

“I hope Trump learned something in his time riding on the firetruck on the South Lawn, because the GOP just set itself ablaze.”

Wall Street

The stock market keeps grinding higher and hasn’t suffered a 5% pullback, which isn’t even a “correction” (10%), since the Brexit vote shock of late June of 2016.  After today, 269 trading days, the longest such streak since July 1996, according to LPL Financial and USA TODAY.  Yes, it has been one sleepy market, which is death to Wall Street’s trading desks for one.

The key driver remains a world of low interest rates and tame inflation, plus the global economy isn’t all bad, with improvement in key areas such as Europe.

And in the U.S., the stock market continues to benefit from massive cash inflows into so-called passive index funds and ETFs.

But valuations are stretched, though you could have said that for years now, with the S&P 500 trailing P/E at 25+.

But Bill Gross of Janus Henderson Investors had  the following bit in his latest monthly outlook.

“(Since) the start of global Quantitative Easing, over $15 trillion of sovereign debt and equities now overstuff central bank balance sheets in a desperate effort to keep global economies afloat. At the same time, over $5 trillion of investment grade bonds trade at negative interest rates in what can only be called an unsuccessful effort to renormalize real and nominal GDP growth rates. The adherence of Yellen, Bernanke, Draghi, and Kuroda, among others, to standard historical models...has distorted capitalism as we once knew it, with unknown consequences lurking in the shadows of future years.”

Well, the Federal Reserve has been slowly hiking interest rates, and soon it will begin pairing its massive balance sheet, but as you’ll see below, the European Central Bank is in no real hurry to do the same (ditto Japan, to say the least).

Europe and Asia

Eurozone inflation in June officially came in at 1.3% annualized vs. 1.4% in May, with Germany at 1.5%, France 0.8%, Italy 1.2% and Spain 1.6%, as reported by Eurostat.

[Inflation in the U.K. declined to 2.6% from 2.9%, easing pressure on the Bank of England to raise rates.]

First-quarter government debt in the euro area (EA19) ticked up to 89.5% of GDP, with Germany at just 66.9%, France 98.7%, Spain 100.4% and Italy 134.7%.  Greece is at 176.2%, down slightly from Q4 2016, but essentially the same from a year ago.  [Eurostat]

But it’s the figure in Italy that has left me shaking my head the last few years when I look at the Italian 10-year, versus, say, the U.S.  [2.06% Friday vs. the U.S. 10-yr. at 2.24%/]

Meanwhile, the aforementioned European Central Bank held the line again on interest rates at its latest policy meeting, ECB President Mario Draghi welcoming a “robust” economic recovery in the eurozone, but warning that stronger growth wasn’t translating into higher prices.

“We need to be persistent and patient because we aren’t there yet,” Draghi said on Thursday. The ECB will discuss the future of its bond-buying program (quantitative easing) in the fall, he added.  “Basically inflation is not where we want it to be and where it should be.”

It certainly appeared as if the ECB’s easy money policy would remain in place through next year, though Draghi may give us a better picture when he speaks at the annual Jackson Hole confab in late August, the ECB’s policy committee next meeting on Sept. 7.

Draghi had spooked the bond market last month when in a speech he suggested the ECB could act soon to begin winding down QE, but with his more dovish comments, euro bond markets have rallied anew; the German 10-yr. seeing its yield decline to 0.50% from 0.59% the past week, while Spain’s 10-yr. went from 1.63% to 1.44%.

But Draghi’s bullish description of the eurozone economy drove the euro currency to its highest level against the dollar in two years (not good for exporters, the driver of much of the recovery).

The ECB’s Survey of Professional Forecasters’ latest, released Friday, had inflation at 1.5% this year, 1.4% in 2018 and 1.6% in 2019, so still not the target 2% for some while.

Eurobits....

--On the Brexit front...France has insisted the U.K. pay a Brexit bill of as much as 100 billion euros ($116bn), highlighting the differences in early negotiating stances, not only between Britain and the EU, but within the EU itself. French Finance Minister Bruno Le Maire has taken a hard line on what he believes the U.K. owes the bloc in terms of liabilities and obligations.  [Other EA19 leaders are somewhere between 40bn and 70bn euro.]

Brexit Secretary David Davis and his EU counterpart, Michel Barnier, met again in Brussels, while negotiators on each side have spent days attempting to hammer out Britain’s financial obligations, as well as the rights of EU citizens in the U.K.  Not much progress is expected in the coming weeks, but the pressure will ratchet up end of August and into September and October for “sufficient progress,” which EU leaders need to deem is being made at a summit on Oct. 19-20.  Only then will the EU begin talks on a new trade relationship with the U.K.

Meanwhile, last weekend former Prime Minister Tony Blair said Britain should keep open the option of staying in the European Union so Brexit could be called off if the mood of the voters changes during the negotiating period.

Blair said in an essay issued from his office that: “Rational consideration of the options would sensibly include the option of negotiating for Britain to stay within a Europe itself prepared to reform and meet us halfway.

“Given what is at stake, and what, daily, we are discovering about the costs of Brexit, how can it be right deliberately to take off the table the option of compromise between Britain and Europe so that Britain stays?”

Britain is a mess right now.  Yes, a few economic indicators are OK, but as Charles Grant, director of the Centre for European Reform in London, put it in an interview with Robert Hutton of Bloomberg:

“Our friends are concerned – and less friendly countries are bemused and astonished – that the great British machine, which is world famous for efficiency, now seems to be all over the place.  Britain’s name has never been held in lower regard than now in terms of its competence, its ability to organize, its ability to be strategic and influence anything.”

In this vein, current Prime Minister Theresa May is dealing with a divided cabinet and her own survival. 

--The Greek government said it still waiting for the “right moment” to re-enter the bond market, after there had been some thought to bringing an issue by end of the week.

Greece has been out of the market since 2010 due to high interest rates, save for a 2014 bond issue before it sought additional bailout money.

--Germany and Turkey continue to trade barbs over democratic values, with relations at their lowest point in the postwar period. Germany’s finance minister, Wolfgang Schaeuble, compared Turkey to the former communist East Germany, while Turkey’s foreign minister, Mevlut Cavusoglu, said his country wouldn’t give in to “blackmail.”

This is no small deal, as the two not only have extensive trade ties, but you have the whole migrant issue. But today, it’s about Turkey’s crackdown on the press and the detention of a German human-rights activist, with German Foreign Minister Sigmar Gabriel announced a “reorientation” of German policy toward Turkey, warning companies against doing business in the country.

But ethnic Turks make up Germany’s largest minority and some 6,800 German firms are currently operating in Turkey.

As for the refugee deal between the European Union and Turkey, recall, Turkey keeps mainly Syrian refugees in the country in return for billions of euros in aid and progress toward EU membership.  But President Erdogan, amidst the row and his massive crackdown following the failed coup of last year, has threatened to end the agreement and just unleash a torrent of new refugees onto the European continent.

Turkey also blames Germany for harboring terrorists, including from the Kurdish PKK, which is seeking autonomy from Turkey.

--The head of the French armed forces, Gen. Pierre de Villiers, resigned after a clash with President Emmanuel Macron over budget cuts.  The general said he could no longer “guarantee the durability of the army model” that he considered necessary to ensure France’s protection.

The government revealed major cuts to bring the budget deficit below the level of an EU cap.  Macron, who as president is commander-in-chief of the military, had said he would not tolerate dissent in the ranks.

According to the BBC, Gen. de Villiers had reportedly said Macron should not “f---“ with him, which is insubordination, if you ask moi.

Turning to Asia, China reported its second quarter GDP came in a little better than expected, 6.9% annualized, well above the government target of 6.5% for 2017.

Property investment was up 8.5% in the first half.
Industrial production rose 7.6% in June (6.9% first half).
Retail spending was up 11% in June (10.8% in the second quarter).
Fixed-asset investment increased 8.6% in the first half.
Steel output hit record levels in June.

The first four were all handily ahead of expectations, so if you believe the figures are reasonably accurate, China is doing a good job as it attempts to deleverage.

But China and the U.S. failed to reach agreement on trade at the first Comprehensive Economic Dialogue in Washington, which is casting a shadow on relations between Beijing and Washington amid White House threats to impose steel and aluminum tariffs.  Both sides then cancelled their scheduled press conferences.

These talks came about as a result of the Mar-a-Lago summit in April between Presidents Trump and Xi.

In Japan, as alluded to above, the Bank of Japan sure isn’t going to be cutting back on its own easy money policy as it pushed back by a year the date when it expects to hit its 2% inflation target, now 2019, the sixth time it has been postponed under Governor Haruhiko Kuroda.

Street Bytes

--While the major averages finished mixed on the week, all three saw new records, with the Dow, down 0.3% to 21580, hitting its new record at 21640 earlier, while the S&P 500 added 0.5% to 2472, having hit a record 2473 the day before.  Nasdaq, up 1.2% to 6387, hit its new high-water mark of 6390 Thursday.

--U.S. Treasury Yields

6-mo. 1.16%  2-yr. 1.34%  10-yr. 2.24%  30-yr. 2.81%

The long end of the curve rallied again on the feeling the Fed (which meets this coming week) isn’t going to be as aggressive as once thought, with the yield on the 10-yr. back down to 2.24% from 2.39% two weeks ago.

--Oil tumbled late in the week, after earlier climbing above $47 on West Texas Intermediate, to close at $45.60 on word OPEC had increased production.

--Goldman Sachs Group Inc.’s traders turned in their worst first-half performance since Lloyd Blankfein took over as CEO in 2006.  Revenue from trading stocks and bonds tumbled 10%, while revenue from the fixed-income unit plunged 40%.

Total trading revenue, including equities, fell 17% for the fiscal first quarter.

Investment banking revenue fell 3%, but this was better than expected.

Companywide revenue fell 1% to $7.89 billion.

Net income came in at $1.83 billion, virtually unchanged from a year ago, though earnings per share blew away estimates.  The stock traded down 3.5% on the week.

--By contrast, Morgan Stanley said its second-quarter profit rose 11% from a year ago, as its trading unit reported just a modest decline in revenue, better than its competitors who all reported more substantial declines.

MS said it earned $1.76 billion, or 87 cents a share, handily exceeding the Street’s expectations.

The bank had bond trading revenue of $1.2 billion, down slightly from $1.3bn a year earlier.  Aside from the above GS results, Bank of America’s were down 14% and JPMorgan’s 19%.

Overall, Morgan had revenue of $9.5 billion, up from $8.91bn a year earlier.

Separately, Morgan Stanley selected Frankfurt to be its new base for European Union trading operations as Brexit looms.  But the bank is going to move its asset management business to Dublin.  Citigroup is also going to be using Frankfurt as its new EU base, while Barclays has talked of expanding its existing operations in Dublin.

Last week, JPMorgan Chase CEO Jamie Dimon said that they would probably use Frankfurt as the legal base of its Euro operations post-Brexit, but they will have other locations.

Paris desperately wanted to be the new center, but major Japanese banks Sumitomo Mitsui Financial, Nomura and Daiwa Securities are among others already opting for Frankfurt instead.

And today, Bank of America announced it would be the first Wall Street bank to pick Dublin to be its new base for its EU operations. Wow, that’s huge for Ireland.  BAC already has over 700 staff there and has been in the local community for almost 50 years.

--BlackRock Inc. saw assets under management jump 16% to nearly $5.7 trillion, but revenue rose only 6% to $2.97 billion, with earnings per share missing expectations.

The problem is that while assets are growing, BlackRock has had to cut fees to gain them.

--Microsoft shares hit a new all-time this week as the company continued its rebirth as a force in cloud-computing, posting stronger than expected quarterly results.  In its fiscal fourth quarter, Microsoft said its Intelligent Cloud segment, which includes its Azure cloud-computing business, rose 11% to $7.4 billion.  In the Productivity and Business Processes segment, which includes the Office franchise, revenue soared 21% to $8.4bn.

While the company doesn’t give specific revenue figures, it said Azure revenue jumped 97% and Office 365 revenue 43%.

Gotta hand it to management.  I thought this company was dead, but it brilliantly reinvented itself (as opposed to Intel or IBM), in switching gears from its declining legacy Windows operating-system business.

--Netflix reported a big jump in new subscribers for the second quarter and now counts close to 104 million subscribers worldwide as of end of June.  For the quarter, Netflix added 5.2 million newbies worldwide, 4.1m of which were overseas.  So the shares soared 10% on the news.

Last week, Netflix also scored 91 Emmy nominations.

--IBM Corp. reported lower-than-expected quarterly revenue, as growth in its higher-margin businesses, including cloud and artificial intelligence services, failed to make up for declines in its legacy business segments.

The cloud, cybersecurity and data analytics segments, which the company calls “strategic imperatives,” had a revenue increase of 5% in the second quarter.

But questions remain just how much the efforts on the artificial intelligence offering Watson will do to boost revenue in the future (as I could show you I wrote over two years ago). Sales at the division including Watson actually fell 2.5% the past quarter over a year ago.  It’s just not supposed to play out that way.  Frankly, I’d rather rely on advice from veteran golfer Tom Watson, a true sage, albeit a sometimes surly one, rather than the computer-driven model...but I digress badly.

Overall IBM revenue fell 4.7% to $19.29 billion, the steepest decline in five quarters, and 21st consecutive quarter of declining sales, with net income at $2.33 billion, though adjusted earnings per share beat expectations.  But IBM was aided by a boost from tax benefits, the company long being a master at financial engineering.

One really needs to ask.  Just how is CEO Ginni Rometty still at the helm? Granted, she’s a member at Augusta National (the third female to be so selected), but, you know....

--Shares in United Continental Holdings Inc. fell as much as 5 percent after the airline forecast “disappointing” passenger unit revenue, a closely watched metric, in the third quarter, with sales relative to flight capacity flat, versus a gain of 2.1% in the second quarter from a year ago.  Rival Delta Air Lines recorded a 2.5% increase in passenger unit revenue in the second quarter and forecast growth of 2.5% to 4.5%  in Q3.

United still posted earnings that beat the Street, $2.75 per share.

--Carrier Corp. plans to slash 338 jobs at its Indianapolis furnace factory, six months after the company was part of a deal struck by Donald Trump in December to prevent deeper cuts at the facility.

Carrier is shifting some production to Mexico, while parent company, United Technologies Corp., also plans to lay off an additional 700 workers at a factory in Huntington, Ind., near Fort Wayne.

Carrier said in a statement that it “continues to honor its 2016 commitment to employ approximately 1,100 associates in Indianapolis.”

--Philip Morris International Inc. missed its profit forecast as demand for cigarettes continues to dry up.  Shipments of traditional cigarettes fell more than 7%, following an 11.5% decline in the first quarter of this year.

Net income was $1.78 billion, unchanged from the year ago period, while revenue edged up to $19.32bn from $19.04bn.

--Harley-Davidson warned Tuesday that its full-year sales and profit margins would fall well short of expectations.  The manufacturer also plans to cut jobs, though the number wasn’t specified, with sales for 2017 expected to decline 6% to 8% over last year.  The shares tanked in response.

--The United Auto Workers union has been talking to General Motors executives about the slow sales of some of its models, fearful plants are going to be closed.  Many of GMs plants are currently dedicated to selling sedans and the UAW hopes the company will start moving production of more popular trucks, SUVs and crossovers or else you’re looking at some major job losses.

--Apple created a new position, managing director of Greater China, which is being handed to a longtime manager, Isabel Ge Mahe. She takes the helm at a tough time for Apple as its dominance in China is shaky at best, with revenue on the mainland dropping 14% for the quarter ending April 1.  As I’ve been warning for years, it’s largely about growing domestic competition from a range of competitors, who put out cheaper phones that have the same high-performance.

Plus Apple has to deal with the Chinese government’s tough new rules on cybersecurity that I discussed last week.  And if tensions between Washington and Beijing rise to a fever pitch, bye-bye Apple in China.

[Meanwhile, there are conflicting stories about whether Apple will be on time in September with its next iPhone model.  A Chinese-language publication, Economic Daily News, reported Monday that the new phone (to be called, we think, either the iPhone 8 or the iPhone X), will be delayed to November or possibly December.]

--General Electric reported second-quarter profit of $1.37 billion (down 60% over the prior year), though earnings exceeded Wall Street’s expectations, while revenues beat forecasts.  But the company now sees 2017 profit at the low end of prior guidance, while putting off an expected “reset” of 2018 earnings targets. and the shares declined 3% in response.

It’s just more of the same for GE, whose shares are down almost 20% just this year, and hardly the way CEO Jeff Immelt wanted to end his career at the company, Immelt retiring Aug. 1, to be replaced by John Flannery.

The maker of power plants, jet engines, medical equipment and other industrial equipment said profits fell largely due to the sale of its appliances business.  Analysts said that until there is more clarity about 2018, the stock is dead money, and incoming CEO Flannery acknowledged his review of all the businesses would take some time.

--Honeywell International Inc. reported earnings that beat the Street and the company slightly raised its fiscal year guidance, ditto revenues, which also beat expectations.

--Pizza Hut said it will be adding 14,000 new drivers by the end of the year in an effort to speed deliveries to customers.  I just find this figure kind of staggering, seeing as how Pizza Hut flopped in my area (while I give my delivery business to Domino’s).

Chief Operating Officer Nicolas Burquier said: “This focus and commitment to the best experience will hopefully help some customers reassess the brand if they haven’t tried us in a while or haven’t had us deliver a pizza before.”

Pizza Hut operates 16,400 restaurants in more than 100 countries, while Domino’s has more than 14,000 locations in over 85.

But Pizza Hut, according to an analyst at Nomura, will lose its dominant position to Domino’s by 2018, this as parent Yum Brands said it would invest about $130 million to upgrade Pizza Hut restaurants and improve technology all around.

--Boy, that video of three rats scurrying through a Dallas Chipotle sure added to the burrito joint’s issues on Thursday, sending shares lower anew, to their lowest closing price in four years.

The rodents, one of which fell from the ceiling, were quickly rounded up by employees and the store never closed.  Yuck.  [One customer said she was sitting one table over from where the rat fell from the ceiling; as in if she was sitting there, it would have fallen in her food!  You would never have a good night’s sleep the rest of your life if that happened to you.]

Days earlier, dozens of Chipotle customers in a Virginia restaurant northwest of D.C., got sick with the norovirus apparently spread by a sick employee.  That store was closed for two days while it was scrubbed down.

--U.S. spices maker McCormick & Co. Inc. has agreed to buy Reckitt Benckiser Group’s food business for $4.2 billion, Reckitt’s brands including French’s mustard and Frank’s RedHot sauce.  Reckitt was looking to cut its debt after acquiring baby formula maker Mead Johnson for $16.6bn.

McCormick is already the maker of Lawry’s, Old Bay and Billy Bee honey.

But some are questioning what seems to be a very high price for French’s and Frank’s.

--Macy’s led a rally in retail shares on Monday as data showed that the decline in customer traffic across clothing stores has been less than other sectors.  Research from Cowen showed total U.S. retail traffic has dipped 9.7% year-over-year for the week ending July 15, but apparel traffic was down 5.3%, compared to a decline of 26.2% for retailers of wireless and electronics products.

--The U.S. Transportation Security Administration announced on Monday it was lifting a ban on passengers on Saudi Arabian Airlines carrying large electronics, like laptops, onboard U.S.-bound flights; the last carrier under the restrictions.

--Tesla CEO Elon Musk said he had received “verbal” approval to start building a high-speed underground transport system linking New York and Washington that could cut travel time between the two to about half an hour.

Musk recently started a project, the Boring Company, to build transport tunnel systems that would use electromagnetic propulsion.

But officials in New York and Washington said they hadn’t heard anything on the new project and approvals. Once again, it would appear Mr. Musk is getting a little ahead of his skis.  [He has previously talked of building a hyperloop between Los Angeles and San Francisco.]

But such projects almost always require significant government aid and Musk is far from receiving any major commitments from the Trump administration.

--Shares in cable television programmers Discovery Communications (Animal Planet, the Discovery channel, and TLC) and Scripps Networks (HGTV, Cooking Channel, Travel Channel) both surged amid reports the two were  trying to merge yet again.

A deal makes total sense as it would give Discovery more leverage in fee negotiations with the likes of AT&T and Comcast.

--20th Century Fox’s “War for the Planet of the Apes” had an impressive opening last weekend, $56.5 million in the U.S. and Canada, besting “Spider-Man: Homecoming,” which fell to second place in its second week.

Foreign Affairs

Iraq/Syria: Despite being diagnosed with an aggressive form of brain cancer, Sen. John McCain was fuming Thursday about a decision this week by the Trump administration to stop funding a CIA training program for moderate Syrian rebels fighting Bashar al-Assad’s regime.

“If these reports are true, the administration is playing right into the hands of Vladimir Putin,” McCain said in a statement Thursday.  “Making any concession to Russia, absent a broader strategy for Syria, is irresponsible and short-sighted.”

The Washington Post reported earlier in the week that the program, begun under President Obama in 2013, was ended by Trump about a month ago.

McCain also criticized Trump for not having a broader strategy in Syria and the Middle East in general.  “There is still no new strategy for victory in Afghanistan either. It is now mid-July, when the administration promised to deliver that strategy to Congress, and we are still waiting,” he added.

Sen. McCain is 100% right on all fronts.  It also needs to be said that for all the high praise heaped on Gen. James Mattis, he’s the man in charge of presenting a strategy to Trump.  Yes, where is it?

David Ignatius / Washington Post...a little different take....

“What did the CIA’s covert assistance program for Syrian rebels accomplish?  Bizarrely, the biggest consequence may be that it helped trigger the Russian military intervention in 2015 that rescued President Bashar al-Assad – achieving the opposite of what the program intended.

“Syria adds another chapter to the star-crossed history of CIA paramilitary action.  These efforts begin with the worthy objective of giving presidents policy options short of all-out war.  But they often end with an untidy mess, in which rebels feel they have been ‘seduced and abandoned’ by the promise of U.S. support that disappears when the political winds change.

“One Syrian opposition leader highlighted for me the danger for his rebel comrades now: ‘The groups that decided to work with the U.S. already have a target on their back from the extremists, but now will not be able to defend themselves.’”

The program has been unraveling since Trump took office.

“Trump wanted to work more closely with Russia to stabilize Syria, and a program that targeted Russia’s allies didn’t fit. The White House’s own Syria policy remains a hodgepodge of half-baked assumptions and conflicting goals, but that’s a subject for another day....

“The rise and fall of the Syria covert action program conveys some useful lessons about this most delicate weapon in the United States’ arsenal.  To summarize, the program was too late, too limited and too dependent on dubious partners, such as Turkey and Saudi Arabia.  It was potent enough to threaten Assad and draw Russian intervention, but not strong enough to prevail.  Perhaps worst, the CIA-backed fighters were so divided politically, and so interwoven with extremist opposition groups, that the rebels could never offer a viable political future.”

But it’s been estimated the CIA-backed fighters also killed up to 100,000 Syrian soldiers and their allies the past four years, and they had made significant progress in Assad’s homeland of Latakia by the summer of 2015.  But Putin saw this and intervened militarily in September 2015.

Michael Gerson / Washington Post

“In the normal course of events, the revelation of attempted collusion with Russia to determine the outcome of a presidential election might cause an administration to overcorrect in the other direction.  A president might find ways to confront the range of Russian aggression, including cyber-aggression, if only to avoid the impression of being bought and sold by a strategic rival.

“But once again, President Trump – after extended personal contact with Vladimir Putin and the complete surrender to Russian interests in Syria – acts precisely as though he has been bought and sold by a strategic rival. The ignoble cutoff of aid to American proxies means that ‘Putin won in Syria,’ as an administration official was quoted by The Post.  Concessions without reciprocation, made against the better judgment of foreign policy advisers, smack more of a payoff than outreach.  If this is what Trump’s version of ‘winning’ looks like, what might further victory entail?  The re-creation of the Warsaw Pact? The reversion of Alaska to Russian control?

“There is nothing normal about an American president’s subservience to Russia’s interests and worldview.  It is not the result of some bold, secret Nixonian foreign policy stratagem – the most laughable possible explanation. Does it come from Trump’s bad case of authoritarian envy?  A fundamental sympathy with European right-wing, anti-democratic populism? An exposure to pressure from his checkered financial history?  There are no benign explanations, and the worst ones seem the most plausible.”

Iran: The Trump administration leveled more sanctions on Tehran in a move that heightened tensions further between the two, as the new ones target Islamic Revolutionary Guard Corps and the ballistic missile program.  Late Monday, the administration had to announce that Iran was in accord with the 2015 international nuclear agreement, but certification was not unanimous within the administration.  [The U.S. has to decide on compliance every 90 days by law.]

Treasury Secretary Steven Mnuchin, in announcing the new sanctions, said: “This administration will continue to aggressively target Iran’s malign activity, including their ongoing state support of terrorism, ballistic missile program, and human-rights abuses,” and, “We will continue to target the IRGC and pressure Iran to cease its ballistic missile program and malign activities in the region.”

The administration’s review of the nuke deal continues and it is assumed it will be completed in October, the next date to certify Iran’s compliance.

But in Tehran on Tuesday, Iran’s parliament voted to urgently work towards increasing funds for the country’s missile program and Revolutionary Guards in response to what it called Washington’s “adventurism” in the region.  Parliament Speaker Ali Larijani said, the motion sends a clear message to the Americans that Iran’s parliament “will resist them with all its power.”

Parliament is providing further funding for the Revolutionary Guards’ foreign operations wing, the Quds Force, which is leading Iran’s efforts in Syria and Iraq.

Israel: Serious crisis here tonight as violence flared anew at the Temple Mount in Jerusalem, three Palestinians killed, hundreds wounded, in clashes with Israeli police across the West Bank and East Jerusalem.

The violence started when the security cabinet decided early on Friday to maintain the controversial metal detectors installed outside the holy site in the wake of a shooting attack that left two policemen dead last week.  Tens of thousands of Palestinian worshippers, who came to pray outside the Temple Mount, then refused to pass through the detectors.

Palestinian President Mahmoud Abbas then ordered the suspension of all official contact with Israel until it removed the new security measures.

And now, as I go to post, a story just broke that three Israeli settlers were stabbed to death near Ramallah in the West Bank, the attacker killed, as reported by the Israeli army.

Afghanistan: According to the United Nations, a record number of civilians were killed during the first six months of the year, some 1,662, which U.N. Human Rights High Commissioner Zeid Raad Hussein calls “horrifying.”

The report confirmed that a massive truck bomb in the center of Kabul on May 31, killed at least 90 people, the deadliest attack since the U.S.-led invasion that toppled the Taliban in 2001.

Turkey: In yet another worrisome sign that President Erdogan is subverting the republic’s secular foundations, Turkey announced a new school curriculum on Tuesday that excluded Charles Darwin’s theory of evolution, further feeding opposition fears.

The Education Minister said there would be no mention of Darwin’s theory until the university level, “Because it is above the students’ level and not directly related, the theory of evolution is not part” of the school curriculum, said Ismet Yilmaz.  [Reuters]

North Korea: I have a little article on the potential for, and consequences of, an EMP (electromagnetic pulse) attack on the United States on my “Hot Spots” link, certainly the kind of threat posed by North Korea’s (and Iran’s) missile programs in the future. Check it out.

Venezuela: Millions joined a general strike called by the opposition on Friday as pressure mounts on President Nicolas Maduro to cancel elections for a new constituent assembly, but pro-government areas of the capital, Caracas, and other parts of the country appeared to be  going on with life as usual.

Random Musings

--In presidential tracking polls, Gallup has Trump at a 36% approval rating, Rasmussen 43%.

--In a new Washington Post/ABC News survey, President Trump’s overall approval rating dropped to 36%, down from 42% in April. Disapproval was up five points to 58%.

I’ve been focusing on Independents and 32% of them approve of the president’s performance, vs. 38% in April.  [82% of Republicans vs. 84% in the spring.]

Separately, 60% of Americans in the Post/ABC survey think Russia tried to influence the election outcome, up slightly from 56% in April.  [Less than 1 in 10 of Republicans think Trump’s associates sought to help the Russians, 6 in 10 Democrats do think they did.]

On the economy, 43% approve of Trump’s handling of it, 41% disapprove.

Additionally, 67% of Americans disapprove of the president’s use of Twitter; 68% saying the tweets were inappropriate, 65% said they were insulting.

Back to approval ratings, at this stage in their first terms, both Obama and George W. Bush were at 59% approval, but Bill Clinton was at a record low 43% in late June 1993, before rebounding that year in the same Post/ABC poll.

--The latest Bloomberg National Poll shows just 40% approve of the job President Trump is doing, and 55% now view him unfavorably, up 12 points since December.  [56% say they’re more pessimistic about Trump because of his statements and actions since the election.  That’s a huge swing since December when 55% said his statements and actions made them more optimistic about him.]

61% say the nation is headed down the wrong path, also up 12 points since December.

[Richard H. noted that in a Rasmussen poll, while only 36% of voters think the country is heading in the right direction, it was mid- to upper-20s for much of 2016, at the end of Obama’s term.]

Less than half of Americans, 46%, approve of Trump’s performance on the economy, 44% disapprove.

39% approve of his handling of the immigration issue, 55% disapprove.

A majority, 54%, believe Trump will manage to create trade deals more beneficial to the U.S., down from 66% in December.

64% disapprove of Trump’s handling of the health care issue.

65% view President Putin negatively – and 53% of those polled believe it’s realistic to think Russian hacking will disrupt future U.S. elections.

But...among those who cast ballots for Trump, 89% still say he’s doing a good job.

[In a new Reuters/Ipsos poll of 2016 voters, about one in eight who voted for Trump said they are not sure they would do so again, which is in line with the Bloomberg survey finding. But in the Reuters poll, 88% said they would vote for him again, which is an improvement over the 82% who said they would in May.]

--A new Wall Street Journal/NBC News poll found that President Trump draws wide support in the counties that propelled him to victory, with 75% supporting his efforts in bargaining with employers to keep jobs in the U.S.

More than two-thirds of respondents in those counties back his signaling that he is willing to take action if North Korea goes further in developing long-range missiles and nuclear weapons, and a similar share backs his military response in April to Syria’s use of chemical weapons.

Again, in counties that were key to his victory, 50% approve of Mr. Trump’s job performance, compared with 40% in the nationwide WSJ/NBC survey from last month. 

Also in counties that went for Trump but had supported Obama four years earlier, Hillary Clinton is viewed positively by 30% and negatively by 50%.

Among independents in all of the counties surveyed, Mrs. Clinton is viewed positively by 16% of adults.

--Ralph Peters / New York Post

“While there are doubtless celebrations in Moscow, the news that Sen. John McCain has irreversible brain cancer hit me harder than any such news since I sat in a seventh-grade classroom and our science teacher ran down the hall shouting, ‘The president’s been shot.’ That president, JFK, was a war hero, too, but not one of McCain’s stature.

“Shot down over North Vietnam, crippled by wounds and tortured, McCain refused early release and remained in his Hanoi prison, suffering for years beside his comrades.  Returning home at last, on crutches, he dedicated himself to serving the people of Arizona and the United States in Congress.  A senator for three decades, he’s stood out as the greatest defender of freedom in either legislative body in our lifetimes....

“Meanwhile, there is one thing Congress can do and another that we all can do to honor this exemplary American. Congress has it easy: The House can pass the Russia (and Iran) sanctions bill that the Senate’s already approved by a vote of 98 to 2. And name it the ‘John McCain Freedom Act.’

“For the rest of us, that task’s tougher: We must strive to be genuine patriots.  It’s a hard path now that the world ‘patriotism’ has been cheapened by demagogues and party hacks, by special interests waving flags for profit and by a host of dubious charities. At times it seems that patriotism is the last refuge of the talk-show host.

“A proud Republican, he never placed his party over this country. He stood up to tyrants, even when his position frustrated presidents.”

--California Democratic freshman Senator Kamala Harris is on the fast track.  Harris, a favorite of former President Obama (who once caught a little heat for calling her “by far, the best-looking attorney general in the country”), had the Hamptons abuzz this past weekend as she was feted at an event surrounded by large fundraisers.

In Bridgehampton, Harris mingled with top donors and supporters of Hillary Clinton, so we all now know Ms. Harris is thinking bigger than the Senate.

One fundraiser told The Hill, “She’s running for president.  Take it to the bank.” Another fundraiser said, “She’s absolutely going to run.”

So prosecutor-turned-California attorney general are seen to be qualities a Democratic presidential candidate would need to run in 2020.

And she’s seen as a fresh face.

Harris has already been a ‘hot’ speaker at party functions, raising upwards of $600,000 for Senate candidates in recent months.

But there will no doubt be a crowded field.  New Jersey Sen. Cory Booker, for one, let alone Bernie Sanders, and perhaps Joe Biden, except these last two will be pretty, pretty elderly by then.

New York Sen. Kirsten Gillibrand clearly has her eyes on the prize at some point, ditto Conn. Sen. Chris Murphy.

Alas, a ton is going to happen beforehand, starting with the 2018 mid-terms.

--President Trump, asked by the New York Times in his Wednesday interview about his secret second meeting with Vladimir Putin, explained that the wife of the Japanese prime minister, Aki Abe, who he was seated next to at the dinner, “doesn’t speak any English” when the Times noted she appeared to ignore him.  “Like, not ‘hello.’”  He added that it was hard because the dinner was “probably an hour and 45 minutes.”  At some point Trump went over to talk to President Putin.

Trump said he enjoyed his time with her and “the whole thing was good.”

The thing is Ms. Abe speaks fluent English.  Sad.

--I don’t normally comment on local police incidents that then become national news, but the Minnesota cop who shot and killed an Australian bride-to-be opened fire on her after being startled by a “loud sound” near his patrol car, investigators say.

When you read and see that Officer Mohamed Noor, 31, began blasting at 40-year-old Justine Damond by firing across his partner through the window, it all just seems unfathomable.  And your heart goes out to Ms. Damond’s family and her fiancée.

If the facts are as currently reported, Mohamed Noor needs to face justice.  As of this writing, Noor has refused to speak with investigators.

Friday afternoon, Minneapolis police chief, Janee Harteau, resigned at the mayor’s request.

--Finally, I watched O.J.’s parole hearing and was startled at his combative, defiant tone when he had to have been told, ‘parole is in the bag, don’t say anything stupid.’

But O.J. lives in a dream world, a “conflict free” one at that, though given the facts of the case and his having served nine years that all agree was excessive for the crime he was convicted on, the parole board did the right thing by granting it.

---

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

God bless America.

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Gold $1261...big rally, including in today’s after market
Oil $45.60

Returns for the week 7/17-7/21

Dow Jones  -0.3%  [21580]
S&P 500  +0.5%  [2472]
S&P MidCap  +0.5%
Russell 2000  +0.5%
Nasdaq  +1.2%  [6387]

Returns for the period 1/1/17-7/21/17

Dow Jones  +9.2%
S&P 500  +10.4%
S&P MidCap  +6.8%
Russell 2000  +5.8%
Nasdaq  +18.7%

Bulls 57.8
Bears 16.7 [Source: Investors Intelligence]

Have a great week.

Brian Trumbore

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