Week in Review

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Week in Review

09/09/2017

For the week 9/4-9/8

[Due to travel I needed to post around 2:00 PM ET, Friday.  Financial data was filled in later.]

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Edition 961

Trump World....

As the estimated cost from Hurricane Harvey continues to rise, $180 billion, according to Texas Gov. Greg Abbott, here comes Hurricane Irma.

As alluded to above, I needed to rush this review some, and given the time I’m posting I will not be commenting on Irma, nor any imminent new missile launches from North Korea, as predicted by Seoul’s Defense Ministry this afternoon.

Budget / Debt Ceiling

We were led to believe that Congress had two major pressing deadlines this month; an extension of the debt ceiling and the passage of a budget.  Presto!  President Trump and Congress reached a deal on funding the government and the debt ceiling, extending both until December 8, thus doing what they do best...kick the can down the road.

Except for one thing.  In a shocking move on Wednesday, Trump, “the deal-making political novice, whose ideology and loyalty were always fungible,” as the New York Times described him, struck a deal with Democrats, while Republican leaders were sitting there in the Oval Office. 

Over the objection of majority leaders in his own party, President Trump struck a deal with Senate Minority Leader Charles Schumer (N.Y.) and House Minority Leader Nancy Pelosi (Calif.) that at least temporarily upended the balance of power in Washington.

It was a startling move.  After working exclusively with Speaker Paul Ryan (Wis.) and Senate Majority Leader Mitch McConnell (Ky.) the first seven months, the president agreed to raise the debt ceiling on a short-term basis without any spending concessions by the Democrats, while Republicans wanted an extension that would last beyond next fall’s mid-term elections.

Trump said during a speech in North Dakota hours later: “We had a great meeting. And we walked out, and everybody was happy.  Not too happy, because you can never be too happy, but they were happy enough . And it was nice to see that happen for a change.”

Just prior to the Oval Office meeting with leaders from both sides, Speaker Ryan had said in his own weekly press conference that the Democratic proposal for a short-term extension was “ridiculous” and “disgraceful.”

Republican Sen. Ben Sasse (Neb.) wrote to Trump: “Do your constituents know that Charles Schumer, whose title is minority leader, not majority, just made himself the most important man in America for the month of December? This is an embarrassing moment for a Republican-controlled Congress and a Republican administration.”

For their part, Schumer and Pelosi are crowing.  The change in tone with the president was in full evidence when he invited Democratic North Dakota Sen. Heidi Heitkamp, up for re-election in 2018, to travel with him aboard Air Force One as he traveled to the state for his rally, praising her on stage as a “good woman.”  This is a Republican?  Of course most people knew during the campaign he wasn’t.

Trump was tired of his initiatives being rebuked by Republican leaders, especially in the case of an ObamaCare repeal bill that ended in a disastrous defeat.

Mick Mulvaney, Trump’s budget director, said, “Is he annoyed at Republican leadership?  Yeah, I think he probably is. And believe me, as a Republican, so am I. As a citizen, I am too.  I was promised that they would have repealed and replaced ObamaCare by now. ...To the extent that the President was annoyed by that is simply reflecting many of the people of this country.”

We then learned Thursday that Trump and Senator Schumer agreed to pursue a deal that would permanently remove the requirement that Congress repeatedly raise the debt ceiling, confirmed by the president himself on Thursday.  It was described by people familiar with the decision as a “gentlemen’s agreement.”

White House press secretary Sarah Huckabee Sanders said, “The President encouraged Congressional leaders to find a more permanent solution to the debt ceiling so the vote is not so frequently politicized.”

Vice President Mike Pence is also supposedly open to changes that would tie raising the debt ceiling to Congress passing a budget, a rule named after former Missouri Democratic lawmaker, Dick Gephardt.

House Speaker Ryan, asked about the story, said he was opposed to scrapping the debt limit process.

“I won’t get into a private conversation that we had [at the White House], but I think there’s a legitimate role for the power of the purse of the Article 1 powers and that’s something we defend here in Congress.”

Article 1 enumerates Congress’ powers, including the authority to write and pass laws and appropriate funding.

Treasury Secretary Steven Mnuchin is another who wants to replace the existing debt limit process with one that automatically lifts the borrowing limit every time Congress appropriates future spending.

As for tax reform, Republicans promise they will have a bill by end of the year.

*Friday, the House passed the debt ceiling extension and funding legislation, including disaster relief, by a 316-90 margin, 90 Republicans voting against...the ones insisting on spending reforms.  The day before the Senate approved it 80-17.  The president will be signing it shortly.

Opinion....both sides....

Editorial / Wall Street Journal

“The American people may think they elected a Republican government last November, but it’s increasingly hard to tell. The latest evidence came Wednesday when President Trump accepted a Democratic offer to raise the federal debt ceiling for a mere three months in return for $8 billion for Hurricane Harvey relief.

“ ‘We had a very good meeting with [Democratic leaders] Nancy Pelosi and Chuck Schumer. We agreed to a three-month extension on the debt ceiling,’ Mr. Trump said Wednesday aboard Air Force One on his way to a rally in North Dakota.

“ ‘So we have an extension, which will go out to December 15 (Dec. 8). That will include the debt ceiling, that will include the CRs [to fund the government] and it will include Harvey – the amount of money to be determined, but it will include – because everyone is in favor obviously of taking care of that situation,’ he added.  ‘So we all very much agree.’

“Ah, dogs and cats living together.

“What really happened is that Mr. Trump overruled his Treasury Secretary and GOP leaders who wanted a debt-ceiling increase to run past the 2018 election.  Mr. Trump instead gave Democrats exactly what they want, which is to set up an even steeper fiscal cliff on debt and spending in December when Republicans hope to be focusing on tax reform.

“Republicans will now have to take at least two different votes to raise the debt ceiling, while Democratic leverage will increase when the day of reckoning comes.  The chances of a government shutdown in December have now risen sharply, or at least they have if Mr. Trump wants to pass something with more than a few Republican votes.

“Mr. Trump may not like GOP leaders Paul Ryan and Mitch McConnell, but is he trying to elect Speaker Pelosi?  As Nebraska Sen. Ben Sasse put it in a press release: ‘The Pelosi-Schumer-Trump deal is bad.’

“Part of the problem is that Congressional Republicans once again helped put themselves in this box. Congress can’t let the U.S. default on its debt, so the majority party has to raise the debt ceiling whether it likes it or not.  The smart GOP play was to attach a long-term debt increase to some other must-pass legislation and get it over with. One and done.

“In familiar self-defeating fashion, the usual House suspects refused, insisting that the debt ceiling get a stand-alone vote.  House Freedom Caucus Chairman Mark Meadows and Republican Study Committee leader Mark Walker also claim to be miffed that the debt-limit increase won’t include spending cuts.

“Yet most of these same Members won’t vote to raise the borrowing limit no matter what they’re offered. They find the actual work of governance beneath their dignity.  Their mutiny means that Mr. Ryan lacked a GOP majority to raise the debt ceiling, which meant he had to go hat in hand to Mrs. Pelosi for Democratic votes.  She and Mr. Schumer came up with their three-month gambit, which Mr. Ryan immediately labeled ‘ridiculous’ and ‘unworkable,’ only to be sandbagged by Mr. Trump.

“This may all sound like inside baseball, but it’s politically relevant because it illustrates the Republican inability to govern. The Senate killed health-care reform. The House can’t pass a budget resolution that is essential for tax reform.  Mr. Trump is sore that Republican leaders failed on health care, so he now undermines their fiscal strategy and all but hands the gavels to Democrats.  Readers might take note and hold off on spending that tax cut.”

Editorial / Washington Post

“When the best that can be said is that the nation can ‘breathe a sigh of relief,’ as Senate Minority Leader Charles Schumer (D-N.Y.) put it Wednesday, that’s better than a dive over the cliff.  The deal struck by President Trump and Congress to postpone until December a divisive battle over fiscal matters is hardly an ideal solution.

“Nonetheless, the president’s decision to reach out to Democrats to ensure against a disastrous default on the nation’s debts is encouraging, both as a matter of responsible governing and for its bipartisan character....

“The deal announced Wednesday, and Senate action that followed Thursday, would – with House concurrence – put off until December an anticipated congressional fight over the 2018 budget.  Mr. Trump was clearly anxious about a contentious battle over fiscal issues in the weeks ahead, fearing it would shake financial markets or interfere with providing hurricane relief aid. His decision to reach out to Democrats for the first time in his administration suggested that frustration with congressional gridlock has led him toward a welcome openness to bipartisan coalitions.

“If so, Democrats should be willing to respond constructively. They proposed the three-month reprieve in the hope of gaining some leverage on important issues in the months ahead, including the extension of legal rights to the immigrants known as ‘dreamers,’ whose protections are being rescinded on Mr. Trump’s orders earlier this week.  This is politically clever but not very responsible in the long run....

“If Mr. Trump and Congress really want Americans to breathe a sigh of relief, they should invest in genuine bipartisanship and make an early deal to tackle (DACA) legislation once and for all.  Mr. Trump offered a nod in that direction Thursday by issuing a tweet, reportedly requested by Ms. Pelosi, assuring dreamers that they would not suffer harm for the next six months.  But what’s needed is legislation affirming their rights to remain, study and work in the country.

“Even better would be a serious bipartisan effort to come to grips with the nation’s long and deep fiscal disorder, including a long-term solution for the debt ceiling and passage of a responsible 2018 budget.  Too much to hope for?  Probably.  But for now, at least, the worst has been avoided.”

So speaking of DACA....the Deferred Action for Childhood Arrivals Program (DACA) currently protects 800,000 undocumented immigrants from deportation.  As it stands today, the program allows for two-year stays for certain undocumented immigrants who entered the country before their 16th birthday, who have attended school or joined the military, and have not committed any serious crimes.  As DACA was created in 2012, some enrollees are currently on their third term, it being renewable.

President Obama signed an executive order after Congress failed to pass a law protecting undocumented immigrants brought to the country as children.  Obama put the label Dreamers on them, those who didn’t enter illegally and shouldn’t be punished as a result.

But not all Dreamers became DACA recipients.  You had to cough up all kinds of information and close to 800,000 did so. The other 1.1 million of an estimated 1.9 undocumented immigrants eligible for the program have not applied.

And since the program was created through executive order and not congressional legislation, it can be rescinded at any time by executive order, just as President Trump has done with many of President Obama’s orders since he came into office in January.

Which means the worry for the Dreamers was that Trump could rescind the order and then the government has all the information on them to arrest and deport them.

So Tuesday, the president ended DACA, the fulfillment of a campaign pledge, having referred to it as an “illegal amnesty” that had to be ended, though he softened his rhetoric following the election.

Addressing reporters before the decision, he said he had “a great heart” for the people who benefited from the program.

“I have a love for these people, and hopefully now Congress will be able to help them and do it properly.”

Then Attorney General Jeff Sessions was put forward to say, “The program known as DACA that was effectuated under the Obama administration is being rescinded,” though, importantly, Congress had six months to come up with a solution before it’s official.

But some White House officials raised concerns Trump didn’t completely grasp the implications of ending DACA before he made his decision.  Which no doubt is a reason behind his tweet later, after prodding from Nancy Pelosi.

“For all of those (DACA) that are concerned about your status during the 6 month period, you have nothing to worry about – No action!”

There is sympathy across the country for DACA beneficiaries, with an NBC News-Survey Monkey poll released last week indicating 64% of American adults support the program, compared to just 30% who oppose it.

President Obama weighed in via Facebook, calling Trump’s decision “wrong,” “cruel” and “self-defeating.”

Speaker Paul Ryan had urged Trump not to end the program, ditto Arizona’s two Republican senators, John McCain and Jeff Flake.

But with Trump’s claim a solution is in the works, any backlash among Hispanics at the voting booth is unknown at this point, even as some ‘experts’ say Trump is energizing Latinos through his action.

I would just add that Trump did better with Hispanics last November, losing them to Hillary Clinton 66-28, whereas President Obama had taken the bloc 71-27 against Mitt Romney.

And, anyway, 24 hours after his decision to end protections for the Dreamers, he cut the budget/debt ceiling deal with the Democrats, which contains more money for border security with more lasting deportation protections for the 800,000.

Trump told reporters on his way to North Dakota, “Congress, I really believe, wants to take care of this situation.  I’d like to see something where we have good border security, and we have a great DACA transaction where everybody is happy and now they don’t have to worry about it anymore.”

But there was nothing about a broader immigration overhaul, including a limit to legal migration favored by conservatives. Nor anything about border wall funding.

How can Republicans count on Trump for his support on virtually anything now?  They left Wednesday’s meeting livid after he sided with Pelosi and Schumer. And lawmakers will be beginning their election campaigns not knowing if the White House will back them.

Speaker Ryan said he was sympathetic to the Dreamers, but wanted to bolster border security to prevent new illegal arrivals.

“Where does that compromise exist? That’s what we’re going to spend the next months figuring out,” he said.  “It’s only reasonable and fitting that we also address the root cause of the problem, which is borders that are not sufficiently controlled, while we address this very real and very human problem that’s right in front of us.”

Republican Sen. Susan Collins (Maine) said, “I don’t see the House and the Senate having the time to do a comprehensive immigration bill within the next six months.”

Opinion....

Editorial / Washington Post

“President Trump found a facile way to deflect blame for his decision to terminate the program that provides safe harbor for the ‘dreamers’... Lacking any policy conviction – as a candidate, Mr. Trump vowed to end the program, then once in office said the ‘incredible’ young dreamers should breathe easy – he ducked, dodged and shunted the issue to Congress.

“Agreed: Congress should have dealt with the dreamers years ago, and several times tried to do so.  It failed, which is why President Barack Obama established (DACA)... Mr. Trump did not kill the program outright, which may have disappointed some of his hardcore supporters.  But he handed it a slow-motion death sentence, unless Congress can break its long-standing deadlock on the issue.

“The president didn’t have the spine to announce his decision himself. He shuffled it to Attorney General Jeff Sessions, an anti-immigration extremist who seemed to relish sticking a knife in DACA.  Mr. Trump told reporters Tuesday that he hoped ‘Congress will be able to help’ the dreamers ‘and do it properly.’ But his written statement – ‘young Americans have dreams too’ – was a study in ambiguity. While saying the dreamers wouldn’t be first in line for deportation, Mr. Trump put them on a path to lose jobs, educational opportunities, and the ability to lead open and unafraid lives....

“By calling attention to the plight of a sympathetic group of generally hard-working, law-abiding young people, DACA has clarified for many Americans just how senseless it would be to deport hundreds of thousands of them.  That’s one reason Congress should act to extend their protections.”

Editorial / Wall Street Journal

“President Trump is taking flak from all sides for ending his predecessor’s (DACA) policy, thus putting some 800,000 young immigrants – so-called Dreamers – in legal limbo.  Though the President and Barack Obama share responsibility for instigating the crisis, Mr. Trump and Congress now have an obligation to fix it and spare these productive young adults from harm they don’t deserve.

“Mr. Trump was at his worst during the campaign when he assailed DACA as an ‘unconstitutional executive amnesty,’ though to his credit he later evinced a change of heart toward these immigrants who were brought to the U.S. illegally as children.  The White House continued DACA despite legal misgivings.  But in June, 10 GOP state Attorneys General presented an ultimatum: Kill DACA or we’ll sue.

“They could make this threat because President Obama unilaterally issued the policy in June 2012 putatively because Congress failed to reform immigration, but the end-run was timed to galvanize his base before the election.  He also knew that Dreamers have widespread public sympathy, including among Republicans who otherwise support strict immigration enforcement. He figured Republicans would harm themselves politically by opposing the compassionate policy and that a GOP successor couldn’t roll it back without a public backlash.

“This was Mr. Obama at his most cynical, and it takes gall for him to scold Mr. Trump as he did Tuesday for making a ‘political decision’ about ‘a moral question’ and ‘basic decency.’ Mr. Obama’s ‘political decision’ to act as his own legislature teed up this moral crisis and created the legal jeopardy....

“The Obama Administration invited Dreamers out of the shadows and asked them to submit personal identification and records that could now allow the feds to track them down.  These young immigrants have committed no crime and trusted the federal government to protect them.  A study last year by the Immigrant Legal Resource Center found that 87% of DACA beneficiaries are employed.

“They would no longer be able to work legally once their DACA permits expire.  And if they forge work documents, they would become a deportation priority. Dreamers could be forced to return to a country where they have no family and may not even speak the language. Is deporting these people really how Republicans want to define themselves?

“The White House seems to understand the terrible political optics, which is why it has tossed the issue to Congress.  It plans what it calls ‘an orderly wind-down of DACA’ rather than wait for a potentially disruptive court injunction.  Current Dreamers whose permits expire over the next six months will be allowed to apply for renewals by Oct. 5, though no new applications will be accepted.

“This gives Congress at least some time to enact the current Dreamer legalization process in a statute that is the proper legal path under the Constitution’s separation of powers.  Mr. Trump signaled his willingness to sign such a bill on Tuesday when he tweeted, ‘Congress, get ready to do your job – DACA!’  We hope he means it.”

Trumpets....

--The Justice Department confirmed in a court briefing filed late last Friday that neither it nor the FBI has evidence that Trump Tower was bugged by the Obama administration during the 2016 campaign.

The motion was filed in D.C. district court in response to a Freedom of Information Act lawsuit filed by a group seeking government records of surveillance in Trump Tower.  It was in March that Trump tweeted he had discovered Obama had wiretapped Trump Tower during the run-up to the November election.

Wall Street

At the Sept. 19-20 meeting of the Federal Open Market Committee, it is expected that the Federal Reserve will announce it will begin paring down its $4.5 trillion balance sheet, but ever so slowly. Nonetheless, this acts like a rate hike.

An actual hike in the official funds rate, though, is not in the cards for September so it’s about December.

But New York Fed president William Dudley still supports further interest rate rises despite being “surprised” at stubbornly-low inflation, arguing that financial conditions are buoyant and the economy remains in good shape, despite the impact of Hurricane Harvey and, now, Irma.

Separately, Vice Chairman Stanley Fischer suddenly resigned from the Fed, effective mid-October, which gives President Trump an even broader opportunity to reshape the leadership sooner than expected, though clouding the outlook for monetary policy in the short term.

Fischer, 73, cited “personal reasons” for leaving, and he will participate in the September meeting.

While it was expected he would step down, no one thought he would do so with eight months remaining in his term.

With the departure, that leaves four of the seven seats on the Fed Board vacant, though Trump has nominated Randal Quarles, a former Treasury official under President George W. Bush, with the nomination still pending in the Senate.

Janet Yellen’s term as chair expires in February. While Trump has said he could renominate her for another term, that isn’t likely...at least as of today.

Europe and Asia

On the economic front, Eurostat released its growth figures for the eurozone for the second quarter of 2017, up by 0.6% in the EA19, 2.3% year over year.

Some annualized growth rates:

Germany 2.1%, France 1.7%, Italy 1.5%, Spain 3.1% and Greece 0.8%.

Markit released the service sector PMIs for August, 50 being the dividing line between growth and contraction, and for the eurozone overall the reading was 54.7 vs. 55.4 in July.

Germany came in at 53.5, France 54.9, Italy 55.1 and Spain 56.0.  All were down over the prior month but still strong.

In the U.K., the reading was 53.2 vs. 53.8 in July, the lowest since Sept.

Meanwhile, the European Central Bank put off until October any decision on what to do with its massive stimulus program.  The euro’s strength is weighing on inflation and ECB President Mario Draghi said on Thursday the exchange rate would weigh heavily on the bank’s decision on the future of quantitative easing.

Draghi, in keeping rates at record lows once again, said the door remained open for even more stimulus in an effort to juice inflation, while making it clear that any phasing out of its $2.8 trillion bond buying scheme will be done very gradually next year, despite the solid economic growth in the eurozone.

Because of strength in the euro, up about 15% against the dollar this year, the ECB lowered its inflation forecast for 2018-19; just 1.2% next year and 1.5% in 2019, both down a tick from previous forecasts, and both below the magical 2% target.

At the same time the ECB raised its eurozone growth forecast to 2.2% for this year, the fastest growth in 10 years, or before the financial crisis started to bite.

Due to the talk of further bond buying, the yield on the German 10-year fell to 0.30% from 0.54% about six weeks earlier. 

Eurobits....

--On the Brexit front, parliament debated Prime Minister Theresa May’s strategy for exiting the European Union, with Brexit minister David Davis calling on it to back legislation to sever Britain’s ties with the EU, saying that opposing the bill would lead to chaos. Labour threatened to vote against the bill.

On Wednesday, Prime Minister May reiterated the need to slash net migration into the U.K., insisting it was vital to cut the levels to protect the worse-off workers.

But Mrs. May took heat for a letter distributed by her office to major U.K. companies for senior executives to sign praising her government’s Brexit strategy.

“The letter, intended to be published in a U.K. newspaper, said that the government’s repeal bill, due to be debated in Parliament on Thursday, would initiate a program of legislation to prepare Britain for life outside the European Union.  Sky News television, which first reported the letter earlier Wednesday, said company chiefs expressed incredulity at being asked to sign.

“ ‘This is a good time for employers to work with government and Parliament to make a success of Brexit and secure a bright future for our country,’ the letter read.  It also welcomed the government’s commitment to securing a transition period ‘so that firms can ensure they are ready to adapt to the changing relationships and thrive under the new partnership being created with the EU.’”

May is due to give her definitive speech on Brexit and the negotiating positions supposedly on Sept. 21, ahead of critical October deadlines, including a European Union summit, Oct. 19-20.

Skepticism in the EU itself abounds as to Britain’s hopes for starting trade negotiations.

Meanwhile, the EU’s Brexit negotiator, Michel Barnier, addressing a conference in Italy last Saturday, said he sees the process as an opportunity to “teach the British people and others what leaving the EU means.”

As for the EU divorce bill, the U.K.’s Brexit Secretary, David Davis, said “We’re going through [the bill] line by line, and they’re finding it difficult because we’ve got good lawyers.”

British Foreign Secretary Boris Johnson said some of the figures touted for the size of the bill were “extravagant” and the U.K. would only respect a number that was “serious and validated in law.”

Estimates on the tab for leaving the EU have ranged from $50 billion to $100 billion.

--The European Union’s top court on Wednesday ruled that Central European states have no legal grounds to reject a refugee-relocation program, a topic that has roiled politics in the region since the crush of migrants began two years ago.

The Luxembourg-based European Court of Justice ruled that the EU’s mandatory plan to relocate refugees among the bloc’s members, hammered out two years ago as hundreds of thousands of Syrians entered the continent through Turkey and Greece, was legal.

Hungary and Slovakia voted against the program and have refused to take part in it, as well as Poland and the Czech Republic.

But after the court’s ruling, Slovakia said it would “fully respect the verdict,” as it prepared to take in a first batch of refugees from Italy, some 900.

Hungary, though, which has refused to take in the 1,294 it was allotted under the plan, called the court’s ruling “outrageous and irresponsible” and said the country would continue prioritizing protecting Hungarians from refugees over improving relations with the rest of the EU.

--Following the big televised debate between Chancellor Angela Merkel and her SPD challenger Martin Schulz, a poll showed that Merkel had increased her lead, with her CDU/CSU bloc holding steady at 37%, while the SPD fell to 21% - their lowest reading since early January in the Infratest dimap survey.

The anti-immigrant, euro-hostile AfD came in unchanged at 11%, making it the third-strongest political force. The radical Left followed at 10%, the business-friendly FDP 9%, and the Greens at 8%.

As I’ve been writing ahead of the Sept. 24 national vote, it’s about forming a coalition after and it’s still possible the CDU and SPD could end up back together, which is the current grand coalition, though most of Merkel’s supporters would prefer an alliance with the FDP; it just depends on the final percentages and seats gained in parliament.

--Spain’s Prime Minister Mariano Rajoy accused Catalonia’s parliament of an “intolerable act of disobedience” in passing its referendum law, insisting it violated the Spanish constitution and vowing to “stop at nothing” to prevent the region from holding a vote on splitting from Madrid.

Rajoy said he asked Spain’s top court to block the vote and his attorney-general to prosecute Catalan leaders.  The court then suspended the referendum law, as it considers whether the law breaches Spain’s constitution.

“We are defending national sovereignty, the principle of legality and the institutions,” said Rajoy.

Catalonia’s president, Carles Puigdemont, called the independence referendum for Oct. 1, an act he declared to be “for liberty and democracy.”  The Catalan government has vowed to press ahead despite the court’s ruling.

The latest poll shows Catalans divided, virtually 50/50, on secession.

Turning to Asia, the economic news was on the light side, with the private Caixin reading on the service economy in China coming in at 52.4 for Aug., vs. 51.9 the prior month.

Separately, Chinese President Xi Jinping, addressing an economic summit, said downward risks and uncertainties for the global economy were on the rise. Xi reiterated that he opposes protectionism and firmly supports the multilateral trading system, which allows China to steal intellectual property and rip everyone else off.  [OK, this last bit was an editorial comment on my part.]

“Beggar-thy-neighbor policy and a zero-sum game mindset don’t benefit global economic growth,” echoing a theme he sounded at the World Economic Forum in Davos.

In Japan, the Cabinet Office announced the economy grew at an annualized rate of 2.5% in the second quarter, revised down from a preliminary estimate of 4.0%.  On a quarter-on-quarter basis, GDP rose 0.6%.

So why the big downward revision?  While it was widely expected, it turns out capital spending for April-June rose at a slower annual pace than the previous quarter, 0.5% vs. a preliminary estimate of 2.4%.  Analysts, though, still expect the economy to sustain a steady recovery as robust global demand underpins exports and a tightening job market improves the prospects for higher wages.

Separately, a reading on Japan’s service sector came in at 51.6 last month vs. 52.0 in July.

Street Bytes

--September is the worst performing month historically, with the Dow Jones over the past 100 years showing a positive return only 40% of the time and an average loss of 1.1%.  [Bespoke Investment Group, Barron’s]

--U.S. Treasury Yields

6-mo. 1.14%  2-yr. 1.26%  10-yr. 2.05%  30-yr. 2.67%

--After an initial price shock as a result of Hurricane Harvey causing massive disruptions to America’s refining capacity, prices stabilized as the likes of Colonial Pipeline Co. reopened a key pipeline.  [Colonial handles more than 3 million barrels per day from Houston to Linden, New Jersey, while servicing seven airports.]

Nationwide, the average price at the pump was about $2.62 on Sunday, or up almost 30 cents from two weeks earlier, though it was sliding some by Friday.

Much above $2.50 and the economic impact can be significant.

--Equifax, one of the three major consumer credit reporting agencies, announced on Thursday that it had a data breach that left Social Security numbers, driver’s license numbers and other sensitive information for 143 million U.S. consumers vulnerable to hackers.

The files were gained access to from mid-May to July, the criminals exploiting a weak point in the website application, according to the company’s investigation.  Equifax didn’t discover the intrusion until July 29 and hasn’t found any evidence of unauthorized activity on its main consumer or commercial credit databases.

But hackers were able to retrieve birth dates and addresses, as well as credit card numbers for 209,000 consumers.  Documents with personal information used in disputes for 182,000 consumers were also taken.

The company created a website, equifaxsecurity2017.com, to help consumers determine whether their data was at risk.

Equifax, a publicly traded company, saw its shares fall 15% initially on the news.

--Hundreds of fake Facebook accounts, probably run from Russia, spent about $100,000 on ads aimed at stirring up divisive issues in the 2016 presidential election, the company announced on Wednesday.

The actual number of ads (an estimated 3,000) is relatively small, but it provides strong evidence of Russia’s efforts to influence the vote, this time through social media.

The ads didn’t specifically reference the election, a candidate or voting, but they were aimed at amplifying “divisive messages” via the social media platform, according to Facebook’s chief security officer.

But the company is coming under attack for its refusal to release copies of the ads to the public – or to congressional investigators.

A Facebook spokesman said, “We’re trying to be as transparent as possible, but there are certain restrictions on what we can disclose under our data policies.”

This wasn’t good enough for congressional investigators and campaign finance specialists.  If the ads favored one candidate or another, that would violate federal law barring foreign nationals from spending money to influence a U.S. election.

--Last week I talked about the estimated number of automobiles that were destroyed in Hurricane Harvey, between 300,000 and 500,000.  Now, various folks are estimating 20% will be repaired, and most of the rest replaced by secondhand vehicles, with a small bump for new-car sales, perhaps 1% of the nationwide total, according to Evercore ISI.

But Barclays notes the rush of secondhand sales should support used-car prices.  [Stephen Wilmot / Wall Street Journal]

--Apple Inc.’s new iPhone, which is expected to be unveiled Tuesday, has been plagued by production glitches this summer, sources told the Wall Street Journal, which could result in extended supply shortfalls when customers start ordering the devices later this month.

The new phone is expected to have a base price near $1,000, and analysts forecasts for initial shipments vary widely, with some projecting as many as five million units shipped by end of the month...maybe.

--Amazon.com announced it was searching for a site to build a second headquarters, in essence a duplicate of its Seattle HQ, which could cost $5 billion to build and employ 50,000, the company said.

Needless to say this is creating a rush among state and local governments to make their best pitch for a trophy property that could turn around a city, or put one on the map.

CEO Jeff Bezos said, “We expect HQ2 to be a full equal to our Seattle headquarters.  Amazon HQ2 will bring billions of dollars in up-front and ongoing investments, and tens of thousands of high-paying jobs.”

Amazon did say it was looking for a metropolitan area with more than 1 million people that is stable and business-friendly.

Los Angeles, Chicago, Denver and Dallas have already expressed interest.

Bezos, who owns the Washington Post, has been a frequent target of President Trump, who can’t exactly bash a guy who is adding 50,000 jobs, let alone the thousands involved in the construction of the facility.

--Deutsche Bank CEO John Cryan called for employees at the bank to embrace their “revolutionary spirit,” adding that those who are already working “like robots” will begin to be replaced by actual robots.

Cryan warned that a large number will lose their jobs as a result. Such as accountants, who “spend a lot of the time basically being an abacus” will be replaced by automation.

Needless to say this didn’t go over very well among the rank and file. The German banking giant has already committed to cutting 9.000 of its 100,000 direct employees and 6,000 of 30,000 contractors as part of a five-year restructuring plan.

“The truthful answer,” Cryan said, “is we won’t need as many people. In our banks we have people behaving like robots doing mechanical things, tomorrow we’re going to have robots behaving like people.”

Cryan was addressing a banking conference in Germany.  [FT]

--Eli Lilly & Co. announced plans on Thursday to cut roughly 8% of its global workforce; 3,500 position globally, including 2,000 in the U.S.

Lilly hopes to achieve most of the U.S. reductions through voluntary early-retirement packages, while others come from site closures and layoffs. 

The percentage laid off in the U.S. is greater than 8%, Lilly currently with 18,500 workers in this country.

--Danish toymaker Lego announced it was slashing 1,400 jobs, 8% of the workforce, after the company reported its first revenue decline in a decade. The company didn’t promise a return to growth in the next two years either.  Executive chairman Jorgen Vig Knudstorp said, “We have now pressed the reset button for the entire group.”

For a decade, Lego had reported consistent double-digit growth for its Lego sets, video games, movie franchises, robotics and smartphone applications.  It was pretty startling, given the overall slump in the global toy market.  It was in 2004 that Lego flirted with bankruptcy.

600 of the 1,400 layoffs are to be at the company’s headquarters in Billund, Denmark, so that will throw the local economy for a loop.

--In a rather stunning development, Tronc, the parent company of the Los Angeles Times, acquired the New York Daily News, including the website and other assets.  The sale price was $1, though Tronc assumes all operational and pension liabilities.

Tronc, formerly known as Tribune Publishing, has been involved in merger talks with other high-profile newspapers, but the Daily News acquisition is the first to be finalized.

Gannett, publisher of USA TODAY and more than 100 other titles, had launched an unsolicited pursuit of Tronc in November that was eventually abandoned.

Tronc had tried to purchase the Chicago Sun-Times, which instead was acquired by an investment group and labor unions.

The New York Daily News has been owned since 1993 by billionaire Mort Zuckerman and onetime business partner, Fred Drasner, who left in 2004.

It’s just kind of startling that Tronc would be going after a major newspaper when traditional print advertising has been sliding precipitously.

But Tronc president Tim Knight said they’ve always been interested in the New York Market.

“The Daily News has a great staff and also has 24 million unique visitors to its website (Ed. which is unreadable vs. the highly-navigable New York Post’s).  That really fits into our plans. This increases our digital audience by almost 40%. It also gives us what we feel will be a very efficient national platform and significant digital presence across the country.”

The Daily News had a peak circulation of 2.4 million copies daily in 1947, 4.7 million on Sunday. Comics were a big reason, in the days of “Gasoline Alley,” “Little Orphan Annie” and “Dick Tracy.”

--I can’t imagine being one of the thousands of passengers on cruise ships who had their trips shortened due to Irma, and were returned to Miami, only to have trouble finding a flight out with their change in plans.  Rental cars are sold out.  Just a nightmare.

--Pittsburgh International Airport is set to become the first U.S. airport to allow non-fliers regular access into its gate-side terminal areas since security measures changed after the 9/11 terrorist attacks in 2001.

Pittsburgh, which has one of the better airports in the country in terms of shopping and restaurants in the gate area, won approval from the Transportation Security Administration for non-ticketed customers to pass through security, though they will still have to go through the same screening as those catching flights.  They’ll also be required to show ID so they can be vetted against no-fly lists.

There is no clamor to do the same at Newark Airport.

--According to a survey from NationalToday.com, the average American works harder than their Japanese counterpart or the European worker.

“Statistics show that Americans work longer hours than the majority of other countries – 137 hours per year more than Japanese, 260 per year more than in the UK,” according to the study.

America and France?  Try 500 more hours per year.  Zut alors!

--I was reading a piece in the New York Post on how ABC brass were fuming that Michael Strahan, a “Good Morning America” anchor, didn’t cut his vacation short to return and cover Hurricane Harvey, especially since he’s a Houston native.  He was cruising in Greece.

But the article didn’t mention that Matt Lauer at NBC certainly didn’t rush back.

Anderson Cooper at CNN, though, did.  He was slated to be off all week and instead anchored his show from Houston.

Foreign Affairs

North Korea: Sunday morning, North Korea’s state news agency issued a press release in which it said the country was able to load a hydrogen bomb onto a long-range missile. The bomb, North Korea said, “is a multifunctional thermonuclear nuke with great destructive power which can be detonated even at high altitudes for super-powerful EMP attack.”

Well this was disconcerting...North Korea bringing up a threat I have long talked about, and to his credit, former House Speaker Newt Gingrich first raised, that of an electromagnetic pulse attack, or nuclear weapon detonated tens or hundreds of miles above the earth with the aim of knocking out power in much of the U.S.

And in this statement we hear mention of a hydrogen bomb.

So later in the day, after testing two long-range intercontinental ballistic missiles (ICBMs) in July that could fly about 6,200 miles, putting many parts of the U.S. mainland within range, and then firing an intermediate-range ballistic missile over Japan, Pyongyang detonated its most powerful nuclear bomb on Sunday, its sixth nuclear test, and this one was of the Hydrogen variety.

The regime said after it was a “perfect success.”  It appears it was indeed.

World leaders condemned the provocation across the board.  Japanese Prime Minister Shinzo Abe said the test is “absolutely unacceptable and we must protest it strongly.”

The Chinese foreign ministry said on Sunday, “The Chinese government resolutely opposes and strongly condemns this.”

President Trump took a while but eventually tweeted: “North Korea has conducted a major Nuclear Test. Their words and actions continue to be very hostile and dangerous to the United States....North Korea is a rogue nation which has become a great threat and embarrassment to China, which is trying to help but with little success....South Korea is finding, as I have told them, that their talk of appeasement with North Korea will not work, they only understand one thing!”

Later, when asked by a reporter during a trip to church if he would attack the North, Trump said: “We’ll see.”

The underground blast caused a 6.3-magnitude earthquake, according to the U.S. Geological Society, followed a few minutes later by another with a magnitude of 4.1, suggesting the explosion triggered landslides in the detonation area and beyond.  If the mountain over the site collapsed, it could lead to the release of radioactive materials.

[Japan estimated the size of the nuclear test at around 160 kilotons, or about 10 times the size of the Hiroshima bomb.]

South Korea’s defense minister said it was worth reviewing the redeployment of American tactical nuclear weapons to the Korean Peninsula to guard against the North.  [A recent opinion poll in the South by YTN cable channel showed 68% of the people favoring such a move.]

U.S. Ambassador to the United Nations Nikki Haley accused Kim Jong Un of “begging for war” and urged the Security Council to impose the “strongest possible” sanctions.

Haley said new draft sanctions should be voted on by the Security Council Sept. 11.

U.S. Defense Secretary James Mattis said Pyongyang would face a “massive military response” should it threaten the United States or its allies.

North Korea said that it was Trump who was “begging for war,” not North Korea.

President Trump offered billions of dollars in new American military equipment to allies in Asia, while saying South Korea should use bigger conventional payloads on its missiles as deterrence.

South Korea held military drills on Tuesday “to prepare for maritime North Korean provocations...and to reaffirm our will to punish the enemy,” said a Defense Ministry spokesman.  Seoul also believes Pyongyang is preparing additional missile launches.

Amid all this, President Trump instructed advisers to prepare to withdraw the United States from a free-trade agreement with South Korea, the timing of the move beyond stupid.  Yes, the president promised to crack down on what he considers to be unfair trade deals, but in the case of South Korea, national security adviser H.R. McMaster, Defense Secretary Mattis, and National Economic Council director Gary Cohn all apparently oppose withdrawal, and, again, it’s the timing.  Pure idiocy.  Take up the issue when the nuclear crisis passes.  Not now.

President Xi, in a phone call Wednesday with President Trump, said China “unswervingly” works to realize denuclearization on the Korean Peninsula and to safeguard the international nuclear non-proliferation system, according to a statement from China’s Foreign Ministry.  “At the same time, we always persist in safeguarding peace and stability on the Korean Peninsula and resolving the issue through dialogue and consultation,” Xi said.  “It is necessary to stay on the path of a peaceful solution.”

Beijing has argued reining in North Korea is not its chief responsibility, and has voiced concerns over U.N. economic sanctions, even as it backs them, in terms of their effectiveness.

Russian President Putin said his country opposed cutting off oil supplies to North Korea as part of new sanctions being considered, according to an account of his meeting Wednesday with President Moon Jae-in of South Korea.

The U.S. and its allies have been pushing for a global oil embargo on exports to North Korea, with Pyongyang receiving most of its oil from China.  But it has been trying to increase imports from Russia as an alternative source for its military.

Putin said during a conference in Vladivostok, that sanctions and pressure would not persuade North Korea to give up its nukes.

Moon quoted Putin as saying that disrupting oil exports would only hurt ordinary North Koreans by disrupting hospitals and other civilian facilities.

“Without political and diplomatic tools, it is impossible to make headway to the current situation; to be more precise, it is impossible,” Putin said during a joint news conference after with Moon.

[Earlier in the week Putin said of North Korea, “They’ll eat grass, but they won’t abandon their program unless they feel secure.”]

Thursday, North Korea said it would respond to any sanctions with “powerful counter measures.”

“We will respond to the barbaric plotting around sanctions and pressure by the United States with powerful counter measures of our own,” per a statement from its delegation attending the Vladivostok economic forum.

For its part, South Korea deployed four more launchers of a U.S. anti-missile Terminal High Altitude Area Defense (THAAD) system on a former golf course south of Seoul on Thursday.  This comes amid strong objections of THAAD from China, which believes the system’s radar could be used to look deeply into its territory and will upset the regional security balance, which is a bunch of bull, witness China’s aggressive actions in the South China Sea, for one. 

Thursday, at a press conference, Trump insisted all options remain on the table in the face of Kim’s threats.

“Military action would certainly be an option. Is it inevitable?  Nothing’s inevitable.  It would be great if something else could be worked out.”

Trump promised that if the U.S. does strike, “it will be a very sad day for North Korea.”

Separately, China is amping up monitoring for signs of radioactive fallout from North Korea’s nuclear test.  The main concern is that if contamination was discovered, there would be a public outcry to force the government to crack down on Pyongyang.

100 million people live in China’s three northeastern provinces bordering or near North Korea, with the nuclear test site less than 50 miles from China’s border.  Buildings near the border did feel a shock.

For China, this is like any environmental issue, which could cause an uproar.  And the Communist Party doesn’t want its image dented prior to next month’s party congress.

Opinion....

Michael Morell / Washington Post

“It is conventional wisdom that North Korea is not yet able to put a U.S. city at risk of nuclear attack. Air Force Gen. Paul Selva, vice chairman of the Joint Chiefs of Staff and the country’s No. 2 military officer, captured this view in a statement last week to Bloomberg News. Selva said: ‘It is clear North Korea has the capability to build a missile that can range the distance to the United States, but North Korea has to demonstrate it has the requisite technology and capability to actually target and strike the United States with a nuclear weapon.’  Many other U.S. officials, as well as outside experts, have made similar comments.

“I think the conventional wisdom may be wrong. I believe that North Korea may have the capability today to successfully conduct a nuclear attack on the United States.  I believe that the conventional wisdom may be based on a fundamental mistake of logic: Just because North Korea has not yet demonstrated a capability does not mean it does not have it.

“What is the case for concluding that North Korea may already have the capability? There are three key pieces. First, North Korea’s first unambiguously successful nuclear test was in 2009 (North Korea’s first test, in 2006, most likely failed).  The 2009 test showed that North Korea could generate a nuclear yield from a device. And that test has been followed by four other successful nuclear tests – the latest being this past weekend.  The explosive yields of the tests have grown over time.

“Second, in December 2012, North Korea successfully put a satellite in orbit with a rocket that, had it been a missile, could have ranged to at least Alaska and, if more work had been done, could have hit the continental United States.  In addition to the range, the satellite launch demonstrated that North Korea can successfully separate a payload from a rocket or missile.  North Korea, of course, has since demonstrated, with two intercontinental ballistic missile tests this summer, that it has missiles capable of ranging as far east as Chicago.

“Third, and this addresses the pieces of the puzzle that we have not seen, I believe that North Korea has the technical capability and has had the time necessary to make a nuclear weapon small enough to fit on a long-range missile and to ensure that the warhead can survive the vibrations, pressures and heat of reentry. If you can build a nuclear weapon, you can make the rest of the pieces work....

“Why is this such an important issue? Because, if you believe, as Selva and others apparently do, that North Korea cannot yet attack the homeland with a nuclear weapon, it follows that the United States can take preemptive military action against North Korea without risking a retaliatory nuclear strike by Pyongyang.  You can take such action without putting the United States at risk.

“However, if you believe, as I do, that North Korea might be capable of striking us today, it follow that a preemptive U.S. military strike against Pyongyang could bring about the very thing that we are working to avoid – the nuclear annihilation of a U.S. city and the deaths of millions of Americans.  If this darkest of scenarios were to play out, the assumption and assessment that North Korea cannot yet threaten us would be a strategic mistake of historic proportions.”

David Ignatius / Washington Post

“When today’s historians look at the confrontation between the United States and North Korea, they’re likely to hear echoes of ultimatums, bluffs and botched messages that accompanied conflicts of the past, often with catastrophic consequences.

“ ‘The one thing that’s certain when you choose war as a policy is that you don’t know how it will end,’ says Mark Stoler, a diplomatic and military historian at the University of Vermont. This fog of uncertainty should be a caution for policymakers now in dealing with North Korea.  History teaches that wars often result from bellicose rhetoric and bad information. Sometimes leaders fail to act strongly enough to deter aggression, as at Munich in 1938. But more often, as in August 1914, conflict results from a cascade of errors that produces an outcome that no one would have wanted.

“World War I is probably the clearest example of how miscalculation can produce a global disaster. As Stoler recounted to me in an interview, each player was caught in ‘the cult of the offensive,’ believing that his nation’s aims could be fulfilled in a short war, at relatively low cost.

“It was a tragic sequence: After the assassination of Archduke Franz Ferdinand, Austria asked for Germany’s support against Servia; Kaiser Wilhelm foolishly offered a ‘blank check.’ Russia, Serbia’s ally, began mobilizing forces; Germany countered with its own mobilization, as did France, and then Britain.

“In the nuclear age, the costs of miscalculations are much greater, but good sense (and luck) have prevailed, so far.  Even Thomas explains in ‘Ike’s Bluff’ that President Dwight D. Eisenhower appeared close to the brink in the Korean War in 1953.  ‘If the Chinese and North Koreans failed to come to terms, American diplomats were to broadly hint, the United States would expand the war with nuclear weapons,’ he writes. Whether Eisenhower would have dropped the bomb is anyone’s guess; amazingly, it’s not clear his ominous messages were even passed on or understood.

“Eisenhower played chicken again in 1958, when Soviet Premier Nikita Khrushchev gave him an ultimatum that the United States must remove its troops from Berlin.  Ike promised his aides that he was ‘all in’ against this threat.  But soon after, he invited the Soviet leader to visit the United States, and after an intimate weekend with the president’s grandchildren at his farm in Gettysburg, Khrushchev backed off.

“The Cuban missile crisis is the ultimate moment of nuclear brinkmanship.... President John F. Kennedy made an ultimatum to Khrushchev on Oct. 27, 1962, that averted war. But that was only after Khrushchev ignored a Sept. 13 warning against putting nuclear weapons in Cuba. Would Kennedy really have gone to war if Khrushchev hadn’t backed down?  He told a Navy commander later that he would have started combat operations on Oct. 30....

“How should we apply history to the current standoff with North Korea? First, messaging is critically important. With so much at stake, it’s crazy for President Trump to be sending sensitive signals about war and peace in 140-charatcter public tweets. Second, evidence suggests that North Korean leader Kim Jong Un is a genuinely dangerous risk-taker.  U.S. officials calculate that he has conducted more than 80 missile or bomb tests since becoming ruler in 2011, compared with just 20 under his father.

“Would the impulsive Kim ever be ready for negotiations with Trump?  So far, he has spurned peace overtures from the United States, answering American calls for restraint with three more tests.  North Korea claims he’s acting defensively, provoked by joint U.S. military exercises with South Korea last month.

“Is Kim’s position a charade?  Let’s find out. No new U.S.-South Korean exercises are scheduled until next March. That offers a six-month window to push Pyongyang to explore options. As history shows, the consequences of making a mistake in war are calamitous.”

Joshua Pollack / Defense One

“In honor of the Labor Day weekend, North Korea conducted a massive nuclear test on Sunday, its sixth and by far its largest. The test appears to have involved the country’s first true thermonuclear device – a ‘hydrogen bomb,’ involving both fission and fusion. Some of us prefer to hit the holiday sales, but Kim Jong Un, never one to endorse unfettered capitalism, obviously had his own ideas.

“Still, it shouldn’t be too surprising.  North Korea publicized unspecified nuclear-fusion experiments back in May 2010.  Its scientific publications document a handful of such experiments and related activities. Recently, researchers found that a North Korean trading company was marketing lithium-6, an important ingredient for making hydrogen bombs. Well, never mind what I just said about capitalism.

“But it’s not as if the North Koreans themselves haven’t ben broadcasting their intentions. In December 2015, Kim Jong Un visited a historical site associated with North Korea’s arms industry, declaring the country to be ‘ready to detonate a self-reliant A-bomb and H-bomb.’  On January 6, 2016, the country conducted what it described as its first experimental H-bomb test, although its modest explosive yield provoked doubts in other countries about how much nuclear fusion actually could have been involved.

“The doubts were noticed: Two days later, in public remarks at a celebration of the test, Jang Chol, president of North Korea’s State Academy of Sciences, offered a warning: North Korea would continue advancing its weapons technology at full speed. If the country’s enemies belittled the accomplishments of North Korea’s scientists and technicians, he added, ‘we will deal a crushing blow to the bastards’ heads by detonating another type of hydrogen bomb.’”

It’s been the same thing with the ballistic missile program...and its progress.

Joshua Pollack:

“But you don’t have to ask what the next act will be, because Kim Jong Un has already told us: North Korea will fly more missiles over Japan into the Pacific. The Hwasong-14, which the North Koreans now indicate was designed to carry the new H-bomb, is an obvious candidate. Also still on the table is a plan to test multiple Hwasong-12s in the vicinity of Guam, where U.S. bombers are present....

“In response to the Trump administration’s policy of ‘maximum pressure and engagement,’ which so far hasn’t featured much engagement, the North Koreans have pledged to ‘speed up at the maximum pace the measure for bolstering its nuclear deterrence,’ taking both ‘consecutive’ and ‘successive’ actions to that end. So far, they’ve kept that promise, testing 18 missiles in the first eight months of 2017.

“I have doubts about the efficacy of Kim Jong Un’s plan. There should no longer be any question about his ability to build and deploy missiles and nuclear bombs. But it doesn’t look like any number of tests will convince Washington to rethink its approach, any more than new sanctions will sway Pyongyang.  We are stuck, driving each other steadily into our respective corners.”

Editorial / Wall Street Journal

“The standard refrain of foreign-policy experts is that the world has no good options other than war or acquiescence. The policy default, repeated by the Trump Administration, is pleading with China to coerce North Korea into giving up its nuclear program, despite evidence that Chinese leaders don’t want to help and Kim Jong Un may not take their orders.

“A military strike has to be a last resort because it might lead to a larger war that could kill tens of thousands in South Korea and Japan, including U.S. troops. But the U.S. does have other options....

“Diplomatic. The U.S. can put far more pressure on countries to cut or restrict ties with North Korea.  While the regime preaches an ideology of self-reliance, it needs international ties to raise hard currency and source the raw materials and technology it needs.

“Information.  Defectors are already sending information into the North about the outside world. The U.S. and its allies can expand that effort and encourage elites to defect or stage an internal coup.

Military. Building up missile defense and conventional forces will diminish the North’s ability to use nuclear blackmail. Deploying tactical nuclear weapons to South Korea would make the threat to retaliate against a nuclear strike more credible.

“Economic.  Donald Trump tweeted Sunday that the U.S. is considering sanctions against anyone who does business with North Korea....

“Financial.  The U.S. can cut off North Korea’s access to financial intermediaries that conduct transactions in U.S. dollars....

“Intelligence.  The Proliferation Security Initiative begun under the George W. Bush Administration tracked and intercepted the North’s weapons exports. The program could be enlarged to block other exports forbidden under United Nations sanctions.

“Legal.  A U.N. Commission of Inquiry in 2014 reported evidence of human-rights abuses in the North’s huge network of prison camps.  China and Russia have shielded the Kim regime from prosecution at the International Criminal Court for these crimes against humanity. Pressure for accountability will further isolate the North and encourage elites to defect.

“The North is especially vulnerable to pressure this year because a severe drought from April to June reduced the early grain harvest by 30%.  If the main harvest is also affected, Pyongyang may need to import more food while sanctions restrict its ability to earn foreign currency.  Even in a normal year, the North needs to import about 500,000 tons of grain.

“While the regime survived a severe famine in the 1990s, today the political consequences of a failed harvest would be severe. More North Korean awareness of the outside world has fostered cynicism about the government, and about half the population is engaged in some form of private enterprise.....The army was once the most desirable career path; now soldiers are underpaid and underfed.  North Koreans will not simply accept starvation as they did two decades ago.

“Withholding food aid to bring down a government would normally be unethical, but North Korea is an exceptional case.  Past aid proved to be a mistake as it perpetuated one of the most evil regimes in history.  The U.N. says some 40% of the population is undernourished, even as the Kims continue to spend huge sums on weapons. Ending the North Korean state as quickly as possible is the most humane course.”

Ralph Peters / New York Post

“Better a million dead North Koreans than a thousand dead Americans. The fundamental reason our government exists is to protect our people and our territory.  Everything else is a grace note. And the words we never should hear in regard to North Korea’s nuclear threats are ‘We should’ve done something.’

“Instead, we should do something.  Pyongyang’s Sunday test of a hydrogen bomb of devastating power begs for decisive action.  Must we wait until Americans die?

“A preemptive strike against Kim Jong-un’s nuclear and ballistic missile programs would be a terrible thing, demanding a vast military effort (if done properly) and leaving broad destruction in its wake. But that terrible option increasingly appears to be the least bad option. The question is whether we’ll delay action until it’s too late to save American lives.

“When we’re threatened with nuclear destruction by North Korea, a military response is not unethical.  Rather, inviting a North Korean attack by hesitating endlessly then witnessing the slaughter of tens, if not hundreds, of thousands of our citizens would be unethical and immoral.

“We do not want war. That much could not be more obvious. But we cannot sacrifice American lives to shield the consciences of intellectual elites who, from protected positions of immense privilege, insist that all human life is precious, not just our ‘deplorable’ American lives....

“North Korea doesn’t believe we will act. Because we never have acted....

“(Warfare) has been humanity’s ultimate means of resolving intractable issues since the first cave-dwellers went at the gang from the cave down yonder with rocks. We may not like it – I don’t – but to insist that war isn’t humanity’s sometimes-necessary default means of survival is to ignore all of human history.

“As for the irresponsible claim that there’s no military solution, it’s transparently false. Of course there’s a military solution. It’s horrible, but pulling triggers may be the only option feckless diplomats and prevaricating administrations have left us to protect our people and territory.

“Again, the primary rationale for our government’s existence is to protect us from physical harm at the hands of foreign powers. That’s why we have a military. We are promised ‘life, liberty and the pursuit of happiness,’ not a spineless calculus that protects our enemies rather than ourselves.

“If someone screams that they’re going to kill us and points a gun toward us, we have the legal and ethical right to draw and fire fist. And if the attacker also threatens to kill our wives and children, it would be immoral not to shoot first.

“Our North Korean problem comes down to just that....

“How could it be ethically superior and morally correct to permit a self-declared and virulent enemy to destroy Honolulu, San Diego and Seattle?”

Syria: According to the Syrian Observatory for Human Rights, over 150 ISIS and pro-regime forces were killed in clashes in central Syria (120 IS militants, and 35 regime troops) in the town of Uqayribat, ISIS’ last stronghold in the central province. The town was seized by pro-government forces and then Daesh responded in a counter-offensive.

The Syrian regime is racing ahead of America’s Kurdish-led allies over who will control Islamic State’s remaining territory. Yes, Bashar Assad is in the strongest position he’s been since the uprising began in 2011, though the Kurds continue to control land in northeastern Syria, thanks to American support.

So the issue is where the final boundary between the two will be and whether this becomes permanent, or Assad (and Russia and Iran and Hizbullah) go after the Kurds, with Turkey having a say.

The Kurdish-led Syrian Democratic Forces are currently finishing the battle to take Raqqa from ISIS, but they could meet the Syrian regime forces in pushing further south from there.  The two sides aren’t enemies, thus far.

Israel: Syria accused Israel on Thursday of carrying out an aerial attack on Assad post Wednesday night.  Israel allegedly struck a scientific research center where chemical weapons are manufactured, according to the Syria Observatory for Human Rights.

But the Syrian army warned Israel of “dangerous repercussions of this aggressive action to the security and stability of the region.”

Israel also reportedly targeted some weapons convoys headed to Hizbullah strongholds in central Syria.

The Syrian army charged Israel killed two of its soldiers during the attack.  Israel refused to comment.

Domestically, Israeli authorities are closing in on Prime Minister Benjamin Netanyahu and the corruption investigation.  Israeli media reported Tuesday that police questioned a Los Angeles-based film producer, Arnon Milchan, a close friend of Netanyahu’s, with Milchan suspected of providing the prime minister and wife, Sara, with various gifts in exchange for the prime minister’s assistance in extending Milchan’s U.S. residency status, as well as a media acquisition in Israel.

There are other investigations swirling around the prime minister, some of which are very complex, but the evidence against Netanyahu appears to be piling up.

And Sara, by all reports, is about to be indicted for fraud; pocketing $110,000 in goods and services that were ordered for the prime minister’s official residence.

Back to the airstrike in Syria....

Editorial / Wall Street Journal

“(The) bombing should alert the Trump Administration as much as the Syrians. They carry a warning about the next war in the Middle East that could draw in the U.S.

“Israel doesn’t confirm or deny its military strikes, but former officials said they were aimed at a base for training and a warehouse for short- and midrange missiles.  The strikes also hit a facility that the U.S. cited this year for involvement in making chemical weapons.

“The larger context is the confrontation that is building between Israel and Iran as the war against Islamic State moves to a conclusion in Syria and Iraq.  Iran is using Syria’s civil war, and the battle against ISIS, as cause to gain a permanent military foothold in Syria that can threaten Israel either directly or via its proxies in Syria and Lebanon.

“Tehran has helped Hizbullah stockpile tens of thousands of missiles that will be launched against Israel in the next inevitable conflict.  If it can also dominate southern Syria, Iran can establish a second front on the border near the Golan Heights that would further stretch Israel’s ability to defend itself.

“Israel may have to make more such strikes in Syria because Iran isn’t likely to give up on this strategic opening.  Iran’s Revolutionary Guards know they have Russia’s backing in Syria, and the U.S. is signaling that it is loathe to do anything to change that once Islamic State is routed from Raqqa.

“ ‘As far as Syria is concerned, we have very little to do with Syria other than killing ISIS,’ President Trump said Thursday at a White House press conference with the emir of Kuwait. ‘What we do is we kill ISIS. And we have succeeded in that respect.  We have done better in eight months of my Presidency than the previous eight years against ISIS.’

“Great, but the problem is that the end of ISIS won’t bring stability to Syria, and American interests in the Middle East don’t end with ISIS.  The danger of a proxy war or even a direct war between Iran and Israel is growing, and it will increase as Iran’s presence builds in Syria.  Mr. Trump may not like it, but he needs a strategy for post-ISIS Syria that contains Iran if he doesn’t want the U.S. to be pulled back into another Middle East war.”

Russia: Tuesday, President Putin threatened the Trump administration, saying the delivery of weapons to Ukraine could inflame hostilities and force Russia to expand the theater of conflict.

Putin told reporters on a trip to China (see below): “If American weapons reach the conflict zone, it’s hard to say how the declared republics will react.  Perhaps they [the separatists] will send the weapons they have to other zones of the conflict, which is sensitive to those who are causing problems for them.”

Thursday, Ukrainian President Petro Poroshenko said on Thursday that he hoped to complete talks with Western allies on the supply of defensive weapons, as he warned, just as I’ve been writing for months, that upcoming Russia-Belarus military exercises, “Zapad,” could be cover for an invasion of Ukraine, or the Baltics.

“The creation of new strike groups of Russian troops for an invasion of Ukrainian territory can’t be ruled out,” said Poroshenko in a speech to parliament.

Separately, Russian Foreign Ministry spokeswoman Maria Zakharova said on state television Sunday that Trump may not serve out his four-year term.

“Not all American presidents have reached the end of their term,” she said.  “It could be worth remembering, considering the government we are dealing with in today’s historical times.”

Seeing as the comment was made on one of Russia’s flagship programs, think “60 Minutes,” it was quite a departure from the tone struck by Russian state media leading up to Trump’s election.

Of course this comes after the diplomatic tit-for-tat over the embassies and consulates.  Russia demanded its seized consulates, such as in San Francisco, be returned.

China: Back to the North Korea situation, and the nuclear test, this came just as President Xi Jinping was opening his economic summit with the so-called BRICS group (Russia, Brazil, India and South Africa), so Kim loses face, also, just weeks before his key Communist Party leadership conference.

Back in May, Kim Jong Un launched a ballistic missile hours before Xi spoke at a gathering of world leaders in Beijing assembled to discuss China’s signature trillion dollar One Belt, One Road project.

As one North Korea expert put it, Peter Hayes, interviewed by the New York Times: “Kim knows that Xi has the real power to affect the calculus in Washington. He’s putting pressure on China to say to Trump: ‘You have to sit down with Kim Jong Un.’”

But you just know Xi is fuming.  The country always aims for domestic calm prior to the start of the party congress. 

Zhao Tong of the Carnegie-Tsinghua Center for Global policy in Beijing said the biggest concern for China’s leadership is the possibility of North Korea turning on China.  “If cornered, North Korea could take military action against China, given the relationship has reached a historic low.”

Last Sunday, as part of his Twitter response to the North’s nuclear test, President Trump tweeted, the United States is considering halting trade with “any country doing business with North Korea.”

Since this is directed at China, a foreign ministry spokesman, Geng Shuang, said the next day that China regarded Trump’s statement as “unacceptable a situation in which in which on the one hand we work to resolve this issue peacefully but on the other hand our own interests are subject to sanctions and jeopardized. This is neither objective nor fair.”

One note on Taiwan.  President Tsai Ing-wen accepted the resignation of Premier Lin Chuan, which was widely expected due to the declining public support for the president, Tsai’s approval rating down to 30% in a recent poll

Domestic issues, such as a backlash on pension reforms and revised labor rules, as well as frozen relations with China, aren’t helping.

Myanmar: Bangladesh said it has taken in 164,000 mostly Rohingya refugees who are fleeing fighting between militants and Myanmar’s military, bringing the total to a quarter of a million Rohingya Muslims who have fled the country since fighting broke out last October, putting Bangladesh in the middle of the humanitarian catastrophe.  I mean it’s not like Bangladesh has something like FEMA.

Myanmar’s military has been brutally cracking down on Rohingya militants.

The more than one million Rohingya in Myanmar are denied citizenship and face severe restrictions in the majority Buddhist country.  Even those who have lived in the country for generations are viewed as illegals.

Nobel Peace Prize laureate Aung San Suu Kyi, who leads the government, has rejected allegations of atrocities, accusing the international media of spreading misinformation.

Random Musings

--Latest Presidential tracking polls....

Gallup: 36% approve, 57% disapprove of Trump’s performance
Rasmussen:  45% approve, 54% disapprove

--According to a new Wall Street Journal / NBC News survey, as reported by Janet Hook, “Divisions in America reach far beyond Washington into the nation’s culture, economy and social fabric, and the polarization began long before the rise of President Donald Trump.”

For example, one-third of Republicans say they support the National Rifle Association, while just 4% of Democrats do.

As for the polarization and views of the president, the Journa points out that eight months into the presidency of Republican Dwight Eisenhower, 60% of Democrats approved of the job  he was doing.  Cross-party support remained above 40% until Bill Clinton, when only 20% of Republicans approved of his performance after eight months.  At this point in his presidency, only 16% of Republicans approved of Barack Obama.

Under Trump, though, just 8% of Democrats approve of the job he’s doing, whereas 80% of Republicans do.

On the issue of immigration, in an April 2005 poll that asked whether immigration strengthened or weakened the U.S., a plurality of 48% said it weakened the nation, with 41% saying immigration strengthened the country.

Today, 64% view immigration as strengthening the country, while 28% say it weakens the U.S., with the change being about a shift in Democrats’ views.  In 2005, just 45% of Democrats said the country was strengthened by immigration; now the share is 81%.

--West Virginia Democratic Sen. Joe Manchin holds a double-digit lead over his top Republican opponents, the RNC targeting him in the 2018 midterm elections, as Donald Trump took the state by 42 points.

A poll from West Virginia Metro News Network also showed that Manchin had a 51% favorability number, higher than both President Trump and Gov. Jim Justice, who recently switched parties to join the Republicans.

--Kid Rock, aka Robert  Ritchie, blasted reports he could be in violation of campaign finance laws ahead of his potential Senate bid in Michigan.

The Hill reported that a liberal-leaning watchdog group filed an ethics complaint claiming Ritchie’s flirtation with a race broke the law.

The group, Common Cause, claims that since he’s selling “Kid Rock for Senate” merchandise, he is a candidate under the law, which means he’d be obligated to meet all filing requirements and disclosures required of everyone running for federal office.

--Uh oh...Matthew Savoca / Washington Post

“As you bite down into a delicious piece of fish, you probably don’t think about what the fish itself ate – but perhaps you should.  More than 50 species of fish have been found to consumer plastic trash at sea. This is bad news, not only for fish but potentially also for humans who rely on fish for sustenance.

“Fish don’t usually die as a direct result of feeding on the enormous quantities of plastic trash floating in the oceans. But that doesn’t mean it’s not harmful for them....

“Most distressingly for people, toxic compounds that are associated with plastic transfer to and bioaccumulate in fish tissues. This is troubling because these substances could further bioaccumulate in people who consume fish that have eaten plastic.  Numerous species sold for human consumption, including mackerel, striped bass and Pacific oysters, have been found with these plastics in their stomachs.”

Phew, I don’t eat mackerel.

--Joke of the week.  Venezuelan President Nicolas Maduro is addressing the U.N. Human Rights Council session on Sept. 11.

I was just informed this isn’t a joke.

--According to an NBC News/Wall Street Journal survey, Americans are losing faith in the value of a college degree.  Just 49% believe earning a four-year degree will lead to a good job and higher lifetime earnings, compared with 47% who don’t.

The two-point margin compares with 13 when the same question was asked four years earlier.  The pollsters say the shift is almost entirely due to growing skepticism among Americans without four-year degrees, while opinion among college graduates is almost identical to that of four years ago, with 63% saying it is worth it, 31% saying it isn’t.

--I liked the list of recipients for the personal $1 million contribution to Hurricane Harvey relief efforts from President Trump and first lady Melania Trump. Among the organizations benefiting:

Red Cross, $300,000
Salvation Army, $300,000
Samaritan’s Purse, $100,000
ASPCA, $25,000
Houston Humane Society, $25,000

Gotta take care of the pets, many of which have already ended up in New Jersey through various animal charities.

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

God bless America.

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Gold $1351
Oil $47.56

Returns for the week 9/4-9/8

Dow Jones  -0.9%  [21797]
S&P 500  -0.6%  [2461]
S&P MidCap  -1.1%
Russell 2000  -1.0%
Nasdaq  -1.2%  [6360]

Returns for the period 1/1/17-9/8/17

Dow Jones  +10.3%
S&P 500  +9.9%
S&P MidCap  +3.5%
Russell 2000  +3.1%
Nasdaq  +18.15%

Bulls 49.5
Bears 19.1 [Source: Investors Intelligence...both unchanged on the week]

Hang in there, Florida.

Brian Trumbore

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