Week in Review

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Week in Review

04/29/2017

For the week 4/24-4/28

[Posted 11:30 PM ET, Friday]

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Edition 942

The First 100 Days...doesn’t matter....it’s the next 100....

Here’s what we know.  President Donald Trump does not have a single major legislative success in his first 100 days.  On his big goals, such as the largest tax cut since Ronald Reagan, repeal-and-replacement of ObamaCare, funding for a wall on the U.S.-Mexico border, a $1 trillion infrastructure program, and massive cuts in federal programs to fund equally massive increases in defense spending...nothing.

He couldn’t even get a budget funding deal for the final months of the fiscal year (thru Sept. 30) passed, and instead we’ll all see what happens next week as today, both the House and Senate passed a one-week stopgap spending bill before Friday’s deadline, while they work out final details next week.

But Trump did sign more than a dozen laws rolling back Obama-era regulations on everything from guns to coal to education.

And he did put a Supreme Court justice on the bench who all in the Republican Party could rally around.

But on the executive order front, his two most significant ones, a travel ban and pressure on sanctuary cities, are tied up in the courts, and the former was an unmitigated disaster in terms of PR overseas, regardless of how the courts eventually rule, as a lot of bad hombres from the countries on the first and then revised lists maintain the opportunity to enter the country, though hopefully with far more vetting.

But on the flows of immigrants across the border with Mexico, even without a wall the message has gotten through. There is a new sheriff in town and Trump is helped by the wave of MS-13 gang killings in parts of the country that further his ideas, including on deporting the dirtballs.

So add it all up and here’s my conclusion.  It hasn’t been about the first 100 days, it’s about the next 100, which will include a short-term conclusion to the crisis on the Korean Peninsula.  Either there is a war, or the parties in the region hit the bargaining table, though I’m not optimistic.  The talk today at the United Nations was not good as I detail below.  [There is zero communication with the Kim regime and that is now the scariest part.]

Otherwise, the key is, domestically, the deadline for the summer recess in early August.  Let’s see if anything of consequence passes both Houses of Congress by then, or we’re given assurances it will be shortly after everyone returns after Labor Day.  There is only so much Trump can do through executive orders, and he’s learned that painful lesson.

But we had another big example of Trump’s ability to change direction on a dime this week.  He was prepared to end the North American Free Trade Agreement deal, with an announcement tomorrow at a rally in Pennsylvania marking his 100th day in office, when he suddenly took phone calls from Mexican President Enrique Pena Nieto, and Canadian Prime Minister Justin Trudeau, who urged him not to pull out of the accord.  “Let me think about it,” Trump told them.

Soon after, in an interview with the Wall Street Journal, Trump said he was convinced “they’re serious about it and I will negotiate rather than terminate.”

Trump was also given evidence by Agriculture Secretary Sonny Perdue and Commerce Secretary Wilbur Ross where the job losses would be if the pact had been suddenly shelved, and many were in farm and border states that had voted heavily for Trump.

This is good.  We don’t need trade wars, to say the least. 

As for the one-page outline of the administration’s attempt to rewrite the tax code, I sure as heck am not wasting a lot of time on the subject until the details are fleshed out in the coming months, which will only come through negotiations with Congress, with the White House (namely Gary Cohn and Steven Mnuchin) assuring us will be the case, soon.

One of the controversial items, for example, is the repealing of the deduction for state and local taxes, which lets individuals subtract their home-state levies from their federal taxable income.  Previously, Trump called for capping deductions, not eliminating the break.

Needless to say this will be politically divisive as low-tax states such as Florida and Texas benefit at the expense of those in New Jersey and New York (Blue states).  But a lot of Republicans in my area certainly don’t like it.

As New York Republican Congressman Peter King said in a recent interview, “I am a Jack Kemp Republican. I believe in supply-side economics.  I’m all for that.  But again, this has a unique hit on Long Island.”  Like in the ability to subtract $12,000 in annual property-tax bills from their federal income. [Richard Rubin / Wall Street Journal]

[According to the Tax Policy Center, eliminating the deduction of state and local taxes would increase the average tax bill for a New Jersey resident by more than $3,500, with New Jersey having the highest property taxes in the nation.]

What the Trump plan does do is reduce the business income tax rate to 15% from 35%, while simplifying the code for individuals and cutting some marginal rates.  The personal income tax would be reduced from seven brackets down to three of 10%, 25% and 35%, though at what income levels is being debated. The plan would also double the standard deduction to $24,000, so fewer taxpayers would need to itemize.

As alluded to above, the Trump plan eliminates all deductions except for home mortgages and charitable donations.

Slashing the headline corporate rate to 15% should lead instantly to a surge in capital investment, with small businesses like S corporations and other pass-throughs that now pay through the individual tax code eligible for the 15% rate as well.

And for larger corporations, there would be a one-time rate to encourage companies to bring home cash parked overseas.

But these are all just markers for now.  There is no talk in the one-pager on how the plan, as written, would make up for lost revenue in terms of slashing rates.  We’ll see how it shakes out in Congress.

Meanwhile, in an interview with Reuters in the Oval Office Thursday night, Trump admitted he thought being president would “be easier,” and he feels like he lives in a cocoon and misses being able to drive.

Trump said: “I loved my previous life. I had so many things going. This is more work than in my previous life. I thought it would be easier.”

Oh brother.

The president said he was still getting used to 24-hour Secret Service protection and its accompanying constraints.

“You’re really into your own little cocoon, because you have such massive protection that you really can’t go anywhere,” he said, adding, “I like to drive.  I can’t drive anymore.”

As far as North Korea, which is really hard, Trump said: “There is a chance that we could end up having a major, major conflict with North Korea.  Absolutely.”

Always sleep with one eye open.

Editorial / Washington Post

“One hundred days into the Donald Trump presidency, we have neither achieved the nirvana he promised nor entered the dystopia critics, including us, feared.  Since nirvana was never likely, it may be more productive to examine why we have, so far, avoided the worst.  Preliminary thanks are owed to Congress, the judges, the Congressional Budget Office, the American citizenry, and voters in the Netherlands and France.

“And, to a highly limited extent, to the president.  He did not, on Day One, tear up the North American Free Trade Agreement, the Iran nuclear treaty or the Paris climate change accord.  He has not abandoned NATO or embraced Russian President Vladimir Putin.  He has appointed sober-minded advisers to important positions, notably defense secretary and (on his second try) national security adviser.  When Syrian dictator Bashar al-Assad used chemical weapons against defenseless civilians, Mr. Trump responded with appropriate force.

“On the other hand, Mr. Trump’s early record also offers cause for alarm.  His inexperience and ideological drift have been evident in his administration’s slow and lurching start.  Though a consistent foreign policy has yet to emerge, there is reason to fear that he will diminish U.S. economic, political and moral leadership in the world: his early withdrawal from a pan-Pacific trade agreement, for example, and the chilling moral equivalence in his response to Bill O’Reilly’s question about Russia’s killing of dissidents and journalists.  ‘There are a lot of killers,’ Mr. Trump replied.  ‘You think our country’s so innocent?’  His bombing of Syria has not been followed by any discernible strategy to address that nation’s horrific civil war.

“Mr. Trump has reversed a generation-old trend toward openness, becoming the first president in modern times to conceal his tax returns... He and his spokesmen frequently ignore facts and embrace misinformation....

“But some (of his) policies are meeting resistance....Opposition bloomed at town hall meetings...There have been women’s marches and scientists’ marches – and some politicians have listened.  Federal judges have slowed Mr. Trump’s efforts to go after immigrants and immigration, efforts that at least in their early versions were closer to demonization than serious policy....

“No conclusions can be drawn from any of this. Will Mr. Trump allow his team to shape a more traditional foreign policy, with a dose of trade belligerence, or will he undermine long-standing alliances – or will he jump from one stance to another day by day?  We don’t know....

“But the system is at work, and – designed by the Founding Fathers, shaped and tested over time, pushed and pulled by millions of engaged Americans – it remains an impressive piece of machinery.”

Gerald F. Seib / Wall Street Journal

“As the Trump presidency’s 100-day mark arrives, here’s a little secret: That opening stretch often is a rocky one for new presidents.

“Bill Clinton suffered through a botched economic-stimulus package, a controversy over gays in the military and a White House travel-office scandal.  George H.W. Bush made what turned out to be a disastrous pick for defense secretary.  [Ed. John Tower.]

“If you reach back further, John Kennedy made a historic blunder by approving the ill-fated Bay of Pigs invasion in Cuba, a failure that continued to haunt him.

“President Donald Trump’s journey through 100 days has been notably messy, of course. His most important legislative effort, on health care, collapsed at the hands of members of his own party, while a travel ban on select Muslim-majority countries stalled in the courts. His national-security adviser was fired in a controversy over contacts with Russian officials.  He leveled an unsubstantiated accusation that his predecessor tapped his phones.  He set a record for early job disapproval.

“Yet he has been more effective on other fronts. With less notice, he has begun a broad rollback of regulations, in part through use of a long-dormant law that allows elimination of past regulatory directives, to the cheers of the business community.  His team got a respected Supreme Court nominee through the Senate. Ditching campaign-season impulses, he launched a strike at Syria over its use of chemical weapons, and built what seems to be a solid relationship with China’s president.

“So the debate is on over what Mr. Trump has and hasn’t done at the much-hyped 100-day milestone. But history suggests that the precise balance sheet at 100 days means less than what has been learned about how a new president operates – and what kinds of adjustments he makes based on those opening lessons....

“We know that Mr. Trump is a restless activist who doesn’t abide by the rules, for better and for worse.  His presidency will never be quiet. The risk for him now is that the volume and looseness of his running commentary will undermine his ability to communicate effectively, at home and abroad, when it’s urgent to do so.

“Yet we also know he can curb his impulses, if he really wants to....He can lean toward more of a conventional style when he wants to.  He bashes the press yet also is open to it in a way few of his predecessors were.  Perhaps most important, he has allowed a cadre of more conventional advisers – Secretary of State Rex Tillerson, Defense Secretary Jim Mattis, economic adviser Gary Cohn, Treasury Secretary Steven Mnuchin – to accumulate increasing influence. Whether that continues is a key indicator for the next 100 days....

“At the same time, he hasn’t managed to win meaningful Democratic support, outside of cheers for the Syria strike.  The polarizing effect of his opening days has made that task tougher....

“The foremost presidential challenge for the next hundred days and beyond is to get Washington beyond the dangers of paralyzing polarization.”

Wall Street

First-quarter GDP came in at a putrid 0.7% annualized pace, the weakest in three years.  No doubt the weather in March had a little to do with it, but still, this isn’t good, boys and girls.

Yes, everyone expects it to rebound strongly in the second quarter, but what was disturbing was the trend the entire three months. The Atlanta Fed’s GDPNow indicator peaked at 3.4% growth for Q1 on Feb. 1, and then fell to 0.2% by the time of the report (so they missed a bit), but we’ll see just how much ‘smoke and mirrors’ there is when it comes to business confidence, seemingly high in the ‘first 100 days,’ vs. the consumer.

Consumer spending in the quarter was just 0.3%, the worst pace since late 2009.

In terms of the Federal Reserve, which meets on Tuesday and Wednesday (they’ll leave interest rates unchanged), they can’t ignore the personal consumption expenditures index portion of the GDP report, up 2.4%, and up its target 2.0% on core.  This will weigh on them as they approach the June confab, where many expect them to hike a third time.  [I’m undecided.]

Separately, March new home sales were better than expected, up 5.8% over February, while March durable goods came in at 0.7%, less than forecast, and the Chicago PMI was a very solid 58.3 (50 being the dividing line between growth and contraction).

But then there was the S&P CoreLogic Case-Shiller Goodyear Miller Lite Stewart-Haas U.S. national home price index for February, with prices up 5.8% year over year; the 20-city index up 5.9%.  [Seattle 12.2%, Portland 9.7%.]

Housing prices across America are now up 40% off the bottom, Feb. 2012, while incomes are up only 12% in that time.  That trend can’t continue. 

I’ve correctly called bubbles before.  This isn’t one.  But we’re close.  And the Fed is in tightening mode.

Europe and Asia

First some economic news in the eurozone....

A flash reading on EA19 inflation for April came in at 1.9%, vs. 1.5% ann. in March and 2.0% in February. But the core rate, ex-food and energy, was 1.2%, though this was the highest in some time.

On the government debt as a percentage of GDP front, Eurostat released its figures for 2016 and the percentage for the EA19 is 89.2% vs. 91.4% in 2013.

In Germany it’s down to 68.3% vs. 77.5% three years earlier.
France, 96.0% (2016) vs. 92.3% (2013).
Spain, 99.4% vs. 95.5%.
Italy, 132.6%! vs. 129.0%
Greece 179.0% vs. 177.4%.

Yes, absent Greece, which has its own issues and bailout program, the next big looming issue is Italy.

In the U.K., last year the level of government debt was 89.3% vs. 86.2% in 2013.

A separate gauge of euro area economic confidence, as put out by the European Commission in Brussels, came in at its highest level in almost a decade for April, 109.6, the strongest since August 2007.

So after this figure, the European Central Bank’s Governing Council met and held the line on interest rates and assets purchases, as expected, while ECB President Mario Draghi acknowledged the eurozone recovery, though said underlying inflation was still subdued, thus leaving the ultra-easy money policy stance in place.  Until core inflation is running over 2%, the ECB isn’t going to budge.

“Incoming data since our meeting in March confirm that the cyclical recovery of the euro area economy is becoming increasingly solid and that downside risks have further diminished,” Draghi told a news conference.  “At the same time, underlying inflation pressures continue to remain subdued and have yet to show a convincing upwards trend.”

Also....

GDP in France dropped to 0.3% in the first quarter over the fourth*, compared with a 0.5% pace in Q4, according to Insee (France’s statistics bureau); while GDP rose 0.8% in Q1 in Spain, or 3.0% year over year, which matches well with the 3.2% pace of growth in both 2015 and 2016.  Retail sales in Spain were also strong in March, as reported by the National Statistical Institute.

In the U.K., growth fell to 0.3% in the first quarter, vs. a strong 0.7% in the prior one, as reported by the Office of National Statistics.  As I’ve been saying, inflation is taking a bite out of consumer spending, as is uncertainty over looming Brexit negotiations.

*Reminder...it’s confusing but Europe reports GDP quarter over quarter, while the U.S. reports it at an annualized rate.

French Election: The French polls turned out to be almost spot on, with Sunday’s first round of voting in the presidential election having centrist Emmanuel Macron (23.9%) and National Front, far-right leader Marine Le Pen (21.4%) qualifying to square off in the May 7 run-off.  Republican (conservative) Francois Fillon, who would have been first if he hadn’t been enveloped in a scandal involving his wife and a fake job, came in third at 19.9% and far-left (Commie) Jean-Luc Melenchon had 19.6%.  Socialist Benoit Hama scored only 6.4%, in yet another example of just how far the party of President Francois Hollande has fallen in the eyes of French voters.

Financial markets across Europe and the West soared in response on Monday, with the French CAC 40 index up 4.1%.  The big fear had been a run-off between Le Pen and Melenchon, which would have left the future of the European experiment in serious doubt.

But now it’s assumed that Macron will roll to victory, as French history shows the other candidates coalescing in their support of the mainstream candidate vs. the National Front, including in parliamentary elections.

Francois Fillon urged his supporters to back Macron, ditto Benoit Hama.  French President Hollande did the same, saying: “The presence of the far-right in the second round is a risk for the country. What is at stake is France’s make-up, its unity, its membership of Europe and its place in the world.”

However, Friday, Melenchon said he would not support either candidate, as he looks to secure his base for the parliamentary elections.

The early polls consistently had Macron defeating Le Pen anywhere from 64-36 to 61-39, but at week’s end a few had it down, slightly, to 59-41. 

Here’s what we know.  Macron is a terrible campaigner. He has never held elected office, he’s all of 39, he has an interesting marriage (she’s 64), and in terms of policy positions, we just seem to know he is pro-EU, which should be good enough for most Frenchmen, you’d think.

Yes, he has a pro-growth policy, including a reduction in the corporate tax rate, but he has been accused of being complacent and lacking any fire, with one political scientist telling Bloomberg that in celebrating his first round victory, Macron “needed to show himself as a statesman and instead he comes across as a child king.”

For her part, Le Pen was fast out of the box, hitting her base hard, the rural areas, while her message gets across far better, at least with more enthusiasm, than Macron’s.  Le Pen blasted him for being weak in the face of Islamist terrorism.  [The Champs-Elysees attack a few days before the vote turned out to have zero impact.]

I’ll have final thoughts next Friday, but if some of the polls begin to show the race tightening to 55-45, the markets, for one, will suffer another round of angina heading into next weekend.

Such an end result, or anything less than 60% for Macron, would also mean it will be harder for him to reassure a divided country that he has what it take to reform the euro zone’s second-largest economy, with key parliamentary elections in June.  Macron could easily be a president without any kind of majority to work with.  Remember, he formed his party just a year ago, though there are some Socialists who are lining up to support him in their respective parliamentary races.

[I just need to get down for the archives as well that Jean-Marie Le Pen lost to Jacques Chirac in a run-off in 2002, the only time the National Front had a candidate in the second round, 82-18.]

As for Monday, May Day, I’m the only kid on my block, and I can virtually guarantee the only American, who marched with Marine Le Pen in 2011 and 2014 at the National Front’s annual May Day demonstration and parade in Paris, up to the Opera House from the Statue de Jeanne d’Arc. 

For new readers, I hasten to add I was acting as a reporter, not a supporter, but being the curious type about the world around me, I went to see just who was in her crowd.  I was impressed.  Just everyday folks.  I was feet away from her, next to her informal security cordon (I have the photos), and then after the march I listened to her speeches, and of her wacko father, Jean-Marie, the founder of the FN.  [The two then split, politically, later.]

I never felt threatened, no one paid me any heed, and despite crowds in the tens of thousands, at least in 2014, security on behalf of the Paris Police was minimal.

I have yet to see if Marine Le Pen is going to be allowed to hold her usual demonstration this Monday, though, and I would be concerned it’s not a placid affair this time, with so much on the line.  There have already been large protests against the National Front in Paris this week, with a smattering of violence.

I’d say French authorities would not allow it to take place, or instead make her give her speech at one central location, instead of after a long march.  We’ll see.  I can’t say I’m sorry I won’t be there this time.  I just don’t have a good feeling.  [Otherwise, I’d go back to Paris in a heartbeat.] 

Back to Macron, as I said would be the case, his campaign continues to get hit by Russian hacking outfits, cyber espionage groups, who are trying to get into campaign web sites, while spreading all manner of stories on his personal life. 

Charles Krauthammer / Washington Post

“Yesterday’s conventional wisdom: A wave of insurgent populism is sweeping the West, threatening its foundational institutions – the European Union, the Western alliance, even liberal alliance, even liberal democracy itself.

“Today’s conventional wisdom (post-first-round French presidential election): The populist wave has crested, soon to abate.

“Chances are that both verdicts are wrong.  The anti-establishment sentiment that gave us Brexit, then Donald Trump, then seemed poised to give us Marine Le Pen, has indeed plateaued.  But although she will likely be defeated in the second round, victory by the leading centrist, Emmanuel Macron, would hardly constitute an establishment triumph.

“Macron barely edged out a Cro-Magnon communist (Jean-Luc Melenchon), a blood-and-soil nationalist (Le Pen) and a center-right candidate brought low by charges of nepotism and corruption (Francois Fillon).  And the candidate for the ruling Socialist Party came in fifth, garnering a pathetic 6 percent of the vote.

“On the other hand, the populists can hardly be encouraged by what has followed Brexit and Trump: Dutch elections, where the nationalist Geert Wilders faded toward the end and came nowhere near power; Austrian elections, where another nationalist challenge was turned back; and upcoming German elections, where polls indicate that the far-right nationalists are at barely 10 percent and slipping.  And, of course, France.

“In retrospect, the populist panic may have been overblown.  Regarding Brexit, for example, because it was so unexpected, the shock exaggerated its meaning.  Because it was so unexpected, it became a sensation.  But in the longer view, Britain has always been deeply ambivalent about Europe, going back at least to Henry VIII and his break with Rome.  In the intervening 500 years, Britain has generally seen itself as less a part of Europe than an offshore island....

“The other notable populist victory, the triumph of Trump, has also turned out to be less than meets the eye. He certainly ran as a populist and won as a populist but, a mere 100 days in, he is governing as a traditionalist....

“The normalization of Trump is one indicator that there may be less to the populist insurrection than imagined. The key, however, is Europe, where the stakes are infinitely higher.  There the issue is the future of the nation-state itself, as centuries of sovereignty dissolve within an expanding superstate.  It influences every aspect of daily life – from the ethnic makeup of neighborhoods to the currency that changes hands at the grocery.

“The news from France, where Macron is openly, indeed ostentatiously, pro-European (his campaign headquarters flies the E.U. flag) is that France is not quite prepared to give up on the great experiment.  But the Europeanist elites had better not imagine this to be an enduring verdict.  The populist revolt was a reaction to their reckless and anti-democratic push for even greater integration.  The task today is to address the sources of Europe’s economic stagnation and social alienation rather than blindly pursue the very drive that led to this precarious moment.

“If the populist threat turns out to have frightened the existing powers out of their arrogant complacency, it should be deemed a success. But make no mistake: The French election wasn’t a victory for the status quo. It was a reprieve.  For now, the populist wave is not in retreat.  It’s on pause.”

Brexit: It would appear from the early polls that British Prime Minister Theresa May made a brilliant move in calling for a snap election on June 8 in order to gain a stronger majority in parliament ahead of Brexit negotiations.  May’s Conservatives lead in two polls, 48-27 and 48-25, over Labour, with the Liberal Democrats at 10% and anti-EU UKIP just 75.  [ICM and YouGov polls]

But German Chancellor Angela Merkel reminded Britain that it can’t expect preferential treatment in negotiations, in vowing to put the European Union’s interests first. With a summit slated for Saturday, where the EU’s negotiating positions will be laid out in draft form, for putting into formal language over the coming weeks, Merkel emphasized in an address to the German parliament that the U.K.’s departure terms must precede the crafting of a new trade relationship.

“I have to put it in such clear terms because unfortunately I have the feeling that some in Britain still have illusions.  But that would be a waste of time.”

Prime Minister May countered in a campaign speech that such talk from Merkel shows why Mrs. May needs “the strongest possible hand” to go into battle with EU negotiators.

“Our opponents are already seeking to disrupt those negotiations – at the same time as 27 other European countries line up to oppose us,” May said.  “So we need the strongest possible mandate and the strongest possible leadership” heading into those talks.

As for the issue of Scotland and a potential new referendum on independence, it turns out most Scottish voters do not want another vote on breaking away from the United Kingdom.  According to a Kantar survey, only 26% thought an independence vote should be held in late 2018 or early 2019, as proposed by Scotland’s First Minister, Nicola Sturgeon, while 46% thought there should be no referendum at all.

Among those who said they would definitely vote were a referendum to be held, 55% said they would vote against, 37% for it.

Eurobits....

--As to the Greek debt crisis, Prime Minister Alexis Tsipras said on Tuesday, “We will obviously legislate (additional reforms sought by its lenders) in order to secure a deal on debt relief.  They won’ be implemented...unless we get a solution on debt.” And of course that’s a sticking point.

The IMF is concerned Greece’s existing efforts at meeting its austerity requirements for further funding are stretching the nation’s political and social limits to their breaking point.

But Germany, with its own election-year pressures, isn’t backing debt relief today.  And Berlin has demanded that the IMF become involved, but the IMF won’t until the creditors agree on debt relief and credible bailout numbers.

Greece’s largest public sector union said it would stage a 24-hour strike on May 17 against reforms and additional austerity prescribed by the creditors in exchange for further loans.  But participation in such recent job actions hasn’t been as strong as in the past.

Separately, a German-led consortium is the highest bidder for Greece’s second-largest port at Thessaloniki, in a deal valued over $1.2 billion for a two-thirds stake.  This is an important part of an ambitious privatization program that had been delayed by opposition from the more hardline members of Tsipras’ socialist government.

Earlier, China’s COSCO shipping acquired a 51% stake in OLP, the operator of the largest port at Piraeus.

Meanwhile, the yield on the Greek 10-year, in a sign of growing confidence it can weather the storm, traded down to its lowest level since 2014, hitting 6.16% at week’s end.  As recently as last September it was around 8.50%.

--Police in the U.K. foiled an active terrorist plot with a raid on a north London address during which a woman suspect was shot and injured.  Six people have been arrested as part of an ongoing counter-terrorism operation in London and Kent.

--The number of crimes committed by migrants surged nearly 53% in Germany last year, according to police statistics, highlighting the challenges faced by Chancellor Merkel and other pro-immigration politicians ahead of September’s elections.

Migrants, defined as refugees and rejected asylum seekers, committed 174,438 crimes in 2016, up from 114,238 a year earlier.  Over the same period, crimes committed by German citizens declined 3.4%.  [Ruth Bender / Wall Street Journal]

Turning to Asia, the stock markets in China continue to take it on the chin, amid investor concerns regulators are cracking down on leveraged trading, looking to reduce financial-system risk.

In Japan, there was a slew of economic data for March.  Industrial production was down 2.1% over February, but this is a most volatile figure.  Analysts expect a rise of 8.9% in April, for example, followed by a 3.7% drop in May.

Consumer prices rose 0.2% in March, annualized, but were down 0.1% ex-food and energy.

The unemployment rate held steady at just 2.8%, the lowest since March 1994.

But household spending contracted again last month, down 1.3% year over year, though this was better than February’s 3.8% contraction.

Street Bytes

--Stocks rallied hard Monday and Tuesday, on the heels of the positive (for now) French election results, and then tread water the rest of the way, even as the likes of Alphabet (Google) and Amazon reported blowout earnings at week’s end.

For the week the Dow Jones rose 1.9% to 20940, while the S&P 500 gained 1.5%, to just 11 points shy of its all-time high, and Nasdaq hit new highs three days before finishing at 6047, up 2.3%.  Tuesday, the Nasdaq crossed 6000 for a first time.

--U.S. Treasury Yields

6-mo. 0.97%  2-yr. 1.26%  10-yr. 2.28%  30-yr. 2.95%

Yields rose a bit but let’s see what the Fed says with its statement on Wednesday.

--U.S. crude stocks declined for a third straight week, but inventories of gasoline climbed more than expected for a second time, according to the Energy Information Administration.  West Texas Intermediate closed at $49.19, down from $52.91 two weeks earlier.

--Exxon Mobil posted a better-than-expected quarterly profit on Friday, with oil prices (despite the current slump) up more than 50 percent since early 2015.  But the company’s U.S. oil and gas division posted a loss.

Net income jumped to $4.01 billion, or 95 cents per share, from $1.81bn, or 43 cents in the year-ago quarter.

--Chevron reported first-quarter net income of $2.68 billon, after reporting a loss in the same period a year earlier, beating expectations, ditto revenue of $33.42 billion in the period.

Shares in both XOM and CVX rose a bit on Friday after the news.

--Despite the decision not to shelve NAFTA, on Monday, U.S. Secretary of Commerce Wilbur Ross said the department’s investigation of a decades-long trade dispute between the United States and Canada found that Canada has been improperly subsidizing its softwood lumber exporters and the U.S. will begin collecting tariffs on shipments crossing the border.  Rates will vary, with one Canadian company paying 3% and others paying closer to 20%, while the duties are to be applied retroactively – 90 days back.

Canadian imports to the U.S. – valued at about $5.7 billion in 2016 – make up around 30% of all softwood lumber used in U.S. residential housing construction.

The National Association of Home Builders, which has been against levying such tariffs, said the move would result in higher prices for newly built homes.  [Like a 6.4% increase in prices paid by U.S. consumers with a 19.9% tariff.]

But U.S. lumber producers say that subsidized Canadian lumber has driven U.S. producers out of business.

The Commerce Department has also criticized Canada over a lingering dairy products dispute.

Monday night, Canada said the lumber tariffs were “unfair and punitive.”

--Amazon reported its eighth consecutive profitable quarter, a record streak for the company, with revenues higher than expected, rising 24% to $35.7bn for the quarter.

The company made $1.9bn from subscription services, which includes Prime membership, or 5% of revenues.

Logistics services were the fastest-growing part of its retail business, accounting for $6.4bn in sales in the quarter, growing 36% from a year earlier.

The company’s core retail business had sales of $22.8bn, up 16%.

In response to all the positive news, Amazon stock hit another all-time high, though finished down $25 off its intraday high on Friday to $924.

--Shares in Alphabet, Google’s parent company, also soared late-Thursday/early-Friday to a new high.  The company reported a 22% surge in sales.  It seems that fears advertisers were pulling back from YouTube because of worries about ad placement next to extremist content were largely unfounded.

Sundar Pichai, Google CEO, said the company had taken “serious and significant steps” to address advertisers’ concerns. Brands from Volkswagen to L’Oreal had suspended buying ads on Google-owned YouTube because ads were appearing next to videos featuring the likes of ISIS.

Overall, Google reported sales increased 24%.  The company said revenue from its “other bets,” such as Waymo, its self-driving car division, and Verily, its biotech company, rose by almost 50%, but at $244m in the quarter (vs. total sales of $24.8bn) remain a small contributor to the top line, and their losses widened to $855m.

--Microsoft reported $4.8bn in third-quarter net income, compared with a profit of $3.76bn, a year ago.  Adjusted earnings of 73 cents beat expectation, while revenue rose 7.6% to $22.1bn, shy of expectations on the latter and the shares slipped a little in response.

Microsoft’s cloud business, however, surged in the fiscal third quarter, rising 11% to $6.76bn.  In the Productivity and Business Processes segment, which includes the Office franchise, revenue climbed 22% to $7.96bn.

But the More Personal Computing segment saw revenue fall 7%, while Microsoft’s Surface line of computers was hit hard, with revenue dropping 26%.

--Intel saw sales up 8% in the first quarter to $14.8bn, in line with forecasts, while net income rose 45% to $3.0bn.

Intel said on Thursday that revenue for the full year would be around $60bn, just a slight uptick on last year’s $59.4bn.

The “internet of things,” despite all the hype surrounding the initiative for the company, remains just 5% of Intel’s overall sales.

--United Continental Holdings Inc. announced it will now offer as much as $10,000 to passengers who voluntarily give up their seats on oversold flights, while reducing the overbooking of flights and refrain from calling in law enforcement officials unless safety and security is a risk; this in response to the removal of 69-year-old David Dao, who refused to give up his seat, by Chicago officials.

United CEO Oscar Munoz said in a statement, rigid policies for handling cases where passengers must be denied boarding “got in the way of our values.”

Delta, in response to the April 9 incident on United, had raised the limit it would pay passengers to give up their seat to $9,950.

Meanwhile, United faced another PR nightmare after a rabbit destined to be the world’s biggest died on a flight from the U.K. to the U.S.

Measuring three-feet, Simon was expected to outgrow his father Darius, whose length of 4ft 4in made him the world’s biggest bunny, as reported by Chris Graham of the Daily Telegraph.

Simon, a continental giant rabbit, was reportedly being sent to his new celebrity owner, whose identity hasn’t been revealed.

Breeder Annette Edwards, of Stoulton, told The Sun, “Simon had a vet’s check-up three hours before the flight and was fit as a fiddle...I’ve sent rabbits all around the world and nothing like this has happened before.”

The animal was found dead at O’Hare, the same airport where Dr. Dao had his issues.

Legal action will be forthcoming.

By the way, Darius costs his owner about $3,000 per year in food alone.

In February, the U.S. Department of Transportation released its most recent figures from 2015 and it showed there were 35 animal deaths that occurred during transit across 17 carriers in the States, which I actually found to be  kind of low.  14 of the deaths were on United.

But back to Dao, he ended up settling with United, as announced by his lawyers, an “amicable” settlement for an undisclosed amount.

Attorney Thomas Demetrio praised CEO Munoz:

“Mr. Munoz said he was going to do the right thing and he has.  In addition, United has taken full responsibility for what happened on Flight 3411, without attempting to blame others, including the City of Chicago.  For this acceptance of corporate accountability, United is to be applauded.”

One last item on this general topic...Southwest Airlines said Thursday it would end overselling of seats on its flights by the end of June.

--Boeing beat expectations for first-quarter profit, but sales fell short of forecasts and the shares declined in response on Wednesday.

Boeing blamed the disappointing sales number on delayed deliveries of commercial and defense aircraft.  Revenue from sales of military planes plunged 28 percent.

--Lockheed Martin reported disappointing first-quarter sales, too, and lowered its full-year guidance.  The results came a day after the Government Accountability Office said that “cascading F-35 testing delays” could cost the Department of Defense $1bn more than it has currently budgeted.

President Trump has criticized Lockheed over the high costs of the F-35 project. 

The company has stated it wants 30 percent of its sales to come from overseas in the future and it would help them if NATO countries up their defense spending as Trump is also calling for.

--Shares in Caterpillar rallied after the company forecast stronger than expected sales and revenues for 2017, which bodes well for the global construction, energy and mining sectors.

Worldwide machine sales rose 1 percent for the quarter, compared with a year ago, which is the first three-month increase since November 2012.

Demand, however, isn’t necessarily coming from the resource sector, which remains in the doldrums, but rather construction in Asia, where sales are up a whopping 56 percent vs. a year ago.

--Fiat Chrysler Automobiles (FCA) reported an 11 percent rise in first-quarter operating profit on Wednesday, helped by a surprisingly strong performance in North America where a shift to  sales of higher margin SUVs paid off.  80 percent of FCA’s profits still originate here.  The overall number of cars sold in North America did fall 6 percent due to lower sales to fleet operators.

The profit picture in Europe also improved in the quarter, helped by strong sales of Alfa Romeo’s Giulia and Stelvio models, while Maserati kicked butt on the back of strong demand for its first SUV, Levante.

--Daimler’s first quarter net profit doubled to $3bn, as best-ever car sales pushed revenue to a record $42bn, up 11 percent. Daimler’s vehicle sales rose 10 percent to 754,300.  The company’s new S-class “remains on the fast lane,” as CEO Dieter Zetsche put it.

--Ford Motor Co.’s first-quarter profit fell 35% from a year earlier amid weaker U.S. sales.  The No. 2 U.S. auto maker reported profit of $1.6bn, down from $2.5bn in 2016’s first quarter, back when the launch of a newly redesigned F-150 pickup truck helped Ford post its best quarterly results in history.

Revenue for Q1 rose 4% to $39.1bn.  Ford said it would cut $3bn in costs this year, but expects a rebound in profit in 2018, driven by the rollout of two new full-size SUVs and continued strength in the pickup-truck market.

--Meanwhile, General Motors reported rising sales of trucks and SUVs helped push it to a first-quarter record profit, $3.4bn before taxes in North America, up from $1.1bn a year ago.

GM’s U.S. sales rose just under 1% in the quarter, but the industry was down 1.5%.  Overall revenue rose 11% to $41.2bn.  GM’s results beat Wall Street’s expectations on both the top and bottom line.

CFO Chuck Stevens said he expects the pickup truck market to remain strong through the year largely because the average age of a U.S. pickup is 14 years, while any infrastructure spending that might come from the Trump administration would raise demand for new pickups.

--Honda Motor, Japan’s third-largest carmaker, forecast a 14 percent year-on-year decline in net profit for the new fiscal year ending in March 2018, as it projected a decline in car sales in North America and Europe.

--McDonald’s handily beat expectations on the top and bottom line and the shares rallied on Monday.  The world’s biggest burger chain reported global same-store sales rose a solid 4 percent in the first quarter, when the Street was just calling for 1.1 percent.  U.S. comp sales rose 1.7 percent.

It seems the company’s aggressive price actions, such as $1 soft drinks and $2 McCafes helped in a big way, even as just about everyone else in the restaurant business battles gloom.

[According to Black Box Intelligence Report, restaurants saw same store sales decline 1.6% during the first quarter, with customer traffic down 3.6%, the fifth straight quarter comps have been down.  But McDonald’s has been bucking the trend.]

--Starbucks Corp. reported same-store sales rose 3.7% globally and 3.5% in the Americas, of which the U.S. is by far the largest market, meaning the company still hasn’t made good on its pledge to return to 5% same-store growth.

Howard Schultz, who stepped down as CEO earlier this month to focus on building higher-end coffee shops for the chain, told investors that despite their struggles, “The best days are in front of us.”

The company reiterated its revenue growth guidance of 8% to 10% for 2017.  Starbucks also conceded it needs to speed up service for customers who order inside and at the drive-through.

Separately, same-store sales in Europe, the Middle East and Africa declined 1% from a year ago, while sales in China were up 7%.

--Coca-Cola Co. executives said Tuesday they plan to eliminate roughly 20% of corporate staff, as the company continues to suffer from slumping soda sales, while expanding a long-running cost-cutting program.  The reduction of about 1,200 jobs will come from a global pool of 5,500 who either work in or report to Atlanta.

As of Dec. 31, Coke employed 100,000 people, including 5,100 in the U.S., but five years ago, the company employed 150,900 around the world.  A large reason for the reduction is the company has been divesting itself of most of its bottling operations...Coke now expects just 40,000 employees worldwide next year.

Meanwhile, beverage volumes were flat in the quarter globally, with soda volumes falling 1%.

--Large segments of Brazil’s economy virtually shut down Friday, paralyzed by a nationwide strike against austerity measures enacted by President Michel Temer.  Factories, businesses and schools closed as public transportation was crippled.

The protests are over congressional bills to weaken labor regulations and efforts to change social security that would force many Brazilians to work years longer before drawing a pension.

Brazil has been dealing with political turmoil for the past four years, amid the worst recession on record and corruption investigations that led to the toppling of President Dilma Rousseff last year after her impeachment.

--Shares of Twitter jumped on Wednesday after the microblogging service reported better-than-expected user growth in the first quarter, but its revenue fell for the first time.

Twitter reported yearly growth of 6 percent in monthly active users to 328 million.

President Trump, one of the most active politicians on Twitter, has tweeted about five times a day on average since his inauguration in January.

But the fact is revenue for the first quarter fell 7.8 percent to $548.3 million, the first drop since it went public.

--T-Mobile added 798,000 “postpaid” phone subscribers in the first quarter, which compares to 877,000 in the same period a year ago.

T-Mobile’s profits grew to $698m, from $479m a year ago, on $9.6bn in sales.

Verizon, the largest U.S. wireless carrier by customers, lost 307,000 postpaid phone subscribers in the recent quarter, forced to revive an unlimited data plan to stop customers from defecting to smaller rivals as the price war heats up in the U.S. mobile market.

T-Mobile has now added about 3m customers annually in the past three years.

--According to hotel industry research firm STR, revenues across the U.S. for the sector reached a record $199 billion in 2016, an increase of nearly $9bn over 2015, even with competition from the likes of Airbnb.  Net profits, also a record, stood at $76 billion, up 2% compared with 2015.

The STR report, however, cautioned that growth for both revenues and profits is falling.

--U.S. officials are widening their investigation into China’s Huawei Technologies, the smartphone and network equipment giant, and whether it broke American trade controls on Cuba, Iran, Sudan and Syria, according to a subpoena reviewed by the New York Times.

The company denies it has violated any laws or embargoes restricting the export of American goods to countries like Iran and Syria.

--Procter & Gamble’s sales slipped 1 percent in the first quarter over year-ago levels, short of Wall Street’s expectations, as currency headwinds knocked the figure down by 2 points.  Earnings per share of $0.96 did beat forecasts.

--In a video appearance in China on Thursday to make the opening speech at the 2017 Global Mobile Internet Conference in Beijing, British physicist Stephen Hawking warned that the rise of powerful artificial intelligence could be “either the best or the worst thing ever to happen to humanity.”

“We should do all we can to ensure that its [AI’s] future development benefits us and our environment.”

But Hawking posed the big question: will AI ultimately help the human race, or is it conceivable that it could destroy it?

Frankly, right now I’m more concerned that my Mets are in the midst of a horrendous streak.

--Under Armour CEO Kevin Plank admitted sales for Stephen Curry’s signature basketball shoe have been disappointing.

“As we launched the Curry 3 late last year, our expectations continued to run high, (but) a sluggish signature market and a lukewarm consumer reception led to softer-than-expected results.

“This has created an inventory imbalance that we are working through.”

As Darren Rovell of ESPN wrote: “As sales of the Curry shoes continue to rise, Under Armour continued to raise the price. The price for the Curry One, which debuted in the spring of 2015, was $120.  Prices then crept up for the Curry Two ($130), Curry 2.5 ($135) and the Curry 3 ($140).”

Now Under Armour is discounting Curry 3 to $99.99.

Overall, the company reported its first quarterly loss ever, but it was better than expected and the shares rose.

--Walt Disney Co.’s ESPN television unit is laying off about 10 percent of its 1,000 on-air staff, as ESPN President John Skipper announced changes to ensure the company is quicker to respond to the changing viewing patterns of sports fans.  “Our content strategy – primarily illustrated in recent months by melding distinct, personality-driven SportsCenter TV editions and digital-only efforts with our biggest sub-brand – still need to go further, faster,” Skipper wrote in a  memo to employees.

--Yahoo CEO Marissa Mayer is being compensated nicely for her five-year run of failure, $186 million in cash and prizes with the completion of the deal to Verizon, beginning with the box alongside Carol Merrill (RIP).  Mayer, to be fair, did benefit from an increase in Yahoo’s stock price owing to its sizable stake in Alibaba.

--Speaking of Alibaba, their chairman, Jack Ma, said society needs to get used to decades of pain as the Internet disrupts the economy.  In a speech to an entrepreneurship conference in Zhengzhou, China, Ma said, “In the next 30 years, the world will see much more pain than happiness,” speaking of job disruptions caused by the Net.  “Social conflicts in the next three decades will have an impact on all sorts of industries and walks of life.”

Ma added: “Fifteen years ago I gave speeches 200 or 300 times reminding everyone the Internet will impact all industries, but people didn’t listen because I was a nobody.”

Ma also criticized the traditional banking industry, saying that lending must be available to more members of society.

--NBCUniversal reported revenue rose 14.7% in the first quarter compared with a year ago.  Adjusted earnings increased 24.4% to $2bn, led by the Universal Filmed Entertainment unit and its Universal Studios theme parks, with revenue at the latter up 9%.

NBCUniversal is wholly owned by cable giant Comcast Corp., which in its own report showed it was continuing to buck the industry trend of cord-cutting, gaining 42,000 cable television and 429,000 high-speed Internet subscribers in Q1, with overall revenue up 8.9% to $20.5bn.  Net income rose to $2.56bn, up from $2.13bn.

[The shadow of the potential writers’ strike in Hollywood, as soon as next week, is putting a damper on the industry.]

--Commuting by rail in the New York metropolitan area always sucks, but the past few weeks have been horrendous, owing largely to issues with Amtrak, which owns and operates Penn Station.

So after a few derailments in the station took out far more tracks than anyone thought possible, until you saw the mess down there, Amtrak announced on Thursday that the terminal has become so brittle, it urgently needs an overhaul.  So this means further extensive delays and route changes for two of the nation’s busiest railroads, New Jersey Transit and the Long Island Rail Road, which utilize Penn Station.  Amtrak said the work will be done over the next two to three years.

Ergo, multiple tracks (of the 21 going into Penn Station) will be down at one time, so picture if there is another mishap there, the whole place would essentially shut down.

NJ Transit, following Amtrak’s announcement of the repair project, warned its riders to expect delays “indefinitely.”

If you are paying $420 for your monthly rail pass and your train is consistently 30 minutes late for long stretches, you’ll be ready to commit hari-kari.

--The New Jersey office market has a vacancy rate of 24.9%, as leasing in my state hit its lowest levels in years.

--As for the retail sector, well, you know how bad that has been.  The other day I did some ‘channel-checking’ at The Mall at Short Hills, a two-minute drive from my place.  I forgot to tell you I went end of January, to see what was happening in this upscale (to say the least) destination after the Christmas season and there were 12 empty store fronts, with zero signs saying a new tenant was moving into them.

Monday, there were 16, though with three announcing replacements.

I have been in this place more or less my entire life and I have never seen so many empty spaces.

According to Suzanne Kapner of the Wall Street Journal, through April 6, “closings have been announced for 2,880 retail locations this year, including hundreds of locations being shut by national chains such as Payless ShoeSource Inc. and RadioShack Corp.”

Credit Suisse estimates retailers will close more than 8,600 locations this year, which would eclipse the number of closings during the 2008 recession.

--California’s unemployment rate, 4.9% in March, is below 5% for the first time since December 2006.  Los Angeles County’s jobless rate is down to 4.6%.

In March, California produced about 20% of the job growth in the entire country.

--Bill O’Reilly broke his silence on Monday, addressing listeners for the first time since he was ousted by Fox News.  Mr. Bill’s return was in the form of a 19-minute recorded podcast on his subscription-based personal website.

“I was very surprised how it all turned out,” O’Reilly said of his forced exit.  “I can’t say a lot because there’s much stuff going on right now.  But I can tell you that I’m very confident the truth will come out.  And when it does – I don’t know if you’re going to be surprised, but I think you’re going to be shaken, as I am.”

By the way, according to Nielsen, the median age of the Fox News prime-time viewer is 66, compared with MSNBC (64) and CNN (59).

In the 25- to 54-year-old demographic, Fox News commands a large lead – 576,000 viewers a night, compared with 405,000 for CNN and 337,000 for MSNBC.  [John Koblin / New York Times]

--Meanwhile, NBC announced, as expected, that Megyn Kelly will start out with a Sunday evening news show, apparently going head-to-head with “60 Minutes,” which is stupid.  She’ll then begin her morning show in September, which will replace an hour of “Today.”

Foreign Affairs

North Korea: Secretary of State Rex Tillerson announced Thursday the administration was willing to talk directly with North Korea, an apparent shift in policy as it seems the White House now wants to marshal international support rather than go it alone, as President Trump had threatened.

“Obviously, that is the way we would like to solve this,” Tillerson said in an interview with NPR that aired Friday, as the United States convened a high-level meeting at the United Nations devoted to the threat posed by North Korea’s nuclear program.

Trump, in the above-mentioned Reuters interview, praised China’s President Xi Jinping for his handling of the crisis, calling him “a very good man” who loves his country.

Yes, he loves it so much, Mr. Trump, that he has hoovered up all the power possible for himself.

But Monday, the two had a phone call and Xi told Trump that China “strongly opposes” actions that violate UN Security Council resolutions and that China hopes that “the parties concerned will exercise restraint and avoid actions that aggravate tensions on the Peninsula,” the official Xinhua news agency reported.

Russian President Vladimir Putin warned that the crisis over Pyongyang’s nukes is deepening after he held talks with Japanese Prime Minister Shinzo Abe in Moscow.

Putin said he and Abe believe the situation on the Korean peninsula has “seriously deteriorated.  We call on all states involved in the region’s affairs to refrain from military rhetoric and seek peaceful, constructive dialogue.”

[Abe and Putin also spent time on a seven-decade long dispute over four islands seized by the Soviet Union at the end of World War II, an issue which has prevented the two from signing a peace accord.]

Putin said six-party talks on North Korea involving Russia, Japan, China, the U.S. and South Korea should be revived.

This week, North Korea conducted large-scale artillery drills, displaying its conventional weaponry that could pound Seoul, and it proclaimed it was “ready to sink” a U.S. aircraft carrier heading for the peninsula.

An editorial in the Rodong Sinmum newspaper warned the USS Carl Vinson could be sunk “with a single strike.”

The top U.S. commander in the Asia-Pacific, Admiral Harry Harris, said on Wednesday he was encouraged by signals from China that it would help address North Korea’s threatening behavior, but cautioned: “It’s early days.”

“I’m encouraged. And I believe Kim Jong Un has noticed that there’s a change afoot with regard to China, and I think that’s important.”

Then today, Friday, at the United Nations, Russian Deputy Foreign Minister Gennady Gatilov called on North Korea to end its nuclear and missile development programs but warned that the use of force against Pyongyang would be “completely unacceptable.  “The combative rhetoric coupled with reckless muscle-flexing has led to a situation where the whole world seriously is now wondering whether there’s going to be a war or not,” he told the Security Council.  “One ill thought out loud or misinterpreted step could lead to the most frightening and lamentable consequences.”

China warned the situation was at a “critical point.”  Foreign Minister Wang Yi pledged that Beijing would fully implement all UN sanctions on the North, but “a peaceful settlement of the nuclear issue...through dialogue and negotiations represents the only right choice that is practical and viable.”

Secretary of State Rex Tillerson said today the threat of an attack by Pyongyang against Japan and South Korea is real and urged the Security Council to act “before North Korea does.” Tillerson called on the international community to fully implement UN sanctions and to suspend or downgrade diplomatic relations with Pyongyang.  “With each successive detonation and missile test North Korea pushed northeast Asia and the world closer to instability and broader conflict.”

UN Secretary-General Antonio Guterres told the Security Council that he is alarmed by the risk of military escalation on the Peninsula.  “The absence of communication channels with the DPRK (North Korea) is dangerous.  We need to avoid miscalculation and misunderstanding.”

Then the Orcs in Pyongyang tested another ballistic missile tonight, but it failed badly, according to the U.S. as I go to post.

Meanwhile, the key components of the controversial Terminal High Altitude Area Defense (THAAD) anti-missile system have been moved to the site of what had been a golf course in South Korea.  The U.S. has said it would be operational soon, though exactly when is not real clear.

A Communist Party mouthpiece, the Global Times, editorialized about the deployment of THAAD:

“It is infuriating that the U.S. and South Korea have stabbed China in the back at a critical time when China and the U.S. are cooperating to prevent North Korea from carrying out a new nuclear or missile test.

“But China will not lose its demeanor in the face of South Korea’s maliciousness.  Sanctioning North Korea is the decision taken by the UN Security Council....Although the hasty deployment of THAAD disturbs the international sanctions on North Korea, China should not send favorable signals to Pyongyang out of its anger toward Seoul....

“As long as North Korea resorts to new tests, China should firmly support the UN Security Council resolutions to impose tougher sanctions against Pyongyang, including restricting oil exports. Beijing’s attitude will not change due to the latest moves by Seoul and Washington.”

Not bad, in balance, right?  However....

“South Korea must pay the price for its arrogance. Seoul, by turning the peninsula into a powder keg together with the North, is playing with fire. It undermines China’s efforts to ease tensions on the peninsula, and China will not sit still.

“With no particular advanced technologies and a tiny market, South Korea had the fortune to become a favorite among major powers and achieved development.  However, it does not cherish its position but woos one country to counter another.  Its prosperity may just be a flash in the pan....

“With China becoming more powerful and raising its strategic deterrence, it is able to tackle the situation.  The trajectory of Northeast Asian geopolitics is not determined by South Korea.  Seoul should drop the illusion that it can act at will with Washington as its back.”

Lastly, China launched its first domestically built aircraft carrier on Wednesday in the latest display of Beijing’s growing naval power.

Syria and Iraq: An Israeli missile strike caused a large explosion and fire at a suspected military site near Damascus international airport, Syrian state media reported.  According to the Syrians, a fuel tank and warehouses were damaged, while Syrian rebel forces fighting President Bashar Assad’s regime said Israel hit an arms depot run by Hizbullah.

Israel said the explosion was “consistent” with its policy of preventing Iran from smuggling weapons to Hizbullah.

Separately, the Pentagon claims the Turkish military gave coalition forces fighting ISIS militants less than an hour of advance notice before carrying out air strikes that killed a large number of allied Kurdish fighters in Iraq and Syria.  U.S. forces were just six miles from the airstrikes and U.S. Air Force Colonel John Dorrian said the amount of warning Turkey gave “was too vague to enable them to respond effectively.”

At least 30 U.S.-backed fighters were killed in the attacks.

Also, Saudi Foreign Minister Adel al-Jubeir met with his counterpart in Moscow, Sergei Lavrov, and reiterated that Riyadh still believes there was no political future for President Bashar Assad, while Moscow continues to reject calls for Assad to quit.

Turkish President Erdogan also insisted in an interview with Reuters that there can be no solution to Syria’s conflict while Assad remains in power.

And French intelligence has concluded that forces loyal to Assad carried out the sarin gas attack on April 4 in northern Syria, joining many others in this regard.

As for the battle for Mosul in Iraq, Iraqi troops said they drove out ISIS from the largest neighborhood in the western half of the city, which would be a major development in a fight that has been going on since October.

But Iraqi forces continue to face stiff resistance in Mosul’s Old City, with its narrow alleys and densely populated areas.

Afghanistan: Two U.S.-service members were killed during an operation against ISIS in eastern Afghanistan overnight on Wednesday, U.S. officials announced on Thursday.  The incident took place in the southern Nangarhar province, which is where we exploded the MOAB weapon* on ISIS caves.  U.S. forces have been fighting in the region ever since and these two deaths came days after Defense Secretary Jim Mattis visited the country as the Trump administration looks to craft a policy.

A third soldier was killed earlier in April in Nangarhar. 

[There are stories as a I go to post that the latest two U.S. casualties could be a result of friendly fire.]

The U.S. estimates there are 600-800 ISIS fighters in eastern Afghanistan, far fewer than before, but they have been putting up a fierce resistance.

*Afghan officials said the MOAB killed 36-100 militants, but the U.S. military has yet to announce exactly what it accomplished.  Reuters entered one of the cave complexes supposedly impacted by the bomb, accompanied by Afghan special forces, and found the tunnels undamaged. Trees around the blast site were singed, but only a few hundred yards away were “perfectly intact...belying claims that the explosion may have sent a destructive blast wave for up to a mile.”  [Jonathan Gray / Irish Independent]

Meanwhile, the more important Taliban, which we’ve learned the past few months is without a doubt being supported by Russia, continues to take territory.

And regarding last week’s devastating attack on the Afghan military base in northern Afghanistan by the Taliban, the government last listed a death toll of 140 Afghan soldiers, but there are stories it is higher, however the government doesn’t want morale getting any worse than it already is in the Afghan military and security forces, so it is withholding further details.

At 140 dead, this was the deadliest attack on Afghan forces since the fall of the Taliban in 2001.  Photos and video from the dining hall reveal the fury of the attack at the base.  Five days after, blood still stained the walls.

At least 10 Taliban militants in fatigues drove up to the base’s gate in two trucks, waving identification cards and claiming to have a wounded soldier in need of urgent medical care.  One truck was mounted with a machine gun, which the attackers used to gun down worshippers at a mosque attached to the base.  According to Reuters’ Abdul Matin, “At the base’s dining hall, witnesses said one attacker set down his weapon and pretended to guide soldiers to safety, only to lock the door behind him and set off a suicide vest in their midst. As Afghan commandos arrived, remaining militants took up position in a small room in the mosque, where they resisted for five hours before being killed.”

Unreal.

Turkey: U.S. Ambassador to Turkey John Bass said in a speech in Istanbul this week, “It is manifestly in our national interest for Turkey to be strong, peaceful, prosperous and democratic.  There are obviously some challenges to helping everyone in this society achieve that reality in the future – (and) we have got some differences.”

But he said how “we deal with those differences, realize those goals by working more closely together and pulling in the same direction...is an essential piece of what we do in diplomacy.”  [AFP]

Meanwhile, President Erdogan continues to press President Trump to hand over Fethullah Gulen, the Pennsylvania-based preacher blamed for July’s failed coup.

Trump and Erdogan are going to be holding interesting talks in Washington later in May.

Speaking of Gulen, police in Turkey rounded up another 1,000 people suspected of being part of his movement, with another 2,200 being sought as authorities targeted what they said was a secret structure within Turkey’s police force.

Turkey’s interior minister said “1,009 covert ‘imams’ in 72 provinces have been taken into custody so far.”

Erdogan appears to be accelerating the post-coup purge, now that he has won the referendum on expanding his powers.

Before the recent sweep, Turkey said a total of 47,000 people had been detained, including 10,700 police and 7,400 members of the military. Thousands have lost their jobs, including teachers and civil servants, and opposition media outlets have been shuttered.

The Council of Europe’s parliamentary assembly placed Turkey under review on Tuesday and called for urgent measures to restore freedom of expression and the press.

President Erdogan accused the EU of “closing its doors on Turkey.”

“In Europe, things have become very serious in terms of the extent of Islamophobia,” he sad.  [BBC News]

Iran: The presidential election here is May 19, and while it was initially assumed President Hassan Rouhani would be returned to office for another term (no Iranian president has ever lost a re-election bid), this time it is now expected that Ebrahim Raisi, a protégé of Supreme Leader Ayatollah Ali Khamenei, could doom Rouhani to a single term.

This wouldn’t be good, not that Rouhani is really the “moderate” some in the West make him out to be.  [He hardly is.]

But Khamenei has been grooming Raisi to become supreme leader by appointing him to head Iran’s largest charitable foundation, Astan Quds Razavi, which has allowed Raisi to build a base in the working classes through political patronage.

Israel: An escalating dispute between the Palestinian Authority and Hamas over the manner of control of the Gaza Strip threatens Israel’s security.  Palestinian President Mahmoud Abbas said he was unwilling to continue transferring funds to Gaza unless Hamas agreed to transfer authority to him.  PA officials have threatened to plunge Gaza into darkness.  [Gaza struggles with constant electricity shortages.]

The PA and Hamas have been arguing specifically over the collection of an excise fee for the transfer of diesel fuel to Gaza, which fuels the electricity supply, which is down to four hours per day in some villages.

Separately, Prime Minister Benjamin Netanyahu canceled his meeting with German Foreign Minister Sigmar Gabriel on Tuesday after the latter refused Netanyahu’s demand that he not meet with two leftwing NGOs.  According to Der Spiegel, the meeting was canceled by Netanyahu because the German minister wanted “to meet with critics of the Israeli government.”

Netanyahu then asked to speak with Gabriel by phone and Gabriel refused.

Russia: Wednesday, three days before the political movement “Open Russia” hoped to stage nationwide protests against the Kremlin, Russia’s Prosecutor General blacklisted the group as an “undesirable organization,” banning all its activities.

“Their activities are aimed at inciting protests and destabilizing [Russia’s] domestic political situation, presenting a threat to the constitutional foundations of the Russian Federation and the security of the state,” the Prosecutor General explained in a statement.

So we’ll see if anything happens on Saturday.

Separately, the Kremlin was clearly behind a smear campaign against Russian opposition leader Alexei Navalny, a sign the Kremlin takes him seriously.

In a video published on YouTube on Wednesday, Navalny is depicted as a disciple of Hitler.  Navalny has vowed he is running for president next year, but he is currently barred from doing so due to a recent conviction.

In Ukraine, authorities said three of its troops were killed and four injured in eastern Ukraine in a flare-up of fighting between government troops and Russia-backed separatists.

Last Sunday, an American paramedic was killed in the same region when he and two others, who were injured, struck a mine in their vehicle.  The three were working for the European security watchdog OSCE’s (Organization for Security and Cooperation in Europe) monitoring mission in eastern Ukraine.

Venezuela: The last I saw, the death toll in weeks of political demonstrations against the Maduro regime had hit 26, but this was as of Tuesday.  11 of the deaths were looters who died in various fashion.

Random Musings

--In a Washington Post/ABC News poll, President Trump’s approval rating stands at 42%, the lowest recorded at this stage of a presidency dating to Dwight Eisenhower.  Trump’s disapproval rating of 53% is 14 points higher than Bill Clinton’s 39% disapproval in April 1993, the worst before Trump.  Eight years ago, President Obama’s approval was 69%, his disapproval 26%.

Americans are split at 35% apiece on whether Trump is doing a better or worse job than expected.

But his approval rating among those who voted for him stands at 94%.  Among Republicans, it is 84%.  When asked if they would vote for him again, 96% say they would, higher than the 85% of Hillary Clinton voters who say they would support her again.

Only 38% say Trump is honest and trustworthy.  At this point in their presidencies, 74% said Obama was honest, while 62% said George W. Bush was.

In a Wall Street Journal/NBC News survey, 54% disapprove of Trump’s job performance thus far, compared with 40% who approve, which is a bigger gap than a Journal/NBC poll in late February, which had disapproval outweighing approval by 4 points.

Among independents, disapproval rose markedly, to 54%, while 30% approved of his performance; the 24-point gap comparing to a 9-point margin of disapproval in February.

Meanwhile, a Gallup tracking poll on Tuesday had Trump with a 39% approval rating, while a Rasmussen tracking survey, Thursday, had it at 45%.

--President Trump responded to the Washington Post poll and tweeted, “New Polls out today are very good considering that much of the media is FAKE and almost always negative. Would still beat Hillary in popular vote. ABC News/Washington Post (wrong big on election) said almost all stand by their vote on me & 53% said strong leader.”

--In an interview with the Associated Press published Sunday, Trump said of the responsibilities that come with the White House, “I never realized how big it was. Everything’s so...like, you know the orders are so massive.”

“Number one, there’s great responsibility,” the president continued.  “When it came time to, as an example, send out the 59 missiles, the Tomahawks in Syria.  I’m saying to myself, ‘You know, this is more than just like, 79 (sic) missiles. This is death that’s involved,’ because people could have been killed.”

“Pretty much everything you do in government involves heart, whereas in business, most things don’t involve heart,” he said.  “In fact, in business you’re actually better off without it.”

--On the Sunday talk shows, top administration officials emphasized the necessity of funding the border wall as talk of a possible government shutdown heated up.

Attorney General Jeff Sessions said on ABC’s “This Week,” “I can’t imagine the Democrats would shut down the government over an objection to building a down payment on a wall that can end the lawlessness.”

Sessions said he doesn’t expect the Mexican government to “appropriate money” for the wall, but added there are ways “we can deal with our trade situation to create the revenue to pay for it.”

White House chief of staff Reince Priebus said on NBC’s “Meet the Press” that “in regard to getting money for border security,” progress has been made.

Florida Republican Sen. Marco Rubio said it’s important to discuss funding for the border wall, but emphasized that the country cannot afford a government shutdown right now.

“I think that’s a fight worth having and a conversation and a debate worth having for 2018,” Rubio said.  “But we cannot shut down the government right now.”

Democratic Sen. Dick Durbin (Ill.) warned against a government shutdown over the wall.  “That would be the height of irresponsibility,” Durbin said on CNN’s “State of the Union.”

Trump’s budget director Mick Mulvaney suggested that for every $1 of funding for ObamaCare, Democrats should agree to $1 of funding for Trump’s border wall.

[To be continued next week....]

--George F. Will / Washington Post

“In his first annual message to Congress, John Quincy Adams, among the most experienced and intellectually formidable presidents, warned leaders against giving the impression that ‘we are palsied by the will of our constituents.’  In this regard, if for no other, the 45th president resembles the sixth.

“Donald Trump’s ‘Oh, never mind’ presidency  was produced by voters stung by the contempt they saw directed toward them by the upper crust. Their insurrection has been rewarded by Trump’s swift shedding of campaign commitments, a repudiation so comprehensive and cavalier that he disdains disguising his disdain for his gulled supporters.

“The notion that NATO is obsolete?  That China is a currency manipulator? That he would eschew humanitarian interventions featuring high explosives?  That the Export-Import Bank is mischievous?  That ObamaCare would be gone ‘on Day One’? That 11.5 million illegal immigrants would be gone in two years (almost 480,000 a month)?  That the national debt would be gone in eight years (reducing about $2.4 trillion a year)?  About these and other vows from the man whose supporters said ‘he tells it like it is,’ he now tells them: Never mind.

“The president, whose almost Sicilian sense of clan imparts new meaning to the familiar phrase ‘family values,’ embraces daughter Ivanka’s belief that America suffers from an insufficiency of entitlements, a defect she (and he, judging from his address to a joint session of Congress) would rectify with paid family leave.  Her brother Eric has said (to Britain’s Telegraph) that he is ‘sure’ that 59 cruise missiles flew because Ivanka said to her father about Syria using chemical weapons, ‘Listen, this is horrible stuff.’....

“Eliot A. Cohen, former State Department counselor (2007-2009) and currently a professor at the Johns Hopkins University School of Advanced International Studies, says that the strike ‘was the right thing to do’ and ‘a firm response to a loathsome crime.’  But he also says:

“ ‘Having tipped off the Russians, and targeting things rather than people, it did not do much damage to anything the Assad regime cares about....An effective, destructive attack – that is, one that would worry the Assad regime – would have killed skilled personnel, military and political leaders, and elite fighters....Blowing up some installations is not, in fact, ‘proportionate’ to the massacre of children.’

“Messages are important, whether delivered by words or missiles or words about missiles. Trump’s retreat from positions that enchanted his supporters is a matter mostly between him and them. How he addresses the world, however, will reveal whether he has gone from candidate to commander in chief without becoming presidential.”

--Justin Raimondo / Los Angeles Times

“Ann Coulter, author of ‘In Trump We Trust: E Pluribus Awesome,’ wrote recently that ‘Trump’s Syrian misadventure is immoral, violates every promise he ran on, and could sink his presidency.’  At Breitbart News, the online headquarters of the Trump insurgency, a piece about the Syria attacks attracted more than 50,000 ferociously negative comments.  Pat Buchanan, the ideological godfather of Trumpism, despaired that ‘the promise of a Trump presidency...appears, not 100 days in, to have been a mirage.  Will more wars make America great again?’  A baffled Laura Ingraham tweeted, ‘Missiles flying.  Rubio’s happy.  McCain ecstatic.  Hillary’s on board.  A complete policy change in 48 hours.’  Talk radio host Michael Savage complains that ‘People in Trump’s own sphere are turning him toward the beating war drums.’  Nigel Farage, the leader of the Brexit forces in Britain who campaigned for Trump in the U.S., opined that the president’s supporters ‘will be scratching their heads’ at these foreign policy reversals....

“The liberal media are thrilled by Trump’s transformation: The chorus of gushing praise on CNN and MSNBC as bombs fell on Syria was loud and practically unanimous....

“As the elites rush to embrace the president, those of us who supported him are horrified, angry and increasingly convinced that instead of draining the swamp, Trump has jumped headlong into it.”

--According to House Oversight Committee chairman Jason Chaffetz (R-Utah) and ranking member Elijah Cummings (D-Md.), former national security adviser Michael Flynn likely broke the law by failing to disclose foreign income he earned from Russia and Turkey.

Flynn failed to disclose income he earned for a speaking engagement in Russia and lobbying activities on behalf of Turkey when he applied to reinstate his security clearance.

“Personally I see no evidence or no data to support the notion that General Flynn complied with the law,” Chaffetz told reporters after he and Cummings had viewed classified memos in a briefing on Tuesday.

Then on Thursday, documents released by the Oversight Committee showed that in 2014, the Pentagon warned General Flynn against receiving foreign payments following his retirement, with the Defense Intelligence Agency telling him it was illegal to accept such payments without prior approval.

He is now under investigation at the Defense Department.

--Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) said that another opening on the Supreme Court could come as soon as this summer, as there are rumors Justice Anthony Kennedy, 80, will retire.  Kennedy has often been the swing voter in 5-4 decisions.

--As of Monday, Baltimore had reached 100 homicides for the year before the end of April for the first time in two decades.

--Talk about disturbing.  From Demian Bulwa of the San Francisco Chronicle:

“A recent string of robberies on BART trains took a frightening turn when dozens of juveniles swarmed an Oakland station over the weekend and commandeered a train car, forcing passengers to hand over bags and cell phones and leaving at least two with head injuries, witnesses told the transit agency.

“The incident – the first of its kind in recent memory – occurred around 9:30 p.m. Saturday at Coliseum Station.

“According to a police official, witnesses said 40 to 60 juveniles flooded the station, jumped the fare gates and rushed to the second-story train platform.  Some of the robbers apparently held open the doors of a Dublin-bound train car while others streamed inside, confronting and robbing and in some cases beating riders.”

Despicable.

--Fox News first reported, and the New York Times confirmed, that Barack Obama agreed to accept $400,000 to speak at a health care conference this year sponsored by Cantor Fitzgerald, a Wall Street investment bank.

Former President Bill Clinton averaged about $200,000 per speech while former President George W. Bush is reportedly paid $100,000 to $175,000 for each appearance.

Obama made his first public appearance as a private citizen on Monday in Chicago, where he held a discussion with young people about the issue of civic engagement.  But he didn’t mention Trump during the event.

But wait....there’s more! The New York Post reported Friday that President Obama also received $400,000 for a second speech, one he just gave to an A&E Networks advertising upfront at The Pierre Hotel in New York.  This was for an interview over 90 minutes with historian Doris Kearns Goodwin in front of the cable network’s advertisers.

These folks, according to the Post, learned that Obama most misses sitting on the Truman balcony on summer nights and gazing at the Washington Monument and the Lincoln Memorial, and that he is learning to use the coffee machine in the Obamas’ new home in Washington, D.C.

If you want President Obama to muse at your social function for $400,000, give him a ring.  If you want me to do it for far less, shoot me an email.  I’ll even bring the domestic.

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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 $1269
Oil $49.19

Returns for the week 4/24-4/28

Dow Jones  +1.9%  [20940]
S&P 500  +1.5%  [2384]
S&P MidCap  +0.9%
Russell 2000  +1.5%
Nasdaq  +2.3%  [6047]

Returns for the period 1/1/17-4/28/17

Dow Jones  +6.0%
S&P 500  +6.5%
S&P MidCap  +4.4%
Russell 2000  +3.2%
Nasdaq  +12.3%

Bulls 54.7
Bears 17.9  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore

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