Week in Review

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Week in Review

05/27/2017

For the week 5/22-5/26

[Posted 11:30 PM ET, Friday]

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Edition 946

Trump’s Big Trip

I said last time, after all the news that roiled Washington and the seemingly growing Russia probe, that I would hold off a few weeks, invoking my ’24-hour rule’ to see how things not only went this week with the president’s first big overseas trip, but also to wait for what we found when he returned to Washington this coming week.  So next review I’ll weigh in on all things Trump, more than I’ve done the last few, and today.

Granted, it’s going to take a year, or more, until we see just how the administration’s new Middle East policy will play out, and I constantly worry about what Vlad the Impaler will do in Eastern Europe, but give me another week.

Nonetheless, I can’t help but add for now that the late-breaking news tonight on the Russian front is not good for the Trump team, and, separately, the Wall Street Journal is reporting of a big shakeup in the coming days.  [Corey Lewandowski better not be coming back, for starters.  Just sayin’.   The leaks going on in Washington today are also beyond outrageous.]

Sunday, in Riyadh, Saudi Arabia, the first stop on his whirlwind first foreign trip as president, President Trump implored Muslim nations to form a new coalition to defeat extremism in a speech meant to ease fears that the U.S. is at war with Islam.  Compared to his harsh campaign rhetoric, Trump struck a more accommodating tone toward a religion he has repeatedly targeted.

“We are not here to lecture. We are not here to tell other people how to live, what to do, who to be, or how to worship. We are here to offer partnership based on shared interests and values,” he told leaders of more than 50 Muslim-majority nations gathered in Riyadh.

Trump cast the fight as a battle between “good and evil” and not a war of faiths.  Terrorists “do not worship God, they worship death.”

“If we do not stand in uniform condemnation of this killing, then not only will we be judged by our people, not only will we be judged by history, but we will be judged by God.  Heroes don’t kill innocents, they save them.”

“A better future is only possible if your nations drive out the terrorists and drive out the extremists,” Trump declared.

“Drive them out,” he continued.  “Drive them out of our places of worship, drive them out of your communities, drive them out of your holy land and drive them out of this earth.’

Trump did not use the phrase “radical Islamic terrorism,” which he has employed frequently, but he cited the ills of “Islamic extremism, and the Islamists and Islamic terror of all kinds.”

I have the full speech on my “Hot Spots” link.

Saudi Arabia rolled out the red carpet for Trump, including billboards reading “Together we prevail,” quite a contrast to what Trump left back home.

A standard criticism of Trump’s swing through the Middle East, though, was that there was lots of flattery, with Trump’s support of Saudi Arabia and its Arab neighbors, as well as the denunciation of Iran, but the president had little to show for it and later the Palestinians were upset that Trump avoided mentioning the creation of an independent Palestinian state as part of any solution to the conflict between them and Israel, not that I really care about the Palestinians, frankly.

Trump kept repeating he was “personally committed to helping both sides reach a peace agreement,” but “making peace, however, won’t be easy. We all know that. Both sides will face tough decisions.”

The day before, the president had inked a $110 billion arms sales agreement with the Saudis.  Other Gulf States will surely follow.

Monday, the president traveled to Israel, where it was a lovefest with Prime Minister Benjamin Netanyahu.

Editorial / New York Post

“President Trump’s trip to Israel is already a success, if the look of joy on Israeli Prime Minister Benjamin Netanyahu’s face is any indicator.

“ ‘For the first time in my lifetime, I see a real hope for change,’ Netanyahu said after Trump on Monday became the first sitting U.S. president to visit the Western Wall, one of Judaism’s holiest sites.

“And that’s a big deal.

“After all, Trump’s predecessors avoided the Wall for fear of raising questions like: Is the structure, which is one of Judaism’s holiest sites and is located in Jerusalem, in Israel?  (Trump end-ran such issues by declaring it an unofficial visit.)

“That followed another milestone: Air Force One’s straight shot from Riyadh to Tel Aviv, thought to be the first direct flight from Saudi Arabia to Israel.

“Whether all this marks what Trump called the ‘rare opportunity to bring stability and peace in this region’ and to ‘defeat terror and create a future of peace’ is another matter.

“But it’s certainly more progress than the Middle East has seen in a long, long time.”

Benny Avni / New York Post

“President Trump correctly sensed the opening for renewed Israeli-Arab moves toward peace.  Let’s hope he also sees the land mines scattered along the road ahead.

“Starting in Saudi Arabia and moving on to Jerusalem, Trump shows he grasps the region better than his oh-so-nuanced predecessor.  In both places he signaled a U-turn from President Barack Obama’s grand vision, which pushed America’s traditional allies to share the region with Iran.

“Though Trump’s coarse language about Muslims has gotten him in trouble in the past, the region’s Sunnis – by far the religion’s largest sect – were more concerned about America’s tilt to Shiite Persia.

“Looking for a powerful, reliable ally, those Sunni leaders quietly turned to Israel in recent years, sharing intelligence and military assets and even boosting trade....

“So will Arab leaders tamp down their anti-Israel and anti-Semitic rhetoric? And will they lean on the Palestinians to drop unreasonable demands, like the full right of return for the descendants of refugees? Yes, they say – as long as Israel makes some visible concessions first....

“In the end, uniting against common enemies – Iran and its proxies and the Sunni extremist terrorists Trump denounced in Riyadh – may well be more important for Arab leaders than everything else.  Which means they’ll give a bit on the Palestinian issue.

“Yet Trump will need to hold Arab leaders’ feet to the fire.”

I cover President Trump’s visit with the Pope down below in ‘Random Musings.’

Thursday... It was a tension convention at NATO’s new headquarters in Brussels, as Trump resumed his “America first” themes from the presidential campaign.  In a speech, Trump used the dedication of the HQ to not reaffirm NATO’s mutual defense commitment in the way many members hoped he would, but instead he repeated his complaints that NATO needed to shoulder its share of the NATO mission.

“Twenty-three of the 28 member nations are still not paying what they should be paying and what they’re supposed to be paying for their defense,” Trump declared.  “This is not fair to the people and taxpayers of the United States.  And many of these nations owe massive amounts of money from past years and not paying in those past years.”

But Trump made no mention of the Article 5 clause in the NATO charter, the “one-for-all, all-for-one” principle.  Trump did say the United States would “never forsake the friends that stood by our side” in the aftermath of the Sept. 11 attacks, and White House officials scrambled after to say this was an affirmation of their mutual defense. 

Personally, I would not have brought up the ‘start sharing the burden’ issue in public, but would have chosen to do so in the formal meetings the group held or at the dinner that followed the ceremonies. 

Opinion...all sides....

David Ignatius / Washington Post

“The world is probably baffled by Washington’s obsession with the Russia scandal. Trump seems popular abroad, as Nixon was. That’s especially true in countries such as Saudi Arabia, Egypt and China where leaders are tired of being lectured by the United States and the public is fascinated by the cartoon-like ‘big man’ character that Trump projects.

“Give Trump credit for the unlikely foreign policy success he’s had: His trip to Saudi Arabia embraced a Muslim monarchy that is trying to break with its intolerant past. He persuaded the Saudis and other Persian Gulf states to ban financing of terrorists, even by private citizens.  That’s a win for good policy. Earlier, he cajoled China into playing a stronger role in dealing with North Korea.  Yes, these are ‘flip-flops’ – reversing his earlier, inflammatory anti-Muslim and anti-Beijing rhetoric – but so what?  They’re smart moves.

“Yet no foreign or domestic success will stop the unfolding of the investigation that is now underway.  That’s the importance of last week’s appointment of the impeccable Robert S. Mueller III as special counsel to investigate the Russia matter.  The process can’t be derailed now.  If the president or his associates are guilty of wrongdoing, Mueller will find out.  If they’re innocent, he’ll discover that, too.”

Editorial / Washington Post

“President Trump’s distorted foreign policy was exemplified this week in the contrast between his meeting with Arab autocrats, on whom he lavished goodwill, and U.S. NATO allies, whom he harshly and publicly critiqued.  Last weekend, Mr. Trump promised Saudi Arabia and other Sunni dictatorships that they ‘will never question our support,’ adding, ‘We are not here to lecture.’  But on Thursday he declined to restate the U.S. commitment to defend its democratic European allies if they are attacked, as Article 5 of the NATO treaty provides. Instead, Mr. Trump restated his wrongheaded and erroneous charge that allied governments ‘owe massive amounts’ for military defense, and quarreled with the president of the European Council over climate change and the threat posed by Russia.

“In Riyadh, Saudi Arabia, Mr. Trump gamely joined in a chauvinistic, males-only sword dance.  In Brussels, he was captured on videotape as he rudely shoved aside Montenegro’s prime minister to position himself at the center of a group photo.

“The president’s aides and apologists were reduced to arguing, as they frequently must, that the words he utters and the images he creates are of little consequence.  Other senior administration officials have confirmed the commitment to Article 5, they said; and Mr. Trump was merely giving the Montenegrin leader’s arm a friendly tug.

“Unfortunately, what the U.S. president says and the impressions he makes do have consequences. One good example of that came Tuesday, when Bahraini security forces stormed an opposition encampment just two days after Mr. Trump promised the Persian Gulf nation’s king that there would be no more ‘strain’ between their governments....

“Two days after his Sunday pronouncement came the bloodiest act of repression by Bahraini security forces in years, a raid in which at least five people were reported killed and hundreds arrested. The consequences of Mr. Trump’s performance in Brussels may be less immediately evident – but there, too, there will be damage.”

Charles Krauthammer / Washington Post

“The quixotic American pursuit of Middle East peace is a perennial. It invariably fails, yet every administration feels compelled to give it a try. The Trump administration is no different.

“It will fail as well.  To be sure, no great harm has, as yet, come from President Trump’s enthusiasm for what would be ‘the ultimate deal.’ It will, however, distract and detract from remarkable progress being made elsewhere in the Middle East.

“That progress began with Trump’s trip to Saudi Arabia, the first of his presidency – an unmistakable declaration of a radical reorientation of U.S. policy in the region.  Message: The appeasement of Iran is over.  Barack Obama’s tilt toward Iran in the great Muslim civil war between Shiite Iran and Sunni Arabs led by Saudi Arabia was his reach for Nixon-to-China glory.  It ended ignominiously.

“The idea that the nuclear deal would make Iran more moderate has proved spectacularly wrong, as demonstrated by its defiant ballistic missile launches, its indispensable support for the genocidal Assad regime in Syria, its backing of the Houthi insurgency in Yemen, its worldwide support for terrorism, its relentless anti-Americanism and commitment to the annihilation of Israel.

“These aggressions were supposed to abate.  They didn’t.  On the contrary, the cash payments and the lifting of economic sanctions – Tehran’s reward for the nuclear deal – have only given its geopolitical thrusts more power and reach.

“The reversal has now begun. The first act was Trump’s Riyadh address to about 50 Muslim states (the overwhelming majority of them Sunni) signaling a wide Islamic alliance committed to resisting Iran and willing to cast its lot with the American side.

“That was objective No. 1.  The other was to turn the Sunni powers against Sunni terrorism. The Islamic State is Sunni. Al-Qaeda is Sunni. Fifteen of the 9/11 hijackers were Saudi.  And the spread of Saudi-funded madrassas around the world has for decades inculcated a poisonous Wahhabism that has fueled Islamist terrorism.

“Saudi Arabia and the other Gulf states publicly declaring war on their bastard terrorist child is significant....

“After eight years of U.S. policy hovering between neglect and betrayal, the Sunni Arabs are relieved to have America back.  A salutary side effect is the possibility of détente with Israel....

“Ironically, the Iranian threat that grew under Obama offers a unique opportunity for U.S.-Arab and even Israeli-Arab cooperation.  Over time, such cooperation could gradually acclimate Arab peoples to a nonbelligerent stance toward Israel.  Which might in turn help persuade the Palestinians to make some concessions before their fellow Arabs finally tire of the Palestinians’ century of rejectionism....

“In the meantime, the real action is on the anti-Iranian and anti-terrorism fronts.  Don’t let Oslo-like mirages get in the way.”

Editorial / Wall Street Journal

“Donald Trump creates many of his own problems, but sometimes he can’t win no matter what he does.  Consider the uproar on Thursday because the President supposedly did not explicitly endorse NATO’s Article 5 commitment that an attack on one ally is an attack on all....

“The herd of independent media minds then stampeded with the theme that Mr. Trump had deliberately failed to commit the U.S. to defending Europe against attack. But is that really what happened? Mr. Trump was speaking, briefly, at an event at NATO headquarters in Brussels unveiling the Article 5 and Berlin Wall Memorials. The Article 5 Memorial commemorates the only time that NATO has triggered Article 5, which came after al Qaeda’s attack on the U.S.  on 9/11.  The Memorial includes a remnant of the World Trade Center’s North Tower.

“Here is what Mr. Trump said in the third paragraph of his speech: ‘This ceremony is a day for both remembrance and resolve.  We remember and mourn those nearly 3,000 innocent people who were brutally murdered by terrorists on September 11, 2001.  Our NATO allies responded swiftly and decisively, invoking for the first time in its history the Article 5 collective defensive commitments.’

“So let’s see: By speaking at an event commemorating Article 5, and explicitly citing and praising Article 5’s invocation on 9/11, Mr. Trump was really trying to send a message that he doesn’t believe in Article 5? Who knew Mr. Trump was capable of such messaging subtlety?

“Mr. Trump did follow his reference to Article 5 with blunt demands for NATO burden sharing.  Critics say this implied that the U.S. won’t come to Europe’s defense until all of NATO’s members spend at least 2% of their national GDP on the military, as NATO’s guidelines demand.

“But if that’s what he was trying to say, consider Mr. Trump’s reference in his speech that ‘the NATO of the future must include a great focus on terrorism and immigration, as well as threats from Russia and on NATO’s eastern and southern borders.’ The reason that Article 5 was included in the NATO charter in the first place is the threat from Russia, and Mr. Trump mentioned that threat.

“Mr. Trump started his credibility problem on NATO with his campaign comments that the alliance was ‘obsolete.’ ...But as President he has walked at least 90% of that back – by supporting Montenegro’s entry into the alliance despite Russia’s furious opposition; by following through with new NATO deployments on the alliance’s eastern front, including a U.S.-led battalion; and this week with a new NATO commitment to join the coalition against Islamic State.

“It’s fair to whack Mr. Trump if he indulges his many bad instincts, but it serves no one other than Vladimir Putin to suggest without evidence that the U.S. won’t honor its NATO commitments – or to drive a wedge between allies simply to make Mr. Trump look bad.”

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Back home and the ongoing Russia probe, Sunday, Sen. John McCain, appearing on “Fox News Sunday,” said that Russian Foreign Minister Sergey Lavrov did not belong in the Oval Office for a meeting with President Trump.  The senator said Lavrov is “nothing but a propagandist” and a henchman for President Putin.

“Mr. Lavrov is the stooge of a thug and a murderer, who used Russian precision weapons to strike hospitals in Aleppo, who has committed human rights violations all over the place,” McCain continued. 

The New York Times had reported last Friday that Trump admitted he fired FBI Director Comey to take “off” some of the pressure when the president met with Lavrov and Russian ambassador Sergey Kislyak at the White House.

“I just fired the head of the FBI.  He was crazy, a real nut job.”

McCain said when he heard the “nut job” comment that he was “almost speechless.”

National security adviser H.R. McMaster said in an interview on ABC’s “This Week” that “I don’t remember exactly what the president said.  And the notes that are apparently (available) I do not think are a direct transcript,” McMaster being in the room with the Russians, Trump and Sec. of State Rex Tillerson

“But the gist of the conversation was that the president feels as if he is hamstrung in his ability to work with Russia to find areas of cooperation because this has been obviously so much in the news.”

Meanwhile, people in the intelligence community are floored that the “nut job” comment got out in the public, because it appears to have come from a raw or unofficial transcript – which would not be widely circulated.  Ergo, there are some around the president who are not exactly loyal.

Former CIA Director John Brennan told the House Intelligence Committee on Tuesday he grew worried last year about communications between the Russians and people in Donald Trump’s orbit.  “I encountered and am aware of information and intelligence that revealed contacts and interactions between Russian officials and U.S. persons involved in the Trump campaign that I was concerned about because of known Russian efforts to suborn such individuals,” he said, adding, “It raised questions in my mind about whether Russia was able to gain the cooperation of those individuals.”

The Washington Post reported Monday that Trump asked two senior intelligence officials, Director of National Intelligence Daniel Coats and National Security Agency Director Michael S. Rogers, to declare publicly that there was no evidence of collusion between the president’s campaign and the Russians.  Trump made the move after then-FBI Director James Comey refused a similar request to knock down stories on possible Trump campaign-Russia links.

Comey then told Congress the FBI was examining any connections between the campaign and Russia, and Trump, incensed, eventually fired Comey.  For his part, Coats testified this week before a Senate committee that he wouldn’t characterize his private conversations with the president, while failing to knock down the Post story.

As for former national security adviser Michael Flynn, he said on Monday he would not cooperate with a congressional subpoena, including in handing over documents, setting off a legal showdown with Congress.

Meanwhile, Comey is still expected to testify in public in the coming weeks, most likely before the Senate Intelligence Committee, with the topics including whether he was pressured by President Trump to stop investigating the just ousted Michael Flynn.  The much-talked about Comey memos have not been released to Congress, as requested, with the FBI basically saying they wanted special counsel Robert Mueller to review them first.

Lastly, Trump’s son-in-law and senior adviser, Jared Kushner, is under FBI scrutiny as part of the Russia probe, with people in the Bureau believing he has relevant information, but he is not necessarily suspected of a crime.  Kushner’s lawyer said he would cooperate with any inquiry.  Investigators want to know more about meetings he held last year with the Russian ambassador to the U.S., Sergei Kislyak, and a banker from Moscow, Sergei Gorkov, the latter the subject of sanctions imposed by the Obama administration in response to Russia’s annexation of Crimea.

The bank is under the control of Russian Prime Minister Medvedev and had been used to fund big projects, such as the Sochi Winter Olympics.  Kushner has said he did not discuss sanctions with Gorkov.

Friday night, the Washington Post reported that Kushner and Ambassador Kislyak apparently talked about setting up a secret communications channel to make certain no one could listen in on their pre-inauguration discussions.  I don’t want to comment further on this until I’ve waited 24 hours, but if what the Post is reporting is true, in its entirety, it will be beyond disturbing.

On ObamaCare and the Trump Budget....

The eagerly awaited Congressional Budget Office scoring of the Republican House plan to replace ObamaCare was released Wednesday and the CBO said 23 million fewer people would have health insurance over 10 years. The bill would also reduce the deficit by $119 billion over that time – less than the $150 billion reduction the CBO predicted in the previous version of the bill.

The report concluded that a controversial amendment from Rep. Tom MacArthur (R-N.J.) would have a significant effect.  That provision allows states to waive rules governing what an insurance plan must cover, and allows states to let insurers charge people more based on their health, ergo, according to the CBO, some people with pre-existing conditions would lose coverage because they could not afford the premiums.  To which MacArthur said the CBO was full of it, and that “waivers will cover people with preexisting conditions because they’ll have to create risk pools.”

“I respect the CBO’s role, but just because a group of auditors down the block have created a model that has a lot of ifs, ands and maybes, looking out ten years, doesn’t make that the gospel. That is somebody’s opinion at CBO.  I have a different opinion,” said the congressman

I am not going to spend much more time on the topic as the Senate is now in the process of slowly weighing in and whatever they come up with isn’t going to look at all like the House plan, and then, if the Senate passed their own, the two versions would have to be reconciled, and, well, you get the picture.  For now, though:

Editorial / Wall Street Journal

“This week’s Washington panic attack over health reform wasn’t diminished by the Congressional Budget Office’s unreliable prediction record, though CBO did manage to introduce new fears into the debate: namely, the budget scorekeepers claim the House bill could degrade the quality of insurance.  This editorializing could use some scrutiny.

“Without government supervision of insurance minutiae and a mandate to buy coverage or pay a penalty, CBO asserts, ‘a few million’ people will turn to insurance that falls short of the ‘widely accepted definition’ of ‘a comprehensive major medical policy.’  They might select certain forms of coverage that ObamaCare banned, like ‘mini-med’ plans with low costs and low benefits.  Or they might select indemnity plans that pay a fixed-dollar amount per day for illness or hospitalization, or dental-only or vision-only single-service plans.

“CBO decided to classify these people as ‘uninsured,’ though without identifying who accepts ObamaCare’s definition of standardized health benefits and why they deserve to substitute their judgment for the choices of individual consumers.  CBO concludes that people who opt for niche products don’t count as insured because ‘they do not have financial protection from major medical risks.’....

“But the strangest part of CBO’s preoccupation with ‘high-cost medical events’ is that the analysts never once mention catastrophic coverage – not once.”

As for President Trump’s budget proposal, on this too I am not wasting any real time because like all other presidential budgets it’s dead on arrival.  The blueprint seeks $1.5 trillion in nondefense discretionary cuts and $1.4 trillion in Medicaid cuts over the course of a decade, while adding nearly half a trillion dollars to defense spending.

While it slashes some anti-poverty and safety net programs (or in some cases cuts the rate of growth, which is always important to distinguish), it leaves Medicare and the retirement portion of Social Security intact. 

Large cuts to the Environmental Protection Agency, the State Department and the Department of Agriculture, for starters, just won’t fly.

I will say that the budget purports to show the benefits of cutting taxes on consumers and businesses and that by the end of the decade the federal budget would be balanced, but then it doesn’t really say anything about the costs, seeing as you lose revenue when you cut taxes.  Lawrence Summers, the Harvard economist who served in senior roles in both the Clinton and Obama administrations, wrote in the Washington Post that it was “the most egregious accounting error in a presidential budget in the nearly 40 years I have been tracking them.”

For example, the budget talks of ending the estate tax, and yet the government will collect more than $300 billion in estate taxes over the next decade due to projected higher estate tax revenue because it expects faster economic growth.  But didn’t you just say they were eliminating the estate tax?  Confused? Neat trick if you can pull it off, I guess.

Here’s the bottom line. Everything in the budget is based on faster growth that increases revenue.  And Treasury Secretary Steven Mnuchin said, “We felt it was premature to put in any changes to the budget as a result of taxes, since we’re not far enough along to estimate what that impact will be.”

Yup, throw this in the trash.

Wall Street

Stocks hit new highs again this week on the S&P 500 and Nasdaq, largely on the heels of solid earnings, best I can see because there is still so much uncertainty regarding the Trump economic agenda and whether much if any will now get done this year on tax reform, first and foremost.  There are major battles looming over the budget, as well as ObamaCare, and there seems to be zero movement on a sweeping infrastructure program.  Plus you have the ongoing Russia thing, as Trump calls it, so, yeah, earnings are solid and for now that’s good enough for Wall Street.

With the earnings season now essentially behind us, FactSet reports that earnings for the S&P 500 rose 13.6% in the first quarter, the highest growth rate since the third quarter of 2011, while, more importantly to yours truly, revenues will have risen 7.7%, the highest since Q4 2011.

After five consecutive quarters of earnings declines, they have now been up three straight quarters and that is good news, boys and girls.

So we turn to the Federal Reserve again, their next meeting June 13-14, and the release of the May 2-3 minutes this week showed that the Fed sounds like it wants to hike interest rates again “soon,” if the economy stays on track, while it is laying the plans for reducing its balance sheet, which is like a separate hike of its own as it scales back reinvestments of maturing securities.

But some believe that in interpreting the Fed’s minutes it doesn’t seem as if it is that anxious to hike in June, the FOMC saying in part, “Members generally judged that it would be prudent to await additional evidence indicating that the recent slowdown in the pace of economic activity had been transitory before taking another step in removing accommodation.”

Yes, the Fed remains optimistic about the economic outlook, and a rebound in consumer spending, it’s just do they see enough improvement by mid-June.  You also need to try to gauge the latest mood on Capitol Hill and its relations with the White House in terms of the Fed trying to glean what Trump agenda items will actually fly?

As for the economic data this past week, April new home sales were well below expectations, 569,000 annualized vs. expectations of 610,00, though this was off a revised March figure, upward, to 642,000, which was the highest since October 2007.

April existing home sales were slightly below expectations at 5.57 million annualized.

April durable goods were weak, down 0.7%, -0.4% ex-transportation.

And we had the second reading on first-quarter GDP and it was revised upwards from a putrid 0.7% to a desultory 1.2%.  For the second quarter, the Atlanta Fed’s GDPNow indicator is currently pegging it at a solid 3.7%.

Europe and Asia

Some economic news from the eurozone before the major news items....

A flash reading on manufacturing and services in May, as reported by Markit, revealed an EA19 composite of 56.8 (50 being the dividing line between growth and contraction), unchanged from April, with the manufacturing PMI at 57.0, a 73-month high, and services 56.2, down slightly from April’s 56.4.  All figures very solid.

The flash reading on manufacturing for Germany was 59.4, a 73-mo. high, and 55.2 on services, while for France its manufacturing figure was 54.0, down from 55.1 in April, and 58.0 on services, up from 56.7 last month.

Nothing wrong with any of this.

A few national statistics offices came out with final GDP figures for the first quarter. Germany’s was 0.6% quarter-on-quarter, while Spain’s was 0.8%, both strong.

In the U.K., growth for Q1 was revised down to 0.2% (2% year-on-year), down from an initial estimate of 0.3%.

Monday night in Manchester, England, we had another horrific terror attack; a suicide bomber blew himself up outside the entrance to a theatre where an Ariana Grande concert had just wrapped up, targeting the fans as they were leaving, many of the American singer’s audience being young teenagers who were then meeting their parents after for the trip home.  22 were killed, 59 injured, some still in critical condition.

Manchester police soon identified the bomber as 22-year-old Salman Abedi, whose parents live in Libya, and it became clear he had recently been there before going back home to the Manchester area.  French officials said on Wednesday that Abedi had also traveled to Syria and had Islamic State links (ISIS claiming responsibility shortly after the attack), with Turkey confirming he had recently been through Istanbul’s airport, though they said he did not then go to Syria...that he was only in the airport to transit elsewhere.

Because of the relative sophistication of the bomb it was assumed others were in on the plan and by Friday, investigators had rounded up eleven suspects, all of whom the police called “significant” catches, part of an extensive network.  Some other explosives were found in searches conducted at homes throughout the area.  The British government raised the threat level in the country to the highest the next day, Tuesday, “critical,” meaning that a further attack “may be imminent.”

The U.K. intelligence services, though, were furious with their U.S. counterparts for leaking information on the investigation to the press.

*Friday night Britain’s top counter-terrorism officer Mark Rowley said “immense” progress had been made in the investigation and now officials believe Abedi may have put together the bomb himself.

Brexit: As I’ve been noting, real negotiations between Britain and the EU on leaving the club will begin after the June 8 parliamentary elections.  Since Prime Minister May announced the snap vote, polls had consistently showed her Conservatives leading the opposition Labouor Party by 13-15 points, but a YouGov poll on Thursday had the lead cut to five, 43-38, with the Liberal Democrats at 10%.  The survey was taken after the Manchester bombing.

Just Monday, an ICM poll had the Conservatives’ ahead by 14.  Campaigning ceased for a few days following the terrorist incident but is back in full swing.

France: President Emmanuel Macron’s party is looking solid for the upcoming legislative elections next month, with polls showing his start-up Republic On the Move set to win an absolute majority, which would be huge. An OpinionWay survey for Les Echos has Macron receiving 310 to 330 of the 535 mainland seats in the lower house of parliament, more than the 289 necessary for a majority.  The Republicans (conservatives) would win 140 to 160 and the Socialists just 25 to 30, pathetic.  Marine Le Pen’s National Front would fare poorly as well.

[President Trump apparently told Macron in Brussels that media reports that he was backing Le Pen were wrong, a French official said.  “You were my guy,” Trump told him when they met for the first time.]

Greece: The country’s creditors failed to reach a deal on debt relief during seven hours of talks on Monday, a sudden setback as a deal had seemingly already been agreed to in principle; this as the parties race to finish negotiations before Greece has to make good on about 7bn euro in debt repayments in July.

The German government is at odds with itself on the issue, with Foreign Minister Sigmar Gabriel saying “Greece has been promised the relief over and over again if reforms are carried out. Now we must stand by this promise.”

But Finance Minister Wolfgang Schaeuble, a hard-ass on Athens, said that while Greece’s reforms were “remarkable,” the economy was not yet competitive and that he wants to be sure it is enacting all the reforms it has pledged to do.

As a reflection of the renewed uncertainty, the yield on the Greek 10-year rose from 5.49% to 5.95% between Monday and Wednesday, before finishing the week at 5.85%.

Eurobits

--Net migration to Britain was 248,000 last year, down 84,000 from 2015 but still double the government’s target level, according to the Office for National Statistics, which said the change was driven by a rise in the number of people leaving the country, mainly EU citizens, as well as a fall in the number arriving.

The goal of Prime Minister May, and her predecessor David Cameron, was for an annual net migration figure of below 100,000, though no timeframe has ever been given.

Turning to Asia....a flash reading on Japan’s manufacturing PMI for May came in at 52.0, the slowest in six months. 

Japan’s exports rose for a fifth consecutive month in April, up 7.5% year on year and below forecasts, according to the Ministry of Finance, slowing from a 12% rise in March.

Exports to Asia grew 12.2%, with shipments to South Korea soaring 22.3% and to China 14.8%.

Imports rose 15.1%, in line with estimates.

A reading on inflation in Japan for April had core CPI, ex-fresh food, up 0.3%, a fourth consecutive monthly gain for this metric which is good. Ex-food and energy the CPI was unchanged.  The headline CPI was 0.4%.

A slew of data will be released in China over the next two weeks, but the big news for this past one was Moody’s Investors Service downgraded its credit rating on China’s sovereign debt by a notch on Wednesday, saying the steady buildup of debt in the Chinese economy would erode the country’s financial strength in the years ahead.  Moody’s said that the only way for China to achieve its stated high rate of growth “is to allow its debt to continue to grow as a way to stimulate the economy,” Moody’s warned.

Street Bytes

--As alluded to above, the S&P 500 and Nasdaq closed at new all-time highs today, the S&P up 1.4% on the week to 2415, while Nasdaq gained 2.1% to 6210.  The Dow Jones is just 35 points shy of its record at 21080, ending the week with a gain of 1.3%.

Stock in Amazon was followed closely as it nearly hit $1,000 before finishing today at $995.  It was $68 a decade ago.

--U.S. Treasury Yields

6-mo. 1.07%  2-yr. 1.29%  10-yr. 2.25%  30-yr. 2.91%

-- “At the end of the first quarter, quant-focused hedge funds held $932 billion of investments, or more than 30% of all hedge-fund assets, estimates HFR Inc.  In 2009, quant funds held $408 billion, or 25% of all hedge-fund assets.

“Quants got $4.6 billion of net new investments in the first quarter, while the overall hedge-fund business saw withdrawals of $5.5 billion.”  [Gregory Zuckerman and Bradley Hope / Wall Street Journal]

Yup, the industry is changing at light speed, and Wall Street is no longer a job creator, let alone all that is transpiring in the banking industry.

--Since the first week in December, oil, as measured by West Texas Intermediate, has been stuck in a range of $47 to $53 and this past week was no exception.  Crude was rallying heading into the OPEC meeting in Vienna, but then pulled back sharply intraday when the market was disappointed that the cartel and some non-OPEC producers such as Russia had agreed to extend supply cuts of 1.8 million barrels per day until the end of the first quarter of 2018, but the hope was for deeper cuts to drain the global glut of oil.  In the end, oil closed at $49.87, off 63 cents on the week.

--Ford Motor surprisingly fired its CEO, Mark Fields, amid investor concerns over the share price and the company’s failure to change with the times, such as falling behind its rivals in the developing autonomous vehicle area.  Jim Hackett, who was in charge of the division overseeing Ford’s driverless technology, is taking over.

Jim Farley, who was in charge of the successful turnaround in Ford’s business in Europe, is assuming a larger role as well.

During Fields’ three years at the helm the share price fell 40%.  Just last week he announced the company was cutting 1,400 jobs to help shore up finances, though Ford’s profits are not the real issue, it’s the market share and seeming lack of aggressive plans for the future.

--Shares in Best Buy rocketed 21% on Thursday, as demand for Nintendo’s latest video game console helped the Minnesota-based retailer post a same-store sales rise of 1.6%, far better than the 1.5% decline that had been forecast. 

Net income of $188 million also handily beat expectations for the three months to the end of April, with Best Buy saying Nintendo’s new console went on sale March 3. [Target has cited the product for helping it post better-than-expected sales this past quarter as well.]

The Street particularly liked that Best Buy’s online sales jumped 23% in the U.S. from a year ago, accounting for $1 billion of business.  The company has vowed to bring prices in line with Amazon’s.

--Home Depot rival Lowe’s Cos., Inc. reported earnings per share that fell short of expectations, with comp-store sales that were up 1.9% worldwide, 2.0% in the U.S.  Overall sales for the first quarter ended May 5, were up 10.7% to $16.9 billion.

The results are good, but when compared to Home Depot, not so much, and the shares fell in response.

--Shares in Tiffany cratered nearly 9% as same-store sales fell 2% globally in the three months to end of April, badly missing expectations for a 1.7% increase, and marking the sixth straight quarter that Tiffany has failed to report a rise in this key metric.

Tiffany has been hit by weaker tourist spending, particularly at its flagship Fifth Avenue store in New York.  Rising competition from lower end competition at the likes of Macy’s hasn’t helped.

In a bid to attract younger shoppers, Tiffany hired Lady Gaga as the face of its fashion jewelry collection, but while it is far too soon to judge this particular campaign, the company’s headwinds persist.

Net sales were $899.6m, up slightly from $891.3m reported a year earlier, and net income was better than forecast, but it’s the comp sales numbers that are disturbing, down 4% in the Americas.

--Uber said on Tuesday that it had underpaid its New York City drivers for the past 2 ½ years, an error that could cost the ride-hailing company $10s of millions.  Uber takes a commission after deducting taxes and some fees, but somehow it took a higher percentage from its New York City drivers, using the full fare before deducting sales taxes and fees, as first reported by the Wall Street Journal. The Journal reported Uber could be paying its NYC drivers an average $900, regardless of whether they are still active or not.

--Commuters in New York and New Jersey are gearing up for a true transit crisis this summer, amid Amtrak’s announced plans to do emergency repairs at Penn Station, which in turn could lead to a crisis with the already overloaded subway system.

Amtrak is going to be reducing the number of trains into Penn Station during peak hours by 20% for a period of six weeks beginning in July, but no one expects them to be able to carry out the work on time.

New York Gov. Andrew Cuomo blamed the station’s problems, which include dilapidated infrastructure, poor design and overcrowding, on decades of disinvestment and poor communication between the different agencies that operate in the facility.

All we need is a big heat wave and major problems at Penn Station in July and I can see a calamity involving a panic scenario of some kind, which we’ve been close to having there without the issues that will be compounding the situation. 

--The U.S. Justice Department sued Fiat Chrysler over claims its diesel-powered pickups and SUVs were outfitted with illegal software to allow them to pass emissions tests, “defeat devices” that caused the vehicles’ emissions control systems to perform differently.

Fiat Chrysler said it denied the charges and would defend itself vigorously.

--Speaking of the Justice Department, as first reported by Bloomberg, a firm hired by the U.S. to distribute $4 billion in collected funds to victims of Bernie Madoff’s Ponzi scheme has yet to distribute a dime, but has booked $38.8 million in billings over four years.

In response to Bloomberg’s Freedom of Information Act request, the Justice Department disclosed the payments to former SEC chief Richard Breeden, who is the Madoff Victim Fund administrator. The fees are paid from cash in the fund and cover his work through 2016.

Breeden had estimated in Feb. 2016 that 40,000 victims would get initial payments by the end of that year and nothing.  He now says the initial distribution “will take place sometime in 2017 and will be larger than we originally anticipated.”  The delays, he says, have to do with the claims process and inadequate paperwork from some victims.  It is true that the Justice Department is “notoriously slow” making decisions on forfeited assets, as one white-collar lawyer told Bloomberg.

On the other hand, Irving Picard, who is overseeing the liquidation of Madoff’s firm, has paid out more than $9bn since 2009.  Picard brought numerous lawsuits seeking to recover assets, and his fund is administered under different U.S. laws, and separate from Breeden’s.  Picard has also had no problem conceding his firm might collect as much as $1 billion when all is said and done.

--The beautiful area of Big Sur, California, has suffered one economic disaster after another owing to the winter and spring’s record rainfall that resulted in numerous mud and rockslides that cut off the lifeline, Highway 1, as well as heavily traveled Highway 17.  For months, many leading resorts and restaurants have been forced to close or drastically cut back.

But this week saw perhaps the worst mudslide that literally rearranged more of Big Sur’s dramatic coastline and swallowed roughly a full 1/3 mile of Highway 1.  Caltrans District 5 tweeted, “No words needed but here’s a few.  Millions of tons of rock/dirt, about 1/3 mile of roadway covered 35-40 feet deep.”

A construction contractor told the San Luis Obispo Tribune, “I don’t know that I’ve heard of any slides this big on Highway...It’s a very humbling and amazing situation.”

Aerial photos are spectacularly devastating.  I have to admit to being an idiot on such matters, as in I didn’t realize the worst slides come “once the land dries,” as one resort owner said.

Caltrans said it had been working seven days a week from January through April, and now this.  Crews were actually working to clear previous smaller slides when engineers noticed the hillside above was continuing to move, so no one was injured.

Locals are estimating it will take a full year to reopen the stretch of road, which means the entire coastal highway won’t be reopen this year.  This sucks.  Boy, am I glad I took my dream California drive along it, from San Francisco to San Diego, about 7 years ago.  It’s truly memorable.

--On a brighter note, the heavy precip this winter has led to Mammoth Mountain in the Eastern Sierra and Squaw Valley west of Lake Tahoe announcing they would stay open through the Fourth of July weekend – and maybe even further.  Squaw Valley is hoping to extend nonstop into next winter.

--Speaking of San Diego, the median home price there hit $525,000 in April, passing the region’s previous peak set in 2005, according to CoreLogic.  All about high demand and tight supply.

To be accurate, the inflation-adjusted peak of $517,500 in ’05 would be roughly $644,500 in 2016 dollars, but the increase today to $525,000 is noteworthy in that it represents a 7.4% increase in one year, outpacing most of the rest of Southern California.  [Phillip Molnar / Los Angeles Times]

--Economist Robert Samuelson, from his perch at the Washington Post, commenting on the recent Ransomware attack, and the future.

“We are addicted to the Internet and refuse to recognize how our addiction subtracts from our security.  The more we connect our devices and instruments to the Internet, the more we create paths for others to use against us, either by shutting down websites or by controlling what they do.  Put differently, we – incredibly – are inviting trouble.  Our commercial interests and our national security diverge.

“The latest example of this tension is the ‘Internet of things’ or the ‘smart home.’....

“One consulting firm, Ovum, forecasts that from 2016 to 2021, the number of smart homes worldwide will rise from 90 million to 463 million, with the largest concentrations in the United States and China.  Ovum anticipates that each smart home will have nearly nine separate devices attached to the Internet and that the global total will hit 4 billion by 2021.

“All this increases the vulnerability of Americans and others to cyberattacks.  To be sure, the ‘Internet of things’ will be fitted with security protections.  But as we’ve seen, mistakes and gaps occur....

“Instead of candor, we compartmentalize.  We lavish praise on our cybercapabilities – Mark Zuckerberg, Jeff Bezos and others – for their accomplishments while conveniently forgetting that the same technologies also make us less safe.  If there are deficiencies with cybersecurity, we consider them separately. We embrace the ‘Internet of things’ without admitting that it’s also the ‘Internet of hazards.’”

--I was kind of shocked to see the cable news ratings this week and how Fox News’ ratings have been plummeting.

It didn’t help that on Tuesday, Fox retracted a story pushing a right-wing conspiracy theory that Democratic National Committee staffer, Seth Rich, may have been killed because he provided emails to WikiLeaks.

Fox News host Sean Hannity had been pushing it heavily and, being a Hannity viewer (when the Mets game of the night isn’t close), I was surprised when the story first came up because I didn’t remember this one at all, Rich having been killed last July 10. Former House speaker Newt Gingrich also peddled the tale, ditto Rush Limbaugh and others on talk radio.

But after Fox News retracted it (removed it from its web site), I was watching Tuesday night when Hannity opened by expressing sympathy for the Rich family, saying he wouldn’t talk about the case for the time being, but then criticized efforts by the “Destroy Trump Media” to silence him.

“I am not going to stop doing my job,” he told his viewers.

To say Fox News, after the major sexual harassment scandal at the network, is in disarray would be quite an understatement, but where else is their base going to turn? 

That said, the simple fact is that since the loss of star Bill O’Reilly, Fox is reeling.  Last week, Fox finished behind CNN and MSNBC among viewers 25 to 54, the most important demographic to advertisers.  Consider that Fox hadn’t finished third in that category for a full week since Dec. 2008, when the murder trial of Casey Anthony was the dominant news hawked by the likes of CNN.

But the seemingly endless stream of negative headlines for President Trump is also a killer.  As I note below, as a Republican who is now scared to death of losing Congress in the 2018 mid-term elections, it’s about Independents.

Anyway for the purposes of Street Bytes, this is a big economic story for Fox if it doesn’t regain its mojo. 

One theory is that O’Reilly would have done a better job of explaining the Trump-Russia story than just labeling it all “media hysteria,” as Hannity and O’Reilly’s replacement, Tucker Carlson, have done.

As for the program now in the 9:00 hour, “The Five,” it had been at 5:00 for a reason.  That’s where it belongs.

Back to Hannity and the Seth Rich case, Hannity has been citing tweets by Kim Dotcom, the founder of the piracy website Megaupload, who said Rich passed DNC emails to WikiLeaks.  “I knew Seth Rich. I know he was the @WikiLeaks source. I was involved,” Dotcom tweeted Saturday.

Dotcom is an Internet entrepreneur living in New Zealand who is wanted by the FBI for piracy activity.

But it emerged that Seth Rich’s Gmail account received an alert this week from Mega.com, Kim Dotcom’s site, an invitation from welcome@mega.nz that appeared to be an attempt to gain access to Rich’s email.  Joel Rich, the father, maintains his son’s account and did not click on the link, as reported by the Washington Post’s David Weigel.  Dotcom has now said he won’t comment further on his allegations.  It seems as if he was trying to create fake emails to bolster his claims about Rich.

In a Washington Post op-ed, Seth Rich’s parents, Joel and Mary Rich:

“Imagine living in a nightmare that you can never wake up from. Imagine having to face every single day knowing that your son was murdered.  Imagine you have no answers – that no one has been brought to justice and there are few clues leading to the killer or killers.  Imagine that every single day, with every phone call you hope that it’s the police, calling to tell you that there has been a break in the case.

“Imagine that instead, every call that comes in is a reporter asking what you think of a series of lies or conspiracies about the death.  That nightmare is what our family goes through every day....

“Law-enforcement officials told us that Seth’s murder looked like a botched robbery attempt in which the assailants – after shooting our son – panicked, immediately ran and abandoned Seth’s personal belongings. We have seen no evidence, by any person at any time, that Seth’s murder had any connection to his job at the Democratic National Committee or his life in politics.  Anyone who claims to have such evidence is either concealing it from us or lying.

“Still, conservative news outlets and commentators continue, day after painful day, to peddle discredited conspiracy theories that Seth was killed after having provided WikiLeaks with emails from the DNC.  Those theories, which some reporters have since retracted, are baseless, and they are unspeakably cruel.

“We know that Seth’s personal email and his personal computer were both inspected by detectives early in the investigation and that the inspection revealed no evidence of any communications with anyone at WikiLeaks or anyone associated with WikiLeaks.  Nor did that inspection reveal any evidence that Seth had leaked DNC emails to WikiLeaks or to anyone else.  Indeed, those who have suggested that Seth’s role as a data analyst at the DNC gave him access to a wide trove of emails are simply incorrect – Seth’s job was to develop analytical models to encourage voters to turn out to vote.  He didn’t have access to DNC emails, Democratic Congressional Campaign Committee emails, John Podesta’s emails or Hillary Clinton’s emails. That simply wasn’t his job....

“We ask those purveying falsehoods to give us peace, and to give law enforcement the time and space to do the investigation they need to solve our son’s murder.”

Fox News in a statement: “The article was not initially subjected to the high degree of editorial scrutiny we require for all our reporting.  Upon appropriate review, the article was found not to meet those standards and has since been removed.  We will continue to investigate this story and will provide updates as warranted.”

Separately, in a statement to the Washington Post regarding attempts to gain access to Rich’s email account, the Rich’s said: “We are outraged that certain individuals continue to try to use Seth’s name and memory to advance their political and ideological agendas.  We hope people will think twice the next time someone makes an outlandish claim to have discovered new evidence in his case.”

Meanwhile, advertisers have begun leaving Hannity’s show, though it’s a trickle thus far.  Fox earlier fired liberal commentator Bob Beckel, part of “The Five,” for making a racially insensitive remark to a black employee.

--Mark Zuckerberg was Harvard’s commencement speaker Thursday.  “To keep our society moving forward, we have a generational challenge – to not only create new jobs, but create a renewed sense of purpose.  It’s not enough to have purpose yourself.  You also have to create a sense of purpose for others.”

--Broadway had a record year in terms of ticket sales for the official 52-week season that ended Sunday, May 21, according to trade group Broadway League, $1.45 billion, 5.5% over the previous season, which was also a record. 

Three new shows consistently grossed $1 million-plus per week: “Natasha, Pierre & the Great Comet of 1812,” “Dear Evan Hansen” and “Come From Away.”

Another hit is the revival of “Hello, Dolly!” with Bette Midler, which has played to standing-room-only crowds since its opening in April.  And “Hamilton” continues to play to capacity crowds.

--So I’m reading this piece in the New York Post on the problems Conde Nast is facing at its new digs at 1 World Trade Center and I’m just incredulous over the “near plague of rats, which got so bad (Vogue chieftain Anna Wintour) forced a lackey to inspect her office for vermin before she would enter.”

Meanwhile, most of the windows haven’t been cleaned, even though Conde Nast paid $1.2 million in glass-cleaning fees over the past two years.  Plus the windows are cracked and in need of repair.  What a s---show.

The Durst Organization, which is responsible for maintenance, along with The Port Authority, said the original window maintenance machine failed and a temporary window washing unit will be in place by the end of summer.

Foreign Affairs

Iran: President Hassan Rouhani won the country’s presidential election with some 57% of the total votes, hardline rival Ebrahim Raisi receiving 38%.  Turnout was estimated at 70%.  For those who thought Supreme Leader Ayatollah Khamenei would rig the result for his favored Raisi, well, the election obviously seems to be a fair one.  Except for the fact that the Guardian  Council hand selected the final candidates, a minor detail.

This was a referendum on Rouhani’s more moderate policies, though as I’ve written in recent months, ‘moderate’ is a relative term here and I agree with those who believe this is not the best outcome in the long run for the U.S.  It won’t bring about regime change like the election of Raisi eventually may have.

Monday, following Trump’s speech in Riyadh slamming Iran, President Rouhani said stability in the Middle East could not be achieved without Tehran’s help, dismissing the summit Trump attended as a “ceremonial (event) that had no political value and will bear no results.”

“Who can say regional stability can be restored without Iran?  Who can say the region will experience total stability without Iran?” Rouhani said.  He added the Iranian people voted in the election for more democracy and interaction with the world.  [Reuters]

Iran accused the United States of selling arms to “dangerous terrorists” in the Middle East and of spreading “Iranophobia” aimed at encouraging Arab states to purchase arms, according to Iranian Foreign Minister Qassemi.  He said the United States and its allies “should know that Iran is a democratic, stable and powerful country” and that it promoted “peace, good neighborliness, and the creation of a world opposed to violence and extremism.”  Cough cough.

Noting that most of the 19 terrorists responsible for the attacks on Sept. 11, 2001, were Saudi citizens, Iran’s foreign secretary Javad Zarif said: “(Trump) must enter into dialogue with them (the Saudis) about ways to prevent terrorists from continuing to fuel the fire in the region and repeating the likes of the September 11 incident by their sponsors in Western countries.”

But if Iran is the key to regional stability, as they say, then why did they announce this week that it has built a third underground facility for the production of ballistic missiles, as reported by the semi-official Fars news agency on Thursday?  Fars quoted the head of the Republican Guard’s airspace division as saying, “We will continue to further develop our missile capabilities forcefully.”  Amirali Hajizadeh said, “It is natural that our enemies America and the Zionist regime are angry with our missile program because they want Iran to be in a weak position.”  [Reuters]

This will hardly lessen tensions between Iran and its Arab neighbors.

Iraq/Syria/ISIS: Last weekend, Defense Secretary James Mattis said the U.S. is pursuing “an accelerated operation against ISIS,” and it’s clearly working.  President Trump deserves credit for delegating more authority to commanders on the ground, as Mattis said, and the commanders in turn are changing tactics to annihilate strongholds rather than chase jihadis all across the territory.  The combination has clearly stemmed the flow of foreign fighters, from a peak of 1,500 a month to 100.

“The end of the phony caliphate is coming into sight.”

But the surge in activity has led to more civilian casualties, with U.S. officials on Thursday saying that  a military investigation found that more than 100 civilians were killed after a U.S. air strike on a building in Mosul, Iraq in March.    The strike inadvertently triggered explosives placed in the building by ISIS, causing the building to collapse. It was one of the deadliest single incidents for civilians in recent memory in any major conflict involving the U.S.

Separately, Amnesty International issued a report claiming the U.S. Army failed to keep track of more than $1bn of weapons and equipment sent to Iraq in recent years, with some of this in all probability ending up in the hands of ISIS and/or Iranian-backed militias.

Amnesty says it obtained a 2016 report through a Freedom of Information request and the Defense Department has not been keeping good records on both distribution and location of the armaments.

The Iraq Train and Equip Fund, critical to U.S.-Iraqi cooperation on the military front, gave $1.6bn of equipment to Iraqi forces to fight ISIS in 2015.

This isn’t the first time such reports have surfaced, yet the Pentagon doesn’t seem to have learned from past mistakes.

In Syria, a U.S.-backed alliance of militias promised Thursday that no harm would come to any ISIS fighters in Raqqa who turned themselves in by the end of the month, ahead of an expected assault on the city.

The Syrian Democratic Forces, which is comprised of Kurdish and Arab fighters, has advanced to within a few miles of Raqqa, which has served as Islamic State’s de facto Syrian capital since the group declared its fake caliphate in 2014.

3,000 to 4,000 ISIS fighters are believed to be holed up there and they continue to erect defenses against the looming assault.

Egypt: Friday, gunmen believed to be with ISIS or an affiliate killed at least 28 Coptic Christians and wounded scores more as they were driving to a monastery in Minya province, south of Cairo.  Egypt then responded by hitting jihadist bases in Libya.

About 70 Coptic Christians were killed in bomb attacks on churches in the cities of Cairo, Alexandria and Tanta since December.

Libya: Fierce fighting broke out Friday in the capital Tripoli between forces linked to a self-declared, Islamist-leaning “national salvation government” that was set up in 2014, and the U.N.-backed Government of National Accord that arrived in Tripoli last year.  The GNA has struggled to exert its authority in Tripoli and beyond, let alone rein in the militias that have held power in various parts of this failed state.  A third government I’ve written of, aligned with commander Khalifa Haftar, has rejected the GNA as well.  Haftar reportedly aided Egypt in the retaliatory raids today, he being a close ally of President Sisi.

Afghanistan: The Taliban attacked an army base in the southern province of Kandahar, killing at least 10 soldiers and wounding nine, defense officials said; continuing a surge in militant activity.  In another southern province, Zabul, the governor said that as many as 1,000 Taliban fighters stormed the police outposts along the highway to Kandahar, killing at least 20 officers. 

North Korea: Pyongyang announced Monday it had successfully tested an intermediate-range ballistic missile that met all technical requirements and could now be mass-produced, indicating further advances in the North’s missile program.

Separately, Japan and the United States agreed on Friday to expand sanctions against Pyongyang.

Editorial / Wall Street Journal

“Pictures of dictator Kim Jong Un applauding as another North Korean missile ascends into the sky have become routine. But the Hermit Kingdom’s two most recent launches deserve special attention because they show Pyongyang nearing its goal of deploying a nuclear-armed intercontinental ballistic missile (ICBM) that could destroy American cities.

“On May 14 the North launched a new intermediate-range missile it calls the Hwasong-12. The missile traveled fewer than 500 miles, but that’s because it was fired at a very steep angle to avoid flying over neighboring countries.  If launched at the optimum angle, it could have a range of 2,800 miles, which means it threatens the U.S. island of Guam.  That’s the farthest of North Korea’s missiles so far, not counting the rockets it used to launch satellites.

“The Hwasong appears to use a new high-performance engine tested in March that it developed from scratch instead of adapting a Russian or Chinese design....In its current form the Hwasong is also road mobile, making it more difficult to find and destroy.  The North Koreans further claim the Hwasong can carry a ‘large, heavy nuclear warhead.’

“On Sunday, the North successfully tested another relatively new missile, the Pukguksong-2.  While its range is shorter at about 1,000 miles, it is solid-fueled and can be moved using a domestically produced transporter, both of which improve survivability.

“Based on a submarine-launched missile that may be a modified Chinese design, the Pukguksong’s first test in February was also successful. That suggests the missile will prove reliable, and North Korean media are reporting that Kim has ordered mass production....

“This month’s tests mean advances in Pyongyang’s nuclear and missile programs are coming much faster than analysts thought possible.*  If the U.S. and its allies don’t take steps to stop it now, the world will soon wake up to a nuclear North Korea far more dangerous and disruptive than the one we have today.”

*Not moi!

Friday, the story hit that the Pentagon will try to shoot down an intercontinental-range missile for the first time in a test next week; the goal being to closely simulate a North Korean ICBM aimed at the U.S. homeland.

China: Chinese warships warned a U.S. Navy warship to leave after it sailed within 12 nautical miles of an artificial island built up by China in the South China Sea.

Defense Ministry spokesman Ren Guoqiang said China had lodged “stern representations to the U.S. over the patrol and that such moves were not conducive to peace and stability in the South China Sea.”

The USS Dewey sailed on a “freedom of navigation” mission, the first such move by the Trump administration specifically in the region. This will be interesting to watch over the coming weeks.  We’ll quickly learn just how good relations are between Trump and President Xi.

Separately, the New York Times reported that up to 20 CIA informants were killed or imprisoned by the Chinese government between 2010 and 2012, damaging U.S. information-gathering in the country for years.

It is not clear whether there was a mole helping the Chinese or if the CIA was hacked. One of the informants was reportedly shot in the courtyard of a government building to send a warning to others. The CIA had no comment. As the Times’ Matt Apuzzo observed to the BBC: “One of the really troubling things about this is that we still don’t know what happened.”

It took years to build the network.

Russia: According to a survey by human rights organization “Public Verdict,” 22 percent of people in Russia said they have witnessed or experienced beatings carried out by police and medical staff.  [Moscow Times]

Brazil: Protests continue to spread across the country, calling for the ouster of President Michel Temer.  Tens of thousands protested in the capital, Brasilia, Wednesday, the demonstrations turning violent. Temer ordered federal troops to restore order.

Monday, Temer said he will not step down even if he is formally indicted by the Supreme Court.  “Oust me if you want, but if I stepped down, I would be admitting guilt,” he told a Brazilian newspaper.  He has denied allegations of corruption and obstruction in a sweeping graft investigation.

Earlier, Temer said an audiotape that had been produced that allegedly showed him endorsing bribe payments had been edited to frame him.

Tuesday, Brazilian police arrested a presidential aide and two ex-governors as part of an investigation into the 2014 World Cup and the building of the most expensive stadium. Renovations of the Brasilia stadium for the event cost about $459.38 million, prosecutors said in a statement.  Yes, there are charges of rampant overbilling.

Last month, executives of a construction group Odebrecht SA reached a plea bargain deal after offering evidence that builders and politicians sought to fix contracts for World Cup arenas in at least six cities.

Venezuela: The death toll from protests that have been sweeping the country the past few weeks hit 56 as of Wednesday.  Three opponents of President Nicolas Maduro were reported killed by gunfire in Barinas state (birthplace of late President Hugo Chavez), as reported by the Los Angeles Times.

According to a human rights group, Penal Forum, more than 1,000 have been injured and 2,700 arrested.

The importance of Barinas state is that President Maduro has long sought to cloak himself in the mantel of Chavez, but protests there have now killed eight, plus statues of Chavez are being pulled down and destroyed across the region.

Philippines: President Duterte declared martial law for 60 days on the island of Mindanao, after clashes between the army and militants linked to ISIS.  Mindanao is home to a number of Muslim rebel groups seeking more autonomy. Under martial law, people can be detained without charge for long periods.

Random Musings

--Homeland Security Secretary John Kelly, appearing on “Fox & Friends” Friday, said if people knew what he knew, they’d “never leave the house.”  Kelly said the global terror threat right now is far worse than the public is led to believe.

“It’s everywhere.  It’s constant,” he explained.  “It’s nonstop.  The good news for us in America is we have amazing people protecting us every day...but it can happen here almost anytime.”

--President Trump’s approval rating hit a new low in the latest Harvard-Harris Poll survey, though this one has it at 45% vs. 49% in March.  [Rasmussen’s daily tracking poll has Trump at 48% approval, Gallup 39%.]

Among all Republicans in the Harvard-Harris poll, 85% still approve of Trump’s performance, though a week earlier, a Reuters/Ipsos survey had it at 75%.

--In a special election for Montana’s lone House seat, Republican Greg Gianforte won over Democrat Rob Quist, 50-44, despite an altercation with a reporter the day before that led to an assault charge against him.

Appearing at a victory rally in Bozeman, the congressman-elect apologized to the reporter and reversed his campaign’s initial assertion that the journalist was to blame.

“Last night, I made a mistake,” Gianforte said, “and I took an action that I can’t take back, and I’m not proud of what happened...and for that I’m sorry.”

Gianforte had spent the day in seclusion and apologized to his supporters “that we had to go through this.”

“That’s not the person I am,” he said, “and it’s not the way I’ll lead in this state.”

The final margin was actually a little wider than expected after the incident, but far less than the 20 points that Donald Trump had taken the state by.

--Conservative Erick Erickson / Washington Post

“A Republican reckoning is on the horizon. Voters are increasingly dissatisfied with a Republican Party unable to govern. And congressional Republicans increasingly find themselves in an impossible position: If they support the president, many Americans will believe they are neglecting their duty to hold him accountable.  But if they do their duty, Trump’s core supporters will attack them as betrayers – and then run primary candidates against them.

“Through it all, voter dissatisfaction has been growing.  Trump’s core might stand with him, as he claimed, even if he killed someone in the middle of the street. But would those 70,000 voters who put him in the White House?  As the president acts more irrationally and his Twitter rantings become more unhinged, will he draw more people to himself and his party than he will repel?  I suspect not....

“It is becoming ever clearer that Trump has the potential to cause more damage to the Republican Party than Obama did the Democrats.  While there is no doubt the Democrats saw serious electoral setbacks under Obama, there remains a key difference here: Obama is deeply respected and liked by a majority of voters. Trump is increasingly disliked, and the Republicans who enable him are increasingly distrusted....

“Trump still thinks he stands in contrast to Clinton, when in reality, for voters watching the chaos unfold, he stands in contrast both to a more level-headed Vice President Pence and an unknown generic Democrat – neither of whom constantly reminds people of their incompetence.  Unless Republican leaders stage an intervention, I expect them to experience a deserved electoral blood bath in November 2018.”

--Trump retained Marc Kasowitz, a New York-based trial lawyer, to represent him in a Justice Department investigation headed by former FBI director Robert Mueller.  Joe Lieberman, said to be a favorite to replace James Comey, took himself out of consideration because the former senator is working for Kasowitz’ firm.

--Pope Francis urged President Trump to be a peacemaker at their highly anticipated first meeting on Wednesday.  What started off as a tense get together, the Pope not being as jovial as he normally appears with foreign leaders, ended with a much better vibe, the Pope far more relaxed.

In giving Trump a small sculptured olive tree, Francis told him that it symbolized peace.  “It is my desire that you become an olive tree to construct peace.”  The Pope also gave the president copies of his encyclicals on peace and the environment, with Trump giving the Pope a set of first-edition books by Martin Luther King Jr.  Trump said, “I won’t forget what you said.”

--Hillary Clinton spoke at Wellesley College’s commencement on Friday, and of course she took off after Donald Trump, without naming him, and I’m like ‘whatever.’  Many of us wish she would go away, but now we have to put up with the fact she’ll stick around because it’s good for business, and she loves to live well and such.

But when she spoke to the students about an “assault on truth and reason” I just wanted to throw up.

--New Orleans Mayor Mitch Landrieu drew national attention with a speech he gave last Friday as the last of four Confederate monuments was being removed from his city.

Landrieu slammed the legacy of the Confederacy and said that while history should be remembered, it needn’t be revered.

“The Confederacy lost and we’re better for it,” he said.  Landrieu said he had passed the monuments in his youth and gave them no heed, but that musician Wynton Marsales and others opened his eyes to a new way of thinking.

I’ll just say this, as a Yankee who had Civil War art all over my old home, including photos of Lincoln, Lee, Grant, and Jackson, and today, in my place one-third the size, I still have Civil War art prominently featured, including works by Mort Kunstler and John Paul Strain.  I’ve been to the spot where Stonewall Jackson was shot by his own men at Chancellorsville, and the plantation where he died 8 days later.  I know enough that Jackson’s Valley Campaign was pure military genius, and was studied by countless generals after, including a famous German tank commander.

I make no political statements in featuring those I have over the years on my walls.  [Another room is all huge works featuring 60s rock artists.]  It’s just history.

But...I do understand why some want to erase it in the South.  I just hope there is balance.  For example, I hope they haven’t taken out the marker where Gen. J.E.B. Stuart was shot, another place I’ve been to.   If we get to that, we’ve gone too far.

--We note the passing tonight of longtime foreign policy / national security strategist Zbigniew Brzezinski, 89.  Us hawks respected the man.  He is the father of MSNBC’s Mika Brzezinski.

--Ariana Grande’s management team announced Wednesday that she had suspended her world tour through June 5 in the wake of the Manchester concert bombing; missing stops in Antwerp, Belgium, two in Lodz, Poland, and shows in Frankfurt and Zurich.

Today, Ariana announced she will return at some point to Manchester to give a benefit concert for the victims’ and their families, posting in a lengthy series of tweets:

“My heart, prayers and deepest condolences are with the victims of the Manchester Attack and their loved one.  There is nothing I or anyone can do to take away the pain you are feeling or to make this better.

“However, I extend my hand and heart and everything I possibly can give to you and yours, should you want or need my help in any way.

“The only thing we can do now is choose how we let this affect us and how we live our lives from here on out.

“I have been thinking of my fans, and of you all, nonstop over the past week.”

Grande said she is inspired by the outpouring of compassion from her fans, calling it “the exact opposite of the heinous intentions it must take to pull off something as evil as what happened Monday.  YOU are the opposite.”

“Music is something that everyone on Earth can share... So that is what it will continue to do for us,” she concludes, promising that the victims and her fans “will be on my mind and in my heart every day and I will think of them with everything I do for the rest of my life.”

--I have never called out a bunch of 8th graders on this site, but I just saw a piece from NJ.com by Jessica Mazzola that today in Washington, D.C., on a class trip, a group from South Orange Middle School (about 15 minutes from me) had a chance for a group photo with House Speaker Paul Ryan and half of the jerks refused to be part of the picture!  So the parents of course took to social media and some said they were “proud” of the students’ “powerful statement.” No, you jerks.  Teach your kids the meaning of “respect”.

Remind me not to ever shop or eat in this sorry town.  [Apologies to Seton Hall University, which is here.]

--Former New York City Mayor Michael Bloomberg, in his commencement address to students at Villanova.

“When I was growing up, I was taught to love this country not because America was infallible, but because We the People were always working toward perfection. The idea that we are engaged in a constant struggle for a ‘more perfect union’ is what makes America an exceptional nation.

“It’s imperative that we pass this idea from generation to generation. And yet today, there is a terrible lack of civic education in our schools.  Civic education teaches us about the history behind our values, what it means to be a citizen in our democracy, and what obligations that imposes on us.

“Thomas Jefferson wrote, ‘A well informed citizenry is the best defense against tyranny.’ Today, it is easier than ever to be well-informed – and, at the same time, harder than ever.  By following only liberal or conservative news outlets, or by getting trapped in social media’s echo chamber, we become less able to discern fact from spin, truth from lies.  And we become less willing to listen to anyone who challenges our beliefs.

“The best protection we have against this kind of political segregation is to ensure that we all share a common understanding of our civic values.  When we don’t, we are more likely to nominate and elect people who don’t respect those values, and the institutions that protect our rights.

“It’s easy to take our rights for granted. But remember: America is an experiment, an experiment in democracy and multiculturalism. It’s an experiment that a free people will remain informed, debate civilly, and choose leaders who respect the checks and balances of the Constitution. And if they do not, the Constitution gives us the authority to hold them accountable for their actions, to ensure that no man or woman – no matter how powerful – is above the law.

“This great American experiment has no guaranteed outcomes. Every generation tests it, and every generation is tested.  Your responsibility – your test – is to preserve the experiment, and renew it for the next generation. This is no small task, but I believe it starts with a small step that each of you can take in your communities: demanding that your local schools do more to teach what it means to be a citizen and a patriot.”

--Nebraska Republican Sen. Ben Sasse, appearing on “This Week,” in discussing his new book, “The Vanishing American Adults: Our Coming of Age Crisis, How To Build A Culture of Self-Reliance.”

“(The) problems that we face in terms of not having a shared understanding of why America has limited government and what the constitutional structure of checks and balances are supposed to protect, that problem isn’t a problem just in the last four months. It isn’t a problem just in the last 18 months.

“We’ve had an erosion of an understanding of basic American civics for decades....

“So I wish that everybody in government, including in particular the president, would spend a lot more time and energy saying five and 10 years from now, am I going to have contributed to a world where American kids understand why the First Amendment is so glorious?

“Because right now, there’s a ton of data, our kids don’t understand it. And we’re not teaching them. And that starts all across the federal government....

“We have far too many of our kids that are stuck in a state of perpetual adolescence right now. And that’s more our fault than theirs.  We’re not doing enough to celebrate scar tissue together.  Our kids have huge potential.  But they are also going to have a demand, and a necessity of becoming more resilient than the generations before them, because they’re entering an economy where at age 40 and 45 and 50 and 55, they’re likely going to get disintermediated not only out of their job and firm, but out of their entire industry.  That’s never happened before in human history.

“We are going to have to build a civilization of lifelong learners. And at the same time as we should be toughening our kids up, we’re trying to bubble-wrap them a little too much.  There’s a lot that should be happening as our kids come of age that right now we’re not spending enough time attentive to habit formation for our kids.”

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Pray for the men and women of the armed forces...and all the fallen....especially on Memorial Day.

Think not only upon their passing, Remember the glory of their spirit.

God bless America.

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Gold $1270
Oil $49.87

Returns for the week 5/22-5/26

Dow Jones  +1.3%  [21080]
S&P 500  +1.4%  [2415]
S&P MidCap  +0.9%
Russell 2000  +1.1%
Nasdaq  +2.1%  [6210]

Returns for the period 1/1/17-5/26/17

Dow Jones  +6.7%
S&P 500  +7.9%
S&P MidCap  +4.0%
Russell 2000  +1.9%
Nasdaq  +15.4%

Bulls 51.9
Bears 18.3  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore

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