Week in Review

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Week in Review

01/20/2018

For the week 1/15-1/19

[Posted 11:30 PM ET, Friday]

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

Edition 980

[I’m posting as a government shutdown looms...the time stamp above is accurate...for the record.]

Trump World...the one-year anniversary

It’s only fitting that as we hit the anniversary of Donald Trump’s first year in the White House, tonight there is more chaos  as Congress scrambles to avoid shutting down the government, again.  This first year has been nothing but one crisis after another, many self-inflicted by our president; the divider-in-chief, a man so often in over his head on policy (really on display this past week), a president who continually steps on his own message.

Yet the stock market, as measured by the S&P 500, is up 23.7% in his first full year, up 31.4% since Election Day 2016. 

And while his job approval ratings, summarized in “Random Musings,” remain abysmal, because of a strong economy and a 4.1% unemployment rate, and the early benefits and positive vibes from the tax cuts, most Americans feel pretty good.

I was watching a piece by Martin Savage on CNN, interviewing Trump voters from 2016 in Youngstown, Ohio, and they were 100% on board with the president today.  And why wouldn’t they be?  In their case, jobs are returning, Congress has a beyond pathetic approval rating, and they like how blunt the president is.

What ticked me off watching the segment, though, was Martin Savage asked one of the voters if he minded that Trump lied so much and the guy goes, “He doesn’t lie.”

People, you know the single lie from our president that upsets me the most?  Every day he talks about how he is rebuilding the U.S. military to heights never seen before.  We’re adding new ships, new fighter planes... “We’re bringing it to a level that it’s never been at!”  [Something he said at his Pennsylvania rally this week.]

It’s a damn lie! The spending level for the military is essentially the same as it’s been under sequestration, which is why the likes of Senators Lindsey Graham, John McCain, and House Speaker Paul Ryan have been going nuts over the latest funding the government shenanigans.

Speaker Ryan, on Thursday in a speech at the Center for Strategic and International Studies, said, “Rebuilding the military” is the “highest priority today.”

“We have simply pushed our military past the breaking point. Instead of upgrading our hardware, we have let our equipment age. Instead of equipping our troops for tomorrow’s fight, we have let them become woefully underequipped.”

“Right now, our men and women in uniform, today, are under enormous strain, some of which, frankly, is of our own making,” he added. “This is why rebuilding the military is one of the highest priorities of our unified government.”

Ryan linked the lack of consistent funding and ensuing readiness woes to training accidents and the deaths of sailors in collisions at sea last year.  [More on this below.]

Sen. Lindsey Graham has had one message. “Republicans need to compromise; accept an immigration deal to secure more money for the military.”

So, please, people.   Understand that the next time President Trump talks about how he is rebuilding the military, nothing has taken place yet. The Republican House passed a bill increasing the Pentagon’s budget last fall, but it hasn’t been acted on in the Senate and now it’s become part of the current funding debacle. 

I just want a president who tells the truth.  In the first year of the Trump presidency, it was about the positives...deregulation, a booming market, and tax cuts.

In year two, it’s going to be about foreign policy and the critical mid-term elections.  As noted in some of the commentary below, ‘every word will matter’ from our president.  It is unlikely he’ll think about that.

As for the Democrats, they’re a mess, with zero message whatsoever, especially with 3% growth in the economy.  And they have zero leadership.

Meanwhile, across the land, in 2018 public discourse will deteriorate further.

Gerald F. Seib / Wall Street Journal

“On the second day of the new year, President Donald Trump uncorked a remarkable string of 16 tweets directly from his personal account. In them, he criticized Pakistan, threatened to take American aid away from the Palestinians, claimed personal credit for a year without commercial aviation deaths, attacked the news media and proclaimed he has a bigger ‘Nuclear Button’ than does the leader of North Korea.

“Every aspect of that Twitter chain – from the platform used, to the tone deployed, to the sensitive foreign-policy ground covered in public – marks a departure from past presidential behavior. In short, that chain is a pretty good illustration of the way Mr. Trump has changed both the presidency and what Americans have come to expect of it.  In the year since he took the oath of office, Mr. Trump has shown that he simply isn’t bound by what had been seen as the previous conventions of the role he is playing.  Other presidents have sought to avoid or tamp down controversy; he is as likely to stir up or make a beeline toward controversy, seeing it as a tool in effecting change.  Past presidents have tended to speak off-the-cuff sparingly and carefully; Mr. Trump does it every day on a social-media platform never before deployed this way.

“Past presidents strained to show consistency in all they said and advocated, fearful that changing positions would open them to charges they are feckless or unprincipled.  Mr. Trump shifts positions frequently and effortlessly – at one point standing on several sides of a tense immigration debate during a single televised discussion – and boasts that keeping foes guessing that way is an asset. ‘I’m a very flexible person,’ he said in a recent interview with The Wall Street Journal. He added: ‘I don’t know what the word permanent means.’

“William Daley, who served as a cabinet secretary and White House chief of staff for Barack Obama, says simply: ‘He’s fundamentally changed how people, not just here but around the world, view the presidency.’....

“More than most recent presidents, he acts more like a chief executive officer of the government than its chief operating officer.  Rather than present his own detailed policy proposals, he has relied on fellow Republicans in Congress to work out the details of a health plan, a tax cut and an immigration overhaul, preferring to position himself instead as a leader who retains the flexibility to close the deal rather than one who seeks to determine its precise contours.

“It remains unclear how effective this new presidential style is. It has produced a historic tax cut, a broad loosening of government regulation and a significant change in the kinds of judges sitting on federal courts.

“Yet the president failed to lead the way to a new health-care system or build broad support for his views on immigration, and his dealings with allies remain controversial.  Even some of the president’s backers admit they feel worn down by the feel of unending turmoil. Despite Mr. Trump’s efforts to govern as almost a political independent, his polarizing style has helped prevent him from getting significant Democratic support for his initiatives, which could doom his hopes of getting a broad agreement on rebuilding America’s infrastructure.

“It’s also unclear whether the changes Mr. Trump has brought to the presidency are permanent, or are unique to him as a man who, unlike any of his presidential predecessors, arrived with no prior experience in public office or the military. That status as a genuine outsider may help him pull off his style of governing, but also may mean others couldn’t do the job quite this way.

“ ‘The difference between Trump and other people is a level of authenticity that other people lack,’ says Sean Spicer, who was Mr. Trump’s first White House press secretary. ‘You can love or hate what he does, but all of it is authentic.’

“He adds, though: ‘Anybody who believes they are going to follow in his footsteps is sorely mistaken.’”

Susan Page / USA TODAY

“In the 12 months since his inauguration, the headlines from Donald Trump’s presidency have been dominated by disruption: provocative tweets, derisive language and epic feuds.

“All of which has overshadowed some of the fine print – that is, the consequential actions Trump has taken that have changed the way the federal government works and the role the United States plays in the world. Indeed, that’s the implicit bargain congressional Republican leaders have made with the White House. Most have muted their public criticism of the president during controversies over his words, including the latest one on his vulgar description of African countries, on the theory he can help implement their policy agenda.

“ ‘There is so much hue and cry and rending of cloth over the truly outlandish statements that no previous president would ever make publicly, and that are so breaking with any kind of precedent for a president, that we’re really missing the fact that the tweets are the ripples on top of the water,’ said Jeffrey Engel, director of the Center for Presidential History at Southern Methodist University in Dallas.  ‘The big impactful currents are well below.’

“Despite scoring the lowest approval ratings of any modern president, and facing united Democratic opposition to most of his proposals, Trump has had an important impact on everything from taxes to regulation to Americans’ regard, or lack of it, for the nation’s institutions.  Trump’s legacy will affect American governance and life long after he has moved out of the White House.”

Daniel Henninger / Wall Street Journal

“What’s the difference between Mark Zuckerberg and Donald Trump?

“Mr. Zuckerberg saw that the destructive political forces set loose by social media were threatening the core of Facebook and made adjustments last week to protect his crown jewel.

“A Twitter account and the tides of media are undermining Mr. Trump’s presidency, but he’ll never adjust.

“Which leads us to the Trump Paradox: Donald Trump may be the most disliked president in the postwar era, even as he presides over one of the most solid first-year policy performances of that era, most notably a strengthening economy....

“But in Year Two, the story line is about to change. Everything in 2018 will be defined in terms of its effect on the November midterm election....

“If the Trump economic record was pouring out of a different, more agreeable vessel, the Democrats would be floating out to sea.  Instead, Democrats and the nonsectarian Trump opposition are billing him as the apotheosis of evil, arguing that his personality and words discredit all his policy accomplishments...

“Teeing up Donald Trump as a cartoon villain is preposterous – but rational.  Normally, politicians strive to enlarge the circle of empathy between themselves and the public. The empathy may be fake, but it’s necessary. Mr. Trump is uniquely content to limit his personal appeal....

“The bedrock Trump base, always around 35%, carried him through the presidential competition. But the 2016 victory was made possible by adding the topsoil of wealthier suburban voters. The Trump topsoil is eroding. Men who voted for Mr. Trump in these suburban towns won’t bother trying to talk their wives out of turning their 2018 vote into an anti-Trump statement. Donald Trump never had a bad day in his life. His supporters have one every week....

“The Democrats, now dominated by street-theater progressives, could blow it by making their return to public view more annoying than Mr. Trump’s tweets. They are planning to attend the president’s State of the Union address Tuesday dressed in black, like Hollywood stars, and carrying #HandsOff signs. That would be the people whose eight years of hands on the American economy put Donald Trump in the White House.”

Michael Goodwin / New York Post

“As I have said, Trump has an impressive list of achievements, and his presidency marks an important course correction for America. The expanding economy, as reflected in job and wage growth and stock-market exuberance, remains Exhibit A on his promises-kept list.

“But the job isn’t done.  To have a successful presidency, Trump needs to finish what he started and that means keeping a Republican Congress for four years. For that to happen, he must start behaving as if his future depends on every word he says every day.

“Because it does.

“And if he needs to blow off steam without blowing the lid off his presidency, he ought to remember the sage advice often attributed to President Harry Truman.

“If you want a friend in Washington, get a dog.”

Neel Kashkari / Wall Street Journal [Kashkari is president of the Federal Reserve Bank of Minneapolis and participant in the Federal Open Market Committee.]

“As Congress and the Trump administration debate immigration reforms with important legal and social implications, they must not lose sight of an overarching truth: Robust immigration levels are vital to growing the American economy.

“Legislators of both parties, policy makers and families all want faster economic growth because it produces more resources to fund national priorities and raise living standards. But growth since the end of the Great Recession has been frustratingly slow, averaging only 2.2% net of inflation, down from 3.6% on average from 1960 to 2000.

“Republicans hope the new tax cuts will lead the economy to grow faster. But while stimulus plans can indeed produce growth at least temporarily, they usually do so by increasing the deficit. Can’t policy makers achieve faster growth without further ballooning our national debt?  Yes – and increasing immigration levels is the most reliable way to do so.

“Long-term economic growth comes from two sources: productivity growth and population growth.  Productivity growth means the same number of workers are able to produce more goods and services. Increased productivity comes from better education (equipping workers with better skills) and technology development (giving workers more sophisticated tools). Productivity growth has been very low during this recovery, averaging only 1.1% per year, down from 2.1% from 1960 to 2000....

“Population growth drives economic growth because a larger population means more workers to produce things and more consumers to buy things. But as is true in most other advanced economies, Americans are having fewer children. The U.S. working-age population has stagnated over the past decade.

“Using public policy to increase the nation’s fertility rate is not easy....The surest way to increase the working-age population is through immigration....

“Immigrant inflows to the U.S. are relatively low by postwar standards. If Congress and the administration can deliver reforms that boost legal immigration by one million people a year and tailor the policy to prioritize workers who meet the needs of our economy, the Minneapolis Fed estimates growth would increase by at least 0.5 percentage point a year under the most conservative assumptions, with no corresponding increase in the deficit. This would close almost half of the growth gap between our post-recession recovery and the late-20th-century norm. And if some of those immigrants or their children turned out to be the next Steve Jobs or Elon Musk, we might solve our productivity woes, too.

“Immigration is as close to a free lunch as there is for America. Our welcoming culture provides us an unfair competitive advantage most countries would love to have. Let’s use that advantage to win the immigration competition and accelerate growth. We’d be crazy not to.”

Trumpets....

--President Trump falsely claimed in a tweet Thursday morning that Mexico is “now rated the number one most dangerous country in the world.”

A border wall between the United States and Mexico is needed, Trump said, “for the safety and security of our country.”

A few hours later the Mexican government released a statement correcting Trump.

“Although Mexico has a significant problem of violence, it is openly false that Mexico is the most dangerous country in the world.”

While it’s true Mexico recorded more homicides in 2017 than in any year on record – others, such as Venezuela and El Salvador, have much higher homicide rates.

As to Trump’s ongoing claim Mexico will pay for a border wall, the foreign ministry statement read: “As the Mexican government has always maintained, our country will not pay, in any way and under any circumstances, for a wall or physical barrier along the border with Mexico.”

Earlier, in response to White House Chief of Staff John Kelly’s remarks that the U.S. will never build a wall along the entire southern border and that Mexico won’t pay for what we do erect, while describing some of the president’s other campaign promises about immigration as “uninformed,” Trump tweeted furiously (he was indeed pissed off at Kelly):

“The Wall is the Wall, it has never changed or evolved from the first day I conceived of it. Parts will be, of necessity, see through and it was never intended to be built in areas where there is natural protection such as mountains, wastelands or tough rivers or water...”

--Congress is probing the Obama administration’s decision to use research by ex-British spy Christopher Steele to justify, in part, surveillance of an associate of Donald Trump, as Republican scrutiny rises concerning law-enforcement actions during the 2016 campaign.

In the final days of the campaign, the Justice Department used information from Steele as part of its request for a secret order to monitor Carter Page, a foreign policy adviser to Trump, and Page’s ties to Russia.

At the time, Steele was working for opposition research firm Fusion GPS that was being paid by the Democratic Party, thus raising concerns the surveillance was politically motivated.  But thus far there is no evidence it was improper.

--This week former porn star Stormy Daniels (real name Stephanie Clifford) gets elevated from “random musings” to “trumpets.” Congratulations, Stormy!

The Wall Street Journal report that Trump’s personal lawyer, Michael Cohen, “used a private Delaware company to pay (Clifford) $130,000 in return for her agreeing to not publicly discuss an alleged sexual encounter with Mr. Trump, according to corporate records and people familiar with the matter.”

Cohen established Essential Consultants LLC on Oct. 17, 2016, just before the presidential election, corporate documents show. 

“Mr. Cohen, who is based in New York, then used a bank account linked to the entity to send the payment to the client-trust account of a lawyer representing Clifford, one of the people said....

“To further mask the identities of the people involved in the agreement, the parties used pseudonyms, with Ms. Clifford identified as ‘Peggy Peterson,’ according to a person familiar with the matter.”

In emails with the Journal this week, Cohen didn’t address the $130,000 payment but said of the alleged sexual encounter that “President Trump once again vehemently denies any such occurrence as has” Ms. Clifford.

The Journal previously reported that Ms. Clifford, 38, had been in talks with ABC’s “Good Morning America” in the fall of 2016 about an appearance to discuss Mr. Trump.

Cohen last week sent the Journal a two-paragraph statement signed by “Stormy Daniels” denying that she had a “sexual and/or romantic affair” with Mr. Trump.

Clifford hasn’t responded to the Journal’s inquiries this week.

But in an old magazine interview from In Touch  that has been unearthed, Daniels said she once spent three hours with Trump watching “Shark Week.”  “He is obsessed with sharks,” Daniels said.  “He was like, ‘I donate to all these charities and I would never donate to any charity that helps sharks. I hope all the sharks die.”

And here, boys and girls, is yet another reason why ‘Man’ is No. 376 on the All-Species List.

Wall Street

As I detail the numbers below, stocks continue to soar, but as President Trump jets off to Davos this week (assuming he isn’t forced to stay in D.C. because of the probable shutdown), I hope he understands that as he crows about how well the U.S. economy is doing, the other world leaders in attendance can say the same thing.  Trump has been incapable of crediting the synchronized growth around the globe that has so benefited corporate America.  We’ve learned it’s only about him.  I’m anxious to see how it all goes.

This week the Federal Reserve’s latest look at the U.S. economy, the Beige Book, showed the economy and inflation expanded at a modest-to-moderate pace from late November through the end of 2017, while wages continued to push higher.

“A few districts observed that firms were raising wages in a broader range of industries and positions since the previous report.”

The Fed is still expected to hike interest rates three times this year, some board members calling for four, some for two.

Davos, Switzerland is the site for the World Economic Forum where all the “global elites” gather each year. With Trump’s appearance, it’s the first time a U.S. president has attended since Bill Clinton in 2000 and Trump is sure to dominate proceedings.

In an annual assessment of global risks put together ahead of the forum, the growing cyber-dependency of governments and companies, and the associated risks of hacking by criminals or hostile states, has replaced social polarization as a main threat to stability over the next decade.

Nine in 10 of those surveyed said they expect political or trade clashes between major powers to worsen.  80% saw an increased chance of war.

Meanwhile....

Editorial / Wall Street Journal

“The public’s perception of the Republican tax reform is improving, and it’s easy to see why. An announcement from Apple this week is the latest and largest example that reform is working as supporters promised, not least in bringing back capital to the United States.

“Apple said Wednesday that it will pay $38 billion in taxes on the $250 billion or so in cash the company holds overseas; that’s a lot of money for Social Security checks and food stamps. Apple also said it would invest or spend on purchases some $350 billion in the U.S. over five years and add 20,000 jobs.

“Apple’s windfall for the U.S. Treasury is the result of the reform bill’s 15.5% ‘deemed’ tax rate on profits previously earned overseas whether or not they are returned to the U.S.  The old system featured a one-two punch of taxation abroad and then again at home at a punishing 35% rate if the money was repatriated.

“Apple had no plans to return the money to the U.S. under that regime, and ditto for many other companies that together have some $2.5 trillion abroad....

“(Naysayers) are mumbling that (Apple’s) investment would have happened anyway, but Apple’s decision shows that tax rates matter.

“The more dishonest critics are saying Apple received a tax ‘cut’ by bringing the money back at a lower rate, which is some crack economic theory. The reality is that Republicans unlocked $38 billion for the Treasury that otherwise might have been $0.

“By the way, some of the benefit is flowing into wages.  Apple also announced a $2,500 employee bonus in the form of restricted stock. The longer-run benefit to workers is that investment makes labor more productive, which will make wages grow over time.  Yet Democrats are still claiming that shareholders will be the sole beneficiaries of tax reform and workers will get crumbs. Who you gonna believe: Chuck Schumer or your own eyes....

“The political winners here are the GOP Congress and President Trump, who couldn’t resist taking a victory lap on Twitter this week. But once in a while his boasts are true. The biggest winners are U.S. companies, workers and the American economy.”

But what of the market?

Martin Feldstein / Wall Street Journal

“Year after year, the stock market has roared ahead, driven by the Federal Reserve’s excessively easy monetary policy. The result is a fragile financial situation – and potentially a steep drop somewhere up ahead.

“To deal with the Great Recession, the Fed cut interest rates to a historic low. The short-term federal-funds rate hit 0.15% in January 2009 and stayed there until the end of 2015. In a strategy aimed at reducing long-term rates, the Fed under then-Chairman Ben Bernanke promised to keep short-term rates close to zero until the economy fully recovered. The Fed also began buying long-term bonds and mortgage-backed securities, more than quintupling its balance sheet from nearly $900 billion to $4.4 trillion now.

“Mr. Bernanke explained that this ‘unconventional’ monetary policy was designed to encourage an asset-substitution effect. Investors would shift out of bonds and into equities and real estate. The resulting rise in household wealth would push up consumer spending and strengthen the economic recovery.

“The strategy eventually worked as Mr. Bernanke had predicted. The value of equities owned by households increased 47% between 2011 and 2013, and overall household net worth rose nearly $10 trillion in 2013 alone. The S&P 500 stock index gained more than 200% in the seven years from 2009 to the month before the 2016 election. By now the total increase is more than 300%.

“Stock prices rose much faster than profits did. The price/earnings ratio for the S&P 500 is now 26.8*, higher than at any time in the 100 years before 1998 and 70% above its historical average. Although some of the market’s recent surge reflects improved expectations since the 2016 election, the P/E ratio just before the election was already 49% higher than its historical average.

*Ed. Mr. Feldstein is using ‘trailing’ earnings in calculating the P/E, which is what I look at.

“The high price of stocks reflects the very low returns available on fixed-income securities....The 2.5% yield on 10-year Treasury bonds approximately equals expected inflation over the next decade, implying a real yield of zero.  Historically the real yield on 10-year Treasurys was about 2%.”

So Mr. Feldstein goes on to talk about reversion to the mean...interest rates rising, price/earnings ratios falling...thus, the stock market is due to tumble, especially as the Federal Reserve continues to raise its benchmark short-term rate, plus the Fed is now cutting its balance sheet, increasing the supply of Treasury bonds, pushing rates up.

And if the deficit keeps growing as expected, Washington will be borrowing more and more.

Feldstein:

“In short, an excessively easy monetary policy has led to overvalued equities and a precarious financial situation. The Fed should have started raising the fed-funds rate several years ago, reducing the incentive for investors to reach for yield and drive up equity prices. Since it didn’t do so, the Fed now faces the difficult challenge of trying simultaneously to contain inflation and reduce the excess asset prices – without pushing the economy into recession.”

Europe and Asia

Just a few economic items of note for the eurozone (EA19) this week.  The final reading on inflation for December was 1.4% annualized for the eurozone vs. 1.1% in Dec. 2016; still well below the European Central Bank’s 2% target.

Germany came in at 1.6%, France 1.2%, Italy 1.0%, Spain 1.2%, and Greece 1.0%

Non-euro U.K. is at 3.0%.

European car sales reached a 10-year high in 2017, with registrations (sales) up 3.3% to 15.6 million vehicles, according to the Brussels-based European Automobile Manufacturers’ Association. The figure is the highest since 2007’s record 16 million.

With the economy of the eurozone growing solidly, perhaps the fastest growth in a decade last year, and unemployment at its lowest point since 2009 across the region, it’s only natural sales would keep rising.

But in the U.K. they fell 5.7% on the uncertainty created by Brexit, and rising inflation.

Separately, the euro has been trading at a level of $1.22 – levels not seen since late 2014 – and if this continued, it would start to weigh on the economy (think exports). Any negative impact would be exacerbated by an overall tightening of financial conditions, such as higher bond yields and lower equity prices.

Germany: Sunday is a huge day for Germany and the European Union, as the fate of Chancellor Angela Merkel lies with the center-left Social Democratic Party with whom Merkel is seeking to form a grand coalition.

But the SPD is deeply split, having suffered their worst postwar election result in September when they were already in government with Merkel.

A “yes” vote would kick-start detailed coalition negotiations between the two partners.  A “no” vote would virtually ensure a snap election that would tip Germany into major political uncertainty, and could lead to the end of Merkel’s long career.

The SPD’s entire leadership is calling for a “yes” vote, but the midlevel functionaries, more left-wing than the leadership, as well as the party’s youth organizations, want to reject the alliance.

Those in opposition point to the fact that the SPD has ruled twice with Merkel’s conservatives and both times came out weakened. This could be a major story come Monday at least for Europe’s financial markets.

[Immigration is a key point of debate between Merkel and the SPD and the number of new asylum seekers in Germany fell sharply last year to 186,000, the government said on Tuesday, easing pressure on Merkel.  In 2015 the figure was 890,000.  Then 280,000 in 2016.]

Brexit: In a summit between French President Emmanuel Macron and British Prime Minister Theresa May, Macron said Britain must pay into the European Union budget and accept the jurisdiction of EU courts if it wants to retain full access for its banks to the bloc’s markets after Brexit – conditions crossing two of Mrs. May’s red lines.

Macron said it’s “very much” up to the U.K. to decide what it wants.

“I am here neither to punish nor to reward the U.K.,” he said.  “You want to accept a single market with finance being part of it? Be my guest, but that means financial contributions and accepting European jurisdiction.”

The issue of Britain’s banks and the key financial services industry, and their access to European markets is the biggest of the items up for negotiations in forthcoming talks on the relationship between the EU and Britain.

Britain wants to essentially keep the arrangement it has today – while only opting out of the elements of EU membership it doesn’t like, but the EU says Britain can’t be in the single market without accepting its rules, all of them.

The financial services industry in the U.K. employs about 2.2 million workers and contributes nearly 11% of GDP.

Prime Minister May, standing next to Macron, said: “It is actually in the interests not just of the United Kingdom but also of the European Union as it goes forward to continue to have a good economic relationship with the U.K. That should cover both goods and services. The City of London will continue to be a major global financial center. That is an advantage not just for the United Kingdom, it’s actually good for Europe and good for the global financial system.”

The two deals being put forward as examples of where the U.K. could potentially end up are the Norwegian and Canadian models.  Norway accepts the EU’s rules, with zero say in writing them, in exchange for access to the single market.  Plus it pays into EU coffers. Canada’s trade deal is all encompassing, except for the financial sector and the U.K. has already rejected it as being too limited.

[Macron and May did reach agreements on military cooperation and immigration, among other items. Bloomberg News said the two leaders dined on crab and duck breast.  I’m drooling.]

One other Brexit item. The EU has toughed its conditions for a post-Brexit transition deal, demanding Britain abide by stricter terms on immigration, external trade agreements and fishing rights for the nearly two years after it leaves the bloc.

British businesses have said they need to know they will be able to operate under current EU law at least 12 months ahead of Britain’s scheduled exit date, March 2019...so soon.

Finally, British retail sales slid by much more than expected in December, down 1.5% from November, according to the Office for National Statistics, the biggest monthly decline since June 2016, the month Britons voted to leave the European Union.

Eurobits....

--Greek lawmakers on Monday approved new austerity measures demanded by international creditors, including cuts to benefits for large families and restrictions on trade unions, creating the basis for additional bailout funding.

Prime Minister Alexis Tsipras said the legislation would move Greece a step closer to emerging from its third bailout, which expires in August.

Tens of thousands took to the streets of Athens to protest against further austerity leading up to the vote in parliament, but they were mostly peaceful, though there was no public transportation in the capital, and some public services, including state hospitals and schools, were disrupted as well.

Turning to Asia, it was all about China this week as GDP rose 6.9% for 2017, the first acceleration in growth since 2010. For the fourth quarter it was 6.8%.

Now we can all be in agreement that economic data out of China is highly questionable, and it is beyond belief that GDP can be as stable as it is, quarter after quarter.  Plus many are questioning this week’s release because, as I’ve written recently, we’ve had some provinces and major cities admit growth in their territories had been vastly overstated. 

But when looking at the Chinese figures, some are more believable than others (like I believe the housing data, and fixed asset investment), while other figures where there is a distinct local incentive for party bosses to juice the numbers are highly suspect.

So I’m reading in the South China Morning Post (Hong Kong) that in the run-up to Thursday’s data release, all of China’s major media outlets, including the People’s Daily and Xinhua, carried the same editorial.

“In the current world, ‘democratic deficit,’ ‘governance deficit’ and ‘development trap’ rise one after another, while problems like the rich-poor gap, terrorism and climate change keep emerging,” the article said.

“The international political and economic system dominated by capitalism is flawed and needs deep reform. The new international order is budding.  China’s practices offer a new choice to solve common problems facing all humankind.”

At a press conference in Beijing, the statistics bureau praised Xi – whose political ideology, or ‘Thought,’ was enshrined in the party constitution at the national congress in October – for the economic achievements of the last year.

In this respect, very Trump-like.

Continuing...Retail sales in China rose 10.2% in 2017, down from 2016’s 10.4%.  Online sales rose 32%.  Consumption is now 58.8% of the economy. 

Fixed asset investment (big stuff...like roads, airports, rails) rose 7.2% last year, the lowest such figure since 1999.

And the average home price in the 70 major city index rose 5.3% for 2017, up in 61 of 70.

Street Bytes

--Stocks rose a third straight week, the Dow Jones up 1.0% to 26071, after hitting a new high on Wednesday of 26115, while the S&P 500, up 0.9% to 2810, and Nasdaq, up 1.0% to 7336, closed today at record levels.

The S&P 500 is off to its best 13-day start to a year, up 5.1%, since 1987. The Dow is up 5.5%, Nasdaq 6.3%.  Pretty spectacular.

It’s also looking very good for the year, already, when looking at market history, which I’ll have more on next week.

But watch out below...as in the next item....

--U.S. Treasury Yields

6-mo. 1.62%  2-yr. 2.06%  10-yr. 2.66% 30-yr. 2.93%

The yield on the 10-year at 2.66% is the highest since July 2014.  The likes of bond king Jeff Gundlach have been targeting 2.63%, above which was a danger signal.  I’m in the 3% camp.  But as with everything in bondland, it’s about the rate of change...speed kills.

--Global oil markets are tightening rapidly due to falling supply from Venezuela. The International Energy Agency announced today that output from Venezuela fell to 1.61 million barrels per day, near a 30-year low, and the IEA sees a further decline in 2018.

In a statement the IEA said: “Given Venezuela’s astonishing debt and deteriorating oil network, it is possible that declines this year will be even steeper...U.S. financial sanctions are also making it tougher for Venezuela’s oil sector to operate.”

With the lower production from Venezuela, OPEC’s output in December fell to 32.23mbpd, boosting the group’s compliance with a deal to curb output.

Global oil supply in December fell to 97.7mbpd, owing to production issues in the North Sea, as well as Venezuela.

But the IEA also said rapid U.S. growth and gains in Canada and Brazil will drive up non-OPEC supply by 1.7mbpd in 2018, versus last year’s 0.7mbpd increase.

Production in the U.S. is now at 9.9mbpd, the highest level in nearly 50 years, “putting it neck-and-neck with Saudi Arabia, the world’s second-largest crude producer after Russia,” the IEA said.  The agency added, “Relentless growth should see the U.S. hit historic highs above 10 million bpd, overtaking Saudi Arabia and rivaling Russia during the course of 2018 – provided OPEC/non-OPEC restraints remain in place.”

--Greg Ip / Wall Street Journal

“Standard Oil Co. and American Telephone and Telegraph Co. were the technological titans of their day, commanding more than 80% of their markets.

“Today’s tech giants are just as dominant: In the U.S., Alphabet Inc.’s Google drives 89% of internet search; 95% of young adults on the internet use a Facebook Inc. product; and Amazon.com Inc. now accounts for 75% of electronic book sales.  Those firms that aren’t monopolists are duopolists: Google and Facebook absorbed 63% of online ad spending last year; Google and Apple Inc. provide 99% of mobile phone operating systems; while Apple and Microsoft Corp. supply 95% of desktop operating systems.  A  growing number of critics think these tech giants need to be broken up or regulated as Standard Oil and AT&T once were. Their alleged sins run the gamut from disseminating fake news and fostering addiction to laying waste to small towns’ shopping districts. But antitrust regulators have a narrow test: Does their size leave consumers worse off?

“By that standard, there isn’t a clear case for going after big tech – at least for now. They are driving down prices and rolling out new and often improved products and services every week.

“That may not be true in the future: If market dominance means fewer competitors and less innovation, consumers will be worse off than if those companies had been restrained.”

Roger McNamee / Washington Post

“Facebook chief executive Mark Zuckerberg announced last week that he would spend 2018 fixing the problems with his platform that enable bad actors to do harm, such as Russia’s interference in the U.S. election. As Zuckerberg’s former mentor, I applaud this commitment and would like to offer my friend a road map to protect our democracy.

“I first noticed bad actors exploiting Facebook in early 2016 and contacted Zuckerberg and Sheryl Sandberg, Facebook’s chief operating officer, just before the election. I spent four months trying to convince Facebook that its algorithms and advertising business model were vulnerable to bad actors. They were reluctant to accept my conclusion then and continued to deny and deflect through the end of 2017. The company still argues that it is not responsible for the actions on its platform.

“I can understand that it was initially difficult for Facebook to believe that its product was at fault, but there is no longer any excuse for inaction.

“What we need from Zuckerberg is acknowledgement that Facebook has some responsibility for what others do on its platform and that it is prepared to make fundamental changes to limit future harm. This week’s announcement of changes to Facebook’s NewsFeed may be a positive step, but it’s not a solution....

“(The) first step for Facebook is to admit it has a problem. Zuckerberg did that in his blog post. The next step is for Facebook to admit that its algorithms and advertising business model invite attacks by bad actors. By giving users only ‘what they want,’ Facebook reinforces existing beliefs, makes them more extreme and makes it hard for users to accept unpleasant facts. Instead of bringing people together, Facebook drives us apart.

“The same tools that make Facebook so addictive for users and so effective for advertisers are dangerous in the hands of bad actors....

“If Facebook chooses to protect its current business model, it has enough power and influence to skate by without implementing the changes needed to protect democracy and public health in the United States and across the world.

“But users and regulators are watching. Zuckerberg and Sandberg have an opportunity to be heroes or villains. The choice is theirs.” 

--Apple made a huge splash Wednesday with the announcement it will make a “direct contribution” of $350bn to the U.S. economy, as noted above.

But Apple gave zero details.  As Tim Bradshaw of the Financial Times noted: “For instance, Apple talks about the App Store creating 1.6m jobs in the U.S. and generating $5bn in revenues last year, as well as the investment it is making in tech education.

“Wednesday’s headline $350bn figure, though, does not include that kind of thing. What it does include is its annual spending with U.S.-based suppliers and manufacturers over five years, capital expenditure plans for its new campus and data centers and a record tax payment related to its repatriation of overseas profits.

“Spending with U.S. suppliers was $50bn last year and will be $55bn this year, Apple says.  Cynics might argue that this money Apple would have spent anyway.

“Some analysts have questioned whether its planned $30bn in U.S. capital expenditures over five years might actually be lower than it was in the last five, but Apple does not break out those figures by region, so it is hard to tell.”

For now, $275bn will be spent with U.S. suppliers over five years, or $55bn a year.

There will be a $38bn one-off tax bill for repatriation of overseas profits

$30bn to build a new data center in the U.S.

$5bn on an advanced manufacturing fund.

--Goldman Sachs Groups Inc. suffered its worst annual commodities performance in its history in 2017, dropping about 75% in terms of net revenue.

For decades, Goldman was Wall Street’s dominant commodities trader, but it’s been dragged down by losses in natural gas and power.  Today, the storied unit is behind competitors such as Morgan Stanley, whose net revenue in the sector rose about 20% last year.

But I told you before the earnings rolled out for Wall Street investment banks that while some would bemoan last year’s results, they would issue optimistic statements about at least the start to the year and Goldman said it’s had a good first few weeks, profiting from volatility in energy markets as the U.S. northeast was hit by record cold weather.

--Citigroup Inc.’s fourth-quarter earnings were wiped out by the bank taking a $22 billion charge due to the tax law, but otherwise turned in results that beat analysts’ expectations, with higher revenue, more lending and flat expenses.

The record-loss comes from an accounting maneuver, now mandated that forces the bank to write down the value of its pile of deferred-tax assets; assets that are losses as of the financial crisis which have been used to defray future tax bills, but the new law makes those assets less valuable, while slashing the top corporate tax rate to 21% from 35%.

Meanwhile, Citi’s revenue in the fourth quarter rose to $17.26bn from $17.01bn a year earlier, with trading revenue down 19%, in line with the Street’s estimates. Equities trading fell 23%.  Citigroup said it could lose $370 million on a single client (unidentified), while last week, JPMorgan confirmed it suffered a loss as high as $273 million on a margin loan to a South African retail company dealing with an accounting scandal.

--Morgan Stanley, ex- the one-time charge from the tax bill, earned $1.67 billion in profit for the fourth quarter, up nearly 9% over last year. The wealth management unit has been kicking butt and accounted for nearly half of all revenue.  The bank’s market cap climbed back over $100 billion, ahead of rival Goldman Sachs.

--General Electric Co. said it’s considering breaking itself apart, as it struggles with a strategy amid its myriad of problems.

The 125-year-old business, once the most valuable company in the country, with 300,000 employees, disclosed Tuesday it would book a $6.2 billion charge in the fourth quarter related to its insurance operations, which was far more than earlier guidance, and the company said it needed to set aside $15 billion over seven years to bolster insurance reserves at its GE Capital unit.

John Flannery, who took over as CEO last summer, previously unveiled a plan to turn around the struggling giant by focusing on its three core units: aviation, power and health care.

Shares in GE closed below $17 ($16.28) for the first time since 2011.

--IBM reported that for the first time in 23 quarters, revenue rose in Q4, beating analysts’ estimates as the company’s shift to cloud computing and security services gained traction.  Revenue in the quarter rose 3.6% to $22.54 billion. The last time the company reported growth was the first quarter of 2012, CEO Ginni Rometty’s first at the helm.

The cloud-computing unit grew 30% to $5.5 billion, with “strategic imperatives” (cloud, cybersecurity, mobile and data analytics now accounting for 49% of revenues, the goal being over 50%).  IBM is confident it will grow overall revenue in 2018.

Yet IBM’s shares tumbled 4% in response because its guidance was deemed to be cautious and the shares had been rallying in preceding weeks, 10% this year, 16% since the company’s last earnings report in October.

--Amazon.com said it has whittled its list of potential sites for a second headquarters to 20 locations...which is like hardly whittling...only it had 238 proposals initially.  I won’t even bother with the names.

Amazon has said it would spend $5 billion on the second HQ and employ 50,000 there, so it is indeed a nice prize.

--UnitedHealth Group Inc. said the federal tax overhaul will increase its 2018 earnings by roughly 16%, as it invests part of the windfall in technology and data initiatives. The company said the overhaul would likely boost its cash flow by about $1.7 billion this year.

--But American Express announced that by booking a $2.6bn charge against fourth-quarter earnings, that would take the company’s capital (Tier 1) down to a ratio that requires it to stop buying back stock, and I imagine other moves.

--Airbus said 2017 was another record year for deliveries, the European aircraft maker saying it delivered 718 aircraft to 85 companies, 4 percent higher than 2016.

Airbus said its overall backlog stood at 7,265 aircraft valued at $1.059tn at list prices.

Ergo, don’t expect delivery on your plane for a while.

--Despite all of President Trump’s talk about reviving the U.S. coal industry, full-year coal employment data from the Mining Health and Safety Administration, obtained early by Reuters, shows total U.S. mining jobs grew by 771 to 54,819 during Trump’s first year in office, led by West Virginia, Virginia and Pennsylvania.

But the industry lost jobs in Ohio, Kentucky, and Maryland. Texas lost 455, the most of any state.

These figures are pathetic, vs. the hype.  Overall, the number of U.S. coal jobs is still lingering near historic lows at less than one-third the level in the mid-1980s, according to Bureau of Labor Statistics data.  [Reuters]

--Gambling revenue at Atlantic City’s casinos rose for a second year in a row after  a dismal decade that saw five of the city’s 12 casinos shut down, eliminating 11,000 jobs.

Revenues at the seven remaining rose 2.2% over 2016 to $2.66 billion.

Borgata, the top casino, had its best year ever, while the Tropicana became the new No. 2, after almost folding a decade ago.

But two of the five that shut down are reopening. Revel, as I wrote last week, is reopening as the Ocean Resort Casino, and Trump Taj Mahal has been rebranded as a Hard Rock casino.  Both open their doors in the summer.

--Bitcoin plunged below $10,000 Wednesday, the worst 2-day rout in 3 years.  I have to admit I was a little surprised because there was little new to the story.  I’ve been writing of the regulatory backlash, particularly from China and South Korea, for weeks now; including the fact local Chinese governments are cracking down on the ‘miners’ sopping up all the electricity in some spots.  Much of the volume in cryptocurrencies comes from Asia and the governments have been sending signals that such activity is not welcome.  Like ‘Earth to miners!’

South Korea’s government in particular knows the dangers of the likes of bitcoin. Its people are like lemmings when fads emerge, and the nation has long suffered from credit issues.

Meanwhile, France’s finance minister says he wants new regulation targeted at virtual currencies, to stop them from being used for tax evasion, financing terrorism and other crime. Bruno Le Maire, in an economic speech, warned the “risks of speculation and possible financial manipulation” linked to bitcoin and other such currencies.  But he didn’t provide details on how far he wants to go.

Then Friday, the People’s Bank of China ordered financial institutions to stop providing banking or funding to any activity related to cryptocurrencies, further tightening the noose.

And the Securities and Exchange Commission questioned whether exchange-traded funds that hold bitcoin and other cryptocurrencies could comply with rules meant to protect mom-and-pop investors.

One of the issues is how bitcoin’s volatility and illiquidity fit with the funds’ need to calculate a fair market value price for their portfolio at day’s end, as well as allow investors to easily cash out their shares.

--The number of Americans without health coverage shot up in President Trump’s first year in office, after declining for years following passage of the Affordable Care Act.

At the end of 2017, 12.2% of U.S. adults lacked health insurance, up from 10.9% at the end of 2016, according to a report from Gallup, which conducts a widely followed survey asking Americans a range of questions on their health care coverage. 

The decline was largely among young adults, blacks, Latinos and households making less than $36,000 a year, Gallup found.

--My neighbor across the street, giant Celgene Corp., is in talks to buy biotech company Juno Therapeutics Inc., days after announcing a deal to buy Impact Biomedicines, which specializes in blood-cancer drugs.

--Oxford Economics, a consultancy, released a report predicting that if President Trump pulled the U.S. out of NAFTA, it would wipe half a percentage point off U.S. GDP growth in 2019, and that it would rattle financial markets (which is rather obvious).  But the impact would be far greater on Mexico’s economy, 80% dependent on trade.  Canada would suffer an impact similar to the U.S.

--Ford Motor announced it plans to increase its investment in electrification to $11 billion by 2022, with the company having previously announced it would spend $4.5 billion by 2020.

Executive Chairman Bill Ford Jr. said Sunday at the Detroit auto show, “We’re going to electrify even our most iconic vehicles. The only question is, will the customer be there with us?”

Raj Jair, president of Ford North America, explained the manufacturing team is working to develop 16 fully battery electric vehicles by 2022 and 24 hybrid and plug-in vehicles – for a total of 40 electrified vehicles.

It now has one fully electric offering, a version of the Focus.

Ambitious plans, Mr. Ford.  If I was an investor, can’t say I’d be that fired up.

--So I skim the Rapid City (S.D.) Journal each day, as I keep up with my favorite part of the country, the Black Hills (think Mt. Rushmore...and then down in the valley...the Badlands), and there was a report put out by Georgetown’s Center on Education and the Workforce, that noted 55 percent of the good jobs in South Dakota are held by workers without a bachelor’s degree. Which is the opposite of the national situation, in which 55 percent of the good jobs are held by workers with at least a bachelor’s degree.

Additionally, the report says South Dakota’s 95 percent growth in “non-BA” good jobs from 1991 to 2015 was the second-highest in the nation, behind the 105 percent growth in Utah.

A “good job” is defined as one that pays at least $35,000 annually for workers younger than 45.  [$45,000 for workers 45 and older.]

--Matthew Flamm / Crain’s New York Business

“When a taxi medallion sold for $241,000 last April, the seemingly rock-bottom price made major news. It turns out, those were the good old days.

“On Tuesday, a stalking-horse bid of $875,000 for a block of five medallions ended up winning. Two additional medallions not included in the bulk sale sold for $189,000 and $199,000.”

Prior to the likes of Uber and Lyft, medallions went for $1 million. Buyers these days tend to be real estate and financial investors. They are also largely cash deals as banks no longer lend for medallion purchases like the good old days, which resulted in some spectacular losses for a few medallion ‘tycoons.’

--Movie attendance in the U.S. and Canada was down 6% in 2017 over 2016, more than expected, though the average ticket price hit a record high, according to data from the National Assn. of Theatre Owners.

The number of tickets sold, 1.24 billion, marks a 22-year low for the industry.  But the average ticket price hit a high of $8.97, up 3.7% from 2016.  Moviegoers in New York and Los Angeles pay much more than this.

Box office revenue was $11.09 billion in 2017, down 2.5% from 2016.

--Kind of funny how with the success of Michael Wolff’s Fire and Fury: Inside the Trump White House, the title aided a 2008 book titled Fire and Fury: The Allied Bombing of Germany, 1942-1945, authored by Randall Hansen.  Hansen’s book shot to No. 3 on Amazon’s best-seller list.

--A former personal assistant to a top Goldman Sachs executive, David Solomon, co-president of the investment bank, liked his wine collection so much, he allegedly stole more than $1.2 million worth of rare and costly bottles; Federal prosecutors unsealing an indictment Wednesday, accusing Nicholas De-Meyer with interstate transportation of stolen property.

De-Meyer amazingly stole hundreds of bottles that he then sold to a North Carolina-based wine dealer.

Among the bottles stolen were seven of Burgundy from the French estate Domaine de la Romanee-Conti, which Solomon previously purchased for $133,650.

--The following is for my New Jersey readers, but we have a local plumbing giant, A.J. Perri, that advertises heavily on television, with some kindly actors that any of us would love to do business with. In fact their tagline is, “And that my friends is why...” Female voice then interjects: “....I love those guys.”

Well not so fast. While they advertise minimal service items at a seemingly reasonable cost, like checking out the furnace, in an extraordinary move, for this industry, A.J. Perri was fined $100,000 – the largest ever levied by New Jersey’s plumbing board – and the company agreed to reform its deceitful business practices under a consent order reached with the state Attorney General’s Office.

The deal follows a Star-Ledger (NJ.com) investigation that found the “company routinely performed expensive work that wasn’t needed, incentivized employees to upsell jobs and used scare tactics on customers, including bogus claims that their equipment could explode at any time.” [Karin Price Mueller / NJ.com]

Foreign Affairs

Syria/Turkey: Turkey’s defense minister said Friday there is no turning back from his country’s decision to launch a ground assault on a Syrian Kurdish-controlled enclave in northwest Syria, saying the offensive had in essence started, with Turkey beginning to shell the area.

Ankara has argued the enclave of Syrian Kurdish fighters poses a “real” and ever increasing threat to Turkey. The Syrian Kurd fighters are known as the People’s Protection Units, or YPG, which Turkey says is an extension of an outlawed Kurdish rebel group that has been fighting inside Turkey for decades, an estimated 40,000 killed since 1984.  So Turkey wants to eliminate the Kurdish presence along its border and it has been moving massive levels of troops and tanks into the border area in the past few weeks.

But the United States has established close ties with the YPG over their shared fight against ISIS.

Needless to say this has led to tension between Washington and Ankara, and at week’s end, the U.S. military was backtracking from plans to build a 30,000-person border force in Syria.  Just days earlier, the force was seen as a pillar of Trump administration policy in Syria, but officials conceded on Thursday it was poorly conceived.

Secretary of State Rex Tillerson told reporters Wednesday night, “It’s unfortunate that the entire situation has been misportrayed, misdescribed, some people misspoke. We are not creating a border security force at all.”

But Ankara remains distrustful of the U.S. and is waiting to see if it continues training in Syria for Kurdish fighters Turkey views as terrorists.  President Erdogan had threatened to “strangle” the border force “before it’s even born,” at which point Turkey stepped up plans for an offensive.

President Trump had told Erdogan the U.S. planned to stop arming the Kurds in Syria (a betrayal), but then the military announced it was planning on continuing to work with them.

To further confuse matters, the Pentagon doesn’t appear to have been fully informed of the plans on the ground and said in a statement: “We are keenly aware of the security concerns of Turkey, our coalition partner and NATO ally. Turkey’s security concerns are legitimate.”

What a s---show. And I can take you all the way back to 2012 and the lack of cooperation between Obama and Erdogan then.  It hasn’t been a good relationship ever since.

Meanwhile, the Syrian regime warned on Thursday that it would shoot down any Turkish jets carrying out strikes inside the country.

Turkey has been talking to Russia, seeking backing for its campaign.

Back to Sec. of State Tillerson, he said the United States had a “new emphasis on a political solution” for the Syrian civil war.  But fat chance the U.S. will be a player on the diplomatic side.  United Nations-led talks on Syria have gone nowhere.  Syrian President Bashar Assad, with Moscow’s blessing, is now firmly in control of much of the country.

Lastly, Iran, with its large presence in Syria, urged all U.S. forces to leave the country immediately.

Iran: Speaking of which...so much for the protests. Did you hear anything about them this week?  I sure didn’t.  Do you see Trump tweeting about it?  I don’t.  He promised the Iranian people the U.S. was ready to back them to the hilt “at the appropriate time.”  The president has obviously moved on.  Nonetheless....

Ray Takeyh / Wall Street Journal

“(The) demonstrations must have been particularly unsettling for the clerical oligarchs, because the lower classes were supposed to be the mainstay of their power. For decades, the Islamic Republic has sought to tether this class to clerical rule by expanding the welfare state. Yet that welfare state is jeopardized by corruption and foreign adventures. Corrupt men of God are always more galling than crooked monarchs and army officers.

“The Islamic Republic is no ordinary dictatorship heading toward the dust bin of history. In 2015 it was effectively granted a license by the U.S. and the other world powers to expand its nuclear program. The deal has not impeded Iran’s efforts to modernize its nuclear apparatus. Under the watchful eye of Ali Akbar Salehi, the MIT-educated head of Iran’s atomic program, Iran continues to enrich uranium, develop advanced centrifuges, test ballistic missiles, and train engineers. The regime, which has continuously lied about its ambition to acquire nuclear weapons, is determined to build an industrial-sized uranium-enrichment infrastructure equipped with cutting-edge technology and manned by a capable cadre of scientists.

“Thanks to the nuclear deal, Iran could be the first country to undergo a violent revolution while in possession of an extensive nuclear network. The world has been lucky that the two nuclear states that collapsed did so peacefully. At the Cold War’s end Mikhail Gorbachev managed to liquidate the Soviet Union while safeguarding its atomic apparatus. In South Africa, the apartheid regime dismantled and destroyed its nuclear capability before handing over power to the majority.

“Iran’s mullahs won’t go as quietly as Russia’s commissars and South Africa’s racists. These are men who claim to know the mind of God and have no compunction about shedding blood. The Islamic Republic will surely experience a prolonged period of internal strife, nationwide violence and ethnic separatism as it unwinds its theocratic experiment. In such circumstances, the command-and-control structure of the Iranian nuclear program may break down. Its enriched uranium and advanced centrifuges could go missing. And Iran’s enterprising scientists may find lucrative employment in unsavory places like North Korea and Pakistan.

“The Trump administration should move to restrain Iran’s nuclear appetite and prepare to pick up the pieces of a collapsed regime. There is no alternative but to revisit the nuclear deal’s permissive provisions – a task that will require not just delicate alliance management but the imposition of crippling sanctions on Iran’s ruling class. Through such a campaign of pressure, the U.S. might succeed in fixing the nuclear deal’s many debilitating flaws. The focus should be on impeding Iran’s research and development efforts, which are quickly transforming a clunky nuclear infrastructure into state-of-the-art facilities.”

As for President Trump’s move to once again waive sanctions on Iran, allowing the nuclear deal to survive, for now, the administration did place new sanctions on 14 Iranian regime persons and entities, including senior judicial figures in the country.

In response, the foreign ministry vowed to retaliate, but did not say what form any action might take.

Trump said last Friday he was giving Europe and the U.S. “a last chance” to fix “terrible flaws” in the agreement signed by Iran and the P5+1.  He wants the European allies who negotiated the deal with the U.S. – France, Germany and the U.K. – to rewrite it.

But Iran, China and Russia have to agree and of course they won’t. Trump gave the parties 120 days to come up with a deal he likes. This just isn’t going to happen.  I said that in 2015 when it was first signed. It was officially too late.  $billions in business deals have been signed between Iran and the other parties since.

Friday, Russian Foreign Minister Sergei Lavrov said, “This agreement cannot be implemented if one of the participants unilaterally steps out of it.  It will fall apart, there will be no deal then.”

Iraq: An ISIS sleeper cell is assumed to be responsible for a twin suicide bombing in Baghdad last weekend that killed at least 35.

North Korea: In talks at the border village of Panmunjom on Wednesday, North and South Korea agreed to form their first joint Olympic team and have their athletes march together during the opening ceremony.

Seoul’s Unification Ministry said the athletes will march under a “unification flag” and will field a women’s ice hockey team.  The plans are to be approved this weekend by the International Olympic Committee.

Wednesday, Trump said Russia is helping North Korea evade international sanctions and that Pyongyang is getting “closer every day” to being able to deliver a long-range missile to the United States.

“Russia is not helping us at all with North Korea,” Trump said during an Oval Office interview with Reuters. “What China is helping us with, Russia is denting.  In other words, Russia is making up for some of what China is doing.”  Russia appears to be filling in the gaps on the fuel front, but China is doing the same, the U.S. tracking six vessels that appear to be selling oil to North Korea on the high seas, rather than unloading in port.

Trump said he hoped the standoff with Pyongyang could be resolved “in a peaceful way, but it’s very possible that it can’t.”

Meanwhile, for all the happy talk between the North and South and the Olympics, reports also emerged during the week that North Korea demanded the South return defectors who fled the totalitarian regime. That came after Pyongyang demanded Seoul pay the North’s Olympic costs and an agreement by the U.S. and South Korea to suspend a planned joint military exercise.

Secretary of State Rex Tillerson said in Vancouver at a meeting of foreign ministers from 20 nations on the issue of North Korea:

“We must increase the costs of the regime’s behavior to the point that North Korea must come to the table for credible negotiations.”

Tillerson added, “We will not allow North Korea to drive a wedge through our resolve or solidarity.”

For its part, Seoul said it will continue high-level talks with Pyongyang with “clear eyes” amid global warnings that North Korea is simply playing for time to continue its nuclear arms program.

Japanese Foreign Minister Taro Kono said the world should not be blinded by Pyongyang’s recent “charm offensive.”

“It is not the time to ease pressure or to reward North Korea,” Kono said. “The fact that North Korea is engaging in dialogue could be interpreted as proof that the sanctions are working.”

Lastly, South Korea’s hockey coach is none too pleased about a joint women’s team, saying it could damage South Korea’s chances of winning a medal.  Tens of thousands have signed an online petition urging President Moon Jae-in to scrap the plan.

China: In the above-noted interview with Reuters, President Trump said he was considering a big “fine” as part of an investigation into China’s alleged theft of intellectual property.

Then in a call with Chinese President Xi Jinping, Trump said the growing U.S. trade deficit with China isn’t sustainable.  [They also talked about the negotiations between North and South Korea.]

State-run China Central Television said Xi told Trump that the two sides must work together to find solutions to trade and economic disputes. Xi urged both sides to take a “constructive approach” and work “properly” to settle disputes and open up each other’s markets, CCTV said.

Separately, kind of funny how I’ve been writing about Chinese agents and spies, including creepy characters who’ve lived briefly in my own building, and this week we learned of the arrest of a suspect in a long-running mole hunt within the CIA’s ranks.  But as the Washington Post’s Shane Harris and Ellen Nakashima reported:

“(Their) mood was tempered by skepticism that the man will ever face charges for what some believe is his role in the exposure and deaths of several CIA sources in China, according to current and former officials.”

Monday, Jerry Chun Shing Lee, aka Zhen Cheng Li, a former CIA case officer, was taken in, part of a joint FBI and CIA investigation into the devastation of the agency’s spy network in China, with the loss of a large number of sources, both killed and imprisoned in China.  [One number cited is 20.]

“The probe began in late 2011 when a worried FBI informant in China told his American handlers that everyone he knew who was helping the U.S. government was being discovered by the Chinese authorities and then being made to work for them....

“One by one, assets were being flipped – or in a smaller number of cases, killed, the former official said.”

So how did the Chinese learn of so many people spying for the U.S. when their identities were supposed to be carefully guarded?

It’s still not clear if the Chinese discovered the methods used by the CIA to communicate and then intercepted messages between assets and their CIA handlers...or if it was a mole who provided the information.

Suspicion has focused on Lee, who left the CIA in 2007. But thus far, he has only been accused of keeping extensive notebooks on assets and covert employees.

In other news...we have a massive environmental disaster, an Iranian oil tanker that sunk the other day after colliding with a Chinese vessel off the east coast of China, with a crew of 32 dead in the ensuing explosion and massive fire, is probably leaking heavy bunker fuel as well as light oil, the Chinese said on Friday.  An official with the Ecological Protection Department told reporters, “There have been multiple appearances of oil slicks of different sizes and types at the sinking spot and nearby...the slicks exceeded 200 square kilometers (77 square miles) on Thursday.

The tanker Sanchi, after colliding with the freighter CF Crystal on Jan. 6, was blown by strong winds away from China’s coast, and into Japan’s exclusive economic zone. While no slicks have been spotted on the coast, the marine damage is incalculable from what was the worst oil ship disaster in decades.

In all seriousness, I have long warned against buying fish from China, recognizing the industry has a history of false labeling to begin with, but now more than ever, check the labels.

Don’t buy any food product made in China, period.  And dog lovers, whatever you do, check the label on any product you are buying Ralph (my childhood dog’s name...after Ralph Kiner).

Lastly, this week Chinese police demolished one of the country’s largest evangelical churches, using heavy machinery and dynamite to raze a building where 50,000 Christians worshipped. 

The Golden Lampstand Church in Sanxi Province was one of at least two Christian churches demolished by authorities in recent weeks; President Xi long fearing Christianity’s potential influence...and threat to the Communist Party.

The government mouthpiece Global Times newspaper called the destruction of the church part of a “citywide campaign to remove illegal buildings.”

Members of the megachurch have clashed with police in the past. In one 2009 demonstration, authorities confiscated Bibles and imprisoned several of the congregation’s leaders.

Kosovo: A prominent Kosovo Serb politician, Oliver Ivanovic, viewed as a moderate Serb leader, was assassinated outside his party offices in the Serb-run north of Mitrovica. Serbian government negotiators walked out of EU-mediated talks with Kosovo Albanians in Brussels after the news.

Kosovo remains ethnically divided since unilaterally splitting from Serbia.  Mitrovica is divided with the south run by Kosovo Albanians.

Ivanovic was facing a retrial for alleged war crimes against ethnic Albanians committed in 1999.

A NATO air campaign forced Serbia to pull its troops out of Kosovo, but an EU law and order team remains there.

Kosovo declared independence in 2008. It has been recognized by 115 countries, but not by Serbia and its ally, Russia.  [BBC]

Having traveled in Albania back in 2010, I can just add this is truly a rough neighborhood.

Russia: Give President Vladimir Putin credit for one thing. His campaign against alcohol appears to be working.  According to the World Health Organization, and Russia’s health minister, Russians consume 80 percent less alcohol than they did five years ago, while smoking is down 22 percent. The WHO says Russia’s alcohol consumption is now below that of France and Germany, which is rather remarkable.

Niger: Since last Oct. 4, when four U.S. special forces and four soldiers from Niger were killed in an attack on the Mali-Niger border, no one as yet had claimed responsibility, though it was long assumed the perpetrators were Islamist militants loyal to an ISIS offshoot.

Saturday, Abu Adnan al-Sahrawi, the leader of Islamic State in the Greater Sahara said, “We claim the attack which targeted American commandos in the village of Tongo Tongo.”  Sahrawi apparently rarely makes public statements and in this instance he was quoted by Mauritania’s independent news agency.

Random Musings

--Presidential tracking polls....

Gallup: 38% approval of Trump’s job performance, 57% disapproval [Jan. 14]
Rasmussen:  45% approval, 54% disapproval

According to Gallup, Trump has averaged just a 39 percent approval rating since his inauguration, the lowest such rating of any elected president in his first term.

The previous low was held by Bill Clinton, whose first-year average stood at 49 percent. What’s extraordinary is how consistent the figures have been all year, as in the Gallup survey, Trump never rose higher than 45 percent.

Harry Truman has Gallup’s lowest-ever approval mark at 22 percent in 1952.

But Trump’s lowest point in Gallup’s weekly polling – 35 percent – remains higher than those of presidents Truman, Nixon and Carter, who all had their ratings dip below 30 percent at one point or another.

The good news for Trump is that in a recent Quinnipiac poll, 83 percent of registered voters who identify as Republicans still approve of him.

In other surveys....

A CNN poll conducted by SSRS showed 40% approve of Trump’s performance, 55% disapprove.  [!8% approve of Congress, 76% disapprove.]

As for a shutdown, in the CNN survey, 21% would blame Trump, 26% his Republican counterparts in Congress, 31% would hold Democrats in Congress responsible.  [Or 47/31.]  A Washington Post/ABC News survey on this issue has 48% blaming Trump and congressional Republicans, while 28% would fault Democrats.

A CBS News survey had Trump with a 37% approval rating, 58% disapproval.  [67% believe the economy is very good or fair.]

A Wall Street Journal/NBC News poll had Trump’s approval rating at 39%, 57% disapproval.

All of these, except for Rasmussen, have been consistent, and, including Rasmussen, the range of the numbers in Trump’s first year were incredibly narrow vs. every other president for which data is available...generally about 8 points between the high and the low approval rating for all of them.

On the DACA program, the CNN poll showed 84% say they would like to see it continue, including 72% of Republicans, 82% of Independents, and 96% of Democrats.

--In a separate new Gallup Survey, “the median global approval rating of the job performance of U.S. leadership across 134 countries stands at a low of 30%. This is down nearly 20 points from the 48% approval rating in the last year of President Barack Obama’s administration, and four points lower than the previous low of 34% in the last year of President George W. Bush’s administration.”

At 41%, Germany has replaced the U.S. as the top-rated global power in the world.  China is at 31%, Russia 27%.

--President Trump delivered his “Fake News Awards” as two Republican senators were among those warning the same day that an unceasing attack on a free press by the president is undermining a fundamental tenet of democracy and emboldening despots abroad.

Arizona Sen. Jeff Flake, who has become Trump’s fiercest critic, delivered a speech from the Senate floor, comparing Trump’s anti-press rhetoric to that of Josef Stalin and calling on his colleagues to speak out against Trump’s “shameful, repulsive statements.”

Addressing the president’s first year in office, Flake said: “2017 was a year which saw the truth – objective, empirical, evidence-based truth – more battered and abused than at any time in the history of our country, at the hands of the most powerful figure in our government.”

“When a figure in power reflexively calls any press that doesn’t suit him ‘fake news,’ it is that person who should be the figure of suspicion, not the press,” Flake added.

I do not in any way agree with Flake’s conflating Trump with Stalin, and Flake damaged his credibility by doing so.

John McCain / Washington Post

“After leaving office, President Ronald Reagan created the Ronald Reagan Freedom Award to recognize individuals who have fought to spread liberty worldwide. Nancy Reagan continued the tradition after her husband’s death, and in 2008 she bestowed the honor on human rights icon Natan Sharansky, who credited Reagan’s strong defense of freedom for his own survival in Soviet gulags. Reagan recognized that as leader of the free world, his words carried enormous weight, and he used them to inspire the unprecedented spread of democracy around the world.

“President Trump does not seem to understand that his rhetoric and actions reverberate in the same way. He has threatened to continue his attempt to discredit the free press by bestowing ‘fake news awards’ upon reporters and news outlets whose coverage he disagrees with. Whether Trump knows it or not, these efforts are being closely watched by foreign leaders who are already using his words as cover as they silence and shutter one of the key pillars of democracy....

“This assault on journalism and free speech proceeds apace in places such as Russia, Turkey, China, Egypt, Venezuela and many others.  Yet even more troubling is the growing number of attacks on press freedom in traditionally free and open societies, where censorship in the name of national security is becoming more common.... The phrase ‘fake news’ – granted legitimacy by an American president – is being used by autocrats to silence reporters, undermine political opponents, stave off media scrutiny and mislead citizens....

“We cannot afford to abdicate America’s long-standing role as the defender of human rights and democratic principles throughout the world. Without strong leadership in the White House, Congress must commit to protecting independent journalism, preserving an open and free media environment, and defending the fundamental right to freedom of opinion and expression.”

--Separately, another new Gallup poll found 84% of Americans believe the media either had a “critical” role (44%) or a “very important” role (40%) in democracy, compared to the 12% of Americans who said it was only “somewhat important” and 3% who said it was “not important.”

If the 15% understand the operative word democracy, then we can safely call them idiots.

Democrats, Independents, and Republicans believe the media is “critical” or “very important” to the tune of 79 to 90 percent across the board.

But 43% said the media was doing a poor job of supporting democracy, compared to 55% who said it was doing “very well,” “well” or “acceptably.”

69% of Republicans said the media was either “very poorly” or “poorly” supporting democracy.

--The commanders of the two U.S. guided-missile destroyers involved in collisions that killed 17 sailors in Asia last year will be court-martialed on charges including negligent homicide, the Navy announced Tuesday.

The Navy is filing criminal charges in total against six sailors, while another eight will face non-judicial punishment, which could include reductions in rank and pay loss.

The former commander of the USS Fitzgerald, Cmdr. Bryce Benson, will face charges of negligent homicide, dereliction of duty and hazarding a vessel, while the former commander of USS John S. McCain, Cmdr. Alfredo J. Sanchez, faces similar charges.

--I was sitting at my office desk Saturday afternoon when I received the following from Mark R., who I knew was heading to Hawaii on vacation.

“BT, I’m in Hawaii and we just got a warning that we were under attack from an ICBM!! The message said it was real and not a drill. There is nothing on the news, but who knows.

“The folks in the hotel are freaking out!  I hope that someone is playing a joke.

“The cellphones are not working so I can’t reach anyone. If I go out at least it will be in paradise.

“Aloha....P.S. Go Steelers.”

Sorry on that last bit, Mark.

Well I immediately flipped on CNN just as the news was breaking on the network and within a minute I was able to reassure Mark it wasn’t real.  But it was 30 minutes in this case before the official word went out, 38 minutes from start to finish for authorities to correct the alert sent to mobile phones with a new message saying the missile warning had been delivered in error.

A statement from the Federal Communications Commission’s chairman Ajit Pai read:

“False alerts undermine public confidence in the alerting system and thus reduce their effectiveness during real emergencies.

“Based on the information we have collected so far, it appears that the government of Hawaii did not have reasonable safeguards or process controls in place to prevent the transmission of a false alert.”

Hawaii Rep. Tulsi Gabbard (Dem.) told CNN on Sunday: “The fact that these processes failed so epically, that caused this trauma, that caused this terror all across state of Hawaii they must be fixed immediately,” Gabbard declared. “And those responsible for this happening need to be held accountable in making sure this cannot happen again.”  [No one was fired, last I saw.]

But Gabbard has been insisting President Trump needs to negotiate directly – without preconditions – with Kim Jong Un to eliminate the nuclear threat.  I do not agree with this stance.

For now, it’s a simple message to Hawaii. Get your freakin’ act together before you cause an accidental catastrophe.  And as for the cellphone network going down due to traffic overload in cases of this kind, that’s a different critical issue.

--It is absolutely outrageous that Chelsea Manning announced she was running for the Senate against Democrat Ben Cardin in Maryland.  I like Cardin. Seems solid.

But Chelsea Manning?!  File this under #Apocalypse.

--Pope Francis, traveling in Chile, accused some clerical sex abuse victims of slander – just days after meeting with survivors and asking for forgiveness.

The shocking assertion came while he was speaking to reporters about the case of Bishop Juan Barros, who has been accused of covering up sex crimes committed by Rev. Fernando Karadima, the nation’s most notorious pedophile.

“There is not one shred of proof against him. It’s all calumny,” Francis said in defense of Barros. “The day they bring me proof against Bishop Barros, I’ll speak,” he added.

Chile has been wracked by the Karadima scandal and the pope’s trip was meant to change local opinions.  His mission was going well, and then this.

--This truly has been a deadly flu season.  Last week in California, 32 people under 65 died of the flu, making it the deadliest week this season so far. In total in the state, 74 people under age 65 have died of the flu since October, compared with 14 at the same time last year. That says it all.

--Back in 1995, I made a pilgrimage to Normandy and Omaha Beach. I took a train from Paris to Bayeux, a quaint (at least it was then) village nearby where I stayed a few nights as I toured the area.

One day I went to see the Bayeux Tapestry, one of the more historical items in the world, from the 11th Century, which tells the story of the future William I’s conquest of England, culminating in the Battle of Hastings and the defeat of Harold in 1066.

It has been on permanent display in Bayeux and I don’t know when the last time was that it was removed, but for the first time in 950 years...950 years...it is coming to the UK on loan from French President Emmanuel Macron, though because of the age it could be five years before this is accomplished as it undergoes tests to make sure it can be moved.  You have to picture, this thing is massive.  It hasn’t been decided where in England it would be displayed.

I remember Bayeux for another museum, a really cool one for Charles de Gaulle, your editor being a fan of the man.

I also remember that during my trip I hit the greatest Indian Summer weather for late September. Spectacular....as opposed to the following....

--December is the darkest month of the year for residents in Moscow, with an average of just 18 hours of sunlight.  But Meteonovosti weather portal reported Monday that “Last December was the darkest month in the history of weather observations.” As in there was zero sunshine.

The head of Russia’s meteorological center told the RBC business portal that the sun peaked out of the clouds for a whopping six minutes.

The previous record was December 2000, when Moscow saw only three hours of sunshine.

--As for the two weeks of record cold much of the U.S. suffered through beginning around Christmas Day, according to Gabe Vecchi, a geoscientist at Princeton University, “This cold wave was exceptional for being 7F to 11F colder than the coldest two weeks in recent decades and for occurring so early in the season, especially in light of the decrease in intensity and frequency of cold waves over the past century.”  [USA TODAY]

--Finally, I have to admit this was the first MLK Day where I made a point of doing something on the ‘service’ side...putting together a big package for a special ops soldier in Iraq some of my friends and I became aware of (a son of a friend involved in a Christian village retaken from ISIS).  It felt good, and I must say, every MLK Day from here on I’ll do my best to spend at least a little time doing something positive.

But I’m not president. Presidents are obligated to do something on that day, as they all have the past 20+ years.  Until this Monday.  That was atrocious optics by President Trump.  You can still golf, just go to a soup kitchen for an hour, for cryin’ out loud, and say something about Dr. King.

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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 $1331
Oil $63.57

Returns for the week 1/15-1/19

Dow Jones  +1.0%  [26071]
S&P 500  +0.9%  [2810]
S&P MidCap  +0.7%
Russell 2000  +0.4%
Nasdaq  +1.0%  [7336]

Returns for the period 1/1/18-1/19/18

Dow Jones  +5.5%
S&P 500  +5.1%
S&P MidCap  +4.1%
Russell 2000  +4.0%
Nasdaq  +6.3%

Bulls 66.7
Bears 12.7 [Source: Investors Intelligence...wow, historic split]

Have a great week.

Brian Trumbore

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