Week in Review

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Week in Review

03/03/2018

For the week 2/26-3/2

[Posted 11:00 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. *Special thanks to Gregg R.

Edition 986

Trump World

Just another week for the stable genius occupying the Oval Office.  Over the weekend he gets in a shouting match over the phone with Mexico’s president over the freakin’ wall; son-in-law Jared has all sorts of issues (see below), with Trump by week’s end reportedly asking for Chief of Staff John Kelly to do his dirty work and show both Jared and Ivanka the door; Trump loses trusted longtime aide and director of communications Hope Hicks, after she appeared before the House Intelligence Committee for nine hours; Trump gets in a tweetstorm with his attorney general that the president has never forgiven for recusing himself from the Russia investigation; Special Counsel Robert Mueller is reportedly investigating the period when Trump was trying to drive Sessions out; the press secretary, Sarah Sanders says one nonsensical thing after another; and then by the end of the week, Trump totally ignores his economic team and goes off half-cocked on levying tariffs, risking a trade war with some of our best allies.

All this while the geopolitical scene remains bleak.

I have to remind you of what I wrote in this space on 2/3/18:

“(You) also may have noticed I said virtually zero last week about President Trump’s speech in Davos, which many fawned over, and I have virtually zero to say about the State of the Union while others sing hosannas and the polls afterward show solid support for Trump’s performance.

“It’s beyond idiotic. We are talking about a man, our president, whose ‘word’ is meaningless. I’m glad he can stick to a script, as he did in both cases, but haven’t we learned anything the past year, and then some going back to the campaign? What the heck does a statement on X, Y or Z mean in a speech when you know he can adopt a totally different position within 24 hours? Why waste your time?”

And so we had a gathering of legislators from both parties in the White House on Wednesday, just as we did earlier in the year on immigration, and some observed after, ‘Boy, the president was really leading.’  Wrong, he was just playing reality television again, the topic this time gun control, Trump pretending to take suggestions from Democrats, while tweaking Republicans he said were scared of the NRA.

Among his crazy statements, the president said he liked the idea of “taking the guns early. Take the guns first, go through due process second.”

Trump declared himself “a big fan” of the NRA, then slammed the group’s top legislative priority – an expansion of concealed carry rights – and complimented Democratic Sen. Dianne Feinstein, one of the most outspoken gun-control proponents, for having some “very good ideas.”

Trump said he wants a legislative response to Parkland that is “comprehensive” and “beautiful.”

It was Trump the Bold, until it wasn’t.  Like the next day:

Trump tweets:

“Good (Great) meeting in the Oval Office tonight with the NRA!”

The NRA was convinced Trump was back in their hip pocket.

Trumpets....

-- Some of us, read moi, questioned what the heck Jared Kushner was doing in the inner circle of the White House in the first place. I told you of how if you live in New Jersey, you knew of the name for all the wrong reasons, father Charles having served time in a federal penitentiary for multiple offenses, prosecuted by none other than Chris Christie in his pre-governor days.

The apple doesn’t fall far from the tree, I mused (as Gov. Christie sure did when it was none other than Jared, ironically, who denied him the chief of staff job in the White House later on).

I’ve seen Jared as nothing more than a punk, and boy is he proving to be just that in spades these days, as the knives come out, namely stories then not denied, such as Jared hosting bankers in the White House for the purpose of soliciting $500 million to help finance his family’s disastrous real estate holding in Manhattan, 666 Fifth Avenue.

And as the Wall Street Journal editorialized:

“Mr. Kushner’s enemies piled on Tuesday with an egregious leak to the Washington Post that foreign countries including China and Mexico have discussed how to exploit Mr. Kushner’s vulnerabilities in negotiations.  Imagine that: A foreign country trying to exploit the weaknesses of American counterparts. The leak gave away to the foreign officials who discussed this that the U.S. was spying on them.  Let’s hear no more complaints from the media about compromising ‘sources and methods.’....

“The larger problem is that – thanks to another leak – we know Mr. Kushner is on special counsel Robert Mueller’s subject list. This includes his personal business dealings.   Last year Mr. Kushner offered the House and Senate Intelligence committees an account of what he said were his complete dealings with Russians during the presidential campaign. But only he and his lawyers know if there are other vulnerabilities. If there are, he and President Trump would both be better off if Mr. Kushner were out of the White House before they become public.”

Max Boot / Washington Post

“One of the great non-mysteries of the Trump administration is why Cabinet members think they can behave like aristocrats at the court of the Sun King. The Department of Housing and Urban Development spent $31,000 for a dining set for Secretary Ben Carson’s office while programs for the poor were being slashed. The Environmental Protection Agency has been paying for Administrator Scott Pruitt to fly first class and be protected by a squadron of bodyguards so he doesn’t have to mix with the great unwashed in economy class. The Department of Veterans Affairs spent $122,334 for Secretary David Shulkin and his wife to take what looks like a pleasure trip to Europe last summer; Shulkin’s chief of staff is accused of doctoring emails and lying about what happened. The Department of Health and  Human Services paid more than $400,000 for then-Secretary Tom Price to charter private aircraft – a scandal that forced his resignation.

“Why would Cabinet members act any differently when they are serving in the least ethical administration in our history? The ‘our’ is important, because there have been more crooked regimes – but only in banana republics.  The corruption and malfeasance of the Trump administration is unprecedented in U.S. history. The only points of comparison are the Gilded Age scandals of the Grant administration, Teapot Dome under the Harding administration, and Watergate and the bribe-taking of Vice President Spiro Agnew during the Nixon administration. But this administration is already in an unethical league of its own. The misconduct revealed during just one day this week – Wednesday – was worse than what presidents normally experience during an entire term.

“The day began with a typically deranged tweet from President Trump: ‘Why is A.G. Jeff Sessions asking the Inspector General to investigate potentially massive FISA abuse....Why not use Justice Department lawyers? DISGRACEFUL!’ Translation: Trump is exercised that the Justice Department is following its normal procedures. Sessions fired back: ‘As long as I am the Attorney General, I will continue to discharge my duties with integrity and honor.’ Translation: The president is asking him to act without ‘integrity and honor.’ This is part of a long pattern of the president pressuring the ‘beleaguered’ Sessions – a.k.a. ‘Mr. Magoo’ – to misuse his authority to shut down the special counsel investigation of Trump and to launch investigations of Trump’s political foes. Because Sessions won’t do that, Trump has tried to force him from office. The president does not recognize that he is doing anything improper. He thinks the attorney general should be his private lawyer. The poor man has no idea of what the ‘rule of law’ even means, as he showed at a White House meeting Wednesday on gun control, during which he said: ‘Take the guns first, go through due process second.’ This from a supposed supporter of the Second Amendment.

“But wait. Wednesday’s disgraceful news was only beginning. Later in the day the New York Times reported that Jared Kushner’s family company had received hundreds of millions of dollars in loans from companies whose executives met with him in his capacity as a senior White House aide. The previous day, The Post had reported that officials in the United Arab Emirates, China, Israel and Mexico had discussed how they could manipulate the president’s son-in-law ‘by taking advantage of his complex business arrangements, financial difficulties and lack of foreign policy experience.’ Oh, and don’t forget that during the transition in 2016, while Kushner was trying to refinance a family-owned office building, he met with a Russian banker close to the Kremlin and with executives of a Chinese insurance company that has since been taken over by the Chinese government.

“Little wonder that the previous week Kushner lost his top-secret security clearance. The wonder is that a senior aide with such dodgy business dealings was allowed access for a full year to the government’s most sensitive secrets – and that he still works in the White House. This is the kind of nepotism that plagues dictatorships and is a defining characteristic of Trump’s kleptocratic rule.

“Of course, we are still only scratching the surface of administration scandals. This is a president, after all, whose communications director quit on Wednesday after admitting to lying (but insists her resignation was unrelated); whose senior staff included an alleged wife-beater; whose former national security adviser and deputy campaign manager have pleaded guilty to felonies; whose onetime campaign chairman faces 27 criminal charges, including conspiracy against the United States; whose attorney paid off a porn star; and whose son mixed family and government business on a trip to India. Given the ethical direction set by this president, it’s a wonder that his Cabinet officers aren’t stealing spoons from their official dining rooms.  Come to think of it, maybe someone should look into that.”

Trumpets....

--Trump tweet: “Today we honor Billy Graham as only three private citizens before him have been honored. We say a prayer for our country: that all across this land, the Lord will raise up men and women like Billy Graham to spread a message of love and hope to every previous child of God.”

President Trump spreads his own love every day, 24/7.

--34% of top officials resigned during Trump’s first year in office, according to the
Brookings Institution.

Former presidents Obama, George W. Bush, and Bill Clinton saw sharply lower turnovers during their first years in office – 9%, 6%, and 11%, respectively.

--Trump announced Monday that Brad Parscale will be the face of the president’s 2020 campaign, Parscale having been the head of the 2016 campaign’s digital arm.

But that strategy relied on a heavy focus on Facebook, which drew the attention of Special Counsel Robert Mueller, who indicted 13 Russians connected to the Internet Research Agency earlier this month for an alleged effort that included a flood of fake Facebook posts.

Parscale has denied any collusion, but he’s also linked to the data firm Cambridge Analytica, which is owned by the billionaire Mercer family. Cambridge Analytica, which once had Steve Bannon as an adviser, was asked for documents by Mueller after revelations that it contacted Wikileaks founder Julian Assange and asked to help index the release of Hillary Clinton’s emails.

--First Lady Melania Trump again called for adults to “take the lead” to encourage children to develop “positive habits with social media and technology.”  Rather ironic, as many are saying.

Wall Street

President Trump pledged Thursday to impose stiff tariffs on steel and aluminum imports, sparking fears of a global trade war, which sent the Dow Jones down 420 points on the day, amid fears of an inflationary spike, and retaliation from Europe and Asia.

This is yet another instance where Trump wants to fulfill a campaign pledge and he told a White House meeting of industry leaders in steel and aluminum that a 25% tariff on steel imports, 10% on aluminum – would revive domestic manufacturing.  “You’re going to see a lot of good things happen. You’re going to see expansion of the companies,” the president said, arms folded in his power position.

Trump tweeted after: “Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world. We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!”

As for the inflationary impact, at the margin, tariffs put more upward pressure on prices, but the impact is overstated.  [I’m assuming any trade tit-for-tat is relatively limited.]

Editorial / Wall Street Journal

“Donald Trump made the biggest policy blunder of his Presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum. This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms. The Dow Jones Industrial Average fell 1.7% on the news, as investors absorbed the self-inflicted folly.

“Mr. Trump has spent a year trying to lift the economy from its Obama doldrums, with considerable success. Annual GDP growth has averaged 3% in the past nine months if you adjust for temporary factors, and on Tuesday the ISM manufacturing index for February came in at a gaudy 60.8.  American factories are humming, and consumer and business confidence are soaring.

“Apparently Mr. Trump can’t stand all this winning. His tariffs will benefit a handful of companies, at least for a while, but they will harm many more.  ‘We have with us the biggest steel companies in the United States. They used to be a lot bigger, but they’re going to be a lot bigger again,’ Mr. Trump declared in a meeting Thursday at the White House with steel and aluminum executives.

“No, they won’t.  The immediate impact will be to make the U.S. an island of high-priced steel and aluminum.  The U.S. companies will raise their prices to nearly match the tariffs while snatching some market share. The additional profits will flow to executives in higher bonuses and shareholders, at least until the higher prices hurt their steel- and aluminum-using customers. Then U.S. steel and aluminum makers will be hurt as well.

“Mr. Trump seems not to understand that steel-using industries in the U.S. employ some 6.5 million Americans, while steel makers employ about 140,000. Transportation industries, including aircraft and autos, account for about 40% of domestic steel consumption, followed by packaging with 20% and building construction with 15%. All will have to pay higher prices, making them less competitive globally and in the U.S.

“Instead of importing steel to make goods in America, many companies will simply import the finished product made from cheaper steel or aluminum abroad.  Mr. Trump fancies himself the savior of the U.S. auto industry, but he might note that Ford Motor shares fell 3% Thursday and GM’s fell 4%.  U.S. Steel gained 5.8%. Mr. Trump has handed a giant gift to foreign car makers, which will now have a cost advantage over Detroit. How do you think that will play in Michigan in 2020?

“The National Retail Federation called the tariffs a ‘tax on American families,’ who will pay higher prices for canned goods and even beer in aluminum cans. Another name for this is the Trump voter tax.

“The economic damage will quickly compound because other countries can and will retaliate against U.S. exports.  Not steel, but against farm goods, Harley-Davidson motorcycles, Cummins engines, John Deere tractors, and much more.

“Foreign countries are canny enough to know how to impose maximum political pain on Republican Senators and Congressmen in an election year by targeting exports from their states and districts. Has anyone at the White House political shop thought this through?

“Then there’s the diplomatic damage, made worse by Mr. Trump’s use of Section 232 to claim a threat to national security. In the process Mr. Trump is declaring a unilateral exception to U.S. trade agreements that other countries won’t forget and will surely emulate.

“The national security threat from foreign steel is preposterous because China supplies only 2.2% of U.S. imports and Russia 8.7%. But the tariffs will whack that menace to world peace known as Canada, which supplies 16%. South Korea, which Mr. Trump needs for his strategy against North Korea, supplies 10%, Brazil 13% and Mexico 9%.

“Oh, and Canada buys more American steel than any other country, accounting for 50% of U.S. steel exports. Mr. Trump is punishing our most important trading partner in the middle of a NAFTA renegotiation that he claims will result in a much better deal.  Instead he is taking a machete to America’s trade credibility. Why should Canada believe a word he says?....

“Mr. Trump is a bona fide protectionist so he won’t be dissuaded by arguments about comparative advantage. But perhaps he will heed the message from the falling stock market, and from the harm he will do to the economy, his voters, and his Presidency.”

After the above was published, Trump tweeted Friday morning:

“When a country Taxes our products coming in at, say, 50%, and we Tax the same product coming into our country at ZERO, not fair or smart. We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!”

“We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!”

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”

He’s nuts.  Republican Sen. Ben Sasse (Neb.) attacked Trump over the comment trade wars are “easy to win.”

In a statement, Sasse said: “Trade wars are never won. Trade wars are lost by both sides.”

Sasse continued: “Kooky 18th century protectionism will jack up prices on American families – and will prompt retaliation from other countries. Make no mistake: If the President goes through with this, it will kill American jobs – that’s what every trade war ultimately does. So much losing.”

European Commission President Jean-Claude Juncker, replying to the “trade wars are good” claim, said the bloc is prepared to respond forcefully by targeting imports of Harley-Davidson, Levi Strauss and bourbon whiskey. The International Monetary Fund warned the restrictions would likely damage both the U.S. and global economy.

But we’ll see what the president really decides to do come Monday and Tuesday.

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For the month of February, the S&P 500 index declined 3.9% in one of the wildest months in years, after January’s torrid start. The Dow Jones fell 4.3% and Nasdaq 1.9%. For the Dow and S&P, it was the worst month by percentage decline since January 2016.

This week, new Federal Reserve Chairman Jerome (“Jay”) Powell gave his first testimony to both houses of Congress, Tuesday and Thursday, and I thought he did a great job; clearly a plain-spoken individual, a refreshing change from Greenspan, Bernanke and Yellen.

Powell said since the Fed last projected the path for interest rates in December, the incoming economic data had shown further strengthening in the economy, and there is more confidence that inflation will move up to the Fed’s 2% target.

Powell added the government’s tax and spend policies have also become more stimulative.

But in his second day of testimony, Powell didn’t suggest the Fed felt any urgency to plot a steeper path of rate increases in reaction to stronger economic data and recently enacted tax cuts and spending increases likely to spur growth this year.

“There’s no evidence that the economy is currently overheating,” he said Thursday.  Powell added he did not see a decisive breakout in wages.

The Fed had previously projected it would be hiking interest rates three times this year, so Powell’s comments definitely put four rate hikes in play, though we’ll see what the Fed’s new projections are when they next convene March 20-21, a gathering which is expected to produce hike number one.

As for the economic data, we had a slew of it this week, including the ISM reading on manufacturing for February, 60.8 (50 being the dividing line between growth and contraction), the highest reading in 14 years.

The Chicago purchasing managers’ index for the month was 61.9, which was actually less than expected.

January new home sales came in far less than forecast, but the S&P CoreLogic Case-Shiller home price index for December was up 6.3% year-over-year, with Seattle up 12.7%, Las Vegas 11.1% and San Francisco up 9.2%.

January durable goods fell 3.7%, ex-transportation -0.3%.  Construction spending in the month was unchanged when a gain had been forecast.

January personal income rose 0.4%, with consumption up 0.2%, both basically in line.

Importantly, in terms of the Federal Reserve, its preferred inflation barometer, the personal consumption expenditures index, rose 0.3% on core, and year-over-year, core PCE was unchanged from the prior month at 1.5%. 

Lastly, we had the first revision to fourth-quarter GDP and it came in at 2.5%, down a tick from the initial look of 2.6%.

Owing mainly to the strong ISM reading on manufacturing, the Atlanta Fed’s GDPNow barometer for the first quarter is at 3.5%.

Europe and Asia

European equity markets closed out the month of February with broad losses, Germany’s DAX falling 5.7 percent, its worst month since January 2016, while London’s FTSE 100 finished with its first back-to-back monthly declines since a streak ending January 2016 as well.

They then extended their losses on Thursday and Friday, the first two days of March, thanks largely to Trump’s tariff talk.

On the economic front, the Eurozone’s manufacturing PMI for February was 58.6 vs. 59.6 in January, as reported by IHS Markit.

Germany was 60.6; France 55.9; Italy 56.8; Spain 56.0; Netherlands 63.4 (record high), Ireland 56.2; Greece 56.1 (212-month high).

All still high.  The manufacturing PMI in the U.K. for February was 55.2, the second-lowest since June 2016’s Brexit vote.

Eurostats released its flash estimate of inflation in the eurozone for February and it was just 1.2% annualized, ditto on core ex-food and energy.  A year earlier the figure was 2.0%, so euro bonds rallied anew as the European Central Bank has zero reason to think about raising interest rates off the zero mark for a long time to come.

And Eurostats released the January employment data for the EA19, the unemployment rate at 8.6%, stable compared with December and down from 9.6% in January 2017, the lowest rate recorded in the euro area since December 2008.

Germany’s jobless rate is at 3.6%, France 9.0%, Italy 11.1%, Spain 16.3 (down from 18.4% a year earlier), Ireland 6.1% and Greece 20.9% (Oct. ’17).

The youth rate in some countries remains high, but Spain’s, at 36.0%, is down from 41.5% in one year.  Italy at 31.5% is down from 37.5%.

Brexit: In a critical speech today in London, British Prime Minister Theresa May said the result of the Brexit referendum was “not a vote for a distant relationship with our neighbors.”

“We must bring our country back together, taking into account the views of everyone who cares about this issue, from both sides.”

Foremost, Mrs. May said it is her duty to “respect the result of the referendum.”

“It was a vote to take control of our borders, laws and money.

“As Prime Minister it is my duty to represent all of our United Kingdom, England, Scotland, Wales and Northern Ireland; north and south, from coastal towns and rural villages to our great cities.”

Brexit was a “vote for wider change, so that no community in Britain would ever be left behind again.”

“On security, what I am seeking is a relationship that goes beyond the transnational to one where we support each other’s interests.

“So I want the broadest and deepest possible agreement – covering more sectors and cooperating more fully than any Free Trade Agreement anywhere in the world today,” she said.

“People in the U.K. voted for our country to have a new and different relationship with Europe, but while the means may change our shared goals surely have not – to work together to grow our economies and keep our people safe.”

“After Brexit both the U.K. and the EU want to forge ahead with building a better future for our people, not find ourselves back at the negotiating table because things have broken down.”

The prime minister laid out five tests:

1. Regain control of laws, borders and money, while recognizing the referendum “was not a vote for a distant relationship with our neighbors.”

2. The agreement must be enduring and not lead to endless future negotiations.

3. It must protect people’s jobs and security.

4. It must be consistent with Britain remaining a “modern, open, outward-looking, tolerant” nation that stands up for its values while meeting international obligations.

5. The deal “must strengthen our union of nations and our union of people.”

But Mrs. May’s cabinet remains split and her future rests on a knife’s edge. Some want Britain to align itself with EU rules and regulations in key industry sectors, let alone stay in a customs union, while others, especially Foreign Secretary, and chief rival, Boris Johnson, don’t want Europe, particularly the European Court of Justice, having any say in British life beyond the transition period.

May only has a 13-seat majority in parliament, including 10 lawmakers of Northern Ireland’s Democratic Unionist Party.

Meanwhile, should Brexit talks collapse, and a worst case “no-deal Brexit” ensue, J. Sainsbury Plc CEO Mike Coupe said this week: “The impact of closing the borders for a few days to the free movement of food would result in a food crisis the likes of which we haven’t seen,” he told Bloomberg.

For their part, European Union chief Brexit negotiator Michel Barnier told the U.K. that even if there’s a deal this month on the transition period, which business is demanding, it’s still at risk of unraveling until a full agreement on the exit is approved in 2019.

Barnier accused the British government on Tuesday of clinging to “illusion” while time runs out for a Brexit deal to avoid massive disruption when it leaves the EU next year.

After briefing ministers from the other 27 EU states, Barnier returned to a familiar theme.

“The clock is ticking. I am worried by the time, which is short.”

Remember, the target date for reaching a treaty is actually this coming October. You need time to then put everything in writing and get it approved by all 27 states in time for Brexit, March 2019.  [Some final issues can then be hammered out during the transition period, until say 2021.]

Both sides had hoped the interim accord reached last December on an outline for a treaty would lead to a transition agreement this month and the start of trade talks.

European Union President Donald Tusk said Britain can’t expect a frictionless trade environment outside the bloc’s single market.  “Friction is an inevitable side-effect of Brexit,” Tusk said in a meeting in Brussels.

Tusk also warned Britain that its plan to leave the EU’s customs union and single market could mean a return to a “hard border” on Ireland.

This remains a huge issue.

One other has popped up, a most thorny one, that being disposition of Gibraltar’s airport after Britain leaves the EU. Spain wants a bilateral deal with the U.K. that includes “managing the airport together,” as well as greater cooperation on tax fraud and tobacco smuggling, which I guess is a huge problem among the baboons that inhabit the Rock; they being a most unruly gang of malcontents.

After May’s speech Friday, however, both Michel Barnier and Donald Tusk welcomed the “clarity” that May provided, while acknowledging there are many urgent questions to be answered.

May is asking for everything and avoiding the inevitable hard choices.

Meanwhile, former Prime Minister Sir John Major warned that an “a la carte entrance” to the European market was not possible if the U.K. left the single market and customs union.  For example, Major said 125,000 jobs at Japanese firms would be put at risk.  [Though after this comment was made, Toyota announced it would build a next generation hatchback in Derbyshire, safeguarding 3,000 jobs.]

But conservative Brexiteers have criticized Major for his intervention, in which he is holding out the possibility of another referendum (ditto former Labour Prime Minister Tony Blair).

One economic item of note in the U.K.  Home prices in February slipped 0.3% in February from January, with the annual decline at 2.2%, further reflecting uncertainty over Brexit and a weaker economic outlook.

Italy: The big vote is Sunday and there is little to say until the results roll in, but everyone is in agreement that there will not be enough votes for any coalition to put together a ruling majority, thus a hung parliament. What is even more worrisome in Europe’s third-largest country by economic output is the fact that the two most popular single factions, the far-right and the 5 Star Movement, are both anti-Europe, or Euroskeptics who desire to see more power devolve to Italy and not Brussels.

The far-right alliance is led by former Prime Minister Silvio Berlusconi (who is ineligible to become PM again), while the 5 Star group’s handpicked candidate for PM is but 31 years old (Luigi Di Maio).

Germany: We should receive formal word on Sunday that Germany’s Social Democrat party (SPD) has voted for a new coalition government with Chancellor Angela Merkel’s conservatives, giving Merkel a fourth term, SPD leaders expecting their mail balloting of 464,000 members to show a margin of support of about 60 percent.

Now if the vote doesn’t pan out as expected, that means a new election, sports fans, and that would be most chaotic.

Separately, Merkel, who has been taking heat for not elevating a new generation of leaders in her party, promoted an inside critic, 37-year-old Jens Spahn, to be the health minister.

Catalonia: Fugitive separatist leader Carles Puigdemont said he is ending his bid to be reappointed president of Spain’s northeastern region, stepping aside in favor of detained activist Jordi Sanchez.

Puigdemont is himself in self-imposed exile in Belgium and has been told by Spain he faces arrest if he returns to Barcelona to be sworn in.

This story has been going on since Catalonia’s independence referendum last October, which Spanish courts declared illegal.

The Spanish government welcomed Puigdemont’s move to abandon his presidency.

As for Jordi Sanchez, he is a former leader of the Catalan National Assembly, a grassroots movement advocating independence.  Sanchez, 53, has been imprisoned with other Catalan pro-independence politicians in connection with the referendum for independence, which was met by a heavy political crackdown from Madrid.

So now Sanchez’s nomination will face strong opposition from the central government.

Turning to Asia...China’s National Bureau of Statistics released its PMI readings for February, with manufacturing coming in at 50.3, down from 51.3 in January, and the biggest fall in more than six years, while the services reading was 54.4. The government attributed the decline to the Lunar New Year Holiday and this does make sense, having been there during this time a few years ago and seeing firsthand how business shuts down.

The private Caixin manufacturing figure for last month was 51.6 vs. 51.5 the month before.

Separately, China’s 70-city home price index showed new home prices in January rose 5% year-over-year.

Most economists expect China growth to moderate this year to 6.5% from 6.9% in 2017, if you want to believe such numbers. Beijing will be releasing a growth target next week.

I have a lot on China’s political maneuverings down below.

As for Japan, the February manufacturing PMI came in at a solid 54.1 vs. 54.8 in January, though industrial production fell 6.6% in January month-on-month, the worst decline since the 2011 earthquake and tsunami.

Separately, India reported growth of 7.2% for its fiscal third quarter, ending December, which means it is growing faster than China, which the Indian government likes to tout, though just as in China, India’s numbers are highly suspect.

Street Bytes

--Stocks took it on the chin, first over concerns Fed Chairman Jay Powell was hinting at more than three rate hikes this year, and then on trade concerns with the president’s move on tariffs.  The market largely stabilized Friday, but on the week the Dow Jones dropped 3.1%, the S&P 500 fell 2% and Nasdaq 1.1%.

It didn’t help the Dow that on Friday, McDonald’s had its price target lowered by an analyst who said the $1, $2, and $3 value menu was being met with less than an enthusiastic response, the shares falling 5% on the day.

--U.S. Treasury Yields

6-mo. 1.84%  2-yr. 2.24%  10-yr. 2.87%  30-yr. 3.16%

Bonds virtually unchanged on the week.

--According to a survey of 15 investment banks by the Wall Street Journal, West Texas Intermediate crude is expected to now average $58 a barrel this year, up slightly from a January survey.

But at least for this past week, oil fell on the heels of stronger than expected inventories.

--Auto sales slumped in February, higher interest rates and smaller discounts slowing the car business even as the overall economy continued to perform admirably.

According to Autodata Corp., U.S. vehicle sales dropped 2.4% in February to 1.3 million.  The annualized rate is 17.08 million, down from the peak of 17.6 million.  But 17 million is still a very solid pace.

However, even mild interest rate increases are providing a headwind for buyers, with Nissan Motor’s compact car Sentra seeing its sales jump 7% in February, the car starting at just $17,000.

Overall, General Motors saw its sales fall nearly 7%, with its top-selling Silverado truck down 7% as well.

Ford’s sales fell 7%, though its F-Series pickups rose 3.5%.

Fiat Chrysler’s sales fell 1%; Toyota’s rose 4.5% (thanks to the Camry Sedan, up 12%, and the Lexus brand, up 5%).

Nissan’s fell 4%, Honda Motor’s 5%, and Hyundai’s 13% (the Genesis luxury brand down 14%).

Subaru did see its sales rise 4%, while Volkswagen brand sales were up 6%.

--Dick’s Sporting Goods, one of the nation’s largest sports retailers, announced Wednesday morning it was immediately ending sales of all assault-style rifles in its stores.

The retailer also said it would no longer sell high-capacity magazines and that it would not sell any gun to anyone under 21 years of age, regardless of local laws.

Edward Stack, the 63-year-old CEO of Dick’s whose father founded the store in 1948, made clear his company’s stance was a direct response to the Parkland, Fla., shooting.

“When we saw what happened, we were so disturbed and upset. We love these kids and their rallying cry, ‘enough is enough.’ It got to us.”

Stack added, “We’re going to take a stand and step up and tell people our view and, hopefully, bring people along into the conversation.”

Dick’s is ignoring the power of the National Rifle Association and going up deliberately against them, calling on elected officials to enact what it called “common sense gun reform” by passing laws to raise the minimum age to purchase guns to 21, to ban assault-type weapons and so-called bump stocks, and to conduct broader universal background checks that include mental-health information and previous interactions with law enforcement.

Stack said the retailer began scouring its records after Nikolas Cruz was identified as the Parkland shooter and soon found it had legally sold a gun to Cruz in November, though it was not the type used in the shooting.

“But it came to us that we could have been a part of this story,” Stack said. “We said, ‘We don’t want to be a part of this any longer.’”

Stack said Dick’s remained a staunch supporter of the Second Amendment and will continue to sell a variety of sport and hunting firearms.  But when it comes to selling guns to individuals under 21 years of age or stocking assault-style rifles, Stack said his company was done.  “We don’t want to be a part of a mass shooting,” he said.

--Walmart then followed Dick’s in deciding to remove from its website “resembling assault-style rifles, including nonlethal airsoft guns and toys” – while raising the age restriction for purchase to 21.

“In light of recent events, we’ve taken an opportunity to review our policy on firearm sales,” Walmart said in a statement.

“We take seriously our obligation to be a responsible seller of firearms and go beyond Federal law by requiring customers to pass a background check before purchasing any firearm. The law would allow the sale of a firearm if no response to a background check request has been received within three business days, but our policy prohibits the sale until an approval is given.”

The retail giant added, “Going forward, we are raising the age restriction for purchase of firearms and ammunition to 21 years of age....We are also removing items from our website resembling assault-style rifles, including nonlethal airsoft guns and toys.  Our heritage as a  company has always been in serving sportsmen and hunters, and we will continue to do so in a responsible way.”

Walmart had stopped selling semiautomatic guns in 2015, such as high-powered rifles, but said at the time it was due more to lower customer demand for such weapons.

--As for the companies taking away the discounts they offer members of the National Rifle Association, such as United and Delta Airlines, FedEx defended the discount, saying it was a “common carrier” under federal law “and therefore does not and will not deny service or discriminate against any legal entity regardless of their policy positions or political views.”  The company said the NRA is just one of hundreds of organizations to whose members it offers discounted shipping rates.

But a company statement added: “FedEx opposes assault rifles being in the hands of civilians. While we strongly support the constitutional right of U.S. citizens to own firearms subject to appropriate background checks, FedEx views assault rifles and large capacity magazines as an inherent potential danger to schools, workplaces, and communities when such weapons are missed.  We therefore support restricting them to the military.”

Meanwhile, the NRA defended itself Saturday in a statement while condemning firms that have decided to cut off their relationship with the organization: “The law-abiding members of the NRA had nothing at all to do with the failure of that school’s security preparedness, the failure of America’s mental health system, the failure of the National Instant Check System or the cruel failures of both federal and local law enforcement....

“Let it be absolutely clear. The loss of a discount will neither scare nor distract one single NRA member from our mission to stand and defend the individual freedoms that have always made America the greatest nation in the world.”

--Comcast Corp. launched a $31-billion bid to acquire European pay-TV provider Sky in an aggressive move to wrest it away from Rupert Murdoch’s 21st Century Fox, as well as the Walt Disney Co.

Comcast, which owns NBC Universal, wants to expand its international portfolio; Sky satellite television service boasts more than 22 million customers in Britain, Ireland, Germany, Austria and Italy.

The move comes as AT&T is trying to buy media company Time Warner, which owns CNN and HBO, and it was in December that Disney made a bid for much of 21st Century Fox’s assets.

Last fall, Comcast had made a play for Fox assets, and Disney’s subsequent bid was for less money than Comcast was offering, but Murdoch liked the Disney offer because both he and his family would become stakeholders in Disney.

Fox offered Sky $15 billion for the 61% stake it didn’t currently own back in 2016, but the deal has been tied up in Britain’s Competition and Markets Authority, awaiting approval, though Fox said it was expected by the end of June. Fox was then going to turn Sky over to Disney.

--Shares in Lowe’s were crushed as the do-it-yourself home improvement retailer posted fiscal fourth-quarter earnings and current year forecasts that fell short of analyst estimates.

Same-store sales were up 4.1% in the three months to Feb. 2, but revenue fell 1.8% to $15.49 billion, while adjusted earnings missed badly.  And then Lowe’s said full-year earnings will be substantially below where the Street was lined up.

Bottom line, Lowe’s, while it’s had a good stretch, just can’t match the performance of rival Home Depot, the latter recently reporting a 7.5% rise in fourth quarter net sales to $23.9 billion, which beat expectations.

--Macy’s posted better-than-expected sales growth and a rosy outlook citing strong consumer spending, improvement in its bricks-and-mortar business and more “disciplined” discounting over the holiday season.

Macy’s, which also owns Bloomingdale’s, reported same-store sales rose 1.4 percent in the quarter, with revenue rising 1.8 percent to $8.67bn from a year ago, with adjusted earnings of $2.82 per share, substantially higher than the Street’s $2.71 consensus.

The company now expects comp-store sales to be flat to up 1 percent in 2018, which is an improvement over prior years, with adjusted earnings substantially ahead of current estimates, owing in no small part to an effective tax rate of 23.25 percent thanks to the tax act.

--Best Buy Co. saw its shares surge as same-store sales for the holiday quarter rose a rather stupendous 9%, with the electronics retailer benefiting from higher videogame demand and store closures at some of its competitors.

Best Buy CEO Hubert Joly said on a media call, “The consumer is in a much better mind-set. The better macro conditions were helpful to all the retailers for sure.”

Best Buy did benefit significantly from the closure of hundreds of Toys ‘R’ Us stores.

--Kohl’s also reported terrific comp-store sales, up 6.3%, its largest sales increase since 2001, while Gap reported a 5% gain, its fifth consecutive quarter of positive same-store sales growth, and Nordstrom’s rose 2.6%.

Kohl’s CEO Kevin Mansell said the company saw growth in all product categories and geographical regions.

--Warren Buffett’s Berkshire Hathaway issued its annual report to shareholders, with its net worth growing $65.3 billion in 2017, though only $36 billion came from Berkshire’s business operations, the other $29 billion a result of the new tax law, which cut the corporate rate to 21% from 35%.

Buffett let investors know that the reason the company is sitting on a record $116 billion in cash is the businesses he may have been looking at lacked “a sensible purchase price.”

--Wells Fargo said in a securities filing on Thursday that a whistleblower investigation into the wealth-management business is examining “inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants....”

The hits just keep on coming.

--My neighbor across the street, Celgene, suffered a major blow on Tuesday when the Food and Drug Administration took a rare step and declined to review Celgene’s application for its experimental multiple sclerosis drug, Ozanimod.  Shares fell 9% in response; drugs receiving such treatment often failing to reach the market.

The problem is this is but one misstep since CEO Mark Alles took the top job in 2016.  His main mission – to diversify away from blockbuster cancer drug Revlimid before generic competition arrives – hasn’t gone smoothly.  And as the Journal’s Charley Grant notes, “Improved results in the clinic would certainly help, but that will take a long time.”

The stock has fallen from a high of $147 to $89.  I am closely following the number of employees who stream across the street to Dunkin’ Donuts as a key indicator.  [Also the number of ‘smokers’ outside the main gate.]

--President Trump would have you believe tens of thousands of jobs are returning to the coal sector, but according to Kris Maher in the Journal, coal companies added about 1,200 jobs in the U.S. last year, after losing 60,000 mining jobs between 2011 and 2016.

The sector is being helped, however, by exports to Europe and Asia, rising 117% to 42 million tons last year, more than offsetting the 11-million-ton decline in coal used at U.S. power plants, which accounted for 30% of U.S. electricity generation in 2016, compared with 34% for natural gas.

Coal producer Alliance Resource Partners LP plans to reopen an underground mine in rural Gibson County, Ind., which had shut in 2015; the mine employing 417 workers in late 2014.

“We are seeing actual coal-fired generation power plants being built in other countries,” Alliance’s CEO Joe Craft told analysts.  “So we’re expanding.”

--China rapes the U.S., Part XLI

Robert McMillan and Tripp Mickle / Wall Street Journal

“When Apple Inc. next week begins shifting the iCloud accounts of its China-based customers to a local partner’s servers, it also will take an unprecedented step for the company that alarms some privacy specialists: storing the encryption keys for those accounts in China.

“The keys are complex strings of random characters that can unlock the photos, notes and messages that users store in iCloud.  Until now, Apple has stored the codes only in the U.S. for all global users, the company said, in keeping with its emphasis on customer privacy and security.

“While Apple says it will ensure that the keys are protected in China, some privacy experts and former Apple security employees worry that moving the keys to China makes them more vulnerable to seizure by a government with a record of censorship and political suppression.

“ ‘Once the keys are there, they can’t necessarily pull out and take those keys because the server could be seized by the Chinese government,’ said Matthew Green, a professor or cryptography at Johns Hopkins University. Ultimately, he says, ‘It means that Apple can’t say no.’

“Apple says it is  moving the keys to China as part of its effort to comply with a Chinese law on data storage enacted last year. Apple said it will store the keys in a secure location, retain control over them and hasn’t created any backdoors to access customer data.  A spokesman in a statement added that Apple advocated against the new laws, but chose to comply because it ‘felt that discontinuing the [iCloud] service would result in a bad user experience and less data security and privacy for our Chinese customers.’....

“Apple’s cloud partner in China is Guizhou on the Cloud Big Data Industry Co., or Guizhou-Cloud, which is overseen by the government of Guizhou province.... Customer data will migrate to servers based in China over the course of the next two years. The company declined to say when the encryption keys would move to China...

“Reporters Without Borders has urged journalists in China to change their geographic region or close their accounts before Feb. 28, saying Chinese authorities could gain a backdoor to user data even if Apple says it won’t provide one.”

--The founder of Zhejiang Geely Holding Group Co., Li Shufu, has accumulated a stake worth about $9 billion in Daimler AG, 9.7 percent, marking the biggest investment in a global automobile manufacturer by a Chinese company.  The company already owns Volvo Cars AB, whose new lineup of vehicles have made it a popular alternative to Mercedes.

--A survey at Walt Disney Co.’s Anaheim theme parks found that 73% of employees questioned don’t earn enough to pay for such expenses as rent, food and gas. The online survey, funded by labor groups pushing for higher wages for workers at Disneyland and California Adventure Park, also said that 11% of resort employees have been homeless or have not had a place of their own in the last two years.

But as reported by Hugo Martin of the L.A. Times, “Disney called the survey inaccurate, noting that it was only offered to union workers at the resort and claiming there were no controls preventing disgruntled employees from answering multiple times.”

The study concluded that the average wage for Disneyland Resort workers when adjusted for inflation dropped 15% from 2000 to 2017, from $15.80 to $13.36.

Disney challenged the figure, saying the annual salary for hourly workers at the resort is $37,000, which calculates to about $17.80 per hour.

--Speaking of Disneyland, two weeks after it hiked daily ticket prices nearly 9%, the theme park’s biggest Southern California rival, Universal Studios Hollywood, raised its daily ticket prices by more than 7%; the cost of a peak-demand daily ticket for Universal Hollywood now $129 from $120.

--The Wall Street Journal reported that the Securities and Exchange Commission has issued dozens of subpoenas to tech companies and advisers involved in the cryptocurrencies market, after a series of warnings suggesting that many of the new coin offerings may be violating securities laws, as well as the actual trading activity in same.

Meanwhile, the self-proclaimed inventor of bitcoin, Craig Wright, who claimed he created the currency under the pseudonym Satoshi Nakamoto in 2016, has been accused of swindling more than $5 billion worth of bitcoins mined by colleague Dave Kleiman, another cryptocurrency adherent, who died in 2013, according to a lawsuit filed by his brother.

Lawyers for Kleiman’s family said in the complaint that “Craig forged a series of contracts that purported to transfer Dave’s assets to Craig and/or companies controlled by him.”

--SeaWorld Entertainment reported financial results for Q4, with a wider-than-expected loss, though revenue wasn’t as bad.  The latter was $265.5 million, down from $267.6 million a year ago which was better than expected.

Separately, the company, which has never recovered from the CNN documentary “Blackfish,” announced current chief parks operations officer, John Reilly, has been tabbed to succeed interim CEO, Joel Manby, who has stepped down.

Manby took over three years ago in the wake of “Blackfish” and the backlash and attendance has declined 2.1 percent and 5.5 percent, respectively, the last two years. At the same time Disney has been reporting record park attendance.

At least SeaWorld reported revenue per visitor rose 2%.

[“Blackfish” alleged the company mistreated orcas and endangered its trainers.]

--Ring doorbells are already being used by 2 million customers, its improbable success coming five years after founder Jamie Siminoff was rejected on the TV show “Shark Tank.”

Siminoff proved there was demand for video-enabled doorbells, delivering not just a sense of home security, but also a way to catch package thieves.

--Pizza Hut is the new NFL pizza sponsor, taking over from Papa John’s after the latter had a falling-out with the league.

The NFL said the new agreement is for multiple years and “will first unfold” during the player draft this spring.

Papa John’s had been an NFL partner since 2010, though the chain said it would continue partnerships with 22 NFL teams.

Founder and former CEO of Papa John’s John Schnatter had expressed frustration over the league’s handling of the national anthem protests, accusing the NFL of “poor leadership.”

--Tourism in Las Vegas continues to slump, post-October’s shooting massacre.  In January, total visitation to the city dropped 3.3%, while gaming revenue from the Strip slumped 8.9%.

Tourism officials, though, say January had one less weekend compared to January 2017, while the lunar new year was shifted to February.  [Hugo Martin / L.A. Times]

--The Global Gateway Alliance released its data for on-time arrivals at the nation’s 30 biggest airports.

Worst on-time arrival....

30. Newark 70.5%
29. San Francisco 72.2%
28. LaGuardia 73.9%
27. JFK 74.2%

Best

1. Minneapolis 80.8%

Foreign Affairs

Syria: Last Saturday, the UN Security Council, including Russia, passed a resolution calling for a 30-day countrywide ceasefire, but of course it has yet to go into effect. Another total sham.

As of Friday morning, an estimated 580 people have been killed in the rebel-held enclave of Eastern Ghouta, near Damascus, since a bombardment of the area intensified on Feb. 18.

During the week, Syrian government forces launched a ground assault on the edge of the area, seeking to gain territory despite a Russian plan for five-hour daily ceasefires. The Syrian Observatory for Human Rights said rebels had inflicted heavy losses on government forces.  Assad was throwing his elite Tiger Force into the fight but with minimal gains.

It would appear where this is headed is negotiated withdrawals of the civilians to refugee camps, which has been the case in other parts of Syria when the government, and its allies, eventually overwhelmed the opposition.

Meanwhile, there have been reports of chlorine gas attacks on Ghouta neighborhoods. If you watched last Sunday’s “60 Minutes,” you understand the opening for my last column even more.

This week, Michael Schwirtz of the New York Times also had a blockbuster report that started out as follows:

“North Korea has been shipping supplies to the Syrian government that could be used in the production of chemical weapons, United Nations experts contend.

“The evidence of a North Korean connection comes as the United States and other countries have accused the Syrian government of using chemical weapons on civilians, including recent attacks on civilians in the Damascus suburb of eastern Ghouta using what appears to have been chlorine gas....

“North Korean missile technicians have also been spotted working at known chemical weapons and missiles facilities inside Syria, according to the report, which was written by a panel of experts who looked at North Korea’s compliance with United Nations sanctions.”

There have been at least 40 previously unreported shipments by North Korea to Syria between 2012 and 2017, according to the UN, which has not publicly released its report but allowed the Times to review it.

Editorial / Washington Post

“Once again the Syrian regime of Bashar al-Assad is conducting a brutal and criminal offensive against its own population, with the support of Russia and Iran. Warplanes have been pounding the suburban Damascus area known as Eastern Ghouta, targeting hospitals, apartment buildings and other civilian sites.... On Sunday, hours after the UN Security Council passed a resolution mandating a 30-day cease-fire, the offensive intensified: Ground forces launched an assault on five fronts, and opposition sources reported that chlorine gas had been used in at least one area.

“This latest Syrian atrocity has been made possible, like so many before it, by Vladimir Putin. The Russian military is backing the Ghouta offensive, and Russian diplomats ensured that the Security Council resolution meant to stop it was held up for several days, then laced with loopholes providing a pretext for the slaughter to continue. On Monday, Mr. Putin offered, instead of the cease-fire, a daily ‘humanitarian pause’ to allow the evacuation of civilians and entry of aid.  Moscow said it would begin on Tuesday, but – to the surprise of virtually no one – no such action was taken. Instead, the assault goes on.

“Syria has become a maelstrom of war that has sucked in half a dozen outside powers, including the United States, which has some 2,000 troops deployed in the country. But most of the conflict is waged, supported or manipulated by Mr. Putin, who aspires to use Syria to reestablish Russia as a Mideast power at the expense of the United States.  In addition to aiding and abetting the scorched-earth campaigns of the Assad regime, the Kremlin appears to have signed off on a Feb. 7 attack by irregular Russian forces on U.S. and allied positions near the Euphrates River in eastern Syria. The assault was rebuffed with heavy Russian losses, but it showed Moscow’s audacity in risking a direct U.S.-Russian conflict....

“After months of hesitation, the Trump administration recently outlined a policy for Syria that supports the UN process and calls for eliminating terrorist groups; officials say U.S. troops will remain in the country, which provides Washington with some diplomatic leverage. But Mr. Putin eschews cooperation with Washington. Instead, he is doing his best to bluff and intimidate President Trump into ordering a withdrawal. In the absence of a firm U.S. response to its latest outrages – and so far there is no sign of one – the Kremlin is unlikely to change course.”

Separately, eight Turkish soldiers were killed in fighting in the northern Syria region of Afrin, the military said.  It was one of the bloodiest days for Turkish since they began a major offensive Kurdish fighters in Afrin in January.

Israel: Police questioned Prime Minister Benjamin Netanyahu and his wife, Sara, Friday on suspicion of taking bribes from the owner of Israel’s biggest telecommunications company.

Both were interviewed as possible criminal suspects in the case.  The prime minister was questioned at his official home in Jerusalem, while Sara was questioned at the police station of Israel’s anti-fraud squad near Tel Aviv. The police did this so as to prevent any possible attempt to obstruct the investigation.

Shortly after the interrogation, Netanyahu released a video on his Facebook page, thanking “millions” of Israeli citizens for their support and reassuring them that he “feels confident, because there will be nothing.”

Russia: With the presidential election just weeks away, March 18, President Vladimir Putin’s annual address to the Federal Assembly was expected to be a campaign speech, and Putin set out the country’s goals for the next six years and beyond with the help of graphics and animated videos.  The focus was on developing Russia’s economy, infrastructure, health care and education.

But then he devoted nearly 30 minutes of a two-hour speech on discussing – and showing off in a series of videos – Russia’s apparently newly improved nuclear missile capabilities.

On Russia’s missile capabilities:

“We are not threatening anyone and we are not going to attack.”

“We would consider any use of nuclear weapons against Russia or its allies to be an attack on our country. The response would be immediate.”

“I hope what was said today will sober any potential aggressor or unfriendly gestures towards Russia, like the deployment of an ABM system and the development of NATO infrastructure close to our borders. That should be seen from the military point of view as inefficient, financially costly and simply useless. Nobody listened to us before. Listen to us now.”

Putin talked of a nuclear-powered cruise missile and a nuclear-powered underwater drone that would be immune to enemy intercept.

Putin said the nuclear-powered cruise missile tested last autumn has an unlimited range and high speed and is capable of penetrating any missile defense.

He said the high-speed underwater drone is capable of carrying a nuclear warhead and could target both aircraft carriers and coastal facilities.

[The U.S. says Russia does not as yet have an actual capability in either, but there is no doubt Russia has been working on these weapons for years so it’s just a matter of time before it does have such capabilities.  Meanwhile, understand the U.S. is working on similar weapons of its own.]

Separately, Putin on Western sanctions:

“Trying to hold Russia back did not work.”

On democracy:

“Russia has established itself as a democratic society on an independent path. To go forward, to develop dynamically, we must increase freedoms by strengthening the institutions of democracy, local government, the structure of civil society, the courts. We must be a country open to the world.”

I think I’m going to get sick.  Opposition leader Alexei Navalny is barred from running March 18.

On a different note, Michael S. Rogers, who directs the National Security Agency, as well as U.S. Cyber Command, warned lawmakers that penalties and other measures have not “changed the calculus or the behavior” of Russia as it seeks to interfere with this year’s midterm elections.

“We’re taking steps, but we’re probably not doing enough,” Adm. Rogers said in testimony before the Senate Armed Services Committee.  President Putin “has clearly come to the conclusion that ‘there’s little price to pay here and therefore I can continue this activity.’”

“If we don’t change the dynamic here, this is going to continue,” Rogers said, adding President Trump has given him no new directives or capabilities to strike at Russian cyber-operations ahead of the midterms, though Rogers said he has directed Cybercom’s National Mission Force to protect the U.S. homeland from foreign cyberthreats, without elaborating.

China: On Sunday, China amended its constitution to allow presidents to serve more than two terms, a momentous development confirming that Xi Jinping, 64, will be staying on beyond 2023, after taking power in 2012, which will make him China’s most powerful leader since Mao Zedong. It was reformer Deng Xiaoping who had created term limits in the 1980s to prevent a repeat of Mao’s disastrous rule.

Editorial / Wall Street Journal

“(It’s) worth remembering that Mr. Xi broke his previous promises to restart economic reforms over the last five years. His political drive to increase control over all aspects of society overrode Mr. Liu’s worthy agenda of giving greater scope to market forces.  As the state takeover of Anbang Insurance last Friday shows, dangerous imbalances have built up in the financial system due to stimulus policies that require excessive debt, endangering China’s economic development.

“Xinhua claims that Mr. Xi is leading China into a new era of prosperity and strength. But behind the façade of unity, political struggles continue. By making himself essentially President for Life, Mr. Xi has made Chinese politics more volatile and unpredictable.”

Chris Buckley / New York Times

“China has a new official political doctrine.

“It’s called Xi Jinping Thought, and it is everywhere. Schools, newspapers, television, the internet, billboards and banners all trumpet the ideas of Mr. Xi, the country’s president and Communist Party leader.

“Officially known as ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era,’ the ideology will soon be given an even more prominent platform: the preamble of China’s Constitution.

“Boiled down, the doctrine is a blueprint for consolidating and strengthening power at three levels: the nation, the party and Mr. Xi himself.

“The doctrine, like Mr. Xi, is not going anywhere soon.”

[I’ll have more on Xi Jinping Thought next week.]

Editorial / The Economist

“Last weekend China stepped from autocracy into dictatorship. That was when Xi Jinping, already the world’s most powerful man, let it be known that he will change China’s constitution so that he can rule as president for as long as he chooses – and conceivably for life.  Not since Mao Zedong has a Chinese leader wielded so much power so openly.  This is not just a big change for China, but also strong evidence that the West’s 25-year bet on China has failed.

“After the collapse of the Soviet Union, the West welcomed the next big communist country into the global economic order. Western leaders believed that giving China a stake in institutions such as the World Trade Organization (WTO) would bind it into the rules-based system set up after the second world war. They hoped that economic integration would encourage China to evolve into a market economy and that, as they grew wealthier, its people would come to yearn for democratic freedoms, rights and the rule of law.

“It was a worthy vision, which this newspaper shared, and better than shutting China out.  China has grown rich beyond anybody’s imagining.  Under the leadership of Hu Jintao, you could still picture the bet paying off.  When Mr. Xi took power five years ago China was rife with speculation that he would move towards constitutional rule. Today the illusion has been shattered. In reality, Mr. Xi has steered politics and economics towards repression, state control and confrontation.

“Start with politics. Mr. Xi has used his power to reassert the dominance of the Communist Party and of his own position within it. As part of a campaign against corruption, he has purged potential rivals.  He has executed a sweeping reorganization of the People’s Liberation Army (PLA), partly to ensure its loyalty to the party, and to him personally.  He has imprisoned free-thinking lawyers and stamped out criticism of the party and the government in the media and online.  Though people’s personal lives remain relatively free, he is creating a surveillance state to monitor discontent and deviance....

“The bet to imbed markets has been more successful. China has been integrated into the global economy. It is the world’s biggest exporter, with over 13% of the total.  It is enterprising and resourceful, and home to 12 of the world’s 100 most valuable listed companies. It has created extraordinary prosperity, for itself and those who have done business with it.

“Yet China is not a market economy and, on its present course, never will be.  Instead, it increasingly controls business as an arm of state power. It sees a vast range of industries as strategic.  It’s ‘Made in China 2025’ plan, for instance, sets out to use subsidies and protection to create world leaders in ten industries, including aviation, tech and energy, which together cover nearly 40% of its manufacturing. Although China has become less blatant about industrial espionage, Western companies still complain of state-sponsored raids on their intellectual property. Meanwhile, foreign businesses are profitable but miserable, because commerce always seems to be on China’s terms.  American credit-card firms, for example, were let in only after payments had shifted to mobile phones....

“What to do? The West has lost its bet on China, just when its own democracies are suffering a crisis of confidence.  President Donald Trump saw the Chinese threat early but he conceives of it chiefly in terms of the bilateral trade deficit, which is not in itself a threat.  A trade war would undermine the very norms he should be protecting and harm America’s allies just when they need unity in the face of Chinese bullying. And, however much Mr. Trump protests, his promise to ‘Make America Great Again’ smacks of a retreat into unilateralism that can only strengthen China’s hand.

“Instead Mr. Trump needs to recast the range of China policy. China and the West will have to learn to live with their differences. Putting up with misbehavior today in the hope that engagement will make China better tomorrow does not make sense. The longer the West grudgingly accommodates China’s abuses, the more dangerous it will be to challenge them later. In every sphere, therefore, policy needs to be harder edged, even as the West cleaves to the values it claims are universal....

“To counter China’s hard power, America needs to invest in new weapons systems and, most of all, ensure that it draws closer to its allies – who, witnessing China’s resolve, will naturally look to America.

“Rivalry between the reigning and rising superpowers need not lead to war. But Mr. Xi’s thirst for power has raised the chance of devastating instability. He may one day try to claim glory by retaking Taiwan. And recall that China first limited the term of its leaders to that it would never again have to live through the chaos and crimes of Mao’s one-man rule. A powerful, yet fragile, dictatorship is not where the West’s China bet was supposed to lead. But that is where it has ended up.”

Richard McGregor / Wall Street Journal

“Xi Jinping isn’t going anywhere.  This week the Chinese Communist Party proposed amending the country’s constitution to abolish presidential term limits. Under the current rules, Mr. Xi is due to step down in 2023, after two terms. Once that formal constraint is eliminated, there will be nothing to stop him from staying in office however long he likes – as the Communist Party’s chief and China’s president.

“Behind this news, sidelining constitutional restraints is a deeper trend: Under Mr. Xi’s leadership, the Communist Party is devouring China’s governing institutions while promoting its ideology for export like never before. Mr. Xi’s message to the world is that autocracy is a viable system of government. That makes China not only an economic and security rival for the U.S. but an ideological one.

“If such a change isn’t obvious, that may be because the old habits of Leninist secrecy die hard. The Communist Party’s powerful departments that control personnel and policy still do not list their phone numbers or display signs outside their offices.  Likewise, the party continues to enforce a strict code of silence about its internal operations.

“But elsewhere the party has become more open about its grip on business and society. To take one example, Chinese state companies listed abroad have long filed misleading prospectuses that omitted the party’s pivotal role in their operations, including the hiring and firing of senior executives. Recently Beijing reversed course. Some state companies listed in Hong Kong now include in their articles of association a broad description of the party’s role in ‘managing the overall situation.’  The meaning of this change is clear: Power over corporate decisions and personnel that the party used to wield behind the scenes can now be exercised explicitly.

“Meanwhile, the party has solidified its formerly haphazard effort to establish cells inside large Chinese private enterprises, as well as within foreign companies and joint ventures operating inside China. Any substantial private company, whether local or foreign, is now expected to include party cells....

“This new direction is being set at the top.  As Mr. Xi said in October at a party conference that convenes every five years: ‘Government, the military, society and schools, north, south, east and west – the party leads them all.’  He delivered the same message to the world in December at a conference in Beijing hosted by the Communist Party. Delegations from more than 100 countries attended, according to a Reuters report, including Myanmar’s Aung San Suu Kyi and representatives from the United Russia party and America’s Republican National Committee.

“Yes, Beijing is flaunting its growing diplomatic and military power on the world stage, but it goes far beyond that.  Increasingly, China is promoting its system as an alternative to Western democracy, something that was rare even five years ago.  Mr. Xi now talks about the ‘China solution’ for a world facing political and financial turmoil. In place of such uncertainties, which Beijing blames on the West, Mr. Xi lauds China’s ‘wisdom’ of global governance....

“Overseas, China has become more strident in its drive to become a superpower, particularly in Asia, where it aims to dislodge the U.S. as the dominant force....

“What Mr. Xi is really promoting is something else: the idea that authoritarian political systems are not only legitimate but can outperform Western democracies.

“China’s rivalry with the U.S. is not the same as the Soviet Union’s competition during the Cold War, which pitted capitalism against Marxism.  Beijing formally follows the dictates of Marxism-Leninism, but its ideology is one of state power. Although China has always been ready to support other autocracies when doing so was in its interest, Mr. Xi’s party is now touting itself forcefully as an example of a governing system that works.

“It is a pity, then, that America’s political system remains in such upheaval. Rarely has the soft power of a thriving democracy been more needed.”

--Separately China warned Taiwan it was playing with fire over a bill in the U.S. Congress promoting closer ties between Washington and Taipei.

The legislation, which just requires President Trump’s signature to become law, says it should be U.S. policy to allow officials at all levels to travel to Taiwan to meet their Taiwanese counterparts, permit high-level Taiwanese officials to enter the United States “under respectful conditions” and meet with U.S. officials.

But Beijing considers democratic Taiwan to be a wayward province and integral part of “one China,” ineligible for state-to-state relations, and has never renounced the use of force to bring the island under its control.

China’s Taiwan Affairs Office said the bill was a serious contravention of the “one China” principle.  “We also sternly warn Taiwan: do not rely on foreigners to build yourselves up, or it will only draw the fire upon you,” it said in a statement.

In a strongly-worded editorial, the official China Daily said if the bill becomes law it will only encourage Taiwan President Tsai Ing-wen to further assert the island’s sovereignty.  “Which, if she persisted, would lead to the inevitable consequence of triggering the Anti-Secession Law that allows Beijing to use force to prevent the island from seceding,” the paper said, referring to a Chinese law passed in 2005. “Since the U.S. is bound by domestic law to act on behalf of the island in that instance, it would only give substance to the observation that the descent into hell is easy.”  [Ben Blanchard and Yimon Lee / Reuters]

Douglas H. Paal of the Carnegie Endowment for International Peace / South China Morning Post:

“Last week witnessed a mini media storm in India over a Chinese naval squadron purportedly headed to the Maldives to break with precedent and intervene in a power struggle there between the pro-Beijing president and a former president who leans towards India. The atmosphere was made more ominous by a warning in the nationalist Chinese newspaper Global Times, which told India that Beijing would not ‘stand idly by’ if New Delhi intervened first. The storm then ended quickly when the Chinese squadron turned south and then back towards its home port, while the political  crisis in the Maldives continues....

(It) must be remembered that Beijing’s new diplomacy is founded on a growing base of military power that Xi is also comfortable in deploying. In other words, China’s neighbors are welcome to have constructive relations with Beijing but they need to remember they are not dealing with the weak China of the past. China’s velvet glove of diplomacy covers an iron fist.

“Since the 19th party congress, China has sent warships and military aircraft into contested areas along its maritime frontier, flying through the South Korean air defense identification zone, sending submarines into the waters contiguous to the Japanese-claimed Diaoyu or Senkaku islands, circumnavigating Taiwan repeatedly, and unilaterally imposing a new civil air corridor close to the midpoint of the Taiwan Strait. Improvements continue on the artificial islands China constructed in the South China Sea.

“Similarly, and taking our story back to India for a moment, China has also strengthened its facilities and capabilities near the India-China-Bhutan border, which is on one of China’s last unsettled land frontiers....

“I would suggest that China’s neighbors start thinking about these new encounters with China’s growing power less individually and more collectively. After all, just over two years ago, Xi ordered a massive restructuring of the armed forces and retired a large portion of the military leadership for a variety of reasons. In the process, Xi has personally interjected to promote a younger and often less-experienced officer corps, and has empowered them with resources and new generations of equipment.  In this light, it is hard to imagine that local commanders would not feel pressure to show their stuff across the board....

“The U.S. has for decades provided the capacity to counter instability in the Asia-Pacific (or, if you will, the Indo-Pacific). Now, Washington’s hand on the tiller appears far more uncertain and unreliable. China’s neighbors would do well to think more collectively about this prospect.”

Editorial / Washington Post

“Asked about China this past Friday, President Trump boasted about what he called a ‘quite extraordinary’ personal relationship with Mr. Xi. He had nothing to say about Mr. Xi’s ruthless consolidation of power. The many people around the world who understand and fear the challenge this represents will have to find ways to defend liberal democracy without assistance from the White House.”

North Korea: The Olympics are over and the White House on Sunday said any discussions with North Korea must lead to the regime ending its nuclear program, as Pyongyang officials in South Korea for the Winter Olympics said their government was open to talks with the United States.

The Trump administration “is committed to achieving the complete, verifiable, and irreversible denuclearization of the Korean Peninsula,” the White House said in a statement. “We will see if Pyongyang’s message today, that it is willing to hold talks, represents the first steps along the path to denuclearization.”

As the Olympics were wrapping up in PyeongChang, the North Korea delegation met with South Korean President Moon Jae-in, and signaled a willingness to meet with the U.S.

But the potential for any discussions remains vague and probably premature.

Afghanistan: President Ashraf Ghani extended an olive branch on Wednesday to the Taliban, offering amnesty for war crime convictions and recognition of the insurgent group as a political party in a bid to end the nation’s war, now in its 17th year. 

The Taliban wrote in an open letter two weeks ago that it wanted “a peaceful resolution” to the conflict.  The group didn’t respond to Ghani’s proposal as yet.

The terms resemble those of a deal Ghani struck two years ago with a once-powerful insurgent group led by Gulbuddin Hekmatyar, whose forces were accused of causing thousands of civilian deaths during the 1990s but who now appears alongside Ghani at official ceremonies.

What is unknown is just who is really leading the Taliban since the death of its longtime head, Mullah Omaar in 2015. The following year, Omar’s successor, Mullah Mohammad Mansour, was killed in a U.S. drone strike.  But under Mansour’s successor, Akhundzada, the Taliban has talked little of politics and just escalated its violence against civilians.

According to a recent Pentagon report, only 64% of the Afghan population lives under government control, down from 80% in September 2013.

But an extensive BBC study put the figure at about 50%, or less, controlled by the government.

This past week, another wave of attacks across the country killed more than 25, including 22 soldiers in the western province of Farah.

A suicide attack in Kabul left at least three security officers dead.

Slovakia: A reporter that was investigating alleged ties between the country’s prime minister and an Italian mafia network was killed this week, along with his fiancée, as Europe’s latest murder of an organized crime reporter roiled this small nation; the first such death in Slovakia itself.

Jan Kuciak, a 27-year-old investigative journalist, was set to publish a report alleging that Italy’s ‘Ndrangheta mafia, based in the southern Italian region of Calabria, had fraudulently received European Union funds designated for Slovakia, the reporting touching on the group’s alleged ties to Prime Minister Robert Fico.

Kuciak was found shot in the chest and his fiancée shot in the head in the home they shared in Bratislava (where I have some long distant relatives).

The next day, Fico and his interior minister displayed bundles of cash on a table that they said represented 1 million euro ($1.22 million) as a reward for information leading to the arrest of the killer or killers, which is rather rich.

Kuciak’s report was then released, unfinished, by a number of news sites in solidarity, and it purports to show how the ‘Ndrangheta settled in eastern Slovakia and have spent years embezzling EU funds for this relatively poor region that borders Ukraine.

Nigeria: Boko Haram is back in a big way. Thursday, suspected militants killed at least 11 people, including three aid workers in an attack on a military barracks in northeastern Borneo state, less than two weeks after militants abducted 110 girls from a school in neighboring Yobe state. Nigerian President Muhammadu Buhari has repeatedly asserted that the Boko Haram insurgency had been defeated.

Over nine years, Boko Haram has killed more than 20,000, with two million more displaced.

Random Musings

--Presidential tracking polls....

Gallup: 39% approval for President Trump, 56% disapproval [2/25]
Rasmussen: 49% approval, 50% disapproval

A Suffolk University/USA TODAY national poll showed Trump’s approval rating is 38%, compared to 47% a year earlier, with 60% disapproving or strongly disapproving of the job he is doing.

Separately, 61% said tighter gun control laws and background checks would prevent more mass shootings, while 33 percent disagreed and 6% were undecided.

A new CNN poll found 70% now back stricter gun laws, up from 52% who said so in an October poll not long after the Las Vegas mass shooting.  Just 27% oppose stricter laws.

President Trump’s approval rating in this one was down to 35%, matching his lowest level yet.

So the Rasmussen survey continues to be an outlier.

--The California Democratic Party decided not to endorse a candidate in the U.S. Senate contest last Saturday at the party’s annual convention, an embarrassing rebuke of Sen. Dianne Feinstein, who has represented the state in the Senate for a quarter-century.  She is facing an insurgent bid by fellow Democrat, state Senate leader Kevin de Leon.

--Editorial / Bloomberg

“There are a few quotes and phrases that are so American – and so anodyne – that they amount to a kind of bipartisan lexicon, cited with equal fervor by Democrats and Republicans alike. For example:

“Land of the free, home of the brave.

“All men are created equal.

“Liberty and justice for all.

“Government of the people, by the people, for the people.

“For more than a half-century, the litany has also included a phrase popularized by President John F. Kennedy: ‘A nation of immigrants.’  Time and again, presidents and leaders of both parties have invoked those four words to lionize the contributions immigrants have made to the U.S. In 1981, for instance, Ronald Reagan invoked it: ‘Our nation is a nation of immigrants. More than any other country, our strength comes from our own immigrant heritage and our capacity to welcome those from other lands.’

“Why, then, has the U.S. Citizenship and Immigration Services, which issues green cards and citizenship documents, deleted the phrase from its mission statement?  Agencies are free to revise their mission statements, of course.  And the previous mission statement was not exactly poetry. But when the person  in the Oval Office routinely employs nativist rhetoric, scapegoats foreigners, seeks lower levels of immigration, and makes it more difficult to obtain green cards and visas, it is nearly impossible to see the deletion as mere coincidence....

“This is not the first time the Trump administration downplayed America’s immigrant heritage. Last year, one of the president’s senior policy advisers dismissed the poem that is affixed to the Statue of Liberty – ‘Give me your tired, your poor, your huddled masses’ – saying it ‘was added later; it’s not actually part of the original Statue of Liberty.’ True enough, but it was written for the statue and came to define it.

“Given the inanity of the president’s tweets, what the Trump administration chooses not to say is often more telling than what it does. And while Trump may be a lost cause, Republicans ought to speak out against the nativism he continues to display on a regular basis – if not to defend historical truth and American values, then at least to prevent further damage to their party’s reputation.”

--So I told you the other day how the polar vortex had split in two; half going to Europe and half to the western U.S.  This week then saw record cold in Europe and snows not seen in years, or decades, and the rest of the month of March promises more of the snow, much colder than normal conditions for the continent, which can really slow down the economy.  Labeled “the Beast from the East,” parts of Rome had six inches of the white stuff.

Last Sunday, the temperature in Britain fell to 23 degrees Fahrenheit, while northern Greenland was at 43.

Ireland had the coldest late February in at least a decade.

--It’s official....kind of, sort of...President Trump has given his marching orders – instructing the Pentagon to make his dream of a military parade come true on Veteran’s Day.

A recent Quinnipiac University poll found 61% of voters disapprove of the parade, while only 26% support the idea.  But 58% of Republican respondents approved, while 24% were against.

This is one Republican very much against.

--This was too much.  Alberto Carvalho, the longtime Miami-Dade Schools superintendent tapped on Wednesday to head New York City schools, stunned onlookers at an emergency board meeting in Miami on Thursday when he unexpectedly announced he was turning down the offer.

After a long series of speeches praising his work in Miami, Carvalho asked to leave the room and after about 20 minutes returned and said, “I shall remain in Miami-Dade as your superintendent.”

Carvalho, the 2014 Superintendent of the Year, told the crowd, “I just don’t know how to break a promise to a child, how to break a promise to a community. That has weighed on me over the last 24 hours like nothing has weighed on me before,” the Miami Herald reported.

The thing is, Carvalho had traveled to New York a few times to meet with Mayor Bill de Blasio, who enthusiastically offered him the job.

Talk about an incredibly embarrassing setback for the mayor. I swear, watching it unfold Thursday, for the first, and only, time, I felt a little sorry for the guy. De Blasio was authentically stunned Thursday afternoon.

--Housing and Urban Development Secretary Ben Carson canceled an order for a $31,000 dining room set after questions were raised about the pricey redecoration of his D.C. office.

Carson said in a statement provided to CNN: “I was as surprised as anyone to find out that a $31,000 dining set had been ordered....We will find another solution for the furniture replacement.”

I have some furniture in storage you can use for free, Mr. Secretary. 

Republican Rep. Trey Gowdy, the chair of the House Oversight Committee, has asked HUD to provide records for all office furnishings since 2017.  The budget for redecorating when a new secretary comes in is supposed to be limited to $5,000.

--Finally, kudos to South Korea for staging a fine Olympics.  Far from memorable in terms of the athletic competition, but logistically you heard few complaints and organizers are talking about dismantling three of the four main facilities, rather than leaving them up to be giant eye sores, such as in the case of Rio (and Brazil overall for the World Cup as well, where stadiums are in total disrepair already).

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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 $1323
Oil $61.45

Returns for the week 2/26-3/2

Dow Jones  -3.1%  [24538]
S&P 500  -2.0%  [2691]
S&P MidCap  -1.4%
Russell 2000  -1.0%
Nasdaq  -1.1%  [7257]

Returns for the period 1/1/18-3/2/18

Dow Jones  -0.7%
S&P 500  +0.7%
S&P MidCap  -1.2%
Russell 2000  -0.2%
Nasdaq  +5.1%

Bulls 48.1
Bears 14.4 [Source: Investors Intelligence]

Have a good week.

Dr. Bortrum posted a new column!

Brian Trumbore

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