Week in Review

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Week in Review

05/26/2018

For the week 5/21-5/25

[Posted Saturday at 12:30 AM, ET]

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Edition 998

Trump World

Boy, you have to wait 24 hours with the occupant of the White House.  It was a mess this week, between trade and the summit with North Korea.  There is simply zero strategy with this administration. Zippo.  Nada.  Anything goes, especially on the foreign policy front.  President Trump is a Gang of One.  Whatever his gut tells him, that’s it.  Screw the advisers...unless you were the last one in his ear.

I have the details below.  For now, as the president said today when explaining his policy towards the summit with Kim Jong Un, “Everybody plays games.”

Trumpets....

--Last weekend, hours after President Trump tweeted Sunday* that he would “officially” order the Justice Department to investigate whether the FBI infiltrated his campaign for political purposes – based on little more than speculation – and deputy attorney general Rod Rosenstein gave in somewhat. The DOJ announced it would expand an existing inspector general inquiry to answer that question.

“If anyone did infiltrate or surveil participants in a presidential campaign for inappropriate purposes, we need to know about it and take appropriate action,” Rosenstein said in a statement.

Rosenstein could be just trying to run out the clock and bury the matter in a lengthy IG’s probe.  And it could avert a potential constitutional crisis that could arise out of Trump ordering DOJ to do something and DOJ declining.

*Trump tweet: I hereby demand, and will do so officially tomorrow, that the Department of Justice look into whether or not the FBI/DOJ infiltrated or surveilled the Trump Campaign for Political Purposes – and if any such demands or requests were made by people within the Obama Administration!

Editorial / Wall Street Journal

“Well, what do you know. The Federal Bureau of Investigation really did task an ‘informant’ to insinuate himself with Trump campaign advisers in 2016.  Our Kimberley Strassel reported this two weeks ago without disclosing a name.

“We now have all but official confirmation thanks to ‘current and former government officials’ who contributed to apologies last week in the New York Times and Washington Post. And please don’t call the informant a ‘spy.’....

“As is his habit, President Trump belly-flopped into this debate over the weekend...and this will polarize the political debate even further.

“But the stakes here go beyond Mr. Trump’s political future. The public deserves to know who tasked the informant to seek out Trump campaign officials, what his orders were, what the justification was for doing so, and who was aware of it. Was the knowledge limited to the FBI, or did it run into the Obama White House?

“As important, what are the standards for the future? Could a Trump FBI task agents to look into the foreign ties of advisers to the Bernie Sanders presidential campaign in 2020? Attorney General Jeff Sessions and Deputy AG Rod Rosenstein need to clear the air by sharing what they and the FBI know with the House. This is bigger than blowing a source whose identity Justice leakers have already blown.  This is about public trust in the FBI and Justice.”

[Multiple media outlets named Stefan Halper, 73, a Cambridge professor, as the secret informant who met with Trump campaign advisers Carter Page and George Papadopoulos.]

--Rudy Giuliani said special counsel Robert Mueller’s Russia probe will wrap up by Sept. 1 because allowing it to continue longer could improperly influence the mid-term elections in November.  Fat chance of that happening.

--Jared Kushner has been granted a permanent security clearance to view top-secret material – an indication that he may no longer be under scrutiny by the special counsel, who had been investigating his foreign contacts and other activities.

--A longtime business partner of Michael Cohen has agreed to cooperate with prosecutors. Evgeny Freidman, a New York City taxi mogul, pleaded guilty Tuesday in Albany County court to one count of criminal tax fraud. As part of his plea agreement, he agreed to help prosecutors with state or federal investigations, people familiar with the matter told the Wall Street Journal. It is likely he will assist federal prosecutors in Manhattan with their probe into Mr. Cohen.

Last month, federal agents raided Mr. Cohen’s office, home and hotel room as part of an investigation into possible bank fraud and campaign-finance violations related to Mr. Cohen’s efforts to raise cash and conceal negative information about Mr. Trump during the 2016 campaign.

Manhattan federal prosecutors are focused on Cohen’s “personal business dealings,” which would include the once-lucrative taxi medallion biz, which is now a bust due to the emergence of Uber and Lyft, values plummeting 80% or more.  Those in control of large numbers of them employed a ton of leverage. It’s a topic I’ve covered in “Week in Review” since essentially the beginning of the column.

--President Trump’s practice of blocking Twitter users who are critical of him from seeing his posts on the platform violates the First Amendment, a federal judge in Manhattan ruled on Wednesday.

The ruling came in a case brought by seven Twitter users who had been blocked by the @realDonaldTrump account, which has 52.5 million followers, after they criticized the president.

The judge, Naomi Reice Buchwald, was appointed to the federal bench in 1999 by President Clinton.

“The viewpoint-based exclusion of the individual plaintiffs from that designated public forum is proscribed by the First Amendment and cannot be justified by the president’s personal First Amendment interests,” Judge Buchwald wrote.

--More Trump tweets:

“Now that the Witch Hunt has given up on Russia and is looking at the rest of the World, they should easily be able to take it into the Mid-Term Elections where they can put some hurt on the Republican Party. Don’t worry about Dems FISA Abuse, missing Emails or Fraudulent Dossier!”

“At what point does this soon to be $20,000,000 Witch Hunt, composed of 13 Angry and Heavily Conflicted Democrats and two people who have worked for Obama for 8 years, STOP! They have found no Collusion with Russia, No Obstruction, but they aren’t looking at the corruption...”

Wall Street

First some economic news. Both new home sales and sales of existing ones for April were below expectations, though the former’s were up 8.4% year-over-year, while the latter’s were down 1.4%.  The median existing home price, a good barometer, was up 5.3% vs. a year ago.  No doubt, 4.6% 30-year fixed mortgages (per Freddie Mac) vs. 3.99% at yearend hurts.

A reading on April durable goods (big ticket items) was -1.7%, but ex-transportation +0.9%, better than expected, ditto a reading on capital investment.

And the Federal Reserve released its minutes from the May meeting and the central bank, for now, plans to stay on a gradual path of rate increases even if inflation meets its target.  But you can count on a hike at the June confab in about two weeks.  The Fed has been forecasting three rate increases in 2018 (the first being in March), but the fear has been the economy will be too hot, and, coupled with whiffs of inflation would force the Fed into a fourth hike, which the markets no doubt would react poorly to, at least initially.

On the trade front, it was pure helter-skelter, as well as lots of ill-conceived moves, with more than a bit of B.S. thrown in by administration spokespeople, including from the president himself.

Last weekend, we learned that Trump had put a hold on his plan to impose sweeping tariffs on Chinese products as it presses forward with negotiations to reduce the trade deficit.  The planned tariffs on Chinese steel and aluminum, as well as $150bn of other goods will be rectified next week.

But, seriously, there were zero details on just what was going on behind closed doors. Just talk from the likes of Chinese Vice-Premier Liu He and U.S. Treasury Secretary Steven Mnuchin. 

Liu He said after: “This is a positive, pragmatic, constructive and fruitful visit. Both sides have reached a lot of consensus on the healthy development of a robust trade arrangement.  I know you know the area.”

And while Trump trumpeted that the Chinese will be buying much more American farm product, local authorities in China are encouraging their farmers to grow more soybeans, despite the deal to buy from the U.S.

Separately, the Trump administration launched a ‘national security’ investigation into car and truck imports that could lead to new U.S. tariffs similar to those imposed on imported steel and aluminum, which spooked European and Asian automakers. But the reason given by Commerce Secretary Wilbur Ross was totally bogus (see below).  In a separate statement, President Trump said: “Core industries such as automobiles and automotive parts are critical to our strength as a Nation.”

And efforts to renegotiate NAFTA have gone poorly.  Trump railed against Mexico and Canada.  “NAFTA is very difficult. Mexico has been very difficult to deal with. Canada has been very difficult to deal with...but I will tell you that in the end we win,” he told reporters at the White House.

Just remember, sports fans...fewer choices, higher prices.  Free trade has its issues, but it has created jobs, wealth and economic growth.

Editorial / Wall Street Journal

“President Trump wants everyone to know he is a master trade negotiator, but this week his volleys look more like a mess than mastery. His China policy is all over the place, NAFTA is in jeopardy, and his new threat to impose a 25% tariff on auto imports undercuts his foreign policy and economic goals. But perhaps there’s some grand strategy that will eventually unveil itself and wow the crowds.

“The Commerce Department on Wednesday initiated a probe under Section 232 of the 1962 Trade Expansion Act to decide if auto imports imperil national security. Yes, the killer Kia. This is the same law the Administration used this spring to impose 25% tariffs on steel and 10% on aluminum imports to protect domestic manufacturers. The auto investigation is even more dubious.

“Commerce Secretary Wilbur Ross declared on Wednesday that ‘there is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry.’ There is?  The real evidence is that America’s Big Three car makers became less competitive as an oligopoly, and foreign imports forced them to shape up and make better cars.  [Ed. younger readers have no idea just how crappy U.S. cars used to be.]

“About 56% of cars sold in the U.S. in 2017 were made domestically.  Canada, Mexico and Japan each made up about 11%. While President Trump has complained about BMWs and Mercedes flooding American shores, German-made cars account for 4% of American car sales. China accounts for 0.3%.

“U.S. automakers aren’t asking for and don’t need protection.  GM and Ford produce some small cars in Mexico to comply with fuel-efficiency mandates, but imports make up only about 1% of their sales. American manufacturers have been scaling back domestic production of some small passenger models, but that’s because of declining demand, not imports.

“The Environmental Protection Agency plans to relax fuel standards, which will allow car makers to invest more in higher-margin trucks and SUVs. Tax reform should boost domestic investment in manufacturing, but another way to make the U.S. more competitive is to scrap aluminum and steel tariffs that raise costs.

“Mr. Trump’s tirades against foreign carmakers are also misdirected. Foreign manufacturers operate a couple of dozen plants in the U.S., mostly in southern states where labor costs are lower. Nissan produces its Altima in Canton, Miss., and Smyrna, Tenn.  BMW has a plant in Greer, S.C.  Mercedes makes cars in Vance, Ala., and Ladson, S.C.  About 70% of Toyotas and 94% of Nissans sold in the U.S. are made in the U.S.

“Mr. Ross discounts the impact of steel tariffs on consumers, saying that ‘on an average car, $175 worth of steel increase is the maximum that would come from a 25 percent tariff increase. That’s not much.’  Mere crumbs, as Nancy Pelosi might say. But a 25% tariff would raise the price of a small passenger car by around $5,000 to $6,000 and cost consumers about $48 billion per year.

“We suspect the auto tariffs are one more attempt to bludgeon allies into trade surrender.  Mr. Trump is frustrated that Mexico and Canada haven’t rolled over for U.S. Trade Representative Robert Lighthizer’s absurd demand that 40% of light vehicle content and 45% of pickup trucks be produced in ‘high-wage zones’ with an average minimum wage of at least $16 per hour. So Mr. Trump may be trying to force Mexico to heel, though it could backfire and scuttle hope of any deal.

“Earlier this year, Mr. Trump threatened tariffs on BMW and Mercedes if the European Union doesn’t reduce its 10% levy on U.S. auto imports. But the EU has responded to his steel and aluminum tariffs by teeing up duties of up to 25% on $3.5 billion in U.S. goods if Europe doesn’t get a permanent exemption.

“All of which underscores Mr. Trump’s trade confusion. The Administration’s lack of strategy or defined goals was especially evident in the President’s seesaw on China this week.

“On Monday, he boasted that a weekend deal to withdraw tariffs was ‘one of the best things to happen to our farmers in many years!’  The next day he complained that he was ‘not satisfied,’ then tweeted Wednesday that ‘Our Trade Deal with China is moving along nicely, but in the end we will probably have to use a different structure in that this will be too hard to get done and to verify results after completion.’ Glad he cleared that up.

“As Ronald Reagan liked to joke about the boy who saw a stable full of manure, there must be a pony in there somewhere. Or maybe all this is merely a pile of impulsive, ill-considered threats that are increasing business uncertainty, slowing the economy, and irritating friends the U.S. needs on Iran and Korea.”

Editorial / Washington Post

“President Trump’s trade war with China is over, at least temporarily, and here’s the after-action report: Advantage, China. There’s no denying that stubborn imbalances have built up in the United States’ bilateral economic relationship with China; nor have past administrations succeeded in getting Beijing to address those through conventional diplomatic means. Mr. Trump’s more confrontational approach, including his threat to impose tariffs, might have been worth a try, had he pursued the right goals.

“As the reported terms of the Trump administration’s truce with China show, however, Mr. Trump to date seems to have spent American leverage on a predictably futile effort to achieve large short-term reductions in the $375 billion annual U.S. merchandise trade deficit with China.  He agreed to withdraw tariff threats in return for China’s doing the same with its counterthreat, plus promises from Beijing to buy more U.S. agricultural goods and liquefied natural gas.  These U.S. sales won’t dent the trade deficit, and they will simply shift global trade flows rather than expand them, because China was already in the market for these raw materials. Nor will China’s ballyhooed reduction in auto tariffs from 25 percent to 15 percent do much to change foreign firms’ overwhelming incentives to build cars in China as opposed to export them there from the United States.

“Meanwhile, China has achieved important objectives, both tangible and intangible. In the tangible category, the most important is the president’s apparent willingness to back off a seven-year ban on U.S. sales of components to the Chinese telecommunications giant ZTE, which would have crippled that firm. The U.S. ban was punishment for serious violations of U.S. national security-related laws, specifically, ZTE’s business dealings with Iran and North Korea, and the company’s subsequent lies in its initial settlement with the United States.  Mr. Trump has indicated now, however, that, in deference to his good relationship with Chinese dictator Xi Jinping, the United States would settle for a fine and changes to ZTE management. That’s an intangible victory for China too, in that it shows the United States will treat national security policy as a subject of trade negotiation. Also favorable to China is the revelation that Mr. Trump’s policy team is deeply divided and is susceptible to pressure from America’s politically pivotal farm belt.

“From the start, the administration should have focused on the truly important, and legitimate, U.S. grievances with China: that country’s restrictions on foreign investment, its intellectual property theft and its attempts to dominate future high-tech industries. On these structural issues, Chinese policy remains the same; Mr. Trump, by showing that he defines victory as selling more U.S. raw materials, gives Beijing no reason to change.

“Perhaps this unfavorable truce was the best Mr. Trump could achieve at a time when he also needs Mr. Xi’s help dealing with North Korea.  Yet that conflict of interest, too, was foreseeable. No one ever said winning a trade war would be easy, except for the one person who has just proved that it’s not.”

Finally, on the issue of China’s ZTE, President Trump floated a plan to fine them and then shake up its management as his administration considers rolling back more severe penalties that have crippled the company.  The president’s proposal immediately ran into opposition in Congress, where Republicans and Democrats accused Trump of bending to pressure from Beijing to ease up on a company that has admitted to violating sanctions on Iran.  Unless Trump gets congressional support, his efforts to win concessions from China to narrow the $375 billion annual trade gap will go for naught.

Trump points to the fact ZTE gets most of its parts from the U.S.  “They can pay a big price without necessarily damaging all of these American companies.”

Yeah, but ZTE’s share at these companies (like Qualcomm) is small.  And as for Trump’s claim he can change management and appoint a new board of directors, no way.  They’ll still be under Beijing’s thumb.  Does the president think we’re idiots?  [Yes, many of us are.]

Meanwhile, Treasury Secretary Steven Mnuchin told lawmakers that the treatment of ZTE was not “a quid pro quo or anything else” related to trade, adding national security concerns would be taken into consideration.  Right.

Republican Sen. Marco Rubio (Fla.) tweeted: “Sadly #China is out-negotiating the administration & winning the trade talks right now. They have avoided tariffs & got a #ZTE deal without giving up anything meaningful in return by using N. Korea talks & agriculture issues as leverage. This is #NotWinning.”

Europe and Asia

Borrowing costs shot up in Italy this week, and also to some extent in Spain, owing to political crises in the two countries.

In Madrid, the opposition Socialists presented one no-confidence motion in Prime Minister Mariano Rajoy to the Spanish parliament, while his former allies, Ciudadanos, issued an ultimatum: call an election or face their own, second such motion. The moves come as a result of a graft case involving members of Rajoy’s People’s Party, which prompted heavy selling of Spanish bonds.

But the movement in the bond market was bigger in Italy, the yield on their 10-year rising to 2.44% from 2.22% a week ago, but it was 1.79% on May 4 (1.73% the week prior to that).

I’ve been the boy crying wolf for a long time on the Italian debt market and I’m finally being proved right, but...if the political crisis there doesn’t abate, let’s just say when it comes to the yield, you ain’t seen nuthin’ yet.

In Rome, the fears are over a spendthrift coalition government comprised of the anti-establishment 5-Star Movement and the far-right League.

Political novice Giuseppe Conte is set to become Italy’s next prime minister – after finally getting the go-ahead from President Sergio Mattarella, amid questions over his academic resume that some said was inflated – and while reaction at home is focused on his balancing act to hold power, allies and the European Union fear a collision course with the new anti-establishment government.

Critics assert that Conte, a relatively unknown lawyer picked as a compromise candidate, will be but a pawn of the parties behind him.  His first charge will be enacting a controversial populist, anti-immigrant agenda. But his real mission will be to convince financial markets and foreign leaders not to fear the platform that includes rethinking Italy’s role in the 19-nation euro currency zone, as well as a flat income tax, increasing pensions, ejecting hundreds of thousands of migrants and calling on the EU to write off $300 billion in Italian debt.

You can imagine why the Italian markets didn’t fare well this week.

Italy will be the first EU country headed by a populist government, which is causing jitters across the continent; the nation being the birthplace of Fascism, after all.

“Our political message is very clear,” said Valdis Dombrovskis, vice president of the European Commission, the bloc’s executive arm.  “Italy needs to continue to reduce its public debt, which is indeed second highest in the E.U. after Greece.”

It should be no surprise that all the major European stock markets I follow were down this week, granted after a substantial rally.

Meanwhile, on the issue of Brexit, Foreign Secretary Boris Johnson gave Prime Minister Theresa May a list of demands, saying she must “get on with” taking the U.K. out of the European Union’s trading rules as soon as possible.

In an interview with Bloomberg, Johnson said May is responsible for ensuring the U.K. takes back control over its tariff regime, and gains the power to break away from EU regulations if it chooses to.  Johnson argues if the final Brexit deal doesn’t deliver these conditions, it will fail to give the public what they voted for in the June 2016 referendum.

Johnson is a rival of May who has long wanted to replace her, but this week he declined to say if he’d resign if the prime minister doesn’t meet his conditions.

Last week May’s team agreed on a controversial compromise that could keep the U.K. tied to EU trade rules for years after the divorce, but Brussels is calling the proposal a joke, and now more Tory party infighting once again threatens May’s survival.

Turning to the economic data front, IHS Markit released its flash report on May eurozone activity and the composite barometer was 54.1 vs. 55.1 in April, an 18-mo. low (50 being the dividing line between growth and contraction), with the manufacturing reading for the EA19 at 55.5 vs. last month’s 56.2, a 15-mo. low.

Germany’s manufacturing figure was 56.8 vs. 58.1; France, though, 55.1 vs. 53.8.

Chris Williamson, chief economist at IHS Markit:

“The May PMI brought yet another set of disappointing survey results, though once again a note of caution is required when interpreting the findings. While prior months have seen various factors such as extreme weather, strikes, illness and the timing of Easter dampen growth, May saw reports of businesses being adversely affected by an unusually high number of public holidays.

“Furthermore, despite the headline PMI dropping to an 18-month low, the survey remains at a level consistent with the eurozone economy growing at a reasonably solid rate of just over 0.4% in the second quarter.  [Ed. reminder, EU does quarter over quarter stuff as ‘headline,’ we do annual on GDP.]

“Job creation is also continuing to run at an encouragingly robust rate and optimism about the business outlook remains above its long-run average.

“However, it’s also becoming increasingly evident that underlying growth momentum has slowed compared to late last year, especially in relation to exports.  Hiring has consequently shown signs of being reined-in. More expensive oil and rising wages are meanwhile continuing to push companies’ costs higher, but weak final demand means firms are struggling to pass these higher costs onto customers.”

Street Bytes

--Stocks finished up a bit, the Dow Jones adding 0.2% to end the week unchanged.

--U.S. Treasury Yields

6-mo. 2.06%  2-yr. 2.48% 10-yr. 2.93%  30-yr. 3.09%

Bond yields fell end of the week as investors reassessed the economic landscape following dovish minutes from the Fed’s May meeting, as well as the ongoing trade uncertainty (which leads to a flight to quality).  And then when Trump called off the North Korea summit, that led to further buying.

--Oil fell sharply at week’s end to $67.50 on WTI, as Russia and other large oil producers announced they will meet next month to discuss relaxing an agreement that has cut production and helped lead to much higher prices for their crude.  So it’s possible this may alleviate price pressures some after a run from the low $40s to over $70.

The thing is, as I’ve mentioned before, Russia is OK with $60, but the Saudis need $80 to fulfill their budget promises.

Russia’s oil companies have also been pouring billions of dollars into new investment and they’ve been pressuring Moscow to allow them to produce more oil, to help begin paying off their investments, for starters.

--Hamza Shaban / Los Angeles Times

“A couple in Portland, Ore., received a nightmarish phone call two weeks ago. ‘Unplug your Alexa device right now,’ the caller said.  ‘You’re being hacked.’

“Apparently, one of the Amazon.com Inc. Alexa-powered Echo devices in their home had silently sent recordings to the caller, without the couple's permission.  The caller, who happened to be an employee of the husband, was in the couple’s contact list.

“ ‘My husband and I would joke and say, ‘I’d bet these devices are listening to what we’re saying,’’ a woman who identified herself only by her first name, Danielle, told KIRO 7, a local news station covering Seattle and western Washington state.”

At first the wife didn’t believe the employee, but then he started giving details of their conversations.

The couple used Amazon’s voice-activated devices throughout their home to control heat, lights and the security system, according to the news report.

Amazon has had similar problems with the Echo.  It’s a potential surveillance device, pure and simple.  I know the odds of this happening are extremely small, but 5, 10 years from now?  #AIwillkillus

--Target said its efforts to grow its online operations boosted sales but weighed on margin and the shares in the retailer fell sharply.

Target has ramped up investments in its delivery services and infrastructures for the online operations as it seeks to compete with Amazon and Walmart.

The investments helped grow online sales by 28 percent and total revenue climbed 3.4 percent from a year ago to $16.8bn, as same-store (comp) sales rose 3 percent.

--Kohl’s Corp. reported results for the first quarter that beat analysts’ estimates, a 14 percent increase in profit for the first quarter from last year, better than expected on an adjusted basis.

Total revenue grew 3.5 percent to $4.21 billion, also ahead of the Street, while comp-store sales rose a solid 3.6 percent, compared to a decrease of 2.7 percent in the prior-year period.

--JCPenney can’t catch a break, as the struggling department store chain was shocked to see CEO Marvin Ellison – named CEO in August 2015 – jump to Lowe’s to become its new chief executive, leaving Penney’s without completing a needed turnaround.

Ellison had been brought on to clean up the mess left by Ron Johnson, the previous CEO, who failed spectacularly in trying to change the Penney’s model, i.e., discounting.

Ellison had previously spent 11 years at Lowe’s home improvement rival, Home Depot, and it seems JCP made a careless mistake in not having an employment agreement with him, as the company later confirmed.

--Shares in Tiffany soared to an all-time high on Wednesday, and then some, for the biggest one-day gain since 2001 on the back of a solid start to the year and a rosy forecast.

Worldwide net sales rose 11 percent on a constant currency basis, while same-store sales jumped 7 percent in the first quarter, which is terrific.  And the company boosted earnings guidance for the full year.

CEO Alessandro Bogliolo has focused the company on clearer and more direct marketing programs and refreshed its product offerings to lure in younger shoppers.  And it unveiled a restaurant at its flagship store on New York’s Fifth Avenue.  [My Dollar Tree doesn’t have a restaurant.]

--Shares in Toll Brothers had their worst day in five years on Tuesday, falling 10%, after the U.S. luxury homebuilder sounded the alarm on rising cost pressure and delivered weaker than expected fiscal second-quarter profits.

For the three months to end of April, revenue rose 17 percent over the prior year as the company sold more houses at higher prices.

But Toll Brothers is being squeezed by higher construction material costs and labor shortage.  Gross margin fell to 22.5 percent from 24.3 percent a year earlier.

“Labor is tight,” chief executive Douglas Yearley said during a call with analysts.  Labor, he said, probably accounts for 20-30 percent of the cost increase the company is seeing, with the rest attributed to higher lumber and construction material prices.

--Best Buy Co. reported earnings that beat the Street, as revenue also topped expectations, but the forecast for the current quarter was so-so and the shares fell sharply, though they have had quite a run this year.

--General Electric CEO John Flannery, speaking at a conference in Florida, said he had taken a “deliberate and methodical” approach to the company’s myriad of problems, including lingering liabilities from its financial services operations, adding: “Being deliberate and then moving when things make sense, as opposed to moving just because somebody wants to, is just my style.”

Flannery admitted this would not endear him to everyone, but he was confident he was doing the right thing.  Investors wanting “super-short-term decisions” were “maybe not my target audience.”

Nope, neither are long-term investors, and short- and long-term took the stock down another 7 percent, many feeling let down Flannery didn’t announce any dramatic restructuring.

--European Parliament members were left frustrated by Facebook CEO Mark Zuckerberg during a grilling the other day.  In a 90-mintue hearing with a dozen Parliament leaders in Brussels, Zuckerberg was pressed on Facebook’s responsibility for the Cambridge Analytica data breach, the social media giant’s compliance with new EU privacy laws, and whether Facebook was willing to cooperate with Brussels competition authorities over its market dominance in Europe.

But Zuckerberg failed to answer the MEPs questions, with Zuckerberg only touching on broad themes. So the Euro Parliament demanded written answers after, which apparently Zuckerberg provided.

Philippe Lamberts, co-head of the EPs Green party, complained, “I asked you six yes-or-no answers and I got no answers.  You asked for this format for a reason.”

Guy Verhofstadt, a former Belgian prime minister and head of the liberal group in Parliament, said: “You have to ask yourself how you’ll be remembered.  As one of the three big internet giants together with Steve Jobs and Bill Gates who have enriched our world? Or a genius who created a digital monster that is destroying our societies and democracies?”

For his part, Zuckerberg began his testimony with another apology similar to the one he offered U.S. lawmakers last month.

“It’s also become clear over the last couple of years that we haven’t done enough to prevent the tools we’ve built from being used for harm as well.  Whether it’s fake news, foreign interference in elections or developers misusing people’s information, we didn’t take a broad enough view of our responsibilities. That was a mistake, and I’m sorry.”

The EU estimates up to 2.7 million European Facebook users had their data improperly shared with Cambridge Analytica.

--Deutsche Bank AG announced it will eliminate anywhere from 7,000 to 10,000 jobs, or about one in 10 employees if it’s the latter, as part of moves to accelerate cost-cutting. The latest plan would see cuts extend into 2019.

Following a review of the business, the number of jobs in Deutsche’s equities sales and trading business is being cut by a quarter.

Deutsche, which employs about 66,000 in Europe – including 42,000 in Germany – didn’t specify which countries would be most impacted. It also has 21,000 in Asia and 10,000 in North America.

--The New York Stock Exchange announced that Stacey Cunningham, who began her career as a floor clerk on the NYSE in 1996, will become the 67th president of the Big Board, the first woman to hold the position.  She succeeds Thomas Farley, who is leaving to head a special purpose acquisition company.

Adena Friedman became CEO of Nasdaq in January 2017.

--Southern California home prices in April surged 7.2% from a year earlier to reach an all-time high, even as rising mortgage rates are making an already pricey housing market more so.  The region’s median sales price for new and resale houses and condos was $520,000, up $1,000 from the previous high set in March, according to a report from real estate data firm CoreLogic.

The median price in Orange County rose 5.9% to $715,000.

--Charley Grant / Wall Street Journal

“Tesla has given the first signals that it is giving up on its ambition to become a mass-market car maker. Prospective customers should be angry, and investors ought to be wary.

“Over the weekend, Chief Executive Elon Musk announced a new, $78,000 version of Tesla’s car for the people, the Model 3. More important was his admission that his promised $35,000 version would cause the company to ‘lose money and die’ if built right away.

“Tesla has struggled to produce a $50,000 version of the Model 3, and as the company burns through cash, the question is how many of those will be available once the faster $78,000 offering is ready. If Model 3 is suddenly a high-end car, then Tesla, whose other offerings start around that price, would be more comparable to Maserati than to Chevy, which is producing a $36,620 electric car.

“The problem is investors have given Tesla a near $50 billion market cap in the belief the company will upend the global auto industry, not become a niche, high-end electric car maker. What that latter company is worth is hard to say, but it is not the current market valuation.

“Then there are the nearly 500,000 Tesla die-hards who put down $1,000 deposits for what they thought was a car that started at $35,000. How many can afford, or would be willing to pay for the higher-end models? These refundable deposits account for a third of the cash on Tesla’s rickety balance sheet....

“If Tesla gives up on the mass-market, the company will produce a lot fewer cars than investors expect and its valuation should be questioned. Tesla’s market value is about $450,000 per car sold last year; that is more than 16 times the value assigned to peers like BMW AG.”

Separately, Elon Musk tweeted that he’s starting a website that would score journalists for “credibility.”  As anyone who follows the company would agree, he should start with himself, Tesla being known for never delivering on its promises, one missed production target after another.  Musk is the ultimate hype machine.

--Uber Technologies Inc. is preparing for a possible initial public offering next year, so the ride-sharing company is announcing its earnings, even though it doesn’t have to, and first-quarter revenue rose 70% from the prior year to $2.59 billion, while gross bookings (rides and fresh food deliveries) jumped 55%, according to financial statements released by the company.

Without a gain from the sales of both its southeast Asian and Russia operations, Uber’s loss would have been roughly $550 million, narrower than the past four quarters.

Separately, Uber announced it would shutter its self-driving vehicle operations in Arizona following a fatal crash there.

Owing to recent investments, Uber has an implied valuation of $62 billion, up from the last known $48bn.

--Airlines are expecting the busiest summer in the history of U.S. air travel, estimating that 246.1 million passengers will fly with U.S. airlines between June 1 and Aug. 31, 2018.  That averages out to about 2.68 million passengers per day during the period, according to the summer forecast issued by the trade group Airlines for America, and a 3.7% increase from last year, when a then-record 237.3 million travelers flew on U.S. airlines during the same period.

--To address a recent controversy at a Philadelphia outlet, Starbucks informed employees over the weekend that “any person who enters our spaces, including patios, cafes and restrooms, regardless of whether they make a purchase, is considered a customer.”

Employees were then told to follow company procedure in dealing with customers who might behave in a “disruptive manner.”

Daniel Henninger / Wall Street Journal

“Starbucks has jumped the shark. To put that more precisely, American liberalism has jumped the shark.

“In April two black men walked into a Starbucks in Philadelphia. They were there to use the bathroom, not to order anything Starbucks sold. They said they were on business.  The manager said they wouldn’t leave.

“The manager called the cops, someone posted a video of the two guys being arrested, and, needless to say, Starbucks instantaneously announced it would close its more than 8,000 U.S. stores May 29 so all of its employees could undergo sensitivity training.

“With any luck, someone will post a video of that, too. We always thought Starbucks’ baristas were the coolest, most up-to-the-moment workers in America, but who knew?

“There’s more, but we need to take a breather to get a grip on what’s happening here....

“A native New Yorker who migrated to Seattle in the 1980s, (executive chairman) Howard Schultz saw earlier than most that liberal politics were moving away from their lunch-pail roots and becoming a lifestyle.

“Liberalism was black coffee in a white ceramic mug. Progressivism would be drinking coffee through white foam in recyclable cardboard cups.

“Mr. Schultz turned ‘latte’ into a household word, at least in some circles. He made it possible for guys to say out loud, ‘I’d like a grand latte,’ without getting beaten up by their pals.

“Starbucks was so far ahead of the curve that at one point, in a stab at solving the national racial crisis that Black Lives Matter had elevated, it told its baristas to write ‘Race Together’ on the sides of cups as they handed over customers’ morning injection of caffeine.

“Then Philadelphia happened.  Restaurants all over the U.S. now have signs on their doors: ‘Restrooms for patrons only.’  But going into a Starbucks is, unavoidably, a kind of liberalish-prog exercise in political bonding....

“In the wake of the Philadelphia arrest video, Starbucks headquarters announced last weekend that anyone could use its restrooms without making a purchase. Anyone?

“Starbucks’ customers, not yet totally oblivious to the reality of daily life, tweeted instantly that this would turn many of the stores into homeless shelters and drug dens.

“By Monday, The Wall Street Journal reported that Starbucks had issued a revision of its revision of the company’s barista-customer interface:

“ ‘Under the procedures for handling disruptive guests,’ the Journal reported, ‘Starbucks said Monday, managers and baristas should first ask a fellow employee to verify that a certain behavior include talking too loudly, playing loud music and viewing inappropriate content.  The company provided employees with examples of when they should call 911, which includes when a customer is using or selling drugs.’

“Starbucks had arrived at the inevitable endpoint of its politicized retailing. On instinct, Starbucks decided it could also be a homeless shelter. But then the social-media monitors vetoed that. What the Starbucks crucible makes clear is...you can’t win.

“No matter what you do to try to appease the progressive zeitgeist, it will always be wrong.”

I would not be bullish on Starbucks’ stock, as an aside.  This is going to be a fiasco.

--Hong Kong’s decline in education, health and the environments means the city is no longer the world’s most competitive economy, according to the latest rankings from the IMD World Competitiveness Centre.

But the United States jumped three places to claim top spot, with Hong Kong dropping to second on the list compiled by the Switzerland-based organization, which was released Thursday.

The Top Ten:

1. U.S.
2. Hong Kong
3. Singapore
4. Netherlands
5. Switzerland
6. Denmark
7. UAE
8. Norway
9. Sweden
10. Canada

13. China
17. Taiwan
20. UK

I can understand the top ten, but China over Taiwan?!  No freakin’ way. #StayStrongTaipei

Foreign Affairs

North Korea:

Early in the week, a vice minister in the North Korean Foreign Ministry, Choe Son Hui, called Vice President Mike Pence a “political dummy” and said Pyongyang is prepared for a nuclear showdown if talks with the U.S. fail.

“Whether the U.S. will meet us at a meeting room or encounter us at nuclear-to-nuclear showdown is entirely dependent upon the decision and behavior of the United States.”

Choe was responding to comments Pence made on Fox News that Choe deemed “unbridled and impudent.”

Pence had said, “There was some talk about the Libya model. As the president made clear, this will only end like the Libya model ended if Kim Jong Un doesn’t make a deal.”

North Korea has sharply criticized suggestions by Trump’s national security adviser John Bolton that the administration wanted to follow the “Libya model” in getting the North to abandon its nuclear weapons program.

[In response to questions over use of the term “Libya model,” White House Press Secretary Sarah Huckabee Sanders said: “This is the President Trump model. He’s going to run this the way he sees fit.”]

Tuesday, President Trump welcomed South Korean President Moon Jae-in to the White House, as Trump sought Moon’s advice on dealing with Kim and the summit to come.

But after North Korea’s shift in tone, Trump said, “There’s a very substantial chance that it won’t work out, and that’s O.K. That doesn’t mean it won’t work over a period of time. But it may not work out for June 12.”

“There are certain conditions we want to happen,” he added. “I think we’ll get those conditions. And if we don’t, we won’t have the meeting.”

Trump conceded he detected a change in Mr. Kim after he met with Chinese President Xi this month.

“There was a different attitude by the North Korean folks after that meeting,” Trump said.  “I can’t say that I’m happy about it.”

But Trump went out of his way to guarantee Kim’s safety.  “He will be safe.  He will be happy. His country will be rich,” the president said.

How the United States would protect Kim from a domestic uprising (i.e., a bullet to his head and those of his wife and sister) was not clear.

For his part, Moon Jae-in’s team said “there is a 99.9 percent chance the North Korea-U.S. summit will be held as scheduled,” according to Moon’s national security adviser.

Until it wasn’t....

Trump’s letter to Kim Jong Un read in part:

“We greatly appreciate your time, patience, and effort with respect to our recent negotiations and discussions relative to a summit long sought by both parties, which was scheduled to take place on June 12 in Singapore. We were informed that the meeting was requested by North Korea, but that to us is totally irrelevant. I was very much looking forward to being there with you.  Sadly, based on the tremendous anger and open hostility displayed in your most recent statement, I feel it is inappropriate, at this time, to have this long-planned meeting. Therefore, please let this letter serve to represent that the Singapore summit, for the good of both parties, but to the detriment of the world, will not take place. You talk about your nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used.

“I felt a wonderful dialogue was building up between you and me, and ultimately, it is only that dialogue that matters. Someday, I look very much forward to meeting you. In the meantime, I want to thank you for the release of the hostages who are now home with their families. That was a beautiful gesture and was very much appreciated.

“If you change your mind having to do with this important summit, please do not hesitate to call me or write. The world, and North Korea in particular, has lost a great opportunity for lasting peace and great prosperity and wealth. This missed opportunity is a truly sad moment in history.”

In a later statement at the White House, Trump said the step was a “tremendous setback for North Korea and the world,” adding the U.S. military was “ready if necessary” to respond to any “reckless” act from North Korea.

Kim Eui-Kyeom, a spokesman for the Blue House, South Korea’s executive mansion, said, “We are trying to grasp what President Trump means exactly.”  President Moon called an emergency meeting of top aides to “figure out” the next step.  “Denuclearization of the Korean peninsula and enduring peace are historic tasks that cannot be abandoned or delayed,” Moon said.  “The sincerity of the parties who have tried to solve the problem has not changed.”

A Chinese official was critical.

The reaction in Europe was universal...disappointment. British Prime Minister May said, “We need to see an agreement that can bring about the complete, verifiable and irreversible denuclearization of the Korean Peninsula.”

In Congress, House Speaker Paul Ryan said in a statement: “We must continue to work with our allies toward a peaceful resolution, but that will require a much greater degree of seriousness from the Kim regime.”

But Friday, North Korean Vice Foreign Minister Kim Kye Gwan was conciliatory, specifically praising President Trump’s efforts.

“We have inwardly highly appreciated President Trump for having made the bold decision, which any other U.S. presidents dared not, and made efforts for such a crucial event as the summit.

“We even inwardly hoped that what is called ‘Trump formula’ would help clear both sides of their worries and comply with the requirements of our side and would be a wise way of substantial effect for settling the issue,” he said, without elaborating.

Kim Kye Gwan continued: “(Trump’s) sudden and unilateral announcement to cancel the summit is something unexpected to use and we cannot but feel great regret for it,” while nothing that North Korea remained open to resolving issues with Washington “regardless of ways, at any time.”

And so we had the beginnings of a walk-back, and President Trump said today, “We’ll see what happens. We are talking to them now. They very much want to do it. We’d like to do it....it could even be the 12th.”

Gee willikers, as my grandfather on my Dad’s side used to say.

Separately, Thursday, North Korea went on with the decommissioning of what it claims is its only nuclear test site, though experts argued months ago it was already useless, the mountain having collapsed, let alone the area is heavily contaminated.

Opinion...all sides....all written prior to the partial walk-back.

Editorial / New York Post

“Looks like President Trump just called Kim Jong-Un’s bluff.

“Trump on Thursday abruptly called off next month’s scheduled historic summit in Singapore, calling it ‘inappropriate’ in the face of the North Korean leader’s ‘tremendous anger and open hostility.’

“Earlier in the week, North Korea, apparently convinced that Trump is preoccupied with winning a Nobel Peace Prize, goaded him by suggesting he would ‘be recorded as a more tragic and unsuccessful president than his predecessors, far from his initial ambition to make unprecedented success.’

“But Trump’s cancellation letter turned the tables by thanking Kim for his ‘time, patience and effort’ and inviting him to ‘call me or write’ if he changes his mind.

“And in response to Pyongyang’s overnight threat that Washington would face a ‘nuclear-to-nuclear showdown’ and ‘an appalling tragedy’ if it pulled out of the summit, Trump pointedly warned: ‘You talk about your nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used.’

“Good for him. On every level, it was the wise thing to do and made clear he meant it when he said he was prepared to walk away.

“As it is, he’s already made history by offering Kim what he most wanted – the chance to sit down face to face and negotiate with an American president.

“But Team Trump wants rapid (a year or less) and total denuclearization, with sanctions relief coming only when North Korea fulfills its obligations. Kim wants a much longer process that starts with sanctions relief and de facto recognition as a nuclear state.

“That is, what the last prez gave Iran.

“But Kim’s shakedown strategy (which Pyongyang used with past presidents) just failed – because it met a president who refused to take the bait.”

Editorial / Washington Post

“President Trump’s abrupt cancellation of a summit with North Korean ruler Kim Jong Un had the same air of hasty, strategy-free improvisation that has characterized his handling of the diplomatic opening all along.  Mr. Trump agreed to the summit in March without requiring any action by the North Korean ruler, or even a clear statement of his intentions. He then proceeded to hype the wildly unrealistic possibility that the regime would quickly disarm; he minted a medal to commemorate the upcoming meeting and encouraged talk that he deserved the Nobel Peace Prize....

“(Trump’s announcement) blindsided the government of South Korea, which had brokered the talks: ‘We are attempting to make sense of what, precisely, President Trump means,’ a spokesman said.  Meanwhile, Mr. Trump blurted at a White House appearance that ‘it’s possible’ the summit could still take place on the planned date of June 12, while simultaneously warning that ‘our military...is ready if necessary.’

“Never has such chaos attended the public behavior of a U.S. president on a matter of such gravity: both Mr. Trump and the North Koreans alluded to the possibility of nuclear war. Appearing before Congress, Secretary of State Mike Pompeo was unable to offer an answer when asked what the U.S. strategy would now be. North Korea, meanwhile, had hours earlier made a show of blowing up mountain tunnels it has used to conduct nuclear tests – an action suggesting that until Mr. Trump’s statement, it remained willing to move forward.

“White House officials said the North Korean statement that Mr. Trump reacted to was merely the last straw in a series of negative actions. North Korea canceled a planned meeting with South Korea last week and failed to answer U.S. inquiries about summit planning. But Pyongyang was responding, at least in part, to U.S. rhetoric. Mr. Trump and other officials had alluded to the history of Libya, which gave up its nuclear program and later was subjected to a NATO bombing campaign that led to the overthrow and murder of ruler Muammar Gaddafi.  North Korea could ‘end like the Libya model ended if Kim Jong Un doesn’t make a deal,’ Vice President Pence said Monday. That led Vice Foreign Minister Choe Son Hui to deride Mr. Pence as ‘ignorant and stupid’ and threaten a ‘nuclear-to-nuclear showdown’ – overheated rhetoric that is familiar to anyone who has studied the North Korean regime.

“Mr. Trump has not. On the contrary, until this week he appeared oblivious to increasingly clear indications that Mr. Kim had no intention of quickly surrendering his nuclear arsenal.  Rather, North Korea appeared interested only in a multistage process in which denuclearization would be a vague and long-term goal, and the regime would be rewarded for every step forward. That is how previous deals with North Korea have been structured. Such a process carries obvious risks, but the administration should have been willing to carefully explore what Mr. Kim was prepared to do. Instead Mr. Trump has impulsively blown up the process – with potential consequences that he and his administration have not bothered to calculate.”

Josh Rogin / Washington Post

“It’s possible that, by pulling out of the U.S.-North Korea summit planned for next month, President Trump is setting up a future negotiation where the United States gets a better deal. But it’s far more likely that Trump’s reversal will lower the chances for successful diplomacy, strain alliances, harm U.S. credibility, increase tensions and make peace and security harder to achieve. The official White House line is that Trump boldly decided to meet with Kim Jong Un to test North Korea’s willingness to give up its nukes; then Trump boldly called off the meeting when he concluded Kim wasn’t serious. Trump’s Thursday letter to Kim offered him a chance to calm down his rhetoric, give in to Trump’s demands and come back to the table later.

“Secretary of State Mike Pompeo had to defend scuttling the summit he circled the globe twice to arrange, telling the Senate Foreign Relations Committee on Thursday that U.S. policy on North Korea will now return to where it was two months ago: pressuring North Korea in conjunction with our allies.

“ ‘In some ways, it’s situation normal. The pressure campaign continues,’ Pompeo testified.  ‘I don’t know what to say....Our process remains the same.’....

“If you thought the Trump-Kim summit was always a folly, Trump’s withdrawal is good news.  Now, Trump won’t get outmaneuvered by Kim.  It’s true that expectations rose out of control.  The president may have realized that barreling into a high-level summit without proper preparation was fairly reckless, although he argued consistently it wasn’t.

“But by cutting off the diplomacy in the middle with no certainty of what comes next, Trump has opened up a world of possible consequences, most of them bad....

“The U.S.-South Korea alliance is headed for tough times. Pompeo didn’t deny that Trump neglected to give President Moon Jae-in warning that he was scrapping the summit. Moon was in town just two days ago. His legacy hangs in the balance. Trump made Moon lose face and put distance between the two allies.

“Pompeo could lose credibility, not only with Kim but also any world leader who now can’t be sure he speaks for the president.  Pompeo himself must now pivot from his optimistic rhetoric about bringing North Korea into the 21st century and toe the more hawkish Bolton line of pushing more sanctions all the time.

“China could take advantage, putting itself forward as the new key broker in diplomacy. But in pulling North Korea away from the United States (and by extension South Korea), we may end up pushing Kim back into Beijing’s arms. Xi Jinping now holds the key to enforcing sanctions and getting back to negotiations. He might use that leverage against Trump to get concessions in trade and other areas.

“Perhaps the biggest risk is that Trump himself loses interest in North Korean diplomacy, feeling burned and calculating that his best chances for a Nobel Peace Prize lie elsewhere....

“Maybe a deal with North Korea was never in the cards. But Trump’s actions on North Korea have broader regional and international implications. The least the administration can do now is work diligently to mitigate the risk that Trump’s about-face does more damage than good.”

Editorial / Wall Street Journal

“Donald Trump described his decision Thursday to nix his June summit with North Korean dictator Kim Jong Un as a ‘tremendous setback’ for North Korea and the world, but the better word might be relief. Mr. Trump had overestimated Kim’s willingness to give up his nuclear weapons and was heading toward a summit failure....

“(The) real problem is substance, not tone. As North Korea’s recent comments made clear, the North hasn’t decided to give up its nuclear weapons. The North continues to define denuclearization of the Korean Peninsula as a process of arms control that includes the departure of America’s presence in South Korea. Like his father and grandfather, Kim wants sanctions relief and other benefits in return for nuclear promises his country has never honored.

“Mr. Trump agreed to the summit in part because South Korean President Moon Jae-in misrepresented the North’s position after talks with Kim’s sister at the Winter Olympics.  After claiming Kim had a change of heart about nuclear weapons, Mr. Moon pursued his plan to resurrect the Sunshine Policy of appeasement toward the North that failed in the 2000s.

“That created a peace euphoria in the South that pushed the Trump Administration to explore the opening to preserve the alliance.  Mr. Trump was ill-advised to agree to the summit so readily and without much planning, and he compounded the error by talking up its prospects.  He might have gone to a summit that gave Kim a diplomatic victory for nothing in return. But perhaps the experience has taught the President that Mr. Moon and Kim have different priorities than his goal of complete, verifiable and irreversible denuclearization.”

China: Taiwan lost its second diplomatic partner in less than a month as the West African state of Burkina Faso severed relations amid a Chinese campaign to suppress international recognition of the self-ruled island, which Beijing is determined to take over.

Taiwan had a 24-year diplomatic relationship with Burkina Faso and the move comes weeks after the Dominican Republic switched to recognizing Beijing instead of Taipei.

So only 18 states still recognize Taiwan.  President Tsai Ing-wen, in televised remarks, criticized Beijing for trying to undermine the island’s sovereignty, saying those efforts “exposed China’s anxiety and lack of confidence.”

“We will no longer be forbearing, and instead become more determined” in seeking international partnerships, Tsai said, adding that Taiwan wouldn’t counter Chinese “dollar diplomacy” with similar tactics.

Tsai, unlike her predecessor, has refused to acknowledge the “one China” principle Beijing insists on, i.e., that political unification is possible in the future. It has pissed off China to no end that Tsai refuses to buckle under.

Meanwhile, China continues its military buildup in the South China Sea, largely in disputed areas, claimed by different nations.  The Pentagon, in response, disinvited China from participating in a major naval exercise on Wednesday. Beijing’s decision to place anti-ship missiles, surface-to-air missiles and electronic jammers on the Spratly Islands is an outrage.  Among the nations with competing claims are Malaysia, Vietnam and the Philippines.

A Pentagon spokesman said: “We believe these recent deployments and the continued militarization of these features is a violation of the promise that President Xi made to the United States and the world.”

The Pentagon announced China had also landed bomber aircraft, apparently including the advanced, nuclear-capable H-6K, at Woody Island, in another area claimed by China and Vietnam.

Defense Secretary Jim Mattis is slated to make his first official visit to China in a month.

Editorial / Washington Post

“In short, while Mr. Trump has been ineptly seeking an unfeasible reduction in the U.S. merchandise deficit with China, the regime has quietly stolen a march in another theater.  Even before the landing was announced, Adm. Philip Davidson, the incoming chief of U.S. Pacific Command, told Congress that ‘China is now capable of controlling the South China Sea in all scenarios short of war with the United States.’  The American answer has been limited to verbal protests by the Pentagon and White House, and showy but equally ineffective ‘freedom of navigation’ patrols by U.S. warships past some of the islands. When the deployment of missiles in the Spratlys was reported, White House spokeswoman Sarah Huckabee Sanders promised ‘consequences.’ Other than disinviting China from an upcoming Pacific naval exercise, there have been none

“China’s de facto takeover of islets claimed by several other countries, including U.S. ally the Philippines, and its construction of a military capacity to control vital international sea lanes represent a failure of more than one administration. Mr. Obama also proved feckless in the face of Beijing’s salami-slicing strategy of gradually building up its position; each individual step was judged insufficient to justify a major U.S. reaction. Mr. Trump, preoccupied with obtaining favors on trade and North Korea from Mr. Xi, has been similarly straitjacketed.

“But the long-term impact of China’s buildup could be considerably more important than the threat from impoverished and isolated North Korea, much less the trade balance.  Countries surrounding the South China Sea could eventually find themselves forced to accept Chinese hegemony in the region. As Mr. Davidson suggested, the United States would be unable to reverse that dominion short of a nearly unthinkable war. In all, it seems like a more worthy problem for presidential attention and strategic planning than exports of soybeans and automobiles.”

As alluded to above, the Philippines expressed “serious concerns” this week over the presence of China’s strategic bombers in the disputed South China Sea and its foreign ministry has taken “appropriate diplomatic action,” a spokesman for President Duterte said on Monday.

Lastly, an American citizen working at the U.S. consulate in the southern city of Guangzhou reported suffering from “abnormal” sounds and pressure leading to a mild brain injury, the U.S. embassy said on Wednesday, as China said it was investigating. A case similar to those suffered in Cuba in late 2016.

Iran: Monday, Secretary of State Pompeo threatened Iran with “the strongest sanctions in history” if it did not curb its regional influence, accusing Tehran of supporting armed groups in countries such as Syria, Lebanon and Yemen.

Pompeo, speaking two weeks after President Trump pulled out of an international nuclear deal with Iran that had lifted sanctions on it in exchange for curbs to its nuclear program, said Iran would be “battling to keep its economy alive” after the sanctions took effect.

Pompeo said U.S. sanctions lifted after the 2015 accord will be re-imposed, and those and new measures will together constitute “unprecedented financial pressure on the Iranian regime.”

The secretary did not specify what new measures Washington was contemplating.

Existing sanctions will not be re-imposed on Tehran immediately but are subject to three-month and six-month wind-down periods.

“Iran will never again have carte blanche to dominate the Middle East,” Pompeo said.

Pompeo laid out 12 conditions for any “new deal” with Iran, including the withdrawal of forces from Syria and an end to its support for rebels in Yemen.

Others include: Giving the International Atomic Energy Agency (IAEA) a full account of its former military program, and giving up such work forever; ending its “threatening behavior” towards its neighbors, including “its threats to destroy Israel”; and releasing all U.S. citizens, and those of U.S. partners and allies, “detained on spurious charges or missing in Iran.”

Iran’s Foreign Minister Mohammad Javad Zarif said in response that Pompeo had repeated old allegations against Tehran “only with a stronger and more indecent tone.”

“Mr. Pompeo and other U.S. officials in the current administration are prisoners of their wrong illusions, prisoners of their past and have been taken hostage by corrupt pressure groups,” he told state television.

A senior Iranian military official, Maj. Gen. Mohammad Bagheri, said Iran would not bow to Washington’s pressure to limit its military activities.

“This enemy (the United States) does not have the courage for military confrontation and face-to-face war with Iran, but it’s trying to put economic and mental pressures on the Iranian nation,” the general told the state news agency.

In Damascus, Syria’s deputy foreign minister dismissed the notion of a withdrawal of Iranian forces.

In Paris, France’s foreign minister, Jean-Yves Le Drian, said the U.S. decision to scrap the Iran deal and implement a tough strategy on the country would strengthen Tehran’s hardliners and endanger the region.

“We disagree with the method because this collection of sanctions which will be set up against Iran will not enable dialogue and, on the contrary, it will reinforce the conservatives and weaken President Rouhani. This posture risks endangering the region more,” said Le Drian.

Editorial / Wall Street Journal

“Critics insist the U.S. can’t replicate the previous sanctions because the Europeans, Russians and Chinese aren’t supportive. The European Union in particular is exploring ways to circumvent U.S. sanctions, but that is harder than it sounds...the Iran economy is under pressure and its currency is reeling.

“The U.S. over Iran is an easy choice: EU countries bought and sold about $25 billion in goods with Iran in 2017, compared with some $720 billion with the U.S. European multinationals like Total and Siemens are already closing shop in Iran, and more than 30% of Total’s shares are held by Americans. No doubt the Europeans resent having their foreign-policy choices limited by the relative strength of the U.S. economy, but they also have a stake in restraining Iran.

“Iran’s expansionism has accelerated since the nuclear deal, and its missile tests have increased.  Iran has helped turn Syria into ’71,000 square miles of kill zone,’ Mr. Pompeo said, and the refugees it has caused to leave Syria ‘include foreign fighters who have crossed into Europe and threatened terrorist attacks in those countries.’  Yet Europe hasn’t imposed a single new sanction on Iran for such behavior since the nuclear deal was signed.”

At week’s end, diplomats from Europe, China and Russia were discussing a new accord to offer Iran financial aid to curb its ballistic missile development, in the hope of salvaging the deal.  French President Macron traveled to Moscow this week to meet with Russian President Putin to go over the details and Putin was supposedly amenable to it.

Iran then formally said it would pull out of the accord unless it receives concrete guarantees that the economic incentives of the pact will be protected by the other parties.  Iran called an urgent meeting today of the so-called Joint Comprehensive Plan of Action Joint Commission, or JCPOA – the first time the group of Iran, Britain, France, Germany, China and Russia has convened since President Trump took the U.S. out of the deal.

Russia: Dutch prosecutors have identified a Russian military unit as the source of the missile that shot down Malaysia Airlines Flight 17 over eastern Ukraine in 2014, killing all 298 people on board. Russia repeated afterwards it had nothing to do with the incident.

Separately, the Kremlin is also denying U.S. claims that its nuclear-powered cruise missile with “unlimited” range crashed after only 35km in a test. The weapon was one of the “invincible” nuclear arms announced by President Putin during a speech in March.

“Since its range is unlimited, it can maneuver as long as you want,” Putin said. “For now, no one in the world has anything like this.”

But sources with direct knowledge of a U.S. intelligence report told CNBC that four tests of the missile between November and February all resulted in crashes. [The 35km the longest of the four.]

After taking off with conventional fuel, the cruise missile is designed to be powered by a small nuclear reactor during flight, but U.S. intel claims this component failed to start.

Venezuela: President Nicolas Maduro, fresh off victory in last weekend’s sham election, derided as farce by the U.S. and other countries, including many in Latin America, moved up his inauguration by eight months and was sworn in Thursday for a second, six-year term. “The revolution is here to stay!” Maduro said after winning 68 percent of the vote, more than three times as many as his main rival Henri Falcon.

Having barred two popular opposition leaders from running, while forcing others into exile, Maduro said: “Venezuela had free elections, legitimate ones,” as he spoke before the National Constituent Assembly, a body handpicked by his allies to supersede the opposition-controlled congress.

Vice President Mike Pence tweeted yesterday: “We will continue to pressure Venezuela’s illegitimate regime until democracy is restored.”

This bastard needs to be taken out, preferably by Venezuela’s military in a coup, and without any U.S. support...our history in the region in such actions not being very good.

Random Musings

--Presidential tracking polls....

Gallup: 42% approve of President Trump’s job performance, 54% disapprove. [May 20]
Rasmussen:  49% approve / 50% disapprove.

--House Speaker Paul Ryan is losing his grip on the feuding House Republican conference at the worst possible time, before the midterm elections, as he’s caught between dueling factions vying for power, while facing some calls for him to step down before his planned year-end retirement.

The unrest is in the wake of a humiliating defeat for Ryan and other GOP leaders on the farm bill, last Friday, as conservatives sank it amid a bitter fight over immigration policy. As in what is the message being sent to voters who are supposed to re-elect these Republican House members?

Some are saying Ryan’s right-hand man and preferred successor, Majority Leader Kevin McCarthy (R-Calif), who has a close relationship with President Trump, should take the reins from Ryan immediately and move to assert more control over the party, including fundraising.

But for now it’s about the Freedom Caucus, led by Mark Meadows (R-N.C.), and how far he wants to go.  Many conservatives are promoting fellow Freedom Caucus member Jim Jordan (R-Ohio) to run against McCarthy when the time comes.  [That would require the vain Jordan to don his suit coat.]

--Approval of same-sex marriage is at a new high, according to the latest Gallup poll on the topic, published Wednesday.

67% of Americans express their approval, the highest level since Gallup began recording results 20+ years ago.  Back in 1996, 27% said they supported gay marriage.

In the latest survey, 83% of respondents who identified themselves as Democrats said they supported the legal recognition of same-sex marriage, while 44% of Republican respondents and 71% of independents expressed support.

Personally, I’d be in the 44% of Republicans.  20 years ago?  I won’t say.

Gallup found the percentage of American adults identifying as lesbian, gay, bisexual or transgender increased to 4.5% in 2017, up from 4.1% in 2016 and 3.5% in 2012 when Gallup first asked the question.  The estimate is based on over 340,000 interviews conducted as part of Gallup’s daily tracking poll in 2017.

--Harvey Weinstein surrendered to Manhattan police Friday on charges he raped and sexually assaulted two women.  Just the start for the man who was responsible for starting the #MeToo movement.

--Ireland voted in favor of ending its ban on abortion by a 69-31 margin, according to exit polls after a vote today. This was a prohibition enshrined in the constitution 35 years ago.   Having been to Ireland over 20 times, let’s just say my Catholic church didn’t help itself any with one scandal after another, including Tuam, which was deadly.

--Lyme disease is soaring in New Jersey, to staggering numbers, according to new data from the New Jersey Department of Health. There were 5,092 reported cases in the state in 2017, the highest yearly total in nearly two decades.

While more awareness of the disease could be a reason for the total, there are just a ton of deer in the state (and rodents) that carry ticks. The ticks get the disease from the rodents, typically mice, and the ticks then attach themselves to deer to feed and mate.  Record cold weather, like we had this winter, doesn’t do a number on them like one would think.

--The number of people who have died of Ebola in the Democratic Republic of Congo in the latest outbreak is up to 27 since April.  I was reading this Reuters release, which grossed me out, one of the new victims being in the city of Mbandaka.

“At the central market, where vendors in colorful fabrics hawk smoked monkeys....”

Yup, that’s part of how Ebola starts, boys and girls. I’m guessing every single African has been told not to consume bush meat, but as one mother of eight in the city of 1.5 million put it, “Despite your Ebola stories, we buy and eat monkey meat. We have eaten that since forever. That is not going to change today.”

Well, I can’t say I’m going to the local supermarket to buy Swanson’s ‘Smoked Monkey Meat with mashed potatoes’ dish, and I thank God for growing up in a family where Mom spoiled me with veal cutlet and spaetzle (apologies to my vegetarian and animal rights friends).

Back to Ebola, more than 11,300 people died in the last big outbreak in the West African countries of Guinea, Liberia and Sierra Leone between 2013 and 2016.  The key with this current episode is Mbandaka, where at least six cases have been detected.  Experimental drugs from Merck are being employed for the first time by the World Health Organization.

--I’m not going to get into a lot of the specifics with the controversy swirling around USC, but this week 200 professors there demanded the resignation of university President C.L. Max Nikias, saying he had “lost the moral authority to lead” in the wake of revelations that a campus gynecologist was kept on staff “for decades despite repeated complaints of misconduct.”  [L.A. Times]

I’ve read a few articles on the story the last few weeks, and it’s just astounding this guy was kept onboard.

As for President Nikias, he said he, too, was struggling to understand how the doctor was allowed to continue treating patients, yet there were numerous complaints from students and staff beginning in the 1990s.

*And late word tonight is that Nikias resigned.

--Pirates are running amok in the Caribbean and Latin America, according to a study from the nonprofit group Oceans Beyond Piracy, which found a 163 percent increase in 2017 from the year before.  59 percent of the incidents involved robberies on yachts.

Particularly hard hit have been the waters off Suriname and Guyana.  In April, at least a dozen fishermen from Guyana went missing and were feared dead following a pirate attack in the area. Guyana’s president called the attack a “massacre.”

Around the Horn of Africa, the cost of piracy has been coming down, from a high of $7 billion in 2010, to $1.4 billion in 2017, as various militaries have cracked down on attacks by Somali gangs.

--We note the passing of author Philip Roth, whose often outrageous novels about Jewish life and sex and death and betrayal made him one of the country’s greatest novelists. He died this week at the age of 85.

Roth was born in Newark, N.J., which was featured in many of his works. His first published book, 1959’s “Goodbye, Columbus,” was followed by the likes of “Portnoy’s Complaint” and so many more.

[Trivia: What great 60s rock band performed the title song for the film version of “Goodbye Columbus”? Answer below.]

--There have been a series of articles the past few months with similar conclusions; that humans destroyed 83% of all wild mammals amid the rise of human civilization.

Most of today’s mammals, as measured by biomass, are farmed pigs and cattle, as well as farmed poultry. Just 4% of all mammals today live in the wild.

The figures are from a study published this week in the Proceedings of the National Academy of Sciences.

There are examples of humanity’s outsized impact: “Intense whaling helped decimate 80% of all marine animals, and half of all plants on Earth have been lost.”

Humans, by the way, make up just 0.01% of all life.

Frankly, once my Mets, Jets and Knicks win a title, I couldn’t give a damn what happens to humans. I’m outta here.

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Gold: $1306
Oil: $67.50

Returns for the week 5/21-5/25

Dow Jones  +0.2%  [24753]
S&P 500  +0.3%  [2721]
S&P MidCap  +0.2%
Russell 2000  +0.02%
Nasdaq  +1.1%  [7433]

Returns for the period 1/1/18-5/25/18

Dow Jones  +0.1%
S&P 500  +1.8%
S&P MidCap  +2.4%
Russell 2000  +6.0%
Nasdaq  +7.7%

Bulls: 49.1
Bears:   19.2

Dr. Bortrum is back and posted a new column.  He is doing  well and hopefully is back at the Summit Muni golf course in a month or so.

Happy Memorial Day!  Think not only of their passing, but remember the glory of their spirit.

Brian Trumbore

*Trivia Answer: The Association...YouTube it...super tune, which I have to warn you, once you listen to it, it doesn’t leave your head for 48-72 hours.

And an apology for those who tried to read last week’s column before about noon on Saturday.  Yes, it was a mess.  I was driving to the shore for an annual reunion weekend of sorts and I was overwhelmed, due to lack of time and news flow.  By noon Sat., I had cleaned it up.  As for further details, ask my Poker Group friends.

 

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