Week in Review

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Week in Review

06/02/2018

For the Week 5/28 - 6/1

[Posted Saturday at 12:30 AM, ET]

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Edition 999

Next week is the 1,000th edition.  I’m saving up some material for then, including a detailed analysis of Donald Trump and why I feel the way I do towards him.

Trump World       

President Trump received some terrific economic news today in the May jobs report, with the unemployment rate ticking down to the lowest level since April 2000, further details below.

And we learned that the historic summit with North Korean leader Kim Jong-un is on for June 12 in Singapore, the announcement coming after an Oval Office meeting between the president and Kim Yong Chol, the vice-chairman of North Korea’s Central Committee and the former spy chief.  The two met for 1 ½ hours and then emerged before reporters, Trump saying after Kim Yong Chol left, “It’s going to be a process, but relationships are building, and that’s a very good thing.”

Asked if he was confident that the North Korean regime was committed to denuclearization, Trump said: “I think they want to do that.  I know they want to do that.”

As for the letter from Kim Jong-un that the spy chief left with the president, Trump said he had not read it (at the time he was talking to reporters, though five minutes earlier he acted as if he had).

“I look forward to the day I can take sanctions off of North Korea,” Trump said. “We talked about ending the war. This war has been going on – got to be the longest war, almost 70 years, right?  A possibility of something like that.”

Kim Yong Chol had been personally sanctioned by the United States over his role in the North’s nuclear weapons program and is thought to have masterminded an attack that sank a South Korean naval vessel in 2010, killing 46 sailors.  Kim needed a special waiver to travel to New York and then Washington.

I hope the summit goes well.  I have serious doubts as to the longer-term outcome, however, and Trump is totally being played, not just by Chinese President Xi Jinping, as well as Kim Jong-un, but also South Korean President Moon.

You know how much it sickens me every time Trump talks of Xi in glowing terms.  “President Xi has been a great friend with North Korea.”  “Let me tell you about China: Great people, great country, great leader.”  And this afternoon, “(Xi’s) a great, wonderful guy.”

[This while he also loves to say: “We need to drain the swamp and we need to be very careful with the press.”]

This is nuts, this Xi worship.  This is a very bad guy.  Never, ever to be trusted...on anything.  Ditto any representative of his government.

I mean just as Trump was praising Xi, post-his meeting with Kim Yong Chol, Defense Secretary Jim Mattis, speaking at an annual conference in Singapore, called into question China’s intent in the South China Sea (more on this below), saying the U.S. will “compete vigorously” if needed.

I also hate to keep beating a dead horse, but with Trump everyone knows there is no strategy whatsoever, no planning, whether it is on foreign policy or trade.  Zero strategic thinking in terms of understanding that today more than ever, we need allies. The enemy is China.  We have to be teaming up, the European Union and the U.S., to read them the riot act on trade and the stealing of intellectual property.

Trump doesn’t understand a lick that the trade war he is launching against the EU, and allies Canada and Mexico, is going to influence a generation of young people in these lands to hate America.  How is that helpful?  And in the here and now, European leaders are not going to be quick to come to our aid in the next geopolitical crisis.

And Trump’s trade policy leaves U.S. business owners, just as the economy is cooking, up in the air in terms of long-term planning, and investment.

The following perfectly encapsulates my thoughts on Donald Trump.

Robert DeLaney / South China Morning Post

“White House observers were too whipsawed by U.S. President Donald Trump’s mixed signals last week over his plans to meet North Korean leader Kim Jong-un to notice another glaring contradiction of his.

“This one, delivered in a commencement address to U.S. Naval Academy graduates, should be as troubling to Beijing as his negotiating tactics with respect to Pyongyang.

“ ‘We’re sharpening the fighting edge of everything from marine infantry squads to combat ships to deliver maximum lethal force,’ Trump told the graduating class of 2018.

“ ‘The enemy has to know we have them. And we are recommitting to this fundamental truth: we are a maritime nation. And being a maritime nation, we’re surrounded by sea. We must always dominate that sea. We will always dominate the oceans.’

“Just a few weeks earlier, Trump had this very different take on the United States’ role in global security. ‘We more and more are not wanting to be the policemen of the world,’ Trump said during a joint press conference with Nigerian President Muhammadu Buhari in Washington.

“ ‘We’re spending tremendous amounts of money for decades policing the world, and that shouldn’t be the priority,’ he added.  ‘We want to police ourselves and we want to rebuild our country.’

“From isolationism to a rousing call for projecting military power around the globe in just a few weeks, Trump’s foreign policy would seem as directionless as a compass sitting on the North Pole. He has not only stopped bothering to rationalize policy contradictions. He embraces them.

“Contradictions have become part of a strategy that transforms him and his executive branch from one-third of a government designed to function as a system of checks and balances to a strongman in the mold of his counterparts in China, Russia and North Korea.”

The mid-term elections are fast-approaching.  The Democrats’ thoughts of a blue wave are fading fast, as they have zero message with the economy on fire, and zero leadership.  [Bernie Sanders, who isn’t even a Democrat, can hardly be effective with 3.8% unemployment. And he’s what passes as a leader for the donkeys these days.]

But all Trump had to do was focus on China and the major trade issues with them, stay cool with everyone else, and stop tweeting on the Mueller probe, and everything else, and Republicans would roll.

Alas, he’s incapable of such thinking, and his mission every day when he wakes up is to keep the attention on him, solely.

Lastly, we have this issue of the Trump tweet an hour before release of today’s jobs report.

“Looking forward to seeing the employment numbers at 8:30 this morning.”

Economic adviser Larry Kudlow later admitted on CNBC that he gave President Trump the stronger-than-expected data late last night, Kudlow, and others of his ilk in prior administrations long having received the numbers the day before.

Trump thus violated rules in place (not laws) for over three decades on the handling of such information when he commented, even if obtusely, about the numbers ahead of their release at 8:30 a.m.

I can guarantee someone in Robert Mueller’s special counsel office is now salivating.  The president keeps stepping on his own message.

As some of the people on the desk at CNBC surmised when this tweet went off at 7:21, ‘Did Trump tell anyone on his staff about the numbers, and could they possibly have acted on them?’

But CNBC folks were then focusing on trading Friday morning, though of course you can trade futures at night.  Did anyone act on information clearly we now know the president wink winks to friends the night before?  If you doubt this, then you believe J.R. Smith’s explanation he knew what the score was after corralling a critical rebound Thursday night.

So I’ll put forward my own personal, unique theory.  Knowing the president as we do, somewhere along the line he has told a buddy, say Carl Icahn, or Michael Cohen, about the data.

But here’s where the president should be concerned.  Let’s say one of these individuals, for various reasons, is being wiretapped by the Feds, let’s say over a massive insider-trading investigation, or in the case of Cohen, the Russians.

And let’s just say over the past 1 ½ years, the reckless Trump (look at his Lester Holt interview on Comey, if you still are wondering where I’m coming from), is on one of those wiretaps tipping off a friend.  That would be very serious, sports fans.  I just wanted to be on the record for laying this on the table.

Trumpets....

--The cost of the ongoing investigation into Russia’s interference in the 2016 election is now nearly $17 million, according to a new accounting filed Thursday by the Justice Department special counsel Robert Mueller. Nineteen people are known to be charged so far. They include 13 Russians, associated with three businesses including an Internet company tied to the Kremlin.

--Investigators from the D.C. U.S. Attorney’s Office recently interviewed former FBI director James B. Comey as part of a probe into whether his deputy, Andrew McCabe, broke the law by lying to federal agents – an indication the office is seriously considering whether McCabe should be charged with a crime, as reported by the Washington Post.

Justice Department Inspector General Michael E. Horowitz accused McCabe back in April of misleading investigators and Comey four times – three of them under oath – about authorizing a disclosure to the media.  Horowitz then referred the findings to the D.C. U.S. Attorney’s Office.

Separately, the New York Times reported McCabe had written a confidential memo last spring recounting a conversation that provided “significant behind-the-scenes” details of the firing of Comey, and that McCabe had turned in his memo to Robert Mueller. The memo reportedly claims that Deputy Attorney General Rod Rosenstein said President Trump asked him to refer to the Russia investigation as a reason for recommending the dismissal of Comey.

Thursday, President Trump sought to undercut a central focus of the Mueller investigation, tweeting that he didn’t fire Comey to shut down the probe.

“Not that it matters, but I never fired James Comey because of Russia!” Trump tweeted. “The Corrupt Mainstream Media loves to keep pushing that narrative, but they know it is not true!”

But of course we all know that after Trump fired Comey in May 2017, he gave an interview to NBC News in which he explicitly referred to the Russia probe led by the FBI: “In fact, when I decided to just do it, I said to myself, I said, ‘You know, this Russia thing with Trump and Russia is a made up story, it’s an excuse by the Democrats for having lost an election that they should have won.’”

Soon after the firing, Mueller was named a special counsel.

--Retiring Republican Congressman Trey Gowdy (S.C.), chairman of the House Oversight Committee, forcefully rebuked President Trump’s claim that the Obama administration implanted a “spy” into his 2016 campaign.

“President Trump himself in the Comey memos said if anyone connected with my campaign was working with Russia, I want you to investigate it, and it sounds to me like that is exactly what the FBI did,” Gowdy told Fox News on Tuesday.  “I am even more convinced that the FBI did exactly what my fellow citizens would want them to do when they got the information they got.”

Gowdy received a classified Justice Department briefing last week on an informant who contacted members of Trump’s campaign in 2016, as the FBI investigated Russian election meddling. Gowdy was skewered by Fox News’ night-time lineup for his statement.

I’ve always liked the congressman.  Hope he stays strong these final months in office.

In an interview with the Washington Post, Rudolph Giuliani, Trump’s personal lawyer, said the president is attacking the Justice Department because it is “working.”

--David Ignatius / Washington Post

“When a prominent Russian journalist fakes news about his own murder to try to expose the Kremlin’s misdeed [Ed. see below], you know something has gone dangerously wrong in what we like to call the free marketplace of ideas.  These days, it has become a battle space where anything goes.

“Russia pioneered the modern use of ‘weaponized information’ to interfere in the 2016 American presidential election and political campaigns in Europe, according to the U.S. intelligence community. But the Kremlin has lots of company in using hacked, leaked, stolen or fabricated information to influence opinion.

“The American information marketplace is being corrupted by many other foreign nations, including China, Saudi Arabia, Iran, Qatar and the United Arab Emirates. For the Middle East combatants, the United States is becoming the new Lebanon – the place where other nations go to fight their dirty proxy wars.

“This assault on America is abetted by Mr. ‘Fake News’ himself, President Trump. Since his success nearly a decade ago in fostering the canard that Barack Obama was born in Kenya, Trump has been spreading deceptive allegations and outright lies as a political tactic – all while falsely accusing his adversaries of making things up.

“The scary thing is that this fog of lies is working – for the Russians, the Arab info-warriors and Trump. And it is encouraging a growing use of covert manipulation by other nations (and private parties) to shape opinion. The public, understandably, is getting dizzy in this information storm and is not sure what (if anything) can be believed....

“This degradation of the information marketplace should terrify everyone, but especially journalists who depend on its coherence and credibility. For us, policing the information space starts with understanding how it is abused....

“As the allegations zing back and forth in media space, readers must feel as if they’re watching a ping-pong match. The public benefits from knowing some of the information, to be sure. But we need to explain better where our stories come from and why. Otherwise, everyone loses – maybe the media most of all.”

--Trump pardoned conservative commentator Dinesh D’Souza for campaign-finance violations, and said he might commute the corruption sentence of former Illinois Gov. Rod Blagojevich. Trump also said he was thinking about a pardon for Martha Stewart, who was convicted in 2004 of obstructing an investigation into her sale of biotech shares.

Once again, Trump went around the Justice Department’s office of the pardon attorney, which receives and reviews applications from convicts seeking pardons and suggests candidates to the president. D’Souza had no such application pending.

Trump also didn’t consult with the department prior to issuing a pardon for “Scooter” Libby and former Arizona Sheriff Joe Arpaio.

Obviously Trump is sending a message to the likes of Paul Manafort, Michael Flynn and Michael Cohen that he’s got their backs.

--The head of the national Border Patrol union – which endorsed Donald Trump’s candidacy – called the president’s deployment of National Guard troops to the Mexican border “a colossal waste of resources.”

“We have seen no benefit,” said Brandon Judd, president of the union that represents 15,000 agents, the National Border Patrol Council, the Los Angeles Times reported.

--Ivanka Trump was awarded seven new trademarks by China across a broad collection of businesses, including books, housewares and cushions.

Coincidentally, around the same time, President Trump vowed to find a way to prevent Chinese telecom company ZTE from going bust, even though the company has seriously violated U.S. sanctions with countries like Iran and North Korea.

--President Trump’s Memorial Day tweet drew widespread criticism.

“Happy Memorial Day! Those who died for our great country would be very happy and proud at how well our country is doing today. Best economy in decades, lowest unemployment numbers for Blacks and Hispanics EVER (& women in 18 years), rebuilding our Military and so much more. Nice!”

The Atlantic’s David Frum responded by saying the tweet was the “grossest, most inappropriate, most self-flattering Memorial Day message in the history of the US presidency.”

Senator John McCain, by contrast, said this in his Memorial Day message: “Today we honor the Americans who sacrificed everything to secure the blessings of liberty. Family and friends to some, heroes to all – who lived, fought and died for the safety and future of a great and good nation. God bless them and grant them perpetual peace. #MemorialDay.”

Wall Street

As noted above, the May jobs report was strong, 223,000, the 92nd consecutive month of jobs growth, a record. The unemployment rate of 3.8% is the lowest since April 2000. The unemployment rate for women, 3.6%, is the lowest since 1953. For blacks it’s an all-time low since they began keeping records in 1972 of 5.9%.

U6, the underemployment rate, is now 7.6%, the lowest since May 2001.  [U6 was 6.9% in April 2000...just for a comparison.]

But average hourly earnings, while rising 0.3%, are still just 2.7% vs. a year ago.  For years I’ve said that in an expansion of such length, you should be seeing 3.5%+, and indeed, back in April 2000, wages were rising at a 3.9% clip.

But everything about the report is a positive.  Republicans in tight races for November should be giddy.  Democratic leaders can only attack Trump’s character.

The jobs report wasn’t the only strong economic news.  Figures on personal income and consumption were released for April, 0.3% on the former, in line, and a solid 0.6% on spending, double expectations and exactly what you want to see, with consumer spending representing 2/3’s of economic activity in this country.

Plus an inflation component, the personal consumption expenditures index that the Fed focuses on, remained tame, up 1.8% on core. So there shouldn’t be pressure on Jay Powell and Co to hike interest rates more than two times the rest of this year, including ten days from now, the first of the two.

OK, that’s today’s thinking. But if the economy keeps cooking, and a far-ranging trade war averted, then three more hikes is definitely in the cards.

Finally, a reading on construction spending for April was off the charts good, 1.8%, best since Jan. 2016, and the ISM manufacturing number, 58.7, was solid, 50 being the dividing line between growth and consumption.  The new orders component was a stupendous 63.7.

Add it all up and the Atlanta Fed’s GDPNow indicator for the second quarter today has growth coming in at 4.8%!  That kind of number in July and succeeding months (through revisions of the data) would really help dash the donkeys’ hopes for taking the House.  [For the record, GDP for the first quarter was revised down this week to 2.2%.]

Trade: The White House brought tariffs on Chinese imports to start the week, reigniting a months-long conflict, and Wednesday, Beijing said it was not afraid to fight.

“China does not want to fight but is not afraid to fight a trade war,” Foreign Ministry spokeswoman Hua Chunying said.

She added the U.S. move to impose a 25 percent tariff on $50bn worth of Chinese goods was “contrary to the consensus” the two had reached previously in Washington.  It’s true, the White House had said it was putting tariffs “on hold,” then Tuesday said they would be imposed.  Commerce Secretary Wilbur Ross was to visit Beijing this weekend.

Then Thursday, the Trump administration announced a decision to impose 25 percent tariffs on steel and 10 percent tariffs on aluminum, saying it’s imposing tariffs on national security grounds, a sound economy being necessary for same, which is beyond bogus.

The EU’s trade chief, Cecilia Malmstrom, said today that the move to impose tariffs “is further weakening Trans-Atlantic relations.”  She said the measures “will cause a lot of damage to our steel and aluminum industry” and risk hurting global economic growth.  She dismissed the administration’s argument that the tariffs are needed for U.S. national security reasons.

“Internal security is not relevant. It is pure protectionism,” she said.

French President Emmanuel Macron told President Trump that the new U.S. tariffs were illegal and a “mistake.”

German Chancellor Angela Merkel said her nation “rejects the tariffs imposed by the U.S. on steel and aluminum.” “We consider that this unilateral measure is unlawful, and that the national security concerns given as the reasons can’t be upheld,” a spokesman added.  “The measures instead carry the risk of creating a spiraling escalation that will harm everyone.”

The EU is planning retaliatory tariffs on U.S. steel and food goods in the coming weeks, bourbon from Sen. Majority Leader’s Mitch McConnell’s home state, Harley-Davidson (Paul Ryan’s home state), and more, once it calculates the exact cost to European Union companies of the U.S. tariffs. Macron pledged the riposte would be “firm” and “proportionate” and in line with World Trade Organization rules.

Treasury Secretary Steven Mnuchin received an earful from global finance chiefs Thursday as part of a meeting with finance ministers and central bankers from the G-7 nations.  German Finance Minister Olaf Scholz said the U.S. levies are probably illegal.

Jean-Claude Juncker, head of the European Commission, said in a speech Thursday that “whenever I’m thinking about Trump, I’m lost.”

Canada and Mexico joined the EU in saying they would take immediate steps to retaliate, with Canada imposing tariffs on $12.8 billion of U.S. goods, ranging from steel to whiskey and maple syrup. 

Mexico said it would levy import taxes on U.S. exports of pork bellies, apples, cranberries, grapes, certain cheese and various types of steel.

Companies around the world have expressed concern about the tariffs and the risk that it could start a trade war, in which both sides hit each other with tit-for-tat measures.

Volkswagen said it views the tariffs with “regret and concern.”

“There are fears that this marks the start of a negative spiral of measures and countermeasures where there will ultimately be no winners.”

A statement from Harley-Davidson said it would suffer:

“We support free and fair trade and hope for a quick resolution to this issue. A punitive, retaliatory tariff on Harley-Davidson motorcycles in other major markets would have a significant impact on our sales, our dealers, our suppliers and our customers in those markets.”

Republican leaders were also not pleased with President Trump’s move: House Speaker Paul Ryan said: “I disagree with this decision.

“Instead of addressing the real problems in the international trade of these products, today’s action targets America’s allies when we should be working with them to address the unfair trading practices of countries like China.”

“There are better ways to help American workers and consumers,” Ryan added.  “I intend to keep working with the president on those better options.”

“This is dumb. Europe, Canada and Mexico are not China, and you don’t treat allies the same way you treat opponents,” Sen. Ben Sasse (R-Neb.) said.  “We’ve been down this road before – blanket protectionism is a big part of why America had a Great Depression.  ‘Make America Great Again’ shouldn’t mean ‘Make America 1929 Again.’”

Republican Rep. Kevin Brady (Tex.): “These tariffs are hitting the wrong target. When it comes to unfairly traded steel and aluminum, Mexico, Canada and Europe are not the problem – China is.”

Canadian Prime Minister Justin Trudeau revealed that he had rejected an ultimatum from Vice President Pence that any new North American trade deal be renewed at five-year intervals, and the new tariffs will do nothing to improve prospects for a new North American trade deal with Mexico and Canada. Trudeau said that he had offered to visit Washington to make a last-ditch bid for a deal that would have prevented the tariffs from taking effect.

But on Tuesday, Pence told him that Trudeau first had to agree that any new North American trade deal would lapse every five years unless formally renewed. The U.S. demand for such a “sunset clause” has long been unacceptable to its negotiating partners, so Trudeau refused.

Trudeau, in an address to the people, said, “That Canada could be a national security threat to the U.S. is inconceivable,” noting the many Canadians who have died alongside U.S. soldiers in joint military operations over the years.  “These tariffs are an affront to the longstanding security partnership between Canada and the United States.”

Trump has embraced tariffs with an enthusiasm not seen in centuries, according to some experts, and he’s treating some of America’s closest friends and allies as chumps.

Economist Douglas Irwin, author of a history of U.S. trade policy since 1763, told the Washington Post, “It’s more than highly unusual. It’s unprecedented to have gone after so many U.S. allies and trading partners, alienating them, and forcing them to retaliate. It’s hard to see how the U.S. is going to come out well from this whole exercise.”

 “You say to him how bad it’s going to be, and he responds, ‘We’re already getting screwed. What are we supposed to do, sit here and beg for them to leave us alone?’ said one Trump adviser, speaking to the Post on condition of anonymity.

The U.S. previously negotiated voluntary export limits with several other friendly nations, including South Korea, Argentina, Australia and Brazil.

Commerce Secretary Wilbur Ross told reporters, speaking from an OECD meeting in Paris, “We continue to be quite willing, indeed eager, to have further discussions with all of these parties.”

But with the actions against our allies, it greatly complicates efforts to confront China over trade practices the administration regards as unfair.  We should have been working with the EU together, as they share many of the same concerns on China’s efforts to steal advanced technology, either outright or through compulsory licensing practices, cybertheft and other measures. But why would Europe cooperate with the U.S. now?

Editorial / Wall Street Journal

“So much for Donald Trump as genius deal-maker. We are supposed to believe his tariff threats are a clever negotiation strategy, but on Thursday he revealed he’s merely an old-fashioned protectionist. His decision to slap tariffs on steel and aluminum imports from Europe, Canada and Mexico will hurt the U.S. economy, his own foreign policy and perhaps Republicans in November.

“In March Commerce Secretary Wilbur Ross dangled temporary exemptions to 25% steel and 10% aluminum tariffs to extort trade concessions from U.S. allies.  Mr. Ross withdrew the exemptions on Thursday, saying the U.S. ‘was unable to reach satisfactory arrangements’ with Canada, Mexico and the European Union. He means they didn’t unilaterally surrender.

“Mr. Ross announced the tariffs under Section 232 of the 1962 Trade Expansion Act ostensibly to circumvent the World Trade Organization. WTO rules let countries adopt tariffs to protect national security, but Canada, Mexico and Europe are hardly a threat.

“Canadian steel and aluminum are actually integral to U.S. national defense, as Commerce’s Section 232 reports acknowledge. Mr. Trump complained that Lockheed’s F-35s cost too much, but now he’s going to make U.S. fighter jets and other weapons more expensive, which could give Russia an advantage in international arms sales.  Brilliant. Another irony is that Mr. Trump has denounced China for using national security as a pretext to promote domestic industries like semiconductors. He’s essentially doing the same.

“American businesses rely on complex cross-border supply chains that take time and money to change. Most will have to internalize the tariff costs, which will mean raising prices or hiring fewer workers and paying lower wages. The tariffs also create uncertainty as businesses petition Commerce for product exemptions while delaying investment.  Note to Mr. Trump: Regulatory uncertainty was a big reason growth was so slow during the Obama years.

“Taxing steel and aluminum imports will make U.S. manufacturers less competitive. Prior to Thursday’s announcement, U.S. steel prices were up 40% this year and nearly 50% over the European benchmark. How does punishing American manufacturers square with Mr. Trump’s goal of making more cars in America?...

“The Federal Reserve in April reported that a maker of tractor trailers said that it ‘can’t raise prices as fast as material costs.’ A toy manufacturer in the Northeast that uses a thin-gauge aluminum foil said the tariffs had raised its prices three-fold.

“Then there’s the larger trade fallout, not least to NAFTA. Canada provides 43% of U.S. aluminum imports – more than twice as much as China and Russia combined. Mexico and Canada together account for about a fifth of U.S. steel imports compared to China’s 2% and Russia’s 9%.  As Nebraska Senator Ben Sasse tweeted, ‘You don’t’ treat allies the same way you treat opponents.’ On trade Mr. Trump treats them worse....

“All of which means that President Trump’s gambit could backfire politically. Mexico is America’s biggest apple export market. Washington Rep. Dave Reichert says apple and pear exports to Mexico increased by 70% after NAFTA. Wisconsin produces more than half of the nation’s cranberries whose biggest export markets are the Netherlands and Canada.

“Democrats have bought billboards in California’s Central Valley denouncing the impact of Mr. Trump’s trade policies on farmers. Even steel manufacturers will take a hit since Canada buys about half of U.S. steel exports while Mexico imports about 40%. The steelworkers union supported an exemption for Canada.

“Mr. Trump has been establishing a solid economic record with tax cuts and deregulation, but his escalating trade war puts that at risk.  He aspires to be Ronald Reagan but his tariff folly echoes of Herbert Hoover.”

Europe and Asia

Some economic news as May came to an end.  Euro area inflation is expected to be 1.9% in May, according to a flash estimate put out by Eurostat, up from 1.2% in April, which puts pressure on the European Central Bank to end its bond-buying program and turn to tightening monetary policy, though no one expects the ECB to hike rates off the zero level until well into 2019, at the least.

Eurozone unemployment for April was announced by Eurostat to be 8.5%, down from 8.6% in March and 9.2% in April 2017. This is the lowest rate recorded in the EA19 since December 2008.

Germany came in at 3.4%, France 9.2%, Italy 11.2% (unchanged from a year ago), Spain 15.9% (down from 17.6%), Greece 20.8% (Feb., and down from 22.6% in April 2017).

As for the IHS Markit data on manufacturing in the eurozone, it came in at 55.5 for May, same as the flash reading, down from April’s 56.2. Germany was down at 56.9, France up at 54.4, Spain down to 53.4, Italy down to 52.7, and Greece up to 54.2.

All still solidly in growth mode, but further data reflecting a slowing in growth.

Italy: After a week of stupendous ups and downs that spooked global financial markets, Italy’s president, under fire for not accepting a proposed coalition’s choice for economy minister because the man, Pablo Savona, was a Eurosceptic who had openly talked of withdrawing Italy from the Euro area, gave the green light to a government of populist parties that puts the country into the hands of leaders deeply antagonistic to the European Union, its currency and illegal migrants.

President Sergio Mattarella was presented with a reshuffled cabinet that made it too difficult for him to reject them a second time. The new government still needs to win a confidence vote in Parliament, but this is now a formality.  Giuseppe Conte, a university law professor with no political experience who was plucked from obscurity by the two parties,  is the new prime minister, saying the leaders of Five Star, Luigi Di Maio, and the League’s Matteo Salvini, would be at his side.

So the new government, consisting of the anti-establishment Five Star Movement and the far-right, anti-immigrant League, assumes power and despite the bounce back in Italy’s markets*, the fact still remains that the two parties have policies antithetical to the EU and the establishment, and that the deficit, already 130%+ of GDP, the second-largest in the EU to Greece, is going to explode anew because of the policies the two want to enact, such as a guaranteed wage. The two also want to renegotiate treaties on budgets, migration and a range of other issues with the European Union.

They also want to lift sanctions against Russia and for Italy to move closer to its president, Vladimir Putin, who once said he didn’t need to meddle in Italy’s election because it was moving in his direction.

European leaders will also be worried about populist movements in the likes of Poland and Hungary, European unity very much in doubt at this stage.

The only reason for relief is that there won’t be a new election in Italy that would have showed growing support for the League, as opinion polls now have it.

*The Italian bond market went nuts this week.  I told you last time that with the yield on the 10-year having risen from 1.86% on May 11 to 2.44% on May 25, “you ain’t seen nuthin’ yet,” and Tuesday, the yield closed at 3.13% (3.17% intraday), a mammoth move that had to have some traders crying for their mothers if they were on the wrong side of it. The yield then fell the rest of the week on word of the formation of a coalition that satisfied President Mattarella, but it still finished the week at 2.64%.  Ergo, a move from 1.86% to 2.64% in three weeks.  It’s going higher, much higher, though it may take a while after this recent move.

Spain: In another shocking development, Socialist Pedro Sanchez took over as prime minister, succeeding center-right Mariano Rajoy who lost a vote of confidence in parliament, triggered by a long-running corruption scandal involving members of his party.  Lawmakers stood and cheered as Sanchez – who had earlier promised to try to steer the country through to mid-2020 when the parliamentary term ends – became the country’s seventh head of government since its return to democracy in the late 1970s.

But Rajoy’s departure after six years casts one of the eurozone’s top four economies into an uncertain political landscape, a la Italy.  Sanchez did, however, reiterate a commitment to European orthodoxy and budget control, and he vowed to stick to the budget passed through parliament.  He needs to be non-confrontational as he leads a minority government with just 84 seats out of 350 in parliament.

For his part, Rajoy deserves major credit for steering Spain through the euro group’s financial crisis, enacting strict austerity measures that then led to a booming economy.  Rajoy was classy in defeat, congratulating Sanchez and telling deputies in part in a short speech: “It has been an honor to have left Spain in a better state than I found it.”

Rajoy took over the government in the middle of a deep recession and guided the recovery, but he was constantly undermined by scandals encircling the party as well as the independence drive in Catalonia.  Rajoy himself, however, was never personally implicated in the scandals.

Lastly, German prosecutors have formally applied to a higher regional court for the extradition of former Catalan leader Carles Puigdemont on charges linked to his role in the campaign for the Catalonia region’s independence, they said on Friday.

The new government may seek dialogue but is unlikely to reverse Madrid’s stance toward Puigdemont, whose situation depends on courts rather than politicians.

Brexit: Michel Barnier, the EU’s chief negotiator on Brexit, warned British Prime Minister Theresa May that Britain needs to “face the reality” of Brexit, telling her a withdrawal deal will not be possible unless she backs down over the future jurisdiction of European courts.

Barnier said Britain should not play a “blame game” and try to claim Brussels is responsible for the “negative consequences” of leaving the EU.  He warned government ministers to come up with “more realistic proposals,” saying: “A negotiation cannot be a game of hide and seek.”

Mrs. May has repeatedly ruled out a continued role for the European Court of Justice in determining disputes post-Brexit.

This latest dustup follows the decision to kick Britain out of the EU’s Galileo satellite project, which was denounced by May’s cabinet.

Aside from the lack of an agreement on governance, post-withdrawal, and no agreement on the border between Ireland and Northern Ireland, Brussels sees a lack of detail in the UK’s negotiating demands.

I have probably written the same thing every week for months...Britain doesn’t seem to understand how quickly the sands of the hourglass are running out. An agreement in principle was to be reached at an upcoming June summit, so that final details could be hammered out by October, because then you need all the time after to get the deal ratified by all the EU members and the European Parliament.

Turning to Asia....

We had the release of the PMI data on China, and the official figures, as published by the National Bureau of Statistics, had the manufacturing number at 51.9 in May, the highest in eight months, with services at 54.9, up a tick.

The private Caixin figure on manufacturing last month was unchanged at 51.1.  [Reminder, the official numbers focus on state-owned enterprises, the Caixin figure is focused on the private sector.]

Japan’s manufacturing PMI for May was 52.8, down from April’s 53.8.

Street Bytes

--Stocks finished off the month of May up, with the Dow Jones adding 1%, but the S&P 500 2.2%, and Nasdaq 5.3%, despite the adage “sell in May and go away” (until November).  The S&P’s tech sector gained 7.1% on the month, with Apple up 13% and Facebook 12%.

But on the week, stocks finished mixed, with the Dow Jones losing -0.5% to 24635, back in the red for the year, -0.3%, while the S&P gained 0.5% and Nasdaq added 1.6% as the tech rally continues.

--U.S. Treasury Yields

6-mo. 2.09%  2-yr. 2.47%  10-yr. 2.90%  30-yr. 3.05%

The drop in the yield on Tuesday for the 10-year, from 2.93% to 2.78%, was the biggest one-day decline since the UK voted to leave the EU.  But then the rest of the week, Treasuries rallied back to largely finish unchanged vs. a week ago.

--Goldman Sachs Group Inc. President David Solomon said second-quarter market activity has decreased compared to the first quarter, when heightened volatility helped Wall Street banks record huge profits.  Solomon, speaking at a conference, added investment banking’s backlog was close to an all-time high.  JPMorgan Chase said second-quarter markets revenue looked like it would be flat compared with a year earlier.

--Modest revisions were proposed to the Volcker Rule on Wednesday, as revealed by the Federal Reserve, which loosen the ban on proprietary-trading some.

Compliance costs may fall, but the Fed under Chairman Jay Powell doesn’t want a return to Wall Street’s freewheeling ways.  That said, it does give the largest banks more freedom to engage in possibly riskier activities by leaving it up to Wall Street firms to determine which trading is permissible under the rule and which are not.

The proposed changes are intended, though, to mainly benefit smaller banks with modest or limited trading activities.  Those firms would face reduced compliance burdens. 

Overall, there are also more exemptions for liquidity management and foreign banks whose trades occur outside the United States.

But the stress test capital buffer remains, the requirement that the eight global systemically important banks hold more capital than smaller rivals.

“The proposal will address some of the uncertainty and complexity that now make it difficult for firms to know how best to comply, and for supervisors to know that they are in compliance,” Chairman Powell said in remarks for a Board of Governors meeting.  “Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements.”

The proposed changes are now open to public comment and may change before being finalized.

Just last week the House approved modest changes to Dodd-Frank that cut regulations for small lenders and raised the asset threshold at which larger regional lenders faced stricter rules.  But rules to curb derivatives remained in place.

--I forgot to note something last week I need to get down for the record; Fiat Chrysler’s recall of 4.8 million vehicles in the U.S. because, in rare but terrifying circumstances, drivers may not be able to turn off the cruise control.  Owners were warned not to use cruise control until a software update could be applied to SUVs and trucks.  15 Jeep, Dodge, Chrysler and Ram models from six model years are impacted (generally 2014-2019).

The NHTSA, the government’s road safety agency, said that to stop the vehicles, drivers should shift into neutral, forcefully apply the brake and put the vehicle in park once it’s stopped.

--Bill Gross’ fund at Janus Henderson suffered its worst day since its inception on Tuesday, plunging over 3 percent in value amid the Italian political and financial crisis.  The $2.1bn Janus Henderson Global Unconstrained Bond Fund saw its loss for the year tumble to a loss of 6 percent.

In the last reported holdings at the end of March, there was no obvious exposure to Italy, but Gross has been vocal in his bearishness on U.S. Treasuries, which rallied bigly on Tuesday as investors sought out their safety amid concerns over Italy, as noted above.

And it was known Gross was short German bunds, which rallied sharply on Tuesday, but then the yield went back up the rest of the week and his fund recovered some.

--In the Great White North, Bank of Montreal and Canadian Imperial Bank of Commerce said on Monday that cyber attackers may have stolen the data of potentially tens of thousands of customers in what could be the first significant assault on financial institutions in the country.  Fraudsters on Sunday contacted the Bank of Montreal, claiming they were in possession of the personal and financial information of a limited number of the bank’s customers.  The bank said the attack originated from outside the country and was confident the exposures that led to the theft of customer data had been closed off. Bank of Commerce said it had also been contacted on Sunday, fraudsters claiming they had electronically stolen the information on 40,000 customers of its Simplii direct banking brand.  Other Canadian banks said they were not affected.

--The Federal Reserve has designated Deutsche Bank AG’s U.S. business as being in a “troubled condition,” a rare censure for a major financial institution that has contributed to constraints on its operations, according to a report in the Wall Street Journal, citing sources.

The “troubled condition” status has resulted in the bank’s moves to reduce risk-taking in areas including trading and lending to customers.  Fed overseers also now have a say in what managers are hired and fired.

S&P downgraded the bank by week’s end.

--Oil fell hard a second straight week and just when there were fears of soaring prices at the pump, with the national average now $3.00, crude is back to $65.71, as U.S. production has risen to a record weekly high of 10.47 million barrels a day, according to the U.S. Energy Information Administration.  And the number of active rigs in the U.S. is up to 861, the highest level since March 2015.

News that the Saudis and Russia were nearing a deal to ramp up production also spooked investors, though there were stories OPEC (and Russia) weren’t going to ramp the rest of the year.  A formal meeting is being held in Vienna on June 22.

--U.S. auto sales likely increased 5% compared with the same period in 2017, according to analyst estimates.  May is often the biggest month of the year for auto sales, thanks to Memorial Day sales to kick off the summer selling season.

SUVs and pickup trucks accounted for about 67% of sales last month, according to J.D. Power, the highest level ever for May.  This benefited Ford and Fiat Chrysler, whose lineups skew heavily toward SUVs and pickups, but hurt Toyota and Nissan, known for sedans.

Ford reported sales were basically flat in May, with an 11% increase in sales of the F-Series pickup.  Fiat Chrysler reported sales were up in May due to a 29% increase in sales of the company’s Jeep brand vehicles.  Sales overall rose 11%. GM no longer reports monthly sales, only quarterly.

Toyota reported a decrease of 1.3%, with sedans down 11%.  Nissan sales fell 4%.  Honda’s rose 3.1%.

Meanwhile, I still love my little Honda Civic

--Dick’s Sporting Goods shares had their best day on record on Wednesday after the retailer lifted its outlook and posted upbeat quarterly earnings, easing concerns after the company’s decision to restrict gun sales, following the Parkland shooting tragedy in Florida.

Aside from raising its earnings outlook, Dick’s now said same-store sales would be flat or rise slightly, compared with a slight decline last year.

For the first quarter, same-store sales declined 2.5 percent, which was partially weather related with the cold spring that delayed the start of key outdoor sports.

But while the earlier ban on selling assault-style rifles and end to guns sales to people under the age of 21 was expected to cause major problems for Dick’s, as CEO Edward Stack himself said at the time, Wednesday, Stack said there have “been a number of people who have started shopping with us or said they’re going to shop” because of the policy.  He added, “so I guess overall I would say there’s definitely been some benefit of people who joined us, so to speak, because of the policy.”

The shares were up 21% after the gun restrictions were enacted on Feb. 28.

Dick’s has also been helped by the fact many of its competitors have fallen by the wayside in a tough environment for such retailers.

--The two biggest operators of dollar stores reported lackluster results for the quarter ended May 4. Dollar General Corp. said same-store sales rose 2.1%, below expectations, while Dollar Tree, whose brands include Family Dollar locations, reported comp-store growth of just 1.4%.

Shares in Dollar Tree fell hard, 14%, while Dollar General’s declined 9%. Both companies cited higher fuel costs, and minimum wage increases, as profit forecasts were lowered.

I do have to add my own Dollar Tree is much cleaner than it has been.  And our new caregiver requested I buy some puzzles for her there.  I never knew Dollar Tree carried puzzles...for a dollar!

--Last week I stated that I would not be a buyer of Starbucks’ stock, and so for the record it closed last Friday at $57.90...I’m going to keep track from here on [it closed today at $56.95].  Because this week we learned that according to a YouGov BrandIndex score, the coffee giant’s reputation has dropped to its lowest mark in 10 years.

“Starbucks’ workplace reputation score is at its lowest level in at least 10 years, a difficult blow for a company that has been well-known for its employee benefits and culture, including helping pay for college tuition,” YouGov BrandIndex said.

YouGov added: “The recent guest policy changes and then tweaks don’t seem to have put it in a more positive direction yet.”

This week Starbucks closed all its stores for a few hours for racial-bias training, which cost the company $12 million in lost profit (though it posted net income of $660 million in the quarter ended April 1).

Meanwhile, chains like Tim Hortons and Dunkin’ Donuts have been silent as the fallout from Starbucks’ incident in Philadelphia unfolded.

--As reported by Bloomberg, there was an immediate reaction to the tariffs President Trump imposed on imported solar panels in January to spur domestic manufacturing.

Hanwha Q Cells Korea announced on Wednesday it would build a factory in Georgia. JinkoSolar Holding Col of China is planning one in Florida.  U.S. companies SunPower Corp. and First Solar Inc. say they’ll boost production in Oregon and Ohio.

But these plants won’t actually be adding too many workers, with solar factories becoming increasingly automated.  And the profits are flowing offshore.

--Days after Consumer Reports ripped Tesla Inc.’s new Model 3 electric sedan for substandard brake performance, Tesla issued a fix – and Consumer Reports now recommends the car.

CR on May 23 recommended against buying the car because of the brake issue, where the car traveled a relatively long way before stopping (specifically 152 feet from 60 mph). But it retested the car after Tesla provided an over-the-air software fix for all Model 3s and said it had improved stopping distance dramatically, by 20 feet to a normal distance.

In essence, Tesla recalibrated the brakes by remote control, streaming data to computers.

--Eddie Lampert is downsizing again at Sears Holdings, closing 72 stores after reporting first-quarter losses and still-plunging sales.  The struggling retailer said it had identified about 100 Sears and Kmart stores that are no longer profitable, and will be shuttering many of them soon.

Revenue tumbled more than 30 percent to $2.89 billion, and Sears lost $424 million in Q1.

Sears shares closed down 12 percent on the news to $2.80.

--Last year, hedge-fund tycoon James Simons made $.17 billion, or $194,000 an hour, according to an annual survey put out by Institutional Investor’s Alpha magazine.

David Tepper of Appaloosa Management took in $1.5 billion in 2017, more than doubling his haul of $700 million in 2016.  Tepper recently shelled out $2.2 billion to acquire the Carolina Panthers of the NFL.

Ray Dalio of Bridgewater Associates “earned” $1.3 billion, even though two of his firm’s funds delivered returns of 1.2 percent, though its All Weather strategy fund gained 13.1 percent.  [The S&P rose 19.4 percent in 2017.]

By contrast, Goldman Sachs’ Lloyd Blankfein’s $24 million in compensation for last year is chump change.

[To calculate the hedge-fund titans’ earnings, Institutional Investor calculated the manager’s gains on their own invested capital as well as their split of fee revenue – both management and performance fees.]

--Last weekend the latest “Star War” installment, “Solo: A Star Wars Story,” took in $83.3 million between Friday and Sunday, a great total for a franchise film, except for this franchise.  Overseas, “Solo” ‘only’ took in about $65 million.

The film cost Disney and its Lucasfilm division at least $400 million to make and market worldwide, and while the opening seems solid, “Rogue One: A Star Wars Story” generated $155 million over its first three days in theaters in 2016.  “Star Wars: The Last Jedi” arrived to $220 million in December.  [“Solo” also received tepid reviews.]

But as a story by Brooks Barnes in the New York Times put it, a reason for the seeming downdraft was multiplex gridlock, with “Avengers: Infinity War” and “Deadpool 2” out at the same time.  Weekend ticket sales were actually $176 million, a 23 percent increase over the same period last year, according to comScore.

But it’s also about “Star  Wars” fatigue. Lucasfilm has at least nine more “Star Wars” films in the works!

--I discuss the Roseanne Barr issue below, but in terms of the financial impact of the cancellation of “Roseanne” on ABC, yes, it was a big ratings winner, about 18 million viewers per episode when it returned this spring after more than two decades off the air, but the financial impact isn’t that significant, as reported by Joe Flint of the Wall Street Journal. While the show took in $45 million in advertising revenues over its nine episodes, it is pricey to make. ABC had to pay the producers behind “Roseanne” $3.5 million per-episode, according to people close to the show.   Barr and husband John Goodman were making about $250,000 per-episode. And actress Sara Gilbert was well paid.  Plus Barr and Goodman received production fees.

--The New York Post is reporting that after just six months in the anchor chair, CBS is looking to replace Jeff Glor of the “CBS Evening News.”  Sources told the Post that Glor lost nearly 1.5 million viewers since his debut in December 2017.

After Scott Pelley was jettisoned, the audience spiked from an average of 6.4 million viewers to an impressive 7.1 million in Glor’s first week. But they’ve dropped ever since to just 5.7 million the week of May 21, down 9 percent from the same week in 2017, according to TVNewser.

Foreign Affairs

North Korea: Aside from today’s meeting at the White House, Secretary of State Mike Pompeo met with Kim Jong-un’s right-hand man, Gen. Kim Yong Chol in New York on Wednesday and Thursday, to discuss details over the prospective summit.

North Korea has strongly objected to statements by administration officials comparing North Korean denuclearization to Libya’s.

Also this week, South Korean President Moon and Kim Jong-un discussed their hopes for a U.S.-North Korea summit at a previously unannounced meeting last Saturday at Panmunjom, Moon saying Kim reached out to him to arrange the hasty confab, while Deputy Foreign Minister Choe Son-hui has been meeting Sung Kim, a former U.S. ambassador to South Korea, also at Panmunjom.  In Singapore, a U.S. team led by White House official Joe Hagin is thought to be meeting Kim Chang-son, the de facto chief of staff to the North Korean leader, to talk about logistics for the June 12 get together.

President Moon said Kim reaffirmed his commitment to give up the North’s nuclear weapons but had his own security concerns if Pyongyang took that step.

The South Korean president said: “Kim stressed again that he had a firm determination towards complete denuclearization...The thing he was uncertain about was not denuclearization but concerns on whether he could trust that the U.S. would end its hostile policy and guarantee the security of his regime when the North denuclearizes itself.”

Moon wanted to be a part of a three-way summit with Trump and Kim should their upcoming meeting materialize, and succeed.

Reminder, Moon desperately needs a Trump-Kim summit for his own domestic approval rating, which had been at record highs until Trump threatened to cancel the summit.  And there is the danger for the U.S. that South Korea is pursuing its own interests to the exclusion of the U.S. at this point.  Everyone knows that peace between North and South Korea is vital to Moon for his political legacy, as well as regional stability.

Separately, Russian Foreign Minister Sergei Lavrov was in Pyongyang for talks, telling Russian media he wanted to understand North Korea’s position.  Lavrov also spoke to Pompeo for the first time on Wednesday, by phone.

But according to NBC News, citing a CIA assessment on Kim Jong-un’s goals for the historic summit with Trump, the CIA claims Kim will not destroy his nuclear stockpile – and instead, among a list of concessions, may consider “offering to open a Western hamburger franchise in Pyongyang as a show of goodwill.”

And there were skeptics galore in the U.S. Congress when it comes to Kim’s offer to denuclearize.

“I would love to see them denuclearize. I’m just not very optimistic about that,” Republican Sen. Marco Rubio (Fla.) said on CBS News’ “Face the Nation.”  “They’re playing a game,” Rubio said.  “We’re talking about them because they have nuclear weapons and long-range missiles. And [Kim] knows that. And so for him to give that up is going to be very difficult.”

Republican Sen. Roy Blunt (Mo.) said on “Fox News Sunday.” “I think some things need to be decided before we have that meeting. There needs to be a strong understanding of what both sides – what all three sides, frankly – mean by denuclearization.”

Former CIA director Michael Hayden said on ABC’s “This Week” that Trump might be at a disadvantage in a face-to-face negotiation with Kim.

“These folks are not going to get rid of all their nuclear weapons,” Hayden said.  “And if President Trump’s brand – and that’s the right word here, going into this meeting – demands something like that, this is going to end up in a very bad place.”

On another issue, the Journal reported that ship-to-ship transfers for imports of critical items such as oil appear to have become widespread as Pyongyang works to lift sanctions pressure through talks with the U.S., according to Japanese officials.

On Tuesday, Japan said one of its military aircraft spotted a North Korean cargo ship connected by hoses to what appeared to be a Chinese-flagged vessel in the East China Sea, the fifth case of a possible North Korean maritime transfer reported in the same region by Tokyo this year.

Other North Korean ships have been seen recently appearing to take on cargo in the Sea of Japan, though the sightings are under investigation.

Ship-to-ship transfers to North Korean ships are banned by UN sanctions.

Opinion....

Anne Applebaum / Washington Post

“The United States has proven itself to be an inconsistent player; the president cannot be trusted to follow any course for a long time; he might abandon or reverse policy on the Korean Peninsula at any moment. As was the case with Iran, the whiplash changes in U.S. policy leave regional allies in an impossible position.  He either forgot or didn’t bother to tell the South Koreans that he was changing his mind.  Why should South Korea, or indeed China, pay the economic price of sanctions if the United States might drop the ball again at any moment?  Everyone now has reasons to strike separate deals with North Korea, to cut out the United States and ignore our interests. Whatever happens, our Asian alliances are weakened.”

Editorial / Wall Street Journal

“A telling moment came Sunday, when reporters asked the South Korean leader whether Kim would agree to complete, verifiable and irreversible denuclearization, which are Mr. Trump’s oft-stated terms.  According to the Chosun Ilbo newspaper, Mr. Moon dodged the question, saying that the success of the summit would depend on the negotiating details.

“Mr. Moon claims to be the mediator between the White House and Pyongyang, but it isn’t clear he’s representing the U.S. position. Instead he is pressing the U.S. to give benefits to North Korea in return for mere steps toward denuclearization. He has adopted the North’s position that the negotiations should agree to ‘phased and synchronous measures,’ meaning the North gets benefits in exchange for incremental steps such as allowing inspectors to visit nuclear sites.

“If Mr. Trump falls into this trap, the North will never give up its nuclear arms. Such talks would lead inevitably to lifting sanctions in return for promises and half-measures. The U.S. tried this approach in the 1990s and again in the 2000s. Each time the Kim family regime violated the deal and continued to build its nuclear and missile programs.

“Mr. Moon believes he can tame Kim with aid and that the North will never use nuclear weapons against its fellow Koreans. China is on board since such a deal would preserve the North as a buffer state and ease U.S. sanctions on Chinese companies that do business with the North.

“For the U.S. and Japan, however, Kim’s nuclear-tipped missiles are an existential threat. He is on the verge of mastering the technology to mount warheads on the intercontinental missile he has successfully tested in the past year. The campaign of United Nations and U.S. sanctions was designed to inflict enough economic pain that North Korea would agree to give up its nuclear weapons completely.  Mr. Trump weakened that leverage by agreeing to a summit at Mr. Moon’s behest before the sanctions have had a chance to work.

“Mr. Trump spent the weekend saying preparations for the summit are going well, and on Monday the Administration decided not to impose new sanctions. We understand the desire for pre-summit mood music, but the policy question is whether Mr. Trump has adopted Mr. Moon’s appeasement policy as the best that can be achieved. A deal that limits but doesn’t remove Kim’s nuclear threat would have profound consequences for national security as well as the wider cause of nonproliferation. The U.S. would need to bolster its missile defenses extensively – and fast.

“Mr. Moon has seen how Mr. Trump can be cajoled with flattery – he floated the Nobel Peace Prize – and the U.S. President clearly wants the showcase of a summit. But summitry is a process to get to a result in the U.S. national interest. That process and result can’t be subcontracted to a Korean President with priorities other than American security.”

China: So for years I would tell you about all the Chinese spies and agents just in my neighborhood, including in the building where I live, and so it was no surprise to moi when the Trump administration ordered the State Department to take a tougher approach to visa applications by Chinese citizens, which helps ratchet the tension up between the two nations.

The fresh guidance for consular offices in China could result in shorter visas for some Chinese students and longer delays for some Chinese business visa applicants, as reported by the Wall Street Journal.

The new measures specifically target students studying robotics, aviation and high-tech fields, according to the Associated Press, which first reported the story.  Last December a new policy authorizing tighter visa procedures for suspected intelligence agents was unveiled.

I only wish such policies were put in place ages ago.

Meanwhile, in further developments in the South China Sea, the Philippines warned China that it will go to war over natural resources there – and it identified other “red lines,” or actions, Manila would find unacceptable, the foreign ministry said on Monday.

Foreign Secretary Cayetano said that among the territorial issues discussed with China were construction activities at a disputed shoal and the unilateral extraction of oil and gas in the South China Sea.

“Nobody can extract natural resources there on their own,” Cayetano said. “The president has declared that. If anyone gets the natural resources in the West Philippine Sea-South China Sea, he will go to war.”

Critics and left-wing groups have slammed President Duterte for not being more aggressive concerning recent Chinese actions, including the reported installation of missile defense systems on its newly constructed islands.

They say he should demand immediate Chinese compliance with a 2016 arbitration court ruling that invalidated Beijing’s expansive claims in the South China Sea and upheld the Philippines’ sovereign rights to exploit the resources in vast stretches of water off its western coast. [South China Morning Post]

And there is this issue....which I brought up over a month ago.

Stephen Chen / South China Morning Post

“China is aggressively developing its next generation of nuclear weapons, conducting an average of five tests a month to simulate nuclear blasts, according to a major Chinese weapons research institute.

“Its number of simulated tests has in recent years outpaced that of the United States, which conducts them less than once a month on average.

“Between September 2014 and last December, China carried out around 200 laboratory experiments to simulate the extreme physics of a nuclear blast, the China Academy of Engineering Physics reported in a document released by the government earlier this year and reviewed by the South China Morning Post this month.

“In comparison, the U.S. carried out only 50 such tests between 2012 and 2017 – or about 10 a year – according to the Lawrence Livermore National Laboratory.

“As China joins the U.S. and Russia in pursuing more targeted nuclear weapons as a deterrent against potential threats, the looming arms race would in fact serve the opposite purpose by increasing the risk of a nuclear conflict, experts warn.”

[Tests are usually conducted using multi-stage gas guns, which simulate the extreme heat, pressure and shock waves produced in a real nuclear blast. The data then gives scientists the information they need to develop more advanced nukes.]

Iran / Syria: Iran-backed forces, including Hezbollah, are preparing to withdraw from southern Syria against the backdrop of regional and international negotiations currently underway between the United States, Russia and Jordan over the war-torn country’s future, the Syrian Observatory for Human Rights reported Thursday.

Specifically, Iran and Hezbollah are planning to withdraw forces from areas near Israel’s northern border, this after Russian Foreign Minister Lavrov announced Monday that the Syrian army should be the only force on the southern border of the country.

“All the forces that are not Syrian should withdraw, and there must be a situation in which only the forces of the Syrian army will be stationed on the Syrian side of the border with Israel,” Lavrov said.

The Syrian regime, according to various reports, is insisting Iran withdraw its militias from the areas in question as part of a broader policy of booting Iranian forces completely from Syria, as reported by the Jerusalem Post.

Separately, in an extensive interview with Russia Today (RT), President Assad said the United States should learn the lesson of Iraq and withdraw from Syria, and promised to recover areas of the country held by U.S.-backed militias through negotiations or force.

Assad said his government had “started opening doors for negotiations” with the Syrian Democratic Forces (SDF), a Kurdish dominated militia alliance that controls parts of northern and eastern Syria where U.S. forces are stationed.

“This is the first option. If not, we’re going to resort to...liberating those areas by force. We don’t have any other options, with the Americans or without the Americans,” he said.  “The Americans should leave, somehow they’re going to leave.”

Assad reiterated his denial his government carried out the chemical attack on the eastern Ghouta town of Douma, saying Syria did not have chemical weapons.

The fact is, Syria has recovered vast swathes of territory, thanks to Russian and Iranian help, and now can’t be beat. With his confidence back, he can comfortably ask for Iran to leave, but you know he wants Russia to stick around, for now, though Vladimir Putin is under his own pressures (including economic ones) to bring his forces back, seeing as he’s already secured his two permanent bases in Syria.

But there are still isolated threats and at least 26 Syrian forces and nine Russian fighters were killed in an ISIS attack this week in Syria’s eastern desert, according to the Observatory. The Defense Ministry in Moscow admitted four Russian servicemen had been killed in clashes with militants.

Lastly, in yet another despicable attack, five Syrian rescue workers, members of the White Helmets, were killed in an attack by masked assailants Saturday on one of their centers in northern Aleppo.  An armed group stormed the Al-Hader center at 2:00 a.m., blindfolded the staff members and killed them.

More than 200 White Helmet rescuers have been killed in the seven-year war.

Turkey: The elections are set for June 24, moved up more than a year in an attempt by President Recep Tayyip Erdogan to consolidate power, but the move could backfire as he is running against an unusually dangerous opponent: the U.S. dollar. 

For most of the time since Erdogan came to power in 2003, Turkish voters accepted his authoritarian ways and allegations of corruption around him because of the economic transformation that elevated the average Turk to unprecedented prosperity.

According to the World Bank, the increase in Turkey’s per capita income since 2003 has brought the country to a level above some European Union member states.

But in recent weeks, Turkey has faced a full-blown currency crisis, in part because of concerns about Erdogan’s move to curb the independence of Turkey’s central bank.  The Turkish lira, which traded at 2.15 to the dollar during the previous presidential election in 2014 hit 4.92 last week (finishing at 4.63, if I’m reading my currency table right).  Now you have a total lack of confidence, both from foreign and domestic players in the economy, because they don’t know what Erdogan will do.

Erdogan and his AKP party have portrayed the slide in the lira as the result of a foreign conspiracy against his plan to turn Turkey into a global power and leader of the Muslim world.  He’s been urging citizens to convert their euros and dollars into lira at campaign rallies, saying the financial sector is working against the people’s interests.   [A ploy that has worked before.]

Erdogan’s approvals numbers have been sliding and it’s now very probable there will be a runoff in the presidential race if he doesn’t get over 50% on June 24.  It seems there is increasing coordination among some of Turkey’s opposition parties.

Russia / Ukraine: Ukrainian officials reported on Tuesday night that journalist Arkady Babchenko, a critic of the Kremlin, had been gunned down in his apartment building in Kiev. Lurid pictures of him lying in a pool of blood were published, and officials suggested Russia was behind the assassination.

I learned of this in an alert, and I was tempted to tweet my personal outrage against Moscow, but you know what held me back?  My 24-hour rule, which has always held me in good stead.  Thank god I stuck to it again, because the next day, Babchenko appeared in public alive, and Ukrainian security officials said they had faked his death to thwart and expose what they said was a plot to assassinate him.

Babchenko, immediately under fire from some quarters over the deception (especially, as you can imagine, from his wife, who he apologized to), said he went along with the ruse because he feared for his life.

He said that when Ukrainian law enforcement approached him with information about a plot to kill him, “my first reaction was: ‘To hell with you, I want to pack a bag and disappear to the North Pole.’”

“But then I realized, where do you hide?  Skripal also tried to hide.”

But I thought, 24 hours later, why did this all go down this way?  It didn’t seem necessary. 
Thursday, now two days later, Babchenko himself reiterated he initially had doubts about whether the threat against him was real.  But he said his sources in Russia had told him last year about possible threats to his life.  He used pig’s blood and a make-up artist to help stage the incident.

Ukraine needs to come clean.

Anne Applebaum / Washington Post

“One of the reasons democracies have responded so ineptly to the flood tide of crass disinformation coming from Russia is that there is no obvious form of counter-strike, no straightforward tit-for-tat response. The Russian president lied about invading Ukraine, for example – the men in uniform crawling all over Crimea were just soldiers on vacation, (Putin) said, who might have bought their military equipment in shops. When he awarded medals to those same soldiers a few months later, what would have been an adequate, measured reaction?  Blast fake news across the border? Tell lots of crazy Vladimir Putin stories, just to see which ones stick?

“Until now, most Western governments have officially avoided the public trolling and open trickery that the Russians use on a regular basis.  Instead of producing disinformation to counter disinformation, most mainstream Western journalists have doubled down on facts, believing that in an increasingly unstable world, they should stick as far as possible to the truth.

“But now the Ukrainian security services have broken the taboo and pulled off a massive trolling surprise of their own. This is what a tit-for-tat counter-disinformation operation looks like....

“A couple of days ago, the terrible news broke that Arkady Babchenko, a tough, anti-Putin Russian journalist who lives in exile in Kiev, had been murdered... His friends went into mourning; his obituaries were written; plaques were put up and prizes planned in his name. Foreign diplomats expressed concern and anger.  Of course, the Russian media rushed out what appeared to be a previously prepared narrative, mostly criticizing the ‘chaos’ in Ukraine and the ‘failures’ of the Ukrainian authorities. The anxiety among Ukrainian journalists was real, and the nervousness was contagious: When I told people early this week that I was on my way to Kiev, they sent little notes of concern: ‘Watch your back.’”

Then the Ukrainian security services turned the tables.

“Babchenko walked into the room. People cheered. The security services gloated: They had, they said, used the fake murder to catch the middleman who paid the would-be assassin.

“Plus, of course, they had finally made the Russians look stupid and themselves look smart.  What ‘chaos’?  Who’s a ‘failure’ now?... Because the security services are under the direct control of the Ukrainian president, they may well have helped him in his coming election campaign, and that may well have been part of the point. One Ukrainian member of parliament proudly compared the sting to something Sherlock Holmes would have done....

“(But) as one Ukrainian journalist put it to me, this is a classic case of putting ends before means. The goal was fine: Catch a killer. But the means – the fictitious death, the staged public reports – will reduce even further the already microscopically low levels of trust that Ukrainians have in their government and their media.

“Nobody thought about the collateral damage; nobody asked whether anybody will believe in the security services the next time that they tell us a journalist is dead. In a country where journalists really do get murdered, it’s not clear whether anybody will believe journalists either, and certainly not Babchenko.  It’s not clear whether the foreign diplomats who rushed to sympathize, and who made public statements, are going to forgive the Ukrainian government anytime soon either.  Nobody has yet explained why there wasn’t a less elaborate, and also less damaging, way to catch this criminal.  After all, other countries manage to catch murderers without staging fictional deaths of well-known people and triggering national and indeed international mourning.

“This story isn’t over: The tale of the contract killer, the details of the plot, the reaction of the Ukrainian public are still unknown.  But as blanks are filled in, pay attention, because it’s an excellent case study. If you did want to troll the Russians, using Russian methods, this is the kind of thing you would do. And this is the high price you would pay.”

Random Musings

--Presidential tracking polls...

Gallup: 40% approve of Trump’s job performance, 55% disapprove [May 27]
Rasmussen: 48% approve, 50% disapprove

--In a new Morning Consults/Politico poll of 2,000 registered voters, 43% approve of Trump’s job performance, 52% disapprove.

On the issue of North Korea, 62% expressed at least a little confidence in Trump’s ability to handle the situation, 30% expressed no confidence in the president.

A majority (72%) said Trump uses Twitter too much, and almost no one (2%) said he should use it more.  Just 13% said he uses it the right amount and 12% had no opinion.

Nearly half of voters (47%) think that Trump’s tweets may negatively affect congressional candidates in the mid-term, particularly those in his own party. Just 17% said Trump’s tweets will help those Republicans seeking re-election.

--Facing impeachment over an extramarital affair and campaign finance inquiry, Missouri Governor Eric Greitens has announced he was stepping down.  The first-time governor had been considered a rising star in the Republican party until allegations emerged he had photographed a naked woman without her consent.

The ex-Navy Seal and Rhodes scholar, father-of-two, had presented himself as a family man during his 2016 campaign.

In his statement at a news conference, Greitens said: “This ordeal has been designed to cause an incredible amount of strain on my family.”  He claimed he had not broken any laws.  “For the moment let us walk off the battlefield with our heads held high. We have a good and proud story to tell our children.”

No you don’t.

--A poll last weekend from my state of New Jersey shows Sen. Robert Menendez with a slim lead over Republican challenger Bob Hugin, the Fairleigh Dickinson University poll the first that hasn’t given Menendez a double-digit advantage.

What’s interesting, and very encouraging for Hugin, is that the poll shows Menendez with a 28-24 lead over the former Celgene executive among New Jersey registered voters, but 46 percent is undecided.

So the Republican National Committee should begin helping out Hugin, you would think.

Yes, I’m on record as saying I support Menendez simply because I think his expertise on the foreign policy front is needed at this time.  I have the right to change my mind.  I’m troubled by some things in Hugin’s past, i.e., how he led Celgene when he was CEO.  He enriched himself greatly.

--Experts are still trying to count the number of deaths caused by last year’s devastating Hurricane Maria in Puerto Rico, with the latest estimate, roughly 4,600, coming from researchers at the Harvard T.H. Chan School of Public Health and other institutions.

The estimate was published Tuesday in the New England Journal of Medicine, but it’s imprecise and there are further studies to come.  Yet the findings reveal a disaster far greater than the official government tally of 64.

An analysis of vital statistics by the New York Times last December found 1,052 more people died than usual across the island in the 42 days after the storm.  Other news organizations have found evidence for hundreds of excess deaths in the weeks following the hurricane.

For the Harvard study, researchers visited more than 3,000 residences across the island and interviewed their occupants, who reported that 38 people living in their households had died between Sept. 20, when Hurricane Maria struck, and the end of 2017. That toll, converted into a mortality rate, was extrapolated to the larger population and compared with official statistics from the same period in 2016.

Using the researchers’ calculations, and the relatively small sample size, the actual expected range is between 800 and 8,000 deaths. The study estimates that about a third of the deaths were caused by a delay in medical care or the inability to obtain it.

Under pressure to come up with a more accurate figure, the government commissioned a review by researchers at the Milken Institute School of Public Health at the George Washington University, who had promised an initial report in May, but that analysis has barely begun, the New York Times reported.  This study is using the island’s vital records and records and information from funeral homes, the medical system and the larger public.

The newly released study, on the other hand, was conducted for minimal money without the participation of the territory’s government, which the researchers said refused to provide data to them.

Editorial / Washington Post

“A new report by independent public-health researchers estimates that at least 4.645 people died as a result of Hurricane Maria. Consider that number. Contrast it with those who died from Katrina (almost 2,000) and those killed in the 9/11 attacks (almost 3,000). Remember President Trump’s visit to the stricken island in the storm’s aftermath, tossing out paper towels and telling Puerto Rican officials they should be ‘very proud’ that hundreds didn’t die from Maria as in a ‘real catastrophe like Katrina.’

“Think how many lives might have been saved if Puerto Rico’s devastation had been handled with the seriousness and urgency it deserved. Ask yourself whether Mr. Trump would have thought – or acted – differently if the American citizens who were affected had lived not in Puerto Rico but in Texas or Tennessee....

“The power of a nearly Category 5 storm in causing damage cannot be overestimated, and the fact that Puerto Rico is an island presented unique challenges. But neither local nor federal government rose to that challenge.  Bad decisions by Puerto Rico officials were compounded by a federal bureaucracy that didn’t aggressively marshal the resources that were needed....

“Even now, eight months after Maria slammed into Puerto Rico, parts of the island are still struggling; and with hurricane season about to start, there are concerns that Puerto Rico is ill-prepared to deal with new emergencies.... Will more Americans have to die before their government wakes up to their needs?”

--Kim Kardashian spent an hour with Donald Trump in the Oval Office, and apparently Jared Kushner, discussing criminal justice issues, or whatever these two would chat about.  This one imprisoned drug offender that Kim has taken on a cause, however, Alice Marie Johnson, should not be released. I watched an NBC News story on the woman and I have zero sympathy for her.  But then I’m the guy who wishes some white collar criminals would be sentenced to death...like those perpetrating massive insurance fraud.  Anything that is so premeditated, and is carried on for years, a la Ms. Johnson’s $50 million drug ring, has to be met with the harshest penalties.  On the other hand, I’m for flat-out releasing minor drug offenders.

So if I were Trump, I’d tell Kim Rump Un (or Kim Thong Un...as the New York Post put it) to find another cause.

--As noted above, ABC canceled “Roseanne” after the star was at the center of a media storm on Tuesday following a racist tweet that referred to “The Planet of the Apes” when mentioning a former top adviser to President Barack Obama, Valerie Jarrett, who is black.

Roseanne Barr tweeted that if “muslim brotherhood & planet of the apes had a baby = vj.”

Initially, Barr dismissed accusations that the comment was racist, defending it as “a joke.”

But Barr subsequently deleted the post about Ms. Jarrett, and initially said nothing about the reference to “The Planet of the Apes.”   About a half-hour later, she then offered an apology.

“I apologize to Valerie Jarrett and to all Americans,” she wrote.  “I am truly sorry for making a bad joke about her politics and her looks. I should have known better. Forgive me – my joke was in bad taste.”

Barr also said she was “leaving Twitter,” but hours later was back.

“Roseanne” had been a boon to ABC and was scheduled to return in the fall with 13 episodes, after an initial nine this spring in the reboot.

But this was not new for Roseanne Barr, who has used Twitter to promote conspiracy theories, and some ABC executives were worried that she might say something offensive enough to lead viewers or advertisers to revolt.  George Soros was a frequent target, Barr tweeting once he “was working with the Nazis by his own admission.”

In the immediate aftermath of the firing, which impacted some 300 employees of the show, White House Press Secretary Sarah Huckabee Sanders refused to weigh in.  “The president is focused on North Korea, he’s focused on trade deals,” when asked for the president’s thoughts on the controversy.  And now we know he was also focused on Kim Thong Un.

In the past, Trump has found the time to praise Barr and call her for her ratings success, Trump claiming responsibility for the success of the show himself.

--So related to the above, Samantha Bee apologized Thursday for describing Ivanka Trump with a vulgarity on her TBS show “Full Frontal” that shocked advertisers and prompted an outraged response from the White House. “I crossed a line, and I deeply regret it.”  During a segment Wednesday night criticizing the administration’s immigration practices, Bee said, “You know, Ivanka, that’s a beautiful photo of you and your child [that Ivanka had tweeted earlier]. Let me just say, one mother to another, do something about your dad’s immigration practices, you feckless c---.  He listens to you.”

But TBS didn’t cancel the show or even suspend Bee (thus far), which sparked outrage on the right.

Of course there is a double-standard going on here.  Bee should have been fired too. Conservative radio host Erick Erickson noted correctly in a tweet that equating Bee’s words with Barr’s tweet is valid, adding that “most of you who think it is [false equivalence] would agree with me if it was someone other than a Trump being attacked.”

[President Trump tweeted that “no talent Samantha Bee” should be fired.  But when it came to Roseanne, Trump not only didn’t criticize Barr’s remark, but he called out ABC’s Bob Iger instead for not calling to apologize to him for Brian Ross’ fake report.]

--President Trump’s net worth slipped to $2.8bn, a decline of $100 million over the past year, according to figures compiled by the Bloomberg Billionaires Index from lenders, property records, annual reports, market data and a May 16 financial disclosure.

But for golf fans, especially those who travel overseas, revenue fell at Trump’s Doral, Palm Beach and Mar-a-Lago clubs in Florida, while his courses in Scotland and Ireland (Doonbeg) posted revenue gains.  Whether the overseas courses are profitable isn’t known at this time (reports on this aspect filed later). 

--What is the safest day of the week to drive?  It’s Tuesday, according to a new study by Avvo, an online legal referral and review site, which analyzed data from NHTSA’s Fatality Analysis Reporting System.  Saturday, no surprise, is the most dangerous, Friday second, Sunday third.

Afternoon rush hour is also more dangerous than the morning commute.  The deadliest time period of the day was between 4 p.m. to 6:59 p.m.

NHTSA also notes that 29 people in the U.S. died in alcohol-impaired vehicle crashes every day in 2016.  26% of all drivers involved in fatal crashes during the weekend were alcohol-impaired.

But the data says nothing about texting and driving.

--I was sickened by the whole debate over NFL players and the national anthem, and how President Trump exploited it when it was a non-issue in all reality.  A mere handful were protesting police brutality, not being unpatriotic to our nation, and then Trump wound up his base.

What the NFL then did the other day, a ridiculous policy of threatening to fine teams if the players protest (though they are allowed to skip the anthem by staying inside the locker room), made things worse, and when Jets owner Chris Johnson said he would pay any fines, Long Island Republican Congressman Peter King tweeted:

“Disgraceful that @nyjets owner will pay fines for players who kneel for the National Anthem.  Encouraging a movement premised on lies vs. police. Would he support all player protests? Would he pay fines of players giving Nazi salutes or spew [cq] racism? It’s time to say goodbye to Jets!”

Oh give me a freakin’ break, Congressman King!

Historian Kevin Kruse had this response: “Yes this is exactly like a Nazi salute. What a brilliant, rational and sane comparison.”

This is why I can’t stand the way President Trump poured gasoline on what was not even a camp fire.

Separately, Dallas Cowboys owner Jerry Jones said Trump told him that criticism of NFL players who protest the anthem is “a very winning, strong issue for me,” according to a Wall Street Journal report.

“Tell everybody, you can’t win this one,” Trump told Jones. “This one lifts me.”

Jones recalled Trump’s comments in a sworn deposition that was taken as part of Colin Kaepernick’s grievance against NFL owners and obtained by the Journal.

--One of my favorite art galleries in the world is the Tretyakov Gallery in Moscow, which I’ve been to twice.  Last Friday, a man who had been drinking vodka at a café there, attacked a major masterpiece with a metal pole, causing serious damage to perhaps the country’s most famous painting, which depicts Tsar Ivan the Terrible cradling his dying son in 1581, after dealing him a mortal blow.  Some Russian historians and nationalists dispute the idea that Ivan murdered his son, and the drunk reportedly shouted that Ivan the Terrible did not kill him (the son actually being a young man).

The damaged painting was completed by renowned Russian realist Ilya Repin in 1885 and was described by its curators on Monday as a masterpiece in the same league as the Mona Lisa.

So the drunk struck the painting several times with the metal security pole.

Anyway, having seen and loved the work, this was yet another thing this week that pissed me off.  [Best place in the world to see the underrated Russian Masters.]

--Finally, we note the passing of the fourth man to walk on the moon, Alan Bean. He was 86.  Bean stepped onto the lunar surface preceded by Pete Conrad, the mission commander of their Apollo 12 flight, in November 1969, four months after Neil Armstrong and Buzz Aldrin became the first lunar explorers.

Bean returned to space in July 1973, when he commanded a three-man flight to the orbiting space research station Skylab, the forerunner of the International Space Station. The astronauts on that mission spent 59 days in space, a record at the time.

Twelve astronauts in total walked on the moon in six Apollo missions.  After leaving NASA in 1981, Bean turned to his longstanding interest in painting to become a full-time artist.

---

Pray for the men and women of our armed forces...and all the fallen.

God bless America.

---

Gold $1297
Oil $65.71

Returns for the week 5/28-6/1

Dow Jones  -0.5%  [24635]
S&P 500  +0.5%  [2734]
S&P MidCap  +0.6%
Russell 2000  +1.3%
Nasdaq  +1.6%  [7554]

Returns for the period 1/1/18-6/1/18

Dow Jones  -0.3%
S&P 500  +2.3%
S&P MidCap  +3.0%
Russell 2000  +7.3%
Nasdaq  +9.4%

Bulls  50.0
Bears  19.2

Have a good week.

Next time...No. 1,000.

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