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07/28/2018

For the week 7/23-7/27

[Posted 11:45 PM ET, Friday]

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Special thanks to long-time Wall Street friend Mark R.

Edition 1,007

Trump World...

Both Wall Street and the political world have been eagerly anticipating today’s release of second-quarter Gross Domestic Product (GDP) in the U.S.  I’ve certainly been writing of it the past 12 weeks and no one has been waiting more feverishly than President Donald Trump.

The president was thus pleased this morning when the figure, as released by the Commerce Department, came in at 4.1%, seasonally adjusted annual rate, the best single figure since the third quarter of 2014 when it was 4.9% (and 5.1% the quarter before that).

Consumer spending was up a strong 4.0%, though exports, which rose 9.3%, could be largely a one-off as there was a surge in soybean shipments tied to Trump’s trade policies.

President Trump, however, said Friday, “This isn’t a one-time shot. I happen to think we’re going to do extraordinarily well in our next report, next quarter.”

As for the impact of the tax cuts, they are hard to quantify thus far; both from a corporate and individual standpoint.

But as I present the figures below, just know some of them have been revised, as they constantly are, including an upgrade in the first quarter’s number from 2.0% to 2.2%.  The thing is the numbers for some of the other quarters in 2017 were adjusted downward.

Q2 2018... 4.1%
Q1 2018... 2.2%
Q4 2017... 2.3%
Q3 2017... 2.8%
Q2 2017... 3.0%
Q1 2017... 1.8%

If you just took a simple average of the last four quarters you get 2.85%, so the issue is will today’s number be an outlier, or the new norm?  3% is excellent.  4% is terrific.

I’m not hazarding a guess on the third quarter until we begin to see the data roll in, and the impact of the mini-trade war that we all hope doesn’t turn into a far larger one.

But for political purposes, President Trump and the Republicans can run on the 4% (and hope the next few months it isn’t revised significantly downward...it could be revised up as well) as they head into the midterms.  Should there be a hiccup in the third quarter, that number isn’t released until Oct. 26, and by that time voters’ will have made up their minds, seeing as 80 to 85 percent already have today.

Donald Trump is right to crow about the economic success, and of course this is what he and congressional Republicans should be pounding away at.

But this is Trump, and other issues can get in the way.  As I’ll get into in a bit, so far, people, there are no trade deals, if you ignore a very minor one with South Korea that frankly was meaningless.  The White House wants you to believe there have already been successes.  Republicans up for election want the tensions to be ratcheted down as they were temporarily the other day with the European Union.

And since it is Trump, I can’t help but note we still don’t know what happened at Helsinki,

Russia seems to know, as its ambassador to the United States said “important verbal agreements” were reached, including preservation of the New Start and INF agreements, major bilateral arms control treaties whose futures have been in question.  And Anatoly Antonov, said ambassador, noted Vladimir Putin had made “specific and interesting proposals to Washington” on how the two countries could cooperate on Syria.

At the Russian Foreign Ministry, spokeswoman Marina Zakharova said that implementation of summit agreements had already begun.  “A lot of what [Putin] talked about is now being worked through.  Relevant instructions are being carried out, and diplomats are beginning to work on the outcomes.”  [Karen DeYoung / Washington Post]

Trumpets....

--Michael Cohen, the president’s former longtime attorney and fixer, is claiming that Donald Trump knew and approved of a now famous 2016 meeting at Trump Tower with a Russian lawyer – and he is willing to tell investigators about what he knows, according to multiple reports.

Cohen alleges he was in the room with a number of others when Donald Trump Jr. informed then-candidate Trump of the planned sit down with a Russian lawyer promising dirt on Hillary Clinton.

Cohen claims Trump approved of the meeting moving forward, CNN and NBC News reported, and is willing to tell Special Counsel Robert Mueller his version of the events.

But both CNN and NBC said there is no recording of the meeting so it’s yet another credibility issue.  The president has long denied he knew of the confab, which took place one floor below his.

Separately, Allen Weisselberg, a longtime financial gatekeeper for President Trump, was subpoenaed to testify before a federal grand jury in the criminal probe of Michael Cohen.

Weisselberg is considered a witness in the investigation, according to people familiar with the probe.  It isn’t known if he has already appeared before the grand jury or what questions prosecutors of New York’s Southern District have had for him.

For decades, Weisselberg has served as executive vice president and chief financial officer of the Trump Organization, and was once described by a person close to the company as “the most senior person in the organization that’s not a Trump.”

The above was on top of the release of a tape recording between President Trump and Michael Cohen that indicates Trump’s knowledge of hush payments to former Playboy Playmate Karen McDougal; McDougal paid $150,000 by the National Enquirer in the summer of 2016 for her story of an earlier affair with Donald Trump.  On the tape, Cohen raises the possibility of creating a separate company to buy the rights to Ms. McDougal’s story from the National Enquirer’s parent, AMI (American Media Inc.)

In the audio released by CNN, Trump sounds matter-of-fact as Cohen walks him through his plan, saying at one point, “Yeah, I was thinking about that.” 

Trump then says something muffled and then can be heard saying, “Pay with cash.”

But the transcript released by the president’s legal team has Trump being quoted as saying, “Don’t pay with cash.”

The transcript and audio also show that Cohen told Trump he had discussed buying the rights to McDougal’s story with Allen Weisselberg.

The poor quality of the tape makes it unclear what Trump’s intention was. The tape then abruptly ends.

There is no sign that Cohen followed through with the plan to purchase the rights, however, the timing of the conversation, two months before the election, provides more evidence that Cohen was trying to quash embarrassing stories about Trump prior to it – a major focus of the investigation by federal prosecutors in Manhattan.

There’s nothing illegal about Cohen taping the conversation because New York State only requires one party consent.

Cohen’s new attorney, Lanny Davis, said his client released the tape because he is “on a new path – it’s a reset button to tell the truth and to let the chips fall where they may.”

Reminder...it was Trump’s former spokeswoman, Hope Hicks, who said when the Wall Street Journal first reported before the 2016 election that a company that owns the National Enquirer agreed to pay $150,000 to a former Playboy centerfold for her story of an affair, “We have no knowledge of any of this,” adding Karen McDougal’s claim was “totally untrue.”

One more...the New York Times reported that Robert Mueller is scrutinizing tweets and negative statements from the president about Attorney General Jeff Sessions and the former FBI Director James Comey, with several of the remarks coming as Trump was also privately pressuring the men – both key witnesses in the Mueller probe – and whether the actions add up to attempts to obstruct the investigation by both intimidating witnesses and pressuring senior law enforcement officials to tamp down the inquiry.

--Trump tweets: “What kind of a lawyer would tape a client? So sad! If this a first, never heard of it before? Why was the tape so abruptly terminated (cut) while I was presumably saying positive things?”

“I hear there are other clients and many reporters that are taped – can this be so? Too bad!”

“Arrived back in Washington last night from a very emotional reopening of a major U.S. Steel plant in Granite City, Illinois, only to be greeted with the ridiculous news that the highly conflicted Robert Mueller and his gang of 13 Angry Democrats obviously cannot find Collusion...

“...the only Collusion with Russia was with the Democrats, so now they are looking at my Tweets (along with 53 million other people) – the rigged Witch Hunt continues!  How stupid and unfair to our Country...And so the Fake News doesn’t waste my time with dumb questions, NO....

“...I did NOT know of the meeting with my son, Don jr.  Sounds to me like someone is trying to make up stories in order to get himself out of an unrelated jam (Taxi cabs maybe?). He even retained Bill and Crooked Hillary’s lawyer. Gee, I wonder if they helped him make the choice!”

Rich Lowry / New York Post

“It’s a symptom of our time that  a tape of the future president of the United States discussing machinations related to an alleged affair with a former Playboy Playmate isn’t truly a blockbuster.

“The brief snippet of conversation between Donald Trump and his lawyer Michael Cohen about buying the story of former Playmate Karen McDougal, who says she had a 10-month-long affair with Trump beginning in 2006, is certainly of interest.

“How often do you hear a future president speaking so frankly, if cryptically, about such a salacious matter?  And the tape is part of the storyline of Cohen flipping against Trump and cooperating with prosecutors that will be an ongoing media obsession.

“But what would be a potential torpedo to the bow of any other presidency is a relative trifle, because the underlying conduct, the tinny and dishonest denials and the cynical maneuvers involving a tawdry tabloid have been built into the Trump baseline.

“Past presidents have needed fixers (John F. Kennedy had his at the top of the Justice Department, his brother Bobby) and have had shady associates (Richard Nixon and Bebe Rebozo, Bill Clinton and almost everyone he knew from Little Rock, it seemed).

“Still, Trump’s relationship with Michael Cohen is off the charts. A lawyer so disreputable no one else would want his representation, who made up in brazenness what he lacked in legal chops and whose job it was to make embarrassments go away, by any means fair or foul.

“Q. What kind of lawyer tapes his client?  (A question Trump has asked in recent days.)

“A: Cohen, whose lack of standards is what made him so useful in the first place.

“The tape’s political effect is muted because everyone is dug in. Trump’s foes have already concluded that he’s unfit for office and needs to be removed forthwith; his supporters (most of them) acknowledge his serious personal shortcomings but think it’s more important to focus on his agenda and accomplishments.

“It’s difficult to find a further personal peccadillo that can budge anyone from these trench lines, since there’s no real contest over his character to begin with.

“The irony is that Trump’s detractors hate him so much that they have created, perhaps, an impossibly high standard for his misconduct.

“It’s not damning enough for them that the Russians interfered in our election and Trump is dismissive of it.  Trump has to be a quasi-Russian agent who actively colluded with the Kremlin, perhaps going back decades.

“It’s not damning enough that Trump had affairs with a porn star and Playmate, he has to have committed some serious criminal offense in the course of covering his tracks.

“For their part, Trump’s allies rarely make a personal defense of him, i.e., this man would never do such a thing. Trump lawyer Rudy Giuliani tried a version of this tack regarding Stormy Daniels a few weeks ago, but the crux of his argument was that she was supposedly not sophisticated and beautiful enough for Trump, not that he would have been incapable of such a fling.

“When Giuliani now says that the tape is exculpatory, he doesn’t mean that it proves there was nothing to the McDougal story and where does his client go to get his reputation back? He means that Trump was up-front and transparent about buying her story – he wanted to do it by check.

“And that defense is enough. With Trump having delivered on important priorities for the right (a second Supreme Court justice is forthcoming) and enjoying a hysterical opposition that pushes Republicans toward him, the Fifth Avenue principle applies now more than ever. To update it for current circumstances, Trump could pay off Karen McDougal with a black satchel full of cash in the middle of Fifth Avenue, and not lose any voters.

“That Trump has denied the Daniels and McDougal stories is a normal tactic in an abnormal time.  You wonder why he bothered, though, except that allegations from women were piling up in the weeks before the 2016 election and there are always poor Melania’s feelings to consider.

“Perhaps there will be some inescapable legal dilemma for Trump that emerges out of the Cohen imbroglio.  But the president has a very wide margin for error.  The lesson of these controversies so far is that there’s nothing low expectations won’t do.”

--CNN says one of its reporters was banned from a White House event Wednesday after attempting to ask President Trump a series of questions that were deemed “inappropriate.”

White House reporter Kaitlan Collins said she was pulled aside Wednesday afternoon after shouting questions to Trump during an Oval Office meeting with Jean-Claude Juncker, and told she would be barred from a news conference.

Collins said she was asked to the office of Bill Shine, the former Fox News co-head and new deputy chief of staff of communications.  There she met with Shine and Press Secretary Sarah Sanders, where she was told she wouldn’t be allowed for a news conference between Trump and Juncker.

Other networks, including Fox News, immediately came to Collins’ defense, who was merely acting as the pool reporter for the event.  I watched it all, she did nothing inappropriate.  Trump sometimes answers questions in these settings. This time he chose not to.

But I also saw Bill Shine the next day chastise reporters for their characterization of events and what an asshole he is. 

--More Trump tweets: “I had a GREAT meeting with Putin and the Fake News used every bit of their energy to try and disparage it. So bad for our country!”

Yoh, Mr. President...just freakin’ tell us, or at least tell your advisers, what the hell you agreed to, and/or talked to Putin about!!!  We don’t want to hear it from the lying Russkies!

--Finally, I caught every one of Trump’s on camera performances this week, including a despicable moment at the Veterans of Foreign Wars convention in Kansas City.

Trump received one of his loudest ovations when he attacked the news media for its reporting on his trade policies and other issues.

“Stick with us,” Trump said.  “Don’t believe the crap you see from these people, the fake news.”  As Philip Rucker of the Washington Post duly noted, “As he gestured at the press riser on the floor of the Municipal Auditorium, veterans in the stands took their cue from the commander in chief and pointed, booed and hissed at journalists.

“Just remember,” Trump told the crowd, “what you’re seeing and what you’re reading is not what’s happening.”

That evening we learned of the Cohen tape.

Rucker interviewed Dwight Perry, 66, an Army vet from Maryland in attendance.  “This was a political speech,” said Perry.  “This is not what you do at a VFW convention... He didn’t have to come out here and talk about how great he is. That’s not what you do here.”

Later in the day the VFW expressed concern over the treatment of the media.

“Today, we were disappointed to hear some of our members boo the press during President Trump’s remarks,” the group said in a tweet.  “We rely on the media to spread the VFW message, and @CNN, @NBCNews, @ABC, @FoxNews, @CBSNews, & others on site today, were our invited guests. We were happy to have them there.”

Wall Street and Trade

A little more economic data before the trade story.  Existing home sales for June came in less than expected, 5.38 million annualized, down 0.6% over May and down five of the first six months of 2018.

But the median price hit a new high of $276,900.

Then the data on new home sales for last month came in and it too was below forecast, 631,000.

Together the figures are worrisome as housing contributes about 15% to 18% of GDP.

And June durable goods were well below forecast at 1.0%, 0.4% ex-transportation, though the capital spending component was 0.6%, and 6.8% the first six months.

That said, the headline figures on housing and durable goods had economists lowering their GDP forecasts ahead of Friday’s number, and for the record, my much-quoted Atlanta Fed’s GDPNow had lowered its forecast from last week’s 4.5% to 3.8% ahead of the 4.1% print.  As Ronald Reagan would have said, ‘Not bad, not bad at all.’

Meanwhile...President Trump and European Commission President Jean-Claude Juncker, reached a truce of sorts on trade after talks at the White House.

Under the agreement, the European Union and U.S. proclaimed a “new phase” in relations. The two sides said they had agreed to work together to try to eliminate tariffs and other trade barriers related to all industrial goods other than cars and to reform the World Trade Organization.

They also agreed to put a hold on any new tariffs, including duties Trump has threatened to impose on auto imports, while discussions proceeded. The EU, meanwhile, agreed to boost imports of U.S. liquefied natural gas and soybeans, or so said Juncker.

As for the existing tariffs on EU steel and aluminum imports in place since June, these remain in place for now.  And auto tariffs remain on the table despite the happy talk.

German Chancellor Angela Merkel said through a spokeswoman that she welcomed the deal and that the commission could “count on our continuing support” in its trade negotiations with the U.S.

Trump tweet: “European Union representatives told me that they would start buying soybeans from our great farmers immediately. Also, they will be buying vast amounts of LNG!”

“Great to be back on track with the European Union. This was a big day for free and fair trade!”

But European officials are struggling to make sense of the temporary trade truce.  There were no real details and this is not Trump dealing with a single country; it is the 28 members of the European Union, where national officials around the continent wondered whether it’s realistic to expect Europe to buy more soybeans from the United States, as Juncker signaled, or become “a massive buyer” of U.S. liquefied natural gas, as Trump trumpeted.

To some in Europe, what they hear from the comments of Trump and Juncker looks like the goals of the Transatlantic Trade and Investment Partnership, or TTIP, an initiative launched by President Obama that aspired to free trade with Europe, but which has been dormant since 2016, sidetracked by Britain and Brexit, as well as the election of Donald Trump.

As one European Commission official told Bloomberg: “TTIP was way too wide, and negotiations were stuck, as Americans were not keen to discuss greater access to their public procurements, while Europeans were reluctant on the U.S. importing more agricultural products.”  Many leaders in Europe are leery that a revival of TTIP could anger voters.

And back to soybeans, prices are far lower for product from Argentina and Brazil.  Plus you have the EU’s regulations on genetically modified foods so you can’t just redirect the market, say soybeans intended for China to the EU.  Plus you have strict environmental standards, that as French economy minister Bruno Le Maire said, “are non-negotiable.”

As for LNG, it is far more expensive coming from the U.S. because of shipping costs than it would be from Nord Stream 2, the new pipeline project that brings gas from Russia to Germany.

But the EU is dealing with a White House that can change its mind on a dime, so how can you cast any definitive judgement on the Trump-Juncker détente? 

As in everyone take a deep breath, or, as our own president is fond of saying, “Let’s see what happens.”

Meanwhile, President Trump pledged up to $12 billion in emergency relief for farmers hurt by the trade war, which as you can imagine prompted new demands for relief for manufacturers, fishermen and others being hit by retaliatory tariffs from America’s trading partners – all of which would require more government spending.

The farm relief package will be financed through the USDA’s Commodity Credit Corporation and thus will not require congressional approval.

Republican Sen. Ben Sasse (Neb.): “This trade war is cutting the legs out from under farmers and the White House’s ‘plan’ is to spend $12 billion on gold crutches.”

“Tariffs are taxes that punish American consumers and producers,” Kentucky Republican Senator Rand Paul wrote on Twitter.  “If tariffs punish farmers, the answer is not welfare for farmers – the answer is remove the tariffs.”

Republican Senator Chuck Grassley of Iowa said the aid package is “encouraging for the short term.”

“What farmers in Iowa and throughout rural America need in the long term are markets and opportunity, not government handouts.”

Editorial / Wall Street Journal, part I

“Hours after President Trump tweeted on Tuesday morning that ‘tariffs are the greatest!,’ his Administration announced a $12 billion aid package for American farmers to offset the harm from the Trump trade wars.

“If you’re confused, join the White House. The Trump Administration is trying to fix an economic problem of its own making by putting the victims on the federal dole. Perhaps this is what White House trade adviser Peter Navarro meant when he said the trade harm was merely a ‘rounding error.’ ....

“American farmers won’t prosper on welfare. They need access to customers abroad. Mr. Trump may think that his farm tariff bailout will get Republicans past the November election, but sooner or later bad economic policy becomes bad politics.”

Editorial / Wall Street Journal, part II...a day later...

“The meeting on trade Wednesday between President Trump and European Commission President Jean-Claude Juncker had all the makings of a potential crackup, but in the event it provided the best economic news in weeks.  Financial markets were clearly pleased, as stock rose across the board before the closing bell on the statements by the two presidents after their White House session. Call it a relief rally.

“The two sides essentially declared a tariff truce, pending negotiations on a larger trade deal between the 28-nation European Union and the U.S.  Mr. Trump agreed to step back from his threat of 25% tariffs on European car imports, while the two sides pledged to resolve the current U.S. steel and aluminum tariffs and Europe’s retaliatory levies on U.S. goods....

“Most important, the two sides agreed to negotiate a larger trade deal that Mr. Trump said would have as a goal ‘zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods.’ This suggests that Europe has taken Mr. Trump up on his offer, floated at the last minute at the G-7 meeting in June, to work toward zero tariffs. The question at the time was whether this was serious, or political misdirection, and now we’ll find out....

“The White House will crow that Europe blinked, but it’s more accurate to say the two sides are stepping back from mutually assured economic destruction. The car tariffs would certainly have punished Germany, the locomotive of Europe’s economy.

“But Mr. Trump also had ample political and economic incentive to call a truce.  The retaliatory tariffs from China, the EU, Mexico, Canada and Japan are beginning to hurt U.S. farmers and manufacturers. Mr. Trump felt obliged this week to bail out U.S. farmers by providing up to $12 billion to buy surplus crops that can’t find a foreign market.  Harley-Davidson and other firms are moving plants abroad to avoid higher import costs and duck retaliatory tariffs. All of this in turn is beginning to have political consequences as more Republicans in Congress are finding their voices in favor of free markets.

“The protectionist threat is far from over. The talks with Europe could founder on any number of issues, especially European barriers to competition from America’s more efficient service industries or genetically modified foods. France will be a particular problem.

“Then there’s the fast-closing deadline for getting a NAFTA deal done during the current U.S. Congress and before the Mexican presidential handoff on December 1.  A NAFTA modernization that can pass Republican muster on Capitol Hill would remove a big threat to business investment.

“Deals with Europe and the Americas would let Mr. Trump focus on China trade with some allies to back him up. Fighting trade wars on multiple fronts makes little sense and lets China play Western countries against one another.  Beijing would have to take seriously a united front of the world’s largest importers against, say, intellectual property theft.

“The U.S. economy has broken out of its Obama doldrums and is growing at a faster than 3% pace for the first time in 12 years. Mr. Trump’s trade policies are the biggest threat to that economic progress. The faster Mr. Trump concludes his new deals, the more likely the economic revival will continue.”

Europe and Asia

European Central Bank President Mario Draghi said on Thursday that uncertainty over the eurozone’s inflation outlook is “receding” following years of tepid price growth even while global protectionism poses a “prominent” risk.

Draghi’s remarks came after policymakers held interest rates at historic lows and confirmed plans to end the bank’s vast bond-buying program in December.

Draghi said the “direct effects” of tariffs to date implemented by the U.S. on EU imports have been “limited.”  “But clearly...a trade war, where we have rounds of retaliation and rounds of responses would create an entirely different climate.”

Draghi also strongly hinted the ECB’s zero interest rate policy would remain in effect through next summer.

Separately, Markit released its flash readings on the eurozone economy for July.

The flash composite PMI for the EA19 was 54.3 in July vs. 54.9 in June (50 being the dividing line between growth and contraction), with the manufacturing PMI at 55.1 vs. 54.9, and services at 54.4 vs. 55.2.

Germany’s flash composite reading was 55.2 vs. 54.8 in June, a 5-month high, with manufacturing at 57.3 vs. 55.9 last month, a 3-month high.

France’s flash composite came in at 54.5 vs. 55.0 in June, while the manufacturing PMI was 53.1 vs. 52.5 the prior month.

Separately, France announced today that GDP grew at 0.2 percent in the second quarter over the previous one, the same percentage growth seen in the first three months of the year, according to a first estimate from the National Institute of Statistics and Economic Studies, or Insee.  Household spending slipped 0.1 percent.

Chris Williamson / Chief Economist at IHS Markit:

“The flash PMI suggests the eurozone started the second half of the year on a relatively soft footing, indicative of GDP growth slowing in the third quarter. The July reading is consistent with quarterly GDP growth of 0.4%, down from a 0.5% expansion indicated by the surveys for the second quarter.

“The renewed slowdown comes as a disappointment, confirming suspicions that June’s rebound was temporary, largely due to businesses in some countries making up for an unusually high number of public holidays in May.

“Given the waning growth of new business and further slide in business optimism, the outlook has also deteriorated, notably in manufacturing, where the surveys saw worries about trade wars intensify markedly in July....

“The big question going forward will be the extent to which domestic demand can remain sufficiently resilient to cushion the eurozone economy from the potential adverse impact of an escalating trade war on exports.”

Eurobits....

--Britain’s parliament is on break, ditto Prime Minister Theresa May, so little news on the Brexit front.  That said, as I keep noting, time is running short for Mrs. May to get a deal with the European Union on the divorce terms in time for the October summit of EU leaders, the U.K. then scheduled to leave the bloc on March 29 – with or without an agreement.

--Italian Interior Minister and Deputy Premier Matteo Salvini, on a European Commission proposal for EU countries to receive 6,000 euros for each asylum seeker they take in.

“We are not here asking for charity, also because over time each asylum seeker costs the Italian taxpayer 40,000-50,000 euros, so Brussels can keep its charity, we want to close the influx...we do not want money.”

--Members of the French Parliament demanded answers Monday after a senior security aide to President Emmanuel Macron was indicted on charges of engaging in “gang violence” and impersonating a police officer.

In what has become the biggest scandal of the Macron administration, Alexandre Benalla was recorded on camera violently attacking a young man and a woman at a Workers’ Day demonstration as protesters clashed with riot police on May 1. He has since been fired.

The problem for Macron is that he knew of the alleged criminal assaults less than 24 hours after they happened, but his office failed to report them to the public prosecutor’s office. The president’s office had claimed Benalla was authorized to join the operation as an “observer.”  Police officials have denied this.

Benalla was then suspended for two weeks, and then allowed to return to his post.  He was fired only after questioning by police in the aftermath of the publication by Le Monde of video of the assaults. That was the first the public knew of the scandal.

Turning to Asia...the big story for the coming week will be a meeting of the Bank of Japan’s Policy Board, July 30-31, with a clear need to adjust its inflation projections downwards yet again.  The BoJ has consistently forecast that inflation will meet its objective of overshooting the 2 percent target by the end of successive forecast horizons, but then falls woefully short, such as in the June report that showed core inflation (ex food and energy) falling to only 0.2 percent.

So now the market is waiting to see if the BoJ changes monetary strategy.  Will it be altered to make it more sustainable, which some are reading to mean an abandonment of quantitative and qualitative easing that has been in place since 2013.  The yield on the 10-year this week rose from 0.03% to above 0.10%, a huge relative move, before the government stepped in with a big auction of 5-10-year paper and it closed the week at 0.09%, yes, investors snapping up $847 million worth of 0.10 percent bonds.

Separately, the flash PMI reading on manufacturing in Japan for July was 51.6 vs. 53.0 in June.

Meanwhile, China is trying to support its economy as trade tensions escalate and risk spilling over into currency markets.  The government will focus on introducing deeper tax cuts and step up efforts to issue special bonds for local government infrastructure plans.  The moves are minimal thus far, but the start of a shift towards looser fiscal policy, which has been relied on in the past to support economic growth.

Street Bytes

--The major averages were mixed a second straight week, with the Dow Jones advancing 1.6% to 25451, while the S&P 500 tacked on 0.6%.  But Nasdaq, owing to the likes of Facebook and Twitter, which offset the positives in the sector, fell 1.1% to 7737. 

--U.S. Treasury Yields

6-mo. 2.18%  2-yr. 2.67%  10-yr. 2.95%  30-yr. 3.08%

After five straight weeks with the yield on the 10-year below 2.90%, Treasuries fell (yields rose) across the curve on the strong economic prospects and U.S. monetary policy vs. the likes of Japan and the EU.  Trade fears obviously also came into play.  More on this next review...not enough time today, sports fans.

For now, the Federal Reserve meets this coming week but will hold the line on rates. The next increase is coming in September. 

--As reported by Jim Tankersley of the New York Times, “The amount of corporate taxes collected by the federal government has plunged to historically low levels in the first six months of the year, pushing up the federal budget deficit much faster than economists had predicted.”

Well, this was to be expected when you lower the standard corporate tax rate from 35 percent to 21 percent, and allow companies to immediately deduct many new investments.

The White House has had to admit in recent weeks that the deficit is growing faster than it had expected because the revenue hasn’t been coming in from faster economic growth.  The Office of Management and Budget revised its forecasts from earlier in the year to account for an additional debt, on average, of about $100 billion more a year over the next decade.  Of course these figures can vary wildly, depending on the rate of growth.

The Commerce Department did say that in the first quarter of this year, multinationals repatriated $306 billion, in the form of dividends, which the White House says is a sign that the tax law is working, though it’s not yet clear if repatriation is generating additional economic activity. 

But as Jim Tankersley notes: “Companies can spread out the tax bill for repatriation over the next eight years, which is why those payouts are not lifting corporate tax payments in the near term. The law forces multinational companies to pay a one-time tax on cash and assets held abroad, but the Internal Revenue Service allows firms to pay that bill in annual installments, even if they choose to pay out the money in dividends right away.

“Administration officials have said that timing has contributed to corporate collections running 20 percent below initial forecasts from the Congressional Budget Office and 10 percent below predictions from the Penn Wharton Budget Model, a nonpartisan research initiative that forecast large deficits as a result of the tax law.”

--Shares in Facebook cratered in after-hours trading Wednesday, and then Thursday, after the company warned of slowing revenue growth in the second half, while saying that expenses would grow faster than revenue next year.

The company had cautioned investors to expect a big jump in costs because of efforts to address concerns about poor handling of users’ privacy and to better monitor what users post.  Total expenses in the second quarter surged to $7.4 billion, up 50 percent compared with a year ago.  Growth in new users slowed with Facebook adding 11 percent more daily and monthly active users on the main Facebook app in the second quarter, compared with 13 percent in the first quarter.

“Our total revenue growth rates will continue to decelerate in the second half of 2018, and we expect our revenue growth rates to decline by high single-digit percentages from prior quarters sequentially in both Q3 and Q4,” said CFO David Wehner.

The data privacy scandal involving the political consulting firm Cambridge Analytica, coupled with misinformation on WhatsApp contributing to mob killings in India have added to the pressure on Facebook to re-evaluate how its service maintains security and decorum.

Facebook’s revenue grew at its slowest pace in almost three years to $13.2 billion in the second quarter compared with a year ago.  The company reported $5.1 billion in profit, or $1.74 per share, compared with average Street estimates of $5.1 billion and $1.72.  Operating margin fell to 44 percent from 47 percent a year ago.

Facebook did say mobile made up 91% of its ad revenue last quarter, up from about 87% in the year-earlier quarter.

Daily user growth for Facebook’s namesake service has slid six straight quarters, bringing it to 1.47 billion users in the second quarter from 1.23 billion at the end of 2016, but up only 1.5% from the previous quarter.  Instagram has grown to 1 billion monthly users from 600 million in late 2016, while Facebook’s’ two messaging apps, Messenger and WhatsApp have each reported well over 1 billion monthly users.  About 2.5 billion people use at least one of the company’s apps each month.

The company’s user base for the core Facebook platform was unchanged in its biggest market – the United States and Canada – at 185 million daily users, while declining in Europe to 279 million.  Overall daily users increased 11% from the  same period a year earlier.

On a conference call with investors and analysts, Facebook said that Instagram is expected to account for 18 percent of Facebook’s revenue this year and 23 percent next year, but this growth doesn’t seem to be enough to offset the headwinds faced by the core apps.

The new General Data Protection Regulation (GDPR) in the European Union has forced several changes to Facebook’s privacy terms and sign-up process that CEO Mark Zuckerberg said has led to a decline in monthly actives in Europe.  Further regulatory setbacks are clearly coming.

Facebook’s headcount was 30,275 as of June 30 – an increase of 47% year over year.

But in the end, at the close on Thursday, Facebook had plummeted 19%, erasing $119 billion in market value, the largest one-day loss in value of any publicly-traded company in history.                                              

--The flipside of Facebook was Google.  Parent company Alphabet Inc. reported second-quarter sales, minus partner payouts, of $26.24 billion vs. analysts expectations of $25.55 billion, with Google’s advertising business rising 24%.  CFO Ruth Porat said most of that came from Mobile and automated ads.  Shares in Alphabet surged 6% in response, even with news of the $5 billion fine the European Union imposed last week for violating competition law with Google’s Android mobile software.

Excluding that, Alphabet said profit was $11.75 a share. Google plans to contest the ruling. Even including the fine, the company generated $3.2 billion in net income during Q2.  Most analysts don’t expect the EU’s antitrust investigation to force changes that significantly dent Google’s earnings in the future.

Google is expected to control 31% of the global ad market this year, according to estimates from eMarketer.

Google did say capital spending rose 87% from the same quarter last year to $5.3 billion, mostly for sales and marketing of the company’s cloud division.

--And then we have Amazon.com Inc., which reported better-than-expected second-quarter earnings and forecast more of the same in the current period, the shares rallying 4% in response, before finishing up just 0.5%.

Amazon reported profit came in at $2.5 billion, or $5.07 a share, more than double analysts’ forecasts, on net sales of $52.9 billion, which was actually just shy of the $53.4bn forecast. The company said Q3 income will surge to as much as $2.4 billion, way above current estimates, but revenue guidance is short of current estimates.

Revenue from Amazon Web Services, the company’s profitable cloud-computing division, jumped 49% to $6.1 billion.

The company played up growth in Alexa in its earnings statement, saying sales of Alexa-enabled devices had more than tripled in the past year.

Amazon’s stock has more than tripled in the last three years, making founder Jeff Bezos the richest person on the planet.  The company was able to sustain another broadside from President Trump this week; owner Bezos also owning the Washington Post, which frequently publishes articles critical to the administration.

--Today, shares in Twitter fell a whopping 20% as the company reported fewer monthly active users than analysts expected and warned that the closely-watched figure could keep falling as it deletes phony accounts, sending shares sharply lower in early trading.  The company said the work it was doing to clean up Twitter by purging automated and spam accounts had some impact on its user metrics in the second quarter, and that it would prioritize removing suspicious accounts and reducing hate speech and other abusive content over projects that could attract more users.

Monthly active users fell by 1 million in the second quarter from the first to 335 million.  Analysts were expecting a small gain, and the results appear to have hardened concerns that Twitter lacks a clear strategy to deal with various platform problems and grow usage and revenue together.

Twitter added to the gloom when it said the decline in the third quarter would be in the mid-single-digit millions, suggesting a sequential decline to the area of 330 million users.

Revenue of $711 million, mostly from advertising, did exceed expectations and was up 24 percent from last year. Twitter said it benefited from the World Cup, with ads tied to the tournament generating revenue of $30 million.

Profit was $100 million, with a $42 million boost due to a tax accounting move. Earnings excluding items were 17 cents per share, in-line with estimates.

Twitter, like Facebook, has been under pressure from regulators in several countries to weed out hate speech, abusive content and misinformation, better protect user data and boost transparency on political ad spending.

--Fiat Chrysler cut forecasts for sales, earnings and cash generation this year after second-quarter results missed expectations due to a poor performance in China and lackluster growth at home.

Revenue overall rose 4 percent, but net profit fell 35 percent to 754 million euro ($880m).

The company, which owns the Jeep, Ram, Alfa Romeo, Dodge and Maserati brands, cut full-year guidance for revenues from 125bn euro to 118bn, with a cut in projected earnings.

The Asia region fell to a loss, largely due to changes in import tariffs into China, pushing the division into the red.

Lastly, former CEO Sergio Marchionne died hours before the earnings were released, Marchionne a true trailblazer and titan in the industry...an executive as highly-respected as any across the corporate landscape I can remember.  Just through my own observations in watching him at various settings, he was both likable and worthy of respect.  He was widely credited with rescuing both Fiat and Chrysler from the brink of bankruptcy.  Our sympathies to his family, and the Fiat Chrysler family. 

Mike Manley was appointed CEO at the weekend to replace Marchionne when it became apparent his condition had worsened, Marchionne suffering severe complications from what had appeared to be basic shoulder surgery in late June.  But a story on Thursday via a Swiss hospital treating Marchionne said he had a “serious illness” lasting more than a year, which FCA said it didn’t know about.  He had been receiving recurring treatment, the hospital said.  It didn’t disclose the exact nature of Marchionne’s illness.

--The imposition of steel and aluminum tariffs and the possibility of tariffs on imported and exported vehicles threaten to undermine the auto industry’s finances and increase prices for consumers.

The rising cost of commodities – largely due to Trump’s 25 percent tariff on imported steel – took a bite out of General Motors.

GM turned a $2.4 billion profit for the second quarter, $3.2bn adjusted, but the company reported $300 million in increased commodity costs and lowered 2018 earnings-per-share guidance to $6 from a range of $6.30 to $6.60, which would end  its three-year string of record adjusted-operating profits.

--Ford said it earned a profit of $1 billion during Q2, down nearly 50 percent from the same period a year ago amid sluggish sales to China, as well as the effects of the tariffs and the costly disruption this spring of F-150 pickup production due to a fire at a supplier’s plant.  Ford said the tariffs resulted in $145 million in higher costs and could rise to as much as $600 million for the full year.  The company also lowered its full-year profit forecast.

Ford’s China operation lost $483 million in Q2 vs. a profit of $23 million a year earlier.  The automaker said its product portfolio had grown stale in the world’s largest car market.

The estimated impact on vehicle prices of steel and aluminum tariffs thus far range from about $200 to $300.  But if the threatened vehicle tariffs were imposed that would add up to about $5,000 per vehicle.

Shares in all three, GM, Ford and Fiat Chrysler, fell on their respective earnings reports Wednesday.

--Separately, Ford, following in the footsteps of General Motors, created a new unit to bring together its self-driving vehicle operations, vowing to invest $4bn through 2023 in the newly formed Ford Autonomous Vehicles.

The unit will be based at Ford’s new advanced vehicle campus in Detroit, outside the company’s main headquarters in Dearborn, and will hold Ford’s ownership stake in Argo AI, its Pittsburgh-based partner helping to develop the self-driving cars it plans to introduce commercially in 2021.

General Motors reported last month that SoftBank was investing $2.3bn in Cruise, GM’s self-driving car arm.

--Shares in Tesla fell on a report from the Wall Street Journal that the electric carmaker was asking some suppliers to return a “meaningful” amount of what it has spent since 2016 to help it become profitable. Tesla confirmed it was seeking price cuts but called them a standard part of procurement negotiations.  Retroactive rebates, though, are not normal and thus troubling.

CEO Elon Musk has said Tesla would be profitable and cash flow positive in Q3 and Q4, with no need to raise money, but most analysts believe Tesla will require a fund raise.

Separately, the Los Angeles Times had a piece on the service issues many Tesla customers are enduring.

“Parts shortages, long repair delays and problems getting through on customer help lines have led to scenes of strife at Tesla’s service centers.”

Here’s one case, as described by the Times.

“Another service rep was assisting Mike, the owner of a red Model 3 with door-lock problems who declined to give his last name.  He’d lock the car, walk away, and it would electronically unlock itself. That caused him to alter his vacation plans.  ‘I couldn’t take it to Yosemite like that,’ he said.  [Ed. you weren’t going to Yosemite anyway, Mike, with the current fire situation there, but I digress....]

“The agent said Mike would have to leave the car there awhile: ‘The amount of cases I’ve got right now is unbelievable.’”

We’re not talking normal delays from your traditional auto dealer.  Like weeks-long waits for basic auto repairs, when it comes to Tesla, and forget finding new body parts, it seems*.  This isn’t a top priority for Tesla, and Elon Musk, right now.  It’s just trying to rush the cars off the production line, and what did I tell you months ago...quality could suffer.  It certainly appears it has.

*Norway, the third largest market for Tesla cars after the U.S. and China, is seeing months-long waits for body parts for damaged vehicles.

--Harley-Davidson cut its profit margin forecast for the year as the motorcycle maker, caught in the crossfire of the U.S.-EU trade war, said it expected tariffs to hit its business harder than expected.

The company put the costs of the tariffs at between $45m and $50m but said it hoped to take steps to reduce manufacturing expenses and adjust supply-chain logistics to compensate for a portion of the extra cost.

But Harley vowed to maintain its forecast for global shipments for 2018 at between 231,000 and 236,000.

Harley was targeted by the European Commission in June, along with other high-profile U.S. products such as Levi’s jeans and bourbon whiskey, after President Trump introduced tariffs on steel and aluminum.  Harley then said it would shift some production of EU-destined models from the U.S. to other international plants as a result, incurring the wrath of Trump on Twitter.  But the company said thus far it has seen “no discernible shift” in U.S. sales or attitude towards the brand.

For Harley, European ridership is key to its global strategy, as its riders in the U.S. are ageing.  In the first half of 2018, U.S. sales were down 9 percent, compared with a fractional rise internationally.

--Back in October 2016, NXP Semiconductors, a Dutch company that makes computer chips for automobiles, agreed to be acquired by chip giant Qualcomm Inc.  Then the deal got tangled up in the U.S.-China trade feud and with NXP having major operations in China, regulators there turned down the merger at a deadline set by Qualcomm on Wednesday.

--Shares in Intel Corp. fell sharply, 8%, despite solid second quarter results, as investors focused on the timetable for the company’s new 10-nanometer chips reaching volume production.

Intel’s data-center group, driven by growth in the cloud-computing industry, saw revenues rise 27% to $5.55 billion, but this was less growth than expected by analysts.

In the division that sells chips for personal computers, revenue rose 6% to $8.73 billion, aided by the strongest number of PC shipments in years.

Overall, profit surged 78% to $5.01 billion, while revenue rose 1% to $16.96 billion.

Finance Chief Bob Swan is serving as interim CEO following the unexpected resignation of former CEO Brian Krzanich, who left after violating company policy by having a relationship with a co-worker. Swan said he won’t be Intel’s next CEO; content to be CFO.

--Exxon Mobil Corp. and Chevron Corp. both disappointed in their earnings reports today. Exxon said net income rose to $4 billion for the second quarter, up 18% vs. a year ago, but substantially below the 50% increase in the price of oil in that same period.  For various reasons the company’s production fell to the lowest level in more than 20 years.

Chevron’s results also fell short of expectations, though while Exxon’s share price fell, Chevron’s was up, mainly on a large buyback announcement.

--Boeing raised its full-year profit guidance on Wednesday as it announced strong second-quarter earnings.  It now expects to make $97bn-$99bn this year, up $1bn on previous guidance.

The company reported earnings for the June quarter of $3.73 per share, well ahead of the market’s consensus figure of $3.25, with CEO Dennis Muilenburg saying the company secured $29bn in new orders in the quarter.

Boeing also beat on revenues, $24.3bn vs. forecasts of $24bn and last year’s $23.1bn.  This reflected 194 commercial aircraft deliveries and higher defense and services volumes.

For the first half, revenue was up 6 percent, with earnings per share up 46 percent.

Boeing also booked 239 net orders for commercial aircraft during the quarter.

Separately, Boeing said China would pass the U.S. as the biggest air travel market within 10-15 years, driving a big rise in aircraft sales.

Boeing’s latest global industry report predicts airlines will need 42,700 aircraft over the next 20 years, up 3% on last year’s forecast.  Boeing valued the sales at $6.3 trillion at today’s prices.

--Major U.S. airlines have been under pressure from the Chinese government to refer to Taiwan as part of China in their flight schedules, with American Airlines and Hawaiian Airlines making changes to their websites ahead of Beijing’s Wednesday deadline. Delta and Continental were also in the process of doing the same.

Beijing is demanding the airlines not refer to Taiwan as anything other than a Chinese territory on their sites, a move described by the White House back in May as “Orwellian nonsense,” which is a bit ironic given some of the Orwellian comments by the occupant of the Oval Office.

On Tuesday night, American Airlines was referring to “Taipei, Taipei Taoyuan Airport (TPE), Taiwan.”  On Wednesday, it was “Taipei Taoyuan Airport (TPE).”

Hawaiian Airlines doesn’t fly to Taiwan, but it sells tickets through a code-share relationship with China Airlines, which flies nonstop from Taipei to Honolulu.

Well after the Wednesday deadline, China said the U.S. airlines hadn’t gone far enough in describing the self-governing island as what Beijing wants, “Taiwan, China.”

Thursday, as noted above, President Trump once again referred to President Xi Jinping as a great guy.  This is a great guy?

For its part, Taiwan’s government said the effort on the part of Beijing was an “affront” to the rules-based international order and an effort to “erase” it.

I maintain, having spent a week on Taiwan, that these are some of the great people on the planet.  You know how I feel about those on the other side of the Strait.

--The price of newsprint has jumped to its highest level in a decade owing to tariffs imposed by the administration on imports from Canada, causing U.S. newspapers to further retrench and pare down print offerings; piling more pressure on the beleaguered industry.

Prices of the paper have risen almost one-fifth in the past year, with printers and publishers blaming the price jump on tariffs of up to 32 percent on imports into the U.S.

Rising newsprint prices were cited by the Tampa Bay Times when it announced job cuts this year, while the Pittsburgh Post-Gazette said it will cease printing two days a week from next month, and the Salt Lake Tribune pares back its local news section.

According to the Pew Research Center, daily newspaper circulation in the U.S. has fallen 17.9 percent since 2015, as advertising revenues have dropped by almost $3.9bn.  Newsroom staffing has been cut by 11 percent in that time, according to the U.S. Bureau of Labor Statistics.

At a hearing of the International Trade Commission last week, printers and publishers denounced the tariffs as a threat to the nation’s press, with support from a number of members of Congress.

“Our trade remedy laws are meant to correct market interferences and disruptions, not to create them,” Republican Sen. Johnny Isakson (Ga.) told the hearing.  [I love Isakson...a treasure.]

Of course Donald Trump is doing everything he can to stifle a free press.

So with the above, the New York Daily News’ owner, Tronc, announced it was slashing the newsroom staff by about 50% - including the paper’s editor-in-chief, Jim Rich.  The newsroom previously had about 85 employees and now it was reportedly down to 40.

Democratic Gov. Andrew Cuomo quickly proffered state aid after Tronc’s announcement.  Cuomo said, “These layoffs were made without notifying the state or asking for assistance.  My father understood the value of a robust free press.  So do I. I urge Tronc to reconsider this drastic move and stand ready to work with them to avert this disaster.”

Andrew’s father, Mario, intervened in 1993 to keep the rival New York Post out of bankruptcy through appeals to both investors and federal authorities, but in recent years Cuomo has granted millions of dollars of assistance to at least eight of the Daily News’ competitors.

Business Insider was granted $3.3 million in tax credits, for instance, while Buzzfeed got $4 million, and Vice Media, $6.5 million, according to state data and Aaron Elstein and Will Bredderman of Crain’s New York Business.

Time Inc. got $14 million worth of incentives in part to prevent relocating its headquarters to New Jersey.  Instead it moved from Midtown to the World Trade Center.

But the above were granted the credits in return for commitments to invest in their businesses and create jobs, while the Daily News is cutting them.

Editorial / New York Post

“Monday’s mass layoffs at the Daily News are bad news for New York: This town needs more good reporters, not fewer.

“The numbers are brutal: a newsroom staff slashed in half; no staff photographers at a place that long billed itself as “New York’s Picture Newspaper.”  A sports department down from 34 people to just nine – how can a New York tabloid survive with that?

“Yes, the News has been The Post’s competitor for decades, and the rivalry’s often turned bitter. But rivalry has its joys, as well:  Even getting beaten to a story is an inspiration to do better next time.

“Not to mention the family dynamic: Many of our best people have come over from the News, and many of the folks who lost their jobs Monday are Post veterans and friends.

“So we shook our heads when the paper was sold for $1 last September,* and crossed our fingers on hearing rumors that Monday’s bloodbath was coming.

“We sincerely hope the remaining staff can find a way to turn things around. We want to beat the News, but not like this.”

*Tronc assumed the liabilities and debt.

Tronc said Monday the remaining staff would focus on breaking news involving “crime, civil justice and public responsibility.”

The departing Jim Rich wrote: “If you have democracy and think local governments should operate unchecked and in the dark, then today is a good day for you.”

--Papa John’s is preparing for a fight against John Schnatter, the pizza chain’s founder and former chairman, by adopting a so-called poison pill defense to protect itself against a hostile takeover attempt.

Schnatter, who resigned as chairman this month after a report he had used a racial slur in a comment about black people, owns 30 percent of the company’s stock, making him its largest shareholder.

Since stepping down, Schnatter now says it “was a mistake” to do so and that he was pressured to leave by board members acting on “rumor and innuendo.”

The poison-pill strategy is normally employed to fend off takeover threats by activist investors or rivals, but has rarely been used to rebuff a company founder.

Schnatter still sits on Papa John’s board, which must make for a tension convention. The company has said it was removing his image from marketing materials, and he was evicted from subleased office space at the corporate headquarters in Louisville, Ky.

Schnatter has said, through his attorney, that he “is not going to go quietly into the night.”

And then Thursday, Schnatter sued the company for access to the books and records because of the “unexplained and heavy-handed way” that Papa John’s International Inc. has treated him.

Shares in the company, Papa John’s International, have plummeted from a 52-week high of $81 to $43, down from about $55 in the last month as the saga began to play out.  The company was previously hit hard with the NFL anthem controversy, Papa John’s having been the official pizza of the league.

--Bolstered by a robust U.S. economy and newly wealthy overseas buyers, Christie’s International reported it sold $4 billion of art during the first half of 2018, up 35% from a year ago and representing a new six-month high mark for the London-based auction company.

Rival Sotheby’s said it auctioned $2.8 billion in art over the same period, up 12%.

A boutique house, Phillips, said it auctioned $517 million during the first half of 2018, up 61% from a year ago.

Christie’s said a fifth of its sales came from the $835 million estate sale of banking billionaire David Rockefeller and his wife, Peggy.  I had heard a fair amount on this particular exhibition, but until reading a piece by Kelly Crow of the Wall Street Journal, had no idea that “every single piece sold – a rare feat in the industry.”

That’s remarkable, as these things go.

The Rockefeller sales included a $115 million Picasso (not a fan), and an $84.7 million Monet (big fan), as well as an $80.8 million Matisse (eh).

--Concerns over rising cost pressures overshadowed solid quarterly results from UPS, the company, a bellwether of U.S. economic activity (ditto rival FedEx), reporting a 10 percent jump in revenue to $17.45bn for the June quarter, ahead of expectations, but operating profit fell 13 percent amid higher pension contributions and costs related to network upgrades at its all-important U.S. business.

Margins were also pressured by a 38 percent jump in fuel costs during the quarter.

UPS has been ramping up its investments in new technology, aircrafts and automated capacity as it seeks to ease delivery bottlenecks caused by the surge in demand for e-commerce related deliveries.

--McDonald’s Corp. revenue fell in the second quarter, though this was due to selling company-owned stores to franchisees, operating income decreasing as a result of the restructuring.  But revenue was still above expectations.  As a result of the moves, however, the company has removed layers of management, while closing field offices.

Same-store sales grew 4% globally and 2.6% in the U.S. in the quarter.  The latter missed analyst expectations.  The company said that rising commodity costs around the globe were pressuring the company to raise prices.

But now McDonald’s has to find a new supplier for its salads for some 3,000 restaurants in the Midwest after over 280 customers in 15 states became sick due to a Cyclospora outbreak.  The number jumped dramatically from a previously reported 160 on Thursday, according to the Centers for Disease Control and Prevention.

As of three days ago, though, all affected restaurants had been fully replenished with a new supply of lettuce mix, CEO Steve Easterbrook said, adding, “We addressed it very quickly.  Customers always appreciate (that).”

Cyclospora’s most common symptom is watery diarrhea.  The parasite is transmitted through foods contaminated with fecal matter.

McDonald’s shares fell 1.7% after the earnings release on Thursday.

-Starbucks Corp. said U.S. sales rose in its most recent quarter thanks to higher prices, while traffic dropped, down 2%, with sales rising 1% on a comparable basis.  Like whoopty-damn-do.

Starbucks also lowered its expectation for global comp-store sales this fiscal year to below 3%, from a prior estimate of 3% to 5%.

The company is trying to shore up its business by closing underperforming stores and slowing the growth of licensed stores in airports and supermarkets.

CEO Kevin Johnson said the stores in the Midwest are performing best, but analysts are concerned the company is growing too rapidly in the South.

Sales in Starbuck’s China/Asia Pacific region fell 1% for the fiscal third quarter over last year.

Overall, Starbucks’ net revenue rose 11.5% to $6.31 billion, while profit rose 23% to $852.5 million.

I said weeks ago I wouldn’t buy the stock, then $57.90.  It closed today at $52.15.

--Chipotle reported same-store sales rose a solid 3.3 percent in the second quarter, better than expected, and the shares rose 5% in response.  New CEO Brian Niccol, who came over from Taco Bell, continues to deliver. The Street loves this guy.

--Deutsche Bank AG on Wednesday reported a second-quarter net income that marked a fall from a year earlier, driven in part by weak trading results, but the news wasn’t as bad as expected, and that passed for good news when looking at the recent history of Europe’s biggest lender.

Overall sales-and-trading revenue in the second quarter was down 14% from a year earlier, which isn’t good given how key the business is to the bank overall, especially when compared with its U.S. competitors’ success in that area.

Nonstop retrenchment by Deutsche amid management upheaval has fueled speculation that DB will struggle to make enough money to grow again.

New CEO Christian Sewing, who replaced John Cryan as chief executive three months ago, told analysts that DB has “stabilized” in areas of fixed income and equities sales and trading, but this is hardly apparent in Wednesday’s results.  Sewing nonetheless says they’ll win back revenues they’ve lost by becoming more focused, and in some cases charging higher fees for client services.

Total revenue last quarter was basically unchanged from a year earlier, and down 3% for the first six months of 2018.

Deutsche still employs 95,400 worldwide.

--3M reported sales rose 7 percent in the quarter compared to the same period last year to $8.4bn, but the maker of Post-it notes (school supplies, household goods and food safety products) revised its earnings forecast downward for the second time this year.  However, the shares rose on otherwise optimistic comments from management for 2018 and beyond.

--The median home price in Southern California’s six-county region reached another new all-time high in June, $536,250, up 7.3% from a year earlier, according to real estate data firm CoreLogic.

But sales dropped to 22,706, down nearly 12% from June 2017 and the lowest number for the month in four years.

So people are increasingly priced out of the market or unwilling to pay exorbitant amounts for a home.  With memories of the bubble still fresh, many are simply worried they would be purchasing at the top again.

In Orange County, the median price is up 6% from a year ago to $739,000.

--Meanwhile, foreign purchases of U.S. homes had their biggest drop ever in the fiscal year ended in March, according to a survey by the National Association of Realtors released Thursday.

Purchases by international buyers totaled $121 billion, down from $153 billion the previous year, which is good for American home buyers in affluent neighborhoods with less competition from abroad.

The drop in foreign interest helps most in places like Manhattan, Seattle, San Francisco, Miami and Orange County, Calif.

--Shares in CBS fell sharply late Friday on word chief Les Moonves has been accused of sexual misconduct by six women – including actress Illeana Douglas – in a bombshell new report from reporter Ronan Farrow of the New Yorker; Farrow winning a Pulitzer for his coverage of the Harvey Weinstein sex-abuse story.  As in the dude has a reputation for doing his homework. 

Douglas told Farrow she was assaulted by Moonves back in 1997, while working on a pilot.

The following week after the incident, she was fired, with Moonves telling her she wouldn’t “get a f—king dime” and would “never work at this network again.”

Hell, I’ve seen the guy on various CNBC segments over the years.  I can see him doing this.

And so, in a statement this afternoon, Moonves acknowledged trying to kiss Douglas, but denied “any characterization of ‘sexual assault,’ intimidation, or retaliatory action.”

“I recognize that there were times decades ago when I may have made some women uncomfortable by making advances,” said Moonves, who was married to Nancy Wiesenfeld from 1978 through 2003 and then wed network presenter Julie Chen in 2004.

“Those were mistakes, and I regret them immensely. But I always understood and respected – and abided by the principle – that ‘no’ means ‘no,’ and I have never misused my position to harm or hinder anyone’s career.”

Well I call bulls---. See ya, Les.

Farrow’s story is about more than Les Moonves, however.  It’s about the culture at CBS, already reeling from the Charlie Rose situation.  As in it ain’t good.

But, to be fair, some are saying the report comes amid a legal battle between the CBS board and Shari Redstone, the controlling shareholder in both CBS and Viacom, who wants to merge the two companies, and she’s a real piece of work.

The New Yorker notes that the women who made accusations against Moonves say they have no interest in the company’s battle with Redstone.

--Mattel Inc. had depressing news on Wednesday as the toymaker said it was slashing more than 2,200 jobs, 22% of its global non-manufacturing workforce.

The company disclosed the move in reporting its second-quarter earnings failed to meet analysts’ expectations, with revenue falling a fourth straight quarter.

The maker of the iconic Barbie doll, like industry competitors, has struggled with the demise of Toys R Us, a key retailer.

New CEO Ynon Kreiz said the layoffs are focused on back-office and support positions.

Kreiz calls Mattel a “company with great potential,” while analysts say it has lagged behind its competitors in digital media, and needs to catch up with other brands in spawning apps, movies and TV shows.

Second-quarter sales fell 14% to $841 million, with an adjusted loss of 56 cents a share, higher than forecasts.

But amidst the doom-and-gloom, sales of Barbie rose 12%, while Hot Wheels advanced 21%.  Vrooom.  [I was never a Hot Wheels guy...more into Corgi toys myself back in my youth.]

Back to the Toys R Us issue, the toy industry is facing broad pressure as online and big-box retailers such as Amazon.com and Walmart eat away at margins.

Mattel competitor Hasbro, which turned a profit, saw strong sales of its Monopoly game during a quarter in which it agreed to acquire Power Rangers and other titles from Saban Properties.

--Coca-Cola said its revenue rose in the latest quarter, boosted by demand for diet sodas in the U.S., but the company said it would raise prices on its carbonated soft drinks in the middle of the year, owing to higher freight rates and metal prices following the imposition of U.S. tariffs on Chinese imports.

Coke said sales of Coke Zero Sugar helped offset declining sales of traditional Coca-Cola.

Organic revenue, stripping out currency swings, acquisitions and divestitures, increased 5% from a year ago, though overall sales were down 8% to $8.9 billion, as a result of the divestiture of its bottling operations.  The company reported a profit of $2.3 billion, compared with $1.4 billion a year ago.

--Anheuser-Busch InBev NV said U.S. revenues fell 3.1% in the second quarter on the back of lower volumes, as both Budweiser and Bud Light continued to lose market share, sales of the two have fallen as once-loyal American consumers shift away from domestic lagers toward craft beers, Mexican imports, wine and spirits.

So in response, AB InBev is rolling out more expensive beers, such as Michelob Ultra Pure Gold, made with organic grains, and Bud Light Orange, brewed with real citrus peels.  And it plans to launch pricey variants of Budweiser.

But at least the market share loss in the U.S. has slowed, to just a 0.35 percentage point drop in the last quarter, its best quarterly performance in almost four years.  Mich Ultra also continues to perform well.

Overall, AB InBev reported a jump in net profit to $1.94 billion, up from $1.5bn a year earlier.

Global sales grew 4.7%, stripping out currency changes and acquisitions, but this was below expectations.

The company said it wasn’t seeing the impact of tariffs on steel and aluminum yet, but would next year.

Outside of the U.S., results were strong in Brazil, Mexico, China and Western Europe, helped by the World Cup in Russia.

--Speaking of which, Visa named fans from the United States and China – both of which failed to qualify for the World Cup – as the biggest card spenders during the event in Russia.

Visa was an official sponsor and thus enjoyed exclusive access to digital payments at World Cup and other FIFA tournament venues.  For this summer’s WC, Russian organizers projected a $1.9 billion windfall from tourist spending while FIFA hoped to make a record profit of $6.1 billion.

Americans spent a total of $57 million in Russia during the tournament, with Chinese visitors spending $35 million, followed by Mexican fans at $16 million.

Russian fans spent half of the total processed at the 12 stadiums hosting games.

--Fox News’ “The Five” co-host Kimberly Guilfoyle suddenly exited the network last Friday under unclear circumstances, with Fox only confirming it had “parted ways” with her.

Network staffers the past few months apparently had grown tired of the drama and publicity surrounding her high-profile relationships, first with Anthony Scaramucci and then Donald Trump Jr.

Reports have said she’ll join Trump Jr. on the campaign trail and that she has joined pro-Trump super PAC America First.

Recently, the aforementioned Fox News alum Bill Shine signed on as deputy chief of staff for communications at the White House.  John Bolton was a Fox contributor before he was hired to be national security advisor, and onetime Fox anchor Heather Nauert is an undersecretary for public affairs at the State Department.

Foreign Affairs

Russia: Russian President Vladimir Putin on Friday said he has invited President Trump to Moscow.

“We are ready for such meetings, we are ready to invite President Trump to Moscow.  He has this invitation already and I told him about it,” Putin said at a BRICs summit in Johannesburg.

The invitation comes days after the Kremlin said it was not ready to accept Trump’s invitation to Washington, as the White House said Trump would not meet Putin until next year, citing the Mueller probe.

But Putin curiously weighed in on Trump’s willingness to keep his campaign promises to voters as a “great virtue.”

“You can critique him for what he does and many people do that but one thing is clear – he is willing to fulfill his campaign promises,” Putin said.

Earlier, national security adviser John Bolton said: “The president believes that the next bilateral meeting with President Putin should take place after the Russia witch hunt is over, so we’ve agreed that it will be after the first of the year.”

Meanwhile, the Russian Embassy in Washington accused U.S. officials of “living in a different reality” after Secretary of State Mike Pompeo reiterated America’s rejection of Moscow’s annexation of Crimea.

Pompeo had issued a statement Wednesday calling on Russia “to end its occupation of Crimea.”  The declaration appeared to try to quell suggestions that Washington was going to accept Moscow’s 2014 occupation following the Trump-Putin summit, where Trump made ambiguous comments about the fate of the peninsula.

Separately, the Wall Street Journal reported that Department of Homeland Security officials told the paper that Russian hackers managed to infiltrate the control rooms of U.S. utility companies – where they could have easily “thrown switches” and caused power outages.

Members of the notorious cyber espionage group “Dragonfly” or “Energetic Bear” were reportedly behind the hack, which first came to light earlier this year. DHS believes the groups are likely trying to access the same utilities again today.

Michael Carpenter, former deputy assistant secretary of defense, told the Journal, “They’ve been intruding into our networks and are positioning themselves for a limited or widespread attack. They are waging a covert war on the West.”

Gideon Rachman / Financial Times

“The Washington foreign policy establishment has experienced many emotions since the Trump-Putin summit in Helsinki: incredulity, fear, anger. But foremost among those emotions is a profound sense of humiliation. Here was the U.S. president disgracing himself on an international stage, while the Russian president looked on, smirking.

“For Vladimir Putin, inflicting this kind of embarrassment on America is deeply satisfying. The Russian president’s worldview is built around the idea that the West has deliberately weakened and humiliated Russia for decades.  For Mr. Putin, it is payback time.

“To visit Moscow now is to enter a hall of mirrors in which every Russian act of aggression is reflected back, as  a necessary response to supposed western aggression.

“In the U.S. and U.K., Russia is seen as a violent state that has annexed Crimea and waged an undeclared war in eastern Ukraine.  The Russian response is that the Western allies have committed greater acts of aggression in Iraq and Libya and have threatened Russia directly, by expanding the NATO alliance up to its borders. Russia’s annexation of Crimea is portrayed as a defensive measure in Moscow, designed partly to ensure that the Russian navy’s base in Sevastopol never plays host to NATO ships.

“What about the accusation that Russia has subverted American democracy? The Putinist response (beyond a pro forma denial) is that the U.S. has long attempted to subvert the Russian political system.  Hillary Clinton’s explicit support for the anti-Putin protests in Moscow in 2011-2012 was never forgiven by Mr. Putin, and may have inspired him to work against the Democratic presidential candidate in the 2016 U.S. election.

“Viewed from London or Washington, one of the most chilling aspects of Mr. Putin’s Russia is the way in which it backs violence, from Ukraine to the U.K., and then systematically lies about it. Discussing this tactic with official Russia is difficult, since they will never acknowledge they are lying. But, between the lines, the Putinista defense is twofold: first, that the West lies as well; second, that Russia is under siege, and that deception and lies are a necessary defense mechanism.

“In that sense, the official Russian line about world affairs is simultaneously completely cynical and utterly sincere. The Russian government is in the business of propagating lies about its own behavior and the wider world.

“But it sincerely believes that these lies are justified as part of a broader campaign against Western dishonesty and aggression....

“(Now) the American democratic system – triumphant in 1989 – is itself in deep trouble. Russia, meanwhile, is once again treated by a U.S. president as a peer superpower.

“For Mr. Putin, it is a moment of sweet revenge. For American liberals, it should be a cause for reflection. Much of what has gone wrong in Mr. Putin’s Russia flows from its failure to deal with domestic problems in favor of an effort to blame the West for all the country’s woes. Now it is tempting for American liberals to blame Russia for their Donald Trump nightmare. But the real problems, in both countries, begin at home.”

North Korea: There are signs via satellite that North Korea has dismantled the engine test stand at a satellite launch site, but unless they dismantle the whole site, Sohae, it will remain North Korea’s premier location for space launches.

North Korea has maintained Sohae is a satellite launch site, though U.S. officials believe it has been used to test ballistic missiles.

But as experts have noted, North Korea doesn’t need the test stand if it is confident in the engine design. Kim Jong Un said himself, North Korea is moving from testing to mass production.

North Korea is continuing to produce fissile material for nuclear bombs in spite of its pledge to denuclearize, U.S. Secretary of State Mike Pompeo said on Wednesday. Asked at a Senate foreign relations committee hearing whether this was the case, Pompeo responded to Democratic Senator Ed Markey by saying: “Yes, that’s correct... Yes, they continue to produce fissile material.”

Pompeo declined to respond when asked whether North Korea was continuing to pursue submarine-launched ballistic missiles or whether its nuclear program was advancing generally. He said he would be  happy to answer the latter question if necessary in a classified setting but suggested public statements on the issue would not help “a complex negotiation with a difficult adversary.”

And there are reports that despite Trump’s claims there is “no rush” and “no time limit” on negotiations, he has vented anger over a lack of immediate progress.  Pompeo has  given varying statements about how patient Washington might be. 

Kim committed in a summit statement to work towards denuclearization but Pyongyang still has offered no details as to how it might go about this.

Trump tweet: “There hasn’t been a missile or rocket fired in 9 months in North Korea, there have been no nuclear tests and we got back our hostages. Who knows how it will all turn out in the end, but why isn’t the Fake News talking about these wonderful facts?  Because it is FAKE NEWS!”

The regime did return remains believed to be of U.S. troops killed during the Korean War, the latest move in the cautious diplomacy between Pyongyang and Washington.  A plane carrying the remains of a reported 55 soldiers touched down at a U.S. base in South Korea, though five weeks earlier at a campaign rally, in one of his worst lies, President Trump said the remains of 200 Americans were coming home that very night.

The repatriation was agreed to at the Singapore summit between President Trump and Kim Jong Un, one of the four points listed in the formal declaration, and comes on the 65th anniversary of the signing of the armistice that ended the 1950-53 Korean War.

The thing is the remains could take years to identify as they are forensically tested to ensure, first, they are indeed slain U.S. troops.

Separately, North and South Korea agreed to hold military talks next Tuesday, as both sides seek to defuse tensions amid a thaw in relations.  The general-level talks would take place at the border village of Panmunjom.  No agenda was revealed.

China: Shares in Chinese pharmaceutical stocks plunged, as an unfolding safety scandal over the nation’s vaccines reminded investors of the series of food and product recalls from a decade ago that decimated China’s reputation as the world’s factory, and took years to repair.

Chinese Premier Li Keqiang over the weekend ordered a thorough investigation into the country’s vaccine producers after a publicly traded drug maker was found to have falsified data on its production and quality inspection.

Shenzhen-listed Changsheng Bio-technology had fabricated the data for its rabies vaccines. Drugs by the company, based in northeastern China’s provincial capital of Changchun, for treating children’s cough and cold, also failed tests by the state drug administration.  The company was ordered to halt production, and had to recall all of its unused vaccines.

It was a decade ago (seems like yesterday) that China’s manufacturing industry was rocked by a series of safety recalls involving everything from milk powder laced with melamine to excessive levels of lead in children’s toys and furniture, to toxins in exported pet food.

Meanwhile, at the Aspen Security Forum, Michael Collins, deputy assistant director of the CIA’s East Asia mission center, said Beijing doesn’t want to go to war, but the government under President Xi Jinping, is subtly working on multiple fronts to undermine the U.S. in ways that are different than the more well-publicized activities being employed by Russia.

China continues to steal business secrets and details of the hi-tech research being conducted in the U.S.  And the military is expanding and modernizing, aside from the activity in the disputed South China Sea.

“I would argue that it’s the Crimea of the East,” Collins said on Chinese building of military outposts in the key waters.

FBI Director Christopher Wray said China represents the broadest and most significant threat America faces from a counter-intelligence perspective.  He said the FBI had economic espionage investigations in all 50 U.S. states that could be traced back to China.

“The volume of it.  The pervasiveness of it. The significance of it is something that I think this country cannot underestimate,” Wray said.

None of this is new, of course.  I’ve been writing of it for a decade, but every now and then I need to put in some official comments

Elizabeth Economy / Wall Street Journal

“(China’s) view of its place in the international order is changing quickly.  In a little-noticed speech last month, before a packed house of China’s senior foreign policy officials and scholars, President Xi Jinping put the world on notice: China has its own ideas about how the world should be run and is prepared, as he put it, to ‘lead in the reform of global governance.’

“Gone is the era of Deng Xiaoping, who called China ‘a large developing country’ and insisted that the country maintain a low profile in foreign policy. These days one seldom even hears officials mention the motto of Mr. Xi’s immediate predecessor, Hu Jintao, who described China as ‘peacefully rising.’ Mr. Xi has made clear that he aims to create a new geostrategic landscape.

‘His ambition is most evident close to home.   Where previous Chinese leaders were content to stake claims based on Chinese sovereignty, he has moved to realize them. Through coercion, co-optation and simple brute force, he is making significant strides toward achieving his declared objective of ‘unifying China’ by 2049, the centenary of the founding of the People’s Republic.

“In the South China Sea, Mr. Xi has destabilized the region by developing and militarizing seven artificial features, ignoring the competing claims of five other nations and a 2016 ruling by the Permanent Court of Arbitration at The Hague that rejected China’s claims there.  In Hong Kong, Beijing has moved to silence contrarian political voices and has worked to disqualify democracy activists from holding office.  China is also placing Taiwan in a political chokehold, pressuring other countries to drop their diplomatic recognition of the island nation and forcing multinational corporations to acknowledge Taiwan as part of China.

“But Mr. Xi’s vision of Chinese leadership extends far beyond the country’s own backyard.  In 2013 and 2014, he outlined a grand-scale trade and investment plan to revitalize the ancient Silk Road and maritime spice routes, linking China to countries throughout Asia, the Middle East, Europe and Africa....

“China’s development of economic infrastructure has also been accompanied by an expanding Chinese security presence.  Beijing established its first military logistics base in Djibouti in 2017, and more bases are likely to follow in other countries. Chinese state-owned companies have assumed control or a controlling stake in at least 76 ports in 35 countries....

“Nor has Mr. Xi shied away from exporting elements of China’s political model.  In at least eight African countries, as well as some in Southeast Asia and Latin America, Chinese officials are training their counterparts in how to manage political stability through propaganda and how to control media and the internet.  Reflecting a degree of confidence rare among recent Chinese leaders, Mr. Xi has even proposed that the China model provides a ‘new option for other countries who want to speed up their development while preserving their independence.’....

“Finally, Beijing is making significant headway in upending international norms on political and human rights.  At the United Nations Human Rights Council, it has worked to diminish the ability of outside actors to criticize a country for human-rights violations.  It also promotes a strong vision of internet sovereignty, rejecting data privacy and the free flow of information....

“There is little indication that the rest of the world desires a Chinese-led global order.  Polls in countries throughout China’s Asia Pacific neighborhood indicate little confidence in Mr. Xi’s leadership.  And fault lines are emerging within China over the appropriate role for the country on the global stage....As an attendee last week at a major foreign policy conference in Beijing, I heard some Chinese officials call for more assertive Chinese leadership, but others suggest that the country has been too ambitious and aggressive and is losing international support as a result.

“Yet this emerging debate within China may have little impact. As President Donald Trump raises doubts about the U.S. commitment to global leadership – withdrawing from an ever-increasing number of international agreements and multilateral arrangements – there may be no other choice.  Only Xi Jinping appears willing and able to grab the mantle of leadership from a retreating United States.  In President Trump’s cultivation of an ‘America First’ agenda, he may well be planting the seeds for a ‘China First’ world.”

Iran: Iranian President Hassan Rouhani said over the weekend that “America must understand well that peace with Iran is the mother of all peace and war with Iran is the mother of all wars.

On Monday, President Trump said in a tweet responding to Rouhani’s comments: “NEVER, EVER THREATEN THE UNITED STATES AGAIN OR YOU WILL SUFFER CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE.  WE ARE NO LONGER A COUNTRY THAT WILL STAND FOR YOUR DEMENTED WORDS OF VIOLENCE & DEATH.  BE CAUTIOUS!”

Within hours, Iran’s state-owned news agency IRNA dismissed the tweet, describing it as a “passive reaction” to Rouhani’s remarks.

Iranian Foreign Minister Mohammad Javad Zarif tweeted: “BE CAUTIOUS!  We’ve been around for millennia & seen fall of empires, incl our own, which lasted more than the life of some countries.”

A senior Iranian military commander said on Thursday that Donald Trump should address any threats against Tehran directly to him, mocking Trump as displaying the ethics of “night clubs and gambling halls,” an Iranian media group reported.

The comments came from Major-General Qassem Soleimani, who heads the Quds Force of Iran’s powerful Revolutionary Guards Corps.

“As a soldier, it is my duty to respond to Trump’s threats. If he wants to use the language of threat, he should talk to me, not to the president [Rouhani],” Soleimani was quoted as saying.

Soleimani was also quoted as saying: “Trump should know that we are nation of martyrdom and that we await him.”

Trump said earlier this month that with the economic pressure on Iran resulting from renewed American sanctions, as well as threatening penalties for companies from other countries that continue to do business with Iran, that “at a certain point they’re going to call me and say ‘let’s make a deal,’ and we’ll make a deal.”

But more important were the words of Secretary of State Mike Pompeo in a policy speech on Sunday at the Reagan Library, with Pompeo calling Iran’s religious leaders “hypocritical holy men” who amassed vast sums of wealth while allowing their people to suffer. He also said the government has “heartlessly repressed its own people’s human rights, dignity and fundamental freedoms.”

Leonid Bershidsky / Bloomberg

“Trump’s latest tweet telling Iran it would suffer “consequences the likes of which few throughout history have ever suffered before” is an almost-verbatim rehash of his August 2017 threat to North Korea; then, Trump promised “fire, fury and frankly power, the likes of which this world has never seen before.”  It’s about as serious this time around, but there’s more bad blood behind Trump’s deployment of all caps against Iran.

“Trump’s tweet is a response to Iranian President Hassan Rouhani’s speech on Sunday, in which Rouhani warned the U.S. president not to ‘twist the lion’s tail.’  ‘The Americans,’ Rouhani said, ‘need to realize that making peace with Iran is the mother of all peaces and waging war against Iran is the mother of all wars.’

“Rouhani, of course, wasn’t threatening to attack the U.S. but warning it against attacking Iran. The rhetoric is not particularly different from North Korea’s, if more hollow: Iran, unlike North Korea, has no nuclear weapons and there’s no way it can hold off the U.S. conventional military might.  But the Iranians make Trump madder than North Korean leader Kim Jong Un – not because they are more dangerous but because they refuse to play along with him.

“Kim agreed to meet with Trump, and it made for a great TV show. That, apparently, has been more important to Trump than the substance of his country’s problem with North Korea: Though there’s been little follow-through on the nebulous agreements reached in Singapore, Trump has stopped insulting and threatening Kim on and off Twitter.

“The Iranian leaders, for their part, have been adamant about not wanting to talk to Trump.  The Mehr news agency, one of the Iranian regime’s international voices, reported recently, citing Rouhani’s chief of staff Mahmoud Vaezi, that Trump asked ‘eight times’ to meet with Rouhani while the latter attended the United Nations General Assembly in New York last year but was rebuffed....the Washington Post, too, reported last year that Trump had been interested in a meeting and asked French President Emmanuel Macron to broker it; that didn’t work either.

“Quite likely, Trump wanted to renegotiate the 2015 multilateral nuclear deal with Iran, which Trump has long held was too weak to be in U.S. interests.  So the Iranian snub had consequences: In May, Trump pulled the U.S. out of the deal.  Israeli Prime Minister Benjamin Netanyahu has skillfully stoked Trump’s anger by keeping his attention on Iran’s presence in Syria, where the Islamic Republic has provided boots on the ground to President Bashar Al-Assad and his ally President Vladimir Putin of Russia.  And Saudi Arabia, whose leaders have worked to build a cozy relationship with Trump, has been after Trump to curb Iran’s influence in the region.

“It’s probably too late now for a Singapore-style photo opportunity.  Trump’s anger at Iran will continue to have consequences, perhaps not the threatened cataclysm, but unpleasant ones nonetheless....

“It’s dubious that Iran will go that far and risk a military confrontation with the U.S. – especially since its naval forces in the area largely consist of ships dating back to the 1960s and ‘70s.  This is not a battle Iran can win.  So even if the U.S. tries to block Iranian tankers from sailing through Hormuz, Iran likely will concentrate on alternative, land-based export routes and count on the EU, Russia and China to help it fight U.S. sanctions. EU nations are looking at keeping financial channels open for Iran when the U.S. sanctions hit full force in November.

“It might have been wise for the Iranian leaders to talk with Trump as Kim and Putin have done, if only to establish contact and ensure some U.S. flexibility. Their approach, however, is not transactional: On Saturday, Khamenei stressed that the country wouldn’t ‘separate diplomacy from ideology.’  Barring major domestic disturbances, Iran is preparing for a head-on confrontation, if only an economic one. It’s betting it won’t be a catastrophe. Before the nuclear deal, the deal was punishing Iran with the help of allies and even some adversaries. Thanks to Trump, that’s not the case today.”

Syria: ISIS militants killed more than 200 people in a coordinated assault on a government-held area of southwestern Syria on Wednesday.

Jihadist fighters stormed several villages and staged suicide blasts in the provincial capital Sweida, near one of the few remote pockets still held by Islamic State after it was driven from most of its territory last year.

The head of the Sweida provincial health authority told the pro-Damascus Sham FM that 215 people were killed and 180 injured in the attack, as well as 75 ISIS fighters.

The Syrian Observatory for Human Rights said the attackers had killed more than 220 people, including many civilians, with 45 militants killed, including seven who blew themselves up.

The Observatory said jihadists seized hostages from the villages they had attacked.

ISIS is literally operating out of a few last hideouts, which have been pounded by Syrian and Russian air power, as well as the Syrian army, but they can still wreak havoc.

Separately, Israel shot down a Syrian fighter jet over Israel’s norther Golan Heights on Tuesday, the IDF identifying later that the commander of the Patriot battery responsible for downing the jet, as well as a Syrian drone, was female Captain Or Na’aman.  I saw some photos of her.  Frankly, very cool.  The Syrian Sukhoi fighter jet apparently penetrated 2 kilometers into Israeli airspace.  The pilot was killed.  It is believed the pilot probably made a navigation error but it was nonetheless a breach of Israeli sovereignty.

Syria confirmed the plane was partaking in an offensive against Islamic State group fighters in the area, but denied it crossed into Israeli airspace.  Russian officials also said the jet did not breach it.  Israel then produced radar images that “unequivocally” proved the Syrian aircraft had indeed flown into Israel.

Lastly, over the weekend, 98 rescuers from the Syria Civil Defense (the “White Helmets”), were evacuated along with 324 family members through Israel to Jordan after receiving promises of asylum in Canada and Europe.  The operation drew angry denunciations from Syria and Russia, which regard the volunteers as terrorists because they operate in rebel areas.  [The hope had been to evacuate 800, but security issues prevented this.]

So a big middle finger to Moscow and Damascus from your editor.  Good on Israel and Jordan.  Jordan has made immense sacrifices over the course of the Syrian war and the great migration out of same and is deserving of the extensive U.S. support it receives.  If Jordan ever fell to extremists, you can kiss the entire region goodbye.

Pakistan: Imran Khan, a cricket legend turned anti-corruption agitator, claimed a resounding victory Thursday in national elections, Khan posed to become Pakistan’s next prime minister after an election that was marred by violence  and tarnished by allegations that the army helped rig the campaign in his favor.

With most of the National Assembly races decided, it appeared Khan’s party had won nearly twice as many seats as his closest rival.

Khan is no friend of the United States, having blasted Washington for its ‘occupying force’ in neighboring Afghanistan, nor of India, where media have dubbed him “Taliban Khan” for his coziness with Islamist groups.

Khan is now expected to defer authority in those areas to the powerful military establishment.

“Khan’s victory means that the military is now 100% in the driver’s seat on policy issues with regard to the U.S., with regard to Afghanistan, India, militancy, security issues,” said Shamila N. Chaudhary, former Pakistan director on the National Security Council during the Obama administration.  “It essentially gives the military all the space it has ever wanted to pursue its national security policies the way it wants to,” she said.  [Bloomberg]

U.S. officials have said they’ve seen little change in Pakistan’s pursuit of anti-American extremists.  For example, allies of the militant leader Hafiz Saeed, who is wanted by the U.S. for his alleged role in the 2008 terror attacks in Mumbai, India, were allowed to run as candidates in the election.  Pakistan has also been accused of doing nothing to combat terrorism financing.

In his televised victory speech, Khan spoke in conciliatory terms about the United States and India, and praised Western rule of law, as he pledged to improve accountability for corruption.  The proof will be in the pudding.

Afghanistan: The top U.S. envoy for South Asia met with Taliban officials this week to discuss ways to lay the groundwork for peace talks, in a fresh bid to end the 17-year war.  The U.S. is trying to build on the momentum created by a recent three-day ceasefire that gave Afghans some hope there could be peace after all this time.

Ambassador Alice Wells, the deputy assistant secretary of South and Central Asia, met with members of the Taliban’s political commission in Doha, Qatar.  The Taliban didn’t comment.

The State Department said, “Any negotiations over the political future of Afghanistan will be between the Taliban and Afghan government.”  But official negotiations, if they occur, are months away, and could collapse.  The U.S., though, claims it has seen new interest from the Taliban for peace talks.

Random Musings

--Presidential tracking polls:

Gallup: 42% approve of President Trump’s job performance, 54% disapprove (July 22)
Rasmussen: 46% approve of Trump’s performance, 52% disapprove (July 27)

*The Gallup poll has the percentage of Republicans approving of Trump’s performance at 85%, down from 90% the week before.  This will be interesting to watch.

A new Wall Street Journal/NBC News survey has President Trump’s approval rating at a new high for this survey, since the election, 45% among registered voters, with 52% disapproving.

In this one, Trump’s approval among Republicans is 88%.  Only 9% of Democrats approve. The gap between the two is the widest partisan gap ever found in the Journal/NBC survey.

Separately, 51% of voters disapprove of Trump’s handling of relations with Russia, compared with 26% who approve.  58% don’t like how he’s dealing with immigration, while 31% do.

On the economy, 50% give him a thumbs up, 34% don’t.

As for Robert Mueller’s investigation, 46% say it should continue, 38% think it should end.

But 65% think Moscow interfered in the election, a 12% increase from last year.

--Karl Rove / Wall Street Journal

“The savvy ‘Crystal Ball’ election prognosticators, led by the University of Virginia’s Larry Sabato, issued their latest midterm forecast Tuesday. It is sobering for the GOP. The UVA team increased Democrats’ odds in 17 House races and, for the first time this cycle, declared ‘Democrats are now a little better than 50-50’ to flip the lower chamber.

“Mr. Sabato and his colleagues now rate 34 Republican-held seats as ‘toss-ups.’  Four GOP seats ‘lean Democratic,’ two are ‘likely Democratic’ and one is ‘safe Democratic.’  If Democrats win the seats tilting their way and just over half of the toss-up races, they’ll take control of the House.

“The report called last quarter’s Democratic fundraising ‘alarming for Republicans.’  Seven of the eight Republicans whose races were downgraded to toss-ups were outraised this spring by their opponents.  But the report glossed over the fact that all but one of those Republicans still have more cash on hand.  Maybe the ‘Crystal Ball’ will raise the GOP’s odds if these Republican candidates outraise their opponents next quarter and keep their cash-on-hand advantage.

“Still, the report rightly notes that the generic ballot ‘has shown a consistent Democratic lead.’  Republicans are likely to keep the House if the gap on election day is three points or less; they are unlikely to do so if it’s seven points or more.  As recently as May 31, Democrats had only a 3.2-point lead on the generic ballot, according to the Real Clear Politics average of recent polls. Now the Democratic lead has grown to 7.8 points. And President Trump’s approval remains within the danger zone.

“When Mr. Sabato’s report came out, Republicans were still basking in the results of the NBC News/Wall Street Journal poll released Monday that showed 88% of Republicans ‘approve of the job Donald Trump is doing as president.’  This is the highest approval rating within his party that Mr. Trump has enjoyed since his inauguration.... In total, 45% of all voters approved of Mr. Trump’s performance; 52% disapproved.

“These solid numbers overshadowed the poll’s bad news: Mr. Trump’s job approval among independents fell to 40%. Fifty-eight percent of independents disapprove, with 46% strongly disapproving....

“The mid-term elections cannot be won with a base-only strategy.  Republicans represent less than a third of the electorate....

“The president and his political team must turn their attention to independents, especially swing voters in suburban and rural districts who applaud his policies more than his behavior.  If Mr. Trump’s approval rating among those voters doesn’t increase, Nancy Pelosi is likely to be the next House speaker.”

--In a new poll by the Public Policy Institute of California, Sen. Dianne Feinstein leads fellow Democrat and state Sen. Kevin de Leon by a 46-24 percent margin among likely voters in the race for the seat she has held since 1992.

Worrisomely for Republican congressional candidates, 47% of Republicans and 24% of independents say they don’t plan to vote in the Senate race at all.  The issue is does that apathy, which is to be expected when the race is between two Democrats, carry over and Republicans don’t turn out period.

--Florida Republican Rep. Ron DeSantis, on a campaign stop on Saturday that was posted to YouTube Monday, dismissed progressive superstar Alexandria Ocasio-Cortez as “this girl,” prompting a response from the 28-year-old who brought down Democratic heavyweight Rep. Joe Crowley in a stunning primary upset last month in New York.

“You look at this girl Ocasio-Cortez or whatever she is, I mean, she’s in a totally different universe... It’s basically socialism wrapped in ignorance,” DeSantis said.

So Ocasio-Cortez responded:

“Rep. DeSantis, it seems you’re confused as to ‘whatever I am.’  I am a Puerto Rican woman. It’s strange you don’t know what that is, given that ~ 75,000 Puerto Ricans have relocated to Florida in the 10 months since Maria. But I’m sure these new FL voters appreciate your comments!” she tweeted.*

Now I’m no fan of Ocasio-Cortez, nor am I a fan of DeSantis, but just a word of advice to other Republicans who will need independents swinging their way in their own races in November.  Be careful what you say about her.  Your base may love it, but it isn’t smart politics.

*However, just today, a story by James Hohmann of the Washington Post reveals that the tens of thousands of displaced Puerto Ricans who have settled in Florida after Hurricane Maria “are not registering to vote or otherwise getting involved in politics. At least for now.”

Hohmann’s excellent reporting reveals that most of the Puerto Ricans, who of course are eligible to vote as soon as they move to the mainland (I wonder how many Americans really know this) are moving to the Orlando area, mainly because so many other Puerto Ricans already live there.  [I never would have guessed this.]

But thus far, “there has not been any meaningful increase in Democratic registration.”  Interesting.

As Mr. Hohmann concludes: “Many of the savviest Democrats in Florida are growing anxious that a blue wave might sweep America in November but bypass their state.”

--Ohio Republican Rep. Jim Jordan said he plans to run for House speaker, a move that will spark a contentious leadership battle in the House GOP conference just a few months before the November election.

Jordan is one of the most powerful conservatives in Congress, having co-founded the House Freedom Caucus, a faction of about 30 hardline Republicans who frequently clash with party leadership.  His bid represents a direct challenge to House Majority Leader Kevin McCarthy, R-Calif., the hand-picked front-runner by the current speaker, Paul Ryan, who is retiring at the end of this Congress. 

President Trump is close to both McCarthy and Jordan.  It’s not known how far the Ohio State investigation into alleged sexual abuse in the athletics program will impact Jordan, a former assistant wrestling coach there who has denied knowledge of any wrong-doing on the part of a team doctor, now deceased.

--According to the above-mentioned Wall Street Journal/NBC News survey, when it comes to the nomination of Brett Kavanaugh for the Supreme Court, 32% of voters support his confirmation, 26% oppose.  Another 41% say they don’t have enough information yet.  I support the nomination.

Separately, a record 71% of voters said they were opposed to overturning Roe v. Wade, the 1973 ruling that recognized abortion as a woman’s constitutional right, including 59% who said they felt strongly on the matter.  23% said that overturning the ruling would be a good idea.  According to poll results, the gap between opponents and supporters has been widening since 1991.  I would not overturn the ruling, nor do I think the court will...as constituted, assuming Kavanaugh wins confirmation.  Chief Justice Roberts will side with the four liberals.

--Dennis Slattery / New York Daily News

“Jeff Sessions loves a good chant.

“The Attorney General of the United States was tickled Tuesday when a crowd of conservative teens began chanting ‘lock her up’ at a leadership conference for high schoolers in Washington.

“Sessions was in the midst of slamming colleges for ‘coddling’ students in the wake of the 2016 election when the crowd took it upon themselves to bring back one of President Trump’s favorite refrains from his campaign rallies.

“ ‘I heard that a long time over the last campaign,’ Sessions said after repeating the phrase with a smile....

“ ‘I like this bunch,’ Sessions  added. ‘I can tell, you’re not going to be backing down. Go get ‘em, go get ‘em.”

But speaking at the same summit a day earlier, U.S. Ambassador to the UN Nikki Haley “urged the youngsters to avoid inflammatory language and attempting to ‘own the libs’ in favor of civil discourse.

“ ‘Raise your hand if you’ve ever posted anything online to quote-unquote ‘own the libs.’’ Haley asked the crowd.

“A majority raised their hands and erupted into applause, The Hill reported.

“ ‘I know that it’s fun and that it can feel good, but step back and think about what you’re accomplishing when you do this – are you persuading anyone? Who are you persuading?’ Haley asked.  ‘We’ve all been guilty of it at some point or another, but this kind of speech isn’t leadership – it’s the exact opposite.’

“She then encouraged the students to use thoughtful language and practice ‘real leadership’ when attempting to persuade people with opposing views.

“ ‘Real leadership is about persuasion, it’s about movement, it’s bringing people around to your point of view,’ she added.  ‘Not by shouting them down, but by showing them how it is in their best interest to see things the way you do.’”

--Finally, researchers have discovered signs of a hidden lake under the ice of the Martian south pole that could hold liquid water year-round.  Ergo, we’re getting closer and closer to discovering life there.

Italian researchers, affiliated with the European Space Agency and using a radar aboard the Mars Express Satellite, have been studying radar readings for four years and just published their findings in the journal Science on Wednesday.

I’m kind of hoping that the first life we find is mermaids.  Granted, they might not look like the Weeki Wachee mermaids of Florida fame, but it would be a nice diversion from today’s chaotic news flow.  Imagine the hits on “Mars Cam: Mermaids from the South Pole.”

---

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

God bless America.

---

Gold $1232
Oil $69.04

Returns for the week 7/23-7/27

Dow Jones  +1.6%  [25451]
S&P 500  +0.6%  [2818]
S&P MidCap  -1.2%
Russell 2000  -2.0%
Nasdaq  -1.1%  [7737]

Returns for the period 1/1/18-7/27/18

Dow Jones  +3.0%
S&P 500  +5.4%
S&P MidCap  +3.9%
Russell 2000  +8.3%
Nasdaq  +12.1%

Bulls 54.9
Bears 18.6

Have a great week.

Brian Trumbore



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Week in Review

07/28/2018

For the week 7/23-7/27

[Posted 11:45 PM ET, Friday]

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

Special thanks to long-time Wall Street friend Mark R.

Edition 1,007

Trump World...

Both Wall Street and the political world have been eagerly anticipating today’s release of second-quarter Gross Domestic Product (GDP) in the U.S.  I’ve certainly been writing of it the past 12 weeks and no one has been waiting more feverishly than President Donald Trump.

The president was thus pleased this morning when the figure, as released by the Commerce Department, came in at 4.1%, seasonally adjusted annual rate, the best single figure since the third quarter of 2014 when it was 4.9% (and 5.1% the quarter before that).

Consumer spending was up a strong 4.0%, though exports, which rose 9.3%, could be largely a one-off as there was a surge in soybean shipments tied to Trump’s trade policies.

President Trump, however, said Friday, “This isn’t a one-time shot. I happen to think we’re going to do extraordinarily well in our next report, next quarter.”

As for the impact of the tax cuts, they are hard to quantify thus far; both from a corporate and individual standpoint.

But as I present the figures below, just know some of them have been revised, as they constantly are, including an upgrade in the first quarter’s number from 2.0% to 2.2%.  The thing is the numbers for some of the other quarters in 2017 were adjusted downward.

Q2 2018... 4.1%
Q1 2018... 2.2%
Q4 2017... 2.3%
Q3 2017... 2.8%
Q2 2017... 3.0%
Q1 2017... 1.8%

If you just took a simple average of the last four quarters you get 2.85%, so the issue is will today’s number be an outlier, or the new norm?  3% is excellent.  4% is terrific.

I’m not hazarding a guess on the third quarter until we begin to see the data roll in, and the impact of the mini-trade war that we all hope doesn’t turn into a far larger one.

But for political purposes, President Trump and the Republicans can run on the 4% (and hope the next few months it isn’t revised significantly downward...it could be revised up as well) as they head into the midterms.  Should there be a hiccup in the third quarter, that number isn’t released until Oct. 26, and by that time voters’ will have made up their minds, seeing as 80 to 85 percent already have today.

Donald Trump is right to crow about the economic success, and of course this is what he and congressional Republicans should be pounding away at.

But this is Trump, and other issues can get in the way.  As I’ll get into in a bit, so far, people, there are no trade deals, if you ignore a very minor one with South Korea that frankly was meaningless.  The White House wants you to believe there have already been successes.  Republicans up for election want the tensions to be ratcheted down as they were temporarily the other day with the European Union.

And since it is Trump, I can’t help but note we still don’t know what happened at Helsinki,

Russia seems to know, as its ambassador to the United States said “important verbal agreements” were reached, including preservation of the New Start and INF agreements, major bilateral arms control treaties whose futures have been in question.  And Anatoly Antonov, said ambassador, noted Vladimir Putin had made “specific and interesting proposals to Washington” on how the two countries could cooperate on Syria.

At the Russian Foreign Ministry, spokeswoman Marina Zakharova said that implementation of summit agreements had already begun.  “A lot of what [Putin] talked about is now being worked through.  Relevant instructions are being carried out, and diplomats are beginning to work on the outcomes.”  [Karen DeYoung / Washington Post]

Trumpets....

--Michael Cohen, the president’s former longtime attorney and fixer, is claiming that Donald Trump knew and approved of a now famous 2016 meeting at Trump Tower with a Russian lawyer – and he is willing to tell investigators about what he knows, according to multiple reports.

Cohen alleges he was in the room with a number of others when Donald Trump Jr. informed then-candidate Trump of the planned sit down with a Russian lawyer promising dirt on Hillary Clinton.

Cohen claims Trump approved of the meeting moving forward, CNN and NBC News reported, and is willing to tell Special Counsel Robert Mueller his version of the events.

But both CNN and NBC said there is no recording of the meeting so it’s yet another credibility issue.  The president has long denied he knew of the confab, which took place one floor below his.

Separately, Allen Weisselberg, a longtime financial gatekeeper for President Trump, was subpoenaed to testify before a federal grand jury in the criminal probe of Michael Cohen.

Weisselberg is considered a witness in the investigation, according to people familiar with the probe.  It isn’t known if he has already appeared before the grand jury or what questions prosecutors of New York’s Southern District have had for him.

For decades, Weisselberg has served as executive vice president and chief financial officer of the Trump Organization, and was once described by a person close to the company as “the most senior person in the organization that’s not a Trump.”

The above was on top of the release of a tape recording between President Trump and Michael Cohen that indicates Trump’s knowledge of hush payments to former Playboy Playmate Karen McDougal; McDougal paid $150,000 by the National Enquirer in the summer of 2016 for her story of an earlier affair with Donald Trump.  On the tape, Cohen raises the possibility of creating a separate company to buy the rights to Ms. McDougal’s story from the National Enquirer’s parent, AMI (American Media Inc.)

In the audio released by CNN, Trump sounds matter-of-fact as Cohen walks him through his plan, saying at one point, “Yeah, I was thinking about that.” 

Trump then says something muffled and then can be heard saying, “Pay with cash.”

But the transcript released by the president’s legal team has Trump being quoted as saying, “Don’t pay with cash.”

The transcript and audio also show that Cohen told Trump he had discussed buying the rights to McDougal’s story with Allen Weisselberg.

The poor quality of the tape makes it unclear what Trump’s intention was. The tape then abruptly ends.

There is no sign that Cohen followed through with the plan to purchase the rights, however, the timing of the conversation, two months before the election, provides more evidence that Cohen was trying to quash embarrassing stories about Trump prior to it – a major focus of the investigation by federal prosecutors in Manhattan.

There’s nothing illegal about Cohen taping the conversation because New York State only requires one party consent.

Cohen’s new attorney, Lanny Davis, said his client released the tape because he is “on a new path – it’s a reset button to tell the truth and to let the chips fall where they may.”

Reminder...it was Trump’s former spokeswoman, Hope Hicks, who said when the Wall Street Journal first reported before the 2016 election that a company that owns the National Enquirer agreed to pay $150,000 to a former Playboy centerfold for her story of an affair, “We have no knowledge of any of this,” adding Karen McDougal’s claim was “totally untrue.”

One more...the New York Times reported that Robert Mueller is scrutinizing tweets and negative statements from the president about Attorney General Jeff Sessions and the former FBI Director James Comey, with several of the remarks coming as Trump was also privately pressuring the men – both key witnesses in the Mueller probe – and whether the actions add up to attempts to obstruct the investigation by both intimidating witnesses and pressuring senior law enforcement officials to tamp down the inquiry.

--Trump tweets: “What kind of a lawyer would tape a client? So sad! If this a first, never heard of it before? Why was the tape so abruptly terminated (cut) while I was presumably saying positive things?”

“I hear there are other clients and many reporters that are taped – can this be so? Too bad!”

“Arrived back in Washington last night from a very emotional reopening of a major U.S. Steel plant in Granite City, Illinois, only to be greeted with the ridiculous news that the highly conflicted Robert Mueller and his gang of 13 Angry Democrats obviously cannot find Collusion...

“...the only Collusion with Russia was with the Democrats, so now they are looking at my Tweets (along with 53 million other people) – the rigged Witch Hunt continues!  How stupid and unfair to our Country...And so the Fake News doesn’t waste my time with dumb questions, NO....

“...I did NOT know of the meeting with my son, Don jr.  Sounds to me like someone is trying to make up stories in order to get himself out of an unrelated jam (Taxi cabs maybe?). He even retained Bill and Crooked Hillary’s lawyer. Gee, I wonder if they helped him make the choice!”

Rich Lowry / New York Post

“It’s a symptom of our time that  a tape of the future president of the United States discussing machinations related to an alleged affair with a former Playboy Playmate isn’t truly a blockbuster.

“The brief snippet of conversation between Donald Trump and his lawyer Michael Cohen about buying the story of former Playmate Karen McDougal, who says she had a 10-month-long affair with Trump beginning in 2006, is certainly of interest.

“How often do you hear a future president speaking so frankly, if cryptically, about such a salacious matter?  And the tape is part of the storyline of Cohen flipping against Trump and cooperating with prosecutors that will be an ongoing media obsession.

“But what would be a potential torpedo to the bow of any other presidency is a relative trifle, because the underlying conduct, the tinny and dishonest denials and the cynical maneuvers involving a tawdry tabloid have been built into the Trump baseline.

“Past presidents have needed fixers (John F. Kennedy had his at the top of the Justice Department, his brother Bobby) and have had shady associates (Richard Nixon and Bebe Rebozo, Bill Clinton and almost everyone he knew from Little Rock, it seemed).

“Still, Trump’s relationship with Michael Cohen is off the charts. A lawyer so disreputable no one else would want his representation, who made up in brazenness what he lacked in legal chops and whose job it was to make embarrassments go away, by any means fair or foul.

“Q. What kind of lawyer tapes his client?  (A question Trump has asked in recent days.)

“A: Cohen, whose lack of standards is what made him so useful in the first place.

“The tape’s political effect is muted because everyone is dug in. Trump’s foes have already concluded that he’s unfit for office and needs to be removed forthwith; his supporters (most of them) acknowledge his serious personal shortcomings but think it’s more important to focus on his agenda and accomplishments.

“It’s difficult to find a further personal peccadillo that can budge anyone from these trench lines, since there’s no real contest over his character to begin with.

“The irony is that Trump’s detractors hate him so much that they have created, perhaps, an impossibly high standard for his misconduct.

“It’s not damning enough for them that the Russians interfered in our election and Trump is dismissive of it.  Trump has to be a quasi-Russian agent who actively colluded with the Kremlin, perhaps going back decades.

“It’s not damning enough that Trump had affairs with a porn star and Playmate, he has to have committed some serious criminal offense in the course of covering his tracks.

“For their part, Trump’s allies rarely make a personal defense of him, i.e., this man would never do such a thing. Trump lawyer Rudy Giuliani tried a version of this tack regarding Stormy Daniels a few weeks ago, but the crux of his argument was that she was supposedly not sophisticated and beautiful enough for Trump, not that he would have been incapable of such a fling.

“When Giuliani now says that the tape is exculpatory, he doesn’t mean that it proves there was nothing to the McDougal story and where does his client go to get his reputation back? He means that Trump was up-front and transparent about buying her story – he wanted to do it by check.

“And that defense is enough. With Trump having delivered on important priorities for the right (a second Supreme Court justice is forthcoming) and enjoying a hysterical opposition that pushes Republicans toward him, the Fifth Avenue principle applies now more than ever. To update it for current circumstances, Trump could pay off Karen McDougal with a black satchel full of cash in the middle of Fifth Avenue, and not lose any voters.

“That Trump has denied the Daniels and McDougal stories is a normal tactic in an abnormal time.  You wonder why he bothered, though, except that allegations from women were piling up in the weeks before the 2016 election and there are always poor Melania’s feelings to consider.

“Perhaps there will be some inescapable legal dilemma for Trump that emerges out of the Cohen imbroglio.  But the president has a very wide margin for error.  The lesson of these controversies so far is that there’s nothing low expectations won’t do.”

--CNN says one of its reporters was banned from a White House event Wednesday after attempting to ask President Trump a series of questions that were deemed “inappropriate.”

White House reporter Kaitlan Collins said she was pulled aside Wednesday afternoon after shouting questions to Trump during an Oval Office meeting with Jean-Claude Juncker, and told she would be barred from a news conference.

Collins said she was asked to the office of Bill Shine, the former Fox News co-head and new deputy chief of staff of communications.  There she met with Shine and Press Secretary Sarah Sanders, where she was told she wouldn’t be allowed for a news conference between Trump and Juncker.

Other networks, including Fox News, immediately came to Collins’ defense, who was merely acting as the pool reporter for the event.  I watched it all, she did nothing inappropriate.  Trump sometimes answers questions in these settings. This time he chose not to.

But I also saw Bill Shine the next day chastise reporters for their characterization of events and what an asshole he is. 

--More Trump tweets: “I had a GREAT meeting with Putin and the Fake News used every bit of their energy to try and disparage it. So bad for our country!”

Yoh, Mr. President...just freakin’ tell us, or at least tell your advisers, what the hell you agreed to, and/or talked to Putin about!!!  We don’t want to hear it from the lying Russkies!

--Finally, I caught every one of Trump’s on camera performances this week, including a despicable moment at the Veterans of Foreign Wars convention in Kansas City.

Trump received one of his loudest ovations when he attacked the news media for its reporting on his trade policies and other issues.

“Stick with us,” Trump said.  “Don’t believe the crap you see from these people, the fake news.”  As Philip Rucker of the Washington Post duly noted, “As he gestured at the press riser on the floor of the Municipal Auditorium, veterans in the stands took their cue from the commander in chief and pointed, booed and hissed at journalists.

“Just remember,” Trump told the crowd, “what you’re seeing and what you’re reading is not what’s happening.”

That evening we learned of the Cohen tape.

Rucker interviewed Dwight Perry, 66, an Army vet from Maryland in attendance.  “This was a political speech,” said Perry.  “This is not what you do at a VFW convention... He didn’t have to come out here and talk about how great he is. That’s not what you do here.”

Later in the day the VFW expressed concern over the treatment of the media.

“Today, we were disappointed to hear some of our members boo the press during President Trump’s remarks,” the group said in a tweet.  “We rely on the media to spread the VFW message, and @CNN, @NBCNews, @ABC, @FoxNews, @CBSNews, & others on site today, were our invited guests. We were happy to have them there.”

Wall Street and Trade

A little more economic data before the trade story.  Existing home sales for June came in less than expected, 5.38 million annualized, down 0.6% over May and down five of the first six months of 2018.

But the median price hit a new high of $276,900.

Then the data on new home sales for last month came in and it too was below forecast, 631,000.

Together the figures are worrisome as housing contributes about 15% to 18% of GDP.

And June durable goods were well below forecast at 1.0%, 0.4% ex-transportation, though the capital spending component was 0.6%, and 6.8% the first six months.

That said, the headline figures on housing and durable goods had economists lowering their GDP forecasts ahead of Friday’s number, and for the record, my much-quoted Atlanta Fed’s GDPNow had lowered its forecast from last week’s 4.5% to 3.8% ahead of the 4.1% print.  As Ronald Reagan would have said, ‘Not bad, not bad at all.’

Meanwhile...President Trump and European Commission President Jean-Claude Juncker, reached a truce of sorts on trade after talks at the White House.

Under the agreement, the European Union and U.S. proclaimed a “new phase” in relations. The two sides said they had agreed to work together to try to eliminate tariffs and other trade barriers related to all industrial goods other than cars and to reform the World Trade Organization.

They also agreed to put a hold on any new tariffs, including duties Trump has threatened to impose on auto imports, while discussions proceeded. The EU, meanwhile, agreed to boost imports of U.S. liquefied natural gas and soybeans, or so said Juncker.

As for the existing tariffs on EU steel and aluminum imports in place since June, these remain in place for now.  And auto tariffs remain on the table despite the happy talk.

German Chancellor Angela Merkel said through a spokeswoman that she welcomed the deal and that the commission could “count on our continuing support” in its trade negotiations with the U.S.

Trump tweet: “European Union representatives told me that they would start buying soybeans from our great farmers immediately. Also, they will be buying vast amounts of LNG!”

“Great to be back on track with the European Union. This was a big day for free and fair trade!”

But European officials are struggling to make sense of the temporary trade truce.  There were no real details and this is not Trump dealing with a single country; it is the 28 members of the European Union, where national officials around the continent wondered whether it’s realistic to expect Europe to buy more soybeans from the United States, as Juncker signaled, or become “a massive buyer” of U.S. liquefied natural gas, as Trump trumpeted.

To some in Europe, what they hear from the comments of Trump and Juncker looks like the goals of the Transatlantic Trade and Investment Partnership, or TTIP, an initiative launched by President Obama that aspired to free trade with Europe, but which has been dormant since 2016, sidetracked by Britain and Brexit, as well as the election of Donald Trump.

As one European Commission official told Bloomberg: “TTIP was way too wide, and negotiations were stuck, as Americans were not keen to discuss greater access to their public procurements, while Europeans were reluctant on the U.S. importing more agricultural products.”  Many leaders in Europe are leery that a revival of TTIP could anger voters.

And back to soybeans, prices are far lower for product from Argentina and Brazil.  Plus you have the EU’s regulations on genetically modified foods so you can’t just redirect the market, say soybeans intended for China to the EU.  Plus you have strict environmental standards, that as French economy minister Bruno Le Maire said, “are non-negotiable.”

As for LNG, it is far more expensive coming from the U.S. because of shipping costs than it would be from Nord Stream 2, the new pipeline project that brings gas from Russia to Germany.

But the EU is dealing with a White House that can change its mind on a dime, so how can you cast any definitive judgement on the Trump-Juncker détente? 

As in everyone take a deep breath, or, as our own president is fond of saying, “Let’s see what happens.”

Meanwhile, President Trump pledged up to $12 billion in emergency relief for farmers hurt by the trade war, which as you can imagine prompted new demands for relief for manufacturers, fishermen and others being hit by retaliatory tariffs from America’s trading partners – all of which would require more government spending.

The farm relief package will be financed through the USDA’s Commodity Credit Corporation and thus will not require congressional approval.

Republican Sen. Ben Sasse (Neb.): “This trade war is cutting the legs out from under farmers and the White House’s ‘plan’ is to spend $12 billion on gold crutches.”

“Tariffs are taxes that punish American consumers and producers,” Kentucky Republican Senator Rand Paul wrote on Twitter.  “If tariffs punish farmers, the answer is not welfare for farmers – the answer is remove the tariffs.”

Republican Senator Chuck Grassley of Iowa said the aid package is “encouraging for the short term.”

“What farmers in Iowa and throughout rural America need in the long term are markets and opportunity, not government handouts.”

Editorial / Wall Street Journal, part I

“Hours after President Trump tweeted on Tuesday morning that ‘tariffs are the greatest!,’ his Administration announced a $12 billion aid package for American farmers to offset the harm from the Trump trade wars.

“If you’re confused, join the White House. The Trump Administration is trying to fix an economic problem of its own making by putting the victims on the federal dole. Perhaps this is what White House trade adviser Peter Navarro meant when he said the trade harm was merely a ‘rounding error.’ ....

“American farmers won’t prosper on welfare. They need access to customers abroad. Mr. Trump may think that his farm tariff bailout will get Republicans past the November election, but sooner or later bad economic policy becomes bad politics.”

Editorial / Wall Street Journal, part II...a day later...

“The meeting on trade Wednesday between President Trump and European Commission President Jean-Claude Juncker had all the makings of a potential crackup, but in the event it provided the best economic news in weeks.  Financial markets were clearly pleased, as stock rose across the board before the closing bell on the statements by the two presidents after their White House session. Call it a relief rally.

“The two sides essentially declared a tariff truce, pending negotiations on a larger trade deal between the 28-nation European Union and the U.S.  Mr. Trump agreed to step back from his threat of 25% tariffs on European car imports, while the two sides pledged to resolve the current U.S. steel and aluminum tariffs and Europe’s retaliatory levies on U.S. goods....

“Most important, the two sides agreed to negotiate a larger trade deal that Mr. Trump said would have as a goal ‘zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods.’ This suggests that Europe has taken Mr. Trump up on his offer, floated at the last minute at the G-7 meeting in June, to work toward zero tariffs. The question at the time was whether this was serious, or political misdirection, and now we’ll find out....

“The White House will crow that Europe blinked, but it’s more accurate to say the two sides are stepping back from mutually assured economic destruction. The car tariffs would certainly have punished Germany, the locomotive of Europe’s economy.

“But Mr. Trump also had ample political and economic incentive to call a truce.  The retaliatory tariffs from China, the EU, Mexico, Canada and Japan are beginning to hurt U.S. farmers and manufacturers. Mr. Trump felt obliged this week to bail out U.S. farmers by providing up to $12 billion to buy surplus crops that can’t find a foreign market.  Harley-Davidson and other firms are moving plants abroad to avoid higher import costs and duck retaliatory tariffs. All of this in turn is beginning to have political consequences as more Republicans in Congress are finding their voices in favor of free markets.

“The protectionist threat is far from over. The talks with Europe could founder on any number of issues, especially European barriers to competition from America’s more efficient service industries or genetically modified foods. France will be a particular problem.

“Then there’s the fast-closing deadline for getting a NAFTA deal done during the current U.S. Congress and before the Mexican presidential handoff on December 1.  A NAFTA modernization that can pass Republican muster on Capitol Hill would remove a big threat to business investment.

“Deals with Europe and the Americas would let Mr. Trump focus on China trade with some allies to back him up. Fighting trade wars on multiple fronts makes little sense and lets China play Western countries against one another.  Beijing would have to take seriously a united front of the world’s largest importers against, say, intellectual property theft.

“The U.S. economy has broken out of its Obama doldrums and is growing at a faster than 3% pace for the first time in 12 years. Mr. Trump’s trade policies are the biggest threat to that economic progress. The faster Mr. Trump concludes his new deals, the more likely the economic revival will continue.”

Europe and Asia

European Central Bank President Mario Draghi said on Thursday that uncertainty over the eurozone’s inflation outlook is “receding” following years of tepid price growth even while global protectionism poses a “prominent” risk.

Draghi’s remarks came after policymakers held interest rates at historic lows and confirmed plans to end the bank’s vast bond-buying program in December.

Draghi said the “direct effects” of tariffs to date implemented by the U.S. on EU imports have been “limited.”  “But clearly...a trade war, where we have rounds of retaliation and rounds of responses would create an entirely different climate.”

Draghi also strongly hinted the ECB’s zero interest rate policy would remain in effect through next summer.

Separately, Markit released its flash readings on the eurozone economy for July.

The flash composite PMI for the EA19 was 54.3 in July vs. 54.9 in June (50 being the dividing line between growth and contraction), with the manufacturing PMI at 55.1 vs. 54.9, and services at 54.4 vs. 55.2.

Germany’s flash composite reading was 55.2 vs. 54.8 in June, a 5-month high, with manufacturing at 57.3 vs. 55.9 last month, a 3-month high.

France’s flash composite came in at 54.5 vs. 55.0 in June, while the manufacturing PMI was 53.1 vs. 52.5 the prior month.

Separately, France announced today that GDP grew at 0.2 percent in the second quarter over the previous one, the same percentage growth seen in the first three months of the year, according to a first estimate from the National Institute of Statistics and Economic Studies, or Insee.  Household spending slipped 0.1 percent.

Chris Williamson / Chief Economist at IHS Markit:

“The flash PMI suggests the eurozone started the second half of the year on a relatively soft footing, indicative of GDP growth slowing in the third quarter. The July reading is consistent with quarterly GDP growth of 0.4%, down from a 0.5% expansion indicated by the surveys for the second quarter.

“The renewed slowdown comes as a disappointment, confirming suspicions that June’s rebound was temporary, largely due to businesses in some countries making up for an unusually high number of public holidays in May.

“Given the waning growth of new business and further slide in business optimism, the outlook has also deteriorated, notably in manufacturing, where the surveys saw worries about trade wars intensify markedly in July....

“The big question going forward will be the extent to which domestic demand can remain sufficiently resilient to cushion the eurozone economy from the potential adverse impact of an escalating trade war on exports.”

Eurobits....

--Britain’s parliament is on break, ditto Prime Minister Theresa May, so little news on the Brexit front.  That said, as I keep noting, time is running short for Mrs. May to get a deal with the European Union on the divorce terms in time for the October summit of EU leaders, the U.K. then scheduled to leave the bloc on March 29 – with or without an agreement.

--Italian Interior Minister and Deputy Premier Matteo Salvini, on a European Commission proposal for EU countries to receive 6,000 euros for each asylum seeker they take in.

“We are not here asking for charity, also because over time each asylum seeker costs the Italian taxpayer 40,000-50,000 euros, so Brussels can keep its charity, we want to close the influx...we do not want money.”

--Members of the French Parliament demanded answers Monday after a senior security aide to President Emmanuel Macron was indicted on charges of engaging in “gang violence” and impersonating a police officer.

In what has become the biggest scandal of the Macron administration, Alexandre Benalla was recorded on camera violently attacking a young man and a woman at a Workers’ Day demonstration as protesters clashed with riot police on May 1. He has since been fired.

The problem for Macron is that he knew of the alleged criminal assaults less than 24 hours after they happened, but his office failed to report them to the public prosecutor’s office. The president’s office had claimed Benalla was authorized to join the operation as an “observer.”  Police officials have denied this.

Benalla was then suspended for two weeks, and then allowed to return to his post.  He was fired only after questioning by police in the aftermath of the publication by Le Monde of video of the assaults. That was the first the public knew of the scandal.

Turning to Asia...the big story for the coming week will be a meeting of the Bank of Japan’s Policy Board, July 30-31, with a clear need to adjust its inflation projections downwards yet again.  The BoJ has consistently forecast that inflation will meet its objective of overshooting the 2 percent target by the end of successive forecast horizons, but then falls woefully short, such as in the June report that showed core inflation (ex food and energy) falling to only 0.2 percent.

So now the market is waiting to see if the BoJ changes monetary strategy.  Will it be altered to make it more sustainable, which some are reading to mean an abandonment of quantitative and qualitative easing that has been in place since 2013.  The yield on the 10-year this week rose from 0.03% to above 0.10%, a huge relative move, before the government stepped in with a big auction of 5-10-year paper and it closed the week at 0.09%, yes, investors snapping up $847 million worth of 0.10 percent bonds.

Separately, the flash PMI reading on manufacturing in Japan for July was 51.6 vs. 53.0 in June.

Meanwhile, China is trying to support its economy as trade tensions escalate and risk spilling over into currency markets.  The government will focus on introducing deeper tax cuts and step up efforts to issue special bonds for local government infrastructure plans.  The moves are minimal thus far, but the start of a shift towards looser fiscal policy, which has been relied on in the past to support economic growth.

Street Bytes

--The major averages were mixed a second straight week, with the Dow Jones advancing 1.6% to 25451, while the S&P 500 tacked on 0.6%.  But Nasdaq, owing to the likes of Facebook and Twitter, which offset the positives in the sector, fell 1.1% to 7737. 

--U.S. Treasury Yields

6-mo. 2.18%  2-yr. 2.67%  10-yr. 2.95%  30-yr. 3.08%

After five straight weeks with the yield on the 10-year below 2.90%, Treasuries fell (yields rose) across the curve on the strong economic prospects and U.S. monetary policy vs. the likes of Japan and the EU.  Trade fears obviously also came into play.  More on this next review...not enough time today, sports fans.

For now, the Federal Reserve meets this coming week but will hold the line on rates. The next increase is coming in September. 

--As reported by Jim Tankersley of the New York Times, “The amount of corporate taxes collected by the federal government has plunged to historically low levels in the first six months of the year, pushing up the federal budget deficit much faster than economists had predicted.”

Well, this was to be expected when you lower the standard corporate tax rate from 35 percent to 21 percent, and allow companies to immediately deduct many new investments.

The White House has had to admit in recent weeks that the deficit is growing faster than it had expected because the revenue hasn’t been coming in from faster economic growth.  The Office of Management and Budget revised its forecasts from earlier in the year to account for an additional debt, on average, of about $100 billion more a year over the next decade.  Of course these figures can vary wildly, depending on the rate of growth.

The Commerce Department did say that in the first quarter of this year, multinationals repatriated $306 billion, in the form of dividends, which the White House says is a sign that the tax law is working, though it’s not yet clear if repatriation is generating additional economic activity. 

But as Jim Tankersley notes: “Companies can spread out the tax bill for repatriation over the next eight years, which is why those payouts are not lifting corporate tax payments in the near term. The law forces multinational companies to pay a one-time tax on cash and assets held abroad, but the Internal Revenue Service allows firms to pay that bill in annual installments, even if they choose to pay out the money in dividends right away.

“Administration officials have said that timing has contributed to corporate collections running 20 percent below initial forecasts from the Congressional Budget Office and 10 percent below predictions from the Penn Wharton Budget Model, a nonpartisan research initiative that forecast large deficits as a result of the tax law.”

--Shares in Facebook cratered in after-hours trading Wednesday, and then Thursday, after the company warned of slowing revenue growth in the second half, while saying that expenses would grow faster than revenue next year.

The company had cautioned investors to expect a big jump in costs because of efforts to address concerns about poor handling of users’ privacy and to better monitor what users post.  Total expenses in the second quarter surged to $7.4 billion, up 50 percent compared with a year ago.  Growth in new users slowed with Facebook adding 11 percent more daily and monthly active users on the main Facebook app in the second quarter, compared with 13 percent in the first quarter.

“Our total revenue growth rates will continue to decelerate in the second half of 2018, and we expect our revenue growth rates to decline by high single-digit percentages from prior quarters sequentially in both Q3 and Q4,” said CFO David Wehner.

The data privacy scandal involving the political consulting firm Cambridge Analytica, coupled with misinformation on WhatsApp contributing to mob killings in India have added to the pressure on Facebook to re-evaluate how its service maintains security and decorum.

Facebook’s revenue grew at its slowest pace in almost three years to $13.2 billion in the second quarter compared with a year ago.  The company reported $5.1 billion in profit, or $1.74 per share, compared with average Street estimates of $5.1 billion and $1.72.  Operating margin fell to 44 percent from 47 percent a year ago.

Facebook did say mobile made up 91% of its ad revenue last quarter, up from about 87% in the year-earlier quarter.

Daily user growth for Facebook’s namesake service has slid six straight quarters, bringing it to 1.47 billion users in the second quarter from 1.23 billion at the end of 2016, but up only 1.5% from the previous quarter.  Instagram has grown to 1 billion monthly users from 600 million in late 2016, while Facebook’s’ two messaging apps, Messenger and WhatsApp have each reported well over 1 billion monthly users.  About 2.5 billion people use at least one of the company’s apps each month.

The company’s user base for the core Facebook platform was unchanged in its biggest market – the United States and Canada – at 185 million daily users, while declining in Europe to 279 million.  Overall daily users increased 11% from the  same period a year earlier.

On a conference call with investors and analysts, Facebook said that Instagram is expected to account for 18 percent of Facebook’s revenue this year and 23 percent next year, but this growth doesn’t seem to be enough to offset the headwinds faced by the core apps.

The new General Data Protection Regulation (GDPR) in the European Union has forced several changes to Facebook’s privacy terms and sign-up process that CEO Mark Zuckerberg said has led to a decline in monthly actives in Europe.  Further regulatory setbacks are clearly coming.

Facebook’s headcount was 30,275 as of June 30 – an increase of 47% year over year.

But in the end, at the close on Thursday, Facebook had plummeted 19%, erasing $119 billion in market value, the largest one-day loss in value of any publicly-traded company in history.                                              

--The flipside of Facebook was Google.  Parent company Alphabet Inc. reported second-quarter sales, minus partner payouts, of $26.24 billion vs. analysts expectations of $25.55 billion, with Google’s advertising business rising 24%.  CFO Ruth Porat said most of that came from Mobile and automated ads.  Shares in Alphabet surged 6% in response, even with news of the $5 billion fine the European Union imposed last week for violating competition law with Google’s Android mobile software.

Excluding that, Alphabet said profit was $11.75 a share. Google plans to contest the ruling. Even including the fine, the company generated $3.2 billion in net income during Q2.  Most analysts don’t expect the EU’s antitrust investigation to force changes that significantly dent Google’s earnings in the future.

Google is expected to control 31% of the global ad market this year, according to estimates from eMarketer.

Google did say capital spending rose 87% from the same quarter last year to $5.3 billion, mostly for sales and marketing of the company’s cloud division.

--And then we have Amazon.com Inc., which reported better-than-expected second-quarter earnings and forecast more of the same in the current period, the shares rallying 4% in response, before finishing up just 0.5%.

Amazon reported profit came in at $2.5 billion, or $5.07 a share, more than double analysts’ forecasts, on net sales of $52.9 billion, which was actually just shy of the $53.4bn forecast. The company said Q3 income will surge to as much as $2.4 billion, way above current estimates, but revenue guidance is short of current estimates.

Revenue from Amazon Web Services, the company’s profitable cloud-computing division, jumped 49% to $6.1 billion.

The company played up growth in Alexa in its earnings statement, saying sales of Alexa-enabled devices had more than tripled in the past year.

Amazon’s stock has more than tripled in the last three years, making founder Jeff Bezos the richest person on the planet.  The company was able to sustain another broadside from President Trump this week; owner Bezos also owning the Washington Post, which frequently publishes articles critical to the administration.

--Today, shares in Twitter fell a whopping 20% as the company reported fewer monthly active users than analysts expected and warned that the closely-watched figure could keep falling as it deletes phony accounts, sending shares sharply lower in early trading.  The company said the work it was doing to clean up Twitter by purging automated and spam accounts had some impact on its user metrics in the second quarter, and that it would prioritize removing suspicious accounts and reducing hate speech and other abusive content over projects that could attract more users.

Monthly active users fell by 1 million in the second quarter from the first to 335 million.  Analysts were expecting a small gain, and the results appear to have hardened concerns that Twitter lacks a clear strategy to deal with various platform problems and grow usage and revenue together.

Twitter added to the gloom when it said the decline in the third quarter would be in the mid-single-digit millions, suggesting a sequential decline to the area of 330 million users.

Revenue of $711 million, mostly from advertising, did exceed expectations and was up 24 percent from last year. Twitter said it benefited from the World Cup, with ads tied to the tournament generating revenue of $30 million.

Profit was $100 million, with a $42 million boost due to a tax accounting move. Earnings excluding items were 17 cents per share, in-line with estimates.

Twitter, like Facebook, has been under pressure from regulators in several countries to weed out hate speech, abusive content and misinformation, better protect user data and boost transparency on political ad spending.

--Fiat Chrysler cut forecasts for sales, earnings and cash generation this year after second-quarter results missed expectations due to a poor performance in China and lackluster growth at home.

Revenue overall rose 4 percent, but net profit fell 35 percent to 754 million euro ($880m).

The company, which owns the Jeep, Ram, Alfa Romeo, Dodge and Maserati brands, cut full-year guidance for revenues from 125bn euro to 118bn, with a cut in projected earnings.

The Asia region fell to a loss, largely due to changes in import tariffs into China, pushing the division into the red.

Lastly, former CEO Sergio Marchionne died hours before the earnings were released, Marchionne a true trailblazer and titan in the industry...an executive as highly-respected as any across the corporate landscape I can remember.  Just through my own observations in watching him at various settings, he was both likable and worthy of respect.  He was widely credited with rescuing both Fiat and Chrysler from the brink of bankruptcy.  Our sympathies to his family, and the Fiat Chrysler family. 

Mike Manley was appointed CEO at the weekend to replace Marchionne when it became apparent his condition had worsened, Marchionne suffering severe complications from what had appeared to be basic shoulder surgery in late June.  But a story on Thursday via a Swiss hospital treating Marchionne said he had a “serious illness” lasting more than a year, which FCA said it didn’t know about.  He had been receiving recurring treatment, the hospital said.  It didn’t disclose the exact nature of Marchionne’s illness.

--The imposition of steel and aluminum tariffs and the possibility of tariffs on imported and exported vehicles threaten to undermine the auto industry’s finances and increase prices for consumers.

The rising cost of commodities – largely due to Trump’s 25 percent tariff on imported steel – took a bite out of General Motors.

GM turned a $2.4 billion profit for the second quarter, $3.2bn adjusted, but the company reported $300 million in increased commodity costs and lowered 2018 earnings-per-share guidance to $6 from a range of $6.30 to $6.60, which would end  its three-year string of record adjusted-operating profits.

--Ford said it earned a profit of $1 billion during Q2, down nearly 50 percent from the same period a year ago amid sluggish sales to China, as well as the effects of the tariffs and the costly disruption this spring of F-150 pickup production due to a fire at a supplier’s plant.  Ford said the tariffs resulted in $145 million in higher costs and could rise to as much as $600 million for the full year.  The company also lowered its full-year profit forecast.

Ford’s China operation lost $483 million in Q2 vs. a profit of $23 million a year earlier.  The automaker said its product portfolio had grown stale in the world’s largest car market.

The estimated impact on vehicle prices of steel and aluminum tariffs thus far range from about $200 to $300.  But if the threatened vehicle tariffs were imposed that would add up to about $5,000 per vehicle.

Shares in all three, GM, Ford and Fiat Chrysler, fell on their respective earnings reports Wednesday.

--Separately, Ford, following in the footsteps of General Motors, created a new unit to bring together its self-driving vehicle operations, vowing to invest $4bn through 2023 in the newly formed Ford Autonomous Vehicles.

The unit will be based at Ford’s new advanced vehicle campus in Detroit, outside the company’s main headquarters in Dearborn, and will hold Ford’s ownership stake in Argo AI, its Pittsburgh-based partner helping to develop the self-driving cars it plans to introduce commercially in 2021.

General Motors reported last month that SoftBank was investing $2.3bn in Cruise, GM’s self-driving car arm.

--Shares in Tesla fell on a report from the Wall Street Journal that the electric carmaker was asking some suppliers to return a “meaningful” amount of what it has spent since 2016 to help it become profitable. Tesla confirmed it was seeking price cuts but called them a standard part of procurement negotiations.  Retroactive rebates, though, are not normal and thus troubling.

CEO Elon Musk has said Tesla would be profitable and cash flow positive in Q3 and Q4, with no need to raise money, but most analysts believe Tesla will require a fund raise.

Separately, the Los Angeles Times had a piece on the service issues many Tesla customers are enduring.

“Parts shortages, long repair delays and problems getting through on customer help lines have led to scenes of strife at Tesla’s service centers.”

Here’s one case, as described by the Times.

“Another service rep was assisting Mike, the owner of a red Model 3 with door-lock problems who declined to give his last name.  He’d lock the car, walk away, and it would electronically unlock itself. That caused him to alter his vacation plans.  ‘I couldn’t take it to Yosemite like that,’ he said.  [Ed. you weren’t going to Yosemite anyway, Mike, with the current fire situation there, but I digress....]

“The agent said Mike would have to leave the car there awhile: ‘The amount of cases I’ve got right now is unbelievable.’”

We’re not talking normal delays from your traditional auto dealer.  Like weeks-long waits for basic auto repairs, when it comes to Tesla, and forget finding new body parts, it seems*.  This isn’t a top priority for Tesla, and Elon Musk, right now.  It’s just trying to rush the cars off the production line, and what did I tell you months ago...quality could suffer.  It certainly appears it has.

*Norway, the third largest market for Tesla cars after the U.S. and China, is seeing months-long waits for body parts for damaged vehicles.

--Harley-Davidson cut its profit margin forecast for the year as the motorcycle maker, caught in the crossfire of the U.S.-EU trade war, said it expected tariffs to hit its business harder than expected.

The company put the costs of the tariffs at between $45m and $50m but said it hoped to take steps to reduce manufacturing expenses and adjust supply-chain logistics to compensate for a portion of the extra cost.

But Harley vowed to maintain its forecast for global shipments for 2018 at between 231,000 and 236,000.

Harley was targeted by the European Commission in June, along with other high-profile U.S. products such as Levi’s jeans and bourbon whiskey, after President Trump introduced tariffs on steel and aluminum.  Harley then said it would shift some production of EU-destined models from the U.S. to other international plants as a result, incurring the wrath of Trump on Twitter.  But the company said thus far it has seen “no discernible shift” in U.S. sales or attitude towards the brand.

For Harley, European ridership is key to its global strategy, as its riders in the U.S. are ageing.  In the first half of 2018, U.S. sales were down 9 percent, compared with a fractional rise internationally.

--Back in October 2016, NXP Semiconductors, a Dutch company that makes computer chips for automobiles, agreed to be acquired by chip giant Qualcomm Inc.  Then the deal got tangled up in the U.S.-China trade feud and with NXP having major operations in China, regulators there turned down the merger at a deadline set by Qualcomm on Wednesday.

--Shares in Intel Corp. fell sharply, 8%, despite solid second quarter results, as investors focused on the timetable for the company’s new 10-nanometer chips reaching volume production.

Intel’s data-center group, driven by growth in the cloud-computing industry, saw revenues rise 27% to $5.55 billion, but this was less growth than expected by analysts.

In the division that sells chips for personal computers, revenue rose 6% to $8.73 billion, aided by the strongest number of PC shipments in years.

Overall, profit surged 78% to $5.01 billion, while revenue rose 1% to $16.96 billion.

Finance Chief Bob Swan is serving as interim CEO following the unexpected resignation of former CEO Brian Krzanich, who left after violating company policy by having a relationship with a co-worker. Swan said he won’t be Intel’s next CEO; content to be CFO.

--Exxon Mobil Corp. and Chevron Corp. both disappointed in their earnings reports today. Exxon said net income rose to $4 billion for the second quarter, up 18% vs. a year ago, but substantially below the 50% increase in the price of oil in that same period.  For various reasons the company’s production fell to the lowest level in more than 20 years.

Chevron’s results also fell short of expectations, though while Exxon’s share price fell, Chevron’s was up, mainly on a large buyback announcement.

--Boeing raised its full-year profit guidance on Wednesday as it announced strong second-quarter earnings.  It now expects to make $97bn-$99bn this year, up $1bn on previous guidance.

The company reported earnings for the June quarter of $3.73 per share, well ahead of the market’s consensus figure of $3.25, with CEO Dennis Muilenburg saying the company secured $29bn in new orders in the quarter.

Boeing also beat on revenues, $24.3bn vs. forecasts of $24bn and last year’s $23.1bn.  This reflected 194 commercial aircraft deliveries and higher defense and services volumes.

For the first half, revenue was up 6 percent, with earnings per share up 46 percent.

Boeing also booked 239 net orders for commercial aircraft during the quarter.

Separately, Boeing said China would pass the U.S. as the biggest air travel market within 10-15 years, driving a big rise in aircraft sales.

Boeing’s latest global industry report predicts airlines will need 42,700 aircraft over the next 20 years, up 3% on last year’s forecast.  Boeing valued the sales at $6.3 trillion at today’s prices.

--Major U.S. airlines have been under pressure from the Chinese government to refer to Taiwan as part of China in their flight schedules, with American Airlines and Hawaiian Airlines making changes to their websites ahead of Beijing’s Wednesday deadline. Delta and Continental were also in the process of doing the same.

Beijing is demanding the airlines not refer to Taiwan as anything other than a Chinese territory on their sites, a move described by the White House back in May as “Orwellian nonsense,” which is a bit ironic given some of the Orwellian comments by the occupant of the Oval Office.

On Tuesday night, American Airlines was referring to “Taipei, Taipei Taoyuan Airport (TPE), Taiwan.”  On Wednesday, it was “Taipei Taoyuan Airport (TPE).”

Hawaiian Airlines doesn’t fly to Taiwan, but it sells tickets through a code-share relationship with China Airlines, which flies nonstop from Taipei to Honolulu.

Well after the Wednesday deadline, China said the U.S. airlines hadn’t gone far enough in describing the self-governing island as what Beijing wants, “Taiwan, China.”

Thursday, as noted above, President Trump once again referred to President Xi Jinping as a great guy.  This is a great guy?

For its part, Taiwan’s government said the effort on the part of Beijing was an “affront” to the rules-based international order and an effort to “erase” it.

I maintain, having spent a week on Taiwan, that these are some of the great people on the planet.  You know how I feel about those on the other side of the Strait.

--The price of newsprint has jumped to its highest level in a decade owing to tariffs imposed by the administration on imports from Canada, causing U.S. newspapers to further retrench and pare down print offerings; piling more pressure on the beleaguered industry.

Prices of the paper have risen almost one-fifth in the past year, with printers and publishers blaming the price jump on tariffs of up to 32 percent on imports into the U.S.

Rising newsprint prices were cited by the Tampa Bay Times when it announced job cuts this year, while the Pittsburgh Post-Gazette said it will cease printing two days a week from next month, and the Salt Lake Tribune pares back its local news section.

According to the Pew Research Center, daily newspaper circulation in the U.S. has fallen 17.9 percent since 2015, as advertising revenues have dropped by almost $3.9bn.  Newsroom staffing has been cut by 11 percent in that time, according to the U.S. Bureau of Labor Statistics.

At a hearing of the International Trade Commission last week, printers and publishers denounced the tariffs as a threat to the nation’s press, with support from a number of members of Congress.

“Our trade remedy laws are meant to correct market interferences and disruptions, not to create them,” Republican Sen. Johnny Isakson (Ga.) told the hearing.  [I love Isakson...a treasure.]

Of course Donald Trump is doing everything he can to stifle a free press.

So with the above, the New York Daily News’ owner, Tronc, announced it was slashing the newsroom staff by about 50% - including the paper’s editor-in-chief, Jim Rich.  The newsroom previously had about 85 employees and now it was reportedly down to 40.

Democratic Gov. Andrew Cuomo quickly proffered state aid after Tronc’s announcement.  Cuomo said, “These layoffs were made without notifying the state or asking for assistance.  My father understood the value of a robust free press.  So do I. I urge Tronc to reconsider this drastic move and stand ready to work with them to avert this disaster.”

Andrew’s father, Mario, intervened in 1993 to keep the rival New York Post out of bankruptcy through appeals to both investors and federal authorities, but in recent years Cuomo has granted millions of dollars of assistance to at least eight of the Daily News’ competitors.

Business Insider was granted $3.3 million in tax credits, for instance, while Buzzfeed got $4 million, and Vice Media, $6.5 million, according to state data and Aaron Elstein and Will Bredderman of Crain’s New York Business.

Time Inc. got $14 million worth of incentives in part to prevent relocating its headquarters to New Jersey.  Instead it moved from Midtown to the World Trade Center.

But the above were granted the credits in return for commitments to invest in their businesses and create jobs, while the Daily News is cutting them.

Editorial / New York Post

“Monday’s mass layoffs at the Daily News are bad news for New York: This town needs more good reporters, not fewer.

“The numbers are brutal: a newsroom staff slashed in half; no staff photographers at a place that long billed itself as “New York’s Picture Newspaper.”  A sports department down from 34 people to just nine – how can a New York tabloid survive with that?

“Yes, the News has been The Post’s competitor for decades, and the rivalry’s often turned bitter. But rivalry has its joys, as well:  Even getting beaten to a story is an inspiration to do better next time.

“Not to mention the family dynamic: Many of our best people have come over from the News, and many of the folks who lost their jobs Monday are Post veterans and friends.

“So we shook our heads when the paper was sold for $1 last September,* and crossed our fingers on hearing rumors that Monday’s bloodbath was coming.

“We sincerely hope the remaining staff can find a way to turn things around. We want to beat the News, but not like this.”

*Tronc assumed the liabilities and debt.

Tronc said Monday the remaining staff would focus on breaking news involving “crime, civil justice and public responsibility.”

The departing Jim Rich wrote: “If you have democracy and think local governments should operate unchecked and in the dark, then today is a good day for you.”

--Papa John’s is preparing for a fight against John Schnatter, the pizza chain’s founder and former chairman, by adopting a so-called poison pill defense to protect itself against a hostile takeover attempt.

Schnatter, who resigned as chairman this month after a report he had used a racial slur in a comment about black people, owns 30 percent of the company’s stock, making him its largest shareholder.

Since stepping down, Schnatter now says it “was a mistake” to do so and that he was pressured to leave by board members acting on “rumor and innuendo.”

The poison-pill strategy is normally employed to fend off takeover threats by activist investors or rivals, but has rarely been used to rebuff a company founder.

Schnatter still sits on Papa John’s board, which must make for a tension convention. The company has said it was removing his image from marketing materials, and he was evicted from subleased office space at the corporate headquarters in Louisville, Ky.

Schnatter has said, through his attorney, that he “is not going to go quietly into the night.”

And then Thursday, Schnatter sued the company for access to the books and records because of the “unexplained and heavy-handed way” that Papa John’s International Inc. has treated him.

Shares in the company, Papa John’s International, have plummeted from a 52-week high of $81 to $43, down from about $55 in the last month as the saga began to play out.  The company was previously hit hard with the NFL anthem controversy, Papa John’s having been the official pizza of the league.

--Bolstered by a robust U.S. economy and newly wealthy overseas buyers, Christie’s International reported it sold $4 billion of art during the first half of 2018, up 35% from a year ago and representing a new six-month high mark for the London-based auction company.

Rival Sotheby’s said it auctioned $2.8 billion in art over the same period, up 12%.

A boutique house, Phillips, said it auctioned $517 million during the first half of 2018, up 61% from a year ago.

Christie’s said a fifth of its sales came from the $835 million estate sale of banking billionaire David Rockefeller and his wife, Peggy.  I had heard a fair amount on this particular exhibition, but until reading a piece by Kelly Crow of the Wall Street Journal, had no idea that “every single piece sold – a rare feat in the industry.”

That’s remarkable, as these things go.

The Rockefeller sales included a $115 million Picasso (not a fan), and an $84.7 million Monet (big fan), as well as an $80.8 million Matisse (eh).

--Concerns over rising cost pressures overshadowed solid quarterly results from UPS, the company, a bellwether of U.S. economic activity (ditto rival FedEx), reporting a 10 percent jump in revenue to $17.45bn for the June quarter, ahead of expectations, but operating profit fell 13 percent amid higher pension contributions and costs related to network upgrades at its all-important U.S. business.

Margins were also pressured by a 38 percent jump in fuel costs during the quarter.

UPS has been ramping up its investments in new technology, aircrafts and automated capacity as it seeks to ease delivery bottlenecks caused by the surge in demand for e-commerce related deliveries.

--McDonald’s Corp. revenue fell in the second quarter, though this was due to selling company-owned stores to franchisees, operating income decreasing as a result of the restructuring.  But revenue was still above expectations.  As a result of the moves, however, the company has removed layers of management, while closing field offices.

Same-store sales grew 4% globally and 2.6% in the U.S. in the quarter.  The latter missed analyst expectations.  The company said that rising commodity costs around the globe were pressuring the company to raise prices.

But now McDonald’s has to find a new supplier for its salads for some 3,000 restaurants in the Midwest after over 280 customers in 15 states became sick due to a Cyclospora outbreak.  The number jumped dramatically from a previously reported 160 on Thursday, according to the Centers for Disease Control and Prevention.

As of three days ago, though, all affected restaurants had been fully replenished with a new supply of lettuce mix, CEO Steve Easterbrook said, adding, “We addressed it very quickly.  Customers always appreciate (that).”

Cyclospora’s most common symptom is watery diarrhea.  The parasite is transmitted through foods contaminated with fecal matter.

McDonald’s shares fell 1.7% after the earnings release on Thursday.

-Starbucks Corp. said U.S. sales rose in its most recent quarter thanks to higher prices, while traffic dropped, down 2%, with sales rising 1% on a comparable basis.  Like whoopty-damn-do.

Starbucks also lowered its expectation for global comp-store sales this fiscal year to below 3%, from a prior estimate of 3% to 5%.

The company is trying to shore up its business by closing underperforming stores and slowing the growth of licensed stores in airports and supermarkets.

CEO Kevin Johnson said the stores in the Midwest are performing best, but analysts are concerned the company is growing too rapidly in the South.

Sales in Starbuck’s China/Asia Pacific region fell 1% for the fiscal third quarter over last year.

Overall, Starbucks’ net revenue rose 11.5% to $6.31 billion, while profit rose 23% to $852.5 million.

I said weeks ago I wouldn’t buy the stock, then $57.90.  It closed today at $52.15.

--Chipotle reported same-store sales rose a solid 3.3 percent in the second quarter, better than expected, and the shares rose 5% in response.  New CEO Brian Niccol, who came over from Taco Bell, continues to deliver. The Street loves this guy.

--Deutsche Bank AG on Wednesday reported a second-quarter net income that marked a fall from a year earlier, driven in part by weak trading results, but the news wasn’t as bad as expected, and that passed for good news when looking at the recent history of Europe’s biggest lender.

Overall sales-and-trading revenue in the second quarter was down 14% from a year earlier, which isn’t good given how key the business is to the bank overall, especially when compared with its U.S. competitors’ success in that area.

Nonstop retrenchment by Deutsche amid management upheaval has fueled speculation that DB will struggle to make enough money to grow again.

New CEO Christian Sewing, who replaced John Cryan as chief executive three months ago, told analysts that DB has “stabilized” in areas of fixed income and equities sales and trading, but this is hardly apparent in Wednesday’s results.  Sewing nonetheless says they’ll win back revenues they’ve lost by becoming more focused, and in some cases charging higher fees for client services.

Total revenue last quarter was basically unchanged from a year earlier, and down 3% for the first six months of 2018.

Deutsche still employs 95,400 worldwide.

--3M reported sales rose 7 percent in the quarter compared to the same period last year to $8.4bn, but the maker of Post-it notes (school supplies, household goods and food safety products) revised its earnings forecast downward for the second time this year.  However, the shares rose on otherwise optimistic comments from management for 2018 and beyond.

--The median home price in Southern California’s six-county region reached another new all-time high in June, $536,250, up 7.3% from a year earlier, according to real estate data firm CoreLogic.

But sales dropped to 22,706, down nearly 12% from June 2017 and the lowest number for the month in four years.

So people are increasingly priced out of the market or unwilling to pay exorbitant amounts for a home.  With memories of the bubble still fresh, many are simply worried they would be purchasing at the top again.

In Orange County, the median price is up 6% from a year ago to $739,000.

--Meanwhile, foreign purchases of U.S. homes had their biggest drop ever in the fiscal year ended in March, according to a survey by the National Association of Realtors released Thursday.

Purchases by international buyers totaled $121 billion, down from $153 billion the previous year, which is good for American home buyers in affluent neighborhoods with less competition from abroad.

The drop in foreign interest helps most in places like Manhattan, Seattle, San Francisco, Miami and Orange County, Calif.

--Shares in CBS fell sharply late Friday on word chief Les Moonves has been accused of sexual misconduct by six women – including actress Illeana Douglas – in a bombshell new report from reporter Ronan Farrow of the New Yorker; Farrow winning a Pulitzer for his coverage of the Harvey Weinstein sex-abuse story.  As in the dude has a reputation for doing his homework. 

Douglas told Farrow she was assaulted by Moonves back in 1997, while working on a pilot.

The following week after the incident, she was fired, with Moonves telling her she wouldn’t “get a f—king dime” and would “never work at this network again.”

Hell, I’ve seen the guy on various CNBC segments over the years.  I can see him doing this.

And so, in a statement this afternoon, Moonves acknowledged trying to kiss Douglas, but denied “any characterization of ‘sexual assault,’ intimidation, or retaliatory action.”

“I recognize that there were times decades ago when I may have made some women uncomfortable by making advances,” said Moonves, who was married to Nancy Wiesenfeld from 1978 through 2003 and then wed network presenter Julie Chen in 2004.

“Those were mistakes, and I regret them immensely. But I always understood and respected – and abided by the principle – that ‘no’ means ‘no,’ and I have never misused my position to harm or hinder anyone’s career.”

Well I call bulls---. See ya, Les.

Farrow’s story is about more than Les Moonves, however.  It’s about the culture at CBS, already reeling from the Charlie Rose situation.  As in it ain’t good.

But, to be fair, some are saying the report comes amid a legal battle between the CBS board and Shari Redstone, the controlling shareholder in both CBS and Viacom, who wants to merge the two companies, and she’s a real piece of work.

The New Yorker notes that the women who made accusations against Moonves say they have no interest in the company’s battle with Redstone.

--Mattel Inc. had depressing news on Wednesday as the toymaker said it was slashing more than 2,200 jobs, 22% of its global non-manufacturing workforce.

The company disclosed the move in reporting its second-quarter earnings failed to meet analysts’ expectations, with revenue falling a fourth straight quarter.

The maker of the iconic Barbie doll, like industry competitors, has struggled with the demise of Toys R Us, a key retailer.

New CEO Ynon Kreiz said the layoffs are focused on back-office and support positions.

Kreiz calls Mattel a “company with great potential,” while analysts say it has lagged behind its competitors in digital media, and needs to catch up with other brands in spawning apps, movies and TV shows.

Second-quarter sales fell 14% to $841 million, with an adjusted loss of 56 cents a share, higher than forecasts.

But amidst the doom-and-gloom, sales of Barbie rose 12%, while Hot Wheels advanced 21%.  Vrooom.  [I was never a Hot Wheels guy...more into Corgi toys myself back in my youth.]

Back to the Toys R Us issue, the toy industry is facing broad pressure as online and big-box retailers such as Amazon.com and Walmart eat away at margins.

Mattel competitor Hasbro, which turned a profit, saw strong sales of its Monopoly game during a quarter in which it agreed to acquire Power Rangers and other titles from Saban Properties.

--Coca-Cola said its revenue rose in the latest quarter, boosted by demand for diet sodas in the U.S., but the company said it would raise prices on its carbonated soft drinks in the middle of the year, owing to higher freight rates and metal prices following the imposition of U.S. tariffs on Chinese imports.

Coke said sales of Coke Zero Sugar helped offset declining sales of traditional Coca-Cola.

Organic revenue, stripping out currency swings, acquisitions and divestitures, increased 5% from a year ago, though overall sales were down 8% to $8.9 billion, as a result of the divestiture of its bottling operations.  The company reported a profit of $2.3 billion, compared with $1.4 billion a year ago.

--Anheuser-Busch InBev NV said U.S. revenues fell 3.1% in the second quarter on the back of lower volumes, as both Budweiser and Bud Light continued to lose market share, sales of the two have fallen as once-loyal American consumers shift away from domestic lagers toward craft beers, Mexican imports, wine and spirits.

So in response, AB InBev is rolling out more expensive beers, such as Michelob Ultra Pure Gold, made with organic grains, and Bud Light Orange, brewed with real citrus peels.  And it plans to launch pricey variants of Budweiser.

But at least the market share loss in the U.S. has slowed, to just a 0.35 percentage point drop in the last quarter, its best quarterly performance in almost four years.  Mich Ultra also continues to perform well.

Overall, AB InBev reported a jump in net profit to $1.94 billion, up from $1.5bn a year earlier.

Global sales grew 4.7%, stripping out currency changes and acquisitions, but this was below expectations.

The company said it wasn’t seeing the impact of tariffs on steel and aluminum yet, but would next year.

Outside of the U.S., results were strong in Brazil, Mexico, China and Western Europe, helped by the World Cup in Russia.

--Speaking of which, Visa named fans from the United States and China – both of which failed to qualify for the World Cup – as the biggest card spenders during the event in Russia.

Visa was an official sponsor and thus enjoyed exclusive access to digital payments at World Cup and other FIFA tournament venues.  For this summer’s WC, Russian organizers projected a $1.9 billion windfall from tourist spending while FIFA hoped to make a record profit of $6.1 billion.

Americans spent a total of $57 million in Russia during the tournament, with Chinese visitors spending $35 million, followed by Mexican fans at $16 million.

Russian fans spent half of the total processed at the 12 stadiums hosting games.

--Fox News’ “The Five” co-host Kimberly Guilfoyle suddenly exited the network last Friday under unclear circumstances, with Fox only confirming it had “parted ways” with her.

Network staffers the past few months apparently had grown tired of the drama and publicity surrounding her high-profile relationships, first with Anthony Scaramucci and then Donald Trump Jr.

Reports have said she’ll join Trump Jr. on the campaign trail and that she has joined pro-Trump super PAC America First.

Recently, the aforementioned Fox News alum Bill Shine signed on as deputy chief of staff for communications at the White House.  John Bolton was a Fox contributor before he was hired to be national security advisor, and onetime Fox anchor Heather Nauert is an undersecretary for public affairs at the State Department.

Foreign Affairs

Russia: Russian President Vladimir Putin on Friday said he has invited President Trump to Moscow.

“We are ready for such meetings, we are ready to invite President Trump to Moscow.  He has this invitation already and I told him about it,” Putin said at a BRICs summit in Johannesburg.

The invitation comes days after the Kremlin said it was not ready to accept Trump’s invitation to Washington, as the White House said Trump would not meet Putin until next year, citing the Mueller probe.

But Putin curiously weighed in on Trump’s willingness to keep his campaign promises to voters as a “great virtue.”

“You can critique him for what he does and many people do that but one thing is clear – he is willing to fulfill his campaign promises,” Putin said.

Earlier, national security adviser John Bolton said: “The president believes that the next bilateral meeting with President Putin should take place after the Russia witch hunt is over, so we’ve agreed that it will be after the first of the year.”

Meanwhile, the Russian Embassy in Washington accused U.S. officials of “living in a different reality” after Secretary of State Mike Pompeo reiterated America’s rejection of Moscow’s annexation of Crimea.

Pompeo had issued a statement Wednesday calling on Russia “to end its occupation of Crimea.”  The declaration appeared to try to quell suggestions that Washington was going to accept Moscow’s 2014 occupation following the Trump-Putin summit, where Trump made ambiguous comments about the fate of the peninsula.

Separately, the Wall Street Journal reported that Department of Homeland Security officials told the paper that Russian hackers managed to infiltrate the control rooms of U.S. utility companies – where they could have easily “thrown switches” and caused power outages.

Members of the notorious cyber espionage group “Dragonfly” or “Energetic Bear” were reportedly behind the hack, which first came to light earlier this year. DHS believes the groups are likely trying to access the same utilities again today.

Michael Carpenter, former deputy assistant secretary of defense, told the Journal, “They’ve been intruding into our networks and are positioning themselves for a limited or widespread attack. They are waging a covert war on the West.”

Gideon Rachman / Financial Times

“The Washington foreign policy establishment has experienced many emotions since the Trump-Putin summit in Helsinki: incredulity, fear, anger. But foremost among those emotions is a profound sense of humiliation. Here was the U.S. president disgracing himself on an international stage, while the Russian president looked on, smirking.

“For Vladimir Putin, inflicting this kind of embarrassment on America is deeply satisfying. The Russian president’s worldview is built around the idea that the West has deliberately weakened and humiliated Russia for decades.  For Mr. Putin, it is payback time.

“To visit Moscow now is to enter a hall of mirrors in which every Russian act of aggression is reflected back, as  a necessary response to supposed western aggression.

“In the U.S. and U.K., Russia is seen as a violent state that has annexed Crimea and waged an undeclared war in eastern Ukraine.  The Russian response is that the Western allies have committed greater acts of aggression in Iraq and Libya and have threatened Russia directly, by expanding the NATO alliance up to its borders. Russia’s annexation of Crimea is portrayed as a defensive measure in Moscow, designed partly to ensure that the Russian navy’s base in Sevastopol never plays host to NATO ships.

“What about the accusation that Russia has subverted American democracy? The Putinist response (beyond a pro forma denial) is that the U.S. has long attempted to subvert the Russian political system.  Hillary Clinton’s explicit support for the anti-Putin protests in Moscow in 2011-2012 was never forgiven by Mr. Putin, and may have inspired him to work against the Democratic presidential candidate in the 2016 U.S. election.

“Viewed from London or Washington, one of the most chilling aspects of Mr. Putin’s Russia is the way in which it backs violence, from Ukraine to the U.K., and then systematically lies about it. Discussing this tactic with official Russia is difficult, since they will never acknowledge they are lying. But, between the lines, the Putinista defense is twofold: first, that the West lies as well; second, that Russia is under siege, and that deception and lies are a necessary defense mechanism.

“In that sense, the official Russian line about world affairs is simultaneously completely cynical and utterly sincere. The Russian government is in the business of propagating lies about its own behavior and the wider world.

“But it sincerely believes that these lies are justified as part of a broader campaign against Western dishonesty and aggression....

“(Now) the American democratic system – triumphant in 1989 – is itself in deep trouble. Russia, meanwhile, is once again treated by a U.S. president as a peer superpower.

“For Mr. Putin, it is a moment of sweet revenge. For American liberals, it should be a cause for reflection. Much of what has gone wrong in Mr. Putin’s Russia flows from its failure to deal with domestic problems in favor of an effort to blame the West for all the country’s woes. Now it is tempting for American liberals to blame Russia for their Donald Trump nightmare. But the real problems, in both countries, begin at home.”

North Korea: There are signs via satellite that North Korea has dismantled the engine test stand at a satellite launch site, but unless they dismantle the whole site, Sohae, it will remain North Korea’s premier location for space launches.

North Korea has maintained Sohae is a satellite launch site, though U.S. officials believe it has been used to test ballistic missiles.

But as experts have noted, North Korea doesn’t need the test stand if it is confident in the engine design. Kim Jong Un said himself, North Korea is moving from testing to mass production.

North Korea is continuing to produce fissile material for nuclear bombs in spite of its pledge to denuclearize, U.S. Secretary of State Mike Pompeo said on Wednesday. Asked at a Senate foreign relations committee hearing whether this was the case, Pompeo responded to Democratic Senator Ed Markey by saying: “Yes, that’s correct... Yes, they continue to produce fissile material.”

Pompeo declined to respond when asked whether North Korea was continuing to pursue submarine-launched ballistic missiles or whether its nuclear program was advancing generally. He said he would be  happy to answer the latter question if necessary in a classified setting but suggested public statements on the issue would not help “a complex negotiation with a difficult adversary.”

And there are reports that despite Trump’s claims there is “no rush” and “no time limit” on negotiations, he has vented anger over a lack of immediate progress.  Pompeo has  given varying statements about how patient Washington might be. 

Kim committed in a summit statement to work towards denuclearization but Pyongyang still has offered no details as to how it might go about this.

Trump tweet: “There hasn’t been a missile or rocket fired in 9 months in North Korea, there have been no nuclear tests and we got back our hostages. Who knows how it will all turn out in the end, but why isn’t the Fake News talking about these wonderful facts?  Because it is FAKE NEWS!”

The regime did return remains believed to be of U.S. troops killed during the Korean War, the latest move in the cautious diplomacy between Pyongyang and Washington.  A plane carrying the remains of a reported 55 soldiers touched down at a U.S. base in South Korea, though five weeks earlier at a campaign rally, in one of his worst lies, President Trump said the remains of 200 Americans were coming home that very night.

The repatriation was agreed to at the Singapore summit between President Trump and Kim Jong Un, one of the four points listed in the formal declaration, and comes on the 65th anniversary of the signing of the armistice that ended the 1950-53 Korean War.

The thing is the remains could take years to identify as they are forensically tested to ensure, first, they are indeed slain U.S. troops.

Separately, North and South Korea agreed to hold military talks next Tuesday, as both sides seek to defuse tensions amid a thaw in relations.  The general-level talks would take place at the border village of Panmunjom.  No agenda was revealed.

China: Shares in Chinese pharmaceutical stocks plunged, as an unfolding safety scandal over the nation’s vaccines reminded investors of the series of food and product recalls from a decade ago that decimated China’s reputation as the world’s factory, and took years to repair.

Chinese Premier Li Keqiang over the weekend ordered a thorough investigation into the country’s vaccine producers after a publicly traded drug maker was found to have falsified data on its production and quality inspection.

Shenzhen-listed Changsheng Bio-technology had fabricated the data for its rabies vaccines. Drugs by the company, based in northeastern China’s provincial capital of Changchun, for treating children’s cough and cold, also failed tests by the state drug administration.  The company was ordered to halt production, and had to recall all of its unused vaccines.

It was a decade ago (seems like yesterday) that China’s manufacturing industry was rocked by a series of safety recalls involving everything from milk powder laced with melamine to excessive levels of lead in children’s toys and furniture, to toxins in exported pet food.

Meanwhile, at the Aspen Security Forum, Michael Collins, deputy assistant director of the CIA’s East Asia mission center, said Beijing doesn’t want to go to war, but the government under President Xi Jinping, is subtly working on multiple fronts to undermine the U.S. in ways that are different than the more well-publicized activities being employed by Russia.

China continues to steal business secrets and details of the hi-tech research being conducted in the U.S.  And the military is expanding and modernizing, aside from the activity in the disputed South China Sea.

“I would argue that it’s the Crimea of the East,” Collins said on Chinese building of military outposts in the key waters.

FBI Director Christopher Wray said China represents the broadest and most significant threat America faces from a counter-intelligence perspective.  He said the FBI had economic espionage investigations in all 50 U.S. states that could be traced back to China.

“The volume of it.  The pervasiveness of it. The significance of it is something that I think this country cannot underestimate,” Wray said.

None of this is new, of course.  I’ve been writing of it for a decade, but every now and then I need to put in some official comments

Elizabeth Economy / Wall Street Journal

“(China’s) view of its place in the international order is changing quickly.  In a little-noticed speech last month, before a packed house of China’s senior foreign policy officials and scholars, President Xi Jinping put the world on notice: China has its own ideas about how the world should be run and is prepared, as he put it, to ‘lead in the reform of global governance.’

“Gone is the era of Deng Xiaoping, who called China ‘a large developing country’ and insisted that the country maintain a low profile in foreign policy. These days one seldom even hears officials mention the motto of Mr. Xi’s immediate predecessor, Hu Jintao, who described China as ‘peacefully rising.’ Mr. Xi has made clear that he aims to create a new geostrategic landscape.

‘His ambition is most evident close to home.   Where previous Chinese leaders were content to stake claims based on Chinese sovereignty, he has moved to realize them. Through coercion, co-optation and simple brute force, he is making significant strides toward achieving his declared objective of ‘unifying China’ by 2049, the centenary of the founding of the People’s Republic.

“In the South China Sea, Mr. Xi has destabilized the region by developing and militarizing seven artificial features, ignoring the competing claims of five other nations and a 2016 ruling by the Permanent Court of Arbitration at The Hague that rejected China’s claims there.  In Hong Kong, Beijing has moved to silence contrarian political voices and has worked to disqualify democracy activists from holding office.  China is also placing Taiwan in a political chokehold, pressuring other countries to drop their diplomatic recognition of the island nation and forcing multinational corporations to acknowledge Taiwan as part of China.

“But Mr. Xi’s vision of Chinese leadership extends far beyond the country’s own backyard.  In 2013 and 2014, he outlined a grand-scale trade and investment plan to revitalize the ancient Silk Road and maritime spice routes, linking China to countries throughout Asia, the Middle East, Europe and Africa....

“China’s development of economic infrastructure has also been accompanied by an expanding Chinese security presence.  Beijing established its first military logistics base in Djibouti in 2017, and more bases are likely to follow in other countries. Chinese state-owned companies have assumed control or a controlling stake in at least 76 ports in 35 countries....

“Nor has Mr. Xi shied away from exporting elements of China’s political model.  In at least eight African countries, as well as some in Southeast Asia and Latin America, Chinese officials are training their counterparts in how to manage political stability through propaganda and how to control media and the internet.  Reflecting a degree of confidence rare among recent Chinese leaders, Mr. Xi has even proposed that the China model provides a ‘new option for other countries who want to speed up their development while preserving their independence.’....

“Finally, Beijing is making significant headway in upending international norms on political and human rights.  At the United Nations Human Rights Council, it has worked to diminish the ability of outside actors to criticize a country for human-rights violations.  It also promotes a strong vision of internet sovereignty, rejecting data privacy and the free flow of information....

“There is little indication that the rest of the world desires a Chinese-led global order.  Polls in countries throughout China’s Asia Pacific neighborhood indicate little confidence in Mr. Xi’s leadership.  And fault lines are emerging within China over the appropriate role for the country on the global stage....As an attendee last week at a major foreign policy conference in Beijing, I heard some Chinese officials call for more assertive Chinese leadership, but others suggest that the country has been too ambitious and aggressive and is losing international support as a result.

“Yet this emerging debate within China may have little impact. As President Donald Trump raises doubts about the U.S. commitment to global leadership – withdrawing from an ever-increasing number of international agreements and multilateral arrangements – there may be no other choice.  Only Xi Jinping appears willing and able to grab the mantle of leadership from a retreating United States.  In President Trump’s cultivation of an ‘America First’ agenda, he may well be planting the seeds for a ‘China First’ world.”

Iran: Iranian President Hassan Rouhani said over the weekend that “America must understand well that peace with Iran is the mother of all peace and war with Iran is the mother of all wars.

On Monday, President Trump said in a tweet responding to Rouhani’s comments: “NEVER, EVER THREATEN THE UNITED STATES AGAIN OR YOU WILL SUFFER CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE.  WE ARE NO LONGER A COUNTRY THAT WILL STAND FOR YOUR DEMENTED WORDS OF VIOLENCE & DEATH.  BE CAUTIOUS!”

Within hours, Iran’s state-owned news agency IRNA dismissed the tweet, describing it as a “passive reaction” to Rouhani’s remarks.

Iranian Foreign Minister Mohammad Javad Zarif tweeted: “BE CAUTIOUS!  We’ve been around for millennia & seen fall of empires, incl our own, which lasted more than the life of some countries.”

A senior Iranian military commander said on Thursday that Donald Trump should address any threats against Tehran directly to him, mocking Trump as displaying the ethics of “night clubs and gambling halls,” an Iranian media group reported.

The comments came from Major-General Qassem Soleimani, who heads the Quds Force of Iran’s powerful Revolutionary Guards Corps.

“As a soldier, it is my duty to respond to Trump’s threats. If he wants to use the language of threat, he should talk to me, not to the president [Rouhani],” Soleimani was quoted as saying.

Soleimani was also quoted as saying: “Trump should know that we are nation of martyrdom and that we await him.”

Trump said earlier this month that with the economic pressure on Iran resulting from renewed American sanctions, as well as threatening penalties for companies from other countries that continue to do business with Iran, that “at a certain point they’re going to call me and say ‘let’s make a deal,’ and we’ll make a deal.”

But more important were the words of Secretary of State Mike Pompeo in a policy speech on Sunday at the Reagan Library, with Pompeo calling Iran’s religious leaders “hypocritical holy men” who amassed vast sums of wealth while allowing their people to suffer. He also said the government has “heartlessly repressed its own people’s human rights, dignity and fundamental freedoms.”

Leonid Bershidsky / Bloomberg

“Trump’s latest tweet telling Iran it would suffer “consequences the likes of which few throughout history have ever suffered before” is an almost-verbatim rehash of his August 2017 threat to North Korea; then, Trump promised “fire, fury and frankly power, the likes of which this world has never seen before.”  It’s about as serious this time around, but there’s more bad blood behind Trump’s deployment of all caps against Iran.

“Trump’s tweet is a response to Iranian President Hassan Rouhani’s speech on Sunday, in which Rouhani warned the U.S. president not to ‘twist the lion’s tail.’  ‘The Americans,’ Rouhani said, ‘need to realize that making peace with Iran is the mother of all peaces and waging war against Iran is the mother of all wars.’

“Rouhani, of course, wasn’t threatening to attack the U.S. but warning it against attacking Iran. The rhetoric is not particularly different from North Korea’s, if more hollow: Iran, unlike North Korea, has no nuclear weapons and there’s no way it can hold off the U.S. conventional military might.  But the Iranians make Trump madder than North Korean leader Kim Jong Un – not because they are more dangerous but because they refuse to play along with him.

“Kim agreed to meet with Trump, and it made for a great TV show. That, apparently, has been more important to Trump than the substance of his country’s problem with North Korea: Though there’s been little follow-through on the nebulous agreements reached in Singapore, Trump has stopped insulting and threatening Kim on and off Twitter.

“The Iranian leaders, for their part, have been adamant about not wanting to talk to Trump.  The Mehr news agency, one of the Iranian regime’s international voices, reported recently, citing Rouhani’s chief of staff Mahmoud Vaezi, that Trump asked ‘eight times’ to meet with Rouhani while the latter attended the United Nations General Assembly in New York last year but was rebuffed....the Washington Post, too, reported last year that Trump had been interested in a meeting and asked French President Emmanuel Macron to broker it; that didn’t work either.

“Quite likely, Trump wanted to renegotiate the 2015 multilateral nuclear deal with Iran, which Trump has long held was too weak to be in U.S. interests.  So the Iranian snub had consequences: In May, Trump pulled the U.S. out of the deal.  Israeli Prime Minister Benjamin Netanyahu has skillfully stoked Trump’s anger by keeping his attention on Iran’s presence in Syria, where the Islamic Republic has provided boots on the ground to President Bashar Al-Assad and his ally President Vladimir Putin of Russia.  And Saudi Arabia, whose leaders have worked to build a cozy relationship with Trump, has been after Trump to curb Iran’s influence in the region.

“It’s probably too late now for a Singapore-style photo opportunity.  Trump’s anger at Iran will continue to have consequences, perhaps not the threatened cataclysm, but unpleasant ones nonetheless....

“It’s dubious that Iran will go that far and risk a military confrontation with the U.S. – especially since its naval forces in the area largely consist of ships dating back to the 1960s and ‘70s.  This is not a battle Iran can win.  So even if the U.S. tries to block Iranian tankers from sailing through Hormuz, Iran likely will concentrate on alternative, land-based export routes and count on the EU, Russia and China to help it fight U.S. sanctions. EU nations are looking at keeping financial channels open for Iran when the U.S. sanctions hit full force in November.

“It might have been wise for the Iranian leaders to talk with Trump as Kim and Putin have done, if only to establish contact and ensure some U.S. flexibility. Their approach, however, is not transactional: On Saturday, Khamenei stressed that the country wouldn’t ‘separate diplomacy from ideology.’  Barring major domestic disturbances, Iran is preparing for a head-on confrontation, if only an economic one. It’s betting it won’t be a catastrophe. Before the nuclear deal, the deal was punishing Iran with the help of allies and even some adversaries. Thanks to Trump, that’s not the case today.”

Syria: ISIS militants killed more than 200 people in a coordinated assault on a government-held area of southwestern Syria on Wednesday.

Jihadist fighters stormed several villages and staged suicide blasts in the provincial capital Sweida, near one of the few remote pockets still held by Islamic State after it was driven from most of its territory last year.

The head of the Sweida provincial health authority told the pro-Damascus Sham FM that 215 people were killed and 180 injured in the attack, as well as 75 ISIS fighters.

The Syrian Observatory for Human Rights said the attackers had killed more than 220 people, including many civilians, with 45 militants killed, including seven who blew themselves up.

The Observatory said jihadists seized hostages from the villages they had attacked.

ISIS is literally operating out of a few last hideouts, which have been pounded by Syrian and Russian air power, as well as the Syrian army, but they can still wreak havoc.

Separately, Israel shot down a Syrian fighter jet over Israel’s norther Golan Heights on Tuesday, the IDF identifying later that the commander of the Patriot battery responsible for downing the jet, as well as a Syrian drone, was female Captain Or Na’aman.  I saw some photos of her.  Frankly, very cool.  The Syrian Sukhoi fighter jet apparently penetrated 2 kilometers into Israeli airspace.  The pilot was killed.  It is believed the pilot probably made a navigation error but it was nonetheless a breach of Israeli sovereignty.

Syria confirmed the plane was partaking in an offensive against Islamic State group fighters in the area, but denied it crossed into Israeli airspace.  Russian officials also said the jet did not breach it.  Israel then produced radar images that “unequivocally” proved the Syrian aircraft had indeed flown into Israel.

Lastly, over the weekend, 98 rescuers from the Syria Civil Defense (the “White Helmets”), were evacuated along with 324 family members through Israel to Jordan after receiving promises of asylum in Canada and Europe.  The operation drew angry denunciations from Syria and Russia, which regard the volunteers as terrorists because they operate in rebel areas.  [The hope had been to evacuate 800, but security issues prevented this.]

So a big middle finger to Moscow and Damascus from your editor.  Good on Israel and Jordan.  Jordan has made immense sacrifices over the course of the Syrian war and the great migration out of same and is deserving of the extensive U.S. support it receives.  If Jordan ever fell to extremists, you can kiss the entire region goodbye.

Pakistan: Imran Khan, a cricket legend turned anti-corruption agitator, claimed a resounding victory Thursday in national elections, Khan posed to become Pakistan’s next prime minister after an election that was marred by violence  and tarnished by allegations that the army helped rig the campaign in his favor.

With most of the National Assembly races decided, it appeared Khan’s party had won nearly twice as many seats as his closest rival.

Khan is no friend of the United States, having blasted Washington for its ‘occupying force’ in neighboring Afghanistan, nor of India, where media have dubbed him “Taliban Khan” for his coziness with Islamist groups.

Khan is now expected to defer authority in those areas to the powerful military establishment.

“Khan’s victory means that the military is now 100% in the driver’s seat on policy issues with regard to the U.S., with regard to Afghanistan, India, militancy, security issues,” said Shamila N. Chaudhary, former Pakistan director on the National Security Council during the Obama administration.  “It essentially gives the military all the space it has ever wanted to pursue its national security policies the way it wants to,” she said.  [Bloomberg]

U.S. officials have said they’ve seen little change in Pakistan’s pursuit of anti-American extremists.  For example, allies of the militant leader Hafiz Saeed, who is wanted by the U.S. for his alleged role in the 2008 terror attacks in Mumbai, India, were allowed to run as candidates in the election.  Pakistan has also been accused of doing nothing to combat terrorism financing.

In his televised victory speech, Khan spoke in conciliatory terms about the United States and India, and praised Western rule of law, as he pledged to improve accountability for corruption.  The proof will be in the pudding.

Afghanistan: The top U.S. envoy for South Asia met with Taliban officials this week to discuss ways to lay the groundwork for peace talks, in a fresh bid to end the 17-year war.  The U.S. is trying to build on the momentum created by a recent three-day ceasefire that gave Afghans some hope there could be peace after all this time.

Ambassador Alice Wells, the deputy assistant secretary of South and Central Asia, met with members of the Taliban’s political commission in Doha, Qatar.  The Taliban didn’t comment.

The State Department said, “Any negotiations over the political future of Afghanistan will be between the Taliban and Afghan government.”  But official negotiations, if they occur, are months away, and could collapse.  The U.S., though, claims it has seen new interest from the Taliban for peace talks.

Random Musings

--Presidential tracking polls:

Gallup: 42% approve of President Trump’s job performance, 54% disapprove (July 22)
Rasmussen: 46% approve of Trump’s performance, 52% disapprove (July 27)

*The Gallup poll has the percentage of Republicans approving of Trump’s performance at 85%, down from 90% the week before.  This will be interesting to watch.

A new Wall Street Journal/NBC News survey has President Trump’s approval rating at a new high for this survey, since the election, 45% among registered voters, with 52% disapproving.

In this one, Trump’s approval among Republicans is 88%.  Only 9% of Democrats approve. The gap between the two is the widest partisan gap ever found in the Journal/NBC survey.

Separately, 51% of voters disapprove of Trump’s handling of relations with Russia, compared with 26% who approve.  58% don’t like how he’s dealing with immigration, while 31% do.

On the economy, 50% give him a thumbs up, 34% don’t.

As for Robert Mueller’s investigation, 46% say it should continue, 38% think it should end.

But 65% think Moscow interfered in the election, a 12% increase from last year.

--Karl Rove / Wall Street Journal

“The savvy ‘Crystal Ball’ election prognosticators, led by the University of Virginia’s Larry Sabato, issued their latest midterm forecast Tuesday. It is sobering for the GOP. The UVA team increased Democrats’ odds in 17 House races and, for the first time this cycle, declared ‘Democrats are now a little better than 50-50’ to flip the lower chamber.

“Mr. Sabato and his colleagues now rate 34 Republican-held seats as ‘toss-ups.’  Four GOP seats ‘lean Democratic,’ two are ‘likely Democratic’ and one is ‘safe Democratic.’  If Democrats win the seats tilting their way and just over half of the toss-up races, they’ll take control of the House.

“The report called last quarter’s Democratic fundraising ‘alarming for Republicans.’  Seven of the eight Republicans whose races were downgraded to toss-ups were outraised this spring by their opponents.  But the report glossed over the fact that all but one of those Republicans still have more cash on hand.  Maybe the ‘Crystal Ball’ will raise the GOP’s odds if these Republican candidates outraise their opponents next quarter and keep their cash-on-hand advantage.

“Still, the report rightly notes that the generic ballot ‘has shown a consistent Democratic lead.’  Republicans are likely to keep the House if the gap on election day is three points or less; they are unlikely to do so if it’s seven points or more.  As recently as May 31, Democrats had only a 3.2-point lead on the generic ballot, according to the Real Clear Politics average of recent polls. Now the Democratic lead has grown to 7.8 points. And President Trump’s approval remains within the danger zone.

“When Mr. Sabato’s report came out, Republicans were still basking in the results of the NBC News/Wall Street Journal poll released Monday that showed 88% of Republicans ‘approve of the job Donald Trump is doing as president.’  This is the highest approval rating within his party that Mr. Trump has enjoyed since his inauguration.... In total, 45% of all voters approved of Mr. Trump’s performance; 52% disapproved.

“These solid numbers overshadowed the poll’s bad news: Mr. Trump’s job approval among independents fell to 40%. Fifty-eight percent of independents disapprove, with 46% strongly disapproving....

“The mid-term elections cannot be won with a base-only strategy.  Republicans represent less than a third of the electorate....

“The president and his political team must turn their attention to independents, especially swing voters in suburban and rural districts who applaud his policies more than his behavior.  If Mr. Trump’s approval rating among those voters doesn’t increase, Nancy Pelosi is likely to be the next House speaker.”

--In a new poll by the Public Policy Institute of California, Sen. Dianne Feinstein leads fellow Democrat and state Sen. Kevin de Leon by a 46-24 percent margin among likely voters in the race for the seat she has held since 1992.

Worrisomely for Republican congressional candidates, 47% of Republicans and 24% of independents say they don’t plan to vote in the Senate race at all.  The issue is does that apathy, which is to be expected when the race is between two Democrats, carry over and Republicans don’t turn out period.

--Florida Republican Rep. Ron DeSantis, on a campaign stop on Saturday that was posted to YouTube Monday, dismissed progressive superstar Alexandria Ocasio-Cortez as “this girl,” prompting a response from the 28-year-old who brought down Democratic heavyweight Rep. Joe Crowley in a stunning primary upset last month in New York.

“You look at this girl Ocasio-Cortez or whatever she is, I mean, she’s in a totally different universe... It’s basically socialism wrapped in ignorance,” DeSantis said.

So Ocasio-Cortez responded:

“Rep. DeSantis, it seems you’re confused as to ‘whatever I am.’  I am a Puerto Rican woman. It’s strange you don’t know what that is, given that ~ 75,000 Puerto Ricans have relocated to Florida in the 10 months since Maria. But I’m sure these new FL voters appreciate your comments!” she tweeted.*

Now I’m no fan of Ocasio-Cortez, nor am I a fan of DeSantis, but just a word of advice to other Republicans who will need independents swinging their way in their own races in November.  Be careful what you say about her.  Your base may love it, but it isn’t smart politics.

*However, just today, a story by James Hohmann of the Washington Post reveals that the tens of thousands of displaced Puerto Ricans who have settled in Florida after Hurricane Maria “are not registering to vote or otherwise getting involved in politics. At least for now.”

Hohmann’s excellent reporting reveals that most of the Puerto Ricans, who of course are eligible to vote as soon as they move to the mainland (I wonder how many Americans really know this) are moving to the Orlando area, mainly because so many other Puerto Ricans already live there.  [I never would have guessed this.]

But thus far, “there has not been any meaningful increase in Democratic registration.”  Interesting.

As Mr. Hohmann concludes: “Many of the savviest Democrats in Florida are growing anxious that a blue wave might sweep America in November but bypass their state.”

--Ohio Republican Rep. Jim Jordan said he plans to run for House speaker, a move that will spark a contentious leadership battle in the House GOP conference just a few months before the November election.

Jordan is one of the most powerful conservatives in Congress, having co-founded the House Freedom Caucus, a faction of about 30 hardline Republicans who frequently clash with party leadership.  His bid represents a direct challenge to House Majority Leader Kevin McCarthy, R-Calif., the hand-picked front-runner by the current speaker, Paul Ryan, who is retiring at the end of this Congress. 

President Trump is close to both McCarthy and Jordan.  It’s not known how far the Ohio State investigation into alleged sexual abuse in the athletics program will impact Jordan, a former assistant wrestling coach there who has denied knowledge of any wrong-doing on the part of a team doctor, now deceased.

--According to the above-mentioned Wall Street Journal/NBC News survey, when it comes to the nomination of Brett Kavanaugh for the Supreme Court, 32% of voters support his confirmation, 26% oppose.  Another 41% say they don’t have enough information yet.  I support the nomination.

Separately, a record 71% of voters said they were opposed to overturning Roe v. Wade, the 1973 ruling that recognized abortion as a woman’s constitutional right, including 59% who said they felt strongly on the matter.  23% said that overturning the ruling would be a good idea.  According to poll results, the gap between opponents and supporters has been widening since 1991.  I would not overturn the ruling, nor do I think the court will...as constituted, assuming Kavanaugh wins confirmation.  Chief Justice Roberts will side with the four liberals.

--Dennis Slattery / New York Daily News

“Jeff Sessions loves a good chant.

“The Attorney General of the United States was tickled Tuesday when a crowd of conservative teens began chanting ‘lock her up’ at a leadership conference for high schoolers in Washington.

“Sessions was in the midst of slamming colleges for ‘coddling’ students in the wake of the 2016 election when the crowd took it upon themselves to bring back one of President Trump’s favorite refrains from his campaign rallies.

“ ‘I heard that a long time over the last campaign,’ Sessions said after repeating the phrase with a smile....

“ ‘I like this bunch,’ Sessions  added. ‘I can tell, you’re not going to be backing down. Go get ‘em, go get ‘em.”

But speaking at the same summit a day earlier, U.S. Ambassador to the UN Nikki Haley “urged the youngsters to avoid inflammatory language and attempting to ‘own the libs’ in favor of civil discourse.

“ ‘Raise your hand if you’ve ever posted anything online to quote-unquote ‘own the libs.’’ Haley asked the crowd.

“A majority raised their hands and erupted into applause, The Hill reported.

“ ‘I know that it’s fun and that it can feel good, but step back and think about what you’re accomplishing when you do this – are you persuading anyone? Who are you persuading?’ Haley asked.  ‘We’ve all been guilty of it at some point or another, but this kind of speech isn’t leadership – it’s the exact opposite.’

“She then encouraged the students to use thoughtful language and practice ‘real leadership’ when attempting to persuade people with opposing views.

“ ‘Real leadership is about persuasion, it’s about movement, it’s bringing people around to your point of view,’ she added.  ‘Not by shouting them down, but by showing them how it is in their best interest to see things the way you do.’”

--Finally, researchers have discovered signs of a hidden lake under the ice of the Martian south pole that could hold liquid water year-round.  Ergo, we’re getting closer and closer to discovering life there.

Italian researchers, affiliated with the European Space Agency and using a radar aboard the Mars Express Satellite, have been studying radar readings for four years and just published their findings in the journal Science on Wednesday.

I’m kind of hoping that the first life we find is mermaids.  Granted, they might not look like the Weeki Wachee mermaids of Florida fame, but it would be a nice diversion from today’s chaotic news flow.  Imagine the hits on “Mars Cam: Mermaids from the South Pole.”

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

God bless America.

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Gold $1232
Oil $69.04

Returns for the week 7/23-7/27

Dow Jones  +1.6%  [25451]
S&P 500  +0.6%  [2818]
S&P MidCap  -1.2%
Russell 2000  -2.0%
Nasdaq  -1.1%  [7737]

Returns for the period 1/1/18-7/27/18

Dow Jones  +3.0%
S&P 500  +5.4%
S&P MidCap  +3.9%
Russell 2000  +8.3%
Nasdaq  +12.1%

Bulls 54.9
Bears 18.6

Have a great week.

Brian Trumbore