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Week in Review

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05/19/2018

For the week 5/14-5/18

[Posted Saturday from somewhere on the Jersey shore....]

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 this week to Brad K.

Edition 997

This column is being posted under some duress.  It will be cleaned up by noon on Saturday.  Back to normal next week…I hope.

Trump World

Yet another totally chaotic week in the White House with mixed messages.  I have details below on North Korea, in particular, but developments on the trade front, for one, were more than disquieting.  I have been writing extensively on the national security threats posed by ZTE, yet President Trump suddenly supported the company.  It made zero sense, and totally blindsided his aides and cabinet members.

Last weekend, Trump tweeted: “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast.  Too many jobs in China lost. Commerce Department has been instructed to get it done!”

“China and the United States are working together on trade, but past negotiations have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries. But be cool, it will all work out!”

“ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.”

“Trade negotiations are continuing with China.  They have been making hundreds of billions of dollars a year from the U.S., for many years. Stay tuned!”

By Thursday, however, President Trump said China had become “very spoiled” on trade and cast doubt on the success of his efforts to rebalance the relationship with Beijing as high-stakes U.S.-China negotiations opened in Washington, the Chinese delegation led by Vice Premier Liu He.

Trump, speaking to reporters at the White House, said China had “ripped off” the United States for too long and that he told Chinese President Xi Jinping that “we just can’t do that anymore.”

Negotiations this week focused on cutting China’s trade surplus and improving intellectual property protections. Trump has threatened to impose up to $150 billion in punitive tariffs to combat what he says is Beijing’s misappropriation of U.S. technology through joint venture requirements and other policies. Beijing has threatened equal retaliation, including tariffs on some of its largest U.S. imports, namely aircraft, soybeans and autos.

The administration had sought a $200 billion reduction in China’s $375 billion surplus. China demanded Trump relax crushing restrictions imposed on ZTE and end restrictions on Chinese investments in the United States and sales of high-tech goods to China.

Trump said Thursday, “We’re going to come out fine with China.  Hopefully, China will be happy, I think we’ll be happy.”

But Friday, Chinese state media dismissed as rumor suggestions that Beijing has offered to cut  its trade surplus with the United States by $200 billion a year. An article published on the social media account of People’s Daily, the Communist Party  mouthpiece, said China will not enter into negotiations on the issue as long as the U.S. sets preconditions for the talks.

“Some people are worried that China will make major unilateral concessions. Such worries are unfounded,” the People’s Daily article said.  “Neither side gave much away and the negotiations were still deadlocked a few hours before the meeting between Trump and Liu.”

Meanwhile, U.S. Trade Representative Robert Lighthizer said that NAFTA countries are far from reaching a deal on new trade terms as a key U.S. legislative deadline passed on Thursday but pledged to continue negotiations with Canada and Mexico.

“The NAFTA countries are nowhere near close to a deal. As I said last week, there are gaping differences on intellectual property, agricultural market access, energy, labor, rules of origin, geographical indications, and much more.”

But earlier in the week, Canadian Prime Minister Justin Trudeau said the U.S., Mexico and Canada were “very close” to an agreement to modernize the trade pact.

And there was word today that Japan is looking into retaliating against the U.S. over steel tariffs.  Officials in Tokyo said Japan may tell the World Trade Organization that it believes it has the right to immediately impose tariffs on U.S. goods equivalent to the damage it is suffering from the steel tariffs – a step China has taken.

Japan is clearly sending a message ahead of two-way trade talks with Washington set to start in June.

Trumpets....

--Gina Haspel became the new director of the Central Intelligence Agency by a 54-45 vote in the Senate, two Republicans voting against, six Democrats for her nomination, including the top Democrat on the Senate Intelligence Committee, Sen. Mark Warner of Virginia.  Warner had been against confirmation but he cited a new letter in which Haspel said the agency shouldn’t have undertaken a post-9/11 antiterrorism program that many critics say amounted to torture.

--House Speaker Paul Ryan sought to head off revolts from the right and center of the Republicans as lawmakers battled over legislation that would protect illegal immigrants from deportation. On Thursday, Ryan warned a small group of moderates that it would be a ‘big mistake’ if they kept pushing a procedural maneuver to force a series of votes on four separate immigration bills.

Some Republicans worry such a debate could lead to a bipartisan immigration bill passing that might anger conservative Republicans at a bad time, with the mid-term elections fast approaching.  Majority Leader Kevin McCarthy told fellow Republicans at the closed-door meeting that things were going well for them, so “let’s not create a problem of our own making,” one House Republican lawmaker said, asking not to be named.  Ryan said he was working with the White House on a measure that would win President Trump’s support.

But by Friday, House conservatives were demanding a vote on a hardline immigration bill, threatening to torpedo an unrelated farm bill unless House GOP leaders meet their ultimatum. The conservative House Freedom Caucus, led by Rep. Mark Meadows (R-N.C.), then defeated the farm legislation, 198-213, with 30 Republicans joining 183 Democrats in opposition.  This bill had been a Republican priority.

--The Senate intelligence committee has concluded that Russia undertook an “unprecedented” effort to interfere in the 2016 elections to help Donald Trump.

Mark Warner, the Democratic vice-chairman of the committee, said: “The Russian effort was extensive, sophisticated, and ordered by President Putin himself for the purpose of helping Donald Trump and hurting Hillary Clinton.”

The committee’s finding confirmed the assessment of the U.S. intelligence community.  Evaluating the work of the intel community is part of the Senate committee’s broader inquiry into Russian election interference, which is separate from the Mueller probe.

Investigators released transcripts showing that Donald Trump Jr. told them he did not think it was a problem to accept a 2016 meeting he was informed was a Kremlin-linked effort to discredit Hillary Clinton.

Trump Jr. told investigators: “To the extent that they had information concerning the fitness, character, or qualifications of any presidential candidate, I believed that I should at least hear them out.”

The documents contained no bombshells.

--According to Trump attorney Rudy Giuliani, special counsel Robert Mueller’s team admitted it cannot indict President Trump.

“All they get to do is write a report. They can’t indict.  At least they acknowledged that to us after some battling, they acknowledged that to us,” he first told CNN.

Giuliani cited Nixon-era Department of Justice guidelines that prevent special investigators from indicting sitting presidents.

Mueller’s team has considered challenging the guidelines but Giuliani said the team told him verbally that Mueller decided he has to “follow the Justice Department rules.”

Giuliani said on Fox News, “This case is essentially over. They’re just in denial.”

--President Trump admitted in financial disclosure forms released Wednesday that he “fully reimbursed” lawyer Michael Cohen, who paid $130,000 to porn actress Stormy Daniels in 2016 to keep quiet about an affair she claims to have had with Trump.

“In the interest of transparency,” Trump’s federal financial report revealed he paid Cohen “100,001 - $250,000” for expenses his fixer incurred on behalf of Trump.

“In 2016 expenses were incurred by one of Donald J. Trump’s attorneys, Michael Cohen. Mr. Cohen sought reimbursement of those expenses and Mr. Trump fully reimbursed Mr. Cohen in 2017.”

Trump’s 92-page disclosure form also reported that his Washington hotel was one of his top properties with revenues of $40.0 million in 2017.  Mara-a-Lago had revenues of $25.1 million.

Wall Street

I’ll fill in some holes next time, but this past week we had data on April retail sales, up 0.3%, ditto ex-autos, which was basically in line, while April industrial production was up a solid 0.7%.  April housing starts, though, were less than expected.

The bond market didn’t like the stronger data, with GDP forecasts for the second quarter solidly above 3% at the moment (the Atlanta Fed’s early GDPNow barometer has Q2 at 4.0%), and with the 10-year Treasury now above 3.00%, mortgage rates are at a 7-year high and that could easily hinder the housing sector.  There are some signs it already is.

Europe and Asia

A flash report from Eurostat on GDP in the first quarter of 2018 came in up 0.4% for the eurozone (EA19). In the fourth quarter, GDP was up 0.7%. Year-over-year, though, GDP was 2.5%, vs. 2.8% in Q4.

Germany 2.3% (yoy), France 2.1%, Spain 2.9% and Italy 1.4%.

A report from Eurostat on euro area inflation for April showed it was 1.2% on an annualized basis, down from 1.3% in March, nowhere near the European Central Bank’s 2% inflation target. A year ago, the rate was 1.9%. 

Germany was 1.4% (ann.), France 1.8%, Spain 1.1% and Italy 0.6%.

Eurobits....

Italy: An agreement on a new coalition government was reached Friday, the Five Star Movement and the League striking a deal on a common platform to bring a populist government to the eurozone’s third largest economy, but the two have yet to agree on a prime minister.

Earlier, it was said the two parties were considering asking the ECB to forgive 250bn euro of the country’s debt, according to a leaked draft agreement that emerged earlier this week, which the two are denying. The draft, apparently, also called for the creation of a mechanism to exit the euro and a renegotiation of Italy’s budget contributions to the European Union, as well as an end to sanctions against Russia.

The sell-off in Italian bonds intensified among the uncertainty, with the yield on the 10-year closing the week at 2.22%, up from 1.73% three weeks earlier, a big percentage move, but hardly what I’ve been warning about for the better part of a year...a yield much higher. Wednesday, the yield rose 17 basis points (0.17%) that day alone, intraday.

It seems the financial markets were shocked by the reality of a potential Five Star-League coalition, an anti-establishment government, though no one should have been surprised.

Brexit: Prime Minister Theresa May said on Thursday Britain would leave the EU customs union after Brexit but a source said London was considering a backstop plan that would apply to the bloc’s external tariffs beyond December 2020. Asked about reports that London would ask to stay in the EU’s customs area beyond the end of a post-Brexit transition period in 2020, May denied she was ‘climbing down’ on plans to leave.

“No. The United Kingdom will be leaving the customs union as we’re leaving the European Union.  Of course, we will be negotiating future customs arrangements with the European Union and I’ve set three objectives,” May told reporters on the sidelines of an EU summit in Bulgaria. She said the objectives were that Britain should have its own trade policy with the rest of the world, should have frictionless trade with the EU and that there be no hard border with EU member Ireland.

The EU is in “listening mode,” but it has set a deadline for June when there is a formal summit of European leaders, at which point they hope the two sides reach a milestone in the negotiations.  That is needed to seal a divorce deal in October, leaving the EU enough time to ratify it by Brexit day in March 2019.  Britain otherwise risks crashing out of the bloc, a scenario that no doubt would do a number on the British economy.

But the border issue with Ireland is still unresolved and the EU said there has not been enough progress on how to avoid physical controls on the border between the Irish Republic and Northern Ireland.  “It is an absolute red line for us that there could not be a hard border on Ireland,” Irish Prime Minister Leo Varadkar told reporters. Both sides fear a return of border controls could reignite the violence that afflicted Northern Ireland until a peace deal in the late 1990s.

Back to Theresa May, her government will supposedly release a “White Paper” outlining the U.K.’s proposals for a future customs arrangement and for specific sectors including financial services, agriculture and cars, ahead of the June 28-29 summit.  It will be designed to finally be specific, which is what EU leaders have been calling for. It’s also intended to address Britain’s domestic audience, including the business community, which has been dealing with uncertainty since the Brexit referendum in 2016.

Catalonia: The regional assembly elected a new leader, likely clearing the way for the Rajoy administration in Madrid to end direct rule over the restive region.  Lawmakers elected Quim Torra, a hard-line separatist.

But while separatists have regained control of the assembly, an independent Catalonia is an increasingly distant prospect after Spanish authorities gained the upper hand in their bid to quell the secessionist movement.

The courts in Madrid have boxed in the insurrection with legal challenges, while the threat of the re-imposition of direct rule has made many in the independence movement wary of further direct confrontation with Madrid.

Turning to Asia, Japan’s economy shrank in the first quarter of 2018 for the first time in two years, ending the longest stretch of economic growth since the 1980s.

The world’s third biggest economy contracted at an annualized rate of 0.6%, official data showed, a little worse than expected.

While private consumption accounts for about 60% of Japan’s economic activity, a global slowdown in demand for electronics hurt, though economists expect a recovery in GDP in the current quarter.

One worry is the capital expenditure slowdown, exhibited by the core machinery orders figure for March, down 3.9% over February, though this is highly volatile.

A report on consumer prices had the core inflation rate for April up 0.7% year-over-year, government data showed on Friday, so no sign of inflationary momentum needed to reach the central bank’s elusive 2% target.

Street Bytes

--Stocks finished lower on the week with both the Dow Jones and S&P 500 off 0.5%, while Nasdaq declined 0.7%.  Earnings season is winding down, the focus on trade, geopolitics and the Fed’s next meeting in June.

--U.S. Treasury Yields

6-mo. 2.08% 2-yr. 2.55%  10-yr. 3.06%  30-yr. 3.20%

The 10-year hit 3.11% intraday, the highest yield since 2011.

--The International Energy Agency issued its monthly oil market report and commercial oil inventories for the Organization for Economic Cooperation and Development countries declined in March by 26.8 million barrels month-on-month to 62.819 billion barrels, as the global oil market continues to rebalance.

The IEA suggested the drawdown in stocks was further evidence that OPEC’s strategy to cut crude output had succeeded in clearing up the glut in supply that has weighed on the market since late 2014.

OPEC and 10 producers outside the cartel, including Russia, have been holding back crude production by roughly 1.8 million barrels a day since the start of last year. The agreement is expected to run through the end of the year.

OPEC crude output fell month-on-month in April by 130,000 barrels a day to 31.65 million barrels a day, mainly due to the ongoing collapse in production in Venezuela, where production is at multi-decade lows.

But the bullish data was offset by the IEA’s forecast for oil demand this year, an increase of 1.4 million barrels a day from a previous estimate of 1.5 million, the downward revision due to higher oil prices, which have also been bolstered by geopolitical events, namely uncertainty over Iran, sanctions and the nuclear accord.  If Europe stays in the deal, for example, the loss in production for Iran will be relatively minimal.

The IEA also raised its growth forecast for U.S. crude output by 120,000 barrels a day to 1.3 million a day in 2018.

Crude prices were $43-$44 on WTI last June and now are over $70.  The price at the pump for me in New Jersey is now solidly over $3.00. Nationwide, the average is nearing $3.00 as well (it is already over $4.00 in California).

The U.S. Energy Information Administrative raised its summer forecast for gas prices to $2.90, up 17 cents from its expectation a month ago, which would be a nearly 50-cent jump from last summer.

Most experts, however, don’t see a significant change in consumer behavior until oil prices are $80 to $100 a barrel, which would lead to $4 a gallon nationwide and that would be a killer economically.  [It can certainly do a number on airlines...who would pass the cost on to customers.]

--According to the Dept. of Agriculture, farm income could be the lowest since 2006, a reflection of low commodity prices, export issues and, in some places, lousy weather.

Nationwide, net farm income has fallen by more than half since 2013, and it’s fallen another 6.7% this year.

Roger Johnson, president of the National Farmers Union, said, now, “the prices that farmers have been receiving for their products aren’t paying the bills, and too many people are being forced to give up farming.”

For every dollar that consumers spend on food, the farmer receives just 14.8 cents – the lowest “farm share,” since the USDA began reporting the figures in 1993.

In April, for example, beef producers received just 22 cents of the retail food dollar compared with 44 cents four years earlier, NFU figures showed. Dairy farmers received 30 cents, down from 51 cents in April 2014.

Wheat farmers average just 12 cents on a loaf of bread that retails for $3.49.

Needless to say, many farmers have packed it in. And the trade tit-for-tat isn’t helping, especially when it comes to pork and soybeans. If the U.S. withdraws from NAFTA, the consequences for America’s farmers will be severe.  [Rick Barrett / Milwaukee Journal Sentinel]

--Walmart turned in better-than-expected results for the quarter, though comparable store sales of 2.1% were a little shy of Street forecasts.  Shares closed down about 2 percent on the news.

Total revenue increased 4.4% to $122.7 billion, though CEO Doug McMillon blamed cool weather in April for lower customer traffic, and sales.

E-commerce was a bright spot, with sales rising 33% compared with just 23% during the holiday period, and Walmart expects it to grow 40% for the year.  Online grocery sales helped to fuel the bump.

--Home Depot shares were hit a bit when the company missed Wall Street forecasts for sales at established stores, as an unusually long winter hit sales of typical spring products like lawn-mowers and patio furniture. For once, this is true...as opposed to retailers always blaming the weather, whether accurate or not.  It WAS a long winter in many parts of the country. It sucked!  [And this past week has sucked along the east coast as well...bemoaned the editor who wants to resume a regular running schedule, but doesn’t run in the rain.]

Same-store sales (open at least 13 months) rose 4.2% in the three months ended April 29, missing Street expectations for the first time in seven quarters, with analysts expecting a 5.4% rise. Total net sales rose 4.4% to $24.95 billion, short of the Street as well.

But the company maintained its full-year outlook.

CEO Craig Menear said in a statement: “Outside of our seasonal business, we had solid results in all markets and categories and are seeking strong momentum in all lines of business during these first few weeks of May.”

--Macy’s reported higher same-store sales after closing dozens of them, as the department-store giant pulls out of a prolonged slump. The strong economy, low unemployment and tax cats helps.

Macy’s comp-store sales rose 3.9% compared with the same quarter a year earlier.  Revenue rose 4.2% to $5.54 billion and the company raised its earnings guidance on an adjusted basis.  Macy’s now expects annual sales to be in a range of -1.0% to 0.5%, slightly better than previously forecast. The company’s stock soared.

--Nordstrom Inc. reported same-store sales that missed analysts’ estimates, up just 0.6% in the first quarter. Total revenue did increase 6.2% to $3.56 billion, with net income of $87 million, solidly above a year earlier.

--International shipping giant AP Moller-Maersk, the Danish conglomerate, warned that high oil prices, rising geopolitical risks and ratcheting trade tensions are all testing business, putting at risk its 2018 profit forecast.

Rising oil prices are not good for the container shipping business, to say the least. Maersk said it would shut down its operations in Iran if U.S. sanctions on the country went through as planned.

--A Delaware judge refused to issue a restraining order against Shari Redstone and her family Thursday, allowing them to continue to keep tight control over CBS Corp. – and possibly begin to replace members of the board. CBS stock plummeted on the news.

CBS’ independent board members had been planning to consider voting on an extraordinary maneuver that would have stripped the company’s controlling shareholders – Redstone and her family – of their voting clout.

Redstone, through the family’s investment vehicle National Amusements Inc., made changes to CBS’ bylaws that require votes on such matters to receive at least 90% approval of the board.

That means Shari Redstone can effectively block any change that she does not like because she has at least two board allies, both of whom have served as Redstone family attorneys.

The legal wrangling comes after months of strained relations among Redstone; Leslie Moonves, the chairman and CEO of CBS; and other members of CBS’ board. Redstone has been trying to push through a merger with Viacom Inc., the other company that her family controls.

--China’s auto sales rose 11.5% last month compared with the same period last year, as Beijing’s policies designed to drive purchases of electric vehicles (EV) looked to be having an effect.  According to the China Association of Automobile Manufacturers, EV sales reached 81,904 in April, and 225,310 in the first four months of the year.  Sales for the four months were up 149% over the same period last year.  Analysts expect EV sales to exceed 1 million in 2018, with the government targeting 2 million in 2020. China accounted for roughly half of all global EV sales in the first quarter of this year.

Overall, China had vehicle sales of 2.32 million last month, with passenger-car sales up 11.2%.

--Thousands of Facebook apps have been examined and 200 suspended, the social network said Monday, as the company continues to grapple with the fallout from the Cambridge Analytica data scandal.

Facebook has been examining apps that had access to user data before the platform’s policies changed in 2014, reducing the information they could access.  Any app that either refused or failed an audit would be banned from Facebook, it said.

Meanwhile, CEO Mark Zuckerberg will be facing off against European Parliament leaders in private next week about how his platform impacts the privacy of Europe’s citizens.

--Starbucks has amended its toilet policy to allow anyone to use the facilities – whether or not they purchase something – following the dispute over the treatment of two black customers at a Philadelphia location.

But this is going to be a nightmare for the chain, especially in the big cities.

Starbucks chairman Howard Schultz, in announcing the policy last week, said, “We don’t want to become a public bathroom, but we’re going to make the right decision 100% of the time and give people the key. We don’t want anyone at Starbucks to feel as if we are not giving access to you to the bathroom because you are ‘less than.’”

Starbucks has said employees were being instructed to “ensure that all customers coming in feel welcome” and if someone needed to use the toilet, to let them unless it seemed unsafe.

But who is going to determine what is unsafe?  You’re right back to the incident in Philadelphia.  Not every manager on site is going to act the same way to a situation. 

Starbucks locks its bathrooms so you need a key, which I guess helps some in the policing of the policy.

A 2013 study of New York City businesses found that 58% of store managers had seen drug use in their toilets.  And now public restrooms have become the new frontline in the opioid crisis. 

Cities like Seattle that spent $millions on public toilets, closed them years later due to rampant drug use and prostitution.  And there’s the homelessness issue.

--Hedge fund titan David Tepper of Appaloosa Management fame is acquiring the NFL’s Carolina Panthers for approximately $2.2 billion.

--Former casino mogul Steve Wynn is incensed after Christie’s staff allegedly allowed a metal rod to pierce through a priceless Picasso masterpiece (debatable if you saw it) he planned to sell for $100 million.

Sources say Wynn’s 1943 Picasso self-portrait, “Le Marin,” was severely damaged while stored at the auction house, as a metal extension pole for a wall paint roller allegedly fell on the canvas, creating a “significant hole” in the masterpiece.

Ironically, this comes years after Wynn put his elbow through another Picasso masterpiece, “Le Reve,” in 2006, leaving a silver-dollar-size hole. It was repaired and sold in 2013 for $155 million.

Foreign Affairs

Iran: Donald Tusk, president of the European Council, told 28 worried EU leaders gathered in Sofia, Bulgaria, on Wednesday that by quitting the Iran nuclear deal, President Trump has “rid Europe of all illusions.”

The leaders had gathered for discussions on how to salvage the deal and European business dealings with Iran from U.S. sanctions and to avoid a trade war.

Tusk said the EU must be more united than ever before to deal with what he called Trump’s “capricious assertiveness.”

“Looking at the latest decisions of President Trump, someone could even think: With friends like that, who needs enemies?” Tusk told a news conference.

“Europe must do everything in its power to protect, in spite of today’s mood, the transatlantic bond. But at the same time we must be prepared for those scenarios, where we will have to act on our own,” said Tusk, a former Polish prime minister.

Meanwhile, French oil major Total has said it would not be able to continue with its project in Iran without a waiver protecting it from U.S. sanctions after the Trump administration pulled out of the nuclear deal.

Total signed a multibillion-dollar deal last July to develop the giant South Pars gas field, though Total said it has invested only 40m euro, less than $50 million, thus far.  Nonetheless it was the largest commitment of any western energy group and it was the Islamic republic’s first major energy contract with a European oil company in more than a decade.

Total owned about half of the South Pars project, with China’s state-owned CNPC taking another 30 percent, so CNPC could take Total’s stake, if it was itself able to avoid sanctions.

And that’s how these things will go. Other large European companies will make similar moves, seeing as most are only partially embedded at this point, just a few years after the accord was struck, though the EU is attempting to revive legislation that will allow European companies to continue doing business with Iran, despite U.S. sanctions.

The so-called “blocking statue” was introduced in 1996 to circumvent U.S. sanctions on Cuba but was never used.

The legislation would prohibit European companies from complying with any penalties and permit compensation for affected firms.

Jean-Claude Juncker, the president of the European Commission, said the statute was being introduced to protect European firms.

“It’s the duty of the EU to protect European business and that applies in particular to small and medium-sized enterprises,” he told a news conference following the summit of EU leaders in Bulgarian.

Meanwhile, Iranian President Hassan Rouhani said on Sunday that, if its interests were protected, Tehran would remain committed to the nuclear accord.

“If the remaining five countries continue to abide by the agreement, Iran will remain in the deal despite the will of America,” he said.

Daniel Henninger / Wall Street Journal

“No one has suggested yet that the Trump withdrawal from Barack Obama’s nuclear-weapons deal will cause the sea level to rise, but we’re almost there. The chain reaction of post-withdrawal disasters cataloged by the global media includes the possibilities that Iran will race now toward building a nuclear weapon, that a war between Iran and Israel could engulf the Middle East, and that America has become ‘divided’ from its allies.

“Then it got worse. One week later, the U.S. moved its embassy in Israel to Jerusalem, creating more ‘friction’ with our allies.

“America’s unhappy allies are the U.K., France and Germany, cosigners of Mr. Obama’s deal, along with anti-allies Russia and China.

“ ‘America’s three closest friends in Europe,’ the Washington Post reported, ‘are near-bursting with anger and exasperation at the United States.’ A rule of thumb suggests itself: Might European anger correlate directly with the correctness of U.S. policy, such as this decision to withdraw from the Iran deal and restart the sanctions regime? And when does an ally become something less than that?

“Once the media takes ownership of any fixed thought – here that the U.S. withdrawal from the Obama agreement will drive Iran to build a nuclear weapon – no other fact or consideration is permitted to intrude.

“The nuclear intentions of Iran’s government are a serious subject at all times. That is why the Trump administration is fixated on the agreement’s so-called sunset provisions.

“At the Iranians’ insistence, Mr. Obama and John Kerry agreed that the restriction on Iran’s first-generation centrifuges would end in 2025. After that, and another sunset in 2030 on low-enriched uranium, Iran’s centrifuges could produce material for a bomb in weeks.

“France’s president, Emmanuel Macron, seemed to be aware of the problem in his April address to Congress. ‘As for Iran, our objective is clear: Iran shall never possess any nuclear weapons,’ he said. ‘Not now, not in five years, not in 10 years. Never!’

“By the time he returned to France, Mr. Macron had rejoined the chorus that the Obama deal can’t be breached. Ever.

“One would like to take seriously Europe’s concerns about Iran’s bomb, but history makes that difficult. In fact, the Iranian nuclear threat is a European red herring, a distraction whose purpose is to take our eyes off other realities.

“For the Europeans, the likelihood of Iran going nuclear is a secondary concern. What’s it to them? Iran’s targets are Israel, the Gulf Arabs and the Great Satan. European nations’ active strategic interest in the Middle East ended decades ago with their decision after World War II to elevate domestic welfare and demote the continent’s military significance.

“Europe became an economic power whose interests are solely commercial. Despite the Middle East’s continued strategic importance, Europe’s view of it is entirely bloodless – a region that is merely a dependable trading partner for Europe’s biggest companies.

“When in 2013 Mr. Obama raised the possibility of a deal that would lift the Iranian sanctions regime, the Europeans were all in. Whatever Mr. Obama’s nuclear dreams, the deal’s primary attraction for Europe – and Iran – was always overwhelmingly about money....

“Once the Obama nuclear deal became final in 2015, Europe’s deal makers were inside Iran like a shot. European Union members, led by Germany, quickly became the mullahs’ main trading partners....

“The U.S. Treasury recently identified how Iran’s central bank has been laundering money through Iranian companies to acquire dollars in other Middle Eastern countries and then finance its Quds Force in Syria and other regional proxies.

“Which is to say, Iran’s European trading partners are underwriting, in part, the Iran-driven Middle Eastern mess – from Syria and Lebanon, through Iraq to Yemen. The U.S., as always, is supposed to clean it up. Americans don’t have the luxury, literally, of being AWOL from the world’s most difficult problems.

“As someone might say, this is a bad deal.

“On Wednesday, the Wall Street Journal reported that French, German and Danish companies – such as Total, Wintershall and Maersk Tankers – are winding down their business ties with Iran in response to the U.S. sanctions. That should start closing the spigot on Iran’s revenue sources. The world will be a better place.

“We are going back to the status quo before the Obama Iran deal – back to reality.”

Israel: At least 61Palestinians were killed on Monday in protests in the Gaza border region.  The IDF (Israel Defense Forces) later identified 24 of the 61 as terrorists, mostly belonging to Hamas but also some who were members of Islamic Jihad.  The protests became much lighter after Egyptian officials told a Hamas delegation it did not want the protests on the border to turn into an armed confrontation between Palestinians and Israel.

Turkey and Israel expelled each other’s senior diplomats over the Gaza protests, Turkey being one of Israel’s most vocal critics of the Israeli response.  President Erdogan described Monday’s bloodshed as genocide and called Israel a terrorist state. The dispute marks the worst diplomatic crisis between the two since Israeli marines stormed an aid ship to enforce a naval blockade of Gaza in 2010, killing 10 Turkish activists and prompting a downgrade in diplomatic ties that lasted until 2016.

Israeli Prime Minister Netanyahu tweeted that Erdogan was in no position to “preach morality to us” because he supported the Palestinian Islamist movement Hamas.  “There is no doubt he well understands terrorism and slaughter,” he said.

All of this came as the U.S. was formally opening its embassy in Jerusalem, 23 years after Congress passed a law mandating that Washington move it there; an act Prime Minister Netanyahu declared as “momentous.”

“President Donald Trump is making history,” Netanyahu said at a reception the day before.  “We are deeply grateful, and our people will be eternally grateful, for his bold decision.”

“Jerusalem has been the capital of the Jewish people for the past 3,000 years, has been the capital of our state for the past 70 years, and will remain our capital for all time,” Netanyahu said.

“Thank you President Trump for your bold decision! Thank you for making the alliance between Israel and the United States stronger than ever!”

Of the 28 EU countries, only four sent representatives to the ministry reception: Austria, the Czech Republic, Hungary and Romania.

Opinion....

Editorial / The Economist

“Gaza is a human rubbish-heap that everyone would rather ignore. Neither Israel, nor Egypt, nor even the Palestinian Authority (PA) wants to take responsibility for it. Sometimes the poison gets out – when, say, rockets or other attacks provoke a fully-fledged war. And then the world is forced to take note.

“Such a moment came on May 14th. Tens of thousands of Palestinians massed near Gaza’s border fence, threatening to ‘return’ to the lands their forefathers lost when Israel was created in 1948.  Israeli soldiers killed about 60 protesters – the bloodiest day in Gaza since the war in 2014.  In a surreal split-screen moment, the Israeli prime minister, Benjamin Netanyahu, was exulting over the opening of America’s embassy in Jerusalem, calling it a ‘great day for peace.’

“Many countries have denounced Israel; a few have recalled diplomats. Some people accuse it of war crimes. Others blame President Donald Trump for causing the clashes by moving the embassy from Tel Aviv to Jerusalem. It is surely right to hold Israel, the strong side, to high standards. But Palestinian parties, though weak, are also to blame. Seven decades after the creation of Israel as a thriving democracy, there is a better way than endless conflict and bloodshed.

“Every state has a right to defend its borders. To judge by the numbers, Israel’s army may well have used excessive force. But any firm conclusion requires an independent assessment of what happened, where and when. The Israelis sometimes used non-lethal means, such as tear-gas dropped from drones. But then snipers went to work with bullets. What changed? Mixed in with protesters, it seems, were an unknown number of Hamas attackers seeking to breach the fence. What threat did they pose? Any fair judgment depends on the details.

“Just as important is the broader political question. The fence between Gaza and Israel is no ordinary border. Gaza is a prison, not a state. Measuring 365 square kilometers and home to 2m people, it is one of the most crowded and miserable places on Earth.  It is short of medicine, power and other essentials. The tap water is undrinkable; untreated sewage is pumped into the sea. Gaza already has one of the world’s highest jobless rates, at 44%. The scene of three wars between Hamas and Israel since 2007, it is always on the point of eruption....

“Israel, Egypt and the PA cannot just lock away the Palestinians in Gaza in the hope that Hamas will be overthrown.  Only when Gazans live more freely might they think of getting rid of their rulers. Much more can be done to ease Gazans’ plight without endangering Israel’s security. But no lasting solution is possible until the question of Palestine is solved, too.  Mr. Netanyahu has long resisted the idea of a Palestinian state – and has kept building settlements on occupied land....

“When violence flares Israel’s image suffers, but not much. The Trump administration supports it. And Arab states seeking an ally against a rising Iran have never had better relations with it.

“Israel is wrong to stop seeking a deal. And Mr. Trump is wrong to prejudge the status of Jerusalem. But Palestinians have made it easy for Israel to claim that there is ‘no partner for peace,’ divided as they are between a tired nationalist Fatah that cannot deliver peace, and an Islamist Hamas that refuses to do so.  Palestinians desperately need new leaders.  Fatah must renew itself through long-overdue elections.  And Hamas must realize that its rockets damage Palestinians dreams of statehood more than they hurt Israel.”

Editorial / New York Post

“Monday’s violent protests in Gaza...clearly were meant to distract from the historic opening of the U.S. embassy Jerusalem.

“To a significant measure, they succeeded: Many news outlets gave equal or greater coverage to the demonstrations. Foreign officials criticized Israel. The United Nations called on the Jewish state to ‘respect the right to peacefully protest.’

“But ‘peaceful protests’ hardly describes this latest in a series of Hamas efforts to get Gazans to breach the border.  As one Palestinian told the Washington Post: ‘We are excited to storm and get inside.’ Asked what he would do inside Israel, he responded: ‘Whatever is possible, to kill, throw stones.’

“Hamas organizers even encouraged demonstrators to burst through the fences by falsely telling them Israeli soldiers were fleeing their positions in fear.

“Those killed and wounded by Israeli border-defense troops weren’t singing and chanting peacefully. They were planting explosives, firing guns and launching Molotov cocktails and kites carrying burning fuel into Israeli territory to set farm fields aflame.

“Hamas officials told them their mission was to ‘liberate Palestine’ – one more sign that the terrorists who run Gaza have no intention of ever accepting Israel’s existence.

“What kind of people react to a move by America – recognizing Jerusalem as Israel’s capital and moving its embassy there – by targeting violence against another country, Israel?  (No one rioted when the UN General Assembly recognized ‘Palestine.’)

“In the most cynical turn, Hamas ordered rioters to set fire to and destroy the main crossing for commercial goods and humanitarian aid into Gaza.

“In short, Israel successfully defended a violent attack by an enemy openly calling for its destruction. Any other country would do the same, and rightly so.”

Editorial / New York Daily News

“The killing by Israel Defense Forces Monday of more than 50 Palestinians who set fires, tried to detonate bombs and shoot soldiers, and sought to breach the Jewish state’s security fence was a terrible human tragedy.

“It was a tragedy created by the Hamas terrorists in Gaza and their enablers in the Palestinian Authority, who feed their people the poison that Israel can and must be destroyed.

“Who tell them that, should they lose their lives while endangering or ending the lives of Israelis, they will be rewarded with a place in paradise.

“Who pay the families of so-called martyrs who kill innocent Jews as much as $3,500 a month.

“And who continue to encourage, in waves of riots leading up to what they call the Nakba (‘the Catastrophe’ of the establishment of Israel), violent reaction from Israel. For Hamas, the more bloodshed, the better.”

Finally, way back in the early days of “Week in Review,” prior to 9/11, I noted that there were Hezbollah cells in Latin America. The issue then was when would they be activated against U.S. interests.

So I can’t help but note a piece by Ian Talley in the Wall Street Journal that starts thusly:

“Hezbollah, the Iran-backed Lebanese militia designated as a terror group by the U.S. is tapping a money-laundering ministate in Latin America that poses an escalating risk to U.S. national security, according to a report published Tuesday.

“The illicit activities in the co-called tri-border region linking Brazil, Argentina and Paraguay have long been a source of concern for U.S. security officials: After the Sept. 11, 2001, attacks, it became a surveillance target as a haven for terrorists in the Western Hemisphere.

“But now Venezuela’s political crisis and Argentina’s inflation, together with entrenched corruption and lax law enforcement, are helping fuel an illicit economy estimated to be worth $43 billion a year, far surpassing Paraguay’s entire gross domestic product, according to the report. The report was prepared by political risk consultancy Asymmetrica, funded and jointly published by the Washington-based nonprofit Counter Extremism Project.

“The ease of laundering ill-gotten proceeds and the economy of black market cigarettes, narco-trafficking and illegal arms sales have attracted criminal organizations from around the globe....

“ ‘If you’re wanting to do something on U.S. soil, you’d get the materiel there,’ said (Stuart) Page, a former senior Australian security official.  ‘You can buy whatever you like, you can find whatever you like, and it’s on the verge of U.S. shores.’”

According to Argentine prosecutors, Lebanese individuals in the tri-border region provided support for the bombings of the Israeli embassy and a Jewish cultural center in Buenos Aires in the 1990s that killed scores of people.

Syria: President Bashar al-Assad flew to Russian leader Vladimir Putin’s summer residence on the Black Sea for talks on Thursday about the Syrian conflict, the Kremlin said. Since fighting broke out in his country in 2011, Assad has traveled only rarely, but has made three publicly-acknowledged visits to Russia, each time for meetings with Putin.

“Stability is improving, and all that opens the doors to the political process, which we started a while ago,” Assad told Putin, according to a transcript of the opening remarks posted on the Kremlin website. “I have always said, and I repeat it again, that we have always wholeheartedly supported the political process, which should proceed in parallel with the war on terrorism.”

Putin congratulated Assad on what he said were significant successes on the battlefield achieved by the Syrian military.

“The terrorists have laid down their arms in key locations in Syria, which has allowed for the restoration of Syrian infrastructure.  And of course now, after these military successes, additional conditions have doubtless been created for the renewal of a fully-fledged political process.”

What a bunch of garbage all around.

Earlier, the Syrian government announced it had taken control of the country’s largest province, with rebel fighters and thousands of civilians leaving the last opposition-held enclave in central Homs province after years of government siege.

Limited U.S., French and British missile strikes on Syrian-government targets in response to the chemical attack haven’t slowed the regime’s drive to seize territory.

More than 120,000 people have been displaced from various parts of Syria as a result of the recent surrender agreements, according to the U.K.-based Syrian Observatory for Human Rights.

Overall, the UN estimates some 2.2 million people are in Idlib province alone, in northwest Syria and one of the last opposition strongholds, two-thirds having been displaced from their homes elsewhere in Syria.

Iraq: The surprisingly strong showing of a ticket backed by maverick Shia cleric Moqtada al-Sadr in last weekend’s Iraqi elections will force U.S. officials to recalculate how best to pursue American interests in the region.

Sadr, who I wrote during the Iraq War should have been taken out, is a fierce critic of American policies in the Middle East, and his unexpected success in the elections calls into question the continuing presence of U.S. troops in Iraq. A Sadr spokesman, though, said the cleric supports honoring commitments between the U.S. and Iraq concerning the training of Iraq’s security forces and weapons purchases as long as they serve Iraq’s interests and there “is no interference on the sovereignty of Iraq.”

Sadr’s ticket won the most seats in parliament, placing him in the best position to select the country’s next prime minister, though in falling far short of a majority, he’ll have to cobble together a coalition, which can take months.

Current Prime Minister Haider al-Abadi, the preferred candidate of the United States, finished third, though Sadr could yet tab him to remain PM.

The thing is Sadr is opposed to both the U.S. and Iran. 

One positive from all this, the election by all accounts was fair and largely free of violence – a big achievement for Iraq, especially as just months ago it was fighting ISIS.

North Korea: North Korea suddenly said on Wednesday that regarding the summit for June 12 in Singapore, Pyongyang was not interested in discussing “one-sided” demands

Asked whether the summit was still on next month, Trump said on Wednesday, “We’ll see what happens.” Trump added, “we haven’t been notified at all” that the North had canceled the meeting.

But Trump said he would insist on “denuclearization” at the summit.  But the word has always been ambiguous when it comes to North Korea.  Kim Jong Un, his father and grandfather have used it to describe a long-term process in which all nuclear weapons powers would eventually disarm, while clearly Trump administration officials have interpreted it as the dismantling and eradication of the North Korean nuclear weapons and long-range missile programs.

But last weekend as they worked the Sunday talk shows, both National Security Adviser John Bolton and Secretary of State Mike Pompeo claimed that Trump’s policy of “maximum pressure” had forced Kim to the negotiating table.

Bolton, however, went further than Pompeo in defining denuclearization. He said it meant “getting rid of all the nuclear weapons, dismantling them, taking them to Oakridge, Tennessee.  It means getting rid of the uranium enrichment and plutonium reprocessing capabilities.”

Bolton then talked of the “Libya model,” specifically referring to Muammar Gaddafi’s surrender of his embryonic nuclear weapons program in 2003-04.  Not Trump’s confusing statement that “Libya model” meant taking Gaddafi out and destroying his country.  But North Korean officials have specifically talked about the NATO-backed insurgency eight years after Gaddafi gave up his weapons as a reason not to do the same.

Kim Kye-gwan, North Korea’s first deputy minister of foreign affairs, rejected that position on Wednesday, singling out Bolton and his comments: “This is not an expression of intention to address the issue through dialogue. It is essentially a manifestation of awfully sinister move to impose on our dignified state the destiny of Libya or Iraq which had been collapsed due to yielding the whole of their countries to big powers.”

Kim added: “If the U.S. is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue and cannot but reconsider our proceeding to the DPRK-U.S. summit.”

So Thursday, President Trump reassured Kim Jong Un that he would remain in power under a deal with the United States, saying he is not seeking regime change.  In impromptu remarks at the White House, Trump sharply contradicted his own national security adviser, Bolton.

“The Libya model isn’t the model that we have at all when we’re thinking of North Korea,” Trump said.  “In Libya, we decimated that country. That country was decimated.”

Trump said that instead, a deal with North Korea “would be with Kim Jong Un, something where he’d be there, he’d be in his country, he’d be running his country, his country would be very rich, his country would be very industrious.”

Trump noted that Chinese President Xi could be influencing North Korea’s position. No s---.

Opinion....

Sen. Bob Menendez (D-NJ) / Washington Post

“Under President Trump’s watch, North Korea has steadily built a significant weapons arsenal in violation of international law. It has also successfully tested three intercontinental ballistic missiles and its largest nuclear weapon yet. Only after affirming his country’s nuclear status has Kim Jong Un struck a conciliatory tone....

“But we must be clear-eyed about the challenges ahead. The president’s impulsive and erratic approach to foreign policy has left our allies confused and our adversaries emboldened. If he wants to take advantage of this critical opportunity, he needs something that he has repeatedly been incapable of providing: disciplined leadership and a real strategy.

“Already the summit is on shaky ground after North Korea threatened to cancel it over routine joint military exercises with South Korea. Trump must see past this gamesmanship and effectively turn Congress’ maximum economic pressure policy into the diplomatic leverage needed to come to a workable agreement.  North Korea’s nuclear and missile programs remain a threat to the United States, and we need diplomacy rooted in shrewd pragmatism about Kim and his regime.

“In hastily agreeing to a summit without any preconditions, Trump has already handed Kim an enormous victory by legitimizing a brutal regime that violates the human rights of its own citizens and advances aggressive policies abroad. We are barreling toward a meeting that, under the best of circumstances, will be a high-wire act with no safety net. We will face off with the dictator of a pariah state whose regime has a long history of breaking promises and violating agreements.

“Yet rather than empower the State Department and the skilled diplomats best equipped for this major diplomatic initiative, the administration has eviscerated it. To this day, Trump has failed to even nominate an ambassador to South Korea.

“Before this summit takes place, it is critical to consider three traps we need to avoid so that this meeting does not turn to disaster.

“First and foremost, we cannot make any agreement that we cannot effectively monitor or verify. Trump might not realize it, but every president since 1994 has received a ‘denuclearization’ commitment from North Korea. The history of these negotiations is littered with broken promises to halt or disable Pyongyang’s nuclear and missile programs.

“That’s why before the United States agrees to any concessions, North Korea must provide complete transparency of its nuclear weapons programs and ongoing verification by international inspectors. The administration must keep its eyes on the prize, and the president must exercise discipline when presented with whatever shiny objects, photo-ops or public displays of flattery that Kim will use to distract us from obtaining key information, such as the location of North Korea’s fissile material, warheads and ballistic missiles.

“Second, we must avoid making further concessions that would damage U.S. partnerships in the region, as our entire Asia-Pacific strategy is built upon our dynamic alliances with Japan, South Korea, Australia and others. These alliances remain critical for maintaining peace, stability and economic prosperity throughout the region. Any agreement that ends our alliances and presence in the region would be a historic mistake that jeopardizes U.S. interests.

“Finally, the administration must resist the temptation to discard diplomacy altogether if the summit fails to produce an immediate comprehensive denuclearization agreement. Time and again, this administration has oscillated from one policy extreme to another. If a summit is not wholly successful – or frankly, even if it is – Trump cannot yank us back to a war path with North Korea.”

Editorial / Washington Post

“North Korea’s threat to call off the summit meeting between dictator Kim Jong Un and President Trump next month to surely a bluff, but all the same it should serve as a wake-up call for the White House.  Mr. Trump already has all but awarded himself the Nobel Peace Prize as he and his aides promise to accept nothing less than the ‘complete, verifiable, irreversible denuclearization of North Korea,’ accomplished on a quick timeline.  North Korea’s rhetorical tantrum was a reminder that the Kim regime will almost certainly agree to no such thing.

“ ‘If the U.S. is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue,’ Vice Foreign Minister Kim Kye-Gwan was quoted as saying Wednesday. He seemed particularly incensed by comments Sunday from national security adviser John Bolton, who suggested that a North Korean deal would be modeled on the one struck with Libya in 2003. That quick and unilateral disarmament arguably opened the way to the overthrow of the regime of Muammar Gaddafi nearly eight years later.

“But Mr. Kim might as well have been describing Secretary of State Mike Pompeo, who in his own remarks Sunday disparaged ‘the traditional model’ of a deal with North Korea, ‘where they do something and we give them a bunch of money... Our ask is complete and total denuclearization.’

“The U.S. rhetoric implies that the North Korean leader has decided on a stunning reversal of decades of policy and is suddenly prepared to accept full disarmament in exchange for security guarantees and economic investment. Yet nothing Pyongyang has publicly said or done supports that. On the contrary, Kim Jong Un appears to be following almost exactly the same script as his father when he struck a deal on nuclear weapons in 2005 – and then, having pocketed the short-term economic gains, proceeded to violate it.

“In recent weeks, Mr. Kim has released three Americans the regime was holding as de facto hostages and made a show of dismantling a nuclear test site. Both are practiced maneuvers. A decade ago, Kim Jong Il, father of the current ruler, invited reporters to watch the destruction of a cooling tower at a reactor site where plutonium was produced – only to restore the facilities a few months later.  Threats to walk out of talks, or the abrupt cancellation of meetings, also are part of North Korea’s standard playbook.

“While we can’t rule out a Damascene conversion, most likely Mr. Kim envisages negotiating a multi-stage peace process in which full disarmament is a long-term goal and North Korea is rewarded for each incremental step – in other words, something like the 2005 and 1994 deals that Mr. Pompeo dismissed. Because South Korea and China appear supportive of such a framework, Mr. Trump will risk isolating the United States if he rejects it – with the likely consequence of undermining the multilateral ‘maximum pressure’ that he believes brought Mr. Kim to the table.

“Consequently, the administration ought to be contemplating what sort of partial or phased deal with North Korea it would accept. If Mr. Kim can be induced to make his testing freeze permanent and stop any deployment or export of nuclear weapons, for example, that would be far preferable to the status quo. The question is, can Mr. Trump accept half a loaf, at least in the short term? If not, he is likely to come away with nothing.”

Editorial / Wall Street Journal

“North Korea is threatening to cancel the June 12 summit between Kim Jong Un and Donald Trump if it means giving up its nuclear weapons unilaterally, and credit the North for candor. The North is restating its long-time position, and better for the world to know the truth going into the summit than bank on false hopes.

“The Trump Administration is treating the statement as a fit of pique, and in one sense that’s right. Kim isn’t likely to walk away from the summit, a diplomatic prize Pyongyang has sought for decades. But the North’s threat should bust some pre-summit illusions, not least in the Oval Office.

“The Trump Administration has talked up the chances of a breakthrough based on Kim’s suspension of his nuclear and missile tests and his willingness to discuss denuclearization of the Korean Peninsula. But the two sides have very different ideas about what that means, as well as how and when it would happen.

“Mr. Trump credits his ‘maximum pressure’ of sanctions and diplomatic isolation for bringing Kim to the table. Certainly his Administration has done more than its predecessors to pressure the North. But the sanctions weren’t in place long enough to bring the regime to its knees.

“Kim is talking because he wants the U.S. to pay him for promises of denuclearization and a few concessions such as the closure of his nuclear testing facility. In other words, he is repeating the strategy of his grandfather and father in negotiating with the U.S.

“And why not?  Kim believes he is in the driver’s seat. In the last year he has tested a more powerful warhead and launched missiles able to hit Chicago.  Now a U.S. president has agreed to parley directly with him, and China is backing him. Kim met with Chinese President Xi Jinping last week and the two agreed that the North and the U.S. should undertake ‘phased an synchronous measures’ toward denuclearization. That is far from the complete, verifiable and irreversible denuclearization that White House national security adviser John Bolton says the U.S. wants. Note that the Korean statement attacked Mr. Bolton personally.

“Mr. Trump says he will walk away from talks if Kim isn’t serious about denuclearization. But his bluster and the silly chatter about a Nobel Prize are making it more difficult to leave the table.  Kim’s maneuvering ahead of the summit suggests he is confident he can resist immediate denuclearization. Mr. Trump needs to make clear that won’t happen.”

Karl Rove / Wall Street Journal

“The world doesn’t postpone challenges so that policy makers will have time to prepare. Mike Pompeo was sworn in as secretary of state three weeks ago, and John Bolton walked into the West Wing as national security adviser 2 ½ weeks earlier. Along with President Trump, the two newcomers are facing three huge foreign-policy challenges coming like a runaway freight train.

“First is the scheduled June 12 meeting in Singapore between Mr. Trump and the ‘Little Rocket Man.’  Kim Jong Un is not some moronic playboy. Although only in his 20s when he became North Korea’s ‘supreme leader’ in 2011, Mr. Kim quickly consolidated power.  He is ruthless in eliminating potential rivals, having ordered the killings of his half-brother, an uncle, the uncle’s family and some of the uncle’s associates.

“Mr. Kim is also crafty. Angered by military exercises between South Korea and the U.S., he decided Tuesday to cancel a coming meeting with South Korean President Moon Jae-in. He also threatened to call off the Singapore summit if the U.S. demands unilateral North Korean denuclearization.  Of course, he knew about the drills and the U.S. insistence on denuclearization before he accepted Mr. Trump’s and Mr. Moon’s invitations.

“The North Korean leader is throwing a preplanned hissy fit, testing American and South Korean leaders to see how they respond. Both governments should ignore his antics.  Mr. Trump cannot appear to want this summit more than Mr. Kim does. The North Korean dictator agreed to attend only because his economy had tanked after years of international sanctions, and his saver-rattling had caused Japan and South Korea to strengthen their militaries and draw closer to the U.S.  The Chinese government, whose wishes Mr. Kim has too often ignored, also pressured him to the table.

“Mr. Kim may view the Singapore summit as a publicity stunt, signaling goodwill so as to coax the U.S. and South Korea into a bad bargain. In light of this possibility, Mr. Trump’s message needs to be clear: If Mr. Kim doesn’t go to Singapore with intent to begin denuclearizing, it’s his loss....

“So when Messrs. Trump, Pompeo and Bolton arrive in Singapore, they’d better have a plan.  No winging it, no daylight between the U.S. and South Korea, and no sanctions relief for Pyongyang until the results are locked in. The three Americans must present a unified front, insisting on concrete goals and clearly defined paths to implement them.”

[Rove’s other two challenges were Iran and Iraq.]

Russia: The suspect in a deadly knife attack in central Paris on Saturday evening is a French citizen born in Russia’s republic of Chechnya.  The man, who police shot dead after he had killed a man and injured four other people in the busy Opera district, was on a French watch list of people who could pose a threat to national security.  ISIS claimed it was behind the attack.

I mention this in the Russia space, though, because the fact the terrorist was from Chechnya is a reminder that the upcoming World Cup soccer event in Russia could easily see one or more incidents of terrorism, with Chechens likely to carry out any such acts.  Just my opinion.

Venezuela: Authorities here seized a plant owned by American cereal manufacturer Kellogg, after the company announced it was pulling out of the country because of the worsening economic situation.

President Nicolas Maduro, who has accused the U.S. of waging economic war against the government, called the closure “absolutely unconstitutional and illegal.”

He said the factory had been handed to workers and would continue production. The announcement came ahead of Sunday’s presidential elections, which Maduro will win.

Kellogg is the latest multinational to close or scale back operations in Venezuela, citing currency controls, soaring inflation and lack of raw materials.

Random Musings

--Presidential tracking polls....

Gallup: 43% approve of President Trump’s job performance, 52% disapprove (May 13), the highest in Gallup survey since Feb/Mar. 2017.
Rasmussen: 50% approval, 49% disapproval

--I noted last week that a CNN survey showed the generic House poll had seen the Democrats lead shrink from 16 points in February to just 3 points, within the margin of error.  It’s clear the Democrats have zero message aside from being anti-Trump.  With the economy doing well, they don’t have any kind of economic vision that would be more attractive.

So Dems have to figure out a different kind of message, and as some are suggesting, they also need to turn to an untraditional candidate in 2020, outside the club of governors and senators.  So it’s not out of the realm of possibility that an Oprah Winfrey type (Howard Schultz, Mark Cuban) could yet emerge.

I just don’t see Sen. Bernie Sanders

--In what was clearly a rebuke to President Trump, former Sec. of State Rex Tillerson warned on Wednesday that American democracy is threatened by a “growing crisis in ethics and integrity.”

“If our leaders seek to conceal the truth, or we as people become accepting of alternative realities that are no longer grounded in facts, then we as American citizens are on a pathway to relinquishing our freedom,” he said in a commencement address at the Virginia Military Institute [Great place...as I wrote about five years ago when I was there, that’s where the George C. Marshall museum is; Gen. Marshall, one of the five greatest Americans of all time, having attended the school.]

Tillerson continued that even small falsehoods and exaggerations are problematic.  “When we as people, a free people, go wobbly on the truth even on what may seem the most trivial matters, we go wobbly on America.”

“If we do not as Americans confront the crisis of ethics and integrity in our society and among our leaders in both the public and private sector – and regrettably at times even the nonprofit sector – then American democracy as we know it is entering its twilight years,” Tillerson warned.

I totally concur with all the above.

--We learned this week that President Trump and Fox News host Sean Hannity speak nearly every night after his show, according to a story in New York Magazine.  Hannity seems to fill the political void left by former White House strategist Stephen Bannon.

--Once again, we have to carefully watch developments in the Congo and Africa due to another Ebola outbreak, the deadly virus detected in the northwest city of Mbandaka, with a population of about 1 million people. There have been 23 deaths reported in this latest outbreak.  The health ministry had been able to keep things under control in isolated areas, but the first urban case threatens to change that.  On Wednesday, the World Health Organization deployed the first experimental vaccines in the country, but they need to be kept at a temperature between -60 and -80 degrees C, not easy in a country with unreliable electricity.

--Births in the U.S. have dropped to their lowest rate in 30 years, marking a cultural shift as women delay motherhood, experts say.

Some 3.85 million babies were born in 2017, the fewest since 1987, as births among women in their teens and 20s decreased.

--On the flipside, death, the cremation rate inched past 50% for the first time in 2016, according to the National Funeral Directors Association.  By 2025, it is expected to become the disposition of choice for 63.8% of people who die in the U.S., and by 2035, 78.8%.

It took 100 years to go from zero in 1887 (the year of the first cremations) to reach 5% in 1972, and now it’s growing exponentially.

Personally, I still want my ashes buried at Lahinch Golf Club in County Clare, Ireland.

--We note the passing of the author Tom Wolfe, best known for works like “The Right Stuff,” “The Bonfire of the Vanities” (my fave) and “The Electric Kool-Aid Acid Test.”  Wolfe was 88.

Wolfe was born in Richmond, Virginia, and attended Washington and Lee (which is next to the aforementioned VMI...W&L where Robert E. Lee is buried, Lee having been president of the school after the Civil War until his death), and then Wolfe picked up a Ph.D. at Yale.  He would work for various newspapers, settling with the New York Herald Tribune in 1962.

--The Supreme Court decided state governments could decide whether they want to legalize sports gambling and the feds can’t do anything to prevent it (unless a sweeping federal law is now passed banning such activity....which will be impossible), and this could be a boon to New Jersey, at least initially before others step in, my home state having brought the suit that finally, after years and years, ended up with the Supremes.

One place that could really take advantage of sports betting is my beloved Deadwood, South Dakota, in the beautiful Black Hills...my favorite place in the country.  Deadwood has casino gambling, and the industry has been suffering of late with competition having sprung up all around it, including neighboring states (think Indian casinos), but it seems South Dakota needs a constitutional amendment to allow Deadwood to offer sports betting and that wouldn’t be on a ballot until 2020.

By the way, if you go to the Black Hills, don’t go hiking by yourself....lots of mountain lions there.  You don’t stand a chance.

--Last month marked the planet’s 400th consecutive month with above-average temperatures, federal scientists from the National Oceanic and Atmospheric Administration announced Tuesday.

Climate scientists use the 20th-century average as a benchmark for global temperature measurements. That’s because it’s fixed in time, allowing for consistent ‘goal posts’ when reviewing climate data. It’s also a sufficiently long period to include several cycles of climate variability.

NOAA’s analysis found last month was the 3rd-warmest April on record globally. The unusual heat was most noteworthy in Europe, which had its warmest April on record, and Australia, which had its second-warmest.

---

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

God bless America.

---

Gold $1291
Oil $71.35

Returns for the week 5/14-5/18

Dow Jones  -0.5%  [24715]
S&P 500  -0.5%  [2712]
S&P MidCap  +0.2%
Russell 2000  +1.2%
Nasdaq  -0.7%  [7354]

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

Dow Jones  -0.02%
S&P 500  +1.5%
S&P MidCap  +2.3%
Russell 2000  +5.9%
Nasdaq  +6.5%

Bulls 46.6
Bears 
19.4

Have a good week.

Brian Trumbore

 



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Week in Review

05/19/2018

For the week 5/14-5/18

[Posted Saturday from somewhere on the Jersey shore....]

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 this week to Brad K.

Edition 997

This column is being posted under some duress.  It will be cleaned up by noon on Saturday.  Back to normal next week…I hope.

Trump World

Yet another totally chaotic week in the White House with mixed messages.  I have details below on North Korea, in particular, but developments on the trade front, for one, were more than disquieting.  I have been writing extensively on the national security threats posed by ZTE, yet President Trump suddenly supported the company.  It made zero sense, and totally blindsided his aides and cabinet members.

Last weekend, Trump tweeted: “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast.  Too many jobs in China lost. Commerce Department has been instructed to get it done!”

“China and the United States are working together on trade, but past negotiations have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries. But be cool, it will all work out!”

“ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.”

“Trade negotiations are continuing with China.  They have been making hundreds of billions of dollars a year from the U.S., for many years. Stay tuned!”

By Thursday, however, President Trump said China had become “very spoiled” on trade and cast doubt on the success of his efforts to rebalance the relationship with Beijing as high-stakes U.S.-China negotiations opened in Washington, the Chinese delegation led by Vice Premier Liu He.

Trump, speaking to reporters at the White House, said China had “ripped off” the United States for too long and that he told Chinese President Xi Jinping that “we just can’t do that anymore.”

Negotiations this week focused on cutting China’s trade surplus and improving intellectual property protections. Trump has threatened to impose up to $150 billion in punitive tariffs to combat what he says is Beijing’s misappropriation of U.S. technology through joint venture requirements and other policies. Beijing has threatened equal retaliation, including tariffs on some of its largest U.S. imports, namely aircraft, soybeans and autos.

The administration had sought a $200 billion reduction in China’s $375 billion surplus. China demanded Trump relax crushing restrictions imposed on ZTE and end restrictions on Chinese investments in the United States and sales of high-tech goods to China.

Trump said Thursday, “We’re going to come out fine with China.  Hopefully, China will be happy, I think we’ll be happy.”

But Friday, Chinese state media dismissed as rumor suggestions that Beijing has offered to cut  its trade surplus with the United States by $200 billion a year. An article published on the social media account of People’s Daily, the Communist Party  mouthpiece, said China will not enter into negotiations on the issue as long as the U.S. sets preconditions for the talks.

“Some people are worried that China will make major unilateral concessions. Such worries are unfounded,” the People’s Daily article said.  “Neither side gave much away and the negotiations were still deadlocked a few hours before the meeting between Trump and Liu.”

Meanwhile, U.S. Trade Representative Robert Lighthizer said that NAFTA countries are far from reaching a deal on new trade terms as a key U.S. legislative deadline passed on Thursday but pledged to continue negotiations with Canada and Mexico.

“The NAFTA countries are nowhere near close to a deal. As I said last week, there are gaping differences on intellectual property, agricultural market access, energy, labor, rules of origin, geographical indications, and much more.”

But earlier in the week, Canadian Prime Minister Justin Trudeau said the U.S., Mexico and Canada were “very close” to an agreement to modernize the trade pact.

And there was word today that Japan is looking into retaliating against the U.S. over steel tariffs.  Officials in Tokyo said Japan may tell the World Trade Organization that it believes it has the right to immediately impose tariffs on U.S. goods equivalent to the damage it is suffering from the steel tariffs – a step China has taken.

Japan is clearly sending a message ahead of two-way trade talks with Washington set to start in June.

Trumpets....

--Gina Haspel became the new director of the Central Intelligence Agency by a 54-45 vote in the Senate, two Republicans voting against, six Democrats for her nomination, including the top Democrat on the Senate Intelligence Committee, Sen. Mark Warner of Virginia.  Warner had been against confirmation but he cited a new letter in which Haspel said the agency shouldn’t have undertaken a post-9/11 antiterrorism program that many critics say amounted to torture.

--House Speaker Paul Ryan sought to head off revolts from the right and center of the Republicans as lawmakers battled over legislation that would protect illegal immigrants from deportation. On Thursday, Ryan warned a small group of moderates that it would be a ‘big mistake’ if they kept pushing a procedural maneuver to force a series of votes on four separate immigration bills.

Some Republicans worry such a debate could lead to a bipartisan immigration bill passing that might anger conservative Republicans at a bad time, with the mid-term elections fast approaching.  Majority Leader Kevin McCarthy told fellow Republicans at the closed-door meeting that things were going well for them, so “let’s not create a problem of our own making,” one House Republican lawmaker said, asking not to be named.  Ryan said he was working with the White House on a measure that would win President Trump’s support.

But by Friday, House conservatives were demanding a vote on a hardline immigration bill, threatening to torpedo an unrelated farm bill unless House GOP leaders meet their ultimatum. The conservative House Freedom Caucus, led by Rep. Mark Meadows (R-N.C.), then defeated the farm legislation, 198-213, with 30 Republicans joining 183 Democrats in opposition.  This bill had been a Republican priority.

--The Senate intelligence committee has concluded that Russia undertook an “unprecedented” effort to interfere in the 2016 elections to help Donald Trump.

Mark Warner, the Democratic vice-chairman of the committee, said: “The Russian effort was extensive, sophisticated, and ordered by President Putin himself for the purpose of helping Donald Trump and hurting Hillary Clinton.”

The committee’s finding confirmed the assessment of the U.S. intelligence community.  Evaluating the work of the intel community is part of the Senate committee’s broader inquiry into Russian election interference, which is separate from the Mueller probe.

Investigators released transcripts showing that Donald Trump Jr. told them he did not think it was a problem to accept a 2016 meeting he was informed was a Kremlin-linked effort to discredit Hillary Clinton.

Trump Jr. told investigators: “To the extent that they had information concerning the fitness, character, or qualifications of any presidential candidate, I believed that I should at least hear them out.”

The documents contained no bombshells.

--According to Trump attorney Rudy Giuliani, special counsel Robert Mueller’s team admitted it cannot indict President Trump.

“All they get to do is write a report. They can’t indict.  At least they acknowledged that to us after some battling, they acknowledged that to us,” he first told CNN.

Giuliani cited Nixon-era Department of Justice guidelines that prevent special investigators from indicting sitting presidents.

Mueller’s team has considered challenging the guidelines but Giuliani said the team told him verbally that Mueller decided he has to “follow the Justice Department rules.”

Giuliani said on Fox News, “This case is essentially over. They’re just in denial.”

--President Trump admitted in financial disclosure forms released Wednesday that he “fully reimbursed” lawyer Michael Cohen, who paid $130,000 to porn actress Stormy Daniels in 2016 to keep quiet about an affair she claims to have had with Trump.

“In the interest of transparency,” Trump’s federal financial report revealed he paid Cohen “100,001 - $250,000” for expenses his fixer incurred on behalf of Trump.

“In 2016 expenses were incurred by one of Donald J. Trump’s attorneys, Michael Cohen. Mr. Cohen sought reimbursement of those expenses and Mr. Trump fully reimbursed Mr. Cohen in 2017.”

Trump’s 92-page disclosure form also reported that his Washington hotel was one of his top properties with revenues of $40.0 million in 2017.  Mara-a-Lago had revenues of $25.1 million.

Wall Street

I’ll fill in some holes next time, but this past week we had data on April retail sales, up 0.3%, ditto ex-autos, which was basically in line, while April industrial production was up a solid 0.7%.  April housing starts, though, were less than expected.

The bond market didn’t like the stronger data, with GDP forecasts for the second quarter solidly above 3% at the moment (the Atlanta Fed’s early GDPNow barometer has Q2 at 4.0%), and with the 10-year Treasury now above 3.00%, mortgage rates are at a 7-year high and that could easily hinder the housing sector.  There are some signs it already is.

Europe and Asia

A flash report from Eurostat on GDP in the first quarter of 2018 came in up 0.4% for the eurozone (EA19). In the fourth quarter, GDP was up 0.7%. Year-over-year, though, GDP was 2.5%, vs. 2.8% in Q4.

Germany 2.3% (yoy), France 2.1%, Spain 2.9% and Italy 1.4%.

A report from Eurostat on euro area inflation for April showed it was 1.2% on an annualized basis, down from 1.3% in March, nowhere near the European Central Bank’s 2% inflation target. A year ago, the rate was 1.9%. 

Germany was 1.4% (ann.), France 1.8%, Spain 1.1% and Italy 0.6%.

Eurobits....

Italy: An agreement on a new coalition government was reached Friday, the Five Star Movement and the League striking a deal on a common platform to bring a populist government to the eurozone’s third largest economy, but the two have yet to agree on a prime minister.

Earlier, it was said the two parties were considering asking the ECB to forgive 250bn euro of the country’s debt, according to a leaked draft agreement that emerged earlier this week, which the two are denying. The draft, apparently, also called for the creation of a mechanism to exit the euro and a renegotiation of Italy’s budget contributions to the European Union, as well as an end to sanctions against Russia.

The sell-off in Italian bonds intensified among the uncertainty, with the yield on the 10-year closing the week at 2.22%, up from 1.73% three weeks earlier, a big percentage move, but hardly what I’ve been warning about for the better part of a year...a yield much higher. Wednesday, the yield rose 17 basis points (0.17%) that day alone, intraday.

It seems the financial markets were shocked by the reality of a potential Five Star-League coalition, an anti-establishment government, though no one should have been surprised.

Brexit: Prime Minister Theresa May said on Thursday Britain would leave the EU customs union after Brexit but a source said London was considering a backstop plan that would apply to the bloc’s external tariffs beyond December 2020. Asked about reports that London would ask to stay in the EU’s customs area beyond the end of a post-Brexit transition period in 2020, May denied she was ‘climbing down’ on plans to leave.

“No. The United Kingdom will be leaving the customs union as we’re leaving the European Union.  Of course, we will be negotiating future customs arrangements with the European Union and I’ve set three objectives,” May told reporters on the sidelines of an EU summit in Bulgaria. She said the objectives were that Britain should have its own trade policy with the rest of the world, should have frictionless trade with the EU and that there be no hard border with EU member Ireland.

The EU is in “listening mode,” but it has set a deadline for June when there is a formal summit of European leaders, at which point they hope the two sides reach a milestone in the negotiations.  That is needed to seal a divorce deal in October, leaving the EU enough time to ratify it by Brexit day in March 2019.  Britain otherwise risks crashing out of the bloc, a scenario that no doubt would do a number on the British economy.

But the border issue with Ireland is still unresolved and the EU said there has not been enough progress on how to avoid physical controls on the border between the Irish Republic and Northern Ireland.  “It is an absolute red line for us that there could not be a hard border on Ireland,” Irish Prime Minister Leo Varadkar told reporters. Both sides fear a return of border controls could reignite the violence that afflicted Northern Ireland until a peace deal in the late 1990s.

Back to Theresa May, her government will supposedly release a “White Paper” outlining the U.K.’s proposals for a future customs arrangement and for specific sectors including financial services, agriculture and cars, ahead of the June 28-29 summit.  It will be designed to finally be specific, which is what EU leaders have been calling for. It’s also intended to address Britain’s domestic audience, including the business community, which has been dealing with uncertainty since the Brexit referendum in 2016.

Catalonia: The regional assembly elected a new leader, likely clearing the way for the Rajoy administration in Madrid to end direct rule over the restive region.  Lawmakers elected Quim Torra, a hard-line separatist.

But while separatists have regained control of the assembly, an independent Catalonia is an increasingly distant prospect after Spanish authorities gained the upper hand in their bid to quell the secessionist movement.

The courts in Madrid have boxed in the insurrection with legal challenges, while the threat of the re-imposition of direct rule has made many in the independence movement wary of further direct confrontation with Madrid.

Turning to Asia, Japan’s economy shrank in the first quarter of 2018 for the first time in two years, ending the longest stretch of economic growth since the 1980s.

The world’s third biggest economy contracted at an annualized rate of 0.6%, official data showed, a little worse than expected.

While private consumption accounts for about 60% of Japan’s economic activity, a global slowdown in demand for electronics hurt, though economists expect a recovery in GDP in the current quarter.

One worry is the capital expenditure slowdown, exhibited by the core machinery orders figure for March, down 3.9% over February, though this is highly volatile.

A report on consumer prices had the core inflation rate for April up 0.7% year-over-year, government data showed on Friday, so no sign of inflationary momentum needed to reach the central bank’s elusive 2% target.

Street Bytes

--Stocks finished lower on the week with both the Dow Jones and S&P 500 off 0.5%, while Nasdaq declined 0.7%.  Earnings season is winding down, the focus on trade, geopolitics and the Fed’s next meeting in June.

--U.S. Treasury Yields

6-mo. 2.08% 2-yr. 2.55%  10-yr. 3.06%  30-yr. 3.20%

The 10-year hit 3.11% intraday, the highest yield since 2011.

--The International Energy Agency issued its monthly oil market report and commercial oil inventories for the Organization for Economic Cooperation and Development countries declined in March by 26.8 million barrels month-on-month to 62.819 billion barrels, as the global oil market continues to rebalance.

The IEA suggested the drawdown in stocks was further evidence that OPEC’s strategy to cut crude output had succeeded in clearing up the glut in supply that has weighed on the market since late 2014.

OPEC and 10 producers outside the cartel, including Russia, have been holding back crude production by roughly 1.8 million barrels a day since the start of last year. The agreement is expected to run through the end of the year.

OPEC crude output fell month-on-month in April by 130,000 barrels a day to 31.65 million barrels a day, mainly due to the ongoing collapse in production in Venezuela, where production is at multi-decade lows.

But the bullish data was offset by the IEA’s forecast for oil demand this year, an increase of 1.4 million barrels a day from a previous estimate of 1.5 million, the downward revision due to higher oil prices, which have also been bolstered by geopolitical events, namely uncertainty over Iran, sanctions and the nuclear accord.  If Europe stays in the deal, for example, the loss in production for Iran will be relatively minimal.

The IEA also raised its growth forecast for U.S. crude output by 120,000 barrels a day to 1.3 million a day in 2018.

Crude prices were $43-$44 on WTI last June and now are over $70.  The price at the pump for me in New Jersey is now solidly over $3.00. Nationwide, the average is nearing $3.00 as well (it is already over $4.00 in California).

The U.S. Energy Information Administrative raised its summer forecast for gas prices to $2.90, up 17 cents from its expectation a month ago, which would be a nearly 50-cent jump from last summer.

Most experts, however, don’t see a significant change in consumer behavior until oil prices are $80 to $100 a barrel, which would lead to $4 a gallon nationwide and that would be a killer economically.  [It can certainly do a number on airlines...who would pass the cost on to customers.]

--According to the Dept. of Agriculture, farm income could be the lowest since 2006, a reflection of low commodity prices, export issues and, in some places, lousy weather.

Nationwide, net farm income has fallen by more than half since 2013, and it’s fallen another 6.7% this year.

Roger Johnson, president of the National Farmers Union, said, now, “the prices that farmers have been receiving for their products aren’t paying the bills, and too many people are being forced to give up farming.”

For every dollar that consumers spend on food, the farmer receives just 14.8 cents – the lowest “farm share,” since the USDA began reporting the figures in 1993.

In April, for example, beef producers received just 22 cents of the retail food dollar compared with 44 cents four years earlier, NFU figures showed. Dairy farmers received 30 cents, down from 51 cents in April 2014.

Wheat farmers average just 12 cents on a loaf of bread that retails for $3.49.

Needless to say, many farmers have packed it in. And the trade tit-for-tat isn’t helping, especially when it comes to pork and soybeans. If the U.S. withdraws from NAFTA, the consequences for America’s farmers will be severe.  [Rick Barrett / Milwaukee Journal Sentinel]

--Walmart turned in better-than-expected results for the quarter, though comparable store sales of 2.1% were a little shy of Street forecasts.  Shares closed down about 2 percent on the news.

Total revenue increased 4.4% to $122.7 billion, though CEO Doug McMillon blamed cool weather in April for lower customer traffic, and sales.

E-commerce was a bright spot, with sales rising 33% compared with just 23% during the holiday period, and Walmart expects it to grow 40% for the year.  Online grocery sales helped to fuel the bump.

--Home Depot shares were hit a bit when the company missed Wall Street forecasts for sales at established stores, as an unusually long winter hit sales of typical spring products like lawn-mowers and patio furniture. For once, this is true...as opposed to retailers always blaming the weather, whether accurate or not.  It WAS a long winter in many parts of the country. It sucked!  [And this past week has sucked along the east coast as well...bemoaned the editor who wants to resume a regular running schedule, but doesn’t run in the rain.]

Same-store sales (open at least 13 months) rose 4.2% in the three months ended April 29, missing Street expectations for the first time in seven quarters, with analysts expecting a 5.4% rise. Total net sales rose 4.4% to $24.95 billion, short of the Street as well.

But the company maintained its full-year outlook.

CEO Craig Menear said in a statement: “Outside of our seasonal business, we had solid results in all markets and categories and are seeking strong momentum in all lines of business during these first few weeks of May.”

--Macy’s reported higher same-store sales after closing dozens of them, as the department-store giant pulls out of a prolonged slump. The strong economy, low unemployment and tax cats helps.

Macy’s comp-store sales rose 3.9% compared with the same quarter a year earlier.  Revenue rose 4.2% to $5.54 billion and the company raised its earnings guidance on an adjusted basis.  Macy’s now expects annual sales to be in a range of -1.0% to 0.5%, slightly better than previously forecast. The company’s stock soared.

--Nordstrom Inc. reported same-store sales that missed analysts’ estimates, up just 0.6% in the first quarter. Total revenue did increase 6.2% to $3.56 billion, with net income of $87 million, solidly above a year earlier.

--International shipping giant AP Moller-Maersk, the Danish conglomerate, warned that high oil prices, rising geopolitical risks and ratcheting trade tensions are all testing business, putting at risk its 2018 profit forecast.

Rising oil prices are not good for the container shipping business, to say the least. Maersk said it would shut down its operations in Iran if U.S. sanctions on the country went through as planned.

--A Delaware judge refused to issue a restraining order against Shari Redstone and her family Thursday, allowing them to continue to keep tight control over CBS Corp. – and possibly begin to replace members of the board. CBS stock plummeted on the news.

CBS’ independent board members had been planning to consider voting on an extraordinary maneuver that would have stripped the company’s controlling shareholders – Redstone and her family – of their voting clout.

Redstone, through the family’s investment vehicle National Amusements Inc., made changes to CBS’ bylaws that require votes on such matters to receive at least 90% approval of the board.

That means Shari Redstone can effectively block any change that she does not like because she has at least two board allies, both of whom have served as Redstone family attorneys.

The legal wrangling comes after months of strained relations among Redstone; Leslie Moonves, the chairman and CEO of CBS; and other members of CBS’ board. Redstone has been trying to push through a merger with Viacom Inc., the other company that her family controls.

--China’s auto sales rose 11.5% last month compared with the same period last year, as Beijing’s policies designed to drive purchases of electric vehicles (EV) looked to be having an effect.  According to the China Association of Automobile Manufacturers, EV sales reached 81,904 in April, and 225,310 in the first four months of the year.  Sales for the four months were up 149% over the same period last year.  Analysts expect EV sales to exceed 1 million in 2018, with the government targeting 2 million in 2020. China accounted for roughly half of all global EV sales in the first quarter of this year.

Overall, China had vehicle sales of 2.32 million last month, with passenger-car sales up 11.2%.

--Thousands of Facebook apps have been examined and 200 suspended, the social network said Monday, as the company continues to grapple with the fallout from the Cambridge Analytica data scandal.

Facebook has been examining apps that had access to user data before the platform’s policies changed in 2014, reducing the information they could access.  Any app that either refused or failed an audit would be banned from Facebook, it said.

Meanwhile, CEO Mark Zuckerberg will be facing off against European Parliament leaders in private next week about how his platform impacts the privacy of Europe’s citizens.

--Starbucks has amended its toilet policy to allow anyone to use the facilities – whether or not they purchase something – following the dispute over the treatment of two black customers at a Philadelphia location.

But this is going to be a nightmare for the chain, especially in the big cities.

Starbucks chairman Howard Schultz, in announcing the policy last week, said, “We don’t want to become a public bathroom, but we’re going to make the right decision 100% of the time and give people the key. We don’t want anyone at Starbucks to feel as if we are not giving access to you to the bathroom because you are ‘less than.’”

Starbucks has said employees were being instructed to “ensure that all customers coming in feel welcome” and if someone needed to use the toilet, to let them unless it seemed unsafe.

But who is going to determine what is unsafe?  You’re right back to the incident in Philadelphia.  Not every manager on site is going to act the same way to a situation. 

Starbucks locks its bathrooms so you need a key, which I guess helps some in the policing of the policy.

A 2013 study of New York City businesses found that 58% of store managers had seen drug use in their toilets.  And now public restrooms have become the new frontline in the opioid crisis. 

Cities like Seattle that spent $millions on public toilets, closed them years later due to rampant drug use and prostitution.  And there’s the homelessness issue.

--Hedge fund titan David Tepper of Appaloosa Management fame is acquiring the NFL’s Carolina Panthers for approximately $2.2 billion.

--Former casino mogul Steve Wynn is incensed after Christie’s staff allegedly allowed a metal rod to pierce through a priceless Picasso masterpiece (debatable if you saw it) he planned to sell for $100 million.

Sources say Wynn’s 1943 Picasso self-portrait, “Le Marin,” was severely damaged while stored at the auction house, as a metal extension pole for a wall paint roller allegedly fell on the canvas, creating a “significant hole” in the masterpiece.

Ironically, this comes years after Wynn put his elbow through another Picasso masterpiece, “Le Reve,” in 2006, leaving a silver-dollar-size hole. It was repaired and sold in 2013 for $155 million.

Foreign Affairs

Iran: Donald Tusk, president of the European Council, told 28 worried EU leaders gathered in Sofia, Bulgaria, on Wednesday that by quitting the Iran nuclear deal, President Trump has “rid Europe of all illusions.”

The leaders had gathered for discussions on how to salvage the deal and European business dealings with Iran from U.S. sanctions and to avoid a trade war.

Tusk said the EU must be more united than ever before to deal with what he called Trump’s “capricious assertiveness.”

“Looking at the latest decisions of President Trump, someone could even think: With friends like that, who needs enemies?” Tusk told a news conference.

“Europe must do everything in its power to protect, in spite of today’s mood, the transatlantic bond. But at the same time we must be prepared for those scenarios, where we will have to act on our own,” said Tusk, a former Polish prime minister.

Meanwhile, French oil major Total has said it would not be able to continue with its project in Iran without a waiver protecting it from U.S. sanctions after the Trump administration pulled out of the nuclear deal.

Total signed a multibillion-dollar deal last July to develop the giant South Pars gas field, though Total said it has invested only 40m euro, less than $50 million, thus far.  Nonetheless it was the largest commitment of any western energy group and it was the Islamic republic’s first major energy contract with a European oil company in more than a decade.

Total owned about half of the South Pars project, with China’s state-owned CNPC taking another 30 percent, so CNPC could take Total’s stake, if it was itself able to avoid sanctions.

And that’s how these things will go. Other large European companies will make similar moves, seeing as most are only partially embedded at this point, just a few years after the accord was struck, though the EU is attempting to revive legislation that will allow European companies to continue doing business with Iran, despite U.S. sanctions.

The so-called “blocking statue” was introduced in 1996 to circumvent U.S. sanctions on Cuba but was never used.

The legislation would prohibit European companies from complying with any penalties and permit compensation for affected firms.

Jean-Claude Juncker, the president of the European Commission, said the statute was being introduced to protect European firms.

“It’s the duty of the EU to protect European business and that applies in particular to small and medium-sized enterprises,” he told a news conference following the summit of EU leaders in Bulgarian.

Meanwhile, Iranian President Hassan Rouhani said on Sunday that, if its interests were protected, Tehran would remain committed to the nuclear accord.

“If the remaining five countries continue to abide by the agreement, Iran will remain in the deal despite the will of America,” he said.

Daniel Henninger / Wall Street Journal

“No one has suggested yet that the Trump withdrawal from Barack Obama’s nuclear-weapons deal will cause the sea level to rise, but we’re almost there. The chain reaction of post-withdrawal disasters cataloged by the global media includes the possibilities that Iran will race now toward building a nuclear weapon, that a war between Iran and Israel could engulf the Middle East, and that America has become ‘divided’ from its allies.

“Then it got worse. One week later, the U.S. moved its embassy in Israel to Jerusalem, creating more ‘friction’ with our allies.

“America’s unhappy allies are the U.K., France and Germany, cosigners of Mr. Obama’s deal, along with anti-allies Russia and China.

“ ‘America’s three closest friends in Europe,’ the Washington Post reported, ‘are near-bursting with anger and exasperation at the United States.’ A rule of thumb suggests itself: Might European anger correlate directly with the correctness of U.S. policy, such as this decision to withdraw from the Iran deal and restart the sanctions regime? And when does an ally become something less than that?

“Once the media takes ownership of any fixed thought – here that the U.S. withdrawal from the Obama agreement will drive Iran to build a nuclear weapon – no other fact or consideration is permitted to intrude.

“The nuclear intentions of Iran’s government are a serious subject at all times. That is why the Trump administration is fixated on the agreement’s so-called sunset provisions.

“At the Iranians’ insistence, Mr. Obama and John Kerry agreed that the restriction on Iran’s first-generation centrifuges would end in 2025. After that, and another sunset in 2030 on low-enriched uranium, Iran’s centrifuges could produce material for a bomb in weeks.

“France’s president, Emmanuel Macron, seemed to be aware of the problem in his April address to Congress. ‘As for Iran, our objective is clear: Iran shall never possess any nuclear weapons,’ he said. ‘Not now, not in five years, not in 10 years. Never!’

“By the time he returned to France, Mr. Macron had rejoined the chorus that the Obama deal can’t be breached. Ever.

“One would like to take seriously Europe’s concerns about Iran’s bomb, but history makes that difficult. In fact, the Iranian nuclear threat is a European red herring, a distraction whose purpose is to take our eyes off other realities.

“For the Europeans, the likelihood of Iran going nuclear is a secondary concern. What’s it to them? Iran’s targets are Israel, the Gulf Arabs and the Great Satan. European nations’ active strategic interest in the Middle East ended decades ago with their decision after World War II to elevate domestic welfare and demote the continent’s military significance.

“Europe became an economic power whose interests are solely commercial. Despite the Middle East’s continued strategic importance, Europe’s view of it is entirely bloodless – a region that is merely a dependable trading partner for Europe’s biggest companies.

“When in 2013 Mr. Obama raised the possibility of a deal that would lift the Iranian sanctions regime, the Europeans were all in. Whatever Mr. Obama’s nuclear dreams, the deal’s primary attraction for Europe – and Iran – was always overwhelmingly about money....

“Once the Obama nuclear deal became final in 2015, Europe’s deal makers were inside Iran like a shot. European Union members, led by Germany, quickly became the mullahs’ main trading partners....

“The U.S. Treasury recently identified how Iran’s central bank has been laundering money through Iranian companies to acquire dollars in other Middle Eastern countries and then finance its Quds Force in Syria and other regional proxies.

“Which is to say, Iran’s European trading partners are underwriting, in part, the Iran-driven Middle Eastern mess – from Syria and Lebanon, through Iraq to Yemen. The U.S., as always, is supposed to clean it up. Americans don’t have the luxury, literally, of being AWOL from the world’s most difficult problems.

“As someone might say, this is a bad deal.

“On Wednesday, the Wall Street Journal reported that French, German and Danish companies – such as Total, Wintershall and Maersk Tankers – are winding down their business ties with Iran in response to the U.S. sanctions. That should start closing the spigot on Iran’s revenue sources. The world will be a better place.

“We are going back to the status quo before the Obama Iran deal – back to reality.”

Israel: At least 61Palestinians were killed on Monday in protests in the Gaza border region.  The IDF (Israel Defense Forces) later identified 24 of the 61 as terrorists, mostly belonging to Hamas but also some who were members of Islamic Jihad.  The protests became much lighter after Egyptian officials told a Hamas delegation it did not want the protests on the border to turn into an armed confrontation between Palestinians and Israel.

Turkey and Israel expelled each other’s senior diplomats over the Gaza protests, Turkey being one of Israel’s most vocal critics of the Israeli response.  President Erdogan described Monday’s bloodshed as genocide and called Israel a terrorist state. The dispute marks the worst diplomatic crisis between the two since Israeli marines stormed an aid ship to enforce a naval blockade of Gaza in 2010, killing 10 Turkish activists and prompting a downgrade in diplomatic ties that lasted until 2016.

Israeli Prime Minister Netanyahu tweeted that Erdogan was in no position to “preach morality to us” because he supported the Palestinian Islamist movement Hamas.  “There is no doubt he well understands terrorism and slaughter,” he said.

All of this came as the U.S. was formally opening its embassy in Jerusalem, 23 years after Congress passed a law mandating that Washington move it there; an act Prime Minister Netanyahu declared as “momentous.”

“President Donald Trump is making history,” Netanyahu said at a reception the day before.  “We are deeply grateful, and our people will be eternally grateful, for his bold decision.”

“Jerusalem has been the capital of the Jewish people for the past 3,000 years, has been the capital of our state for the past 70 years, and will remain our capital for all time,” Netanyahu said.

“Thank you President Trump for your bold decision! Thank you for making the alliance between Israel and the United States stronger than ever!”

Of the 28 EU countries, only four sent representatives to the ministry reception: Austria, the Czech Republic, Hungary and Romania.

Opinion....

Editorial / The Economist

“Gaza is a human rubbish-heap that everyone would rather ignore. Neither Israel, nor Egypt, nor even the Palestinian Authority (PA) wants to take responsibility for it. Sometimes the poison gets out – when, say, rockets or other attacks provoke a fully-fledged war. And then the world is forced to take note.

“Such a moment came on May 14th. Tens of thousands of Palestinians massed near Gaza’s border fence, threatening to ‘return’ to the lands their forefathers lost when Israel was created in 1948.  Israeli soldiers killed about 60 protesters – the bloodiest day in Gaza since the war in 2014.  In a surreal split-screen moment, the Israeli prime minister, Benjamin Netanyahu, was exulting over the opening of America’s embassy in Jerusalem, calling it a ‘great day for peace.’

“Many countries have denounced Israel; a few have recalled diplomats. Some people accuse it of war crimes. Others blame President Donald Trump for causing the clashes by moving the embassy from Tel Aviv to Jerusalem. It is surely right to hold Israel, the strong side, to high standards. But Palestinian parties, though weak, are also to blame. Seven decades after the creation of Israel as a thriving democracy, there is a better way than endless conflict and bloodshed.

“Every state has a right to defend its borders. To judge by the numbers, Israel’s army may well have used excessive force. But any firm conclusion requires an independent assessment of what happened, where and when. The Israelis sometimes used non-lethal means, such as tear-gas dropped from drones. But then snipers went to work with bullets. What changed? Mixed in with protesters, it seems, were an unknown number of Hamas attackers seeking to breach the fence. What threat did they pose? Any fair judgment depends on the details.

“Just as important is the broader political question. The fence between Gaza and Israel is no ordinary border. Gaza is a prison, not a state. Measuring 365 square kilometers and home to 2m people, it is one of the most crowded and miserable places on Earth.  It is short of medicine, power and other essentials. The tap water is undrinkable; untreated sewage is pumped into the sea. Gaza already has one of the world’s highest jobless rates, at 44%. The scene of three wars between Hamas and Israel since 2007, it is always on the point of eruption....

“Israel, Egypt and the PA cannot just lock away the Palestinians in Gaza in the hope that Hamas will be overthrown.  Only when Gazans live more freely might they think of getting rid of their rulers. Much more can be done to ease Gazans’ plight without endangering Israel’s security. But no lasting solution is possible until the question of Palestine is solved, too.  Mr. Netanyahu has long resisted the idea of a Palestinian state – and has kept building settlements on occupied land....

“When violence flares Israel’s image suffers, but not much. The Trump administration supports it. And Arab states seeking an ally against a rising Iran have never had better relations with it.

“Israel is wrong to stop seeking a deal. And Mr. Trump is wrong to prejudge the status of Jerusalem. But Palestinians have made it easy for Israel to claim that there is ‘no partner for peace,’ divided as they are between a tired nationalist Fatah that cannot deliver peace, and an Islamist Hamas that refuses to do so.  Palestinians desperately need new leaders.  Fatah must renew itself through long-overdue elections.  And Hamas must realize that its rockets damage Palestinians dreams of statehood more than they hurt Israel.”

Editorial / New York Post

“Monday’s violent protests in Gaza...clearly were meant to distract from the historic opening of the U.S. embassy Jerusalem.

“To a significant measure, they succeeded: Many news outlets gave equal or greater coverage to the demonstrations. Foreign officials criticized Israel. The United Nations called on the Jewish state to ‘respect the right to peacefully protest.’

“But ‘peaceful protests’ hardly describes this latest in a series of Hamas efforts to get Gazans to breach the border.  As one Palestinian told the Washington Post: ‘We are excited to storm and get inside.’ Asked what he would do inside Israel, he responded: ‘Whatever is possible, to kill, throw stones.’

“Hamas organizers even encouraged demonstrators to burst through the fences by falsely telling them Israeli soldiers were fleeing their positions in fear.

“Those killed and wounded by Israeli border-defense troops weren’t singing and chanting peacefully. They were planting explosives, firing guns and launching Molotov cocktails and kites carrying burning fuel into Israeli territory to set farm fields aflame.

“Hamas officials told them their mission was to ‘liberate Palestine’ – one more sign that the terrorists who run Gaza have no intention of ever accepting Israel’s existence.

“What kind of people react to a move by America – recognizing Jerusalem as Israel’s capital and moving its embassy there – by targeting violence against another country, Israel?  (No one rioted when the UN General Assembly recognized ‘Palestine.’)

“In the most cynical turn, Hamas ordered rioters to set fire to and destroy the main crossing for commercial goods and humanitarian aid into Gaza.

“In short, Israel successfully defended a violent attack by an enemy openly calling for its destruction. Any other country would do the same, and rightly so.”

Editorial / New York Daily News

“The killing by Israel Defense Forces Monday of more than 50 Palestinians who set fires, tried to detonate bombs and shoot soldiers, and sought to breach the Jewish state’s security fence was a terrible human tragedy.

“It was a tragedy created by the Hamas terrorists in Gaza and their enablers in the Palestinian Authority, who feed their people the poison that Israel can and must be destroyed.

“Who tell them that, should they lose their lives while endangering or ending the lives of Israelis, they will be rewarded with a place in paradise.

“Who pay the families of so-called martyrs who kill innocent Jews as much as $3,500 a month.

“And who continue to encourage, in waves of riots leading up to what they call the Nakba (‘the Catastrophe’ of the establishment of Israel), violent reaction from Israel. For Hamas, the more bloodshed, the better.”

Finally, way back in the early days of “Week in Review,” prior to 9/11, I noted that there were Hezbollah cells in Latin America. The issue then was when would they be activated against U.S. interests.

So I can’t help but note a piece by Ian Talley in the Wall Street Journal that starts thusly:

“Hezbollah, the Iran-backed Lebanese militia designated as a terror group by the U.S. is tapping a money-laundering ministate in Latin America that poses an escalating risk to U.S. national security, according to a report published Tuesday.

“The illicit activities in the co-called tri-border region linking Brazil, Argentina and Paraguay have long been a source of concern for U.S. security officials: After the Sept. 11, 2001, attacks, it became a surveillance target as a haven for terrorists in the Western Hemisphere.

“But now Venezuela’s political crisis and Argentina’s inflation, together with entrenched corruption and lax law enforcement, are helping fuel an illicit economy estimated to be worth $43 billion a year, far surpassing Paraguay’s entire gross domestic product, according to the report. The report was prepared by political risk consultancy Asymmetrica, funded and jointly published by the Washington-based nonprofit Counter Extremism Project.

“The ease of laundering ill-gotten proceeds and the economy of black market cigarettes, narco-trafficking and illegal arms sales have attracted criminal organizations from around the globe....

“ ‘If you’re wanting to do something on U.S. soil, you’d get the materiel there,’ said (Stuart) Page, a former senior Australian security official.  ‘You can buy whatever you like, you can find whatever you like, and it’s on the verge of U.S. shores.’”

According to Argentine prosecutors, Lebanese individuals in the tri-border region provided support for the bombings of the Israeli embassy and a Jewish cultural center in Buenos Aires in the 1990s that killed scores of people.

Syria: President Bashar al-Assad flew to Russian leader Vladimir Putin’s summer residence on the Black Sea for talks on Thursday about the Syrian conflict, the Kremlin said. Since fighting broke out in his country in 2011, Assad has traveled only rarely, but has made three publicly-acknowledged visits to Russia, each time for meetings with Putin.

“Stability is improving, and all that opens the doors to the political process, which we started a while ago,” Assad told Putin, according to a transcript of the opening remarks posted on the Kremlin website. “I have always said, and I repeat it again, that we have always wholeheartedly supported the political process, which should proceed in parallel with the war on terrorism.”

Putin congratulated Assad on what he said were significant successes on the battlefield achieved by the Syrian military.

“The terrorists have laid down their arms in key locations in Syria, which has allowed for the restoration of Syrian infrastructure.  And of course now, after these military successes, additional conditions have doubtless been created for the renewal of a fully-fledged political process.”

What a bunch of garbage all around.

Earlier, the Syrian government announced it had taken control of the country’s largest province, with rebel fighters and thousands of civilians leaving the last opposition-held enclave in central Homs province after years of government siege.

Limited U.S., French and British missile strikes on Syrian-government targets in response to the chemical attack haven’t slowed the regime’s drive to seize territory.

More than 120,000 people have been displaced from various parts of Syria as a result of the recent surrender agreements, according to the U.K.-based Syrian Observatory for Human Rights.

Overall, the UN estimates some 2.2 million people are in Idlib province alone, in northwest Syria and one of the last opposition strongholds, two-thirds having been displaced from their homes elsewhere in Syria.

Iraq: The surprisingly strong showing of a ticket backed by maverick Shia cleric Moqtada al-Sadr in last weekend’s Iraqi elections will force U.S. officials to recalculate how best to pursue American interests in the region.

Sadr, who I wrote during the Iraq War should have been taken out, is a fierce critic of American policies in the Middle East, and his unexpected success in the elections calls into question the continuing presence of U.S. troops in Iraq. A Sadr spokesman, though, said the cleric supports honoring commitments between the U.S. and Iraq concerning the training of Iraq’s security forces and weapons purchases as long as they serve Iraq’s interests and there “is no interference on the sovereignty of Iraq.”

Sadr’s ticket won the most seats in parliament, placing him in the best position to select the country’s next prime minister, though in falling far short of a majority, he’ll have to cobble together a coalition, which can take months.

Current Prime Minister Haider al-Abadi, the preferred candidate of the United States, finished third, though Sadr could yet tab him to remain PM.

The thing is Sadr is opposed to both the U.S. and Iran. 

One positive from all this, the election by all accounts was fair and largely free of violence – a big achievement for Iraq, especially as just months ago it was fighting ISIS.

North Korea: North Korea suddenly said on Wednesday that regarding the summit for June 12 in Singapore, Pyongyang was not interested in discussing “one-sided” demands

Asked whether the summit was still on next month, Trump said on Wednesday, “We’ll see what happens.” Trump added, “we haven’t been notified at all” that the North had canceled the meeting.

But Trump said he would insist on “denuclearization” at the summit.  But the word has always been ambiguous when it comes to North Korea.  Kim Jong Un, his father and grandfather have used it to describe a long-term process in which all nuclear weapons powers would eventually disarm, while clearly Trump administration officials have interpreted it as the dismantling and eradication of the North Korean nuclear weapons and long-range missile programs.

But last weekend as they worked the Sunday talk shows, both National Security Adviser John Bolton and Secretary of State Mike Pompeo claimed that Trump’s policy of “maximum pressure” had forced Kim to the negotiating table.

Bolton, however, went further than Pompeo in defining denuclearization. He said it meant “getting rid of all the nuclear weapons, dismantling them, taking them to Oakridge, Tennessee.  It means getting rid of the uranium enrichment and plutonium reprocessing capabilities.”

Bolton then talked of the “Libya model,” specifically referring to Muammar Gaddafi’s surrender of his embryonic nuclear weapons program in 2003-04.  Not Trump’s confusing statement that “Libya model” meant taking Gaddafi out and destroying his country.  But North Korean officials have specifically talked about the NATO-backed insurgency eight years after Gaddafi gave up his weapons as a reason not to do the same.

Kim Kye-gwan, North Korea’s first deputy minister of foreign affairs, rejected that position on Wednesday, singling out Bolton and his comments: “This is not an expression of intention to address the issue through dialogue. It is essentially a manifestation of awfully sinister move to impose on our dignified state the destiny of Libya or Iraq which had been collapsed due to yielding the whole of their countries to big powers.”

Kim added: “If the U.S. is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue and cannot but reconsider our proceeding to the DPRK-U.S. summit.”

So Thursday, President Trump reassured Kim Jong Un that he would remain in power under a deal with the United States, saying he is not seeking regime change.  In impromptu remarks at the White House, Trump sharply contradicted his own national security adviser, Bolton.

“The Libya model isn’t the model that we have at all when we’re thinking of North Korea,” Trump said.  “In Libya, we decimated that country. That country was decimated.”

Trump said that instead, a deal with North Korea “would be with Kim Jong Un, something where he’d be there, he’d be in his country, he’d be running his country, his country would be very rich, his country would be very industrious.”

Trump noted that Chinese President Xi could be influencing North Korea’s position. No s---.

Opinion....

Sen. Bob Menendez (D-NJ) / Washington Post

“Under President Trump’s watch, North Korea has steadily built a significant weapons arsenal in violation of international law. It has also successfully tested three intercontinental ballistic missiles and its largest nuclear weapon yet. Only after affirming his country’s nuclear status has Kim Jong Un struck a conciliatory tone....

“But we must be clear-eyed about the challenges ahead. The president’s impulsive and erratic approach to foreign policy has left our allies confused and our adversaries emboldened. If he wants to take advantage of this critical opportunity, he needs something that he has repeatedly been incapable of providing: disciplined leadership and a real strategy.

“Already the summit is on shaky ground after North Korea threatened to cancel it over routine joint military exercises with South Korea. Trump must see past this gamesmanship and effectively turn Congress’ maximum economic pressure policy into the diplomatic leverage needed to come to a workable agreement.  North Korea’s nuclear and missile programs remain a threat to the United States, and we need diplomacy rooted in shrewd pragmatism about Kim and his regime.

“In hastily agreeing to a summit without any preconditions, Trump has already handed Kim an enormous victory by legitimizing a brutal regime that violates the human rights of its own citizens and advances aggressive policies abroad. We are barreling toward a meeting that, under the best of circumstances, will be a high-wire act with no safety net. We will face off with the dictator of a pariah state whose regime has a long history of breaking promises and violating agreements.

“Yet rather than empower the State Department and the skilled diplomats best equipped for this major diplomatic initiative, the administration has eviscerated it. To this day, Trump has failed to even nominate an ambassador to South Korea.

“Before this summit takes place, it is critical to consider three traps we need to avoid so that this meeting does not turn to disaster.

“First and foremost, we cannot make any agreement that we cannot effectively monitor or verify. Trump might not realize it, but every president since 1994 has received a ‘denuclearization’ commitment from North Korea. The history of these negotiations is littered with broken promises to halt or disable Pyongyang’s nuclear and missile programs.

“That’s why before the United States agrees to any concessions, North Korea must provide complete transparency of its nuclear weapons programs and ongoing verification by international inspectors. The administration must keep its eyes on the prize, and the president must exercise discipline when presented with whatever shiny objects, photo-ops or public displays of flattery that Kim will use to distract us from obtaining key information, such as the location of North Korea’s fissile material, warheads and ballistic missiles.

“Second, we must avoid making further concessions that would damage U.S. partnerships in the region, as our entire Asia-Pacific strategy is built upon our dynamic alliances with Japan, South Korea, Australia and others. These alliances remain critical for maintaining peace, stability and economic prosperity throughout the region. Any agreement that ends our alliances and presence in the region would be a historic mistake that jeopardizes U.S. interests.

“Finally, the administration must resist the temptation to discard diplomacy altogether if the summit fails to produce an immediate comprehensive denuclearization agreement. Time and again, this administration has oscillated from one policy extreme to another. If a summit is not wholly successful – or frankly, even if it is – Trump cannot yank us back to a war path with North Korea.”

Editorial / Washington Post

“North Korea’s threat to call off the summit meeting between dictator Kim Jong Un and President Trump next month to surely a bluff, but all the same it should serve as a wake-up call for the White House.  Mr. Trump already has all but awarded himself the Nobel Peace Prize as he and his aides promise to accept nothing less than the ‘complete, verifiable, irreversible denuclearization of North Korea,’ accomplished on a quick timeline.  North Korea’s rhetorical tantrum was a reminder that the Kim regime will almost certainly agree to no such thing.

“ ‘If the U.S. is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue,’ Vice Foreign Minister Kim Kye-Gwan was quoted as saying Wednesday. He seemed particularly incensed by comments Sunday from national security adviser John Bolton, who suggested that a North Korean deal would be modeled on the one struck with Libya in 2003. That quick and unilateral disarmament arguably opened the way to the overthrow of the regime of Muammar Gaddafi nearly eight years later.

“But Mr. Kim might as well have been describing Secretary of State Mike Pompeo, who in his own remarks Sunday disparaged ‘the traditional model’ of a deal with North Korea, ‘where they do something and we give them a bunch of money... Our ask is complete and total denuclearization.’

“The U.S. rhetoric implies that the North Korean leader has decided on a stunning reversal of decades of policy and is suddenly prepared to accept full disarmament in exchange for security guarantees and economic investment. Yet nothing Pyongyang has publicly said or done supports that. On the contrary, Kim Jong Un appears to be following almost exactly the same script as his father when he struck a deal on nuclear weapons in 2005 – and then, having pocketed the short-term economic gains, proceeded to violate it.

“In recent weeks, Mr. Kim has released three Americans the regime was holding as de facto hostages and made a show of dismantling a nuclear test site. Both are practiced maneuvers. A decade ago, Kim Jong Il, father of the current ruler, invited reporters to watch the destruction of a cooling tower at a reactor site where plutonium was produced – only to restore the facilities a few months later.  Threats to walk out of talks, or the abrupt cancellation of meetings, also are part of North Korea’s standard playbook.

“While we can’t rule out a Damascene conversion, most likely Mr. Kim envisages negotiating a multi-stage peace process in which full disarmament is a long-term goal and North Korea is rewarded for each incremental step – in other words, something like the 2005 and 1994 deals that Mr. Pompeo dismissed. Because South Korea and China appear supportive of such a framework, Mr. Trump will risk isolating the United States if he rejects it – with the likely consequence of undermining the multilateral ‘maximum pressure’ that he believes brought Mr. Kim to the table.

“Consequently, the administration ought to be contemplating what sort of partial or phased deal with North Korea it would accept. If Mr. Kim can be induced to make his testing freeze permanent and stop any deployment or export of nuclear weapons, for example, that would be far preferable to the status quo. The question is, can Mr. Trump accept half a loaf, at least in the short term? If not, he is likely to come away with nothing.”

Editorial / Wall Street Journal

“North Korea is threatening to cancel the June 12 summit between Kim Jong Un and Donald Trump if it means giving up its nuclear weapons unilaterally, and credit the North for candor. The North is restating its long-time position, and better for the world to know the truth going into the summit than bank on false hopes.

“The Trump Administration is treating the statement as a fit of pique, and in one sense that’s right. Kim isn’t likely to walk away from the summit, a diplomatic prize Pyongyang has sought for decades. But the North’s threat should bust some pre-summit illusions, not least in the Oval Office.

“The Trump Administration has talked up the chances of a breakthrough based on Kim’s suspension of his nuclear and missile tests and his willingness to discuss denuclearization of the Korean Peninsula. But the two sides have very different ideas about what that means, as well as how and when it would happen.

“Mr. Trump credits his ‘maximum pressure’ of sanctions and diplomatic isolation for bringing Kim to the table. Certainly his Administration has done more than its predecessors to pressure the North. But the sanctions weren’t in place long enough to bring the regime to its knees.

“Kim is talking because he wants the U.S. to pay him for promises of denuclearization and a few concessions such as the closure of his nuclear testing facility. In other words, he is repeating the strategy of his grandfather and father in negotiating with the U.S.

“And why not?  Kim believes he is in the driver’s seat. In the last year he has tested a more powerful warhead and launched missiles able to hit Chicago.  Now a U.S. president has agreed to parley directly with him, and China is backing him. Kim met with Chinese President Xi Jinping last week and the two agreed that the North and the U.S. should undertake ‘phased an synchronous measures’ toward denuclearization. That is far from the complete, verifiable and irreversible denuclearization that White House national security adviser John Bolton says the U.S. wants. Note that the Korean statement attacked Mr. Bolton personally.

“Mr. Trump says he will walk away from talks if Kim isn’t serious about denuclearization. But his bluster and the silly chatter about a Nobel Prize are making it more difficult to leave the table.  Kim’s maneuvering ahead of the summit suggests he is confident he can resist immediate denuclearization. Mr. Trump needs to make clear that won’t happen.”

Karl Rove / Wall Street Journal

“The world doesn’t postpone challenges so that policy makers will have time to prepare. Mike Pompeo was sworn in as secretary of state three weeks ago, and John Bolton walked into the West Wing as national security adviser 2 ½ weeks earlier. Along with President Trump, the two newcomers are facing three huge foreign-policy challenges coming like a runaway freight train.

“First is the scheduled June 12 meeting in Singapore between Mr. Trump and the ‘Little Rocket Man.’  Kim Jong Un is not some moronic playboy. Although only in his 20s when he became North Korea’s ‘supreme leader’ in 2011, Mr. Kim quickly consolidated power.  He is ruthless in eliminating potential rivals, having ordered the killings of his half-brother, an uncle, the uncle’s family and some of the uncle’s associates.

“Mr. Kim is also crafty. Angered by military exercises between South Korea and the U.S., he decided Tuesday to cancel a coming meeting with South Korean President Moon Jae-in. He also threatened to call off the Singapore summit if the U.S. demands unilateral North Korean denuclearization.  Of course, he knew about the drills and the U.S. insistence on denuclearization before he accepted Mr. Trump’s and Mr. Moon’s invitations.

“The North Korean leader is throwing a preplanned hissy fit, testing American and South Korean leaders to see how they respond. Both governments should ignore his antics.  Mr. Trump cannot appear to want this summit more than Mr. Kim does. The North Korean dictator agreed to attend only because his economy had tanked after years of international sanctions, and his saver-rattling had caused Japan and South Korea to strengthen their militaries and draw closer to the U.S.  The Chinese government, whose wishes Mr. Kim has too often ignored, also pressured him to the table.

“Mr. Kim may view the Singapore summit as a publicity stunt, signaling goodwill so as to coax the U.S. and South Korea into a bad bargain. In light of this possibility, Mr. Trump’s message needs to be clear: If Mr. Kim doesn’t go to Singapore with intent to begin denuclearizing, it’s his loss....

“So when Messrs. Trump, Pompeo and Bolton arrive in Singapore, they’d better have a plan.  No winging it, no daylight between the U.S. and South Korea, and no sanctions relief for Pyongyang until the results are locked in. The three Americans must present a unified front, insisting on concrete goals and clearly defined paths to implement them.”

[Rove’s other two challenges were Iran and Iraq.]

Russia: The suspect in a deadly knife attack in central Paris on Saturday evening is a French citizen born in Russia’s republic of Chechnya.  The man, who police shot dead after he had killed a man and injured four other people in the busy Opera district, was on a French watch list of people who could pose a threat to national security.  ISIS claimed it was behind the attack.

I mention this in the Russia space, though, because the fact the terrorist was from Chechnya is a reminder that the upcoming World Cup soccer event in Russia could easily see one or more incidents of terrorism, with Chechens likely to carry out any such acts.  Just my opinion.

Venezuela: Authorities here seized a plant owned by American cereal manufacturer Kellogg, after the company announced it was pulling out of the country because of the worsening economic situation.

President Nicolas Maduro, who has accused the U.S. of waging economic war against the government, called the closure “absolutely unconstitutional and illegal.”

He said the factory had been handed to workers and would continue production. The announcement came ahead of Sunday’s presidential elections, which Maduro will win.

Kellogg is the latest multinational to close or scale back operations in Venezuela, citing currency controls, soaring inflation and lack of raw materials.

Random Musings

--Presidential tracking polls....

Gallup: 43% approve of President Trump’s job performance, 52% disapprove (May 13), the highest in Gallup survey since Feb/Mar. 2017.
Rasmussen: 50% approval, 49% disapproval

--I noted last week that a CNN survey showed the generic House poll had seen the Democrats lead shrink from 16 points in February to just 3 points, within the margin of error.  It’s clear the Democrats have zero message aside from being anti-Trump.  With the economy doing well, they don’t have any kind of economic vision that would be more attractive.

So Dems have to figure out a different kind of message, and as some are suggesting, they also need to turn to an untraditional candidate in 2020, outside the club of governors and senators.  So it’s not out of the realm of possibility that an Oprah Winfrey type (Howard Schultz, Mark Cuban) could yet emerge.

I just don’t see Sen. Bernie Sanders

--In what was clearly a rebuke to President Trump, former Sec. of State Rex Tillerson warned on Wednesday that American democracy is threatened by a “growing crisis in ethics and integrity.”

“If our leaders seek to conceal the truth, or we as people become accepting of alternative realities that are no longer grounded in facts, then we as American citizens are on a pathway to relinquishing our freedom,” he said in a commencement address at the Virginia Military Institute [Great place...as I wrote about five years ago when I was there, that’s where the George C. Marshall museum is; Gen. Marshall, one of the five greatest Americans of all time, having attended the school.]

Tillerson continued that even small falsehoods and exaggerations are problematic.  “When we as people, a free people, go wobbly on the truth even on what may seem the most trivial matters, we go wobbly on America.”

“If we do not as Americans confront the crisis of ethics and integrity in our society and among our leaders in both the public and private sector – and regrettably at times even the nonprofit sector – then American democracy as we know it is entering its twilight years,” Tillerson warned.

I totally concur with all the above.

--We learned this week that President Trump and Fox News host Sean Hannity speak nearly every night after his show, according to a story in New York Magazine.  Hannity seems to fill the political void left by former White House strategist Stephen Bannon.

--Once again, we have to carefully watch developments in the Congo and Africa due to another Ebola outbreak, the deadly virus detected in the northwest city of Mbandaka, with a population of about 1 million people. There have been 23 deaths reported in this latest outbreak.  The health ministry had been able to keep things under control in isolated areas, but the first urban case threatens to change that.  On Wednesday, the World Health Organization deployed the first experimental vaccines in the country, but they need to be kept at a temperature between -60 and -80 degrees C, not easy in a country with unreliable electricity.

--Births in the U.S. have dropped to their lowest rate in 30 years, marking a cultural shift as women delay motherhood, experts say.

Some 3.85 million babies were born in 2017, the fewest since 1987, as births among women in their teens and 20s decreased.

--On the flipside, death, the cremation rate inched past 50% for the first time in 2016, according to the National Funeral Directors Association.  By 2025, it is expected to become the disposition of choice for 63.8% of people who die in the U.S., and by 2035, 78.8%.

It took 100 years to go from zero in 1887 (the year of the first cremations) to reach 5% in 1972, and now it’s growing exponentially.

Personally, I still want my ashes buried at Lahinch Golf Club in County Clare, Ireland.

--We note the passing of the author Tom Wolfe, best known for works like “The Right Stuff,” “The Bonfire of the Vanities” (my fave) and “The Electric Kool-Aid Acid Test.”  Wolfe was 88.

Wolfe was born in Richmond, Virginia, and attended Washington and Lee (which is next to the aforementioned VMI...W&L where Robert E. Lee is buried, Lee having been president of the school after the Civil War until his death), and then Wolfe picked up a Ph.D. at Yale.  He would work for various newspapers, settling with the New York Herald Tribune in 1962.

--The Supreme Court decided state governments could decide whether they want to legalize sports gambling and the feds can’t do anything to prevent it (unless a sweeping federal law is now passed banning such activity....which will be impossible), and this could be a boon to New Jersey, at least initially before others step in, my home state having brought the suit that finally, after years and years, ended up with the Supremes.

One place that could really take advantage of sports betting is my beloved Deadwood, South Dakota, in the beautiful Black Hills...my favorite place in the country.  Deadwood has casino gambling, and the industry has been suffering of late with competition having sprung up all around it, including neighboring states (think Indian casinos), but it seems South Dakota needs a constitutional amendment to allow Deadwood to offer sports betting and that wouldn’t be on a ballot until 2020.

By the way, if you go to the Black Hills, don’t go hiking by yourself....lots of mountain lions there.  You don’t stand a chance.

--Last month marked the planet’s 400th consecutive month with above-average temperatures, federal scientists from the National Oceanic and Atmospheric Administration announced Tuesday.

Climate scientists use the 20th-century average as a benchmark for global temperature measurements. That’s because it’s fixed in time, allowing for consistent ‘goal posts’ when reviewing climate data. It’s also a sufficiently long period to include several cycles of climate variability.

NOAA’s analysis found last month was the 3rd-warmest April on record globally. The unusual heat was most noteworthy in Europe, which had its warmest April on record, and Australia, which had its second-warmest.

---

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

God bless America.

---

Gold $1291
Oil $71.35

Returns for the week 5/14-5/18

Dow Jones  -0.5%  [24715]
S&P 500  -0.5%  [2712]
S&P MidCap  +0.2%
Russell 2000  +1.2%
Nasdaq  -0.7%  [7354]

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

Dow Jones  -0.02%
S&P 500  +1.5%
S&P MidCap  +2.3%
Russell 2000  +5.9%
Nasdaq  +6.5%

Bulls 46.6
Bears 
19.4

Have a good week.

Brian Trumbore