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Week in Review

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12/15/2018

For the week 12/10-12/14

[Posted 11:30 PM ET, Friday]

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Edition 1,027

I discuss in detail the various revelations in the Mueller probe this week, and those of the Southern District of New York, down below, but while we now have a president who during the 2016 campaign was blatantly lying to the public about his then-alleged affairs, and keeping knowledge of them out of the public eye, as he himself is admitting today, this is hardly an impeachable offense.

Certain “leaps” have also yet to be revealed, such as Manafort to Trump, that would indeed prove most troublesome for the president.

What’s also clear is that then-candidate Trump talked of having no contacts with Russians during the campaign, but there were indeed many contacts with them.

So what more does Mueller have?  Remember, I’m the ‘wait 24 hours’ guy.  I have held to my principle throughout the investigation.

For now, though, I can’t help but largely agree with the following from a Wall Street Journal editorial this week:

“The political dilemma for Democrats is that lying about sex and paying to cover it up are wrong, but they’re a long way from collaborating with the Kremlin to beat Mrs. Clinton.  Mr. Trump lied to the public about his dealings with Mr. Cohen.  Bill Clinton lied to the public and under oath in a legal proceeding, yet Democrats defended him.  Good luck trying to impeach Mr. Trump for campaign-finance violations.

“All of this argues for Mr. Mueller to wrap up his probe and let America get on with the political debate over its meaning for Mr. Trump’s Presidency....The country deserves an account of what Mr. Mueller knows, not more factual dribs and drabs in sentencing memos.”

None of this is good for an already deeply-divided country.

Wall Street and China Trade Negotiations

The market finished down a fourth week in five, fueled by fears of slowing global growth (detailed below when it comes to slowdowns in China and across Europe), concerns over future action out of the Federal Reserve, a slowing corporate profit outlook, and trade tensions.  And while market participants largely ignored the criminal proceedings emanating from the Mueller probe and the Southern District of New York, at least outwardly, the increased pace of news flow out of the courts doesn’t help market sentiment.

We did have more strong economic data this week, however, as November retail sales rose 0.2%, ditto ex-autos, in line with expectations, while last month’s already strong figures were revised upward.  November industrial production was robust, 0.6%.

And the inflation data was tame, important when predicting the direction of future Fed policy, the Open Market Committee meeting next week, at which time it is expected to hike its benchmark funds rate another quarter-point, but then potentially announce it is taking a pause.

The producer price index rose 0.1% for last month, 0.3% ex-food and energy; 2.5% year-over-year, 2.7% on core.

Consumer prices in November were unchanged, 0.2% on core; 2.2% vs. a year ago on both.

The CPI was running at 2.9% just this past July so the Fed has to take notice of this development.

Add it all up and the Atlanta Fed’s GDPNow barometer for the fourth quarter is back up to 3.0%, from 2.4% a week ago.

Trade: Chinese Vice-Premier Liu He had a phone conversation with U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer on Tuesday to set the stage for the next round of trade talks, the first formal exchange since the meeting between Presidents Trump and Xi Jinping.  The relationship between the two sides suffered a further blow after the Dec. 1 talks in Buenos Aires with the arrest of the chief financial officer of Chinese telecom giant Huawei (detailed below), at the request of the U.S.

But China’s finance ministry announced Friday it would suspend additional tariffs on U.S.-made vehicles and auto parts for three months starting Jan. 1, 2019, following an announced truce in the trade war.  The Ministry of Finance, in a statement on its website, also said it hopes China and the United States can speed up negotiations to remove all additional tariffs on each other’s goods.

“This is a good signal that China and the United States are on track to solve the trade war,” said Wang Cun, director of the China Automobile Dealers Association’s import committee.  “Car makers might be ordering a large number of imported cars now.”

Shortly after the finance ministry’s announcement, Tesla Inc. said it had cut prices on its Model S and Model X vehicles in China.

Ford welcomed China’s move, noting that it exported nearly 50,000 U.S.-built vehicles to the country in 2017.

But some perspective is in order.  Auto exports between the two are relatively small.  China exported 53,300 vehicles to the U.S. market last year and imported 280,200 U.S. manufactured vehicles, according to a Chinese government think-tank.  In contrast, in the first 11 months of this year, China produced 25.3 million cars, down 2.6 percent from the same period last year, industry figures showed.

Wang said car makers in China that imported cars from the U.S. had seen a 30 percent decline in volume in the first ten months of 2018, but the tariff cut would bring imports back to previous levels.

The announcement on autos followed China’s first major purchase of U.S. soybeans since Presidents Trump and Xi Jinping held their talk in Argentina. 

But I have details on the soybean purchase further below in “Street Bytes” and it’s far from what U.S. farmers were hoping for.

I do have to add that Beijing is considering other changes to try to settle the trade dispute, including making changes to the Made in China 2025 plan, according to people familiar with the matter.  The state-led industrial policy – aimed at enabling Chinese companies to dominate industries from artificial intelligence to robotics – is a focal point of U.S. complaints that Beijing engages in unfair trade practices that put foreign firms at a disadvantage to Chinese companies.

But for now here’s the bottom line.  Let’s assume that eventually U.S. auto and soybean exports return to levels of a year ago, before all the threats and tariffs. What will it mean?

It will mean we needlessly put millions of American workers and farmers through the ringer, and potential bankruptcy in the case of the latter, for what?  The same levels of production (if we’re lucky) as before.  [Yet Trump will be calling it victory...and the base will nod their heads in approval.]

At the same time, China is hacking our personal data and stealing our intellectual property at a faster pace than ever before and, as yet, there is no change in the offing on that front.

I’ve said I agree with the Trump administration for taking a tough stand on China. The world is doing the same thing. We’ve all had it with the bastards.  [Ditto Russia and attempts to foment chaos and distrust in Western democracies.]

But China is just going to keep doing what they do best.  Steal, copy and reverse-engineer everything America (and to some extent Germany on the heavy industry side) has ever come up with.

It’s why the Huawei case is so critical, as I describe below.  But it’s also why China is feverishly trying to grab everything it can before the West figures out how to protect that which is rightfully ours.

One last unrelated item...the U.S. Budget Deficit...

For November, the Treasury Department reported the deficit was $204.9 billion, far greater than the $-165bn forecast, and for the first two months of fiscal 2019, the deficit is $305.4bn vs. $201.8bn the first two months of fiscal 2018.

Receipts were up 3.4% last month, but outlays, driven by spending on Medicare, were up 18.4%.  Net interest expense was up $5.4 billion with the financing of a deepening debt.

Trump World

--President Trump’s former lawyer and fixer, Michael Cohen, was sentenced to three years in prison by a federal judge on Wednesday.  Cohen pleaded guilty to helping to arrange payments to Stormy Daniels and Karen McDougal, a violation of campaign finance law, and for lying to Congress about the duration of deliberations concerning a proposed Trump Tower in Moscow.

Cohen said in written testimony to two congressional committees that the talks over the Trump Tower project ended in January 2016, when they actually continued until June 2016, after Trump clinched the Republican nomination.

“It was my own weakness and a blind loyalty to this man that led me to choose a path of darkness over light,” Cohen told the judge during the sentencing hearing. “I felt it was my duty to cover up his own dirty deeds,” he said, referring to Trump.

“Recently, the president tweeted a statement calling me weak, and he was correct – but for a much different reason,” Cohen said.  “Time and again I felt it was my duty to cover up his dirty deeds rather than listen to my own voice.”

“Today is the day I am getting my freedom back,” he added.

In an interview with Reuters on Tuesday, Trump denied the payments were campaign contributions.

“If it were, it’s only civil and even if it’s only civil, there was no violation based on what we did,” Trump said.

Cohen, in his first interview since the sentencing, Friday, then told ABC News’ George Stephanopoulos that he knew arranging payments during the campaign to quiet two women who claimed to have had affairs with Donald Trump was wrong, and he said Trump knew it was wrong at the time, too.

“Of course,” Cohen said, when asked by Stephanopoulos whether the president was fully aware of what his lawyer was doing.

On Thursday, Trump and one of his person attorneys, Rudolph Giuliani, said the president was not to be blamed for the campaign finance crimes, because he trusted his lawyer, Mr. Cohen, to know the law.  Trump accused Cohen of trying to embarrass him.

“It is absolutely not true,” Cohen said in the ABC interview.  “Under no circumstances do I want to embarrass the president of the United States of America. The truth is, I told the truth.  I took responsibility for my actions.”

In the interview, Cohen was asked whether the president was telling the truth about “everything related to the investigation, everything related to Russia.”

“No,” Cohen said.

Cohen added: “It’s never good to be on the wrong side of the president of the United States of America, but somehow or another this task has now fallen onto my shoulders,” noting, “I will spend the rest of my life (fixing) the mistake that I made.”

Separately, according to the Wall Street Journal, NBC News and CNN, President Trump was in the room during negotiations with National Enquirer publisher David Pecker over how the tabloid could assist in quashing negative stories.

Trump was also in the room for an August 2015 meeting that included Cohen and Pecker discussing how the latter’s tabloid company, American Media Inc., could potentially assist Trump in his bid for president.

Federal prosecutors in New York on Wednesday publicly announced a nonprosecution agreement with the company and included that Pecker, through the agreement, admitted that he offered to “help deal with negative stories about the presidential candidate’s relationships with women by, among other things, assisting the campaign in identifying such stories so they could be purchased and their publication avoided.”  [“Catch and kill”]

In exchange for immunity from prosecution, the agreement requires American Media to “cooperate fully” with investigators from the Manhattan U.S. Attorney’s Office.

Trump tweets:

“I never directed Michael Cohen to break the law.  He was a lawyer and he is supposed to know the law. It is called ‘advice of counsel,’ and a lawyer has great liability if a mistake is made.  That is why they get paid. Despite that many campaign finance lawyers have strongly...

“...stated that I did nothing wrong with respect to campaign finance laws, if they even apply, because this was not campaign finance.  Cohen was guilty on many charges unrelated to me, but he plead to two campaign charges which were not criminal and of which he probably was not...

“...guilty even on a civil basis. Those charges were just agreed to by him in order to embarrass the president and get a much reduced prison sentence, which he did-including the fact that his family was temporarily let off the hook.  As a lawyer, Michael has great liability to me!”

“ ‘Democrats can’t find a Smocking (sic) Gun tying the Trump campaign to Russia after James Comey’s testimony.  No Smocking Gun...No Collusion.’ @FoxNews. That’s because there was NO COLLUSION.  So now the Dems go to a simple private transaction, wrongly call it a campaign contribution,....

“...which it was not (but even if it was, it is only a CIVIL CASE, like Obama’s – but it was done correctly by a lawyer and there would not even be a fine.  Lawyer’s liability if he made a mistake, not me). Cohen just trying to get his sentence reduced.  WITCH HUNT!”

Rich Lowry / New York Post

“The most legally fraught part of the Russian ‘collusion’ probe now revolves around payments to an American porn star.

“As of yet, instead of a dastardly scheme to participate with the Kremlin in the hacking of Democratic emails to subvert the election, prosecutors have uncovered a dastardly scheme to try to keep from the voters – as if they weren’t already aware – that Trump is a womanizer.

“The advantage of the story of the hush payments to Stormy Daniels and Karen McDougal is that they actually happened, and always passed the plausibility test.

“To credit the payoffs, it didn’t require believing in a well-coordinated scheme between a foreign-intelligence service and the most shambolic presidential campaign of the modern era.  All it took was imagining Donald Trump, Michael Cohen and a checkbook.

“Everyone should agree that these payments were sleazy. But that’s not the live issue here. Because Democrats want to see Trump impeached or even jailed, the question is whether he can be successfully prosecuted for the payments after leaving office.

“The law, and common sense, suggest the answer is ‘no.’

“The idea that Trump is going to lose re-election in November 2020, then, having suffered the humiliation of getting booted by the voters, get indicted and stand trial on a dubious campaign-finance violation dating from 2016 is fantastical.  This would be a banana-republic move, and is more a Democratic revenge fantasy – or should be – than a realistic scenario.”

--As first reported by the Wall Street Journal, Federal prosecutors are examining whether foreigners illegally funneled donations to President Trump’s inaugural committee and a pro-Trump super PAC in hopes of buying influence over American policy.

The inquiry is reported to be focusing on whether people from various Middle Eastern nations used straw donors to disguise their donations to the two funds.  Federal law prohibits foreign contributions to federal campaigns, political action committees and inaugural funds.

The inquiry into potential foreign donations is yet another front being pursued by multiple teams of prosecutors. Thomas J. Barrack Jr., a billionaire financier and one of Trump’s closest friends, raised money for both funds.

--Russia special counsel Robert Mueller today rejected any notion that former Trump national security adviser Michael Flynn was tricked by FBI agents into lying about his communications with Russian ambassador Sergey Kislyak, resulting in his prosecution.

“The interview was voluntary, and lacked any indicia of coercion,” Mueller’s team asserted in new court documents, referring to the Jan. 24, 2017 interview at the White Hose just days after President Trump’s inauguration.

Earlier this week, Flynn’s attorneys suggest that FBI duped the former national security adviser by not warning him about the criminal consequences for lying to agents during the interview in which Flynn has now acknowledged falsely denying that his conversation with Kislyak included a discussion of Russian sanctions.

“A sitting national security adviser, former head of an intelligence agency, retired lieutenant general and 33-year veteran of the armed forces knows he should not lie to federal agents,” prosecutors said.

“The court should reject the defendant’s attempts to minimize the seriousness of those false statements to the FBI.”

Flynn is to be sentenced Dec. 18, but prosecutors have recommended no prison time for providing substantial cooperation in the ongoing Russian investigatioin.

--Russian gun rights activist Maria Butina pleaded guilty in federal court in Washington to conspiring to act as an unregistered agent of Russia, admitting that she worked for more than two years to forge relationships with conservative activists and leading Republicans in the United States.

One of Butina’s targets was the National Rifle Association, a group she identified in a 2015 memo as an organization that “had influence over” the Republican Party, according to court filings.  Her relationships with the group, she wrote, could then be used as an unofficial channel of communication to the next presidential administration.

Butina and Alexander Torshin, a former Russian government official who helped direct her activities, then used their NRA connections to get access to GOP presidential candidates.

Butina, 30, is the first Russian national convicted of seeking to influence U.S. policy as a foreign agent before the 2016 election.

Russian President Vladimir Putin addressed Butina’s case at a meeting in Moscow, saying: “I asked all the heads of our intelligence services what is happening, ‘Who is she?’  No one knows a thing about her.”

--Soon-to-be House Speaker Nancy Pelosi said on Thursday that congressional Democrats will begin to seek President Trump’s tax returns after they take control in January, with the House Ways and Means Committee taking the first steps toward obtaining the documents, though that will be a challenging process, she said.

Trump defied decades of tradition when he refused to release his tax records as a candidate, and after his victory in the election, but no law or rule compels a president or candidate to disclose them, though nearly every nominee and president has done so in recent decades.

As they prepare to take charge of the House, Democratic leaders have tried to walk a fine line in articulating how they will move forward.  They have said while they plan to pursue policy issues popular with their voter base, they also said they will not shy form examining Trump, his personal business dealings and his presidency.

Trump’s personal financial information would help illuminate whether foreign leaders had leverage over the president through involvement in his projects abroad.

--Today, President Trump named Mick Mulvaney acting chief of staff, replacing John Kelly, who is staying on until year-end.  Mulvaney, who I like, is Director of the Office of Management & Budget.

Kelly, who I learned not to like, announced he was leaving last weekend, or rather President Trump did the job for him, telling reporters before he left for the Army-Navy game.

--Late tonight, a federal judge in Texas ruled that core aspects of the Affordable Care Act, i.e., ObamaCare, were unconstitutional, a win for Republicans and the Trump administration that is sure to leave those insured under the system in uncertain territory.

The 55-page ruling by U.S. District Judge Reed O’Connor in the Northern District of Texas was issued just one day before open enrollment was set to end this year for what was President Obama’s signature legislation.

O’Connor, in the ruling, agreed with a coalition of Republicans that it was unconstitutional to mandate people buy health insurance and tax those who weren’t in compliance.

President Trump tweeted:

“As I predicted all along, ObamaCare has been struck down as an UNCONSTITUTIONAL disaster!  Now Congress must pass a STRONG law that provides GREAT healthcare and protects pre-existing conditions.  Mitch and Nancy, get it done!”

More on this next time.  The ruling is likely to be appealed.

--A California federal judge awarded attorneys for President Trump nearly $300,000 in fees Tuesday related to a failed defamation claim brought by the aforementioned Stormy Daniels.

When Daniels said in a TV interview that a man had confronted her in 2011 after alleging an affair with Trump in an attempt to silence her, the president tweeted that the person who made the threats was a “non-existent man” and that her allegations was a “total con job.”

District Judge S. James Otero had earlier indicated that the tweet was protected as free speech since it related to a matter of public concern and involved public figures.

Such speech “lies at the heart of the First Amendment” and to try to restrict it would have a “chilling effect on candidates running for office,” the judge said.

Europe and Asia

Before we get to Brexit and the other news on the continent, IHS Markit released its flash PMI readings for December, with the Eurozone Composite at 51.3 vs. 52.7 last month (50 being the dividing line between growth and contraction), a 49-month low.  The flash manufacturing number was 51.4 (51.8 in November), a 34-month low, with non-manufacturing / services at 51.4 (53.4 November), a 49-month low.  Not good...not good at all.

Germany’s flash composite reading was 52.2 for the month vs. 52.3 in November, a 48-mo. low.  Manufacturing at 51.5 (51.8 in Nov.), 33-mo. low; services at 52.5 (53.3 last month), a 7-mo. low.

In France, the flash composite for this month was 49.3, the first contraction in 2 ½ years; manufacturing at 49.7 (50.8 in Nov.), 27-mo. low; services activity at 49.6 (vs. 55.1 in November), 34-mo. low.

So it should be no surprise the European Central Bank cut its economic growth forecasts Thursday, with ECB President Mario Draghi saying at a press conference that “It’s a climate of great uncertainty,” citing trade tensions, vulnerabilities in emerging markets and volatility in financial markets.  Draghi spoke after the ECB confirmed it would keep its key interest rates unchanged at least through the summer of 2019, i.e, at zero (or negative).

The 19-nation eurozone economy has slowed sharply in recent months, as the PMI data reflects, with the ECB lowering its 2018 forecast for GDP by 0.1 percentage point to 1.9%, while reducing its 2019 forecast by a similar amount to 1.7%.

Earlier, Eurostat announced GDP in the third quarter was 0.2% vs. 0.4% in the second, or 1.6% vs. a year earlier, 2.2% in Q2.

Germany came in at an annualized rate of 1.3% for Q3, France just 0.8%, Italy 0.3%, Spain 2.0%, and the Netherlands 2.5%.

Brexit: What a week for British Prime Minister Theresa May.  Monday she abruptly cancelled a planned vote in Parliament on her Brexit proposal, set for Tuesday, when it was obvious the plan would have gone down to a stinging defeat.

Wednesday, she survived a no-confidence vote from her own Tory MPs, but by just 200-117, meaning, in essence, she can’t count on those 117 in any final Brexit vote put through Parliament.

May then traveled throughout Europe, seeking support, prior to an EU summit Thursday and Friday in Brussels.

Mrs. May said today she welcomed the assurances given by EU leaders relating to controversial Brexit guarantees for the Irish border, arguing that they have “legal status” and could be followed up with further commitments, though in actuality no real concessions were granted; certainly nothing that will gain the approval of the House of Commons.

At the heart of the stand-off remains the backstop provisions to keep open the border between the Republic of Ireland, an EU member, and Northern Ireland, which is leaving the EU with the rest of the United Kingdom.

All sides want to avoid a resurgence of sectarian conflict (i.e., “The Troubles”), but Eurosceptic lawmakers fear the backstop could lock Britain into close ties with Brussels that London could not unilaterally exit.

Late Thursday, EU leaders pledged their “firm determination” to limit the use of the backstop, adding that, if triggered, it would apply “temporarily” and only “as long as strictly necessary.”

So May told journalists on Friday: “These commitments have legal status and therefore should be welcomed. This is the clearest statement we have had yet from the EU that it is their intention for the backstop never to be necessary,” she added, noting that “further clarification and discussion” is possible.

“We will be working expeditiously over the coming days to seek those further assurances that I believe MPs [members of Parliament] will need.”

But European leaders challenged Britain’s parliament to find a way through the country’s Brexit deadlock. While some EU leaders offered signals of support to Mrs. May, others stated there are no firm plans to meet again on Brexit in the coming weeks, and that the UK must press ahead with ratifying the deal on the table.

There is an outside shot at a January summit, if it would help the prime minister secure approval of the agreement, but Belgian prime minister Charles Michel expressed the sentiment of many when he said Friday that a no-deal scenario was now “a realistic prospect.”

“Very objectively, the signs that we were given yesterday were not especially reassuring as to the ability of the parliament to be able to honor the commitment that was given,” he said.

EU chiefs are confused after May’s performance on Thursday as to her plans to solve the parliamentary impasse.  Virtually all are in unison in laying the responsibility on the UK parliament, not the EU.  [Basically, many in attendance in Brussels who didn’t want to go on the record said May’s performance was dreadful.]

As European Commission president Jean-Claude Juncker put it: “We don’t want the UK to think there can be any form of renegotiation, that is crystal clear.

“We can add clarifications but no real changes.  There will be no legally binding obligations imposed on the withdrawal treaty.”

Juncker also criticized the UK’s lack of clarity over the future relationship it is seeking with the EU once it has left.

“Our UK friends need to say what they want, instead of asking us to say what we want,” he said.

“So we would like within a few weeks our UK friends to set out their expectations for us because this debate is sometimes nebulous and imprecise and I would like clarifications.”

The Northern Irish party which props up the prime minister’s government warned today that she must stand up to the European Union.  “The Prime Minister has promised to get legally binding changes. The reaction by the EU is unsurprising. They are doing what they always do,” Democratic Unionist Party leader Arlene Foster said.  “The key question is whether the PM will stand up to them or whether she will roll over as has happened previously.”

There is a January 21 deadline for the British parliament to vote on the Brexit package.

Editorial / The Economist

“Desperate, no-holds-barred scrapping has become Britain’s day-to-day mode of government. On December 10th a landmark vote on Theresa May’s Brexit deal was cancelled at the last minute, ambushing ministers who were giving live-broadcast interviews confirming that it would definitely go ahead.  The next day Mrs. May began a tour of Europe, promising to get better terms on the deal, only to be politely rebuffed in every capital she visited. The prime minister came home to find her own Conservative Party planning a vote of no confidence in its leader. She won, but only after promising that she would step down before the next election. Even then, 117 of 317 Tory MPs voted against her.

“It is a grim spectacle, but the upshot of the latest bruising episode is that Mrs. May staggers away bloodied to fight another round.  Under the Tory party’s rules, having seen off the attempted coup, she is immune from further internal challenges for a year.  The hardline Brexit bullies in her party have been shown up for the reckless obsessives they are. But the more abiding truth for Mrs. May is the scale of the rebellion, which has demonstrated that she has no realistic hope of getting her plan for Brexit through Parliament. And it is not just her plan: none of the possible Brexits commands a majority of MPs.

“Mrs. May needs to recognize that she and the country have only one way out of this impasse. That is to go over the heads of MPs and ask the people directly....

“Her deal, which the EU has already signed off on but which Parliament must still approve, would keep the entire United Kingdom in a customs union and extensive regulatory alignment until both sides had settled on a comprehensive new relationship, which might take years.  During that time, Britain would be subject to European rules and unable to sign its own trade deals.  Hard-Brexiteers say this compromise amounts to vassalage, but they have failed to come up with any alternative plan able to win over their colleagues in Parliament.

“With the failure of their rebellion, Britain dodged a blow to the head. Had Mrs. May lost, the Tories’ 124,000 party members would have chosen a new leader – and thus a new prime minister – to see Brexit through.  They may well have picked the more Eurosceptic of the shortlisted candidates, increasing the chance of a bad-tempered, chaotic and ruinous no-deal exit.

“It is also welcome that, in order to pick up enough votes, Mrs. May had to promise to quit before the next election, due in 2022.  She has proved a poor prime minister and a disastrous campaigner.  Her planned departure, along with the defeat of the Brexit monomaniacs, ought to accelerate the promotion of the promising next generation of Tory MPs, to replace the duds who have served the country so ineptly.

“All this means that Mrs. May’s premiership now has but one purpose – and it is a monumental one: to steer a split party and a minority government through the most complex and divisive peacetime transition in modern British history.

“The danger is that Mrs. May, a serial postponer, will try to run down the clock to within a couple of months of Brexit day on March 29th.  She might calculate that Parliament will then have little choice but to back her deal, because the alternative will be leaving with a calamitous no-deal....

“Dogged and persistent as she is, she must recognize that the parliamentary arithmetic is hopeless. Labour and other opposition parties are set against her blueprint, as are more than 100 of her own Tory MPs – Brexiteers and Remainers alike.  Mrs. May’s European travels this week have confirmed that she has little prospect of winning enough changes to satisfy the rebels.  The deal is no more alive than it was when the government postponed the vote in a panic on Monday.

“If Mrs. May wants her agreement to prevail, she must call a second referendum. The block in Parliament is caused by the conflicting claims to democratic legitimacy of elected MPs and the referendum of 2016.  The prime minister insists that her compromise is the only workable way to respect the will of the people, as expressed in that vote two and a half years ago.  MPs, elected by those same people only last year, counter that her plan bears too little resemblance to the campaign on which the referendum was fought – either because a ‘real’ Brexit should be harder, or because the entire prospectus has been shown up as hollow.  Rather than try to square this circle with pointless political street-fighting, Parliament should accept that the only way to know what the people want is to ask them.”

France: The nation is preparing for a fifth weekend of protests from the Yellow Vests.  President Emmanuel Macron’s long-term vision for the country has collided with the short-term needs of the working class, many of whom ridicule Macron as the president of the rich.

On the one hand you have a few prosperous cities, where many residents strongly supported Macron in the 2017 presidential election; and on the other you have the struggling rural areas and small towns of the postindustrial era that either voted for candidates on the extremes or did not vote at all.  And that’s where Macron’s proposed fuel tax hike, that he was then forced to scrap, would hit hardest.

The protests, particularly in Paris, have been responsible for millions of dollars in property damage and far more in lost tourism revenue.  As Finance Minister Bruno Le Maire put it, it’s been “a catastrophe” for the economy.

Numerous tourist sites, such as the Eiffel Tower and the Louvre, have been closed, shops have seen their windows smashed, some looted, cars burned.  The French retail federation told Reuters that retailers had lost about $1.1 billion since the protests began (prior to this coming weekend), with the restaurant trade in Paris having declined between 20% and 50%.

Overall in France, the protests could cost small and medium-sized businesses up to $11 billion.  Paris saw a record number of tourists in 2017 – more than 40 million, but this Christmas season was destroyed and there is anecdotal evidence overseas travelers have been canceling their plans in droves.

This week, the French central bank, Banque de France, cut its expectation for growth in the last quarter of the year from 0.4 percent to 0.2 percent (quarter-over-quarter), owing to the protests.

So after staying silent all these weeks, President Macron finally decreed a “state of social and economic emergency” on Monday, offering a string of generous sweeteners he hopes will quell the revolt, the president having previously scrapped the fuel-tax hike he had never campaigned on.

In a pre-recorded national address, Macron said France was at a “historic juncture,” and issued a mea culpa, saying: “I know that I have managed to wound some of you through my comments.”

The president pledged to raise the minimum wage about $110 per month from 2019 without cost to employers.

Overtime would be free of tax and charges, he said, while businesses that gave end-of-year bonuses would pay no extra tax or charges.

Macron also announced he would reverse a new levy for pensioners with incomes of less than $2,200 a month.

“The effort asked of them was too great and not fair,” he said.

But the president stood firm on his controversial decision to partially scrap France’s wealth tax. To change that, he said, would “weaken us.”

And he slammed the “unacceptable outpouring of violence” of vandals.

“No anger justifies attacking a police officer or public property,” he said.  Macron also made clear he intended to push on with planned reforms of social security and pensions.

“We will respond to the economic and social urgency with strong measures, by cutting taxes more rapidly, by keeping our spending under control, but not with U-turns.”

But here’s the deal.  Macron’s many concessions will now blow out France’s budget, overshooting the European Union’s budget deficit ceiling (3 percent) next year unless there are new spending cuts.

And this impacts the next story....

....Italy: The coalition government here has been under intense pressure from the EU to lower its deficit target, which the European Commission wants below 2.0 percent.  Italy’s Prime Minister Giuseppe Conte said, “We have no margin to negotiate like in a market,” when asked whether the government could further lower the deficit, with Italy planning on a 2019 gap of 2.4 percent.  Conte said his government could not accept new tweaks that would reduce the number of people who benefit from the pension and welfare reforms envisaged in the budget.

But Italy can just point to France, which will breach 3.0 percent, and comment, as Italian Deputy Prime Minister Matteo Salvini told his parliament, “Seeing what is going on in Paris, I refuse to believe that Brussels, for the sake of a few decimal places, will impose sanctions, inspectors and commissars.”

Back to France...the last thing it needed this week amid the protests was a terror attack on the famous Strasbourg Christmas market that killed three.  Friday, French police hunted down the suspect, a career criminal turned ISIS sympathizer, and he was killed in a shootout.

I told you long before the first attack on Christmas markets in Europe that they were rich targets.  I had such a blast when I checked this off my bucket list in a 2007 trip to Germany to see the markets in Cologne and Berlin.  But I told you then of how the whole time I was thinking of how easy it is to infiltrate them...let alone the symbolism to Islamic terrorists.

Hungary: Parliament here passed two laws on Wednesday to allow employers to demand more overtime work and give the government greater control over the judiciary – in a session marked by chaos in the chamber.

The National Assembly, led by far-right Prime Minister Viktor Orban’s Fidesz Party, approved the laws, one of which is called the “slave law” by critics, which increases the amount of overtime employers can force their employees to work – from 250 to 400 hours per year, or up to eight extra working hours per week.

Protesters prior to the vote were demanding higher wages, not longer working hours!  And the trade unions are torqued off because employers can enter into overtime negotiations directly with employees rather than having to go through the unions.

Those in support of the law say it helps employers and employees amid a manpower shortage.

The European Parliament voted to censure Hungary, accusing Orban’s government of violating EU values and democracy.

Turning to Asia, as alluded to above we had a ton of economic data out of China, and it wasn’t good.  November industrial production, up 5.4% year-over-year, and retail sales, 8.1% yoy, came in less than expected, with the retail sales figure the weakest since 2003 (industrial production was the weakest in three years), per the National Bureau of Statistics.

Fixed-asset investment (big-ticket projects) ticked up a bit, 5.9% for the first 11 months of 2018.

But the retail sales figure was highly-disappointing, as the government has tried to ramp up infrastructure spending, while cutting taxes and fees to stimulate more activity and spending.

Separately, November auto sales were down 14% vs. year ago levels, the steepest drop in seven years.

Earlier, it was announced November exports rose 5.4%, well short of expectations, while imports were up only 3%.

Exports to the U.S. increased 9.8%, but this was versus 13.2% in October.  China’s trade surplus with the U.S. nonetheless hit a new high, $35.5 billion in November.

With the weakening picture, it should be no surprise that inflation is tame.  The November produce price (factory-gate) index rose 2.7%, the slowest pace since Oct. 2016, reflecting the slowdown, while the CPI was up only 2.2%, both figures courtesy of the NBS.  China’s inflation target is 3%.

In Japan, third-quarter GDP contracted 2.5%, the most in four years, with capital spending down 2.8%.  Consumption, 60% of the economy, fell 0.2% over the previous quarter.

But a December flash PMI on manufacturing was a decent 52.4.

Street Bytes

--Disappointing economic data out of China and the eurozone on Friday helped lead to a big drop in the market averages today, which resulted in another down week, the Dow Jones losing 1.2% to 24100, the S&P 500 1.3%, and Nasdaq 0.8%.  All three are in correction territory – a decline of at least 10% from the recent highs – for the first time since March 2016.

All three are also down 5.5% or more this month, their worst starts to December since 1980, according to Dow Jones Market Data.

Johnson & Johnson was a major reason why the Dow swooned nearly 500 points today, 2%, shares in JNJ cratering 10% after Reuters reported the company knew for decades that its baby powder sometimes contained asbestos, a claim the company vehemently denied, and has since this issue first surfaced.

The market also hasn’t been helped recently by the fact investors have been rushing out of U.S. equity funds, including the second-biggest weekly exit on record, according to Bank of America Merrill Lynch.

U.S. stock funds bled $27.6 billion in the days through Dec. 12.

--U.S. Treasury Yields

6-mo. 2.54%  2-yr. 2.73%  10-yr. 2.89%  30-yr. 3.14%

Rates were little changed on the week as the market waits to see what the Fed does, and says, this week regarding future rate actions.  Most still expect a hike Wednesday.

--As I noted last time, Meng Wanzhou, the chief financial officer of Chinese telecom giant Huawei, was arrested in Canada at the request of the United States.  A Canadian court on Tuesday then granted bail to Meng, while she awaits a hearing for extradition to the U.S., a move that it was hoped would placate Chinese officials angered by her arrest.

Meng, the daughter of Huawei’s founder, faces U.S. accusations that she misled multinational banks about Iran-linked transactions, putting the banks at risk of violating U.S. sanctions.

Meng’s bail was set at $7.5 million and she will be under constant surveillance, while wearing an electronic device to prevent her from fleeing.

China had threatened severe consequences unless Canada released Meng immediately.  But since her arrest, two Canadians in China have been detained.

The Trump administration sees China’s drive to be a global leader in key technologies, such as 5G, as a major threat to the United States.  The current trade war is focused on preventing China from getting hold of such cutting-edge technology.  [5G mobile networks will be at the heart of new developments, such as artificial intelligence, self-driving cars, and the internet of things.]

But the arrest shows China how vulnerable the country’s top national companies, such as Huawei, are if they rely on American components such as chips and superconductors.  No doubt China will thus speed up its efforts to become self-reliant in key high technologies, and phase out any reliance on American components.

Huawei is privately held but deeply distrusted in the U.S.  At a Senate Intelligence Committee hearing in February, the heads of the CIA, FBI and National Security Agency warned against buying Huawei phones.

China’s national intelligence law reinforces the doubts, with its requirement that all organizations and citizens cooperate with intelligence agencies.

Huawei’s founder and CEO, Ren Zhengfei, Meng’s father and a deputy director of the People’s Liberation Army engineering corps, has deep ties with the government.

The U.S. isn’t the only country going after Huawei.  British telecom giant BT Group is removing Huawei equipment from the core of its existing networks, and won’t allow it to be part of its 5G network, and Canada, Australia and New Zealand are among other nations shutting the door on the company.  Monday, Japan effectively excluded Huawei and fellow telecom equipment giant ZTE from public procurement.

China’s Global Times, a state-backed newspaper, warned in an editorial that the arrest of Meng “will isolate U.S. from digital economy of the future.”

Yes, Apple needs to be concerned.

The Global Times said: “Some Western countries are resorting to political means to resist Huawei’s attempts to enter into their markets.

“Failure to provide reciprocal opening-up means their companies won’t get any benefits from China’s digital economy.”

--Meanwhile, U.S. government investigators increasingly believe that Chinese state hackers probably were responsible for the massive breach reported last month of Marriott International’s Starwood hotel reservation system, which exposed the private information and travel details of as many as 500 million people.

As reported by Bloomberg and the New York Times, among others, preliminary indications are the breach was conducted by hackers affiliated with the Chinese Ministry of State Security, but the actions were taken over four years before being discovered.

Some intel officials believe the breach was conducted to add to China’s massive data sets on U.S. and other citizens.  Another big breach occurred in 2015 with the Office of Personnel Management intrusion, which captured the personal data of more than 20 million government employees, family members and applicants.

--For the second consecutive week, a report on inventories of U.S. crude showed a decline, though by a smaller than expected 1.2m barrels in the week ended December 7, the Energy Information Administration said on Wednesday.

The decline in stockpiles comes as OPEC and its oil producing allies agreed to cut production by 1.2m barrels a day following contentious negotiations in Vienna last week.

[OPEC nations would cut 800,000 barrels and the Russia-led group would handle the remainder.  Saudi Arabia 250,000 barrels, Russia 230,000.]

--As noted above, there is some optimism China will be back buying U.S. soybeans and futures on same rose Wednesday as the Department of Agriculture announced sales to Mexico, as well as 110,000 metric tons of soybeans sold to “unknown destinations,” that some believe to be China.

The U.S. Soybean Export Council then said Thursday that China would be buying 1.5 million to 2 million metric tons during the first quarter, while the Dept. of Agriculture disclosed sales of 1.13 million tons to China.

But soybean futures then fell on Thursday and Friday because the market was looking for much higher sales to put a dent in the mountain of beans stockpiled in the U.S., with inventories set to double to a record 25.99 million tons, according to the USDA.

One strategist at Zaner in Chicago said, “We needed at least 10 million metric tons, we got 1.1 million.”

As Bloomberg notes, farmers and others are working on multiple fronts to secure new homes for their product, even as replacing China is a tall order. China bought 57% of all U.S. soybeans that were exported last year, more than eight times the total sold to Mexico, the next-biggest buyer by quantity.

As China imposed retaliatory tariffs on the U.S. oilseed, exports to China plunged 62% in the first ten months of 2018 compared with year ago levels.

Even before the trade war, farmers had it tough. Net farm income has fallen four out of the last five years and is projected to be $66.3 billion in 2018, or 46% of 2013 levels, according to the USDA.

--Apple announced Thursday that it would expand its operations in Austin, Texas, with a new $1 billion campus that would nearly double the size of the company’s current 6,000-employee work force in the area.

At the same time the company announced it is spending $10 billion for new data centers in Seattle, San Diego and Culver City, California, while expanding operations in Pittsburgh, New York and Boulder, Colorado over the next three years.

Apple, which receives over half its revenue from outside the U.S., has faced increasing political pressure to ramp up investments at home since 2016, after then presidential candidate Donald Trump targeted the company for using Asian factories for the bulk of its manufacturing.

Existing data centers in North Carolina, Arizona and Nevada are being expanded.

In January, Apple said it planned to invest more than $30 billion in the United States over the next five years and to create 20,000 jobs by expanding its operations and adding a new campus.

But none of the new positions announced by Apple on Thursday appeared to involve manufacturing, which is what President Trump has been demanding of Apple...to bring iPhone production to the U.S.

Trump nonetheless tweeted Friday afternoon:

“Thank you to @tim_cook for agreeing to expand operations in the U.S. and thereby creating thousands of jobs!”

Separately, a Chinese court ordered Apple Inc. to stop selling older iPhone models after finding the company infringed on two patents held by Qualcomm Inc., the chip maker said, which is a big deal given Apple’s business in this market.

But the Nov. 30 decision, just released, doesn’t apply to new iPhone models launched this year, though this is all part of what I have warned of for at least five years when it comes to Apple’s exposure in China.

--Congress revealed itself again on Wednesday as Google CEO Sundar Pichai became the latest tech executive to face lawmakers over the possible effect of social media on elections, data breaches, perceived partisan bias and other issues.

But the knowledge gap between a Pichai and the average House member is wide.  Congressman Steve Cohen asked Pichai to set up an online Google school and a telephone help line in which users could talk to actual people.  There were few probing queries.  Representative Doug Collins ticked through a list of factors including GPS and Wi-Fi to ask Pichai if Google collects data.

What’s worrying is that Congress is facing the task of working out how to increase privacy standards and spur competition.  Congressman Steve King, who criticized Google for a bias against conservatives and Republicans, said the company should release the names of the more than 1,000 employees on its search team so lawmakers can study their social media comments for any partisanship.

For his part, Pichai rejected claims of political bias against conservatives, while stressing the American roots of the company.

But Pichai refused to rule out launching a censored search engine in China, dodging question after question about re-entering China after leaving it in 2010 over censorship and hacking concerns.

“We have explored what search could look like if it were launched in a country like China,” Pichai admitted during the hearing, but evaded providing any specifics.

Pichai described the controversial initiative, codenamed “Dragonfly,” as an “internal effort” and pledged Google would be “transparent” with Congress about the initiative before launching it in China.

Separately, Google disclosed that a security bug had leaked the data of 52 million users on its social network Google Plus.

--Facebook said pictures belonging to up to 6.8 million users may have been exposed by a software glitch that granted app developers access to the photos, yet another privacy lapse at the social-media giant.

Facebook said it found and fixed the bug on Sept. 25 after an internal team made the discovery.  The photos were available from Sept. 13 until then and it’s not known how many, if any, developers accessed them.

--Nissan Motor Co.’s Carlos Ghosn was formally charged with understating his compensation in Nissan’s financial reports, with Tokyo prosecutors taking steps to ensure he would spend Christmas in jail.

Prosecutors finally brought their first charges against Ghosn, alleging he conspired to report only about half of his compensation during the five years ended March 2015.

With the charges, Ghosn will likely be behind bars well into 2019.

Nissan was indicted alongside Ghosn, the automaker apologizing for “false disclosures.”

But Renault SA’s board said Ghosn will remain chairman and CEO of the other half of the alliance after it found no financial wrongdoing in France.

“We believe we need to wait on what Carlos Ghosn has to say about this one-sided investigation,” said a person familiar with the board meeting.

Ghosn receives two separate salaries from Renault and Nissan.

--In an interview on “60 Minutes” with Lesley Stahl, Elon Musk said of the SEC: “I want to be clear: I do not respect the SEC. I do not respect them.”

In discussing a stock fraud settlement with the Securities and Exchange Commission in October that stripped him of his chairman’s title, Musk said that bringing in a new chairman as a babysitter is “not realistic” because “I’m the largest shareholder in the company and I could call for a shareholder vote and get anything done that I want.”

Robyn Denholm was named Tesla chairwoman in November.

Musk also said no one is reviewing his tweets, as called for in the settlement.

“The only tweets that would have to be, say, reviewed would be if a tweet had a probability of causing a movement in the stock,” Musk said.  “Otherwise, it’s hello 1st Amendment. Freedom of speech is fundamental.”

But, Stahl asked, how will anyone know a tweet could move the market if no one’s reading them first?

“I guess we might make some mistakes, who knows,” Musk said with a laugh.  “I use my tweets to express myself. Some people use their hair. I use Twitter.”

“You’re abiding by the settlement, aren’t you?” Stahl asked.

“Because I respect the justice system,” Musk replied.

Stahl addressed his importance to the company, as in, “There are people who say that the company cannot survive without you,” to which Musk replied, “I think that’s true, yeah.”

Stahl added, “And there are people who say the company cannot survive with you.”

“Ha, ha, that’s hilarious,” Musk said.

--From the New York Post:

“Put away the ink pad – the CVS-Aetna merger isn’t getting rubber-stamped anytime soon.

“Sources close to the case are betting that US District Judge Richard Leon – who griped earlier this month that CVS and Aetna treated him like a ‘rubber stamp’ because they had already closed the deal before it arrived at his desk – is likely to block CVS from combining with Aetna at a hearing next Tuesday.”

What is now expected is a ruling that “might delay the $69 billion merger for months, rather than the weeks that most investors anticipate, insiders said.”

Leon doesn’t believe the companies have made enough antitrust concessions, even though the Department of Justice cleared the deal on Nov. 28.

--McDonald’s Corp. said on Tuesday it plans to reduce the use of antibiotics in its global beef supply, with other restaurants sure to follow.  The move by the world’s biggest fast-food chain addresses concerns that the overuse of antibiotics vital to fighting human infections in farm animals is diminishing the drugs’ effectiveness in people.

Many farmers and ranchers have been working to cut back on antibiotic use while keeping cattle healthy, but there is a lack of alternatives, today, when animals fall ill.

The Food and Drug Administration said sales and distributions of medically important antibiotics for food production fell 14 percent from 2015 to 2016, the first decline in year-to-year sales since the agency began collecting the data in 2009.

Many restaurants and meat companies have moved away from using antibiotics in chicken production in recent years, in part because McDonald’s did so.  But removing antibiotics from cattle is more difficult because with a longer life, they have more chances to fall ill.

--Shares in Under Armour cratered more than 11 percent Wednesday as the company issued a tepid longer term forecast at its investor day.

The company said it expects compound annual revenue growth in the low single digits in North America between 2020 and 2022.  But it expects growth in Europe, Middle East and Africa in the mid-teens over the same period, and in Asia-Pacific, revenue growth in the mid-20s.

Investors were underwhelmed.  The sportswear maker has been cutting jobs amid a massive overhaul in its business to better respond to shifting consumer tastes.

--Sears Holdings Corp. announced that same-store sales increased 4.3% in the recently completed quarter, reversing years of declines.  The measure – which excludes newly opened or closed locations – rose 6.1% at Kmart locations and 3.2% at Sears stores.

But the improvement was due to liquidation sales at stores that it is eliminating, with the company closing 28 Kmart and 73 Sears stores in the three months ended Nov. 3.

Total revenue, on the other hand, fell 23% to $2.74 billion, with the company’s net loss widening to $950 million from $556 million a year earlier.

Sears has $526 million in cash on hand, according to a securities filling.

Sears Chairman Edward Lampert has made an offer, through his hedge fund ESL Investments, to buy about 500 stores and other assets for $4.6 billion, including the forgiveness of $1.8 billion in debt.  Creditors are pushing for a liquidation.

--According to a report by Erik Larson and Christopher Cannon for Bloomberg, a decade after Bernie Madoff was arrested for running the world’s biggest Ponzi scheme, the fight to recoup investors’ lost billions has proved amazingly fruitful.

No one will ever collect the phantom profits Madoff pretended he was earning, but of the cash deposits by clients of the trustee overseeing liquidation of Madoff’s firm in bankruptcy court, Irving Picard, $13.3 billion – about 70 percent of approved claims – has been recovered by suing those who profited from the scheme, knowingly or not.

So far Picard has distributed $11.3 billion of the $13.3bn recovered, with the rest being held in reserve pending the outcome of legal disputes and appeals.

“As of now, almost 1,400 victims who had claims of $1.38 million or less have been repaid in full.”

That’s great news. 

--Kentucky Fried Chicken offered a firelog that smells like fried chicken, a limited edition 11 Herbs & Spices Firelog that costs $18.99 and was available at kfcfirelogs.com. 

“The smell of the Colonel’s Original Recipe fried chicken is unmistakable,” KFC said in a statement.

It was sold out in hours.

--Kathie Lee Gifford is leaving her “Today” gig next April, after 11 years, much to the chagrin of network brass who begged her to stay, according to reports, to show continuity after a year of turmoil on the program.

Jenna Bush Hager is the favorite to fill the slot.

Foreign Affairs

Yemen: A UN-backed peace initiative in Sweden ended Thursday with an agreement between the Iranian-backed Houthis and the Saudi-backed government of President Abd-Rabbu Mansour Hadi to cease fighting for the Houthi-held port city of Hodeidah and withdraw their troops.  It was the first significant breakthrough for UN-led peace efforts in five years of conflict in Yemen.

Iran welcomed the initial agreement as a step towards a final peace accord, Iranian state TV reported on Friday.

A next round of talks will be held at the end of January at which the warring parties will discuss a framework for political negotiations.

Iranian Foreign Ministry spokesman Bahram Qasemi was quoted as saying on TV: “The agreement is significant. The deal showed that the Yemeni groups involved in the talks had truly understood the deplorable conditions of the innocent and oppressed Yemeni people,” Qasemi said.

A Saudi-led military coalition intervened in Yemen in 2015, backing forces of Hadi’s internationally recognized government.  The war has killed tens of thousands and caused the worst humanitarian crisis in the world.

Meanwhile, the U.S. Senate voted resoundingly on Thursday, 56-41, to withdraw American military assistance for Saudi Arabia’s war in Yemen, a bipartisan rebuke of President Trump for his defense of the kingdom amid outrage in both parties over Riyadh’s role in the killing of dissident journalist Jamal Khashoggi.

The vote was a rare move to limit presidential war powers but its immediate impact is largely symbolic, after the House earlier this week moved to scuttle it, so the measure will die without making it to Trump’s desk by year end.

But no doubt lawmakers want to punish the kingdom for its role in the brutal killing, and to question a bipartisan tradition of averting Washington’s gaze from human rights abuses and other wrongdoing by the Saudis in the interest of preserving a strategically important relationship in the Middle East.

In an interview with Reuters on Tuesday, President Trump said he was standing by Crown Prince Mohammed bin Salman despite the CIA’s findings, saying the crown prince was “very strongly in power” in Saudi Arabia.

Republican Senator Bob Corker (Tenn.), who heads the Foreign Relations Committee, said on the Senate floor on Wednesday: “I absolutely believe that if the crown prince came before a jury here in the United States of America, he would be convicted in under 30 minutes.  I absolutely believe he directed it. I believe he monitored it. And I believe he is responsible for it.”

Separately, according to the New York Times, Trump adviser and son-in-law, Jared Kushner, continues to offer the Crown Prince advice on how to handle the outrage over the slaying.

Syria: U.S.-backed Syrian forces seized control of a town in eastern Syria held by Islamic State, the Syrian Observatory for Human Rights monitor reported.  Hajin was the last big town held by ISIS in its remaining pocket of territory east of the Euphrates River near the border with Iraq.  The Syrian Democratic Forces (SDF), along with Kurdish YPG militia, have been battling to eradicate ISIS fighters from the area for months, with over 1,600 having been killed, mostly fighters from both sides.

But an SDF commander told Reuters Thursday that at least 5,000 Islamic State fighters remain holed up in the pocket of territory including Hajin and that they had decided to fight to the death.  It’s estimated 2,000 of them are foreign fighters, mostly Arabs and Europeans along with their families.

The commander, Mazloum Kobani, also said “it was possible that Islamic State leader Abu Bakr al-Baghdadi was in eastern Syria, but the SDF could not be sure because he often disappears.”

Meanwhile, Turkey announced it would be launching a new military operation in northern Syria within days, targeting the Kurdish militia fights who are being supported by the U.S.

Ankara and Washington have long been at odds over Syria, with Turkey saying the YPG is a terrorist organization and an extension of the outlawed Kurdistan Workers Party (PKK), which has been waging an insurgency in southeastern Turkey for 34 years.

Turkish President Erdogan has grown impatient with Washington and a deal to clear the YPG from the town of Manbij, just west of the Euphrates.  Turkish and U.S. troops began joint patrols near there last month, but Turkey has shelled Kurdish fighters outside the area.

It’s easy to forget the U.S. has about 2,000 troops in Syria, according to the Pentagon.

Meanwhile, huge parts of both Iraq and Syria remain in ruins after years of fighting, and there is little cash to begin rebuilding each country.

Iraq estimates $88.2 billion is needed, and at a donors’ summit earlier this year, $30 billion was pledged, mainly in the form of loans, but there has been zero progress in fulfilling the pledges.

China: Top federal investigative officials appeared before the Senate Judiciary Committee on Wednesday and told senators that Chinese corporate espionage has metastasized into a critical national and economic security threat, warning Beijing is exploiting American technology to develop its own economy.

The FBI’s top counterintelligence official, Bill Priestap, told the committee: “Our prosperity and place in the world are at risk...

“I believe this is the most severe counterintelligence threat facing our country today. Every rock we turn over, every time we looked for it, it’s not only there, it’s worse than we anticipated.”

Senators in both parties said that China’s actions were intolerable and that they would move forward with legislation to give investigators broader authorities to combat the threat.

“In simple terms, it’s called cheating,” said Sen. Chuck Grassley (R., Iowa), chairman of the Judiciary panel.  “And it’s only getting worse.”

On a different topic, about 100 worshippers at an unofficial church in southwestern China were snatched from their homes or from the streets in coordinated raids last Sunday.

Chinese authorities targeted members of a prominent Protestant house church. The homes of the church’s leaders were among those raided.

North Korea: From the Wall Street Journal’s Andrew Jeong and Dasl Yoon:

“Cracks in the hard-won détente between North and South Korea are emerging, raising doubts about the path ahead after a year of warming ties.

“With nuclear talks with the U.S. at a standstill and sanctions thwarting progress on inter-Korean economic projects, signs of Pyongyang’s frustration point to new obstacles in the rapprochement.

“South Korea on Wednesday indicated that North Korean leader Kim Jong Un was unlikely to visit Seoul before the end of the year – an objective the sides had laid out at a summit in September....

“Meanwhile, North Korea issued a commentary admonishing South Korea for holding an air-force exercise this month and criticizing Seoul’s ‘large-scale arms buildup.’  Such action ‘destroys confidence between north and south,’ the statement said, warning Seoul against worsening relations.”

As for the aftermath of the Trump-Kim summit in Singapore, way back in June, there has been nothing on how North Korea is to denuclearize, while satellite imagery continues to show the regime is developing its weapons program.  While President Trump wants to hold another summit with Kim as early as January, the U.S. has said it won’t ease sanctions until Pyongyang offers concrete signs it intends to give up its nukes.

President Trump tweeted late today:

“Many people have asked how we are doing in our negotiations with North Korea – I always reply by saying we are in no hurry, there is wonderful potential for great economic success for that country....

“....Kim Jong Un sees it better than anyone and will fully take advantage of it for his people. We are doing just fine!”

Japan: In a major shift for the country, Japan plans to accept more than 300,000 blue-collar foreign workers over the next five years to help tackle labor shortages under a bill passed by parliament last Saturday.

Despite the above-noted growth hiccup in the third quarter, with Japan’s population dropping since 2010 due to chronically low birthrates, job opportunities have been increasing and the jobless rate is at its lowest level since 1992.

Business groups have been lobbying the government to loosen its restrictions on foreign workers.

The new law creates two visa categories: one for manual workers who can stay for five years and one for higher-skilled blue-collar workers who can stay indefinitely.

In opinion polls, a slight majority of the population supports accepting more foreign workers despite historical opposition to immigration.  Only 2% of Japan’s resident population is non-Japanese.

Russia: The Kremlin on Friday rebuffed a U.S. call to release Ukrainian ships and sailors, saying it could not take precedence over Russia’s justice system, but added that Moscow remained interested in a top-level meeting with the U.S.

Washington said on Thursday that a meeting between Trump and Putin would not be held until Moscow released three Ukrainian navy vessels and their crews, seized last month off Crimea.

Serbia / Kosovo: There’s a disturbing story today that NATO is warning of mounting instability in the Balkans, as lawmakers in Kosovo voted to establish an army, prompting outrage in neighboring Serbia, which doesn’t recognize Kosovo’s independence.

NATO has been handling Kosovo’s security as an international protectorate, since it declared independence in 2008, nine years after U.S.-led NATO forces stopped Serbia’s military crackdown on the breakaway province.

In recent years the two sides had patched up their differences under a series of talks hosted by the European Union, which resulted in a proposal to swap territory this year.

But Kosovo’s decision is a major setback for the reconciliation process.

NATO currently has 5,000 troops in Kosovo, including 600 U.S. soldiers.

Stupidly, the U.S. is siding with Kosovo’s decision to create an army, while NATO, along with the EU, condemned the vote.

Having been to neighboring Albania, and traveled in the countryside, this is one tough neighborhood.  Let’s just say I wouldn’t go dare go into a bar near the Kosovo border alone.

Mexico: Mexico’s new president, Andres Manuel Lopez Obrador (AMLO) said Monday that salaries for some in the country’s judicial branch are “offensive” and that he will leave it to the Congress to implement his call for austerity.

AMLO has pledged to only take a salary of $5,300 per month, and the judges have balked at his demand that no public salaries exceed his own.  The president said some judges are collecting as much as $30,000 per month.

Reducing the public payroll is critical for AMLO to have the funds needed to accomplish his goals.

Among his proposed initiatives is a plan to spend $30 billion over the next five years on Central American development, in order to slow migration from some of the hemisphere’s poorest and most violent countries.

Regarding issues such as the caravan, that has seen more than 5,000 Central American migrants congregate in Tijuana, AMLO is on record as saying he “will not do the dirty work of any foreign government,” a clear swipe at demands Trump was imposing on Mexico to stop the migrant caravan.

Lopez Obrador also promises to focus the work of Mexico’s network of consulates in the United States on “defending” the millions of Mexicans living north of the border.

Random Musings

--Presidential tracking polls....

Gallup: 40% approval of Trump’s job performance, 56% disapproval (Dec. 9); 89% Republicans, 38% Independents.
Rasmussen: 48% approval, 50% disapproval (Dec. 14).

A Fox News poll has 46% approving of Trump’s job performance, 52% disapproving.  In January, it was 45-53.  Moreover, approval has barely budged all year, staying within a narrow range of 43% to 47% in this one...and all the other surveys for that matter.

But President Trump took a rare shot at Fox News, griping about the 46% approval figure.

“Frankly, Fox has always given me a bad poll.  I don’t know why that is,” he told Fox News host Harris Faulkner during an interview.  But the 46% is a few points higher than most other surveys in the past week.

What’s worrisome for the president is 45% think the economy will be in better shape a year from now, down from 56% who felt that way in December 2016.

50% do approve of Trump’s handling of the economy overall, however, 43% disapproving.  On border security its 46-49 percent, and on immigration it’s 43-53 percent.  On voters’ top concern, health care, the president is underwater by 23 points: 33-56 percent.

--In a new CNN / SSRS poll, President Trump’s approval rating for handling the Russia investigation dipped to 29%, matching a low previously hit in June of this year.

But Robert Mueller’s approval rating is also down: 43% approve and 40% disapprove.  That compares to a 48-36 split in early October.

Overall, a majority (54%) continue to say that most of the things Trump has said publicly about the Russia investigation are false, while just over a third say they are mostly true (36%). That’s largely unchanged since August.

59% say the investigation is a serious matter, 35% an effort to discredit Trump.

In the CNN poll, Trump’s overall approval rating is 39%, 52% disapproval for his handling of the presidency, which virtually matches its pre-election level.

--Nancy Pelosi agreed to term limits in a deal with her Democratic caucus that paves the way for her to become House speak in January.

Pelosi, 78, will serve no more than four more years, a concession that gained her the votes of some former members of the anti-Pelosi faction, including Reps. Tim Ryan (D-Ohio) and Seth Moulton (D-Mass), with several others expected to now vote ‘yes.’

Pelosi said in a statement: “Over the summer, I made it clear that I see myself as a bridge to the next generation of leaders, a recognition of my continuing responsibility to mentor and advance new Members into positions of power and responsibility in the House Democratic Caucus.”

Separately, Pelosi mocked President Trump’s “manhood” and questioned his basic understanding of government spending during a closed-door meeting with House Democrats on Tuesday, according to an aide in the room.

Pelosi made her blistering remarks after returning to the Capitol from a tense Oval Office sit down with Trump, Pelosi accompanied by Senate Minority Leader Chuck Schumer; a stone-faced Mike Pence sitting alongside the president.

“It’s like a manhood thing for him,” Pelosi told the Dems of Trump’s wall obsession, according to the source.  “As if manhood could ever be associated with him.”

With reporters present, Trump boasted he would be “proud” to shut down the government if Congress doesn’t earmark cash for his wall before a Dec. 21 spending deadline.

So Trump “owns” any shutdown.  Pelosi and Schumer believe this was an accomplishment.

After spending the campaign promising Mexico would pay for a border wall, Trump since taking office has demanded Congress makes sure American taxpayers foot the bill.

--Republican Rep. Mia Love (Utah), in an op-ed for the Washington Post, Love having lost her seat to her Democrat opponent in the mid-term elections.

“For too long, conservatives in my party have focused on administering purity tests instead of expanding our audience. And in doing so, we have too often failed to adequately articulate our party’s principles to others, allowing our opponents to define or caricature our principles for us.

“We have especially failed to bring our message to, and connect with, women and racial minorities. And we have effectively written off cities as Democratic strongholds.  Our nation is poorer for it.

“Many on the right claim that some Americans oppose Republicans because of the proliferation of identity politics. But Republicans who accept that some Americans will inevitably vote Democratic simply because of their physical features or where they live are buying into the identity politics they so stridently object to.

“As I prepare to leave Congress after a hard-fought election, I am not advocating a Republican version of identity politics.  I oppose such tactics because they often strip people of their identity and reduce them to an avatar. As the only black Republican woman in Congress, I know this well.  I have often been the target of insults from those who struggle to reconcile what they thought I should be with who I actually am.

“This is far too common in American politics. We construct mental cages for people based on societal narratives, and we feel uncomfortable when they escape. When my friend Tim Scott, the only black Republican in the U.S. Senate, celebrated the passage of tax reform, an uninformed troll labeled him a ‘prop’ – even though he was instrumental in crafting and passing the bill. And when I was photographed at the White House as President Trump signed a banking reform package, which included one of my bills, I received similar feedback.

“But Republicans should not be so afraid of identity politics that we refuse to seek out the unique experiences that actually do contribute to people’s individual identity.

“For example, during my time in Congress, I never understood why I had to fight so hard to make my perspective heard on immigration. My parents left Haitian soil for the United States in the early 1970s.  They arrived here with nothing but hope in their hearts and a firm determination to work hard so that their family could enjoy the peace and opportunity that had eluded them in Haiti.  They worked incredibly hard and insisted that their family contribute to their communities and society. Thirty-nine years later, we celebrated together as I was elected to Congress....

“We must invite, not just tolerate, diverse perspectives to the table and ensure that their voices matter.

“We must do a better job of connecting with individuals and families that may not traditionally vote Republican. We must listen to their experiences, visit them in their comfort zones and take their priorities to heart.    Our policy implementations must be personal – not transactional.  And we cannot fall into the trap of thinking that there are Democratic issues and Republican issues.

“I believe in policies that protect life at all stages, preserve free markets, promote fiscal responsibility and limit government. There are millions of Americans who believe in these principles. But for them to believe in us, we must first show that we believe in them.”

--Bret Stephens / New York Times

“As with September’s memorial services for John McCain, expressions of mourning for George H.W. Bush – extolling the 41st president’s humility, loyalty, temperance, decency, bravery and devotion to public service – have contained thinly veiled rebukes of the current president. The sharpest one, I thought, came in Alan Simpson’s splendid eulogy at Washington National Cathedral.

“ ‘He never lost his sense of humor,’ the former senator from Wyoming said of his friend of more than 50 years.  ‘Humor is the universal solvent against the abrasive elements of life. That’s what humor is.  He never hated anyone.  He knew what his mother and my mother always knew: hatred corrodes the container it’s carried in.’

“Did Donald Trump catch any of this as he sat there in the first pew?  Lindsey Graham, the episodically spineful Republican from South Carolina, has claimed that, in private, the 45th president is ‘funny as hell’ and has ‘a great sense of humor.’  If so, it’s a better kept secret than his tax returns....

“(Trump) hankers for media adulation and boils with rage for not getting it.  It doesn’t seem to occur to him that the surest invitation to mockery is humorlessness.   Or that self-deprecation pre-empts derision.  Or that the best way to undermine his media critics is to make light of their pomposity, not thunder at their impudence.  Or that presidential charm trumps media vituperation every time.

“In sum, that humor in democratic politics is also its most effective weapon: the strongest shield and the sharpest blade.  It doesn’t just amuse, leaven and comfort. It defangs, attracts, and mobilizes. Winston Churchill was a wit, as were Jack Kennedy and Ronald Reagan.  Nixon and Jimmy Carter weren’t.

“Does any of this make a dent on Trump?  I doubt it.  His character is what it is.  And his style of politics isn’t democratic so much as it is cult-of-personality.  Trump appeared engaged throughout the service, but I suspect that Simpson’s speech flew right past him.

“It shouldn’t fly past the rest of us. This is an angry age, in which Trump’s critics also simmer in rage, ridicule, self-importance, self-pity – and hatred, too.  They think they’re reproaching the president.  Increasingly they reflect him.  Simpson’s message contains a warning to us all.”

--Fentanyl is now the deadliest drug in America, as per a new report from the Centers for Disease Control and Prevention, with over 18,000 overdose deaths in 2016, the most recent year for which statistics are available.  For the previous four years (2012 to 2015), heroin topped the list.

Overall, more than 63,000 Americans died of drug overdoses in 2016, an average of 174 deaths per day.

--TIME magazine named a group of journalists, including the murdered Jamal Khashoggi, as its person of the year for 2018, honoring their dedicated pursuit of the truth despite a war on facts and tremendous obstacles, including violence and imprisonment.

TIME was making a nod to the spread of misinformation around the world by leaders seeking to quash independent journalism.

Besides Khashoggi, the honorees included the staff of the Capital Gazette newspapers in Maryland, where five people were shot dead in June; Maria Ressa, the founder of a news start-up under attack by the authoritarian president of the Philippines; and U Wa Lone and U Kyaw Soe Oo, two Reuters journalists imprisoned in Myanmar after reporting the massacre of Muslim men.

---

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

God bless America.

---

Gold $1242
Oil $51.23

Returns for the week 12/10-12/14

Dow Jones  -1.2%  [24100]
S&P 500  -1.3%  [2599]
S&P MidCap  -2.7%
Russell 2000  -2.6%
Nasdaq  -0.8%  [6910]

Returns for the period 1/1/18-12/14/18

Dow Jones  -2.5%
S&P 500  -2.8%
S&P MidCap  -8.8%
Russell 2000  -8.1%
Nasdaq  +0.1%

Bulls 45.4
Bears
20.4 

Have a great week.

Brian Trumbore



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Week in Review

12/15/2018

For the week 12/10-12/14

[Posted 11:30 PM ET, Friday]

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

Edition 1,027

I discuss in detail the various revelations in the Mueller probe this week, and those of the Southern District of New York, down below, but while we now have a president who during the 2016 campaign was blatantly lying to the public about his then-alleged affairs, and keeping knowledge of them out of the public eye, as he himself is admitting today, this is hardly an impeachable offense.

Certain “leaps” have also yet to be revealed, such as Manafort to Trump, that would indeed prove most troublesome for the president.

What’s also clear is that then-candidate Trump talked of having no contacts with Russians during the campaign, but there were indeed many contacts with them.

So what more does Mueller have?  Remember, I’m the ‘wait 24 hours’ guy.  I have held to my principle throughout the investigation.

For now, though, I can’t help but largely agree with the following from a Wall Street Journal editorial this week:

“The political dilemma for Democrats is that lying about sex and paying to cover it up are wrong, but they’re a long way from collaborating with the Kremlin to beat Mrs. Clinton.  Mr. Trump lied to the public about his dealings with Mr. Cohen.  Bill Clinton lied to the public and under oath in a legal proceeding, yet Democrats defended him.  Good luck trying to impeach Mr. Trump for campaign-finance violations.

“All of this argues for Mr. Mueller to wrap up his probe and let America get on with the political debate over its meaning for Mr. Trump’s Presidency....The country deserves an account of what Mr. Mueller knows, not more factual dribs and drabs in sentencing memos.”

None of this is good for an already deeply-divided country.

Wall Street and China Trade Negotiations

The market finished down a fourth week in five, fueled by fears of slowing global growth (detailed below when it comes to slowdowns in China and across Europe), concerns over future action out of the Federal Reserve, a slowing corporate profit outlook, and trade tensions.  And while market participants largely ignored the criminal proceedings emanating from the Mueller probe and the Southern District of New York, at least outwardly, the increased pace of news flow out of the courts doesn’t help market sentiment.

We did have more strong economic data this week, however, as November retail sales rose 0.2%, ditto ex-autos, in line with expectations, while last month’s already strong figures were revised upward.  November industrial production was robust, 0.6%.

And the inflation data was tame, important when predicting the direction of future Fed policy, the Open Market Committee meeting next week, at which time it is expected to hike its benchmark funds rate another quarter-point, but then potentially announce it is taking a pause.

The producer price index rose 0.1% for last month, 0.3% ex-food and energy; 2.5% year-over-year, 2.7% on core.

Consumer prices in November were unchanged, 0.2% on core; 2.2% vs. a year ago on both.

The CPI was running at 2.9% just this past July so the Fed has to take notice of this development.

Add it all up and the Atlanta Fed’s GDPNow barometer for the fourth quarter is back up to 3.0%, from 2.4% a week ago.

Trade: Chinese Vice-Premier Liu He had a phone conversation with U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer on Tuesday to set the stage for the next round of trade talks, the first formal exchange since the meeting between Presidents Trump and Xi Jinping.  The relationship between the two sides suffered a further blow after the Dec. 1 talks in Buenos Aires with the arrest of the chief financial officer of Chinese telecom giant Huawei (detailed below), at the request of the U.S.

But China’s finance ministry announced Friday it would suspend additional tariffs on U.S.-made vehicles and auto parts for three months starting Jan. 1, 2019, following an announced truce in the trade war.  The Ministry of Finance, in a statement on its website, also said it hopes China and the United States can speed up negotiations to remove all additional tariffs on each other’s goods.

“This is a good signal that China and the United States are on track to solve the trade war,” said Wang Cun, director of the China Automobile Dealers Association’s import committee.  “Car makers might be ordering a large number of imported cars now.”

Shortly after the finance ministry’s announcement, Tesla Inc. said it had cut prices on its Model S and Model X vehicles in China.

Ford welcomed China’s move, noting that it exported nearly 50,000 U.S.-built vehicles to the country in 2017.

But some perspective is in order.  Auto exports between the two are relatively small.  China exported 53,300 vehicles to the U.S. market last year and imported 280,200 U.S. manufactured vehicles, according to a Chinese government think-tank.  In contrast, in the first 11 months of this year, China produced 25.3 million cars, down 2.6 percent from the same period last year, industry figures showed.

Wang said car makers in China that imported cars from the U.S. had seen a 30 percent decline in volume in the first ten months of 2018, but the tariff cut would bring imports back to previous levels.

The announcement on autos followed China’s first major purchase of U.S. soybeans since Presidents Trump and Xi Jinping held their talk in Argentina. 

But I have details on the soybean purchase further below in “Street Bytes” and it’s far from what U.S. farmers were hoping for.

I do have to add that Beijing is considering other changes to try to settle the trade dispute, including making changes to the Made in China 2025 plan, according to people familiar with the matter.  The state-led industrial policy – aimed at enabling Chinese companies to dominate industries from artificial intelligence to robotics – is a focal point of U.S. complaints that Beijing engages in unfair trade practices that put foreign firms at a disadvantage to Chinese companies.

But for now here’s the bottom line.  Let’s assume that eventually U.S. auto and soybean exports return to levels of a year ago, before all the threats and tariffs. What will it mean?

It will mean we needlessly put millions of American workers and farmers through the ringer, and potential bankruptcy in the case of the latter, for what?  The same levels of production (if we’re lucky) as before.  [Yet Trump will be calling it victory...and the base will nod their heads in approval.]

At the same time, China is hacking our personal data and stealing our intellectual property at a faster pace than ever before and, as yet, there is no change in the offing on that front.

I’ve said I agree with the Trump administration for taking a tough stand on China. The world is doing the same thing. We’ve all had it with the bastards.  [Ditto Russia and attempts to foment chaos and distrust in Western democracies.]

But China is just going to keep doing what they do best.  Steal, copy and reverse-engineer everything America (and to some extent Germany on the heavy industry side) has ever come up with.

It’s why the Huawei case is so critical, as I describe below.  But it’s also why China is feverishly trying to grab everything it can before the West figures out how to protect that which is rightfully ours.

One last unrelated item...the U.S. Budget Deficit...

For November, the Treasury Department reported the deficit was $204.9 billion, far greater than the $-165bn forecast, and for the first two months of fiscal 2019, the deficit is $305.4bn vs. $201.8bn the first two months of fiscal 2018.

Receipts were up 3.4% last month, but outlays, driven by spending on Medicare, were up 18.4%.  Net interest expense was up $5.4 billion with the financing of a deepening debt.

Trump World

--President Trump’s former lawyer and fixer, Michael Cohen, was sentenced to three years in prison by a federal judge on Wednesday.  Cohen pleaded guilty to helping to arrange payments to Stormy Daniels and Karen McDougal, a violation of campaign finance law, and for lying to Congress about the duration of deliberations concerning a proposed Trump Tower in Moscow.

Cohen said in written testimony to two congressional committees that the talks over the Trump Tower project ended in January 2016, when they actually continued until June 2016, after Trump clinched the Republican nomination.

“It was my own weakness and a blind loyalty to this man that led me to choose a path of darkness over light,” Cohen told the judge during the sentencing hearing. “I felt it was my duty to cover up his own dirty deeds,” he said, referring to Trump.

“Recently, the president tweeted a statement calling me weak, and he was correct – but for a much different reason,” Cohen said.  “Time and again I felt it was my duty to cover up his dirty deeds rather than listen to my own voice.”

“Today is the day I am getting my freedom back,” he added.

In an interview with Reuters on Tuesday, Trump denied the payments were campaign contributions.

“If it were, it’s only civil and even if it’s only civil, there was no violation based on what we did,” Trump said.

Cohen, in his first interview since the sentencing, Friday, then told ABC News’ George Stephanopoulos that he knew arranging payments during the campaign to quiet two women who claimed to have had affairs with Donald Trump was wrong, and he said Trump knew it was wrong at the time, too.

“Of course,” Cohen said, when asked by Stephanopoulos whether the president was fully aware of what his lawyer was doing.

On Thursday, Trump and one of his person attorneys, Rudolph Giuliani, said the president was not to be blamed for the campaign finance crimes, because he trusted his lawyer, Mr. Cohen, to know the law.  Trump accused Cohen of trying to embarrass him.

“It is absolutely not true,” Cohen said in the ABC interview.  “Under no circumstances do I want to embarrass the president of the United States of America. The truth is, I told the truth.  I took responsibility for my actions.”

In the interview, Cohen was asked whether the president was telling the truth about “everything related to the investigation, everything related to Russia.”

“No,” Cohen said.

Cohen added: “It’s never good to be on the wrong side of the president of the United States of America, but somehow or another this task has now fallen onto my shoulders,” noting, “I will spend the rest of my life (fixing) the mistake that I made.”

Separately, according to the Wall Street Journal, NBC News and CNN, President Trump was in the room during negotiations with National Enquirer publisher David Pecker over how the tabloid could assist in quashing negative stories.

Trump was also in the room for an August 2015 meeting that included Cohen and Pecker discussing how the latter’s tabloid company, American Media Inc., could potentially assist Trump in his bid for president.

Federal prosecutors in New York on Wednesday publicly announced a nonprosecution agreement with the company and included that Pecker, through the agreement, admitted that he offered to “help deal with negative stories about the presidential candidate’s relationships with women by, among other things, assisting the campaign in identifying such stories so they could be purchased and their publication avoided.”  [“Catch and kill”]

In exchange for immunity from prosecution, the agreement requires American Media to “cooperate fully” with investigators from the Manhattan U.S. Attorney’s Office.

Trump tweets:

“I never directed Michael Cohen to break the law.  He was a lawyer and he is supposed to know the law. It is called ‘advice of counsel,’ and a lawyer has great liability if a mistake is made.  That is why they get paid. Despite that many campaign finance lawyers have strongly...

“...stated that I did nothing wrong with respect to campaign finance laws, if they even apply, because this was not campaign finance.  Cohen was guilty on many charges unrelated to me, but he plead to two campaign charges which were not criminal and of which he probably was not...

“...guilty even on a civil basis. Those charges were just agreed to by him in order to embarrass the president and get a much reduced prison sentence, which he did-including the fact that his family was temporarily let off the hook.  As a lawyer, Michael has great liability to me!”

“ ‘Democrats can’t find a Smocking (sic) Gun tying the Trump campaign to Russia after James Comey’s testimony.  No Smocking Gun...No Collusion.’ @FoxNews. That’s because there was NO COLLUSION.  So now the Dems go to a simple private transaction, wrongly call it a campaign contribution,....

“...which it was not (but even if it was, it is only a CIVIL CASE, like Obama’s – but it was done correctly by a lawyer and there would not even be a fine.  Lawyer’s liability if he made a mistake, not me). Cohen just trying to get his sentence reduced.  WITCH HUNT!”

Rich Lowry / New York Post

“The most legally fraught part of the Russian ‘collusion’ probe now revolves around payments to an American porn star.

“As of yet, instead of a dastardly scheme to participate with the Kremlin in the hacking of Democratic emails to subvert the election, prosecutors have uncovered a dastardly scheme to try to keep from the voters – as if they weren’t already aware – that Trump is a womanizer.

“The advantage of the story of the hush payments to Stormy Daniels and Karen McDougal is that they actually happened, and always passed the plausibility test.

“To credit the payoffs, it didn’t require believing in a well-coordinated scheme between a foreign-intelligence service and the most shambolic presidential campaign of the modern era.  All it took was imagining Donald Trump, Michael Cohen and a checkbook.

“Everyone should agree that these payments were sleazy. But that’s not the live issue here. Because Democrats want to see Trump impeached or even jailed, the question is whether he can be successfully prosecuted for the payments after leaving office.

“The law, and common sense, suggest the answer is ‘no.’

“The idea that Trump is going to lose re-election in November 2020, then, having suffered the humiliation of getting booted by the voters, get indicted and stand trial on a dubious campaign-finance violation dating from 2016 is fantastical.  This would be a banana-republic move, and is more a Democratic revenge fantasy – or should be – than a realistic scenario.”

--As first reported by the Wall Street Journal, Federal prosecutors are examining whether foreigners illegally funneled donations to President Trump’s inaugural committee and a pro-Trump super PAC in hopes of buying influence over American policy.

The inquiry is reported to be focusing on whether people from various Middle Eastern nations used straw donors to disguise their donations to the two funds.  Federal law prohibits foreign contributions to federal campaigns, political action committees and inaugural funds.

The inquiry into potential foreign donations is yet another front being pursued by multiple teams of prosecutors. Thomas J. Barrack Jr., a billionaire financier and one of Trump’s closest friends, raised money for both funds.

--Russia special counsel Robert Mueller today rejected any notion that former Trump national security adviser Michael Flynn was tricked by FBI agents into lying about his communications with Russian ambassador Sergey Kislyak, resulting in his prosecution.

“The interview was voluntary, and lacked any indicia of coercion,” Mueller’s team asserted in new court documents, referring to the Jan. 24, 2017 interview at the White Hose just days after President Trump’s inauguration.

Earlier this week, Flynn’s attorneys suggest that FBI duped the former national security adviser by not warning him about the criminal consequences for lying to agents during the interview in which Flynn has now acknowledged falsely denying that his conversation with Kislyak included a discussion of Russian sanctions.

“A sitting national security adviser, former head of an intelligence agency, retired lieutenant general and 33-year veteran of the armed forces knows he should not lie to federal agents,” prosecutors said.

“The court should reject the defendant’s attempts to minimize the seriousness of those false statements to the FBI.”

Flynn is to be sentenced Dec. 18, but prosecutors have recommended no prison time for providing substantial cooperation in the ongoing Russian investigatioin.

--Russian gun rights activist Maria Butina pleaded guilty in federal court in Washington to conspiring to act as an unregistered agent of Russia, admitting that she worked for more than two years to forge relationships with conservative activists and leading Republicans in the United States.

One of Butina’s targets was the National Rifle Association, a group she identified in a 2015 memo as an organization that “had influence over” the Republican Party, according to court filings.  Her relationships with the group, she wrote, could then be used as an unofficial channel of communication to the next presidential administration.

Butina and Alexander Torshin, a former Russian government official who helped direct her activities, then used their NRA connections to get access to GOP presidential candidates.

Butina, 30, is the first Russian national convicted of seeking to influence U.S. policy as a foreign agent before the 2016 election.

Russian President Vladimir Putin addressed Butina’s case at a meeting in Moscow, saying: “I asked all the heads of our intelligence services what is happening, ‘Who is she?’  No one knows a thing about her.”

--Soon-to-be House Speaker Nancy Pelosi said on Thursday that congressional Democrats will begin to seek President Trump’s tax returns after they take control in January, with the House Ways and Means Committee taking the first steps toward obtaining the documents, though that will be a challenging process, she said.

Trump defied decades of tradition when he refused to release his tax records as a candidate, and after his victory in the election, but no law or rule compels a president or candidate to disclose them, though nearly every nominee and president has done so in recent decades.

As they prepare to take charge of the House, Democratic leaders have tried to walk a fine line in articulating how they will move forward.  They have said while they plan to pursue policy issues popular with their voter base, they also said they will not shy form examining Trump, his personal business dealings and his presidency.

Trump’s personal financial information would help illuminate whether foreign leaders had leverage over the president through involvement in his projects abroad.

--Today, President Trump named Mick Mulvaney acting chief of staff, replacing John Kelly, who is staying on until year-end.  Mulvaney, who I like, is Director of the Office of Management & Budget.

Kelly, who I learned not to like, announced he was leaving last weekend, or rather President Trump did the job for him, telling reporters before he left for the Army-Navy game.

--Late tonight, a federal judge in Texas ruled that core aspects of the Affordable Care Act, i.e., ObamaCare, were unconstitutional, a win for Republicans and the Trump administration that is sure to leave those insured under the system in uncertain territory.

The 55-page ruling by U.S. District Judge Reed O’Connor in the Northern District of Texas was issued just one day before open enrollment was set to end this year for what was President Obama’s signature legislation.

O’Connor, in the ruling, agreed with a coalition of Republicans that it was unconstitutional to mandate people buy health insurance and tax those who weren’t in compliance.

President Trump tweeted:

“As I predicted all along, ObamaCare has been struck down as an UNCONSTITUTIONAL disaster!  Now Congress must pass a STRONG law that provides GREAT healthcare and protects pre-existing conditions.  Mitch and Nancy, get it done!”

More on this next time.  The ruling is likely to be appealed.

--A California federal judge awarded attorneys for President Trump nearly $300,000 in fees Tuesday related to a failed defamation claim brought by the aforementioned Stormy Daniels.

When Daniels said in a TV interview that a man had confronted her in 2011 after alleging an affair with Trump in an attempt to silence her, the president tweeted that the person who made the threats was a “non-existent man” and that her allegations was a “total con job.”

District Judge S. James Otero had earlier indicated that the tweet was protected as free speech since it related to a matter of public concern and involved public figures.

Such speech “lies at the heart of the First Amendment” and to try to restrict it would have a “chilling effect on candidates running for office,” the judge said.

Europe and Asia

Before we get to Brexit and the other news on the continent, IHS Markit released its flash PMI readings for December, with the Eurozone Composite at 51.3 vs. 52.7 last month (50 being the dividing line between growth and contraction), a 49-month low.  The flash manufacturing number was 51.4 (51.8 in November), a 34-month low, with non-manufacturing / services at 51.4 (53.4 November), a 49-month low.  Not good...not good at all.

Germany’s flash composite reading was 52.2 for the month vs. 52.3 in November, a 48-mo. low.  Manufacturing at 51.5 (51.8 in Nov.), 33-mo. low; services at 52.5 (53.3 last month), a 7-mo. low.

In France, the flash composite for this month was 49.3, the first contraction in 2 ½ years; manufacturing at 49.7 (50.8 in Nov.), 27-mo. low; services activity at 49.6 (vs. 55.1 in November), 34-mo. low.

So it should be no surprise the European Central Bank cut its economic growth forecasts Thursday, with ECB President Mario Draghi saying at a press conference that “It’s a climate of great uncertainty,” citing trade tensions, vulnerabilities in emerging markets and volatility in financial markets.  Draghi spoke after the ECB confirmed it would keep its key interest rates unchanged at least through the summer of 2019, i.e, at zero (or negative).

The 19-nation eurozone economy has slowed sharply in recent months, as the PMI data reflects, with the ECB lowering its 2018 forecast for GDP by 0.1 percentage point to 1.9%, while reducing its 2019 forecast by a similar amount to 1.7%.

Earlier, Eurostat announced GDP in the third quarter was 0.2% vs. 0.4% in the second, or 1.6% vs. a year earlier, 2.2% in Q2.

Germany came in at an annualized rate of 1.3% for Q3, France just 0.8%, Italy 0.3%, Spain 2.0%, and the Netherlands 2.5%.

Brexit: What a week for British Prime Minister Theresa May.  Monday she abruptly cancelled a planned vote in Parliament on her Brexit proposal, set for Tuesday, when it was obvious the plan would have gone down to a stinging defeat.

Wednesday, she survived a no-confidence vote from her own Tory MPs, but by just 200-117, meaning, in essence, she can’t count on those 117 in any final Brexit vote put through Parliament.

May then traveled throughout Europe, seeking support, prior to an EU summit Thursday and Friday in Brussels.

Mrs. May said today she welcomed the assurances given by EU leaders relating to controversial Brexit guarantees for the Irish border, arguing that they have “legal status” and could be followed up with further commitments, though in actuality no real concessions were granted; certainly nothing that will gain the approval of the House of Commons.

At the heart of the stand-off remains the backstop provisions to keep open the border between the Republic of Ireland, an EU member, and Northern Ireland, which is leaving the EU with the rest of the United Kingdom.

All sides want to avoid a resurgence of sectarian conflict (i.e., “The Troubles”), but Eurosceptic lawmakers fear the backstop could lock Britain into close ties with Brussels that London could not unilaterally exit.

Late Thursday, EU leaders pledged their “firm determination” to limit the use of the backstop, adding that, if triggered, it would apply “temporarily” and only “as long as strictly necessary.”

So May told journalists on Friday: “These commitments have legal status and therefore should be welcomed. This is the clearest statement we have had yet from the EU that it is their intention for the backstop never to be necessary,” she added, noting that “further clarification and discussion” is possible.

“We will be working expeditiously over the coming days to seek those further assurances that I believe MPs [members of Parliament] will need.”

But European leaders challenged Britain’s parliament to find a way through the country’s Brexit deadlock. While some EU leaders offered signals of support to Mrs. May, others stated there are no firm plans to meet again on Brexit in the coming weeks, and that the UK must press ahead with ratifying the deal on the table.

There is an outside shot at a January summit, if it would help the prime minister secure approval of the agreement, but Belgian prime minister Charles Michel expressed the sentiment of many when he said Friday that a no-deal scenario was now “a realistic prospect.”

“Very objectively, the signs that we were given yesterday were not especially reassuring as to the ability of the parliament to be able to honor the commitment that was given,” he said.

EU chiefs are confused after May’s performance on Thursday as to her plans to solve the parliamentary impasse.  Virtually all are in unison in laying the responsibility on the UK parliament, not the EU.  [Basically, many in attendance in Brussels who didn’t want to go on the record said May’s performance was dreadful.]

As European Commission president Jean-Claude Juncker put it: “We don’t want the UK to think there can be any form of renegotiation, that is crystal clear.

“We can add clarifications but no real changes.  There will be no legally binding obligations imposed on the withdrawal treaty.”

Juncker also criticized the UK’s lack of clarity over the future relationship it is seeking with the EU once it has left.

“Our UK friends need to say what they want, instead of asking us to say what we want,” he said.

“So we would like within a few weeks our UK friends to set out their expectations for us because this debate is sometimes nebulous and imprecise and I would like clarifications.”

The Northern Irish party which props up the prime minister’s government warned today that she must stand up to the European Union.  “The Prime Minister has promised to get legally binding changes. The reaction by the EU is unsurprising. They are doing what they always do,” Democratic Unionist Party leader Arlene Foster said.  “The key question is whether the PM will stand up to them or whether she will roll over as has happened previously.”

There is a January 21 deadline for the British parliament to vote on the Brexit package.

Editorial / The Economist

“Desperate, no-holds-barred scrapping has become Britain’s day-to-day mode of government. On December 10th a landmark vote on Theresa May’s Brexit deal was cancelled at the last minute, ambushing ministers who were giving live-broadcast interviews confirming that it would definitely go ahead.  The next day Mrs. May began a tour of Europe, promising to get better terms on the deal, only to be politely rebuffed in every capital she visited. The prime minister came home to find her own Conservative Party planning a vote of no confidence in its leader. She won, but only after promising that she would step down before the next election. Even then, 117 of 317 Tory MPs voted against her.

“It is a grim spectacle, but the upshot of the latest bruising episode is that Mrs. May staggers away bloodied to fight another round.  Under the Tory party’s rules, having seen off the attempted coup, she is immune from further internal challenges for a year.  The hardline Brexit bullies in her party have been shown up for the reckless obsessives they are. But the more abiding truth for Mrs. May is the scale of the rebellion, which has demonstrated that she has no realistic hope of getting her plan for Brexit through Parliament. And it is not just her plan: none of the possible Brexits commands a majority of MPs.

“Mrs. May needs to recognize that she and the country have only one way out of this impasse. That is to go over the heads of MPs and ask the people directly....

“Her deal, which the EU has already signed off on but which Parliament must still approve, would keep the entire United Kingdom in a customs union and extensive regulatory alignment until both sides had settled on a comprehensive new relationship, which might take years.  During that time, Britain would be subject to European rules and unable to sign its own trade deals.  Hard-Brexiteers say this compromise amounts to vassalage, but they have failed to come up with any alternative plan able to win over their colleagues in Parliament.

“With the failure of their rebellion, Britain dodged a blow to the head. Had Mrs. May lost, the Tories’ 124,000 party members would have chosen a new leader – and thus a new prime minister – to see Brexit through.  They may well have picked the more Eurosceptic of the shortlisted candidates, increasing the chance of a bad-tempered, chaotic and ruinous no-deal exit.

“It is also welcome that, in order to pick up enough votes, Mrs. May had to promise to quit before the next election, due in 2022.  She has proved a poor prime minister and a disastrous campaigner.  Her planned departure, along with the defeat of the Brexit monomaniacs, ought to accelerate the promotion of the promising next generation of Tory MPs, to replace the duds who have served the country so ineptly.

“All this means that Mrs. May’s premiership now has but one purpose – and it is a monumental one: to steer a split party and a minority government through the most complex and divisive peacetime transition in modern British history.

“The danger is that Mrs. May, a serial postponer, will try to run down the clock to within a couple of months of Brexit day on March 29th.  She might calculate that Parliament will then have little choice but to back her deal, because the alternative will be leaving with a calamitous no-deal....

“Dogged and persistent as she is, she must recognize that the parliamentary arithmetic is hopeless. Labour and other opposition parties are set against her blueprint, as are more than 100 of her own Tory MPs – Brexiteers and Remainers alike.  Mrs. May’s European travels this week have confirmed that she has little prospect of winning enough changes to satisfy the rebels.  The deal is no more alive than it was when the government postponed the vote in a panic on Monday.

“If Mrs. May wants her agreement to prevail, she must call a second referendum. The block in Parliament is caused by the conflicting claims to democratic legitimacy of elected MPs and the referendum of 2016.  The prime minister insists that her compromise is the only workable way to respect the will of the people, as expressed in that vote two and a half years ago.  MPs, elected by those same people only last year, counter that her plan bears too little resemblance to the campaign on which the referendum was fought – either because a ‘real’ Brexit should be harder, or because the entire prospectus has been shown up as hollow.  Rather than try to square this circle with pointless political street-fighting, Parliament should accept that the only way to know what the people want is to ask them.”

France: The nation is preparing for a fifth weekend of protests from the Yellow Vests.  President Emmanuel Macron’s long-term vision for the country has collided with the short-term needs of the working class, many of whom ridicule Macron as the president of the rich.

On the one hand you have a few prosperous cities, where many residents strongly supported Macron in the 2017 presidential election; and on the other you have the struggling rural areas and small towns of the postindustrial era that either voted for candidates on the extremes or did not vote at all.  And that’s where Macron’s proposed fuel tax hike, that he was then forced to scrap, would hit hardest.

The protests, particularly in Paris, have been responsible for millions of dollars in property damage and far more in lost tourism revenue.  As Finance Minister Bruno Le Maire put it, it’s been “a catastrophe” for the economy.

Numerous tourist sites, such as the Eiffel Tower and the Louvre, have been closed, shops have seen their windows smashed, some looted, cars burned.  The French retail federation told Reuters that retailers had lost about $1.1 billion since the protests began (prior to this coming weekend), with the restaurant trade in Paris having declined between 20% and 50%.

Overall in France, the protests could cost small and medium-sized businesses up to $11 billion.  Paris saw a record number of tourists in 2017 – more than 40 million, but this Christmas season was destroyed and there is anecdotal evidence overseas travelers have been canceling their plans in droves.

This week, the French central bank, Banque de France, cut its expectation for growth in the last quarter of the year from 0.4 percent to 0.2 percent (quarter-over-quarter), owing to the protests.

So after staying silent all these weeks, President Macron finally decreed a “state of social and economic emergency” on Monday, offering a string of generous sweeteners he hopes will quell the revolt, the president having previously scrapped the fuel-tax hike he had never campaigned on.

In a pre-recorded national address, Macron said France was at a “historic juncture,” and issued a mea culpa, saying: “I know that I have managed to wound some of you through my comments.”

The president pledged to raise the minimum wage about $110 per month from 2019 without cost to employers.

Overtime would be free of tax and charges, he said, while businesses that gave end-of-year bonuses would pay no extra tax or charges.

Macron also announced he would reverse a new levy for pensioners with incomes of less than $2,200 a month.

“The effort asked of them was too great and not fair,” he said.

But the president stood firm on his controversial decision to partially scrap France’s wealth tax. To change that, he said, would “weaken us.”

And he slammed the “unacceptable outpouring of violence” of vandals.

“No anger justifies attacking a police officer or public property,” he said.  Macron also made clear he intended to push on with planned reforms of social security and pensions.

“We will respond to the economic and social urgency with strong measures, by cutting taxes more rapidly, by keeping our spending under control, but not with U-turns.”

But here’s the deal.  Macron’s many concessions will now blow out France’s budget, overshooting the European Union’s budget deficit ceiling (3 percent) next year unless there are new spending cuts.

And this impacts the next story....

....Italy: The coalition government here has been under intense pressure from the EU to lower its deficit target, which the European Commission wants below 2.0 percent.  Italy’s Prime Minister Giuseppe Conte said, “We have no margin to negotiate like in a market,” when asked whether the government could further lower the deficit, with Italy planning on a 2019 gap of 2.4 percent.  Conte said his government could not accept new tweaks that would reduce the number of people who benefit from the pension and welfare reforms envisaged in the budget.

But Italy can just point to France, which will breach 3.0 percent, and comment, as Italian Deputy Prime Minister Matteo Salvini told his parliament, “Seeing what is going on in Paris, I refuse to believe that Brussels, for the sake of a few decimal places, will impose sanctions, inspectors and commissars.”

Back to France...the last thing it needed this week amid the protests was a terror attack on the famous Strasbourg Christmas market that killed three.  Friday, French police hunted down the suspect, a career criminal turned ISIS sympathizer, and he was killed in a shootout.

I told you long before the first attack on Christmas markets in Europe that they were rich targets.  I had such a blast when I checked this off my bucket list in a 2007 trip to Germany to see the markets in Cologne and Berlin.  But I told you then of how the whole time I was thinking of how easy it is to infiltrate them...let alone the symbolism to Islamic terrorists.

Hungary: Parliament here passed two laws on Wednesday to allow employers to demand more overtime work and give the government greater control over the judiciary – in a session marked by chaos in the chamber.

The National Assembly, led by far-right Prime Minister Viktor Orban’s Fidesz Party, approved the laws, one of which is called the “slave law” by critics, which increases the amount of overtime employers can force their employees to work – from 250 to 400 hours per year, or up to eight extra working hours per week.

Protesters prior to the vote were demanding higher wages, not longer working hours!  And the trade unions are torqued off because employers can enter into overtime negotiations directly with employees rather than having to go through the unions.

Those in support of the law say it helps employers and employees amid a manpower shortage.

The European Parliament voted to censure Hungary, accusing Orban’s government of violating EU values and democracy.

Turning to Asia, as alluded to above we had a ton of economic data out of China, and it wasn’t good.  November industrial production, up 5.4% year-over-year, and retail sales, 8.1% yoy, came in less than expected, with the retail sales figure the weakest since 2003 (industrial production was the weakest in three years), per the National Bureau of Statistics.

Fixed-asset investment (big-ticket projects) ticked up a bit, 5.9% for the first 11 months of 2018.

But the retail sales figure was highly-disappointing, as the government has tried to ramp up infrastructure spending, while cutting taxes and fees to stimulate more activity and spending.

Separately, November auto sales were down 14% vs. year ago levels, the steepest drop in seven years.

Earlier, it was announced November exports rose 5.4%, well short of expectations, while imports were up only 3%.

Exports to the U.S. increased 9.8%, but this was versus 13.2% in October.  China’s trade surplus with the U.S. nonetheless hit a new high, $35.5 billion in November.

With the weakening picture, it should be no surprise that inflation is tame.  The November produce price (factory-gate) index rose 2.7%, the slowest pace since Oct. 2016, reflecting the slowdown, while the CPI was up only 2.2%, both figures courtesy of the NBS.  China’s inflation target is 3%.

In Japan, third-quarter GDP contracted 2.5%, the most in four years, with capital spending down 2.8%.  Consumption, 60% of the economy, fell 0.2% over the previous quarter.

But a December flash PMI on manufacturing was a decent 52.4.

Street Bytes

--Disappointing economic data out of China and the eurozone on Friday helped lead to a big drop in the market averages today, which resulted in another down week, the Dow Jones losing 1.2% to 24100, the S&P 500 1.3%, and Nasdaq 0.8%.  All three are in correction territory – a decline of at least 10% from the recent highs – for the first time since March 2016.

All three are also down 5.5% or more this month, their worst starts to December since 1980, according to Dow Jones Market Data.

Johnson & Johnson was a major reason why the Dow swooned nearly 500 points today, 2%, shares in JNJ cratering 10% after Reuters reported the company knew for decades that its baby powder sometimes contained asbestos, a claim the company vehemently denied, and has since this issue first surfaced.

The market also hasn’t been helped recently by the fact investors have been rushing out of U.S. equity funds, including the second-biggest weekly exit on record, according to Bank of America Merrill Lynch.

U.S. stock funds bled $27.6 billion in the days through Dec. 12.

--U.S. Treasury Yields

6-mo. 2.54%  2-yr. 2.73%  10-yr. 2.89%  30-yr. 3.14%

Rates were little changed on the week as the market waits to see what the Fed does, and says, this week regarding future rate actions.  Most still expect a hike Wednesday.

--As I noted last time, Meng Wanzhou, the chief financial officer of Chinese telecom giant Huawei, was arrested in Canada at the request of the United States.  A Canadian court on Tuesday then granted bail to Meng, while she awaits a hearing for extradition to the U.S., a move that it was hoped would placate Chinese officials angered by her arrest.

Meng, the daughter of Huawei’s founder, faces U.S. accusations that she misled multinational banks about Iran-linked transactions, putting the banks at risk of violating U.S. sanctions.

Meng’s bail was set at $7.5 million and she will be under constant surveillance, while wearing an electronic device to prevent her from fleeing.

China had threatened severe consequences unless Canada released Meng immediately.  But since her arrest, two Canadians in China have been detained.

The Trump administration sees China’s drive to be a global leader in key technologies, such as 5G, as a major threat to the United States.  The current trade war is focused on preventing China from getting hold of such cutting-edge technology.  [5G mobile networks will be at the heart of new developments, such as artificial intelligence, self-driving cars, and the internet of things.]

But the arrest shows China how vulnerable the country’s top national companies, such as Huawei, are if they rely on American components such as chips and superconductors.  No doubt China will thus speed up its efforts to become self-reliant in key high technologies, and phase out any reliance on American components.

Huawei is privately held but deeply distrusted in the U.S.  At a Senate Intelligence Committee hearing in February, the heads of the CIA, FBI and National Security Agency warned against buying Huawei phones.

China’s national intelligence law reinforces the doubts, with its requirement that all organizations and citizens cooperate with intelligence agencies.

Huawei’s founder and CEO, Ren Zhengfei, Meng’s father and a deputy director of the People’s Liberation Army engineering corps, has deep ties with the government.

The U.S. isn’t the only country going after Huawei.  British telecom giant BT Group is removing Huawei equipment from the core of its existing networks, and won’t allow it to be part of its 5G network, and Canada, Australia and New Zealand are among other nations shutting the door on the company.  Monday, Japan effectively excluded Huawei and fellow telecom equipment giant ZTE from public procurement.

China’s Global Times, a state-backed newspaper, warned in an editorial that the arrest of Meng “will isolate U.S. from digital economy of the future.”

Yes, Apple needs to be concerned.

The Global Times said: “Some Western countries are resorting to political means to resist Huawei’s attempts to enter into their markets.

“Failure to provide reciprocal opening-up means their companies won’t get any benefits from China’s digital economy.”

--Meanwhile, U.S. government investigators increasingly believe that Chinese state hackers probably were responsible for the massive breach reported last month of Marriott International’s Starwood hotel reservation system, which exposed the private information and travel details of as many as 500 million people.

As reported by Bloomberg and the New York Times, among others, preliminary indications are the breach was conducted by hackers affiliated with the Chinese Ministry of State Security, but the actions were taken over four years before being discovered.

Some intel officials believe the breach was conducted to add to China’s massive data sets on U.S. and other citizens.  Another big breach occurred in 2015 with the Office of Personnel Management intrusion, which captured the personal data of more than 20 million government employees, family members and applicants.

--For the second consecutive week, a report on inventories of U.S. crude showed a decline, though by a smaller than expected 1.2m barrels in the week ended December 7, the Energy Information Administration said on Wednesday.

The decline in stockpiles comes as OPEC and its oil producing allies agreed to cut production by 1.2m barrels a day following contentious negotiations in Vienna last week.

[OPEC nations would cut 800,000 barrels and the Russia-led group would handle the remainder.  Saudi Arabia 250,000 barrels, Russia 230,000.]

--As noted above, there is some optimism China will be back buying U.S. soybeans and futures on same rose Wednesday as the Department of Agriculture announced sales to Mexico, as well as 110,000 metric tons of soybeans sold to “unknown destinations,” that some believe to be China.

The U.S. Soybean Export Council then said Thursday that China would be buying 1.5 million to 2 million metric tons during the first quarter, while the Dept. of Agriculture disclosed sales of 1.13 million tons to China.

But soybean futures then fell on Thursday and Friday because the market was looking for much higher sales to put a dent in the mountain of beans stockpiled in the U.S., with inventories set to double to a record 25.99 million tons, according to the USDA.

One strategist at Zaner in Chicago said, “We needed at least 10 million metric tons, we got 1.1 million.”

As Bloomberg notes, farmers and others are working on multiple fronts to secure new homes for their product, even as replacing China is a tall order. China bought 57% of all U.S. soybeans that were exported last year, more than eight times the total sold to Mexico, the next-biggest buyer by quantity.

As China imposed retaliatory tariffs on the U.S. oilseed, exports to China plunged 62% in the first ten months of 2018 compared with year ago levels.

Even before the trade war, farmers had it tough. Net farm income has fallen four out of the last five years and is projected to be $66.3 billion in 2018, or 46% of 2013 levels, according to the USDA.

--Apple announced Thursday that it would expand its operations in Austin, Texas, with a new $1 billion campus that would nearly double the size of the company’s current 6,000-employee work force in the area.

At the same time the company announced it is spending $10 billion for new data centers in Seattle, San Diego and Culver City, California, while expanding operations in Pittsburgh, New York and Boulder, Colorado over the next three years.

Apple, which receives over half its revenue from outside the U.S., has faced increasing political pressure to ramp up investments at home since 2016, after then presidential candidate Donald Trump targeted the company for using Asian factories for the bulk of its manufacturing.

Existing data centers in North Carolina, Arizona and Nevada are being expanded.

In January, Apple said it planned to invest more than $30 billion in the United States over the next five years and to create 20,000 jobs by expanding its operations and adding a new campus.

But none of the new positions announced by Apple on Thursday appeared to involve manufacturing, which is what President Trump has been demanding of Apple...to bring iPhone production to the U.S.

Trump nonetheless tweeted Friday afternoon:

“Thank you to @tim_cook for agreeing to expand operations in the U.S. and thereby creating thousands of jobs!”

Separately, a Chinese court ordered Apple Inc. to stop selling older iPhone models after finding the company infringed on two patents held by Qualcomm Inc., the chip maker said, which is a big deal given Apple’s business in this market.

But the Nov. 30 decision, just released, doesn’t apply to new iPhone models launched this year, though this is all part of what I have warned of for at least five years when it comes to Apple’s exposure in China.

--Congress revealed itself again on Wednesday as Google CEO Sundar Pichai became the latest tech executive to face lawmakers over the possible effect of social media on elections, data breaches, perceived partisan bias and other issues.

But the knowledge gap between a Pichai and the average House member is wide.  Congressman Steve Cohen asked Pichai to set up an online Google school and a telephone help line in which users could talk to actual people.  There were few probing queries.  Representative Doug Collins ticked through a list of factors including GPS and Wi-Fi to ask Pichai if Google collects data.

What’s worrying is that Congress is facing the task of working out how to increase privacy standards and spur competition.  Congressman Steve King, who criticized Google for a bias against conservatives and Republicans, said the company should release the names of the more than 1,000 employees on its search team so lawmakers can study their social media comments for any partisanship.

For his part, Pichai rejected claims of political bias against conservatives, while stressing the American roots of the company.

But Pichai refused to rule out launching a censored search engine in China, dodging question after question about re-entering China after leaving it in 2010 over censorship and hacking concerns.

“We have explored what search could look like if it were launched in a country like China,” Pichai admitted during the hearing, but evaded providing any specifics.

Pichai described the controversial initiative, codenamed “Dragonfly,” as an “internal effort” and pledged Google would be “transparent” with Congress about the initiative before launching it in China.

Separately, Google disclosed that a security bug had leaked the data of 52 million users on its social network Google Plus.

--Facebook said pictures belonging to up to 6.8 million users may have been exposed by a software glitch that granted app developers access to the photos, yet another privacy lapse at the social-media giant.

Facebook said it found and fixed the bug on Sept. 25 after an internal team made the discovery.  The photos were available from Sept. 13 until then and it’s not known how many, if any, developers accessed them.

--Nissan Motor Co.’s Carlos Ghosn was formally charged with understating his compensation in Nissan’s financial reports, with Tokyo prosecutors taking steps to ensure he would spend Christmas in jail.

Prosecutors finally brought their first charges against Ghosn, alleging he conspired to report only about half of his compensation during the five years ended March 2015.

With the charges, Ghosn will likely be behind bars well into 2019.

Nissan was indicted alongside Ghosn, the automaker apologizing for “false disclosures.”

But Renault SA’s board said Ghosn will remain chairman and CEO of the other half of the alliance after it found no financial wrongdoing in France.

“We believe we need to wait on what Carlos Ghosn has to say about this one-sided investigation,” said a person familiar with the board meeting.

Ghosn receives two separate salaries from Renault and Nissan.

--In an interview on “60 Minutes” with Lesley Stahl, Elon Musk said of the SEC: “I want to be clear: I do not respect the SEC. I do not respect them.”

In discussing a stock fraud settlement with the Securities and Exchange Commission in October that stripped him of his chairman’s title, Musk said that bringing in a new chairman as a babysitter is “not realistic” because “I’m the largest shareholder in the company and I could call for a shareholder vote and get anything done that I want.”

Robyn Denholm was named Tesla chairwoman in November.

Musk also said no one is reviewing his tweets, as called for in the settlement.

“The only tweets that would have to be, say, reviewed would be if a tweet had a probability of causing a movement in the stock,” Musk said.  “Otherwise, it’s hello 1st Amendment. Freedom of speech is fundamental.”

But, Stahl asked, how will anyone know a tweet could move the market if no one’s reading them first?

“I guess we might make some mistakes, who knows,” Musk said with a laugh.  “I use my tweets to express myself. Some people use their hair. I use Twitter.”

“You’re abiding by the settlement, aren’t you?” Stahl asked.

“Because I respect the justice system,” Musk replied.

Stahl addressed his importance to the company, as in, “There are people who say that the company cannot survive without you,” to which Musk replied, “I think that’s true, yeah.”

Stahl added, “And there are people who say the company cannot survive with you.”

“Ha, ha, that’s hilarious,” Musk said.

--From the New York Post:

“Put away the ink pad – the CVS-Aetna merger isn’t getting rubber-stamped anytime soon.

“Sources close to the case are betting that US District Judge Richard Leon – who griped earlier this month that CVS and Aetna treated him like a ‘rubber stamp’ because they had already closed the deal before it arrived at his desk – is likely to block CVS from combining with Aetna at a hearing next Tuesday.”

What is now expected is a ruling that “might delay the $69 billion merger for months, rather than the weeks that most investors anticipate, insiders said.”

Leon doesn’t believe the companies have made enough antitrust concessions, even though the Department of Justice cleared the deal on Nov. 28.

--McDonald’s Corp. said on Tuesday it plans to reduce the use of antibiotics in its global beef supply, with other restaurants sure to follow.  The move by the world’s biggest fast-food chain addresses concerns that the overuse of antibiotics vital to fighting human infections in farm animals is diminishing the drugs’ effectiveness in people.

Many farmers and ranchers have been working to cut back on antibiotic use while keeping cattle healthy, but there is a lack of alternatives, today, when animals fall ill.

The Food and Drug Administration said sales and distributions of medically important antibiotics for food production fell 14 percent from 2015 to 2016, the first decline in year-to-year sales since the agency began collecting the data in 2009.

Many restaurants and meat companies have moved away from using antibiotics in chicken production in recent years, in part because McDonald’s did so.  But removing antibiotics from cattle is more difficult because with a longer life, they have more chances to fall ill.

--Shares in Under Armour cratered more than 11 percent Wednesday as the company issued a tepid longer term forecast at its investor day.

The company said it expects compound annual revenue growth in the low single digits in North America between 2020 and 2022.  But it expects growth in Europe, Middle East and Africa in the mid-teens over the same period, and in Asia-Pacific, revenue growth in the mid-20s.

Investors were underwhelmed.  The sportswear maker has been cutting jobs amid a massive overhaul in its business to better respond to shifting consumer tastes.

--Sears Holdings Corp. announced that same-store sales increased 4.3% in the recently completed quarter, reversing years of declines.  The measure – which excludes newly opened or closed locations – rose 6.1% at Kmart locations and 3.2% at Sears stores.

But the improvement was due to liquidation sales at stores that it is eliminating, with the company closing 28 Kmart and 73 Sears stores in the three months ended Nov. 3.

Total revenue, on the other hand, fell 23% to $2.74 billion, with the company’s net loss widening to $950 million from $556 million a year earlier.

Sears has $526 million in cash on hand, according to a securities filling.

Sears Chairman Edward Lampert has made an offer, through his hedge fund ESL Investments, to buy about 500 stores and other assets for $4.6 billion, including the forgiveness of $1.8 billion in debt.  Creditors are pushing for a liquidation.

--According to a report by Erik Larson and Christopher Cannon for Bloomberg, a decade after Bernie Madoff was arrested for running the world’s biggest Ponzi scheme, the fight to recoup investors’ lost billions has proved amazingly fruitful.

No one will ever collect the phantom profits Madoff pretended he was earning, but of the cash deposits by clients of the trustee overseeing liquidation of Madoff’s firm in bankruptcy court, Irving Picard, $13.3 billion – about 70 percent of approved claims – has been recovered by suing those who profited from the scheme, knowingly or not.

So far Picard has distributed $11.3 billion of the $13.3bn recovered, with the rest being held in reserve pending the outcome of legal disputes and appeals.

“As of now, almost 1,400 victims who had claims of $1.38 million or less have been repaid in full.”

That’s great news. 

--Kentucky Fried Chicken offered a firelog that smells like fried chicken, a limited edition 11 Herbs & Spices Firelog that costs $18.99 and was available at kfcfirelogs.com. 

“The smell of the Colonel’s Original Recipe fried chicken is unmistakable,” KFC said in a statement.

It was sold out in hours.

--Kathie Lee Gifford is leaving her “Today” gig next April, after 11 years, much to the chagrin of network brass who begged her to stay, according to reports, to show continuity after a year of turmoil on the program.

Jenna Bush Hager is the favorite to fill the slot.

Foreign Affairs

Yemen: A UN-backed peace initiative in Sweden ended Thursday with an agreement between the Iranian-backed Houthis and the Saudi-backed government of President Abd-Rabbu Mansour Hadi to cease fighting for the Houthi-held port city of Hodeidah and withdraw their troops.  It was the first significant breakthrough for UN-led peace efforts in five years of conflict in Yemen.

Iran welcomed the initial agreement as a step towards a final peace accord, Iranian state TV reported on Friday.

A next round of talks will be held at the end of January at which the warring parties will discuss a framework for political negotiations.

Iranian Foreign Ministry spokesman Bahram Qasemi was quoted as saying on TV: “The agreement is significant. The deal showed that the Yemeni groups involved in the talks had truly understood the deplorable conditions of the innocent and oppressed Yemeni people,” Qasemi said.

A Saudi-led military coalition intervened in Yemen in 2015, backing forces of Hadi’s internationally recognized government.  The war has killed tens of thousands and caused the worst humanitarian crisis in the world.

Meanwhile, the U.S. Senate voted resoundingly on Thursday, 56-41, to withdraw American military assistance for Saudi Arabia’s war in Yemen, a bipartisan rebuke of President Trump for his defense of the kingdom amid outrage in both parties over Riyadh’s role in the killing of dissident journalist Jamal Khashoggi.

The vote was a rare move to limit presidential war powers but its immediate impact is largely symbolic, after the House earlier this week moved to scuttle it, so the measure will die without making it to Trump’s desk by year end.

But no doubt lawmakers want to punish the kingdom for its role in the brutal killing, and to question a bipartisan tradition of averting Washington’s gaze from human rights abuses and other wrongdoing by the Saudis in the interest of preserving a strategically important relationship in the Middle East.

In an interview with Reuters on Tuesday, President Trump said he was standing by Crown Prince Mohammed bin Salman despite the CIA’s findings, saying the crown prince was “very strongly in power” in Saudi Arabia.

Republican Senator Bob Corker (Tenn.), who heads the Foreign Relations Committee, said on the Senate floor on Wednesday: “I absolutely believe that if the crown prince came before a jury here in the United States of America, he would be convicted in under 30 minutes.  I absolutely believe he directed it. I believe he monitored it. And I believe he is responsible for it.”

Separately, according to the New York Times, Trump adviser and son-in-law, Jared Kushner, continues to offer the Crown Prince advice on how to handle the outrage over the slaying.

Syria: U.S.-backed Syrian forces seized control of a town in eastern Syria held by Islamic State, the Syrian Observatory for Human Rights monitor reported.  Hajin was the last big town held by ISIS in its remaining pocket of territory east of the Euphrates River near the border with Iraq.  The Syrian Democratic Forces (SDF), along with Kurdish YPG militia, have been battling to eradicate ISIS fighters from the area for months, with over 1,600 having been killed, mostly fighters from both sides.

But an SDF commander told Reuters Thursday that at least 5,000 Islamic State fighters remain holed up in the pocket of territory including Hajin and that they had decided to fight to the death.  It’s estimated 2,000 of them are foreign fighters, mostly Arabs and Europeans along with their families.

The commander, Mazloum Kobani, also said “it was possible that Islamic State leader Abu Bakr al-Baghdadi was in eastern Syria, but the SDF could not be sure because he often disappears.”

Meanwhile, Turkey announced it would be launching a new military operation in northern Syria within days, targeting the Kurdish militia fights who are being supported by the U.S.

Ankara and Washington have long been at odds over Syria, with Turkey saying the YPG is a terrorist organization and an extension of the outlawed Kurdistan Workers Party (PKK), which has been waging an insurgency in southeastern Turkey for 34 years.

Turkish President Erdogan has grown impatient with Washington and a deal to clear the YPG from the town of Manbij, just west of the Euphrates.  Turkish and U.S. troops began joint patrols near there last month, but Turkey has shelled Kurdish fighters outside the area.

It’s easy to forget the U.S. has about 2,000 troops in Syria, according to the Pentagon.

Meanwhile, huge parts of both Iraq and Syria remain in ruins after years of fighting, and there is little cash to begin rebuilding each country.

Iraq estimates $88.2 billion is needed, and at a donors’ summit earlier this year, $30 billion was pledged, mainly in the form of loans, but there has been zero progress in fulfilling the pledges.

China: Top federal investigative officials appeared before the Senate Judiciary Committee on Wednesday and told senators that Chinese corporate espionage has metastasized into a critical national and economic security threat, warning Beijing is exploiting American technology to develop its own economy.

The FBI’s top counterintelligence official, Bill Priestap, told the committee: “Our prosperity and place in the world are at risk...

“I believe this is the most severe counterintelligence threat facing our country today. Every rock we turn over, every time we looked for it, it’s not only there, it’s worse than we anticipated.”

Senators in both parties said that China’s actions were intolerable and that they would move forward with legislation to give investigators broader authorities to combat the threat.

“In simple terms, it’s called cheating,” said Sen. Chuck Grassley (R., Iowa), chairman of the Judiciary panel.  “And it’s only getting worse.”

On a different topic, about 100 worshippers at an unofficial church in southwestern China were snatched from their homes or from the streets in coordinated raids last Sunday.

Chinese authorities targeted members of a prominent Protestant house church. The homes of the church’s leaders were among those raided.

North Korea: From the Wall Street Journal’s Andrew Jeong and Dasl Yoon:

“Cracks in the hard-won détente between North and South Korea are emerging, raising doubts about the path ahead after a year of warming ties.

“With nuclear talks with the U.S. at a standstill and sanctions thwarting progress on inter-Korean economic projects, signs of Pyongyang’s frustration point to new obstacles in the rapprochement.

“South Korea on Wednesday indicated that North Korean leader Kim Jong Un was unlikely to visit Seoul before the end of the year – an objective the sides had laid out at a summit in September....

“Meanwhile, North Korea issued a commentary admonishing South Korea for holding an air-force exercise this month and criticizing Seoul’s ‘large-scale arms buildup.’  Such action ‘destroys confidence between north and south,’ the statement said, warning Seoul against worsening relations.”

As for the aftermath of the Trump-Kim summit in Singapore, way back in June, there has been nothing on how North Korea is to denuclearize, while satellite imagery continues to show the regime is developing its weapons program.  While President Trump wants to hold another summit with Kim as early as January, the U.S. has said it won’t ease sanctions until Pyongyang offers concrete signs it intends to give up its nukes.

President Trump tweeted late today:

“Many people have asked how we are doing in our negotiations with North Korea – I always reply by saying we are in no hurry, there is wonderful potential for great economic success for that country....

“....Kim Jong Un sees it better than anyone and will fully take advantage of it for his people. We are doing just fine!”

Japan: In a major shift for the country, Japan plans to accept more than 300,000 blue-collar foreign workers over the next five years to help tackle labor shortages under a bill passed by parliament last Saturday.

Despite the above-noted growth hiccup in the third quarter, with Japan’s population dropping since 2010 due to chronically low birthrates, job opportunities have been increasing and the jobless rate is at its lowest level since 1992.

Business groups have been lobbying the government to loosen its restrictions on foreign workers.

The new law creates two visa categories: one for manual workers who can stay for five years and one for higher-skilled blue-collar workers who can stay indefinitely.

In opinion polls, a slight majority of the population supports accepting more foreign workers despite historical opposition to immigration.  Only 2% of Japan’s resident population is non-Japanese.

Russia: The Kremlin on Friday rebuffed a U.S. call to release Ukrainian ships and sailors, saying it could not take precedence over Russia’s justice system, but added that Moscow remained interested in a top-level meeting with the U.S.

Washington said on Thursday that a meeting between Trump and Putin would not be held until Moscow released three Ukrainian navy vessels and their crews, seized last month off Crimea.

Serbia / Kosovo: There’s a disturbing story today that NATO is warning of mounting instability in the Balkans, as lawmakers in Kosovo voted to establish an army, prompting outrage in neighboring Serbia, which doesn’t recognize Kosovo’s independence.

NATO has been handling Kosovo’s security as an international protectorate, since it declared independence in 2008, nine years after U.S.-led NATO forces stopped Serbia’s military crackdown on the breakaway province.

In recent years the two sides had patched up their differences under a series of talks hosted by the European Union, which resulted in a proposal to swap territory this year.

But Kosovo’s decision is a major setback for the reconciliation process.

NATO currently has 5,000 troops in Kosovo, including 600 U.S. soldiers.

Stupidly, the U.S. is siding with Kosovo’s decision to create an army, while NATO, along with the EU, condemned the vote.

Having been to neighboring Albania, and traveled in the countryside, this is one tough neighborhood.  Let’s just say I wouldn’t go dare go into a bar near the Kosovo border alone.

Mexico: Mexico’s new president, Andres Manuel Lopez Obrador (AMLO) said Monday that salaries for some in the country’s judicial branch are “offensive” and that he will leave it to the Congress to implement his call for austerity.

AMLO has pledged to only take a salary of $5,300 per month, and the judges have balked at his demand that no public salaries exceed his own.  The president said some judges are collecting as much as $30,000 per month.

Reducing the public payroll is critical for AMLO to have the funds needed to accomplish his goals.

Among his proposed initiatives is a plan to spend $30 billion over the next five years on Central American development, in order to slow migration from some of the hemisphere’s poorest and most violent countries.

Regarding issues such as the caravan, that has seen more than 5,000 Central American migrants congregate in Tijuana, AMLO is on record as saying he “will not do the dirty work of any foreign government,” a clear swipe at demands Trump was imposing on Mexico to stop the migrant caravan.

Lopez Obrador also promises to focus the work of Mexico’s network of consulates in the United States on “defending” the millions of Mexicans living north of the border.

Random Musings

--Presidential tracking polls....

Gallup: 40% approval of Trump’s job performance, 56% disapproval (Dec. 9); 89% Republicans, 38% Independents.
Rasmussen: 48% approval, 50% disapproval (Dec. 14).

A Fox News poll has 46% approving of Trump’s job performance, 52% disapproving.  In January, it was 45-53.  Moreover, approval has barely budged all year, staying within a narrow range of 43% to 47% in this one...and all the other surveys for that matter.

But President Trump took a rare shot at Fox News, griping about the 46% approval figure.

“Frankly, Fox has always given me a bad poll.  I don’t know why that is,” he told Fox News host Harris Faulkner during an interview.  But the 46% is a few points higher than most other surveys in the past week.

What’s worrisome for the president is 45% think the economy will be in better shape a year from now, down from 56% who felt that way in December 2016.

50% do approve of Trump’s handling of the economy overall, however, 43% disapproving.  On border security its 46-49 percent, and on immigration it’s 43-53 percent.  On voters’ top concern, health care, the president is underwater by 23 points: 33-56 percent.

--In a new CNN / SSRS poll, President Trump’s approval rating for handling the Russia investigation dipped to 29%, matching a low previously hit in June of this year.

But Robert Mueller’s approval rating is also down: 43% approve and 40% disapprove.  That compares to a 48-36 split in early October.

Overall, a majority (54%) continue to say that most of the things Trump has said publicly about the Russia investigation are false, while just over a third say they are mostly true (36%). That’s largely unchanged since August.

59% say the investigation is a serious matter, 35% an effort to discredit Trump.

In the CNN poll, Trump’s overall approval rating is 39%, 52% disapproval for his handling of the presidency, which virtually matches its pre-election level.

--Nancy Pelosi agreed to term limits in a deal with her Democratic caucus that paves the way for her to become House speak in January.

Pelosi, 78, will serve no more than four more years, a concession that gained her the votes of some former members of the anti-Pelosi faction, including Reps. Tim Ryan (D-Ohio) and Seth Moulton (D-Mass), with several others expected to now vote ‘yes.’

Pelosi said in a statement: “Over the summer, I made it clear that I see myself as a bridge to the next generation of leaders, a recognition of my continuing responsibility to mentor and advance new Members into positions of power and responsibility in the House Democratic Caucus.”

Separately, Pelosi mocked President Trump’s “manhood” and questioned his basic understanding of government spending during a closed-door meeting with House Democrats on Tuesday, according to an aide in the room.

Pelosi made her blistering remarks after returning to the Capitol from a tense Oval Office sit down with Trump, Pelosi accompanied by Senate Minority Leader Chuck Schumer; a stone-faced Mike Pence sitting alongside the president.

“It’s like a manhood thing for him,” Pelosi told the Dems of Trump’s wall obsession, according to the source.  “As if manhood could ever be associated with him.”

With reporters present, Trump boasted he would be “proud” to shut down the government if Congress doesn’t earmark cash for his wall before a Dec. 21 spending deadline.

So Trump “owns” any shutdown.  Pelosi and Schumer believe this was an accomplishment.

After spending the campaign promising Mexico would pay for a border wall, Trump since taking office has demanded Congress makes sure American taxpayers foot the bill.

--Republican Rep. Mia Love (Utah), in an op-ed for the Washington Post, Love having lost her seat to her Democrat opponent in the mid-term elections.

“For too long, conservatives in my party have focused on administering purity tests instead of expanding our audience. And in doing so, we have too often failed to adequately articulate our party’s principles to others, allowing our opponents to define or caricature our principles for us.

“We have especially failed to bring our message to, and connect with, women and racial minorities. And we have effectively written off cities as Democratic strongholds.  Our nation is poorer for it.

“Many on the right claim that some Americans oppose Republicans because of the proliferation of identity politics. But Republicans who accept that some Americans will inevitably vote Democratic simply because of their physical features or where they live are buying into the identity politics they so stridently object to.

“As I prepare to leave Congress after a hard-fought election, I am not advocating a Republican version of identity politics.  I oppose such tactics because they often strip people of their identity and reduce them to an avatar. As the only black Republican woman in Congress, I know this well.  I have often been the target of insults from those who struggle to reconcile what they thought I should be with who I actually am.

“This is far too common in American politics. We construct mental cages for people based on societal narratives, and we feel uncomfortable when they escape. When my friend Tim Scott, the only black Republican in the U.S. Senate, celebrated the passage of tax reform, an uninformed troll labeled him a ‘prop’ – even though he was instrumental in crafting and passing the bill. And when I was photographed at the White House as President Trump signed a banking reform package, which included one of my bills, I received similar feedback.

“But Republicans should not be so afraid of identity politics that we refuse to seek out the unique experiences that actually do contribute to people’s individual identity.

“For example, during my time in Congress, I never understood why I had to fight so hard to make my perspective heard on immigration. My parents left Haitian soil for the United States in the early 1970s.  They arrived here with nothing but hope in their hearts and a firm determination to work hard so that their family could enjoy the peace and opportunity that had eluded them in Haiti.  They worked incredibly hard and insisted that their family contribute to their communities and society. Thirty-nine years later, we celebrated together as I was elected to Congress....

“We must invite, not just tolerate, diverse perspectives to the table and ensure that their voices matter.

“We must do a better job of connecting with individuals and families that may not traditionally vote Republican. We must listen to their experiences, visit them in their comfort zones and take their priorities to heart.    Our policy implementations must be personal – not transactional.  And we cannot fall into the trap of thinking that there are Democratic issues and Republican issues.

“I believe in policies that protect life at all stages, preserve free markets, promote fiscal responsibility and limit government. There are millions of Americans who believe in these principles. But for them to believe in us, we must first show that we believe in them.”

--Bret Stephens / New York Times

“As with September’s memorial services for John McCain, expressions of mourning for George H.W. Bush – extolling the 41st president’s humility, loyalty, temperance, decency, bravery and devotion to public service – have contained thinly veiled rebukes of the current president. The sharpest one, I thought, came in Alan Simpson’s splendid eulogy at Washington National Cathedral.

“ ‘He never lost his sense of humor,’ the former senator from Wyoming said of his friend of more than 50 years.  ‘Humor is the universal solvent against the abrasive elements of life. That’s what humor is.  He never hated anyone.  He knew what his mother and my mother always knew: hatred corrodes the container it’s carried in.’

“Did Donald Trump catch any of this as he sat there in the first pew?  Lindsey Graham, the episodically spineful Republican from South Carolina, has claimed that, in private, the 45th president is ‘funny as hell’ and has ‘a great sense of humor.’  If so, it’s a better kept secret than his tax returns....

“(Trump) hankers for media adulation and boils with rage for not getting it.  It doesn’t seem to occur to him that the surest invitation to mockery is humorlessness.   Or that self-deprecation pre-empts derision.  Or that the best way to undermine his media critics is to make light of their pomposity, not thunder at their impudence.  Or that presidential charm trumps media vituperation every time.

“In sum, that humor in democratic politics is also its most effective weapon: the strongest shield and the sharpest blade.  It doesn’t just amuse, leaven and comfort. It defangs, attracts, and mobilizes. Winston Churchill was a wit, as were Jack Kennedy and Ronald Reagan.  Nixon and Jimmy Carter weren’t.

“Does any of this make a dent on Trump?  I doubt it.  His character is what it is.  And his style of politics isn’t democratic so much as it is cult-of-personality.  Trump appeared engaged throughout the service, but I suspect that Simpson’s speech flew right past him.

“It shouldn’t fly past the rest of us. This is an angry age, in which Trump’s critics also simmer in rage, ridicule, self-importance, self-pity – and hatred, too.  They think they’re reproaching the president.  Increasingly they reflect him.  Simpson’s message contains a warning to us all.”

--Fentanyl is now the deadliest drug in America, as per a new report from the Centers for Disease Control and Prevention, with over 18,000 overdose deaths in 2016, the most recent year for which statistics are available.  For the previous four years (2012 to 2015), heroin topped the list.

Overall, more than 63,000 Americans died of drug overdoses in 2016, an average of 174 deaths per day.

--TIME magazine named a group of journalists, including the murdered Jamal Khashoggi, as its person of the year for 2018, honoring their dedicated pursuit of the truth despite a war on facts and tremendous obstacles, including violence and imprisonment.

TIME was making a nod to the spread of misinformation around the world by leaders seeking to quash independent journalism.

Besides Khashoggi, the honorees included the staff of the Capital Gazette newspapers in Maryland, where five people were shot dead in June; Maria Ressa, the founder of a news start-up under attack by the authoritarian president of the Philippines; and U Wa Lone and U Kyaw Soe Oo, two Reuters journalists imprisoned in Myanmar after reporting the massacre of Muslim men.

---

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

God bless America.

---

Gold $1242
Oil $51.23

Returns for the week 12/10-12/14

Dow Jones  -1.2%  [24100]
S&P 500  -1.3%  [2599]
S&P MidCap  -2.7%
Russell 2000  -2.6%
Nasdaq  -0.8%  [6910]

Returns for the period 1/1/18-12/14/18

Dow Jones  -2.5%
S&P 500  -2.8%
S&P MidCap  -8.8%
Russell 2000  -8.1%
Nasdaq  +0.1%

Bulls 45.4
Bears
20.4 

Have a great week.

Brian Trumbore