Week in Review

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Week in Review

12/29/2018

For the week 12/24-12/28

[Posted 11:00 PM ET, Friday]

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*Special thanks to Ken S. for his ongoing support.

Edition 1,029

So much for a relaxing holiday week.  Chaos in the markets. Instability in Washington.  President Trump’s surprise trip to Iraq, coupled with non-stop disruption out of the White House residence.  And the thing is 2019 promises more of the same.

I am holding off on a ‘year-in-review,’ and look ahead, until 2018 actually ends.  We still have a full session in the stock market on Monday, after all, so who knows what will happen in that regard given this week’s extreme volatility.

But I was struck by a comment retiring Tennessee Republican Senator Bob Corker made on one of the Sunday news shows.  Corker was asked if he was glad to be leaving the Senate after two terms and he said he wished he could stick around just another three months because it’s going to be crazy.  As in he believes there is no telling what Donald Trump will do with the pressure from the Mueller investigation closing in.  The president is likely to be desperately trying to change the conversation and after two years, we know what that means.

For now, the turmoil over the resignation of Defense Secretary James Mattis continued, after Trump blindsided allies and overrode his top Pentagon advisors and military commanders in abruptly deciding to order the withdrawal of all U.S. troops from Syria in a tweet last Tuesday.

Over the weekend, Trump then tweeted:

“To those few Senators who think I don’t like or appreciate being allied with other countries, they are wrong.  I DO. What I don’t like, however, is when many of these same countries take advantage of their friendship with the United States, both in Military Protection and Trade...

“....We are substantially subsidizing the Militaries of many VERY rich countries all over the world, while at the same time these countries take total advantage of the U.S., and our TAXPAYERS, on Trade. General Mattis did not see this as a problem. I DO, and it is being fixed!”

“When President Obama ingloriously fired Jim Mattis, I gave him a second chance. Some thought I shouldn’t. I thought I should. Interesting relationship-but I also gave all of the resources that he never really had. Allies are very important-but not when they take advantage of U.S.”

“If anybody but your favorite President, Donald J. Trump, announced that, after decimating ISIS in Syria, we were going to bring our troops back home (happy & healthy), that person would be the most popular hero in America. With me, hit hard instead by the Fake News Media. Crazy!”

“Saudi Arabia has now agreed to spend the necessary money needed to help rebuild Syria, instead of the United States. See?  Isn’t it nice when immensely wealthy countries help rebuild their neighbors rather than a Great Country, the U.S., that is 5000 miles away. Thanks to Saudi A!”

I found no such news story, and does the average American understand what the cost to rebuild Syria (and Iraq, for that matter) is?  Try $388 billion for Syria alone...$388 billion...per a UN agency. Syria’s government has asked for $48bn, short term, just for housing needs.  Saudi Arabia won’t end up kicking in more than $1 billion, over time, especially with oil at $45 a barrel.

In fact, the Saudis committed just $100 million to a stabilization fund back in August, and the Saudi Embassy in Washington confirmed this week there were no new commitments.

Trump also tweeted that the Defense Department’s No. 2, former Boeing executive Patrick Shanahan, would take over the top job Jan. 1.  The president decided that Defense Secretary James Mattis should leave two months earlier than he’d planned in his resignation letter.

Saturday, the U.S. special presidential envoy for the coalition leading the fight against Islamic State, Brett McGuirk, resigned over Trump’s decision to withdraw from Syria.  McGuirk had been slated to leave his post in February but opted to do so effective Dec. 31 instead.  He had been appointed by former President Obama in Oct. 2015 and has been instrumental in shaping Washington’s policy in northern Syria, particularly its backing of the SDF, the Kurdish-led Syrian Democratic Forces.  Just recently, in a briefing at the State Department Dec. 11, McGuirk told reporters:

“Even as the end of the physical caliphate is clearly now coming into sight, the end of ISIS will be a much more long-term initiative.  Nobody is declaring a mission accomplished.”

So Wednesday, Trump defended his decision to withdraw U.S. troops from Syria during an unannounced visit to Iraq, saying that many people will start seeing things on Syria the same way he does.

Trump said he had told his advisers, “let’s get out of Syria,” but was persuaded to stay, before deciding last week to bring the 2,000 troops home.

“I think a lot of people are going to come around to my way of thinking,” Trump told reporters from Al Asad Air Base west of Baghdad, where he and First Lady Melania Trump spent a little more than three hours on the ground with the troops.

The base in Anbar province became one of the most important bases for Marines after the 2003 U.S. invasion of Iraq.  Since U.S. forces returned to Iraq in 2014, Al Asad has played an important role in the fight against ISIS because of its location.

Trump said the United States would remain in Iraq, adding, “In fact, we could use this as the base if we wanted to do something in Syria.”

Which begs the question, is ISIS “knocked out,” as the president told the nation, and the troops, or not?           

The mission of the roughly 5,200 troops in Iraq is to support government forces in their fight against ISIS, but the president declared victory against Islamic State. 

Trump also told the troops at Al Asad that he was emphasizing his “America first” policy.  “The United States cannot continue to be the policeman of the world.  It’s not fair when the burden is all on us, the United States.”

“We are spread out all over the world,” Trump added.  “We are in countries most people haven’t even heard about. Frankly, it’s ridiculous.”

Trump also boasted to the troops that he had delivered them “one of the biggest pay raises you’ve ever received.”  This is a topic I broached the other day, and many times before then.  It’s a lie.

“You haven’t gotten one in more than 10 years,” Trump said.  “More than 10 years. And we got you a big one.  I got you a big one.”

In fact military pay has gone up every year since the 1970s, and it went up 2.4% in 2018 and will rise 2.6% in 2019, due to the National Defense Authorization Act.

But on the bigger issue of just what is America’s strategy in Syria, and the broader Middle East, yes, there is room for serious debate.  No one wants to be fighting a number of distant wars all at once.  Yes, there are limits to America’s role as a global guarantor of security.

It’s just that the president has never explained what his strategy is for the region in a speech to the American people, or in discussions with our allies, and we now know he’ll never do so because he has none.

Trump World, Part Deux

The partial government shutdown continues, and there will be no resolution until Jan. 3 at the earliest when the 116th session of Congress convenes with the Democrats in charge of the House.  President Trump is holding fast with his demand for $5 billion in funding for his proposed wall.  Democrats have made counteroffers for border security of as much as $1.6 billion.

Incoming House Speaker Nancy Pelosi has said Democrats plan on putting a bill that funds the government, without money for the wall, on the floor on Jan. 3. This would mirror a bipartisan bill the Senate passed last week extending government funding through Feb. 8. The Senate would have to repass that legislation as it will be before a new Congress.

Not that we didn’t already know this, but President Trump made it official Thursday night when it comes to the 2020 campaign, tweeting:

“This isn’t about the Wall, everybody knows that a Wall will work perfectly (In Israel the Wall works 99.9%).  This is only about the Dems not letting Donald Trump & the Republicans have a win. They may have 10 Senate votes, but we have issue, Border Security.  2020!”

Today, he continued...

“We will be forced to close the Southern Border entirely if the Obstructionist Democrats do not give us the money to finish the Wall & also change the ridiculous immigration laws that our Country is saddled with.  Hard to believe there was a Congress & President who would approve!”

“The United States looses (sic) soooo much money on Trade with Mexico under NAFTA, over 75 Billion Dollars a year (not including Drug Money which would be many times that amount), that I would consider closing the Southern Border a ‘profit making operation.’ We build a Wall or....

“....close the Southern Border. Bring our car industry back into the United States where it belongs. Go back to pre-NAFTA, before so many of our companies and jobs were so foolishly sent to Mexico.  Either we build (finish) the Wall or we close the Border.....

“....Honduras, Guatemala and El Salvador are doing nothing for the United States but taking our money. Word is that a new Caravan is forming in Honduras and they are doing nothing about it. We will be cutting off all aid to these 3 countries – taking advantage of U.S. for years!”

Except that just weeks ago, the United States announced a new collaboration with Mexico on a program to curb migration from these same Central American nations, with much of the $10.6 billion U.S. contribution to be drawn from existing aid programs.

Earlier....

“ ‘Border Patrol Agents want the Wall.’  Democrat’s (sic) say they don’t want the Wall (even though they know it is really needed), and they don’t want ICE. They don’t have much to campaign on, do they?  An Open Southern Border and the large scale crime that comes with such stupidity!”

“Have the Democrats finally realized that we desperately need Border Security and a Wall on the Southern Border.  Need to stop Drugs, Human Trafficking, Gang Members & Criminals from coming into our Country. Do the Dems realize that most of the people not getting paid are Democrats?”

In a chat in the Oval Office with reporters Christmas morning, Trump said:

“One other thing people don’t understand or know or whatever but they might as well....we’ve renovated massive amounts of very good wall, wall that was good but was in bad shape. So you don’t have to replace it but you have to renovate it, and we’ve renovated a massive amount of wall.

“And in addition to that, and I think very, very importantly, we’ve built a lot of new wall. So it’s all being built, the new piece, the new section is very, very exciting, what’s going on there. And you’ll see it, because in January I’m going down there.  We’re almost having a groundbreaking, it’s such a big section.  It’s probably the biggest section we’ll get out. So while we’re fighting over funding, we’re also building. And it’s my hope to have this done, completed, all 500 to 550 miles, to have it either renovated or brand-new, by Election Day.”

Of course the president gave zero specifics on who was doing the work or how it would be paid for, and said without explanation that the $25 billion he had been seeking for wall funding had already been found, though Congress has not authorized any funding for the wall.

“Different people. Different people.  Highly bid,” he said when asked who was doing the work.  “You have to understand, it’s complicated. Because we’re getting $25 billion.  It’s already approved, but that’s for everything. That’s for homeland security,” he continued.

“That includes, as we say, the bells and whistles. We have a lot of drones, a lot of everything.  Plus we have some wall money in there.  But we want the wall money to be increased, because I want to finish it, but what people have to understand, it has been strongly started, a lot of areas,” Trump said.

The president then claimed that federal workers were reaching out to him and thanking him for the shutdown.  “Many of those workers have said to me and communicated, ‘Stay out until you get the funding for the wall.’  These federal workers want the wall.  The only one that doesn’t want the wall are the Democrats.”

The shooting death of a California police officer the other day at the hands of an illegal immigrant, who was then arrested today, will only intensify debate on the border issue.  The president had tweeted about the case in his advocacy for a wall and the local county sheriff criticized California’s sanctuary cities law for immigrants.  The suspect was said to be involved with a criminal gang and was trying to escape to Mexico when he was captured.

A poll released by Reuters / Ipsos on Thursday had more Americans blaming President Trump than congressional Democrats for the partial government shutdown.  47% of adults hold the president responsible, while 33% blame Democrats in Congress, the poll conducted between Dec. 21-25, mostly after the shutdown began.  Just 35% of those surveyed said they backed including money for the wall in a congressional spending bill.  Only 25% said they supported Trump shutting down the government over the matter.

We’ll see how the public feels come Dec. 31, when some workers will not be receiving paychecks.  An estimated 350,000 are on furlough at home without pay.

Editorial / Financial Times

“Like soccer, the U.S. presidential first term is a game of two halves. In the first two years, the president tries to leave his mark on Washington and enact his promises. In the second, re-election becomes the goal. In this respect only, Donald Trump is conforming to type.  In all others, he is blazing a unique trail.

“Mr. Trump’s presidency has been a garish spectacle that could just as easily lead to his impeachment in the months ahead – or his resignation in exchange for immunity – as in his re-election in 2020.  Much like Britain, which faces outcomes as extreme as a no-deal Brexit and a second referendum.  America is in the throes of radical uncertainty.  With Democrats taking over the House of Representatives, and Robert Mueller’s Russia collusion probe nearing its end game, the Trump presidency now faces far greater volatility. To paraphrase one of his predecessors: ‘We ain’t seen nothing yet.’

“His biggest turning point was the Democratic ‘blue wave’ in November.  Having pulled out every trick in the book, including sending troops to the U.S.-Mexico border, Mr. Trump was unable to stop a Republican defeat in the House of Representatives.  He blamed everyone but himself for a campaign that he had ensured was about anything but a booming economy.  That defeat has sharply reduced his ability to intimidate friends and foes alike.

“Fearing a bigger defeat in 2020, Republicans are beginning to stand up to Mr. Trump in a way that was sorely lacking in his first two years.  They have criticized his decision last week to withdraw U.S. troops from Syria, and to wind down the U.S. presence in Afghanistan, as well as for conducting his job in a way that prompted the resignation of Jim Mattis. The outgoing secretary of defense is one of the few figures in the administration to enjoy widespread trust among America’s partners and beyond.  They have also abandoned the fight to secure funding for Mr. Trump’s U.S.-Mexico border wall.

“Such is the drain on Mr. Trump’s allure that he is now finding it hard to recruit anyone to join his rapidly emptying administration. The most important vacancy is for a new White House chief of staff, after the departure of John Kelly. But the president’s already weak legal team is running at a severely depleted level. Few law firms want to risk their reputations on a client who appears to be heading willfully for the rocks....

“Democrats are about to assume the formidable power of committee chairmanships. This will allow them to subpoena documents, including Mr. Trump’s tax records, offer immunity to witnesses, and stage corruption hearings in the full glare of the nation.  They intend to use their powers to the full.

“Mr. Mueller is also closing in on his target. He looks poised to issue a flurry of new indictments, which could encompass the president’s son, Donald Trump Jr. and his son-in-law, Jared Kushner.  That is separate to a metastasizing array of criminal inquiries by New York’s public prosecutors.  In the weeks before Christmas, Mr. Trump’s charitable foundation was closed down, The Trump Organization’s chief financial officer took legal immunity, and his personal lawyer pleaded guilty to having broken the law at the direction of Mr. Trump....

“The good news is that the U.S. constitution remains largely intact. The courts, the media, and the electorate have been doing their job. The bad news is that Mr. Trump cuts an increasingly isolated and erratic figure.  He is not the type to go quietly into the night.”

Wall Street

As a Bloomberg News headline put it Friday morning, “ ‘Completely Bizarre’ Stock Moves Leave Traders Scratching Heads.”

It all started Sunday night, when a tweet from Treasury Secretary Steven Mnuchin had everyone thinking, ‘WTF’?  Mnuchin, from some Mexican hideaway, said he had called the chief executives of the six largest banks in the U.S. and was assured they have “ample liquidity available for lending to consumer, business markets, and all other market operations.”

The tweet, well-intentioned, had the opposite effect, leading many to wonder why Mnuchin felt it necessary to make the calls in the first place.  Sure, December was turning into a dismal month, but there wasn’t any panic. The fundamentals were still sound.   It didn’t help that the Treasury Department said the secretary was also going to convene a call on Monday with the President’s Working Group on financial markets, better known as the Plunge Protection Team.

President Trump then exacerbated matters Monday, continuing his attacks against the Federal Reserve, tweeting the central bank is “only problem our economy has.” 

“The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders.”

There were concerns the president not only wanted to fire Fed Chair Jay Powell, but also Mnuchin, who pushed for Powell in the first place.

The market proceeded to have its worst Christmas Eve ever, with the Dow Jones down 653 points, 2.9%, and the S&P 500 losing 2.7%, Nasdaq 2.2%.

The losses brought the S&P to the edge of an official bear market, defined as a decline of 20% off the highs, but it was 19.8% at the close, so market historians may be wrangling over this fact later on.  Nasdaq was in bear market territory with a loss of 22% from its record high, set Aug. 31.

The S&P was headed towards its worst December ever, down 14.8%, the Dow down 14.5%, the worst performance for the month since 1931. 

Tuesday we all paused to celebrate Christmas, except the president, who called reporters into the Oval Office, aired his grievances, and criticized the Fed anew:

“They’re raising interest rates too fast. They think the economy is so good, but I think that they will get it pretty soon, I really do.... The fact is that the economy is doing so well that they raised interest rates.”

Trump did defend Treasury Sec. Mnuchin, referring to him as a “very talented guy, very smart person.”

Wednesday, chairman of the Council of Economic Advisers, Kevin Hassett (an adult, I hasten to add), said, “The president has voiced policy differences with Jay Powell, but Jay Powell’s job is 100 percent safe.”  Separately, Hassett also said, “I am highly confident that the president is very happy with Secretary Mnuchin.”  [Hassett had done the same thing Sunday, but the markets didn’t seem to notice.]

Wall Street also got word on holiday spending and the initial readings were terrific, though as expected.  Everyone has been forecasting a strong shopping season.

MasterCard Spending Pulse said retail sales, ex-autos, rose 5.1% from Nov. 1 – Dec. 24.  Adobe said online sales rose about 18% over the same period vs. a year ago.  MasterCard pegged it at 19.1%, or about 13% of total sales.

Adobe said retailers had big success in getting customers to buy online and pickup in the store, up 47% from last year for the period Nov. 1 – Dec. 19.

UPS said it delivered about 98% of its packages on time, FedEx 97%, and the USPS 98%.

The market took it all in and roared, a record 1,086 points, the Dow Jones up 5%, ditto the S&P, while Nasdaq soared 5.8%.  It was the biggest percentage gain since March 2009.

Thursday, the market was headed back down, over 600 points on the Dow, when at about 2:15 p.m., the market suddenly reversed, and what we saw was a 900-point swing in the final hour and 45 minutes, the Dow finishing up 260 points.

Friday, finally, the market largely rested.

Everyone hit the bar after.

There was minimal economic data this week, and one release was not forthcoming, new-home sales for November, due to the government shutdown.  But we did have an October reading on home prices...the S&P CoreLogic Case-Shiller 20-city index rising 5.0% year over year.

[Las Vegas continued to have the fastest home price growth in the country at 12.8%, followed by San Francisco, 7.9%, and Phoenix, 7.7%.  Washington, D.C., 2.9%, and New York, 3.1%, brought up the rear.]

Home prices are now 54% above the bottom six years ago, or 40% adjusted for inflation.

The average for a 30-year, fixed-rate mortgage was 4.62% last week, down from nearly 5% earlier this fall, which has helped stabilize the housing sector a bit, though this wouldn’t be reflected in the Case-Shiller October survey.  Today, a release from the National Association of Realtors on pending home sales was disappointing.

One other...the Chicago Purchasing Managers Index for December was a strong 65.4 (50 being the dividing line between growth and contraction).

Opinion....

Greg Ip / Wall Street Journal...written Wed. a.m., prior to the Dow’s 1,000-point+ rally.

“It’s not a shock that an epic bull market fueled by years of exceptionally easy money should stumble as that monetary stimulus is withdrawn. It’s too soon to know the final fallout, but not too soon to see that President Trump is probably making it worse.

“The Federal Reserve’s decision to raise interest rates last week to between 2.25% and 2.5% was widely expected. Nonetheless, an intensifying stock selloff has fueled criticism that the move was a mistake.

“Some critics argue that even such low interest rates may be too high because growth and inflation are being held back by shortfalls in demand due to low productivity growth and an aging population. Harvard University economist Larry Summers, the most prominent advocate of this view, has criticized Fed tightening since it began in 2015 and now puts the probability of recession by the end of 2020 at more than 50%.

“This view is economically plausible but lost adherents in the past year as economic growth, investment and productivity picked up.  Indeed, supporters of Mr. Trump claim his policies, in particular a broad tax cut, have lifted sustained U.S. growth to 3% compared with below 2%, the consensus of independent economists.  Paradoxically, many of these same advocates seem worried today’s low interest rates are high enough to undermine growth; those two views are mutually exclusive....

“The critics will be right if economic data take a sharp turn for the worse in coming months, or a financial crisis erupts in the U.S. or abroad. Fed officials know they’re fallible, and in such a circumstance would quickly signal a shift toward easier monetary policy and prepare crisis-management measures.

“Fed Chairman Jerome Powell was picked for the job in part for such flexibility. He was less wedded to tighter monetary policy than some candidates, and his views on the financial system meshed with (Treasury Secretary) Mnuchin’s.

“But this is where Mr. Trump is making matters worse.  Previous presidents accepted the stock market was out of their hands and sought instead to emphasize the economy’s sound fundamentals and stable policy making.  Mr. Trump has done the opposite: He is engaged in a trade standoff with China that he boasts has hurt that country’s growth; he has fomented chaos on foreign policy by triggering the resignation of Defense Secretary Jim Mattis; and he provoked a partial government shutdown in hopes of securing funding for a border wall.

“His attacks on the Fed compound the uncertainty and turmoil at the top echelons of federal policy making.  Mr. Powell has promised that such attacks won’t affect his or his colleagues’ decisions. But as Mr. Trump’s political acolytes pile on, the attacks taint the independent central bank’s actions with politics.  Investors may increasingly speculate that Fed policy on interest rates, rather than being guided solely by economic data, may be influenced by the desire to appease or defy Mr. Trump.

“If Mr. Trump tries to fire Mr. Powell, as he has reportedly explored, the chaos would be magnitudes worse.  Such a move could trigger litigation and a constitutional crisis since by law a Fed governor (including its chairman) can only be fired for cause....

“The harm would be even greater should a genuine crisis erupt, such as a financial institution getting into trouble or a country threatening to default on its debts.  The Fed has coordinated its response to similar events in the past with the Treasury and White House; it may be less able to now, for fear of the fact, or perception, of political pressure and because so many key Treasury positions are vacant.

“Mr. Trump wants to blame the bear market on the Fed.  Odds are, historians will blame it on him.”

As for the U.S.-China Trade War, and the current 90-day truce, China said today it had opened the door to imports of rice from the U.S. for the first time ever in what analysts took to signal a warming of relations, as the two sides reportedly prepare for talks in Beijing the week of Jan. 7.  But as with everything else on this topic, it is unclear just how much China would buy, seeing as U.S. rice is more expensive.  China opened its rice market when it joined the World Trade Organization in 2001, but a lack of an inspection protocol between the U.S. and China effectively banned imports.  Nonetheless, China formally imposed additional tariffs of 25 percent on U.S. rice back in July, even though imports were not permitted.

Separately, Beijing was reportedly accelerating its lawmaking process to consider draft legislation to protect the intellectual property rights of foreign investors, encourage voluntary transfers of technology but prohibit forced technology transfers by administrative means, to address some of Washington’s demands.

But China has issued such pronouncements before, such as in January 2015, and it was never enacted into law.

The government, under the draft law, would also still have the right to expropriate the property of foreign investors under special circumstances, but the new draft requires that the process must be done through legal procedures and include “fair and reasonable” compensation.

Xinhua News Agency reported that a clause protecting intellectual property was also added to the draft.

But, again, it’s about implementation.  As one analyst, Shu Yujing, told the South China Morning Post:

“There’s no detailed regulation on how many reviews of the top legislature any draft law has to undergo before its enactment.  Given the recent pressure [from the U.S.], it could be rolled out over one or two years,” she said.

As the SCMP also points out:

“Despite the progress, foreign firms will still face many obstacles to defend their intellectual property rights.  Plaintiffs have to collect evidence of violations and submit them to Chinese courts, which is different from the U.S. where defendants are forced to prove their innocence through a discovery process, said Shu, who has represented many foreign firms in trademark and patent cases in China.

“In addition, the punishment for violations – particularly the size of fines – is not sufficient, she added.”

In other words, as I’ve said for a long time now, it’s all nothing but b.s. 

The 90-day trade truce agreed to between President Trump and China’s President Xi Jinping in Buenos Aires on Dec. 1, would expire March 2, at which point both sides would impose new tariffs without an agreement (unlikely), or a further extension of the truce (possible).

Meanwhile, with the new Congress coming in, the new NAFTA agreement will be back in the headlines.  Remember, all three signees, the U.S., Canada and Mexico, need approvals from their respective legislatures before it goes into effect.

Editorial / Wall Street Journal

“When President Trump signed his new NAFTA accord last month with the leaders of Mexico and Canada, Prime Minister Justin Trudeau almost didn’t show up. The reason: Mr. Trump still hasn’t lifted the steel and aluminum tariffs as he promised he’d do if America’s two neighbors signed a revised trade deal.

“A month later they’re still waiting. The delay is damaging the U.S. economy and America’s credibility as a trading partner.  Though Mr. Trump likes to use tariff threats as a negotiating tactic, his Administration also promised relief from the levies he imposed under Section 232 of U.S. trade law.

“Commerce Secretary Wilbur Ross told Congress in June that the ‘objective’ of the metals tariffs ‘is to have a revitalized NAFTA, a NAFTA that helps America and, as part of that, the 232s would logically go away, both as it relates to Canada and as to Mexico.’

“In July U.S. Trade Representative Robert Lighthizer told a Senate hearing that ‘resolving the NAFTA issue – we would expect, or hope, that we would resolve the steel and the aluminum issues with both Mexico and Canada.’

“Last March no less than the President himself tweeted that ‘tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed.’

“Yet U.S. officials now say signing new NAFTA isn’t enough.  They also want Canada and Mexico to agree to new quotas on their metals exports to the U.S. before the U.S. will lift the Section 232 tariffs. This is politically managed trade that responds to lobbying in Washington, not free trade that responds to market supply and demand.

“Canada is the largest foreign supplier of steel to the U.S., with a 20% import share, so the goal of quotas would be to limit steel supply to keep prices in the U.S. high. Canada and Mexico are understandably resisting since they thought a new NAFTA would mean the end of arbitrary tariffs imposed in Washington.

“Meanwhile, American steel consumers continue to suffer from the tariffs.  One loser is the American beer industry, which says the tariffs amount to a $347 million tax on U.S. brewers.  Beer institute President Jim McGreevy says U.S. brewers used more than 36 billion aluminum bottles and cans last year and the tariffs ‘could cost the beer industry more than 20,000 jobs.’

“Hundreds of American metal fabricators are also finding it difficult to acquire the steel to compete with foreign producers....

“New NAFTA opens a slightly larger share of the Canadian dairy market to U.S. producers. But Mexico is the largest destination for U.S. dairy exports, and American dairy farmers are getting hammered by the 25% tariff that Mexico imposed on U.S. dairy products in retaliation for the steel and aluminum tariffs.  The marginal gain in Canada may not make up for the export losses to Mexico....

“Mr. Trump’s broken NAFTA promise will make it harder to negotiate new trade deals with Europe and Asia. Other countries worry that even if they sign a new deal, Mr. Trump or some future U.S. President will roll out 232 tariffs any time there’s domestic political pressure.  Congress intended 232 to be used for ‘national security’ emergencies, not as an all-purpose trade weapon.  Mr. Trump’s tariff trickery with Mexico and Canada is one more reason Congress should restrict his 232 license.”

Lastly, as reported by the Wall Street Journal’s Jacob M. Schlesinger, on Dec. 30, “Tokyo will begin cutting tariffs and easing quotas on products sold by some of American agriculture’s biggest competitors – including Canada, Australia, New Zealand and Chile – as part of the new 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership.”

Feb. 1, Tokyo begins implementing the European Union-Japan Economic Partnership Agreement offering similar breaks for the 28-country bloc’s agricultural products, aiding American rivals such as France, Spain, Italy and the Netherlands.

Vince Peterson, head of U.S. Wheat Associates, noted, “Japan is our largest, most reliable and valuable market,” buying about half its imported wheat from Americans.  “But today we face an imminent collapse,” he warned, as competitors will soon be able to sell their products at an effective tariff rate nearly 10% below those facing U.S. growers.

Mr. Peterson reminded officials that the U.S. “has not sold one kernel of wheat” to China for months because of the trade fight with Beijing.

Yes, I want to see how President Trump will spin this on the 2020 campaign trail when he’s in farm country.  I said from day one we were idiots not to be part of TPP, for starters.

Europe and Asia

There was no broad-based economic news for the Eurozone this week, though it will start flooding in again after the New Year’s holiday.  It was also quiet on the Brexit front.

But Europe faces some serious issues.

Tony Barber / Financial Times

“In Europe, 2019 will be a year of struggle between the forces of pro-EU, progressive internationalism and those of Eurosceptic, nativist reaction.  The principled battleground will be the European Parliament elections, held in May in 27 countries.  Such predictions, often aired in Brussels and western European liberal circles, are not necessarily wide of the mark.

“For it is true that Emmanuel Macron, the liberal French president who champions European integration, is cut from a very different political cloth to Viktor Orban, the conservative nationalist Hungarian premier. Should Mr. Orban and those of similar political persuasions do well in the EU elections, they might wield enough influence to sabotage the Macron vision of Europe from within the parliament, the European Commission and other bodies.

“It is an intense contest over ideology, identity and the EU’s future.  Still, some of these western Europeans present the struggle in oversimplified geographical terms: a duel between virtuous, open-minded liberals in their half of the continent and benighted, undemocratic reactionaries in the east. The reality is more complicated and less kind to the western Europeans.  For one thing, the concept of a Europe of two halves is an intellectual distortion of the cold war era.  Children raised between the late 1940s and 1989 learnt a mental map of Europe in which prison bars and watchtowers divided a free, prosperous west from a poor, communist east.  One half of Europe was light, the other was dark....

“Almost 30 years after the end of communism, the myth of a binary Europe stubbornly refused to die.  Some western Europeans keep it alive to justify proposals for a two-tier or multi-tier EU.   Their region would form an upper, deeply integrated group, while the ‘east,’ or most of it, is ranked somewhere below.  The recent drift of Hungary, Poland and Romania from democratic norms and the rule of law, together with quarrels over refugee and migrant policies, serve as the perfect excuse for such plans.  On liberal values and fulfilment of EU policies, however, there is no neat dividing line between ‘western’ and ‘eastern’ Europe.

“Consider Italy, a quintessentially western country and EU founding member.  Matteo Salvini, Italy’s deputy premier and leader of the rightwing League party, has predicted  that the EU elections will be ‘a referendum between the Europe of the elites, banks, finance, immigration and precarious work, and the Europe of people and labour.’  This was as bold a challenge to EU orthodoxies as anything uttered by Mr. Orban or Jaroslaw Kaczynski, Poland’s strongman leader of the governing Law and Justice party. Mr. Salvini, France’s Marine Le Pen and Geert Wilders of the Netherlands are proof that rightwing radicalism and populism scar western Europe’s landscape as much as in the former communist bloc....

“The protests of Frances gilets jaunes [Ed. yellow vests] exposed a gap between swanky Paris and hard-pressed provinces that has parallels with the urban-rural divides of central and eastern Europe.  Poland’s local elections illustrate the point.  Law and Justice, which has found itself in the EU’s bad books, lost heavily in Warsaw’s mayoral elections to the liberal Civic Platform opposition.  However, Law and Justice performed strongly in small regional towns and rural areas that do not share the open, cosmopolitan outlook of the Polish capital.

“In Hungary’s parliamentary elections, opponents of Mr. Orban defeated his Fidesz party in Budapest, a stronghold of liberalism, and scored well among young, internationally minded voters.  Older, more conservative, less educated voters in the provinces threw their support behind Mr. Orban.  Similar voting patterns occurred in Austria’s 2016 presidential election and the UK’s Brexit referendum.

“Everyone in Europe, ‘west’ or ‘east,’ should make an effort in 2019 to better understand what they have in common.  Without such an effort, the tensions pulling the EU apart will only become more acute.”

Brexit: British lawmakers have been on holiday, but come Jan. 2, all hell is going to break loose anew, with a vote on Prime Minister Theresa May’s Brexit proposal due Jan. 11, a vote she’ll lose.  Her only remote hope is to get MPs to back her deal by easing fears about the “backstop” plan to avoid a physical / manned Irish border.

But critics also say May’s backstop will keep the UK tied to EU rules indefinitely and curb its ability to strike trade deals.

The EU says it will not renegotiate the backstop, but may give greater flexibility on the temporary nature of it.

You have to remember that after Brexit, the two parts of Ireland could be in different customs and regulatory regimes, which means products (such as those of the agricultural variety) will need to be checked at the border.  You would have huge supply chain issues, for starters, and obviously food safety issues.  [Think ‘mad cow’ I can’t help but muse.]

Turning to Asia....

Industrial profits in China dropped for the first time in nearly three years in November (Dec. 2015), down 1.8 percent, with slacking external and domestic demand leaving businesses facing further strains in 2019 as risks rise here.  The trade dispute with the United States just adds to the pressure.  [National Bureau of Statistics]

Analysts believe profits may fall a further 5-10 percent next year.

China’s policy-makers vowed earlier this month to roll out a range of economic measures to juice demand in 2019 through tax cuts and in keeping liquidity ample, while advancing negotiations with the U.S.

Separately, the Wall Street Journal’s Trefor Moss had a piece on China’s car market, and how some foreign automakers have been taken to the cleaners.

“In a few short decades China zoomed from nowhere to become the world’s biggest vehicle market, with sales often growing by double digits; in 2016, auto sales grew 14% to 28 million, eclipsing the U.S.’s 17.5 million sales.  Global auto makers rushed in, despite rules requiring them to take on Chinese partners. Domestic auto companies proliferated, too, building plants of their own.  A government campaign to promote electric vehicles added more sizzle to the market.

“In a frenzy, some companies became complacent, assuming growth would be endless and easy to capture, according to (analysts).  Then the growth evaporated. Sales grew 3% in 2017 and declined 2% in the first 11 months of 2018.

“China now has enough factories to build 43 million cars but will produce fewer than 29 million this year, according to consulting firm PwC. While foreign and domestic auto makers alike find themselves under pressure, the slowdown has hit those that misread the market hardest of all.

“Ford opened a new plant – its seventh in China – in the northern city of Harbin last year. The factory – a nearly $1 billion investment with joint-venture partner Chongqing Chang’an Automobile Co. Ltd. – increased Ford’s production capacity by 200,000 to 1.6 million vehicles a year in China.

“Ford’s sales in China peaked at 1.27 million in 2016; they then fell 6% last year and 34% in the January-November period of 2018 year-over-year to 695,028.”

Japan released a slew of reports Friday, with industrial output falling 1.1 percent in November, after an increase in October, further evidence of fragility in the manufacturing sector.  Retail sales were also down, 1.0 percent.  The jobless rate rose in November to 2.5 percent from 2.4 the prior month.  None of this is particularly encouraging.

Japan’s 10-year bond saw its yield go negative today, -0.01%, not exactly a great sign.

Street Bytes

--It was the first up week for stocks in December, with the Dow Jones rising 2.8% to 23062, while the S&P gained 2.9% and Nasdaq 4%.  The S&P remained down 9.9% for the month, the ugliest since the financial crisis.

Next week we’ll have a big jobs report on Friday, and then the earnings will start trickling in the following week.

But with one more trading day to go in the year on Monday, anything can happen.

--U.S. Treasury Yields

6-mo. 2.47%  2-yr. 2.52%  10-yr. 2.72%5  30-yr. 3.02%

The yield on the 10-year is at its lowest weekly close since last January.  At 2.72%, it is also essentially the same as Italy’s 10-year (2.74%), which is nonsensical in terms of the latter.

--Befitting the overall market, what a week for crude oil, with light sweet crude (West Texas Intermediate) down 6.7% on Monday to $42.53, the lowest closing price since June 21, 2017, and then on Wednesday, oil rose to $46.22, 8.7%, the best day in two years.

Monday’s swoon was attributed to the huge decline on the Street Christmas Eve, and then of course oil, and oil stocks, jumped Wednesday.

Only to reverse anew Thursday, WTI closing at $44.61.  But after all this, today we stand at $45.13, essentially unchanged from last week’s close.

WTI peaked at $76.40 in October.  You still have the ongoing concerns of too much supply and slowing global growth.  And the market remains unconvinced that production cuts announced earlier this month, by OPEC and Russia, will be implemented according to their plans.

A survey of investment banks found an average expectation for WTI to average $63 a barrel in 2019, compared with a November forecast of around $70, the poll showed.

Meanwhile, the national average for regular unleaded gasoline currently sits at $2.30 per gallon, 16 cents less than at the same time last year, with nine states below $2.00.

--In an eleventh hour development today...actually 4:00 p.m. Eastern, Sears Holdings Corp. Chairman Eddie Lampert submitted a roughly $4.6 billion takeover bid for the bankrupt retailer, representing its only chance of escaping liquidation and laying off tens of thousands of workers.  Sears’ existing lenders Bank of America and Citigroup, as well as Royal Bank of Canada, which was not previously a lender, agreed to provide a $950 million asset-backed loan and a $350 million revolving credit line to back Lampert’s bid, according to late reports.

Lampert is attempting to preserve about 450 stores Sears has yet to close, and secure the jobs of 50,000 workers out of the 68,000 employed by the retailer.

As part of his bid, he is going to forgive $1.8bn of Sears debt that his hedge fund, ESL Investments, already holds.

It is still possible the bid will fall through.  A U.S. bankruptcy court judge must approve any sale of the company.

--Tesla shares were on a rollercoaster with the rest of the market this week.  The stock fell nearly 8% on Christmas Eve after CEO Elon Musk revealed a potentially costly plan to reimburse customers who miss a looming deadline for U.S. tax credits on electric cars.

Earlier this year, Tesla had said orders placed by Oct. 15 would be delivered by year end, and thus qualify for the government’s $7,500 electric vehicle tax credit, which is being cut in half on Jan. 1.

But production delays, particularly for the Model 3 sedan, meant some customers were not going to receive their car by this coming Monday.

So Saturday, Musk responded to a Twitter user who asked what would happen if their vehicle wasn’t delivered in time: “If Tesla committed delivery & customer made good faith efforts to receive before year end, Tesla will cover the tax credit difference.”

Separately, Tesla announced on Friday that it had named two independent board directors, including Oracle Corp. co-founder Larry Ellison, to fulfill a September deal that resolved federal charges that arose from Elon Musk’s tweet about taking the company private.

Ellison, who calls himself a close friend of Musk, bought 3 million shares of Tesla earlier this year.

The other independent director is Kathleen Wilson-Thompson, global head of human resources at Walgreens Boots Alliance. She previously spent 17 years at Kellogg Co.

Unlike Musk, Ellison has tweeted just once, back in 2012, promoting Oracle’s cloud products, after he trashed the space in 2008 at an analyst conference.

Also Friday, Tesla was expected to start monitoring Elon Musk’s public communications, including his posts on Twitter, as part of the SEC settlement.

--Chinese tech giant Huawei Technologies Co. said it expects 21% revenue growth for 2018, despite all the issues it is facing from the U.S. and its allies on the cybersecurity front.  The company said it expects sales to reach $108.5 billion, fueled by the shipment of 10,000 5G base stations and 200 million smartphones.

Huawei has become the world’s biggest maker of telecom equipment, as well as the No. 2 global smartphone vendor.

Officials in the U.S., Australia and elsewhere have been seeking to block the use of Huawei’s equipment in 5G networks set to begin rolling out next year, fearing it will be used to spy on citizens and disrupt telecom networks.  Huawei has denied all such charges.

Rotating chairman Guo Ping said in a new-year message that the company had signed 26 commercial contracts for 5G with leading global carriers.  “5G markets that choose to not work with Huawei – they will be like an NBA game without star players: the game will go on, but with less deftness, flair, and expertise,” he said.

Guo didn’t directly mention the Dec. 1 arrest of Meng Wanzhou, Huawei’s chief financial officer and daughter of the founder, who was detained in Canada at the behest of U.S. authorities seeking her extradition on charges she violated U.S. sanctions on Iran.

--Southern California home sales fell sharply in November, down 12% from a year ago for the fourth consecutive monthly decline for the six-county region.  But no one is calling for a bust, yet, as the regional median price is still rising slightly – 3.5% from November 2017, to $522,750.

--The price of Bitcoin - $19,783 last December – is $3,880

--Lots of Hollywood news this week as we wrap up the year.  It is expected to be a record year at the box office, with ticket sales up about 6% from last year’s return; $11.8bn for the U.S. and Canada, compared with $11.1bn in 2017.  The current record is $11.4bn in 2016.

Three Walt Disney Co. movies – “Black Panther,” “Avengers: Infinity War” and “The Incredibles 2” – accounted for nearly $2 billion in domestic grosses.  “Black Panther,” at $700 million, is the third highest-grossing movie in U.S. history, with “Infinity War” at No. 4, and “Incredibles 2” at No. 9.

Disney movies accounted for about 26% of all domestic ticket sales this year.  Universal (“Jurassic World” and “Dr. Seuss’ The Grinch”) accounted for about 17%.

But while ticket sales are up 6%, inflation accounts for some of the boost, with an average ticket price of $9.12, according to the theater-owners’ association, up from $8.97 in 2017.

For all the positives, however, Netflix is eating into theaters’ business, and Disney and Warner Bros. are responding with their own streaming services to get more entertainment into the home.

And for all the blockbuster flicks, there were big bombs...like “Mortal Engines,” the Peter Jackson-produced fantasy that cost $100 million to make and grossed $12 million.  Lions Gate Entertainment Corp.’s “Robin Hood” was another colossal failure, taking in barely $30 million.

For the pre-Christmas weekend, “Aquaman” took in $68 million through last Sunday.  [But Disney’s “Mary Poppins Returns” disappointed at just $22 million.]

Back to the dark clouds on the horizon, the future of the movie theater still seems very much in doubt.  Out of more than 700 released films this year, well over a third of the revenue came from just 10 films – and two categories...superhero adventures and animated films.

--Europe’s far-right is boycotting Toblerone chocolate because the sweet is now “halal.”

The certification that enables practicing Muslims to eat one of the great candies in the world came back in April, but a social media post by a  spokesman for the far-right Alternative for Germany party (AfD), brought it to the forefront last week.  Then came the hashtag #BoycottToblerone, which has spread to England, France, the Netherlands and elsewhere.

Extremists are using the chocolate as an example of how Islam has seeped its way into Europe.

--On a lighter note, the number of Christmas trees sold this year was up about 10% over 2017, according to a survey of 1,000 Christmas tree sellers using financial services and mobile payment company Square Inc.

But why the increase?  It seems the main answer is millennials, according to the executive director of the National Christmas Tree Association, Tim O’Connor.

“Our members are saying every day that they’re getting more of these younger families.  Transitioning to a younger customer is a critical juncture.”

In 2017, O’Connor’s group found 27.4 million real Christmas trees were purchased, vs. 21.1 million new fake ones.

I had a disastrous experience with my new artificial tree, purchased before Thanksgiving at Michael’s.  I stupidly didn’t try to set it up for a couple weeks (because it was actually going to be residing at Bortrum’s house, not my own, as Christmas was there this year).

So my tree, made in China of course (and probably loaded with microchips to record everyone’s voices), was impossible to assemble...as in a piece that needed to come off didn’t.

Well, I took it back to Michael’s and even the manager, who said he assembled all the trees in the store, hadn’t seen anything like mine before...but they were already sold out of my model.

Thus I was forced to settle for something smaller.

But as we all commented Christmas Day, quoting Linus: “I never thought it was such a bad little tree.  It’s not bad at all, really.”

Foreign Affairs

Syria: Saturday morning, President Trump tweeted:

“I am in the White House, working hard.  News reports concerning the Shutdown and Syria are mostly FAKE. We are negotiating with the Democrats on desperately needed Border Security (Gangs, Drugs, Human Trafficking & more) but it could be a long stay.  On Syria, we were originally....

“....going to be there for three months, and that was seven years ago – we never left. When I became President, ISIS was going wild. Now ISIS is largely defeated and other local countries, including Turkey, should be able to easily take care of whatever remains. We’re coming home!”

Syria’s military announced Friday it entered the flash-point Kurdish-held town of Manbij and raised the national flag there, where Turkey has also threatened an offensive.  It was unclear whether the government forces had spread out in the town, where U.S. forces operate and have a military base.

A senior Kurdish official said the government troops only arrived at the front lines and that the U.S. has not withdrawn from Manbij.  An agreement is being worked out with Russia and the Syrian government that in case of a full U.S. withdrawal, the government would take over.  The Kurdish spokesman said, “The aim is to ward off a Turkish offensive.  If the Turk’s excuse is the [Kurdish militia], they will leave their posts to the government.”

And so here you have an example of what we face.  It is going to be increasingly nearly impossible to get the true story as to what is happening on the ground. What is clear is that all sides are scrambling to reach an agreement on how to replace the U.S. troops once they do withdraw.

The Syrian government has said it welcomes the Kurdish group returning under its authority, but it is not going to consider an autonomous area, a demand for the Kurds.

Turkish President Erdogan said today, Turkey supports “the integrity of Syrian soil. These areas belong to Syria. Once the terrorist organizations leave the area, we will have nothing left to do there,” he told reporters.

But then he added: “It’s not just about Manbij, we are aiming to wipe out all terrorist organizations in the region.  Our main target is that the YPG takes the necessary lesson here,” the YPG being the Kurds who Erdogan calls terrorists.

Also today, Russia said it will host a three-way summit with Turkey and Iran on the Syrian conflict early next year.  Russian Foreign Minister Sergei Lavrov voiced skepticism about an announced withdrawal of U.S. forces.

Earlier, Israeli air strikes against targets in Syria on Tuesday put two civilian airlines in “immediate danger,” according to Russia’s Defense Ministry; two civilian flights were landing in Beirut and Damascus, putting the passengers at risk.

Israel was going after pro-Iranian military positions located in the suburbs of Damascus, air defense facilities and headquarters of the Syrian army in the area.

Israeli officials have repeatedly voiced concerns over the growing Iranian presence on its borders and the smuggling of sophisticated weaponry to Hezbollah from Tehran to Lebanon via Syria, stressing that both are redlines for the Jewish state.

Bret Stephens / New York Times

“(The) reasons for staying in Syria have everything to do with core U.S. interests. Among them: Keeping ISIS beaten, keeping faith with the Kurds, maintaining leverage to Syria and preventing Russia and Iran from consolidating their grip on the Levant.

“Powers that maintain a reputation as reliable allies and formidable foes tend to enhance their power.  Powers that behave as Trump’s America has squander it.

“But leave that aside and consider the Trump presidency from a purely Israeli standpoint. Are Israelis better off now that the U.S. Embassy is in Jerusalem?  Not materially. The move was mostly a matter of symbolism, albeit of an overdue and useful sort. Are Israelis safer from Iran now that the U.S. is no longer in the Iran deal and sanctions are back in force?  Only marginally. Sanctions are a tool of strategy, not a strategy unto themselves.

“What Israel most needs from the U.S. today is what it needed at its birth in 1948: an America committed to defending the liberal-international order against totalitarian enemies, as opposed to one that conducts a purely transactional foreign policy based on the needs of the moment or the whims of a president.

“From that, everything follows.  It means that the U.S. should not sell out small nations – whether it was Israel in 1973 or Kuwait in 1990.... It means we should oppose militant religious fundamentalism, whether it is Wahhabis in Riyadh or Khomeinists in Tehran or Muslim Brothers in Cairo and Ankara. It means we should advocate human rights, civil liberties, and democratic institutions, in that order.

“Trump has stood all of this on its head.

“He shows no interest in pushing Russia out of Syria. He has neither articulated nor pursued any coherent strategy for pushing Iran out of Syria. He has all but invited Turkey to interfere in Syria. He has done nothing to prevent Iran from continuing to arm Hezbollah.  He shows no regard for the Kurds.  His fatuous response to Saudi Arabia’s murder of Jamal Khashoggi is that we’re getting a lot of money from the Saudis.  He speaks with no authority on subjects like press freedom or religious liberty because he assails both at home. His still-secret peace plan for Israel and the Palestinians will have the rare effect of uniting Israelis and Palestinians in their rejection of it.

“Is any of this good for Israel?

“If you think the gravest immediate threat to Israel is jihadist Hezbollah backed by fundamentalist Iran backed by cynical Russia, the answer is no.

“If you think the gravest middle-term threat is the continued Islamization of Turkey under Recep Tayyip Erdogan – gradually transforming the country into a technologically competent Sunni version of Iran – the answer is no.

“If you think that another grave threat to Israel is the inability to preserve at least a vision of a future Palestinian state – one that pursues good governance and peace with its neighbors while rejecting kleptocracy and terrorism – the answer is no.

“And if you think that the ultimate long-term threat to Israel is the resurgence of isolationism in the U.S. and a return to the geopolitics of every nation for itself, the answer is more emphatically no.

“During the eight years of the Obama presidency, I thought U.S. policy toward Israel – the hectoring, the incompetent diplomatic interventions, the moral equivocations, the Iran deal, the backstabbing at the UN – couldn’t get worse. As with so much else, Donald Trump succeeds in making his predecessors look good.”

Editorial / Wall Street Journal

“The implication of Donald Trump’s abrupt withdrawal of U.S. troops from Syria will play out over many months, but a portent was apparent Wednesday. While Mr. Trump was defending his Syria pullout during his visit with U.S. troops in Iraq, Russia was condemning Israel’s defensive air strikes in Syria. This is only some of what will fill the vacuum left by America’s departure.

“Israel rarely acknowledges its military actions, but for months it has been hitting targets inside Syria to deter and degrade the buildup of Iranian proxy military forces. Russia accused Israel of ‘provocative’ actions, and Israel later said that its aerial defense system had been activated in response to an antiaircraft missile launched from Syria.

“Mr. Trump said with his typical bravado that Israel can defend itself well enough without the U.S.   ‘And I spoke with Bibi [Israel’s Prime Minister Netanyahu].  And, you know, we give Israel $4.5 billion a year. And they’re doing very well defending themselves, if you take a look,’ Mr. Trump told reporters at the Al Asad Air Base in Iraq.

“But Israel’s sorties are getting more dangerous as Russia builds up its regional air defenses in Syria. The Institute for the Study of War reports that Russia has deployed at least three new S-300 surface-to-air missile battalions in Syria since October, which will significantly complicate the missions for Israeli pilots and perhaps even for standoff weapons.

“Vladimir Putin isn’t eager for a war that costs Russian lives, but his willingness to take down an Israeli aircraft may grow as the U.S. abandons the theater. The Russian strongman may also want to test Mr. Trump’s vow, which the U.S. President repeated Wednesday, that the U.S. will defend Israel in a fight.  Iran will not stop arming its proxies and expanding its own presence in Syria, so some kind of Iran-Israel-Russia conflict is no small risk in 2019.

“The good news is that Mr. Trump also said Wednesday that he plans to maintain the U.S. troop presence in Iraq....

“This assumes Mr. Troop makes clear to Iraq’s new Prime Minister Adel Abdul-Mahdi that the U.S. intends to stay for the long haul.  Mr. Abdul-Mahdi has to pay a political price against pro-Iranian forces and nationalists in Iraq to support a continued U.S. presence.  He needs to know Mr. Trump won’t repeat his Syrian afflatus, or Barack Obama’s 2011 mistake, by withdrawing from Iraq too.

“Iraq’s new government contains pro-American elements who also want the U.S. to remain in Iraq as a counter-balance to Iran.  So it’s a shame Mr. Trump couldn’t find the time or place to connect with Mr. Abdul-Mahdi on the President’s trip....

“None of this is ‘nation-building,’ much less being ‘the world’s policeman’ – the straw men Mr. Trump keeps torching.  Maintaining a 5,200-strong force in Iraq is cheap at the price if it prevents an ISIS resurgence that causes another refugee flood in Europe or requires an even larger military effort later.  (See Mr. Obama, circa 2012, ‘the tide of war is receding.’)  Now that he’s declared victory over ISIS, prematurely in our view, Mr. Trump will be politically responsible if Islamic State returns in force.

“The biggest risk for Mr. Trump’s next two years is whether U.S. adversaries see his Syrian withdrawal as a sign of weakness and retreat.  Iran and others are already beginning to see him as a one-termer. They may soon test him to make it a self-fulfilling prophesy.”

Iraq: Following President Trump’s surprise visit to the country, Iraqi leaders demanded U.S. troops leave the country, Trump’s visit characterized as an arrogant affront to the nation’s sovereignty. 

A spokesman for nationalist Muqtada Sadr’s Sairoon party, said the visit confirmed U.S. disregard for Iraqi sovereignty, the significance here being Sadr, the Shiite Muslim cleric whose militia battled U.S. forces during the 2003 invasion of Iraq, now controls the largest bloc in parliament.  He has been seeking to limit the influence of both Washington and Tehran in the country’s affairs.

Iraqi leaders are also miffed Prime Minister Abdul-Mahdi was given two hours’ notice to meet with President Trump (owing to security concerns).

Former Prime Minister Haider Abadi, who worked most closely with the U.S.-led coalition against the Islamic State, said in a statement that he rejected the “method of Trump’s visit,” and that “it was not appropriate to diplomatic mores and to relations with sovereign states.”

Saudi Arabia: King Salman of Saudi Arabia shook up the kingdom’s cabinet on Thursday, naming new ministers and security chiefs, but keeping power firmly in the hands of his son and designated heir, Prince Mohammed bin Salman (MBS).

Despite overwhelming evidence Prince Mohammed knew about and most likely directed the plot to kill journalist Jamal Khashoggi, and despite MBS having directed the disastrous Saudi military campaign in Yemen, King Salman has shown no signs of lessening his son’s near-total control over the kingdom.

New officials were named to lead the National Guard and the Information Ministry, among other changes, while Adel al-Jubeir, who had become one of the best-known Saudi officials in the West in his posts as foreign minister and, previously, as ambassador to the United States, is being removed from his position of foreign minister, though was named minister of state for foreign affairs, which is confusing.  Ibrahim al-Assaf, a former finance minister, was appointed foreign minister.  It wasn’t clear why Jubeir was being replaced. He has been a familiar face in Washington since the Persian Gulf War of 1990-91.

Israel: Prime Minister Netanyahu announced new elections for April 9, after his coalition collapsed. The announcement came shortly after Yesh Atid leader Yair Lapid said he would vote against the Defense Ministry’s bill to enlist haredim into the IDF.

The next day, the prime minister said he would approve over 2,000 settler homes in Judea and Samaria (illegally built on private Palestinian property, that he then looks to legalize).

Kathleen Parker / Washington Post

“ ‘Tis not the season to be jolly, thanks to President Trump.

“His sudden, unilateral decision to withdraw troops from Syria, forcing the resignation of Defense Secretary Jim Mattis – one of the last bulwarks against the president’s impulsivity – has cast a pall on the holidays and, perhaps, the future....

“From this president’s bizarre flirtation with North Korea’s Kim Jong Un – declaring without basis the end of Pyongyang’s nuclear aspirations – to his on-again-off-again romance with Russian President Vladimir Putin and a problematic trade war with China, Trump has behaved more like a casino goer playing roulette than the leader of the world’s most-stabilizing force.

“To put it bluntly, not that this is news: The man knows nothing of which he speaks; he ignores expert advice (see Mattis and, concerning Syria, national security adviser John Bolton); he doesn’t bother himself with written reports, which he seems either unable to read or to comprehend, and relies on Fox News for information and Twitter for communication.  He announced his Syria decision via tweets....

“At this hinge-point, when Trump has thrown the Middle East into uncertainty and peril, Mattis’ duty was to turn his back to the commander in chief, and he did just that.

“Mattis also expressed in his letter that the United States needs to be ‘unambiguous’ with Russia and China.  It may be that Trump was being just that by pulling out of Syria, which Putin praised as ‘correct.’ China has thought Trump a fool for so long, little he does bestirs the giant from its machinations.

“Meanwhile, the Kurds will be left to fend for themselves against Syrian President Bashar al-Assad, Turkey and the Islamic State, while Israel is left in limbo.   The editorial board of Israel’s Haaretz newspaper called Trump’s decision a ‘slap in the face to Benjamin Netanyahu’ and said that U.S. involvement was ‘an important counterweight to the Russians in establishing the rules of the game in the region.’  Haaretz writer Amos Harel wrote what many in the United States have noted: ‘Trump is in such big trouble and acts in such an erratic manner that the Israeli government cannot be certain of his support over the long term.’”

Turkey: President Trump had another phone call with Turkish President Erdogan on Sunday, and the next day, Turkey sent more troops to its Syrian border and said an offensive targeting the Syrian YPG militia will be launched in the coming months.  There was no word on the fate of exiled cleric Fethullah Gulen, living in Pennsylvania, who Erdogan claims ordered the 2016 failed coup, and to me remains the big untold story in this sudden Trump-Erdogan bromance.

Afghanistan: At least 43 were killed in a suspected Taliban attack on a government compound in Kabul on Monday. The assault began when a suicide bomber blew up his explosives-laden car in front of the building, and then extremists armed with assault rifles rushed inside.  Workers in the Ministry for Martyrs and Disabled Persons were taken hostage, while a prolonged gun battle went on for seven hours, until Afghan forces took control. Three militants were gunned down.

Marine General Joseph Dunford, chairman of the U.S. Joint Chiefs of Staff who was in Afghanistan on Christmas Eve, was quoted by local news channels as saying that the mission and troops in Afghanistan continues without any changes, despite rumors President Trump wants half the force brought home.

North Korea: President Trump said Monday he as “looking forward” to his next summit with Kim Jong Un – the same day a federal judge ordered Pyongyang to pay $50.1 million for the death of Otto Warmbier, who was tortured by Kim’s thugs and later died.

“Christmas Eve briefing with my team working on North Korea – Progress being made.  Looking forward to my next summit with Chairman Kim!” Trump tweeted.

Separately, almost 1,000 North Korean defectors have had their personal data leaked after a computer at a South Korean resettlement center was hacked, the unification ministry said.

The ministry said this was thought to be the first large-scale information leak involving North Korean defectors.

The hackers’ identity is not yet known.  Draw your own conclusions, but this is obviously disturbing on a number of levels if you are one of those on the list because it’s not just about your own personal safety, but that of your family’s back in North Korea.

China:  The People’s Liberation Army said Thursday that Taiwan would run into a “dead end” if it resisted the mainland’s reunification efforts with force, and that Beijing would continue its “encirclement patrols” in waters and airspace around the island.

Wu Qian, spokesman for the defense ministry, said: “I want to stress that it is a dead end to deny reunification by using force,” referring to Taiwan’s plan to increase its military muscle to counter the PLA.  Taiwan recently announced it intended to buy 66 F-16V fighter jets from the United States to reinforce its air defense capability.  Plans to acquire the F-35 stealth fighter were abandoned.

Beijing is unhappy the U.S. continues to sell arms to Taipei.

The mainland’s Taiwan Affairs Office has repeatedly said that Taiwan would face a “dead end” if it refused to recognize the “1992 consensus,” which is an understanding that the mainland and Taiwan are part of “one China,” but leaves room for interpretation as to which government has a legitimate claim to represent it.

Russia: President Vladimir Putin said Wednesday that Russia would deploy its first regiment of hypersonic nuclear-capable missiles next year, saying the move meant his country now had a new type of strategic weapon.

Putin spoke after overseeing what the Kremlin said was a pre-deployment test of the new missile system, called Avangard.

“This test, which has just finished, ended with complete success,” Putin observed at a government meeting.

“From next year, 2019, Russia’s armed forces will get the new intercontinental strategic system Avangard... It’s a big moment in the life of the armed forces and in the life of the country. Russia has obtained a new type of strategic weapon.”

Russia has said the new missile system, one of several new weapons Putin announced back in March, is highly maneuverable, allowing it to easily evade missile defense systems.

The Kremlin said of the test of the Avangard, launched from a location in southwest Russia, that it had successfully hit and destroyed a target in the Russian Far East, over 3,000 miles away.  [No video of the destruction of the target was supplied.]

There are serious questions about the operability of Avangard, but if it is anything close to being as advertised, the U.S. indeed has no defenses for it.

Separately, from Raphaella Goichman of Haaretz...concerning former Mossad head, Tamir Pardo.

“(Pardo) said Monday that Russia deployed tens of thousands of bots to influence the 2016 U.S. elections in favor of Donald Trump, but not because Trump is a great friend of Russia.  Speaking at The Marker’s digital conference, Pardo said that it seems to him that the Russians simply chose to support the candidate that would be the most politically advantageous for them.

“Pardo said they took a look at the political map in Washington, ‘and thought, which candidate would we like to have sitting in the White House? Who will help us achieve our goals?  And they chose him. From that moment, they deployed a system [of bots] for the length of the elections, and ran him for president.’  Many experts at the conference spoke of the dangers posed by bots, computer programs designed to run automatically and mimic the cyber behavior of a real user. Is there a business opportunity here for Israel’s cyber companies?  Not necessarily, Pardo said.

“In an interview with Sami Peretz, the ex-Mossad head said that ‘what we’ve seen so far with respect to bots and the distortion of information is just the tip of the iceberg. It is the greatest threat of recent years, and it threatens the basic values that we share – democracy and the world order created since World War Two.’....

“Politicians may believe they can use the bots to their advantage, but the consequences will come back to haunt them, Pardo continued. As an example, he said that Trump may think the bots worked in his favor, but it is the same bots that are liable to topple him.  Politicians hold the key to stopping the chaos created by the bots, he concluded.”

Lastly, today, French President Macron and German Chancellor Merkel demanded that Russia release Ukrainian sailors captured along with their ships last month in the Kerch Strait.  Moscow has accused the 24 of illegally crossing the Russian border.

Japan: Emperor Akihito, marking his 85th birthday – his last before his upcoming abdication – said he feels relieved that his reign is coming to an end without having seen his country at war and that it is important to keep telling younger people about his nation’s wartime history.

“It gives me deep comfort that the Heisei era is coming to an end, free of war in Japan,” Akihito said at a news conference at the palace that was recorded prior to its release Sunday.  “It is important not to forget that countless lives were lost in World War II and that the peace and prosperity of postwar Japan was built upon the numerous sacrifices and tireless efforts made by the Japanese people, and to pass on this history accurately to those born after the war.”

Akihito’s 30-year reign of the Heisei is the only era that has not seen war in Japan’s modern history. Praying for peace and making amends for a war fought in the name of his father, Hirohito, has become a career mission for Akihito, who ascended to the throne in 1989.  He is abdicating April 30, to be succeeded by his eldest son, Crown Prince Naruhito, on May 1.

As emperor, Akihito made unprecedented visits to the Philippines and other Pacific islands conquered by Japan during World War II and then devastated in fierce fighting as U.S.-led allies took them back.

Brazil: Brazilian President-elect Jair Bolsonaro takes office Jan. 1, but the far-right leader’s son is under a cloud, regulator’s questioning a bank account of the son’s former driver where over $300,000 flowed through, including payments made to the president-elect’s wife, Michelle Bolsonaro. 

Prosecutors have been attempting to question the driver, who has made up medical excuses for not showing, yet then he granted a television interview with a Bolsonaro-friendly TV network, saying the money in the account was the result of his side business of buying and selling cars.  Jair Bolsonaro said the payment to his wife was the driver repaying a personal loan.  Flavo Bolsonaro, the son, said the accusations were intended to destabilize the family.  Flavo has also said he didn’t meet with prosecutors because of a malignant cancer that requires immediate surgical removal.

Bolsonaro, who spent nearly 30 years in Congress, won his election on a platform of hobbling violent drug gangs, cutting through red tape to kick-start Brazil’s economy, and going after the corrupt political class.

Mexico: The governor of Mexico’s central Puebla state, Martha Erika Alonso, died in a helicopter crash, just days after being sworn into office.  Her husband was also killed. 

Ms. Alonso became the first female governor of Puebla after a hotly contested election. She was a member of the center-right PAN party, defeating President Lopez Obrador’s favored candidate.

Random Musings

--Presidential tracking polls....

Gallup: 39% approval of Trump’s job performance, 55% disapproval; 89% Republicans, 39% Independents approve (Dec. 22).
Rasmussen: 47% approval, 52% disapproval (Dec. 28)

--Back in 2014, New York City launched its Vision Zero initiative to eliminate traffic-related fatalities.  The year before, 2013, 299 people were killed on the roads, with the average over 300 a year in the first decade of this century.

This year, thru Dec. 26, there have been 196, though pedestrian deaths have risen 5%.

The citywide speed limit was reduced to 25 mph as part of the Vision Zero program.

--I have to get this in for the archives...the president’s chat with 7-year-old Coleman on Christmas Eve.

“Are you doing well in school?  Are you still a believer in Santa?  Because at seven, it’s marginal, right?”

‘Coleman’ at first was incorrectly identified as a boy, but was instead a girl, “Collman,” and we later learned she still believed in Santa, but that she didn’t know what “marginal” meant, thankfully.

--This has been the year of fire and rain in the U.S.  On the latter side, I heard a rather startling stat today on the local news station.  New York City has had 157 days this year with measurable precipitation, the most ever, with records going back to the 1880s.  The norm is 121.  We hike our record to 158 on New Year’s Eve, given the forecast.

--Defense Secretary James Mattis, officially out in days, issued a 20-second video wishing the troops a Merry Christmas.

“Since Washington crossed the Delaware at Christmas in 1776, American troops have missed holidays at home to defend our experiment in democracy.

“To all you lads and lasses holding the line in 2018, on land, at sea, or in the air, thanks for keeping the faith.  Merry Christmas and may God hold you safe.”

The video was recorded Dec. 19, one day before Mattis submitted his scathing resignation letter to President Trump.

Separately, the Pentagon released Mattis’ holiday letter to the troops, which echoed many of the same themes as the video.

“To those in the field or at sea, ‘keeping watch by night’ this holiday season, you should recognize that you carry on the proud legacy of those who stood the watch in decades past.  In this world awash in change, you hold the line,” Mattis wrote.

“Storm clouds loom, yet because of you, your fellow citizens live safe at home.

“Most don’t know your names but all are confident their freedoms and their families will be kept safe. Far from home, you have earned the gratitude and respect of your fellow citizens and it remains my great privilege to serve alongside you.”

Christmas night, President Trump tweeted:

“I hope everyone, even the Fake News Media, is having a great Christmas!  Our Country is doing very well. We are securing our Borders, making great new Trade Deals, and bringing our Troops Back Home. We are finally putting America First.  MERRY CHRISTMAS! #MAGA”

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

God bless America.

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Gold $1283...highest since June
Oil $45.12

Returns for the week 12/24-12/28

Dow Jones  +2.8%  [23062]
S&P 500  +2.9%  [2485]
S&P MidCap  +2.2%
Russell 2000  +3.6%
Nasdaq  +4.0%  [6584]

Returns for the period 1/1/18-12/28/18

Dow Jones  -6.7%
S&P 500  -7.0%
S&P MidCap  -13.4%
Russell 2000  -12.9%
Nasdaq  -4.6%

Bulls N/A due to holidays
Bears

Happy New Year!

And a Happy Birthday to our own Dr. Bortrum!

Brian Trumbore

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