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Week in Review

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02/02/2019

For the week 1/28-2/1

[Posted 11:00 PM ET]

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Edition 1,034

I apologize. This is a long one.  But we had the Intel Assessment (and the president’s reaction to same), China trade talks, and the busiest week of the quarter for earnings (the main culprit in the length), and the Fed.  The site is called StocksandNews. And there was a lot of stuff on stocks, and, err, news.

Trump World

As I told you would be the case last time, Tuesday we get the State of the Union, House Speaker Nancy Pelosi extending the invite to President Trump after the government had reopened.  It’s actually better for Trump, the extra week, because some news items developed, largely in his favor, that he can trumpet more than he would have been able to on the originally scheduled date, Jan. 29.

Like another good jobs report, as we had today, and the president can talk of ‘progress’ on the trade front with China and his “great relationship with my friend, Xi Jinping,” and his upcoming second summit with Kim Jong Un, who he also has a “great relationship” with.

But as one who long said my main issue with President Trump concerned his handling of foreign policy, I have to start out with the annual “Worldwide Threat Assessment,” as released on Tuesday, a 42-page threat report from the intelligence community that stressed the growing cyberthreat from Russia and China, which were now “more aligned than at any point since the mid-1950s.”

The report also found that American trade policies and “unilateralism” – central themes of President Trump’s “America First” approach – have strained traditional alliances and prompted foreign partners to seek new relationships.

I mean look what President Trump has done since taking office.  He’s questioned the value of NATO and U.S. military commitments in Afghanistan, the Middle East and South Korea.  He has rejected multilateral agreements such as the Trans-Pacific Partnership and imposed tariffs on imports from both allies and adversaries in an effort to secure better terms for the U.S.

Then in testimony before the Senate Intelligence Committee, linked to the release of the report, the nation’s intelligence chiefs, such as National Intelligence Director Dan Coats, and CIA Director Gina Haspel, issued various warnings.

Coats told lawmakers that Islamic State would continue “to stoke violence” in Syria, the review saying there were thousands of fighters in Iraq and Syria and a dozen ISIS networks around the world.

And on North Korea, Director Haspel said the government in Pyongyang “is committed to developing a long-range nuclear-armed missile that would pose a direct threat to the United States.”

Haspel added that while it was encouraging North Korea was communicating, under questioning she said the diplomatic objective was still to insist that North Korea fully disclose and dismantle its nuclear program.

On Iran, Coats said U.S. intelligence officials didn’t believe the nation was developing a nuclear weapon, challenging assertions from Trump that the nuclear pact he withdrew the U.S. from last year was ineffective.

“We do not believe Iran is currently undertaking the key activities we judge necessary to produce a nuclear device,” Coats said.

Haspel added: “(Iran) is making some preparations that would increase their ability to take a step back” from the deal but “at the moment, technically, they are in compliance” with the 2015 pact.

The threat assessment didn’t include a national security justification for building a wall along the U.S.-Mexico border.

So on Islamic State, North Korea and Iran, the testimony contradicted the prime sales pitch promoted by the president in recent weeks and months, and after learning of the testimony, the president apparently not seeing much, if any (I watched over 80 percent of it...thank you, C-SPAN), Trump then tweeted:

“The Intelligence people seem to be extremely passive and naïve when it comes to the dangers of Iran. They are wrong!  When I became President Iran was making trouble all over the Middle East, and beyond. Since ending the terrible Iran Nuclear Deal, they are MUCH different, but....

“....a source of potential danger and conflict.  They are testing Rockets (last week) and more, and are coming very close to the edge. There (sic) economy is now crashing, which is the only thing holding them back. Be careful of Iran.  Perhaps Intelligence should go back to school!”

And:

“When I became President, ISIS was out of control in Syria & running rampant. Since then tremendous progress made, especially over last 5 weeks. Caliphate will soon be destroyed, unthinkable two years ago.  Negotiating (sic) are proceeding well in Afghanistan after 18 years of fighting....

“....Fighting continues but the people of Afghanistan want peace in this never ending war.  We will soon see if talks will be successful?  North Korea relationship is best it has ever been with U.S.  No testing, getting remains, hostages returned.  Decent chance of Denuclearization....

“....Time will tell what will happen with North Korea, but at the end of the previous administration, relationship was horrendous and very bad things were about to happen.  Now a whole different story.  I look forward to seeing Kim Jong Un shortly.  Progress being made-big difference!”

Then Thursday night, Trump, in a New York Times interview (more below) said he had summoned Dan Coats and Gina Haspel because he had heard they contradicted his foreign policy during their testimony to Congress.

But Trump said the intelligence chiefs told him their presentation was misinterpreted.  “They said, ‘Sir, our testimony was totally mischaracterized,’” Trump told the Times.  “I said, ‘What are you talking about?’  And when you read their testimony and you read their statements, it was mischaracterized by the media.”

It was a public hearing!

Trump had tweeted before he sat down with the Times, but after his meeting with Coats and Haspal:     

“Just concluded a great meeting with my Intel team in the Oval Office who told me that what they said on Tuesday at the Senate Hearing was mischaracterized by the media – and we are very much in agreement on Iran, ISIS, North Korea, etc.  Their testimony was distorted press....

“....I would suggest you read the COMPLETE testimony from Tuesday. A false narrative is so bad for our Country.  I value our intelligence community.  Happily, we had a very good meeting, and we are all on the same page!”

Editorial / Washington Post

“Nothing described in the intelligence community’s annual Worldwide Threat Assessment presented to Congress on Tuesday should be surprising. The 42-page report declared that North Korea is “unlikely to give up all of its nuclear weapons and production capabilities.”  Iran continues to make trouble in the Middle East but “is not currently undertaking the key nuclear weapons-development activities” needed to build a nuclear weapon. Russia and China are both challenging the liberal democratic model long advanced by the United States. The Islamic State commands thousands of fighters in Iraq and Syria, and with eight branches and more than a dozen networks, will keep attacking.  Climate hazards are intensifying. These are sober findings.

“But there was one recipient of the report who was particularly unhappy.  President Trump delivered a public tongue-lashing to his intelligence chiefs....

“On the facts, there’s not much question: The intelligence community is right, and Mr. Trump is wrong.  Iran’s behavior has not changed. As in the last year of the Obama administration, Iran continues to pursue hegemony over Syria and Lebanon by violent means, while – as UN inspectors have confirmed – keeping its nuclear program on ice.

“North Korea struck accords with both the Clinton and George W. Bush administration that went far beyond that so far reached between Mr. Trump and Mr. Kim, who has not stopped North Korea’s production of missiles and warheads.  And so on.

“Aside from Mr. Trump’s by-now familiar prevarications, it is breathtaking to see him so at odds with the intelligence community.  Intelligence collection and analysis are at the critical intersection of ground truth and policy, the place where reality is presented for decisions, and the president is the most important decider.  Plenty of lessons from recent history, from the Vietnam War to the Sept. 11 attacks, offer caution about the dangers – even in the best of times – of a disconnect or error in this process.  Mr. Trump’s declarations suggest it is near breakdown.

“Will overseas adversaries be emboldened by the sight of a president who feels compelled to publicly disparage his own intelligence community of 17 agencies and more than 100,000 people?  Daniel Coats, the director of national intelligence, and Gina Haspel, the CIA director, deserve credit for not ducking the responsibility to brief Congress and the nation forthrightly on the threats they see, even though they must have known Mr. Trump was likely to disagree. They did leave one serious threat off their list: that of a president mired in his own delusions who refuses to hear the truth.”

Back to China and Russia and their growing cooperation, the threat assessment cautioned they are pouring resources into a ‘race for technological and military superiority’ that will define the 21st century. 

The report said the efforts by the two could lead to a higher risk of regional conflicts, particularly in the Middle East and East Asia.

Graham T. Allison and Dimitri K. Simes / Wall Street Journal

“Former national security adviser Zbigniew Brzezinski warned in 1997 that the greatest long-term threat to U.S. interests would be a ‘grand coalition’ of China and Russia, ‘united not by ideology but by complementary grievances.’  This coalition ‘would be reminiscent in scale and scope of the challenge once posed by the Sino-Soviet bloc, though this time China would likely be the leader and Russia the follower.’

“Few heeded his admonition. But this grand alignment of the aggrieved has been moving from the realm of the hypothetical toward what could soon be a geostrategic fact. Beijing and Moscow are drawing closer together to meet what each sees as the ‘American threat.’

“The thought of an entente between Eurasia’s two great powers has for the most part struck the Washington establishment as so outlandish as not to require serious examination.  Then-Defense Secretary Jim Mattis said in August that Moscow and Beijing have a ‘natural nonconvergence of interests.’  And there can be no doubt that their values and cultures differ starkly.

“Nonetheless, a fundamental proposition in international relations is that the enemy of my enemy is a friend.  Students of history know how often governments have been surprised by unnatural bedfellows, including the Molotov-Ribbentrop pact between the Soviet Union and Nazi Germany and the U.S.-Soviet alliance in World War II.

“The U.S. and Russia have grown more antagonistic in theaters from the Middle East to Eastern Europe.  Meanwhile, the Washington foreign-policy establishment is increasingly in agreement that China is the primary strategic adversary of the U.S. as the two countries clash over trade and the South China Sea.  It would be surprising if strategists in Beijing and Moscow did not recognize a common enemy....

“If the defining challenge to U.S. national interests in the 21st century is a rising China, preventing the emergence of a Sino-Russian entente should be a key U.S. priority.  Persuading Russia to sit on the U.S. side of the balance of power seesaw will require American policy makers to revise substantially their strategic objectives in dealing with Moscow.  As difficult as this is to imagine in the craze of American politics today, the starting point for the conversation must be clear-eyed recognition of cause and effect.  When the U.S. seeks to punish Mr. Putin for his unacceptable behavior – no matter its intentions – it has the predictable consequence of pushing Russia into an unnatural alliance with China.

“A sound U.S. global strategy would combine greater realism in recognizing the threat of a Beijing-Moscow alliance, and greater imagination in creating a coalition of nations to meet it.”

Trumpets

President Trump was in a most talkative mood this week, giving a number of interviews, and impromptu mini-pressers, including to the “failing New York Times” Thursday, where the president reiterated talks in Congress about wall funding – the issue behind the government shutdown – were a “waste of time.”

“I’ll continue to build the wall, and we’ll get the wall finished,” the president said, dismissing the talks between congressional Republicans and Democrats over the impasse and implying he could declare a national emergency to ensure the barrier is built.

Taking such an action could enable Trump to bypass Congress and access the money and resources needed to complete the project.

Trump slammed Nancy Pelosi over the topic:

“I’ve actually always gotten along with her, but now I don’t think I will anymore,” he said.  “I think she’s doing a tremendous disservice to the country.”

Pelosi has been saying there would be no money for a wall in planned border security legislation, adding, “It is not a negotiation for the president to say... ‘it doesn’t matter what Congress says,’” she said at a news conference.

The president also said he had received assurances from Deputy Attorney General Rod Rosenstein:

“Rod told me I’m not a target of the investigation,” Trump said.  He then suggested that he may not have spoken to him in person, adding: “The lawyers ask him. They say: ‘He’s not a target of the investigation.’”

It wasn’t clear when Rosenstein, who was overseeing Mueller’s investigation until last November, may have made such a comment.

Neither Rosenstein nor Mueller have said whether or not Trump is a target.

The president also insisted he “never did” speak to his long-time associate Roger Stone about stolen Democratic emails published by WikiLeaks in 2016.

Trump did however attack the FBI raid on Stone’s home, calling it “a very sad thing for this country.”

The president said his lawyer Rudy Giuliani had been “wrong” to say that talks over a project to construct a Trump building in Moscow had continued up to the 2016 election.  [Giuliani has walked back his comments, saying he had been mistaken.]

Trump told the Times his last conversation about the project had been in “early to middle” 2016.

“I was running for president; I was doing really well. The last thing I cared about was building a building.”

Dismissing talk he might not run for re-election in 2020, Trump said, “I love this job,” but he did tell the paper he had lost “massive amounts of money” working as president.

Trump did comment on the Democratic candidates in next year’s race, saying California Sen. Kamala Harris has had “the best opening so far.”

--U.S. Customs and Border Patrol announced their largest ever seizure of the synthetic opioid drug fentanyl, 254 lbs. worth, along with 395 lbs. of methamphetamine in a truck crossing an official U.S.-Mexican border crossing in Nogales, Arizona.  The truck was put through a screener a second time after agents saw something suspicious on the first scan, and then a drug-sniffing dog confirmed the hit, which is yet another reason why ‘Dog’ is No. 1 on the All-Species List. ‘Man’ is No. 423.

--Tweets:

“Just out: The big deal, very mysterious Don jr telephone calls, after the innocent Trump Tower meeting, that the media & Dems said were made to his father (me), were just conclusively found NOT to be made to me. They were made to friends & business associates of Don. Really sad!”

“With murders up 33% in Mexico, a record, why wouldn’t any sane person want to build a Wall!  Construction has started and will not stop until it is finished. @LouDobbs @foxandfriends”

“Lets (sic) just call them WALLS from now on and stop playing political games!  A WALL is a WALL!”

“If the committee of Republicans and Democrats now meeting on Border Security is not discussing or contemplating a Wall or Physical Barrier, they are Wasting their time!”

“We are not even into February and the cost of illegal immigration so far this year is $18,959,495,168.  Cost Friday was $603,331,392.  There are at least 25,772,342 illegal aliens, not the 11,000,000 that have been reported for years, in our Country. So ridiculous! DHS”

“Democrats are becoming the Party of late term abortion, high taxes, Open Borders and Crime!”

“In the beautiful Midwest, windchill temperatures are reaching minus 60 degrees, the coldest ever recorded.  In coming days, expected to get even colder.  People can’t last outside even for minutes. What the hell is going on with Global Warming?  Please come back fast, we need you!”

It will be 62 degrees in Washington on Tuesday for your State of the Union Address, Mr. President.

Wall Street and the China Trade War

The major averages staged their best January performance in decades, with the Dow Jones up 7.2%, its best since 1989, and the S&P 500’s 7.9% increase its best since 1987.

Wednesday, upon the conclusion of the Federal Reserve’s latest Open Market Committee, where the Fed held its benchmark interest rate steady as expected, the board issued a statement that said interest-rate increases are on hold, with Chairman Jerome Powell saying at a press conference after, “the case for raising rates has weakened,” which led to a hefty gain in the major averages that afternoon, breaking a streak of seven straight times that the market had fallen the day of a Fed rate-setting meeting.

Specifically, the Fed’s statement said it would be “patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate,” the market loving the word “patient,” Chairman Powell further suggesting the Fed could already be at neutral: “Our policy stance is appropriate right now.  We also know that our policy rate is in the range of the [FOMC’s] estimates of neutral.”

Powell cited a slowing global economy, policy uncertainty about Brexit and trade, and tame inflation for the policy shift from December, when the markets swooned after Powell and the Fed seemed to be too hawkish.

Powell also said of the Fed’s humongous balance sheet that the process of “normalization” could end sooner than expected and that the balance sheet could be “an active tool” in the future if warranted – in other words, more bond purchases if markets or the economy are struggling.  Until recently, the Fed had been insisting the balance-sheet shrinkage was on autopilot.

Editorial / Wall Street Journal

“Apology accepted.  We refer to the one that Chairman Jerome Powell and the other members of the Federal Open Market Committee (FOMC) offered implicitly to financial markets on Wednesday for misjudging economic conditions in December. The Fed has now moved in six weeks from raising interest rates one or more times this year to a declaration that it will be “patient” before it raises again.

“ ‘I would want to see a need for further rate increases,’ Mr. Powell said at his press conference following the FOMC meeting, citing a revival in inflation as something that might cause the Fed to end its pause.  But as Mr. Powell noted, inflation has been falling in recent months, and it should fall further as lower energy prices flow through the economy.

“This is the right measure for the Fed to watch, and far better than the central bank’s previous triumphalism that rates could rise in 2019 simply because the economy is so strong. That suggested the logic of the discredited Phillips curve that rates must rise because too many people  are working and the economy is growing too fast. There was blessedly little of that sentiment in the FOMC statement or Mr. Powell’s press conference.

“All of this would have been better said in December, and without its 0.25% rate increase, but cutting rates so soon would probably have been too embarrassing.  The economy will have to settle for the Fed’s new patience, which seemed to reassure financial markets on Wednesday.  The Dow Jones Industrial Average rose 1.77% on the day.  Credit and overall financial market conditions have improved since Mr. Powell began his rehabilitation tour not long after his December debacle....

“Mr. Powell also sent an encouraging signal about how the Fed will handle the $4.05 trillion in assets it has accumulated on its balance sheet since the financial panic.  Recall that the Chairman said in December that its bond selloff was ‘on autopilot,’ which seemed to dismiss the uncertainties about an asset unwinding that has never been attempted before.

“On Wednesday the Fed clarified that its balance sheet will not be used as a tool to intervene willy-nilly in markets....

“ ‘The Committee is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments,’ the Fed said Wednesday in an additional statement to its usual FOMC policy notice.  The balance sheet deserves a longer editorial treatment, but the Fed’s statements Wednesday are welcome signs of humility from an institution not known for it.”

In terms of the economic data, one thing I was surprised we didn’t hear this week, as it pertained to the Fed and its pronouncements, is the fact it was largely flying blind, the government shutdown still doing a number on the release of key figures, such as the first look at fourth-quarter GDP, retail sales for December, which were due out like two weeks ago, and personal income and consumption.

I have to admit I’m all messed up trying to track it myself, constantly going to BEA.gov for updates on the new release schedule as everyone plays catchup. 

For this week, we did have today’s jobs report for January and it came in far greater than expected at 304,000, though December was revised sharply downward from 312,000 to 222,000; the three-month average nevertheless a strong 241,000.

The look inside the numbers was, however, very scrambled due to the shutdown, and huge numbers seeking part-time work, as well as people being misclassified.  Hopefully February’s report will provide more clarity and shake out the real figures.

For now, the unemployment rate ticked up to 4.0%, but average hourly earnings, up 0.1%, continued a streak of over 3% year-over-year, January 3.2%, same as December.  That’s good.

Also this week, we had the release of the Chicago PMI on manufacturing for January and it was far less than expected, 56.7, though this is still solid (50 being the dividing line between growth and contraction), while the national ISM reading on manufacturing for the month was a better than expected 56.6.

December construction spending was well-above forecast at 0.8%.

But the S&P/CoreLogic Case-Shiller housing index for November (this one with a lag, but the most accurate reading we receive on the sector) showed the 20-city index had a 0.3% rise, 4.7% year-over-year, down from 5.0% the prior month, a 3 ½-year low.  No doubt the housing market is slowing, though still relatively healthy in most parts of the country.  Certainly a crash doesn’t seem imminent.

In a Wall Street Journal survey of 50 economists conducted this week, GDP is forecast to have grown 2.6% in the fourth quarter (the Atlanta Fed’s GDPNow barometer is at 2.5%), but output will grow only 1.8% in the first quarter and then 2.5% in the second.

If true this would equate to 2.3% for the nine-month period through this June – slower than the 3% growth notched in the year through September.

Again, it’s about China and the slowdown in Europe that is holding back the U.S., reducing demand for its exports and making companies more reluctant to spend on long-term projects.

As for the government shutdown and its impact on the economy, the Congressional Budget Office estimated the shutdown reduced output by $11 billion in December and January, but $8 billion of that would be made up in the second quarter.  Economists in the Journal poll forecast the shutdown shaved 0.3% off first-quarter growth.

Trade talks with China:

China promised to “substantially” expand purchases of U.S. goods after this week’s talks in Washington, with both sides planning further discussions to reach a breakthrough with just a month to go before the March 1 deadline for the Trump administration to ratchet up tariffs from 10 percent to 25 percent.

Treasury Secretary Mnuchin and Trade Representative Robert Lighthizer are now going to visit China in mid-February to hold the next round of talks.

China’s Xinhua News Agency said on Friday that the two sides made important progress during talks that were candid, specific, and fruitful.  China agreed to increase imports of U.S. agriculture, energy, industrial products and services, it said, without providing details.  The countries also agreed to strengthen cooperation on intellectual property rights and technology transfer, Xinhua said.

The White House didn’t list any new commitments by either side, saying in a statement that progress had been made and “much work remains to be done.”  The threat to raise tariffs March 1 remains unless a “satisfactory outcome” is reached.

President Trump raised the prospect of a meeting with President Xi Jinping (most likely after Trump’s summit with Kim Jong Un) after Trump received an official invitation from Xi.

Earlier, Trump tweeted that “no final deal will be made until my friend President Xi, and I, meet in the near future.”

Trump told reporters in the Oval Office after meeting with Chinese Vice Premier Liu He, that the teams had made “tremendous progress” but that “doesn’t mean we have a deal.”  Trump said China had committed to buying a substantial amount of soybeans, calling the offer a sign of good faith.

Specifically, Liu told Trump his country had already started purchasing 5 million tons of soybeans, to which Trump said: “That’s going to make our farmers very happy.” [See soybean story below in the “Street Bytes” section.]

Liu delivered the letter from Xi, which read in part:

“As I often say, I feel we have known each other for a long time, ever since we first met.  I cherish the good working relations and personal friendship with you.  I enjoy our meetings and phone calls, in which we could talk about anything.” [Just shoot me.]

Both on the toughest issues of intellectual property theft, forced technology transfers, and the heavy involvement of China in its economy (i.e., subsidies for favored state-owned enterprises), there was little progress, let alone on how any deal concerning IP, and the other elements, would be enforced.

Or as Trade Representative Lighthizer said after, a crucial component of the week’s discussions was “enforcement, enforcement, enforcement.”

Knowing that there simply isn’t enough time to bridge the gaps in terms of a written agreement, it seems very possible that Trump and Xi will announce an extension to the talks (I’m guessing three months).

I wrote on 1/5/19, in issuing my market forecast for the year [Dow and S&P up 12%, Nasdaq 13%]:

“Is the U.S.-China trade issue a big risk?  Yes.  But investors, and the public, will at some point be hoodwinked into believing we’ve reached a decent accord with Beijing later in the year and the markets will celebrate, even though the actual agreement will be a bunch of crap, a total sham, a con job, perpetrated by President Trump....

“President Trump is going to try to convince Americans that any deal with China is a great deal when in the case of autos and soybeans, to cite two high-profile example, we’ll be lucky to get back to the levels we had two years ago!  But we’ll be brainwashed into thinking that’s a win.  Wall Street will treat it as a positive.  It will be all about market sentiment.”

But while trade talks were taking place, the Justice Department plowed ahead, unveiling sweeping charges against Chinese telecom Huawei, and its chief financial officer, Meng Wanzhou (the daughter of Huawei’s founder), accusing the company of stealing trade secrets, obstructing justice and helping banks evade sanctions on Iran.

The pair of indictments was further evidence of U.S. concerns that Huawei is part of an effort by Beijing to become the world leader in tech while undermining American interests.

The United States is seeking to have Ms. Meng extradited from Canada (which is uncertain at this time), where she was detained last year at the behest of the United States.

Editorial / Wall Street Journal

“One danger now is that China will respond to the Huawei charges by indicting a U.S. company or finding some U.S. executive to arrest.  China detained two Canadians on national security allegations last year after Canada detained Ms. Meng....

“Another risk is that President Trump will shelve the Huawei indictment as part of a larger trade deal as he did with ZTE, or in return for China dropping charges against an American. This would be a mistake.  Now that charges have been filed, the U.S. legal process needs to play out or else the charges will look political.

“Trade negotiations can take place separately, and that should be the message to China, which has ample incentives to strike a deal.  The U.S. and China need to find a new common trade and security understanding, but it starts with China abiding by the rules of the global system that has allowed its companies to prosper.”

Europe and Asia

Eurostat released a preliminary estimate of GDP for the fourth quarter in the eurozone (EA19), up 0.2%, and up just 1.2% over a year ago.  The annualized growth rate was 2.4% in the first quarter of 2018, to give you a sense of the big slowdown on the euro continent.

We then learned Italy’s economy contracted for the second consecutive quarter at the end of last year, throwing the country into recession in a big setback for the new anti-establishment government with the ill-conceived 2019 budget.  The government blamed its center-left predecessors for the latest slump, which it can get away with saying for now, but this year is all on the ruling coalition

GDP fell 0.2 percent, following a 0.1 percent decline in the third quarter, per national statistics bureau Istat.

It’s a technical recession, though for the full year, Italy grew a bit, 1 percent vs. 1.6 in 2017.

[A Reuters survey of 46 economists has Italy growing 0.7 percent in 2019.]

The slowdown in growth for both the euro area, and Italy, makes any hike in interest rates from the European Central Bank a virtual no go in 2019.

On the manufacturing front, IHS Markit released its PMI data for January, with the final reading for the eurozone at 50.5 vs. December’s 51.4, the sixth consecutive drop and the lowest level since November 2014.

Germany 49.7 (50-month low)
France 51.2
Italy 47.8 (68-month low)...further confirmation of the GDP data
Spain 52.4
Netherlands 55.1 (28-mo. low)
Greece 53.7
Ireland 52.6 (27-mo. low)

Chris Williamson, chief economist, IHS Markit

“The January PMI adds to the likelihood that the manufacturing sector is in recession and will act as a drag on the economy in the first quarter.

“Some temporary factors remain evident, including an auto sector that is struggling to regain momentum after new emissions regulation and some signs of ‘yellow vest’ disturbances dampening demand in France.  However, there appears to be a more deep-rooted malaise setting in, which reflects widespread concerns about the destabilizing effect of political uncertainty and the damage to exports from rising trade protectionism.

“Worryingly, weaker than anticipated sales mean warehouses are filling up with unsold stock at a rate not previously recorded over the two decades of prior survey history, suggesting firms will need to cut operating capacity in coming months unless demand revives, boding ill for future production growth.”

On the employment front, the euro area unemployment rate for December 2018 was 7.9%, stable compared with November and down from 8.6% in Dec. 2017. This remains the lowest rate in the EA19 since October 2008.

Others: Germany 3.3%, France 9.1%, Italy 10.3%, Spain 14.3 (but down from 16.5% Dec. ’17), Greece 18.6% (Oct.), Netherlands 3.6% and Ireland 5.3%

Separately, a flash estimate for January inflation for the euro area came in at 1.4%, 1.2% ex-food and energy. [Eurostat]

One more...retail sales in Germany tumbled at the end of 2018, according to the Federal Statistics Office, down 4.3 percent from the prior month, far worse than forecast, and down 2.1 percent year over year, as Germany has faced strong headwinds from the U.S.-China trade skirmish and a broader slowdown across major economies.

Brexit: In a further chaotic turn of events in the Brexit saga, the British Parliament sought to assert control over the process, declaring its opposition to leaving the European Union without a deal and voting to send Prime Minister Theresa  May back to Brussels to reopen talks with European leaders, even though the EU has said it will not do such a thing.

The no-deal amendment, which passed 318-310, was the clearest signal yet that Parliament does not want Britain to leave the trading bloc without a years-long transition period that guarantees smooth trade, an orderly exit and protects the rights of EU and British citizens living in Britain and Europe, respectively.

The second amendment, which passed 317-301 and sends May back to Brussels, showed the prime minister’s rebellious Tory lawmakers at least come together to back their leader.

“It is now clear there is a route that can secure a substantial and sustainable majority in this house for leaving the EU with a deal,” May said in the House chamber.  “We will now take this mandate forward and seek to obtain legally binding changes.”

But European leaders have grown weary with Mrs. May’s delays and her inability to win approval for the deal they spent the past two years negotiating with her.  That deal suffered a humiliating defeat in Parliament two weeks ago.

A spokesman for European Council President Donald Tusk said Tuesday that the withdrawal agreement was “not open for renegotiation.”

The deal painstakingly negotiated between the EU and May “is and remains the best and only way to ensure an orderly withdrawal of the United Kingdom from the European Union,” Tusk’s spokesman said.

The EU is in no mood to grant what May needs to pass a deal – a new way for Britain to guarantee that whatever else Brexit yields, it will not mean a return of a hard border, with checkpoints, passport controls and customs inspections, between the Republic of Ireland and Northern Ireland.

The “backstop” provision negotiated with the EU – and rejected by Parliament – locks Britain into a European customs regime unless a free-trade deal is completed during the transition period, which by agreement is to last from March 29, 2019 through December 31, 2020, during which time the EU and Britain are to complete the details.

What is even more frustrating is that Mrs. May said she would seek “alternative arrangements” to keep the Irish border open and to free Britain from a restrictive European customs regime, but May and her ministers never had any hard ideas on what the new ‘alternatives’ might be.

And May’s reversal on the backstop is a betrayal of  Ireland, which agreed to the backstop she had negotiated.

Incredibly after all this time, Parliament cannot reach consensus on what exiting the EU should look like.  And when ideas are put forward in the House of Commons, they seem to forget that the very same ideas were already debated and discarded in negotiations between May and the EU.

There were warnings from Europe that if Mrs. May does restart talks, she will open a Pandora’s Box as other countries seek new changes, such as on the issue of Gibraltar, or the amount of money Britain has to pay for exiting, or the question of citizens’ rights.

French President Emmanuel Macron told reporters, the current deal is “the best accord possible and is not renegotiable.  We must all prepare ourselves” for a chaotic, no-deal Brexit, he said.

Ireland’s Prime Minister (Taoiseach) Leo Varadkar told Mrs. May her betrayal of the Brexit deal has only “reinforced” the need for a backstop.  Some in Ireland believe 50,000 jobs could be lost amid rising food and clothing prices if the UK continues on the path towards a disorderly breakup.  Agriculture would be particularly hard hit.

As Anglo-Irish relations hit a modern-day low, European leaders are also heavily criticizing May over what they see as an act of bad faith.

EU Commission President Jean-Claude Juncker said those in Westminster hoping Europe plans to “abandon the backstop and so Ireland at the last minute” will be disappointed.

“This is not a game. And neither is it a simple bilateral issue.  It goes to the heart of what being a member of the European Union means.  Ireland’s border is Europe’s border – and it is our union’s priority,” he said.

The EU’s chief negotiator Michel Barnier said he found it hard to accept the UK was trying to blame his team for the current mess.  “The backstop is part and parcel of the Withdrawal Agreement. There is no scope for doubt on that point,” he said.

Mrs. May conceded her government hadn’t settled on a way to replace the backstop.

UK Foreign Secretary Jeremy Hunt told BBC radio at week’s end that Brexit could be delayed as the government attempts to resolve the issue of the Irish border, “extra time” needed to pass legislation if Theresa May can agree to an eleventh hour deal.

“I think it is true that if we ended up approving a deal in the days before 29 March, then we might need some extra time to pass critical legislation, but if we are able to make progress sooner than that might not be necessary.

“We can’t know at this stage exactly which of those scenarios would happen.”

And so it goes...on and on....

Greece: Greece raised about $2.8 billion in a return to the international bond markets, riding a wave of goodwill after its recent diplomatic efforts over Macedonia, as well as supportive market conditions.

The five-year bond, the country’s first since emerging from its third international bailout program in August, had a coupon rate of 3.45 percent and a yield of 3.60 percent, drawing over $11bn in demand, exceeding all expectations. The finance minister said he was further encouraged there were so many long-term investors.

Consider that the 3.60 percent yield compares with a minus 0.3 percent yield on comparable German paper, and a 1.60 percent yield on Italian five-year bonds, so the Greek bonds are attractive with their substantial premium to other alternatives. 

Good for Greece!

Turning to Asia, China’s official manufacturing PMI fell below the 50 breakeven line a second consecutive month, 49.5 vs. 49.4 in December, while the non-manufacturing services reading was a healthier 54.7 vs. 53.8 the month before.

The private Caixin reading on manufacturing came in at 48.3 vs. 49.7, the lowest since Feb. 2016.

The manufacturing data is just further confirmation of the broad slowdown impacting the likes of Caterpillar, 3M and Nvidia, as described below.

Separately, China reported its industrial companies saw their profit growth fall 1.9 percent in December from a year earlier, the eighth consecutive month profit growth has declined.

In Japan, the January manufacturing PMI fell to 50.3 (lowest since Aug. 2016) from 52.6, while factory output remained in contraction territory in December, industrial production down 0.1 percent year on year, according to a preliminary reading from the Ministry of Economy, Trade and Industry, marking the second-straight monthly decline.  METI is forecasting a further decline in January but then a pickup in February.

Two other manufacturing PMIs in the region...Taiwan’s for January was just 47.5 vs. 47.7 in December, while South Korea’s was 48.3 vs. 49.8, the lowest since Nov. 2016.

Street Bytes

--The major averages all had solid gains this week, the Dow and Nasdaq now with six-week winning streaks, the S&P stumbling slightly the week ending Jan. 25.  The Dow rose 1.3% to 25063, the S&P 500 1.6%, and Nasdaq 1.4%.

The S&P is now up 15.1% off the Christmas Eve low.

But a word of caution.  While I’m personally bullish for the year, the old saw is that as January goes, so goes the year, and last January the S&P rose 5.6%, but finished down 6.2% for 2018.  It doesn’t always work, boys and girls.

--U.S. Treasury Yields

6-mo. 2.46%  2-yr. 2.50%  10-yr. 2.68%  30-yr. 3.03%

--The latest Congressional Budget Office analysis has the U.S. on course for a $900bn federal budget deficit this year, or 4.2 percent of GDP.  [By contrast, the average annual deficit has been 2.9 percent over the past 50 years.]

--Crude oil (West Texas Int.) rose above $54 Wednesday, and then finished the week at $55.37, the highest since last November, due to Venezuela’s ongoing political crisis and a weekly report from the U.S. Energy Information Administration that showed crude stockpiles rose far less than expectations.  Plus gasoline inventories unexpectedly fell – the first decline since mid-November owing to, it seems, the maintenance cycle.

Earlier, the U.S. imposed sanctions on Venezuela’s state-owned oil giant, Petroleos de Venezuela SA (PDVSA), a move that could crimp crude output and exports in the embattled OPEC member.

Ergo, PDVSA has zero reason to sell to the U.S. because it won’t be paid.

The sanctions prohibit U.S. firms from importing Venezuela crude, beyond what was already in transit, and most believe would impact U.S. supplies by about 500,000 barrels a day, the current amount imported from the country.

--Staying on the energy topic, today, both Exxon Mobil and Chevron reported better than expected earnings, the shares in both finishing up over 3%, which was basically the sole reason the Dow finished in positive territory.

Exxon said its output in the Permian Basin, the largest U.S. shale basin, rose 90 percent over a year ago.

--Apple Inc. reported revenue in the fourth quarter of $84.3 billion, slightly above Wall Street’s reduced consensus of $84 billion, Apple having previously warned it would miss targets given in November.  Apple’s iPhone revenues for the quarter declined 15 percent year over year to $51.9 billion, vs. $59.8bn a year earlier, CEO Tim Cook citing China’s weakness, where Apple brought in $13.17 billion in revenue, down from last year’s $17.96bn, though this wasn’t as bad as some feared.

Earnings per share of $4.18 were in line with the Street.  The company said its cash position had increased to $130 billion, Apple having previously said it plans to draw its net cash position to zero.

The company reported sharp growth in its services business, up 19 percent to $10.8 billion, in line with expectations, though the gross margins on the segment were higher than forecast.  Cook said trade tensions between the U.S. and China were easing, but Apple said sales for the current quarter would most likely be lower than the Street’s expectations, which means it continues to face weak demand for the iPhone, especially in China, the world’s biggest smartphone market.

Investors, however, chose to focus on ‘services,’ which include Apple Music and its App Store.

Cook said the company now has 360 million subscribers to both its own and third-party services, and set a goal of 500 million by the end of 2020.  The company said it has 900 million iPhones in use, the company having stopped reporting unit sales of the product this quarter.

[By contrast, Netflix ended 2018 with 139 million paid subscribers for its streaming video service and Amazon.com has more than 100 million subscribers for its Prime shipping and content service.  In Apple’s case it keeps up to 30 percent of the payments it handles; some of the outside services using Apple’s payment systems.]

The wearables category, which includes the Apple Watch and AirPods headphones, led the way with a 33 percent increase to $7.3 billion.

Apple’s shares, which had fallen more than 30 percent since November on concerns about weak iPhone sales and a general decline in tech stocks, rallied about 8% on the news.

Apple had a separate issue this week when a security flaw was discovered in the iPhone that involved Apple’s FaceTime app, which the company promised to have a fix for by the end of the week, and apparently it did.

--Facebook Inc. posted record quarterly profit despite the constant drumbeat of criticism and negative headlines, with CEO Mark Zuckerberg saying the social-media giant has turned a corner and intends to focus on building new products.

The fourth-quarter report shows that users aren’t abandoning the company in large numbers, even as its data-privacy practices have come under attack from all directions...government(s) and rivals.

Zuckerberg, who I maintain should still be indicted (along with Sheryl Sandberg), said “we now have a clear sense of the path ahead.”

Facebook reported per-share earnings of $2.38 in the fourth quarter, up from $1.44 a year earlier, with net income rising to $6.88 billion from $4.27 billion.

Revenue surged 30% to $16.91 billion, exceeding expectations, though the 30% was the slowest revenue growth yet.

COO Sandberg said, “It’s an end to what was a difficult and challenging – but I think really important – year for Facebook.  We have a lot of work ahead of us.”

Daily usage of Facebook’s family of apps has slowed in the U.S. and Canada, which added about one million users, while Europe added about four million. But it added 16 million in Asia.

Overall, more than 1.5 billion people use Facebook every day, and 2.3 billion use it monthly.

Facebook is projected to control 20% of the digital-ad market this year, vs. Alphabet’s Google, which is expected to account for 31%, according to research firm eMarketer.

The stock soared 10% on the news Thursday.

Meanwhile, Apple Inc. said it revoked Facebook’s permission to maintain a research app on its platform because it said the app broke its rules about data collection.

--Amazon.com Inc.’s sales and earnings last quarter – which included the holiday season – beat analysts’ estimates, with revenue of $72.4 billion in the fourth quarter, above the Street’s $71.9 billion, but the growth rate over a year ago, 19.7%, was the smallest quarterly jump since 2015.  Net income was $3 billion for the first time ever, or $6.04 a share, beating an average estimate of $5.56.

Sales at Amazon Web Services, the top seller of cloud-computing services, climbed 45% to $7.43 billion.  Operating expenses grew 18%.

But Amazon said sales will be $56bn to $60bn in the current quarter, below forecasts, and losses from international operations widened to $642 million in Q4.  India, in particular, is a major concern, with Amazon having targeted it for major expansion, but where rules on foreign-owned e-commerce companies are becoming more restrictive.

The fourth quarter was also the first in which we saw year-over-year results of Amazon’s 2017 acquisition of Whole Foods, with same-store sales declining 2.7% to $4.4 billion, but this does not include in-store pickups of online grocery orders, which clouds the picture.

According to eMarketer Inc., Amazon will capture more than half of all online spending in the United States this year.

The company’s shares fell 5% on the tepid guidance and concern over its future business relationship in India, where it has pumped a ton of money.

--Microsoft Corp. reported overall revenue rose 12% to $32.47 billion in the fourth quarter, but computer-chip shortages cut into expected sales of its Window operating system, and that scarcity will likely continue to hurt sales in the months ahead.  The revenue figure above was just slightly below expectations.  Adjusted profit of $1.10 a share was a penny above consensus.

But while Windows remains significant, Microsoft increasingly relies on its Azure cloud-computing business for growth, and in Q4, Azure grew 76%, which is impressive as the pace of growth in the segment had been decelerating. The company doesn’t break out the revenue for the segment, but analysts peg it at about $2.87 billion for the quarter.

Capital spending, mostly for the Azure business, i.e., new data centers, totaled $3.9 billion, compared with $2.7 billion a year ago.  The company said this figure will bounce around quarter-to-quarter.

Microsoft’s LinkedIn investment (acquired for $27 billion in 2016), continues to post strong revenue gains from the unit’s services and advertising operations.  For the fourth quarter, LinkedIn revenue climbed 29%.  The unit now has 610 million members.

--Shares in Boeing Co. soared after the plane maker reported record profits and sales, cracking the $100-billion barrier in the latter for the first time in the company’s 102-year history, with Boeing projecting even better results in the future.

Both Boeing and rival Airbus SE are riding high on a historic sales boom rooted to a large extent on a growing middle class, particularly in Asia.

Boeing projects revenue will climb to a range of $109.5 billion to $111.5 billion this year, vs. $101.1 billion in 2018.  Adjusted earnings will be $19.90 to $20.10 a share, well-above current Street estimates, thus the big surge in its shares post-earnings announcement.

While the stock has had its ups and downs based on the latest in U.S.-China trade talks, Boeing still takes comfort in a $490-billion backlog of unfilled orders.

Boeing delivered 893 commercial jets in 2018, and forecasts it will deliver another 895 to 905 this year...barring a big global downturn.  Reminder, the IMF is still projecting global growth of 3.5% in 2019, which remains solid, largely because of the U.S.

--Tesla CEO Elon Musk maintained he was committed to making a profit in every quarter in 2019, and the company reported a $140 million profit in the fourth quarter, marking its first-ever consecutive quarterly profit.  But the $140m was smaller than the $311.5m in Q3.

Musk said that in order to sustain profitability, Tesla would need to sell between 360,000 and 400,000 cars this year, which would be a big jump from 2018’s 245,000.

“I don’t want to be a broken record about this – it’s cost, cost, cost.  Getting those costs down...is what allows us to lower the price and be financially sustainable.”

Tesla announced layoffs of 7% of full-time workers recently as part of a mission to lower the starting price of the Model 3 to $44,000 – which is far from the long-promised price of $35,000.  Remember, the government is eliminating the $7,500 tax credit for the purchase of electric vehicles, which will be phased out in Tesla’s case by year-end, thus the need to get the Model 3’s price down.

In order to hit Musk’s long-time goal of 1 million vehicles by 2020, the company needs to have success with a new plant in China, which is designed to avoid tariffs in serving that market.

His current lone assembly plant in Fremont, Calif., has yet to produce 10,000 vehicles a week (or 500,000 a year).

Tesla’s cash position was $3.7 billion at the end of December, compared with $3 billion end of September, which means the company has enough cash on hand to cover a $920 million debt payment due on March 1 from convertible bonds issued back in 2014, unless the stock surges to $359.87, at which point the note could be exchanged for a mix of cash and stock.  [Shares had been as high as $376 in December and closed Friday at $312.]

Meanwhile, Tesla’s longtime CFO and Musk confidant, Deepak Ahuja, announced he would be stepping down, to be succeeded by the company’s vice president.

--3M Co. lowered its profit outlook for the year, the latest manufacturer to cite slowing demand in China for its products.

But the maker of Post-it Notes and industrial adhesives beat revenue and profit expectations in its fourth quarter, as higher prices and volume offset rising costs due to tariffs and other factors.   About 10% of 3M sales come from China, with revenue growing 1% there in the fourth quarter.

For Q4, revenue fell under 1% to $7.95 billion, though this beat the Street’s forecasts, ditto earnings.

--Caterpillar reported fourth-quarter adjusted earnings of $2.55 per share, up from $2.16 in the same period a year ago but far below the $2.99 estimate of analysts.  Total revenue was also up from the same period in 2017, but only in line with forecasts.

CAT set lower-than-expected profit targets for 2019, owing largely to China’s slowing economy and higher material and transportation costs.  CAT, like 3M, said China makes up about 10% of its sales.  It is suffering from higher tariff-related costs on steel and aluminum.

--DowDuPont Inc. shares cratered on Thursday after the conglomerate reported flat sales ahead of its planned breakup this year.

CEO Ed Breen said: “We’re confident that the global economy will grow.  However, there was more uncertainty than usual over the precise rate of growth we expect.”

The company’s overall fourth-quarter sales were $20.1 billion, unchanged from a year earlier as price and volume increases were offset by foreign-exchange shifts.

DowDuPont, formed in 2017 with the merger of Dow Chemical and DuPont, is working toward a three-way separation that will set up new companies focused on materials, agriculture and specialty products like enzymes and safety gear.

--Nividia shares tumbled on a sharp cut to its revenue, the graphics chipmaker warning of a slowdown in sales to gamers in China and among its data center customers, which follows similar shocks from Apple and Intel.

Nvidia’s powerful graphics chips for PCs are primarily used for playing video games, adding artificial intelligence capabilities to cloud computing systems and autonomous cars, as well as processing the complex transactions that create cryptocurrencies.

Demand for its chips had been hit last year by the slump in the price of bitcoin, but Monday’s update pointed to deeper problems at the Silicon Valley-based high-flyer.

China has been cracking down on excessive video game usage.

Nvidia said it now expects fiscal fourth quarter (ending Jan. 27) revenue to come in at $2.2bn, down from a $2.7bn forecast it gave just two months ago.

--Foxconn Technology Group, a major supplier to Apple Inc., announced it was backing off its plans to build a liquid-crystal display factory in Wisconsin, a huge change to a deal that the state promised billions to secure.

Foxconn said high costs in the U.S. make it difficult for the company to compete with rivals if it manufactured LCD displays in Wisconsin.  But Foxconn already knew this...they had to.

So the company said it remains committed to its plan to create 13,000 jobs in Wisconsin, according to a statement, but most of the jobs would be in research, development and design.

Back on November 10 in this space, I wrote of how Foxconn said it would need to bring in workers from China because it couldn’t find enough qualified ones in the Wisconsin area for its ventures.

President Trump praised Foxconn’s initial project plans endlessly, and in exchange for building a 22-million-square foot LCD panel plant, and hiring 13,000 employees, primarily factory jobs, Foxconn was to receive nearly $4 billion state and local incentives, much of it dependent on the company hitting certain hiring, wage and investment targets by various dates.

Local and state governments have already invested millions of dollars in road improvements and other infrastructure.

As in...this is a gigantic potential disaster, especially if the global slowdown continues, let alone if growth in the U.S. slows considerably, which it obviously will at some point.

President Trump has yet to weigh in...egg on his face with this week’s announcement.

That is until this afternoon!  Suddenly we received word that President Trump and Foxconn Chairman Terry Gou had held a phone conversation, and wouldn’t you know, Foxconn reversed itself and said, by golly, it will go ahead with the construction of a liquid-crystal display factory in Wisconsin after all.

The company added in a statement: “Our decision is also based on a recent comprehensive and systematic evaluation to help determine the best fit for our Wisconsin project.”

But just two days earlier, I thought the company had already completed a comprehensive and systematic evaluation.

Funny how these comprehensive and systematic evaluations work...with a little pressure from the president who wasn’t about to not have a key talking point for Midwestern voters in 2020.

I imagine the conversation went something like this: “Listen you SOB.  You guys are going to pretend you’re building that plant and shovel some dirt around until after I get reelected, you hear me?!”

Of course Trump was quick to tweet: “Great news on Foxconn in Wisconsin after my conversation with Terry Gou.”

--McDonald’s Corp. was bailed out by strength in its international business, which helped the company beat same-store sales expectations in the fourth quarter.

Global comp-sales in the lead international markets, including the UK, Europe and Australia, rose 5.2% in Q4.

Comp sales in the U.S. rose 2.3% in the fourth quarter, but this was due to menu price increases, and limited-time offers.  The company has problems with breakfast, where a quarter of its U.S. sales are generated, the segment being aggressively targeted by rivals.

Overall traffic at McDonald’s domestic stores weakened last year, down 2.2%, compared with a 1% gain in 2017.  Global traffic was essentially unchanged.

Still, the company expects to open 1,200 restaurants this year, 750 net globally, the rest in the U.S.

The company reported a net profit of $1.42 billion, compared with $699 million a year earlier, partly due to a tax benefit.

McDonald’s said it expects long-term average sales growth across the company of 3% to 5%.

--United Parcel Service Inc. said Thursday that fourth-quarter profit fell, hurt by a hefty pension charge, but the results beat expectations, with revenue during the critical Christmas shipping period rising nearly 5 percent over a year ago to $19.85bn, a little shy of expectations, though the company said 2019 earnings would be basically in line with current forecasts. 

The shares rose about 5 percent on the news.

--General Electric shares surged 10% on Thursday after the company reported fourth-quarter results that were above expectations on the revenue side, though below forecasts on the bottom line.

But the stock rose because there were no new negative surprises, as new CEO Lawrence Culp Jr. built a guardedly optimistic case for how G.E. can whittle down its $121 billion in debt while improving the profitability of its industrial operations.

Culp said assets will be sold, but not at steep discounts just to raise cash quickly, denying that the aircraft-leasing unit, GE Capital Aviation Services, was for sale.

G.E. is looking to cut its debt by nearly $50 billion by selling parts of, or the remaining stakes in, its rail locomotive, oil field equipment, and health care businesses.

Mainly, the Street was encouraged by what it saw as an honest assessment of the future direction of the company.

--As the Wall Street Journal reports, just as U.S. soybean exports to China have slowed to a trickle due to Beijing imposing retaliatory tariffs on the product last summer, now African swine fever, first detected in some pigs in China’s north, and which has spread to other parts of the country, has turned some in China off to the meat, denting pork sales.

Soybean meal is the feed of choice for livestock and that is where the predominant amount of U.S. soybeans goes for, ergo, even if as part of a trade deal, exports resumed, they would likely be at a lower level, let alone the fact China has been finding new sources during the period where the U.S. has been shut out.

And as the Journal notes, “International experience shows that it takes at least five or six years to eradicate African swine fever, so the process is expected to be long-term work,’” according to Tank Ke, the head of the (Agriculture and Rural Affairs) ministry’s marketing and information department.”

The value of U.S. oilseed imports – largely soybeans – to China in December totaled $68.6 million, down from $2.6 billion in December 2017.  Remember those figures when a trade deal is finally agreed to.

--Harley-Davidson saw its U.S. sales tumble 10% from a year earlier in the fourth quarter, stoking fears that millennials aren’t interested in the pricey motorcycles.

Harley’s profits have been hit by tariffs on steel and aluminum levied by President Trump, with the company expecting tariffs to cost as much as $120 million in 2019.

Harley unveiled its first electric bike – the LiveWire – earlier this year in a bid to attract new and younger riders.

But LiveWire, which debuts in August, is priced at just under $30,000, more than an entry-level Toyota Prius.

Adjusted fourth-quarter profits were 17 cents per share, far below the Street’s expected 28 cents.

--PG&E, which owns California’s largest electric utility, filed for Chapter 11 bankruptcy in anticipation of huge legal claims, starting a process that could take years to resolve and is likely to result in higher energy bills for the millions of Californians who depend on PG&E for power.

The company said the filing allows it to continue operating while it comes up with a plan to pay its debts, which PG&E says is the only way to deal with potential liabilities from a series of devastating, and deadly, wildfires, many of which were sparked by the company’s equipment.

But once the company emerges from bankruptcy (it must, essentially), rates will no doubt rise as PG&E faces higher borrowing costs and creates large legal and other bankruptcy-related pools of money to meet its liabilities.

The company has lined up at least $5.5 billion from several banks to fund its operations during what it expects will be a two-year bankruptcy process, with service continuing uninterrupted.

But why did PG&E’s shares not crater on the Chapter 11 news?  Equity investors are typically wiped out in bankruptcy, and PG&E is warning it faces “extensive litigation, significant potential liabilities and a deteriorating financial situation.”

One reason, for now, is that investors aren’t convinced the company is really going to be stuck with $30 billion as it is currently forecasting; that in the end, the value of the company exceeds liabilities.  Currently, some analysts peg the value of PG&E at around $55 billion while it has roughly $22 billion of debt, so if the liability from the wildfires is much less than $30 billion, well, you see the potential for equity holders retaining some value.

Back in 2001, PG&E’s utility unit filed for bankruptcy but was also deemed solvent and its share price never fell below $7.  [Los Angeles Times]

--The Southern California housing market chilled further in December, sales plunging 20.3% in the key six-county region compared with a year earlier, hitting the lowest level for a December since the start of the Great Recession and the sharpest percentage drop since 2010, according to CoreLogic.

The six-county median price did inch up 1.1% from a year earlier, to $515,000, which is now $22,000 below June’s all-time high of $537,000.

As an economist for the California Assn. of Realtors, Leslie Appleton-Young, told the Los Angeles Times, “The affordability issue is finally taking its toll.”

But strong job growth in Southern California and a below-average home building pace should help the market avoid a crash on the price front.

The median price in Orange County, by the way, is $708,500, vs. $329,750 in San Bernardino County.  [$550,000 in San Diego County, $581,500 in Los Angeles County.]

--There was an important study published in the New England Journal of Medicine, Wednesday, which found that e-cigarettes were nearly twice as effective as conventional nicotine replacement products, like patches and gum, for quitting smoking.

The success rate – 18 percent among the e-cigarette group, compared to 9.9 percent among those using traditional nicotine replacement therapy – was still low, but significant to researchers.

The study was conducted in Britain and funded by the National Institute for Health Research and Cancer Research UK.

So the findings give some legitimacy to the likes of Juul, which have been under fire from the government and the public for contributing to an epidemic of teen vaping, according to the Food and Drug Administration.

Tobacco use causes nearly 480,000 deaths in the United States each year, according to the Centers for Disease Control and Prevention.  [6 million globally.]

The study included at least four weekly counseling session, which researchers regarded as critical for success.  [Jan Hoffman / New York Times]

Juul is by the far the most popular e-cigarette maker in the U.S., controlling 72% of the market.  Recently, Altria (formerly Phillip Morris) made a large investment in the still-privately-held company.

--According to a survey from the National Association of Business Economics (NABE), which is done quarterly, one year after the corporate tax rate fell to 21 percent from 35 percent, 84 percent of respondents said they had not changed their capital investment or hiring plans, which compares to 81 percent in the previous survey published in October.

The White House had predicted that the massive fiscal stimulus package would boost business spending and job growth.

50 percent of respondents from the goods producing sector did report increased investment, with 20 percent saying they redirected hiring and investment to the United States from abroad. 

The survey also indicated a sharp slowdown in business spending the second half of 2018.

--Vice became the latest digital media company to announce a big cut to its workforce, 10%, or about 250 employees.  This comes after similar announcements from BuzzFeed, as well as from some of the media titles owned by Verizon Communications, including the Huffington Post and Yahoo.

--The brutal cold wave in the Midwest forced well over 1,000 flights to be canceled, with temperatures too low for airfield workers to load bags or get planes ready for takeoff.  Heck, at some airports, the solution used to de-ice planes then froze on the wings and fuselage, which kind of creates a problem of a different kind, sports fans.

United canceled 500 of more than 600 daily flights from its hub at Chicago’s O’Hare from Tuesday through Thursday morning. Southwest Airlines canceled more than 700 at Chicago’s Midway airport.

But Delta Air Lines said it was cancelling just a few flights at its hubs in Minneapolis and Detroit, a spokesman saying its workers were used to extreme cold.

--Last week I reported on billionaire Ken Griffin’s purchase of a New York penthouse for $238 million, the highest price ever paid for a home in the U.S.

Jason Gay of the Wall Street Journal wondered what you get for $238 million.

“I’m assuming for $238 million, you get at least two bedrooms.... There’s a foldout in the living room sofa, isn’t there?....

“I imagine for $238 million, you get a decent view. I once had a New York City apartment that looked directly into an alley and across into the bathroom of my next door neighbor....

“I bet $238 million gets you a view even better than that. I bet you can see sky.  Maybe even the sun.....

“I don’t want to sound greedy but...is the $238 million apartment a walk-up?  I see that it is a penthouse, so that screams ‘elevator’ to me, but you never know in this town.  I had a friend who lived in a 6th-floor walk-up downtown.  He lost 30 pounds in the first year he lived there.  Then he moved to the ground floor.  He gained it all back.  Walk-ups are underrated....

“I bet it has an ice maker....I bet it has one of those mini-TVs that fits right underneath the cabinets....

“Cable and Wi-Fi are not included in the $238 million, I assume.  If you tell me they’re included, I’m going to lose it, because that’s a deal.”

Foreign Affairs

Venezuela: Self-proclaimed interim president Juan Guaido said on Thursday that agents from the special police had called at his home, a sign of increasing pressure on the opposition leader trying to replace President Nicolas Maduro, who the United States and many other nations have said is illegitimate.

Guaido said the police asked for his wife, who was at home with their 20-month-old daughter while he was out at an event.  The 35-year-old leader of the National Assembly then left for home, asking diplomats to accompany him. 

The U.S. has warned of “serious consequences” if Maduro’s government harms Guaido.

So the preceding is emblematic of the huge struggle taking place in the country. Guaido, backed by the West, is insisting on an immediate transition of power and new elections.  Maduro, backed by Russia, China and Turkey, says he will remain for his second six-year term despite accusations of fraud in his re-election last year and the total collapse of Venezuela’s economy.

As described above, the United States imposed sanctions on Venezuelan oil, Monday, which some concede could compound the country’s humanitarian crisis; the penalties expected to block $7 billion in assets and result in $11 billion in export losses over the next year for the government, starving it from its most important source of revenue and foreign currency.

Maduro responded to the sanctions by saying, “You will have blood on your hands, President Trump.”

But Maduro and the regime are hanging on.  Authorities detained three foreign journalists and a driver working for the Spanish news agency EFE on Wednesday, in the latest arrests of reporters covering the efforts to oust the president.

Speaking to Russian state news agency RIA, Maduro said he was grateful for President Vladimir Putin’s economic and military help over the years and asked for the Kremlin’s support to defend the Venezuelan leadership diplomatically.

But senior Russian officials have reinforced the message that Maduro won’t receive more help from the government, though they have sharply criticized what they described as an American-led attempt at a coup d’etat. 

Russia and China receive large oil shipments from Venezuela as payments of debt held by the two, though they do not pay for the oil in cash.

The half-million barrels sent to the United States daily has thus been a critical source of revenue.

The U.S. State Department raised its travel advisory to level 4, meaning it is advising citizens not to travel to the country, citing “crime, civil unrest, poor health infrastructure, and arbitrary arrest and detention of U.S. citizens” as reasons for the move.

The decision placed Venezuela in a category normally reserved for the likes of Somalia and Syria.

Trump tweeted this week:

“Spoke today with Venezuelan Interim President Juan Guaido to congratulate him on his historic assumption of the presidency and reinforced strong United States support for Venezuela’s fight to regain its democracy....

“....Large protests all across Venezuela today against Maduro. The fight for freedom has begun!”

More protests are scheduled for Saturday.

Walter Russell Mead / Wall Street Journal

“Why has Russia propped up Mr. Maduro?  Because of the region’s importance in global energy markets.  From Russia’s point of view, Mr. Maduro and his failed socialist regime are the gift that keeps on giving. Venezuela has larger oil reserves than Saudi Arabia, but in December it produced only 1.15 million barrels a day – a third of what it pumped at its peak – and production continues to fall.  That decline represents a massive windfall for Russia.  It slashes the global oil supply and supports the higher energy prices on which Vladimir Putin’s power depends.

“Moscow also hopes the worsening social and political situation in Venezuela will produce a regional crisis that preoccupies the U.S., reducing its appetite for engagements farther afield.  Meanwhile, Kremlin oligarchs and Russia arms dealers make fortunes from shady deals with a desperate and corrupt regime.

“But energy is what makes Latin America most important to Russia today. Steadily rising production in the U.S. and Canada has undermined the pricing power Russia and the Organization of the Petroleum Exporting Countries once took for granted.  Argentina’s vast shale reserves are beginning to come online.  Mexico, a net importer of natural gas, may become a significant exporter. Brazil, which passed Venezuela as South America’s largest oil producer in 2016, is only beginning to exploit its large offshore deposits.  Add a revitalized Venezuelan oil industry to this mix, and the future for Russia and OPEC looks bleak....

“The survival of Mr. Maduro’s regime in defiance of Uncle Sam is not the only good outcome from Mr. Putin’s perspective. A chaotic Venezuela torn by civil conflict, where oil production continues to fall, crime flourishes, refugees pour into neighboring countries, and the U.S. is embroiled in an expensive and controversial intervention also would advance Russia’s interests.

“At press time the Trump administration appears to be escalating the crisis in hope of a dramatic win....

“In the longer term, Venezuela policy is a challenge for Mr. Trump. Restoring stability and democracy to a divided country requires exactly the kind of patient statecraft and consensus-building that Mr. Trump most dislikes.  He would rather hack through Gordian knots than weave tapestries.  But to succeed in Venezuela, Mr. Trump and his team will have to demonstrate some new skills.”

Syria: A draft version of a report from the Pentagon makes the stark warning that ISIS could easily regain control of much of the territory it lost in Syria in a matter of months if U.S. troops are pulled from the region.

A Defense Department Inspector General’s report on Operation Inherent Resolve will be released next week and claim ISIS remains determined to create an Islamic state in the region, according to NBC News.

Without military pressure from the U.S., ISIS could regain a significant amount of territory within six to 12 months.

A complete withdrawal of the roughly 2,000+ U.S. troops in the country is expected over the coming 120 days.

Separately, the U.S. wants to assemble a coalition of Western nations to create and enforce a new buffer zone in northern Syria, according to U.S. officials and the Wall Street Journal, but none have yet agreed to the proposal, which includes the promise of American military assistance.

But Turkey wants its own safe zone, which would put at risk U.S.-backed Syrian Kurdish fighters, while the White House wants to persuade the U.K., France and Australia to take responsibility for northern Syria, to address Turkey’s concerns while keeping its military away from the Kurds.

Of course given President Trump’s statement of withdrawal, it’s hard to get any allies to go along with U.S. recommendations and offers of ongoing assistance in the form of intelligence, surveillance and reconnaissance, knowing Trump can change his mind in a flash.

And through it all, the Kurds are left wondering which side they should turn to...the U.S. and the coalition or Syria’s Bashar Assad in terms of protection, with Assad committing to allow the Kurds to govern their own areas, the Syrian Democratic Forces (now backed by the U.S.) becoming part of the new Syrian army.

Editorial / Wall Street Journal

“Donald Trump’s alleged isolationist takeover of the Republican Party seems to have been greatly exaggerated. The GOP-controlled Senate on Thursday voted 68-23 to warn Mr. Trump against a premature withdrawal of U.S. troops from Syria and Afghanistan, and the sponsor of the effort was no less than Majority Leader Mitch McConnell.

“The nonbinding resolution, which will become part of a larger bill on Middle East policy, focuses on the continuing threat from al Qaeda and Islamic State.  It ‘warns that a precipitous withdrawal of United States forces from the ongoing fight against these groups’ could ‘allow terrorists to regroup, destabilize critical regions, and create vacuums that could be filled by Iran or Russia.’

“More pointedly, the resolution ‘calls upon the Administration to certify that conditions have been met for the enduring defeat of al Qaeda and ISIS before initiating any significant withdrawal of United States forces from Syria or Afghanistan.’

“Forth-three Republicans and 25 Democrats voted for the resolution.  Twenty Democrats voted no, including Amy Klobuchar, Bernie Sanders, Kamala Harris, Cory Booker and Elizabeth Warren.  Don’t look for a hawkish foreign-policy challenge to Mr. Trump in 2020 if one of these Democrats is the nominee.

“Republicans are a different story, and Mr. Trump should take this vote seriously. It shows that his own party members are greatly concerned about his impulsive announcement in December that he wants to withdraw troops from Syria even before the Islamic State threat is gone.

“Republicans are also worried that Mr. Trump can’t wait to get out of Afghanistan even as the U.S. is negotiating with the Taliban.  After 17 years of fighting there, it’s reasonable to seek a way to reduce the U.S. commitment. But it has to be done in a way that doesn’t leave Afghanistan at the mercy of the Taliban or the jihadists who want to use it as a safe haven.

“Republicans saw what happened in Iraq after Barack Obama pulled out in 2011, with the rise of Islamic State and the return of U.S. troops within three years.  Mr. Obama’s motive then was the same as Mr. Trump’s now – fulfill a campaign promise. Democrats paid for Mr. Obama’s withdrawal in 2016 when Mr. Trump made defeating Islamic State a major campaign issue.  Mr. Trump should recognize that his GOP allies are giving him good advice – strategic and political.”

Speaking of Afghanistan...American and Taliban officials agreed in principle to the framework of a peace deal in which the insurgents guarantee to prevent Afghan territory from being used by terrorists, and that could lead to a full pullout of American troops in return for a cease-fire and Taliban talks with the Afghan government, American envoy Zalmay Khalilzad told the New York Times in an interview.

“We have a draft of the framework that has to be fleshed out before it becomes an agreement,” Khalilzad said.  “The Taliban has committed, to our satisfaction, to do what is necessary that would prevent Afghanistan from ever becoming a platform for international terrorist groups or individuals.”

I noted last week that this is totally nuts.

Afghan President Ashraf Ghani said, “We want peace quickly, we want it soon, but we want it with prudence. Prudence is important so we do not repeat past mistakes.”

And consider the fact that the Afghan government has not been part of the talks.

Editorial / Washington Post

“A tentative deal between the Trump administration and the Taliban appears to offer the United States a negotiated way out of its longest war – a prospect most Americans would welcome.

“Unfortunately, it seems to do so mostly on the enemy’s terms.  U.S. forces would leave the country, but there would be no guarantee that the government and political order they have spent 17 years defending, at enormous cost, would survive – or that the gains Afghans have made in women’s and other civil rights would be preserved.

“As described by envoy Zalmay Khalilzad, the ‘framework’ for an accord reached in talks last week begins with a commitment by the United States to a troop pullout and a Taliban pledge to prevent Afghan territory from serving as a base for international terrorism.  Mr. Khalilzad said that bare-bones exchange could be supplemented by the Taliban’s agreement to a cease-fire and talks with the Afghan government.  But the insurgents have not yet agreed to those steps; the group is to conduct internal consultations about them before talks resume next month.

“Unless it were linked to a full peace settlement, a withdrawal of U.S. and NATO forces would leave the Afghan government deeply vulnerable. As it is, its army and police forces have been suffering heavy losses and losing ground to the Taliban even with the backing of a modest number of Western troops.  While some analysts believe the Taliban would not seek to re-create the fundamentalist and profoundly repressive regime they led up until late 2001, they remain implacably hostile to democracy. Afghan women say they fear any end to the conflict would come at their expense.

“It’s also not clear how the Taliban would deliver on its promise to ‘prevent Afghanistan from ever becoming a platform for international terrorist groups or individuals,’ as Mr. Khalilzad described it to the New York Times. As it is, a branch of the Islamic State has entrenched itself in the mountainous east of the country, with the aim of establishing a new caliphate.  U.S. and Afghan government forces have been unable to eliminate the terrorists, and it’s hard to believe the Taliban would have the capacity to do so even if it had the will....

“When Mr. Trump increased U.S. troop levels to 14,000 in 2017, his purpose was to force the enemy to bargain.  Now that bargaining is underway, the president has seemingly grown eager to pull the plug on the mission.  Last month, he ordered the force reduced by nearly half. That, no doubt, has curtailed Mr. Khalilzad’s leverage.  The Taliban may calculate that, rather than insist on an acceptable political settlement, the White House will settle for the fig leaf of their assurances about preventing terrorist attacks.

“It should not.  An end to the Afghan war is desirable, but not at the expense of everything the United States has helped to build there since 2001, including a civil society where girls go to school.  President Ashraf Ghani warned Monday against rushing into a deal that could return Afghanistan to the chaos it saw following the Soviet withdrawal.  He should be heeded.”

Lebanon: Political factions agreed Thursday on the formation of a new government, breaking a nine-month deadlock that had deepened the country’s economic woes.

Rival political groups had been locked in disagreement over the makeup of a new government since last May, after the country’s first parliamentary elections in nine years.

The government will be led by Saad Hariri, the Sunni who headed the outgoing government since 2016; the post always going to a Sunni politician under the country’s political system.

But the new government also saw an increase in the number of ministries affiliated with the Shiite Hezbollah that is under tightening sanctions from the United States, which labels the group a terrorist organization.

Yes, Lebanon is complicated.

Israel: Former military chief Benny Gantz broke his silence for the first time since joining the April election campaign, vowing to pursue peacemaking and clean government in swipes at Prime Minister Benjamin Netanyahu, the popular ex-general the main threat to take him down.

Gantz did not directly attack Netanyahu by name, the PM under investigation for corruption.

Instead, he criticized what he described as a “divisive” leadership that was detached from the people, too concerned with hanging on to power and too loose with its tongue on matters of security.

“The mere notion that in Israel a prime minister can remain in office while under indictment is ridiculous,” said Gantz.

Netanyahu maintains he is the victim of a political witch hunt and has lashed out at the police, the media and the left.

Israel’s attorney-general continues to weigh whether to charge the prime minister in three corruption cases.

Polls currently show Netanyahu would win re-election, with Gantz’s Resilience party coming in a distant second. 

But Netanyahu will again have to cobble together a coalition and Gantz has not ruled out joining a Netanyahu government.

Iran: President Hassan Rouhani said on Wednesday his country was facing its toughest economic situation in 40 years, and the United States, not the government, was to blame.

“Today our problems are primarily because of pressure from America and its followers. And the dutiful government and Islamic system should not be blamed,” he added.

North Korea: North Korea promised to destroy all its nuclear enrichment facilities, according to Stephen Biegun, the top U.S. nuclear negotiator, in a sign that Washington is seeking more specific denuclearization measures from Pyongyang prior to a second Trump-Kim summit to be held end of the month, presumably in Vietnam.

The country committed “to the dismantlement and destruction” of all its uranium and plutonium-enrichment facilities when Secretary of State Mike Pompeo visited Pyongyang in October, according to Biegun.

The pledge goes beyond the Yongbyon nuclear complex, which Kim Jong Un offered to demolish when he met South Korea president Moon Jae-in in Pyongyang in September, Biegun said in a speech at Stanford University.

“This complex of sites extending beyond Yongbyon represents the totality of the North Korean plutonium-reprocessing and uranium-enrichment programs,” Biegun said.

He added that Pyongyang demanded “corresponding measures” from Washington and he will discuss them with his North Korean counterpart in a meeting at the demilitarized zone on Sunday.

But, which wasn’t reported in some accounts of the Stanford speech, Biegun also called for North Korea to declare all its nuclear and missile programs and warned that Washington had “contingencies” if the diplomatic process failed.

Biegun said Washington would have to have expert access and monitoring mechanisms of the key nuclear and missile sites and “ultimately ensure removal or destruction of stockpiles of fissile material, weapons, missiles, launchers and other weapons of mass destruction.”

Pyongyang has rejected declaring its weapons programs for decades.

Biegun’s comments came after President Trump said “tremendous progress” was made in talks between the two countries.

China: Beijing’s envoy to the EU launched a blistering attack on the “slander” and “discrimination” faced by Huawei and other Chinese companies in Europe, warning that efforts to exclude China from 5G mobile projects would be self-defeating.

Ambassador Zhang Ming warned that any attempts to curb the involvement of Chinese technology in upcoming European projects for high-speed 5G networks would risk “serious consequences” for global economic and scientific cooperation.

In an interview with the Financial Times, Zhang said: “It is not helpful to make slander, discrimination, pressure, coercion or speculation against anyone else.  Now someone is sparing no effort to fabricate a security story about Huawei. I do not think that this story has anything to do with security.”

Zhang warned that global industrial, supply and value chains were “highly intertwined” in the 5G market – in which Huawei is a leading equipment maker – and so could not be “artificially and deliberately cut” by anyone.

Russia: The United States announced today that it was withdrawing from the Intermediate-Range Nuclear Forces Treaty, a major pact with Russia that has played a key role in European security since the Cold War.

Secretary of State Mike Pompeo said in making the announcement: “There’s no mistaking that the Russians have chosen to not comply with this treaty.

“For years, Russia has violated the terms of the (INF) Treaty without remorse,” he said.

This was not a surprise, the Trump administration telegraphing its plans for months to pull out of the 1987 pact, which bans certain ground-launched cruise missiles.

The U.S. and Europe accuses Moscow of violating the treaty since 2014.  Russia denied having done so.

But the move renews concerns about a new arms race and that has Europe on edge.

President Trump said in a statement:

“For far too long, Russia has violated the Intermediate-Range Nuclear Forces Treaty with impunity, covertly developing and fielding a prohibited missile system that poses a direct threat to our allies and troops abroad.

“Tomorrow, the United States will suspend its obligations under the INF Treaty and begin the process of withdrawing from the INF Treaty, which will be completed in 6 months unless Russia comes back into compliance by destroying all of its violating missiles, launchers, and associated equipment,” he continued.

“Our NATO Allies fully support us, because they understand the threat posed by Russia’s violation and the risks to arms control posed by ignoring treaty violations.”

The White House said it has “fully adhered to the INF Treaty for more than 30  years,” but will “not remain constrained by its terms while Russia misrepresents its actions.”

“We cannot be the only country in the world unilaterally bound by this treaty, or any other. We will move forward with developing our own military response options and will work with NATO and our other allies and partners to deny Russia any military advantage from its unlawful conduct.”

U.S. officials also have expressed concern that China, which isn’t bound by the treaty, is deploying large numbers of missiles in Asia that the U.S. can’t counter because it’s bound by the treaty.

Random Musings

--Presidential tracking polls....

Gallup: 37% approval of President Trump’s job performance, 59% disapproval, 88% Republicans, 31% Independents (Jan. 15)
Rasmussen: 43% approval, 57% disapproval (Feb. 1)

A new Wall Street Journal/NBC News poll had President Trump with a 43% approval rating, 54% disapproving of his job performance. This was the same as a December survey taken 10 days before the shutdown.

Trump was blamed by 50% of respondents for the shutdown, 37% blamed congressional Democrats.

[Nancy Pelosi’s approval rating was just 28%, unchanged since December.]

--In a new Washington Post/ABC News poll, when asked whom they would support today for the Democratic presidential nomination, 56 percent of self-identified Democrats or Democratic-leaning independents did not offer a name.  No candidate received double-digit support, with former vice president Joe Biden and Sen. Kamala Harris leading the pack.

The same 56 percent of all Americans say they would “definitely not vote for him” should President Trump become the Republican nominee, while 14 percent say they would consider voting for him and 28 percent would definitely vote for him.  Majorities of independents (59 percent), women (64 percent) and suburbanites (56 percent) rule out supporting Trump for a second term.

In an interview with The Post, Trump said of the numbers, “I think (they are) going to change very easily.  I think we are going to do very well.”

And indeed he might.  It depends on the opponent, the state of the economy, and any issues on the geopolitical front (which is likely to have an impact on the state of the economy).

Among Democratic-leaning voters, just 44 percent said they had a preference and no one was in double digits:  Biden 9 percent, Kamala Harris 8, Bernie Sanders and Trump (yes) 4 percent, Beto O’Rourke 3 percent.

That’s pathetic.  But it is significant early on that Sen. Harris is distancing herself from some of her competition.  Her stated policies are nuts, and not reflective of the Democrat I think she is (rather than fake pinko-Communist), which is why I said last week she’ll be one to survive Iowa and New Hampshire, which about 20 of them won’t in an assumed 25-30 candidate field.

[New Jersey Sen. Cory Booker entered the race today, while Sen. Elizabeth Warren apologized to the Cherokee Nation for her decision to take a DNA test to prove her Native American ancestry.]

As for Biden, I kind of thought he was a lock to run, but I imagine right now he’s thinking, ‘Yeah, I always wanted to be president, but why bother with all the garbage.’

I mean what’s wrong with being an elder statesman, traveling first-class to some speaking gigs, on your schedule, and being a valued guest on the Sunday talk shows?

Answer:  Nothing.

--Howard Schultz...and more...

Schultz, the billionaire who took Starbucks from a four-store idea in Seattle to a global coffee empire, spoke to “60 Minutes” last Sunday and announced he was mulling a bid for president as an independent, having assembled a campaign team that can get him on the ballot in every county and in all 50 states.

“I am seriously thinking of running for president,” Schultz said.  “I will run as a centrist independent, outside of the two-party system. We’re living at a most-fragile time, not only the fact that this president is not qualified to be the president, but the fact that both parties are consistently not doing what’s necessary on behalf of the American people and are engaged, every single day, in revenge politics.”

Schultz positioned himself as an alternative to a failing two-party system.

Kevin Williamson / National Review (via the New York Post)

“My view of American life is one of short-term pessimism and long-term optimism. And here is a bit of optimism that I’ll share: I think this may be the last time I am obliged to write about the Clintons. The Clinton era is over.

“Ask Howard Schultz.

“The 1990s were a hoot of a decade, epitomized by Nirvana, the Clinton presidency and Starbucks – each of which in its way exhibited the characteristic style of the ‘90s, when the countercultural ambitions of the 1960s were wedded to the frank, cheerful materialism of the 1980s.

“Seattle was the center of the ‘90s aesthetic. Grunge is long gone, along with all those flannel shirts, but Starbucks is still here.  It is the McDonald’s of its age, the thermonuclear-proof cockroach of the corporate food-service scene.  And now chairman emeritus Howard Schultz is contemplating a Ross Perot-style run for the presidency.

“Schultz was a Clinton Democrat when that meant Bill Clinton, though as  a donor he stuck with Hillary and dutifully wrote checks to Barack Obama, John Edwards, the Democratic National Committee and others. But in 2019, he says he can’t in good conscience run as a Democrat.

“ ‘What the Democrats are proposing is something that is as false as the Wall,’ he says, indicating ‘free’ health care, ‘free’ college and the entire litany of ‘free’ things ‘which the country cannot afford.’  He worries about the national debt, unfunded liabilities and other examples of fiscal recklessness.

“He thinks that the Democrats’ current liquidate-the-kulaks approach to taxes may prove counterproductive to the long-term interests of the United States.  He worries that ‘extremists’ have taken over both parties.

“As you might imagine, he isn’t exactly setting on fire the hearts of his fellow Democratic co-partisans. They believe that an independent candidacy from the center-left may give President Trump a second term.

“The Democrats are in a funny position. They all assume that 2020 is the year to run as a Democrat, believing Trump to be doomed. Their triumphalism may be premature, but they aren’t without reason for hope. They believe that 2020 is theirs because they think the Republican Party has gone mad, an opportunity that Democrats have decided to make the most of by...going just as bonkers themselves.

“Self-proclaimed socialists are the Democratic headliners of 2019, along with Sen. Liz Warren, who boasted that she ‘created much of the intellectual foundation’ for Occupy Wall Street. Reasonably sane figures with respectable executive resumes, like former Mayor Mike Bloomberg, are spat at.

“Ditto for Schultz, who is only a little behind Bloomberg in the years and the billions (11 years and...oh, $44 billion or so).  Schultz, like Bloomberg, is on cultural issues where the Democrats are, but he is not culturally where they are, which at the moment is somewhere in the leafy suburbs of Pyongyang.

“All that balanced-budget stuff, efficiency, sobriety, good government – so ‘90s.  It’s as though he got his policy agenda at the Gap.

“If Alexandria Ocasio-Cortez is the Democrats’ answer to Trump, then Howard Schultz is their John Kasich.

“The GOP hasn’t, endless klaxons of alarm notwithstanding, embraced radicalism in terms of policy. What the GOP has embraced, very likely to its long-term detriment, is the Republican version of radical chic, that obstreperous, mulish mode of talk-radio/cable-news politics that is now the Republican mother tongue.

“That this is likely to cost the Republicans a great deal of support in the parts of the country where the people and the money are seems obvious enough.

“All the Democrats really need to do in the short term is provide a sober, sensible and neighborly alternative to that – a politics of genuine republican collaboration rather than Kulturkampf.  Lucky for Republicans, Democrats don’t seem much interested in republican collaboration.

“Which leaves Howard Schultz out in the cold, with only his billions to comfort him. Building a third-party campaign of any consequence is an extraordinarily difficult thing in the American system – the real political genius of Trump was to forgo that and basically run the Perot campaign inside the GOP.

“But that option isn’t available to Schultz, because the Democrats want radicalism in style and substance.  He may have been a big deal back in 1996.  In 2019, he’s just another white man in a suit.”

Daniel Henninger / Wall Street Journal

“The Democrats’ carpet-bombing of Starbucks founder Howard Schultz’s third-party bid proves one thing: The party thinks whoever it nominates to run against Donald Trump will be the next president of the United States.

“Rather than the distractions of an independent candidate asking what the meaning of ‘free’ is (free health care, free college, free lunch), Democrats want voters focused all the time on Mr. Trump’s bumptious, chaotic personality.

“He won in 2016 in part because so many people voted ‘against’ Hillary Clinton.  Now Democrats believe the midterm election results – in which Democrats defeated Republicans in competitive suburban districts everywhere – show that their best bet is to reduce the 2020 election to ABT – Anyone But Trump.

“It could be that a lot of voters are on the Trump bubble.  But the left’s hysteria over an outlier like Howard Schultz is intriguing. It suggests that if Mr. Trump is re-elected, Democrats are planning to stage a sort of political Jonestown, which for some might be reason enough to vote for the devil you know.

“It also suggests that if the Democrats expect to win in 2020 with a strategy of subtraction, then anything additive Mr. Trump can do to make the case for his presidency will put his 40 or 50 Democratic presidential opponents in a hole.

“On Tuesday the world will be watching his State of the Union speech. This would be the moment, nearly two years before the election, to wrap this thing up. He could do that by saving the Dreamers.

“The Dreamers – innocent bystanders to an immigration system Mr. Trump calls ‘a source of shame’ – are the biggest unclaimed political prize in American politics.

“Polls, such as those done by Pew Research, conclude that what most people want is both border security and a solution for the Dreamers.

“During the shutdown fight, President Trump pressed his case for a wall and secure border.  Nothing new there. What was new, oddly so, was that Nancy Pelosi and Chuck Schumer effectively left the Dreamers out of their arguments.  They had only one idea: Whatever Donald Trump is for, we’re against.

“The left has pushed the notion that Mr. Trump is racist and anti-immigrant.  Implanting that idea more deeply into voters’ minds is surely the reason the Democrats have chosen Stacey Abrams, the black woman and Georgia gubernatorial candidate, to give the party’s reply to Mr. Trump’s Tuesday speech.

“The Democrats assume they’ll gain ground with uncommitted voters by posing Ms. Abrams’ presence against what they assume will be Mr. Trump’s riffs on Central American gangs, rapists, drug smugglers and homicidal aliens.

“If, in addition, Mr. Trump stands before the world and proposes permanent legal status for the Dreamers and an eventual path to citizenship, the Democrats running on ABT are done.  Once Mr. Trump takes the Dreamers away from the Democrats, they’ll never recover....

“But won’t the Trump base abandon him if he saves the Dreamers?  Well, yes, he is likely to lose the votes of four or five restrictionist pundits, who will insult him for ‘caving.’  This proposal is too big to be a cave....The Republicans’ stunning November losses in the Houston and Dallas suburbs suggests this sort of rejectionism has now put Texas – and Mr. Trump – at risk....

“Now Mr. Trump gets to reset the stakes Tuesday by describing the state of the American union. If with that audience he’s the one who invites the Dreamers into the union, see if Nancy Pelosi, on camera right behind him, is the last one in the room still seated. That won’t be a good look.”

--So some of you no doubt saw the story from New Jersey that a Girl Scout troop had over $1,000 in cash and checks from their sale of cookies stolen by some lowlifes at the Woodbridge Center Mall, the troop leader saying she had placed the money in an envelope, which was then swiped from their table.

Jessica Medina pointed the finger at a handicapped man and an elderly woman as the thieves, while bringing her 5-year-old daughter out to be photographed tearfully clutching a box of shortbreads.

The perfect national news filler, and thousands in donations were given to the troop to make up for the pilfered cash.

But Woodbridge police said a few days later that Medina’s tale turned out to be half-baked.  The accused man and woman were located and eliminated as suspects.  The money, it seems, was in a cash box that never left the table.

When confronted, Medina told the cops that she “agreed with the findings, speculating that perhaps the envelope containing the money was accidentally discarded with the trash as the scouts cleaned up the area.”

The Girl Scouts removed her from her volunteer position as troop leader.

When reached by the New York Post, Medina had the gall to insist she never changed her original story and instead blamed cops for a “bungled” investigation.  She added there was no reason to take the money herself because her husband “makes $200,000 a year.”

Well, my dear, congratulations!  You are going in the “Bar Chat” December file for “Dirtball of the Year” consideration.

Yes, boys and girls, another “wait 24 hours” lesson.

[If she isn’t charged, as it seems she won’t, I’ll probably just give her an Honorable Mention citation.]

--No doubt we had some rather cold weather across the Midwest and Northeast this week. For the record, the coldest air temperature I’ve seen was in Norris Camp, Minn., where the thermometer hit minus-48 on Wednesday (wind chill minus-65). Then Thursday, Cotton, Minnesota, checked in at minus-56, just four degrees shy of the state record of minus-60.

Minneapolis, a larger place than Norris Camp and Cotton, with thus more suffering, saw a low of minus-28 Wednesday (and minus-24 air temp Thursday). 

Milwaukee topped a record that had stood since 1899 by six degrees with a low of minus-21.

But temps could be 70-80 degrees warmer by Sunday and Monday in the likes of Minneapolis and Chicago, which is rather staggering. I wonder what the president will tweet then?

Meanwhile, Australia recorded its hottest month ever in January, with average temperatures exceeding 86F for the first time.  At least five January days were among the 10 warmest on record, with daily national temperature highs of 40C (104F!).

The new record surpasses conditions recorded in 2013, previously considered the nation’s worst heatwave.

But the flipside of Australia, aside from the record cold in the U.S., is massive amounts of snow in January in California, which is great...doubling the snowpack in the Sierra Nevada, with the state’s overall snowpack now at 100% of average, with two more months to accumulate before the April 1 measurement, when snowpack is typically the highest, according to the State Dept. of Water Resources.  Good news on a number of levels for the state.

---

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

God bless America.

---

Gold $1322
Oil $55.37

Returns for the week 1/28-2/1

Dow Jones  +1.3%  [25063]
S&P 500  +1.6%  [2706]
S&P MidCap  +1.3%
Russell 2000  +1.3%
Nasdaq  +1.4%  [7263]

Returns for the period 1/1/19-2/1/19

Dow Jones  +7.4%
S&P 500  +8.0%
S&P MidCap  +10.7%
Russell 2000  +11.4%
Nasdaq  +9.5%

Bulls 45.8
Bears
20.6

Have a great week.

Brian Trumbore



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Week in Review

02/02/2019

For the week 1/28-2/1

[Posted 11:00 PM ET]

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 1,034

I apologize. This is a long one.  But we had the Intel Assessment (and the president’s reaction to same), China trade talks, and the busiest week of the quarter for earnings (the main culprit in the length), and the Fed.  The site is called StocksandNews. And there was a lot of stuff on stocks, and, err, news.

Trump World

As I told you would be the case last time, Tuesday we get the State of the Union, House Speaker Nancy Pelosi extending the invite to President Trump after the government had reopened.  It’s actually better for Trump, the extra week, because some news items developed, largely in his favor, that he can trumpet more than he would have been able to on the originally scheduled date, Jan. 29.

Like another good jobs report, as we had today, and the president can talk of ‘progress’ on the trade front with China and his “great relationship with my friend, Xi Jinping,” and his upcoming second summit with Kim Jong Un, who he also has a “great relationship” with.

But as one who long said my main issue with President Trump concerned his handling of foreign policy, I have to start out with the annual “Worldwide Threat Assessment,” as released on Tuesday, a 42-page threat report from the intelligence community that stressed the growing cyberthreat from Russia and China, which were now “more aligned than at any point since the mid-1950s.”

The report also found that American trade policies and “unilateralism” – central themes of President Trump’s “America First” approach – have strained traditional alliances and prompted foreign partners to seek new relationships.

I mean look what President Trump has done since taking office.  He’s questioned the value of NATO and U.S. military commitments in Afghanistan, the Middle East and South Korea.  He has rejected multilateral agreements such as the Trans-Pacific Partnership and imposed tariffs on imports from both allies and adversaries in an effort to secure better terms for the U.S.

Then in testimony before the Senate Intelligence Committee, linked to the release of the report, the nation’s intelligence chiefs, such as National Intelligence Director Dan Coats, and CIA Director Gina Haspel, issued various warnings.

Coats told lawmakers that Islamic State would continue “to stoke violence” in Syria, the review saying there were thousands of fighters in Iraq and Syria and a dozen ISIS networks around the world.

And on North Korea, Director Haspel said the government in Pyongyang “is committed to developing a long-range nuclear-armed missile that would pose a direct threat to the United States.”

Haspel added that while it was encouraging North Korea was communicating, under questioning she said the diplomatic objective was still to insist that North Korea fully disclose and dismantle its nuclear program.

On Iran, Coats said U.S. intelligence officials didn’t believe the nation was developing a nuclear weapon, challenging assertions from Trump that the nuclear pact he withdrew the U.S. from last year was ineffective.

“We do not believe Iran is currently undertaking the key activities we judge necessary to produce a nuclear device,” Coats said.

Haspel added: “(Iran) is making some preparations that would increase their ability to take a step back” from the deal but “at the moment, technically, they are in compliance” with the 2015 pact.

The threat assessment didn’t include a national security justification for building a wall along the U.S.-Mexico border.

So on Islamic State, North Korea and Iran, the testimony contradicted the prime sales pitch promoted by the president in recent weeks and months, and after learning of the testimony, the president apparently not seeing much, if any (I watched over 80 percent of it...thank you, C-SPAN), Trump then tweeted:

“The Intelligence people seem to be extremely passive and naïve when it comes to the dangers of Iran. They are wrong!  When I became President Iran was making trouble all over the Middle East, and beyond. Since ending the terrible Iran Nuclear Deal, they are MUCH different, but....

“....a source of potential danger and conflict.  They are testing Rockets (last week) and more, and are coming very close to the edge. There (sic) economy is now crashing, which is the only thing holding them back. Be careful of Iran.  Perhaps Intelligence should go back to school!”

And:

“When I became President, ISIS was out of control in Syria & running rampant. Since then tremendous progress made, especially over last 5 weeks. Caliphate will soon be destroyed, unthinkable two years ago.  Negotiating (sic) are proceeding well in Afghanistan after 18 years of fighting....

“....Fighting continues but the people of Afghanistan want peace in this never ending war.  We will soon see if talks will be successful?  North Korea relationship is best it has ever been with U.S.  No testing, getting remains, hostages returned.  Decent chance of Denuclearization....

“....Time will tell what will happen with North Korea, but at the end of the previous administration, relationship was horrendous and very bad things were about to happen.  Now a whole different story.  I look forward to seeing Kim Jong Un shortly.  Progress being made-big difference!”

Then Thursday night, Trump, in a New York Times interview (more below) said he had summoned Dan Coats and Gina Haspel because he had heard they contradicted his foreign policy during their testimony to Congress.

But Trump said the intelligence chiefs told him their presentation was misinterpreted.  “They said, ‘Sir, our testimony was totally mischaracterized,’” Trump told the Times.  “I said, ‘What are you talking about?’  And when you read their testimony and you read their statements, it was mischaracterized by the media.”

It was a public hearing!

Trump had tweeted before he sat down with the Times, but after his meeting with Coats and Haspal:     

“Just concluded a great meeting with my Intel team in the Oval Office who told me that what they said on Tuesday at the Senate Hearing was mischaracterized by the media – and we are very much in agreement on Iran, ISIS, North Korea, etc.  Their testimony was distorted press....

“....I would suggest you read the COMPLETE testimony from Tuesday. A false narrative is so bad for our Country.  I value our intelligence community.  Happily, we had a very good meeting, and we are all on the same page!”

Editorial / Washington Post

“Nothing described in the intelligence community’s annual Worldwide Threat Assessment presented to Congress on Tuesday should be surprising. The 42-page report declared that North Korea is “unlikely to give up all of its nuclear weapons and production capabilities.”  Iran continues to make trouble in the Middle East but “is not currently undertaking the key nuclear weapons-development activities” needed to build a nuclear weapon. Russia and China are both challenging the liberal democratic model long advanced by the United States. The Islamic State commands thousands of fighters in Iraq and Syria, and with eight branches and more than a dozen networks, will keep attacking.  Climate hazards are intensifying. These are sober findings.

“But there was one recipient of the report who was particularly unhappy.  President Trump delivered a public tongue-lashing to his intelligence chiefs....

“On the facts, there’s not much question: The intelligence community is right, and Mr. Trump is wrong.  Iran’s behavior has not changed. As in the last year of the Obama administration, Iran continues to pursue hegemony over Syria and Lebanon by violent means, while – as UN inspectors have confirmed – keeping its nuclear program on ice.

“North Korea struck accords with both the Clinton and George W. Bush administration that went far beyond that so far reached between Mr. Trump and Mr. Kim, who has not stopped North Korea’s production of missiles and warheads.  And so on.

“Aside from Mr. Trump’s by-now familiar prevarications, it is breathtaking to see him so at odds with the intelligence community.  Intelligence collection and analysis are at the critical intersection of ground truth and policy, the place where reality is presented for decisions, and the president is the most important decider.  Plenty of lessons from recent history, from the Vietnam War to the Sept. 11 attacks, offer caution about the dangers – even in the best of times – of a disconnect or error in this process.  Mr. Trump’s declarations suggest it is near breakdown.

“Will overseas adversaries be emboldened by the sight of a president who feels compelled to publicly disparage his own intelligence community of 17 agencies and more than 100,000 people?  Daniel Coats, the director of national intelligence, and Gina Haspel, the CIA director, deserve credit for not ducking the responsibility to brief Congress and the nation forthrightly on the threats they see, even though they must have known Mr. Trump was likely to disagree. They did leave one serious threat off their list: that of a president mired in his own delusions who refuses to hear the truth.”

Back to China and Russia and their growing cooperation, the threat assessment cautioned they are pouring resources into a ‘race for technological and military superiority’ that will define the 21st century. 

The report said the efforts by the two could lead to a higher risk of regional conflicts, particularly in the Middle East and East Asia.

Graham T. Allison and Dimitri K. Simes / Wall Street Journal

“Former national security adviser Zbigniew Brzezinski warned in 1997 that the greatest long-term threat to U.S. interests would be a ‘grand coalition’ of China and Russia, ‘united not by ideology but by complementary grievances.’  This coalition ‘would be reminiscent in scale and scope of the challenge once posed by the Sino-Soviet bloc, though this time China would likely be the leader and Russia the follower.’

“Few heeded his admonition. But this grand alignment of the aggrieved has been moving from the realm of the hypothetical toward what could soon be a geostrategic fact. Beijing and Moscow are drawing closer together to meet what each sees as the ‘American threat.’

“The thought of an entente between Eurasia’s two great powers has for the most part struck the Washington establishment as so outlandish as not to require serious examination.  Then-Defense Secretary Jim Mattis said in August that Moscow and Beijing have a ‘natural nonconvergence of interests.’  And there can be no doubt that their values and cultures differ starkly.

“Nonetheless, a fundamental proposition in international relations is that the enemy of my enemy is a friend.  Students of history know how often governments have been surprised by unnatural bedfellows, including the Molotov-Ribbentrop pact between the Soviet Union and Nazi Germany and the U.S.-Soviet alliance in World War II.

“The U.S. and Russia have grown more antagonistic in theaters from the Middle East to Eastern Europe.  Meanwhile, the Washington foreign-policy establishment is increasingly in agreement that China is the primary strategic adversary of the U.S. as the two countries clash over trade and the South China Sea.  It would be surprising if strategists in Beijing and Moscow did not recognize a common enemy....

“If the defining challenge to U.S. national interests in the 21st century is a rising China, preventing the emergence of a Sino-Russian entente should be a key U.S. priority.  Persuading Russia to sit on the U.S. side of the balance of power seesaw will require American policy makers to revise substantially their strategic objectives in dealing with Moscow.  As difficult as this is to imagine in the craze of American politics today, the starting point for the conversation must be clear-eyed recognition of cause and effect.  When the U.S. seeks to punish Mr. Putin for his unacceptable behavior – no matter its intentions – it has the predictable consequence of pushing Russia into an unnatural alliance with China.

“A sound U.S. global strategy would combine greater realism in recognizing the threat of a Beijing-Moscow alliance, and greater imagination in creating a coalition of nations to meet it.”

Trumpets

President Trump was in a most talkative mood this week, giving a number of interviews, and impromptu mini-pressers, including to the “failing New York Times” Thursday, where the president reiterated talks in Congress about wall funding – the issue behind the government shutdown – were a “waste of time.”

“I’ll continue to build the wall, and we’ll get the wall finished,” the president said, dismissing the talks between congressional Republicans and Democrats over the impasse and implying he could declare a national emergency to ensure the barrier is built.

Taking such an action could enable Trump to bypass Congress and access the money and resources needed to complete the project.

Trump slammed Nancy Pelosi over the topic:

“I’ve actually always gotten along with her, but now I don’t think I will anymore,” he said.  “I think she’s doing a tremendous disservice to the country.”

Pelosi has been saying there would be no money for a wall in planned border security legislation, adding, “It is not a negotiation for the president to say... ‘it doesn’t matter what Congress says,’” she said at a news conference.

The president also said he had received assurances from Deputy Attorney General Rod Rosenstein:

“Rod told me I’m not a target of the investigation,” Trump said.  He then suggested that he may not have spoken to him in person, adding: “The lawyers ask him. They say: ‘He’s not a target of the investigation.’”

It wasn’t clear when Rosenstein, who was overseeing Mueller’s investigation until last November, may have made such a comment.

Neither Rosenstein nor Mueller have said whether or not Trump is a target.

The president also insisted he “never did” speak to his long-time associate Roger Stone about stolen Democratic emails published by WikiLeaks in 2016.

Trump did however attack the FBI raid on Stone’s home, calling it “a very sad thing for this country.”

The president said his lawyer Rudy Giuliani had been “wrong” to say that talks over a project to construct a Trump building in Moscow had continued up to the 2016 election.  [Giuliani has walked back his comments, saying he had been mistaken.]

Trump told the Times his last conversation about the project had been in “early to middle” 2016.

“I was running for president; I was doing really well. The last thing I cared about was building a building.”

Dismissing talk he might not run for re-election in 2020, Trump said, “I love this job,” but he did tell the paper he had lost “massive amounts of money” working as president.

Trump did comment on the Democratic candidates in next year’s race, saying California Sen. Kamala Harris has had “the best opening so far.”

--U.S. Customs and Border Patrol announced their largest ever seizure of the synthetic opioid drug fentanyl, 254 lbs. worth, along with 395 lbs. of methamphetamine in a truck crossing an official U.S.-Mexican border crossing in Nogales, Arizona.  The truck was put through a screener a second time after agents saw something suspicious on the first scan, and then a drug-sniffing dog confirmed the hit, which is yet another reason why ‘Dog’ is No. 1 on the All-Species List. ‘Man’ is No. 423.

--Tweets:

“Just out: The big deal, very mysterious Don jr telephone calls, after the innocent Trump Tower meeting, that the media & Dems said were made to his father (me), were just conclusively found NOT to be made to me. They were made to friends & business associates of Don. Really sad!”

“With murders up 33% in Mexico, a record, why wouldn’t any sane person want to build a Wall!  Construction has started and will not stop until it is finished. @LouDobbs @foxandfriends”

“Lets (sic) just call them WALLS from now on and stop playing political games!  A WALL is a WALL!”

“If the committee of Republicans and Democrats now meeting on Border Security is not discussing or contemplating a Wall or Physical Barrier, they are Wasting their time!”

“We are not even into February and the cost of illegal immigration so far this year is $18,959,495,168.  Cost Friday was $603,331,392.  There are at least 25,772,342 illegal aliens, not the 11,000,000 that have been reported for years, in our Country. So ridiculous! DHS”

“Democrats are becoming the Party of late term abortion, high taxes, Open Borders and Crime!”

“In the beautiful Midwest, windchill temperatures are reaching minus 60 degrees, the coldest ever recorded.  In coming days, expected to get even colder.  People can’t last outside even for minutes. What the hell is going on with Global Warming?  Please come back fast, we need you!”

It will be 62 degrees in Washington on Tuesday for your State of the Union Address, Mr. President.

Wall Street and the China Trade War

The major averages staged their best January performance in decades, with the Dow Jones up 7.2%, its best since 1989, and the S&P 500’s 7.9% increase its best since 1987.

Wednesday, upon the conclusion of the Federal Reserve’s latest Open Market Committee, where the Fed held its benchmark interest rate steady as expected, the board issued a statement that said interest-rate increases are on hold, with Chairman Jerome Powell saying at a press conference after, “the case for raising rates has weakened,” which led to a hefty gain in the major averages that afternoon, breaking a streak of seven straight times that the market had fallen the day of a Fed rate-setting meeting.

Specifically, the Fed’s statement said it would be “patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate,” the market loving the word “patient,” Chairman Powell further suggesting the Fed could already be at neutral: “Our policy stance is appropriate right now.  We also know that our policy rate is in the range of the [FOMC’s] estimates of neutral.”

Powell cited a slowing global economy, policy uncertainty about Brexit and trade, and tame inflation for the policy shift from December, when the markets swooned after Powell and the Fed seemed to be too hawkish.

Powell also said of the Fed’s humongous balance sheet that the process of “normalization” could end sooner than expected and that the balance sheet could be “an active tool” in the future if warranted – in other words, more bond purchases if markets or the economy are struggling.  Until recently, the Fed had been insisting the balance-sheet shrinkage was on autopilot.

Editorial / Wall Street Journal

“Apology accepted.  We refer to the one that Chairman Jerome Powell and the other members of the Federal Open Market Committee (FOMC) offered implicitly to financial markets on Wednesday for misjudging economic conditions in December. The Fed has now moved in six weeks from raising interest rates one or more times this year to a declaration that it will be “patient” before it raises again.

“ ‘I would want to see a need for further rate increases,’ Mr. Powell said at his press conference following the FOMC meeting, citing a revival in inflation as something that might cause the Fed to end its pause.  But as Mr. Powell noted, inflation has been falling in recent months, and it should fall further as lower energy prices flow through the economy.

“This is the right measure for the Fed to watch, and far better than the central bank’s previous triumphalism that rates could rise in 2019 simply because the economy is so strong. That suggested the logic of the discredited Phillips curve that rates must rise because too many people  are working and the economy is growing too fast. There was blessedly little of that sentiment in the FOMC statement or Mr. Powell’s press conference.

“All of this would have been better said in December, and without its 0.25% rate increase, but cutting rates so soon would probably have been too embarrassing.  The economy will have to settle for the Fed’s new patience, which seemed to reassure financial markets on Wednesday.  The Dow Jones Industrial Average rose 1.77% on the day.  Credit and overall financial market conditions have improved since Mr. Powell began his rehabilitation tour not long after his December debacle....

“Mr. Powell also sent an encouraging signal about how the Fed will handle the $4.05 trillion in assets it has accumulated on its balance sheet since the financial panic.  Recall that the Chairman said in December that its bond selloff was ‘on autopilot,’ which seemed to dismiss the uncertainties about an asset unwinding that has never been attempted before.

“On Wednesday the Fed clarified that its balance sheet will not be used as a tool to intervene willy-nilly in markets....

“ ‘The Committee is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments,’ the Fed said Wednesday in an additional statement to its usual FOMC policy notice.  The balance sheet deserves a longer editorial treatment, but the Fed’s statements Wednesday are welcome signs of humility from an institution not known for it.”

In terms of the economic data, one thing I was surprised we didn’t hear this week, as it pertained to the Fed and its pronouncements, is the fact it was largely flying blind, the government shutdown still doing a number on the release of key figures, such as the first look at fourth-quarter GDP, retail sales for December, which were due out like two weeks ago, and personal income and consumption.

I have to admit I’m all messed up trying to track it myself, constantly going to BEA.gov for updates on the new release schedule as everyone plays catchup. 

For this week, we did have today’s jobs report for January and it came in far greater than expected at 304,000, though December was revised sharply downward from 312,000 to 222,000; the three-month average nevertheless a strong 241,000.

The look inside the numbers was, however, very scrambled due to the shutdown, and huge numbers seeking part-time work, as well as people being misclassified.  Hopefully February’s report will provide more clarity and shake out the real figures.

For now, the unemployment rate ticked up to 4.0%, but average hourly earnings, up 0.1%, continued a streak of over 3% year-over-year, January 3.2%, same as December.  That’s good.

Also this week, we had the release of the Chicago PMI on manufacturing for January and it was far less than expected, 56.7, though this is still solid (50 being the dividing line between growth and contraction), while the national ISM reading on manufacturing for the month was a better than expected 56.6.

December construction spending was well-above forecast at 0.8%.

But the S&P/CoreLogic Case-Shiller housing index for November (this one with a lag, but the most accurate reading we receive on the sector) showed the 20-city index had a 0.3% rise, 4.7% year-over-year, down from 5.0% the prior month, a 3 ½-year low.  No doubt the housing market is slowing, though still relatively healthy in most parts of the country.  Certainly a crash doesn’t seem imminent.

In a Wall Street Journal survey of 50 economists conducted this week, GDP is forecast to have grown 2.6% in the fourth quarter (the Atlanta Fed’s GDPNow barometer is at 2.5%), but output will grow only 1.8% in the first quarter and then 2.5% in the second.

If true this would equate to 2.3% for the nine-month period through this June – slower than the 3% growth notched in the year through September.

Again, it’s about China and the slowdown in Europe that is holding back the U.S., reducing demand for its exports and making companies more reluctant to spend on long-term projects.

As for the government shutdown and its impact on the economy, the Congressional Budget Office estimated the shutdown reduced output by $11 billion in December and January, but $8 billion of that would be made up in the second quarter.  Economists in the Journal poll forecast the shutdown shaved 0.3% off first-quarter growth.

Trade talks with China:

China promised to “substantially” expand purchases of U.S. goods after this week’s talks in Washington, with both sides planning further discussions to reach a breakthrough with just a month to go before the March 1 deadline for the Trump administration to ratchet up tariffs from 10 percent to 25 percent.

Treasury Secretary Mnuchin and Trade Representative Robert Lighthizer are now going to visit China in mid-February to hold the next round of talks.

China’s Xinhua News Agency said on Friday that the two sides made important progress during talks that were candid, specific, and fruitful.  China agreed to increase imports of U.S. agriculture, energy, industrial products and services, it said, without providing details.  The countries also agreed to strengthen cooperation on intellectual property rights and technology transfer, Xinhua said.

The White House didn’t list any new commitments by either side, saying in a statement that progress had been made and “much work remains to be done.”  The threat to raise tariffs March 1 remains unless a “satisfactory outcome” is reached.

President Trump raised the prospect of a meeting with President Xi Jinping (most likely after Trump’s summit with Kim Jong Un) after Trump received an official invitation from Xi.

Earlier, Trump tweeted that “no final deal will be made until my friend President Xi, and I, meet in the near future.”

Trump told reporters in the Oval Office after meeting with Chinese Vice Premier Liu He, that the teams had made “tremendous progress” but that “doesn’t mean we have a deal.”  Trump said China had committed to buying a substantial amount of soybeans, calling the offer a sign of good faith.

Specifically, Liu told Trump his country had already started purchasing 5 million tons of soybeans, to which Trump said: “That’s going to make our farmers very happy.” [See soybean story below in the “Street Bytes” section.]

Liu delivered the letter from Xi, which read in part:

“As I often say, I feel we have known each other for a long time, ever since we first met.  I cherish the good working relations and personal friendship with you.  I enjoy our meetings and phone calls, in which we could talk about anything.” [Just shoot me.]

Both on the toughest issues of intellectual property theft, forced technology transfers, and the heavy involvement of China in its economy (i.e., subsidies for favored state-owned enterprises), there was little progress, let alone on how any deal concerning IP, and the other elements, would be enforced.

Or as Trade Representative Lighthizer said after, a crucial component of the week’s discussions was “enforcement, enforcement, enforcement.”

Knowing that there simply isn’t enough time to bridge the gaps in terms of a written agreement, it seems very possible that Trump and Xi will announce an extension to the talks (I’m guessing three months).

I wrote on 1/5/19, in issuing my market forecast for the year [Dow and S&P up 12%, Nasdaq 13%]:

“Is the U.S.-China trade issue a big risk?  Yes.  But investors, and the public, will at some point be hoodwinked into believing we’ve reached a decent accord with Beijing later in the year and the markets will celebrate, even though the actual agreement will be a bunch of crap, a total sham, a con job, perpetrated by President Trump....

“President Trump is going to try to convince Americans that any deal with China is a great deal when in the case of autos and soybeans, to cite two high-profile example, we’ll be lucky to get back to the levels we had two years ago!  But we’ll be brainwashed into thinking that’s a win.  Wall Street will treat it as a positive.  It will be all about market sentiment.”

But while trade talks were taking place, the Justice Department plowed ahead, unveiling sweeping charges against Chinese telecom Huawei, and its chief financial officer, Meng Wanzhou (the daughter of Huawei’s founder), accusing the company of stealing trade secrets, obstructing justice and helping banks evade sanctions on Iran.

The pair of indictments was further evidence of U.S. concerns that Huawei is part of an effort by Beijing to become the world leader in tech while undermining American interests.

The United States is seeking to have Ms. Meng extradited from Canada (which is uncertain at this time), where she was detained last year at the behest of the United States.

Editorial / Wall Street Journal

“One danger now is that China will respond to the Huawei charges by indicting a U.S. company or finding some U.S. executive to arrest.  China detained two Canadians on national security allegations last year after Canada detained Ms. Meng....

“Another risk is that President Trump will shelve the Huawei indictment as part of a larger trade deal as he did with ZTE, or in return for China dropping charges against an American. This would be a mistake.  Now that charges have been filed, the U.S. legal process needs to play out or else the charges will look political.

“Trade negotiations can take place separately, and that should be the message to China, which has ample incentives to strike a deal.  The U.S. and China need to find a new common trade and security understanding, but it starts with China abiding by the rules of the global system that has allowed its companies to prosper.”

Europe and Asia

Eurostat released a preliminary estimate of GDP for the fourth quarter in the eurozone (EA19), up 0.2%, and up just 1.2% over a year ago.  The annualized growth rate was 2.4% in the first quarter of 2018, to give you a sense of the big slowdown on the euro continent.

We then learned Italy’s economy contracted for the second consecutive quarter at the end of last year, throwing the country into recession in a big setback for the new anti-establishment government with the ill-conceived 2019 budget.  The government blamed its center-left predecessors for the latest slump, which it can get away with saying for now, but this year is all on the ruling coalition

GDP fell 0.2 percent, following a 0.1 percent decline in the third quarter, per national statistics bureau Istat.

It’s a technical recession, though for the full year, Italy grew a bit, 1 percent vs. 1.6 in 2017.

[A Reuters survey of 46 economists has Italy growing 0.7 percent in 2019.]

The slowdown in growth for both the euro area, and Italy, makes any hike in interest rates from the European Central Bank a virtual no go in 2019.

On the manufacturing front, IHS Markit released its PMI data for January, with the final reading for the eurozone at 50.5 vs. December’s 51.4, the sixth consecutive drop and the lowest level since November 2014.

Germany 49.7 (50-month low)
France 51.2
Italy 47.8 (68-month low)...further confirmation of the GDP data
Spain 52.4
Netherlands 55.1 (28-mo. low)
Greece 53.7
Ireland 52.6 (27-mo. low)

Chris Williamson, chief economist, IHS Markit

“The January PMI adds to the likelihood that the manufacturing sector is in recession and will act as a drag on the economy in the first quarter.

“Some temporary factors remain evident, including an auto sector that is struggling to regain momentum after new emissions regulation and some signs of ‘yellow vest’ disturbances dampening demand in France.  However, there appears to be a more deep-rooted malaise setting in, which reflects widespread concerns about the destabilizing effect of political uncertainty and the damage to exports from rising trade protectionism.

“Worryingly, weaker than anticipated sales mean warehouses are filling up with unsold stock at a rate not previously recorded over the two decades of prior survey history, suggesting firms will need to cut operating capacity in coming months unless demand revives, boding ill for future production growth.”

On the employment front, the euro area unemployment rate for December 2018 was 7.9%, stable compared with November and down from 8.6% in Dec. 2017. This remains the lowest rate in the EA19 since October 2008.

Others: Germany 3.3%, France 9.1%, Italy 10.3%, Spain 14.3 (but down from 16.5% Dec. ’17), Greece 18.6% (Oct.), Netherlands 3.6% and Ireland 5.3%

Separately, a flash estimate for January inflation for the euro area came in at 1.4%, 1.2% ex-food and energy. [Eurostat]

One more...retail sales in Germany tumbled at the end of 2018, according to the Federal Statistics Office, down 4.3 percent from the prior month, far worse than forecast, and down 2.1 percent year over year, as Germany has faced strong headwinds from the U.S.-China trade skirmish and a broader slowdown across major economies.

Brexit: In a further chaotic turn of events in the Brexit saga, the British Parliament sought to assert control over the process, declaring its opposition to leaving the European Union without a deal and voting to send Prime Minister Theresa  May back to Brussels to reopen talks with European leaders, even though the EU has said it will not do such a thing.

The no-deal amendment, which passed 318-310, was the clearest signal yet that Parliament does not want Britain to leave the trading bloc without a years-long transition period that guarantees smooth trade, an orderly exit and protects the rights of EU and British citizens living in Britain and Europe, respectively.

The second amendment, which passed 317-301 and sends May back to Brussels, showed the prime minister’s rebellious Tory lawmakers at least come together to back their leader.

“It is now clear there is a route that can secure a substantial and sustainable majority in this house for leaving the EU with a deal,” May said in the House chamber.  “We will now take this mandate forward and seek to obtain legally binding changes.”

But European leaders have grown weary with Mrs. May’s delays and her inability to win approval for the deal they spent the past two years negotiating with her.  That deal suffered a humiliating defeat in Parliament two weeks ago.

A spokesman for European Council President Donald Tusk said Tuesday that the withdrawal agreement was “not open for renegotiation.”

The deal painstakingly negotiated between the EU and May “is and remains the best and only way to ensure an orderly withdrawal of the United Kingdom from the European Union,” Tusk’s spokesman said.

The EU is in no mood to grant what May needs to pass a deal – a new way for Britain to guarantee that whatever else Brexit yields, it will not mean a return of a hard border, with checkpoints, passport controls and customs inspections, between the Republic of Ireland and Northern Ireland.

The “backstop” provision negotiated with the EU – and rejected by Parliament – locks Britain into a European customs regime unless a free-trade deal is completed during the transition period, which by agreement is to last from March 29, 2019 through December 31, 2020, during which time the EU and Britain are to complete the details.

What is even more frustrating is that Mrs. May said she would seek “alternative arrangements” to keep the Irish border open and to free Britain from a restrictive European customs regime, but May and her ministers never had any hard ideas on what the new ‘alternatives’ might be.

And May’s reversal on the backstop is a betrayal of  Ireland, which agreed to the backstop she had negotiated.

Incredibly after all this time, Parliament cannot reach consensus on what exiting the EU should look like.  And when ideas are put forward in the House of Commons, they seem to forget that the very same ideas were already debated and discarded in negotiations between May and the EU.

There were warnings from Europe that if Mrs. May does restart talks, she will open a Pandora’s Box as other countries seek new changes, such as on the issue of Gibraltar, or the amount of money Britain has to pay for exiting, or the question of citizens’ rights.

French President Emmanuel Macron told reporters, the current deal is “the best accord possible and is not renegotiable.  We must all prepare ourselves” for a chaotic, no-deal Brexit, he said.

Ireland’s Prime Minister (Taoiseach) Leo Varadkar told Mrs. May her betrayal of the Brexit deal has only “reinforced” the need for a backstop.  Some in Ireland believe 50,000 jobs could be lost amid rising food and clothing prices if the UK continues on the path towards a disorderly breakup.  Agriculture would be particularly hard hit.

As Anglo-Irish relations hit a modern-day low, European leaders are also heavily criticizing May over what they see as an act of bad faith.

EU Commission President Jean-Claude Juncker said those in Westminster hoping Europe plans to “abandon the backstop and so Ireland at the last minute” will be disappointed.

“This is not a game. And neither is it a simple bilateral issue.  It goes to the heart of what being a member of the European Union means.  Ireland’s border is Europe’s border – and it is our union’s priority,” he said.

The EU’s chief negotiator Michel Barnier said he found it hard to accept the UK was trying to blame his team for the current mess.  “The backstop is part and parcel of the Withdrawal Agreement. There is no scope for doubt on that point,” he said.

Mrs. May conceded her government hadn’t settled on a way to replace the backstop.

UK Foreign Secretary Jeremy Hunt told BBC radio at week’s end that Brexit could be delayed as the government attempts to resolve the issue of the Irish border, “extra time” needed to pass legislation if Theresa May can agree to an eleventh hour deal.

“I think it is true that if we ended up approving a deal in the days before 29 March, then we might need some extra time to pass critical legislation, but if we are able to make progress sooner than that might not be necessary.

“We can’t know at this stage exactly which of those scenarios would happen.”

And so it goes...on and on....

Greece: Greece raised about $2.8 billion in a return to the international bond markets, riding a wave of goodwill after its recent diplomatic efforts over Macedonia, as well as supportive market conditions.

The five-year bond, the country’s first since emerging from its third international bailout program in August, had a coupon rate of 3.45 percent and a yield of 3.60 percent, drawing over $11bn in demand, exceeding all expectations. The finance minister said he was further encouraged there were so many long-term investors.

Consider that the 3.60 percent yield compares with a minus 0.3 percent yield on comparable German paper, and a 1.60 percent yield on Italian five-year bonds, so the Greek bonds are attractive with their substantial premium to other alternatives. 

Good for Greece!

Turning to Asia, China’s official manufacturing PMI fell below the 50 breakeven line a second consecutive month, 49.5 vs. 49.4 in December, while the non-manufacturing services reading was a healthier 54.7 vs. 53.8 the month before.

The private Caixin reading on manufacturing came in at 48.3 vs. 49.7, the lowest since Feb. 2016.

The manufacturing data is just further confirmation of the broad slowdown impacting the likes of Caterpillar, 3M and Nvidia, as described below.

Separately, China reported its industrial companies saw their profit growth fall 1.9 percent in December from a year earlier, the eighth consecutive month profit growth has declined.

In Japan, the January manufacturing PMI fell to 50.3 (lowest since Aug. 2016) from 52.6, while factory output remained in contraction territory in December, industrial production down 0.1 percent year on year, according to a preliminary reading from the Ministry of Economy, Trade and Industry, marking the second-straight monthly decline.  METI is forecasting a further decline in January but then a pickup in February.

Two other manufacturing PMIs in the region...Taiwan’s for January was just 47.5 vs. 47.7 in December, while South Korea’s was 48.3 vs. 49.8, the lowest since Nov. 2016.

Street Bytes

--The major averages all had solid gains this week, the Dow and Nasdaq now with six-week winning streaks, the S&P stumbling slightly the week ending Jan. 25.  The Dow rose 1.3% to 25063, the S&P 500 1.6%, and Nasdaq 1.4%.

The S&P is now up 15.1% off the Christmas Eve low.

But a word of caution.  While I’m personally bullish for the year, the old saw is that as January goes, so goes the year, and last January the S&P rose 5.6%, but finished down 6.2% for 2018.  It doesn’t always work, boys and girls.

--U.S. Treasury Yields

6-mo. 2.46%  2-yr. 2.50%  10-yr. 2.68%  30-yr. 3.03%

--The latest Congressional Budget Office analysis has the U.S. on course for a $900bn federal budget deficit this year, or 4.2 percent of GDP.  [By contrast, the average annual deficit has been 2.9 percent over the past 50 years.]

--Crude oil (West Texas Int.) rose above $54 Wednesday, and then finished the week at $55.37, the highest since last November, due to Venezuela’s ongoing political crisis and a weekly report from the U.S. Energy Information Administration that showed crude stockpiles rose far less than expectations.  Plus gasoline inventories unexpectedly fell – the first decline since mid-November owing to, it seems, the maintenance cycle.

Earlier, the U.S. imposed sanctions on Venezuela’s state-owned oil giant, Petroleos de Venezuela SA (PDVSA), a move that could crimp crude output and exports in the embattled OPEC member.

Ergo, PDVSA has zero reason to sell to the U.S. because it won’t be paid.

The sanctions prohibit U.S. firms from importing Venezuela crude, beyond what was already in transit, and most believe would impact U.S. supplies by about 500,000 barrels a day, the current amount imported from the country.

--Staying on the energy topic, today, both Exxon Mobil and Chevron reported better than expected earnings, the shares in both finishing up over 3%, which was basically the sole reason the Dow finished in positive territory.

Exxon said its output in the Permian Basin, the largest U.S. shale basin, rose 90 percent over a year ago.

--Apple Inc. reported revenue in the fourth quarter of $84.3 billion, slightly above Wall Street’s reduced consensus of $84 billion, Apple having previously warned it would miss targets given in November.  Apple’s iPhone revenues for the quarter declined 15 percent year over year to $51.9 billion, vs. $59.8bn a year earlier, CEO Tim Cook citing China’s weakness, where Apple brought in $13.17 billion in revenue, down from last year’s $17.96bn, though this wasn’t as bad as some feared.

Earnings per share of $4.18 were in line with the Street.  The company said its cash position had increased to $130 billion, Apple having previously said it plans to draw its net cash position to zero.

The company reported sharp growth in its services business, up 19 percent to $10.8 billion, in line with expectations, though the gross margins on the segment were higher than forecast.  Cook said trade tensions between the U.S. and China were easing, but Apple said sales for the current quarter would most likely be lower than the Street’s expectations, which means it continues to face weak demand for the iPhone, especially in China, the world’s biggest smartphone market.

Investors, however, chose to focus on ‘services,’ which include Apple Music and its App Store.

Cook said the company now has 360 million subscribers to both its own and third-party services, and set a goal of 500 million by the end of 2020.  The company said it has 900 million iPhones in use, the company having stopped reporting unit sales of the product this quarter.

[By contrast, Netflix ended 2018 with 139 million paid subscribers for its streaming video service and Amazon.com has more than 100 million subscribers for its Prime shipping and content service.  In Apple’s case it keeps up to 30 percent of the payments it handles; some of the outside services using Apple’s payment systems.]

The wearables category, which includes the Apple Watch and AirPods headphones, led the way with a 33 percent increase to $7.3 billion.

Apple’s shares, which had fallen more than 30 percent since November on concerns about weak iPhone sales and a general decline in tech stocks, rallied about 8% on the news.

Apple had a separate issue this week when a security flaw was discovered in the iPhone that involved Apple’s FaceTime app, which the company promised to have a fix for by the end of the week, and apparently it did.

--Facebook Inc. posted record quarterly profit despite the constant drumbeat of criticism and negative headlines, with CEO Mark Zuckerberg saying the social-media giant has turned a corner and intends to focus on building new products.

The fourth-quarter report shows that users aren’t abandoning the company in large numbers, even as its data-privacy practices have come under attack from all directions...government(s) and rivals.

Zuckerberg, who I maintain should still be indicted (along with Sheryl Sandberg), said “we now have a clear sense of the path ahead.”

Facebook reported per-share earnings of $2.38 in the fourth quarter, up from $1.44 a year earlier, with net income rising to $6.88 billion from $4.27 billion.

Revenue surged 30% to $16.91 billion, exceeding expectations, though the 30% was the slowest revenue growth yet.

COO Sandberg said, “It’s an end to what was a difficult and challenging – but I think really important – year for Facebook.  We have a lot of work ahead of us.”

Daily usage of Facebook’s family of apps has slowed in the U.S. and Canada, which added about one million users, while Europe added about four million. But it added 16 million in Asia.

Overall, more than 1.5 billion people use Facebook every day, and 2.3 billion use it monthly.

Facebook is projected to control 20% of the digital-ad market this year, vs. Alphabet’s Google, which is expected to account for 31%, according to research firm eMarketer.

The stock soared 10% on the news Thursday.

Meanwhile, Apple Inc. said it revoked Facebook’s permission to maintain a research app on its platform because it said the app broke its rules about data collection.

--Amazon.com Inc.’s sales and earnings last quarter – which included the holiday season – beat analysts’ estimates, with revenue of $72.4 billion in the fourth quarter, above the Street’s $71.9 billion, but the growth rate over a year ago, 19.7%, was the smallest quarterly jump since 2015.  Net income was $3 billion for the first time ever, or $6.04 a share, beating an average estimate of $5.56.

Sales at Amazon Web Services, the top seller of cloud-computing services, climbed 45% to $7.43 billion.  Operating expenses grew 18%.

But Amazon said sales will be $56bn to $60bn in the current quarter, below forecasts, and losses from international operations widened to $642 million in Q4.  India, in particular, is a major concern, with Amazon having targeted it for major expansion, but where rules on foreign-owned e-commerce companies are becoming more restrictive.

The fourth quarter was also the first in which we saw year-over-year results of Amazon’s 2017 acquisition of Whole Foods, with same-store sales declining 2.7% to $4.4 billion, but this does not include in-store pickups of online grocery orders, which clouds the picture.

According to eMarketer Inc., Amazon will capture more than half of all online spending in the United States this year.

The company’s shares fell 5% on the tepid guidance and concern over its future business relationship in India, where it has pumped a ton of money.

--Microsoft Corp. reported overall revenue rose 12% to $32.47 billion in the fourth quarter, but computer-chip shortages cut into expected sales of its Window operating system, and that scarcity will likely continue to hurt sales in the months ahead.  The revenue figure above was just slightly below expectations.  Adjusted profit of $1.10 a share was a penny above consensus.

But while Windows remains significant, Microsoft increasingly relies on its Azure cloud-computing business for growth, and in Q4, Azure grew 76%, which is impressive as the pace of growth in the segment had been decelerating. The company doesn’t break out the revenue for the segment, but analysts peg it at about $2.87 billion for the quarter.

Capital spending, mostly for the Azure business, i.e., new data centers, totaled $3.9 billion, compared with $2.7 billion a year ago.  The company said this figure will bounce around quarter-to-quarter.

Microsoft’s LinkedIn investment (acquired for $27 billion in 2016), continues to post strong revenue gains from the unit’s services and advertising operations.  For the fourth quarter, LinkedIn revenue climbed 29%.  The unit now has 610 million members.

--Shares in Boeing Co. soared after the plane maker reported record profits and sales, cracking the $100-billion barrier in the latter for the first time in the company’s 102-year history, with Boeing projecting even better results in the future.

Both Boeing and rival Airbus SE are riding high on a historic sales boom rooted to a large extent on a growing middle class, particularly in Asia.

Boeing projects revenue will climb to a range of $109.5 billion to $111.5 billion this year, vs. $101.1 billion in 2018.  Adjusted earnings will be $19.90 to $20.10 a share, well-above current Street estimates, thus the big surge in its shares post-earnings announcement.

While the stock has had its ups and downs based on the latest in U.S.-China trade talks, Boeing still takes comfort in a $490-billion backlog of unfilled orders.

Boeing delivered 893 commercial jets in 2018, and forecasts it will deliver another 895 to 905 this year...barring a big global downturn.  Reminder, the IMF is still projecting global growth of 3.5% in 2019, which remains solid, largely because of the U.S.

--Tesla CEO Elon Musk maintained he was committed to making a profit in every quarter in 2019, and the company reported a $140 million profit in the fourth quarter, marking its first-ever consecutive quarterly profit.  But the $140m was smaller than the $311.5m in Q3.

Musk said that in order to sustain profitability, Tesla would need to sell between 360,000 and 400,000 cars this year, which would be a big jump from 2018’s 245,000.

“I don’t want to be a broken record about this – it’s cost, cost, cost.  Getting those costs down...is what allows us to lower the price and be financially sustainable.”

Tesla announced layoffs of 7% of full-time workers recently as part of a mission to lower the starting price of the Model 3 to $44,000 – which is far from the long-promised price of $35,000.  Remember, the government is eliminating the $7,500 tax credit for the purchase of electric vehicles, which will be phased out in Tesla’s case by year-end, thus the need to get the Model 3’s price down.

In order to hit Musk’s long-time goal of 1 million vehicles by 2020, the company needs to have success with a new plant in China, which is designed to avoid tariffs in serving that market.

His current lone assembly plant in Fremont, Calif., has yet to produce 10,000 vehicles a week (or 500,000 a year).

Tesla’s cash position was $3.7 billion at the end of December, compared with $3 billion end of September, which means the company has enough cash on hand to cover a $920 million debt payment due on March 1 from convertible bonds issued back in 2014, unless the stock surges to $359.87, at which point the note could be exchanged for a mix of cash and stock.  [Shares had been as high as $376 in December and closed Friday at $312.]

Meanwhile, Tesla’s longtime CFO and Musk confidant, Deepak Ahuja, announced he would be stepping down, to be succeeded by the company’s vice president.

--3M Co. lowered its profit outlook for the year, the latest manufacturer to cite slowing demand in China for its products.

But the maker of Post-it Notes and industrial adhesives beat revenue and profit expectations in its fourth quarter, as higher prices and volume offset rising costs due to tariffs and other factors.   About 10% of 3M sales come from China, with revenue growing 1% there in the fourth quarter.

For Q4, revenue fell under 1% to $7.95 billion, though this beat the Street’s forecasts, ditto earnings.

--Caterpillar reported fourth-quarter adjusted earnings of $2.55 per share, up from $2.16 in the same period a year ago but far below the $2.99 estimate of analysts.  Total revenue was also up from the same period in 2017, but only in line with forecasts.

CAT set lower-than-expected profit targets for 2019, owing largely to China’s slowing economy and higher material and transportation costs.  CAT, like 3M, said China makes up about 10% of its sales.  It is suffering from higher tariff-related costs on steel and aluminum.

--DowDuPont Inc. shares cratered on Thursday after the conglomerate reported flat sales ahead of its planned breakup this year.

CEO Ed Breen said: “We’re confident that the global economy will grow.  However, there was more uncertainty than usual over the precise rate of growth we expect.”

The company’s overall fourth-quarter sales were $20.1 billion, unchanged from a year earlier as price and volume increases were offset by foreign-exchange shifts.

DowDuPont, formed in 2017 with the merger of Dow Chemical and DuPont, is working toward a three-way separation that will set up new companies focused on materials, agriculture and specialty products like enzymes and safety gear.

--Nividia shares tumbled on a sharp cut to its revenue, the graphics chipmaker warning of a slowdown in sales to gamers in China and among its data center customers, which follows similar shocks from Apple and Intel.

Nvidia’s powerful graphics chips for PCs are primarily used for playing video games, adding artificial intelligence capabilities to cloud computing systems and autonomous cars, as well as processing the complex transactions that create cryptocurrencies.

Demand for its chips had been hit last year by the slump in the price of bitcoin, but Monday’s update pointed to deeper problems at the Silicon Valley-based high-flyer.

China has been cracking down on excessive video game usage.

Nvidia said it now expects fiscal fourth quarter (ending Jan. 27) revenue to come in at $2.2bn, down from a $2.7bn forecast it gave just two months ago.

--Foxconn Technology Group, a major supplier to Apple Inc., announced it was backing off its plans to build a liquid-crystal display factory in Wisconsin, a huge change to a deal that the state promised billions to secure.

Foxconn said high costs in the U.S. make it difficult for the company to compete with rivals if it manufactured LCD displays in Wisconsin.  But Foxconn already knew this...they had to.

So the company said it remains committed to its plan to create 13,000 jobs in Wisconsin, according to a statement, but most of the jobs would be in research, development and design.

Back on November 10 in this space, I wrote of how Foxconn said it would need to bring in workers from China because it couldn’t find enough qualified ones in the Wisconsin area for its ventures.

President Trump praised Foxconn’s initial project plans endlessly, and in exchange for building a 22-million-square foot LCD panel plant, and hiring 13,000 employees, primarily factory jobs, Foxconn was to receive nearly $4 billion state and local incentives, much of it dependent on the company hitting certain hiring, wage and investment targets by various dates.

Local and state governments have already invested millions of dollars in road improvements and other infrastructure.

As in...this is a gigantic potential disaster, especially if the global slowdown continues, let alone if growth in the U.S. slows considerably, which it obviously will at some point.

President Trump has yet to weigh in...egg on his face with this week’s announcement.

That is until this afternoon!  Suddenly we received word that President Trump and Foxconn Chairman Terry Gou had held a phone conversation, and wouldn’t you know, Foxconn reversed itself and said, by golly, it will go ahead with the construction of a liquid-crystal display factory in Wisconsin after all.

The company added in a statement: “Our decision is also based on a recent comprehensive and systematic evaluation to help determine the best fit for our Wisconsin project.”

But just two days earlier, I thought the company had already completed a comprehensive and systematic evaluation.

Funny how these comprehensive and systematic evaluations work...with a little pressure from the president who wasn’t about to not have a key talking point for Midwestern voters in 2020.

I imagine the conversation went something like this: “Listen you SOB.  You guys are going to pretend you’re building that plant and shovel some dirt around until after I get reelected, you hear me?!”

Of course Trump was quick to tweet: “Great news on Foxconn in Wisconsin after my conversation with Terry Gou.”

--McDonald’s Corp. was bailed out by strength in its international business, which helped the company beat same-store sales expectations in the fourth quarter.

Global comp-sales in the lead international markets, including the UK, Europe and Australia, rose 5.2% in Q4.

Comp sales in the U.S. rose 2.3% in the fourth quarter, but this was due to menu price increases, and limited-time offers.  The company has problems with breakfast, where a quarter of its U.S. sales are generated, the segment being aggressively targeted by rivals.

Overall traffic at McDonald’s domestic stores weakened last year, down 2.2%, compared with a 1% gain in 2017.  Global traffic was essentially unchanged.

Still, the company expects to open 1,200 restaurants this year, 750 net globally, the rest in the U.S.

The company reported a net profit of $1.42 billion, compared with $699 million a year earlier, partly due to a tax benefit.

McDonald’s said it expects long-term average sales growth across the company of 3% to 5%.

--United Parcel Service Inc. said Thursday that fourth-quarter profit fell, hurt by a hefty pension charge, but the results beat expectations, with revenue during the critical Christmas shipping period rising nearly 5 percent over a year ago to $19.85bn, a little shy of expectations, though the company said 2019 earnings would be basically in line with current forecasts. 

The shares rose about 5 percent on the news.

--General Electric shares surged 10% on Thursday after the company reported fourth-quarter results that were above expectations on the revenue side, though below forecasts on the bottom line.

But the stock rose because there were no new negative surprises, as new CEO Lawrence Culp Jr. built a guardedly optimistic case for how G.E. can whittle down its $121 billion in debt while improving the profitability of its industrial operations.

Culp said assets will be sold, but not at steep discounts just to raise cash quickly, denying that the aircraft-leasing unit, GE Capital Aviation Services, was for sale.

G.E. is looking to cut its debt by nearly $50 billion by selling parts of, or the remaining stakes in, its rail locomotive, oil field equipment, and health care businesses.

Mainly, the Street was encouraged by what it saw as an honest assessment of the future direction of the company.

--As the Wall Street Journal reports, just as U.S. soybean exports to China have slowed to a trickle due to Beijing imposing retaliatory tariffs on the product last summer, now African swine fever, first detected in some pigs in China’s north, and which has spread to other parts of the country, has turned some in China off to the meat, denting pork sales.

Soybean meal is the feed of choice for livestock and that is where the predominant amount of U.S. soybeans goes for, ergo, even if as part of a trade deal, exports resumed, they would likely be at a lower level, let alone the fact China has been finding new sources during the period where the U.S. has been shut out.

And as the Journal notes, “International experience shows that it takes at least five or six years to eradicate African swine fever, so the process is expected to be long-term work,’” according to Tank Ke, the head of the (Agriculture and Rural Affairs) ministry’s marketing and information department.”

The value of U.S. oilseed imports – largely soybeans – to China in December totaled $68.6 million, down from $2.6 billion in December 2017.  Remember those figures when a trade deal is finally agreed to.

--Harley-Davidson saw its U.S. sales tumble 10% from a year earlier in the fourth quarter, stoking fears that millennials aren’t interested in the pricey motorcycles.

Harley’s profits have been hit by tariffs on steel and aluminum levied by President Trump, with the company expecting tariffs to cost as much as $120 million in 2019.

Harley unveiled its first electric bike – the LiveWire – earlier this year in a bid to attract new and younger riders.

But LiveWire, which debuts in August, is priced at just under $30,000, more than an entry-level Toyota Prius.

Adjusted fourth-quarter profits were 17 cents per share, far below the Street’s expected 28 cents.

--PG&E, which owns California’s largest electric utility, filed for Chapter 11 bankruptcy in anticipation of huge legal claims, starting a process that could take years to resolve and is likely to result in higher energy bills for the millions of Californians who depend on PG&E for power.

The company said the filing allows it to continue operating while it comes up with a plan to pay its debts, which PG&E says is the only way to deal with potential liabilities from a series of devastating, and deadly, wildfires, many of which were sparked by the company’s equipment.

But once the company emerges from bankruptcy (it must, essentially), rates will no doubt rise as PG&E faces higher borrowing costs and creates large legal and other bankruptcy-related pools of money to meet its liabilities.

The company has lined up at least $5.5 billion from several banks to fund its operations during what it expects will be a two-year bankruptcy process, with service continuing uninterrupted.

But why did PG&E’s shares not crater on the Chapter 11 news?  Equity investors are typically wiped out in bankruptcy, and PG&E is warning it faces “extensive litigation, significant potential liabilities and a deteriorating financial situation.”

One reason, for now, is that investors aren’t convinced the company is really going to be stuck with $30 billion as it is currently forecasting; that in the end, the value of the company exceeds liabilities.  Currently, some analysts peg the value of PG&E at around $55 billion while it has roughly $22 billion of debt, so if the liability from the wildfires is much less than $30 billion, well, you see the potential for equity holders retaining some value.

Back in 2001, PG&E’s utility unit filed for bankruptcy but was also deemed solvent and its share price never fell below $7.  [Los Angeles Times]

--The Southern California housing market chilled further in December, sales plunging 20.3% in the key six-county region compared with a year earlier, hitting the lowest level for a December since the start of the Great Recession and the sharpest percentage drop since 2010, according to CoreLogic.

The six-county median price did inch up 1.1% from a year earlier, to $515,000, which is now $22,000 below June’s all-time high of $537,000.

As an economist for the California Assn. of Realtors, Leslie Appleton-Young, told the Los Angeles Times, “The affordability issue is finally taking its toll.”

But strong job growth in Southern California and a below-average home building pace should help the market avoid a crash on the price front.

The median price in Orange County, by the way, is $708,500, vs. $329,750 in San Bernardino County.  [$550,000 in San Diego County, $581,500 in Los Angeles County.]

--There was an important study published in the New England Journal of Medicine, Wednesday, which found that e-cigarettes were nearly twice as effective as conventional nicotine replacement products, like patches and gum, for quitting smoking.

The success rate – 18 percent among the e-cigarette group, compared to 9.9 percent among those using traditional nicotine replacement therapy – was still low, but significant to researchers.

The study was conducted in Britain and funded by the National Institute for Health Research and Cancer Research UK.

So the findings give some legitimacy to the likes of Juul, which have been under fire from the government and the public for contributing to an epidemic of teen vaping, according to the Food and Drug Administration.

Tobacco use causes nearly 480,000 deaths in the United States each year, according to the Centers for Disease Control and Prevention.  [6 million globally.]

The study included at least four weekly counseling session, which researchers regarded as critical for success.  [Jan Hoffman / New York Times]

Juul is by the far the most popular e-cigarette maker in the U.S., controlling 72% of the market.  Recently, Altria (formerly Phillip Morris) made a large investment in the still-privately-held company.

--According to a survey from the National Association of Business Economics (NABE), which is done quarterly, one year after the corporate tax rate fell to 21 percent from 35 percent, 84 percent of respondents said they had not changed their capital investment or hiring plans, which compares to 81 percent in the previous survey published in October.

The White House had predicted that the massive fiscal stimulus package would boost business spending and job growth.

50 percent of respondents from the goods producing sector did report increased investment, with 20 percent saying they redirected hiring and investment to the United States from abroad. 

The survey also indicated a sharp slowdown in business spending the second half of 2018.

--Vice became the latest digital media company to announce a big cut to its workforce, 10%, or about 250 employees.  This comes after similar announcements from BuzzFeed, as well as from some of the media titles owned by Verizon Communications, including the Huffington Post and Yahoo.

--The brutal cold wave in the Midwest forced well over 1,000 flights to be canceled, with temperatures too low for airfield workers to load bags or get planes ready for takeoff.  Heck, at some airports, the solution used to de-ice planes then froze on the wings and fuselage, which kind of creates a problem of a different kind, sports fans.

United canceled 500 of more than 600 daily flights from its hub at Chicago’s O’Hare from Tuesday through Thursday morning. Southwest Airlines canceled more than 700 at Chicago’s Midway airport.

But Delta Air Lines said it was cancelling just a few flights at its hubs in Minneapolis and Detroit, a spokesman saying its workers were used to extreme cold.

--Last week I reported on billionaire Ken Griffin’s purchase of a New York penthouse for $238 million, the highest price ever paid for a home in the U.S.

Jason Gay of the Wall Street Journal wondered what you get for $238 million.

“I’m assuming for $238 million, you get at least two bedrooms.... There’s a foldout in the living room sofa, isn’t there?....

“I imagine for $238 million, you get a decent view. I once had a New York City apartment that looked directly into an alley and across into the bathroom of my next door neighbor....

“I bet $238 million gets you a view even better than that. I bet you can see sky.  Maybe even the sun.....

“I don’t want to sound greedy but...is the $238 million apartment a walk-up?  I see that it is a penthouse, so that screams ‘elevator’ to me, but you never know in this town.  I had a friend who lived in a 6th-floor walk-up downtown.  He lost 30 pounds in the first year he lived there.  Then he moved to the ground floor.  He gained it all back.  Walk-ups are underrated....

“I bet it has an ice maker....I bet it has one of those mini-TVs that fits right underneath the cabinets....

“Cable and Wi-Fi are not included in the $238 million, I assume.  If you tell me they’re included, I’m going to lose it, because that’s a deal.”

Foreign Affairs

Venezuela: Self-proclaimed interim president Juan Guaido said on Thursday that agents from the special police had called at his home, a sign of increasing pressure on the opposition leader trying to replace President Nicolas Maduro, who the United States and many other nations have said is illegitimate.

Guaido said the police asked for his wife, who was at home with their 20-month-old daughter while he was out at an event.  The 35-year-old leader of the National Assembly then left for home, asking diplomats to accompany him. 

The U.S. has warned of “serious consequences” if Maduro’s government harms Guaido.

So the preceding is emblematic of the huge struggle taking place in the country. Guaido, backed by the West, is insisting on an immediate transition of power and new elections.  Maduro, backed by Russia, China and Turkey, says he will remain for his second six-year term despite accusations of fraud in his re-election last year and the total collapse of Venezuela’s economy.

As described above, the United States imposed sanctions on Venezuelan oil, Monday, which some concede could compound the country’s humanitarian crisis; the penalties expected to block $7 billion in assets and result in $11 billion in export losses over the next year for the government, starving it from its most important source of revenue and foreign currency.

Maduro responded to the sanctions by saying, “You will have blood on your hands, President Trump.”

But Maduro and the regime are hanging on.  Authorities detained three foreign journalists and a driver working for the Spanish news agency EFE on Wednesday, in the latest arrests of reporters covering the efforts to oust the president.

Speaking to Russian state news agency RIA, Maduro said he was grateful for President Vladimir Putin’s economic and military help over the years and asked for the Kremlin’s support to defend the Venezuelan leadership diplomatically.

But senior Russian officials have reinforced the message that Maduro won’t receive more help from the government, though they have sharply criticized what they described as an American-led attempt at a coup d’etat. 

Russia and China receive large oil shipments from Venezuela as payments of debt held by the two, though they do not pay for the oil in cash.

The half-million barrels sent to the United States daily has thus been a critical source of revenue.

The U.S. State Department raised its travel advisory to level 4, meaning it is advising citizens not to travel to the country, citing “crime, civil unrest, poor health infrastructure, and arbitrary arrest and detention of U.S. citizens” as reasons for the move.

The decision placed Venezuela in a category normally reserved for the likes of Somalia and Syria.

Trump tweeted this week:

“Spoke today with Venezuelan Interim President Juan Guaido to congratulate him on his historic assumption of the presidency and reinforced strong United States support for Venezuela’s fight to regain its democracy....

“....Large protests all across Venezuela today against Maduro. The fight for freedom has begun!”

More protests are scheduled for Saturday.

Walter Russell Mead / Wall Street Journal

“Why has Russia propped up Mr. Maduro?  Because of the region’s importance in global energy markets.  From Russia’s point of view, Mr. Maduro and his failed socialist regime are the gift that keeps on giving. Venezuela has larger oil reserves than Saudi Arabia, but in December it produced only 1.15 million barrels a day – a third of what it pumped at its peak – and production continues to fall.  That decline represents a massive windfall for Russia.  It slashes the global oil supply and supports the higher energy prices on which Vladimir Putin’s power depends.

“Moscow also hopes the worsening social and political situation in Venezuela will produce a regional crisis that preoccupies the U.S., reducing its appetite for engagements farther afield.  Meanwhile, Kremlin oligarchs and Russia arms dealers make fortunes from shady deals with a desperate and corrupt regime.

“But energy is what makes Latin America most important to Russia today. Steadily rising production in the U.S. and Canada has undermined the pricing power Russia and the Organization of the Petroleum Exporting Countries once took for granted.  Argentina’s vast shale reserves are beginning to come online.  Mexico, a net importer of natural gas, may become a significant exporter. Brazil, which passed Venezuela as South America’s largest oil producer in 2016, is only beginning to exploit its large offshore deposits.  Add a revitalized Venezuelan oil industry to this mix, and the future for Russia and OPEC looks bleak....

“The survival of Mr. Maduro’s regime in defiance of Uncle Sam is not the only good outcome from Mr. Putin’s perspective. A chaotic Venezuela torn by civil conflict, where oil production continues to fall, crime flourishes, refugees pour into neighboring countries, and the U.S. is embroiled in an expensive and controversial intervention also would advance Russia’s interests.

“At press time the Trump administration appears to be escalating the crisis in hope of a dramatic win....

“In the longer term, Venezuela policy is a challenge for Mr. Trump. Restoring stability and democracy to a divided country requires exactly the kind of patient statecraft and consensus-building that Mr. Trump most dislikes.  He would rather hack through Gordian knots than weave tapestries.  But to succeed in Venezuela, Mr. Trump and his team will have to demonstrate some new skills.”

Syria: A draft version of a report from the Pentagon makes the stark warning that ISIS could easily regain control of much of the territory it lost in Syria in a matter of months if U.S. troops are pulled from the region.

A Defense Department Inspector General’s report on Operation Inherent Resolve will be released next week and claim ISIS remains determined to create an Islamic state in the region, according to NBC News.

Without military pressure from the U.S., ISIS could regain a significant amount of territory within six to 12 months.

A complete withdrawal of the roughly 2,000+ U.S. troops in the country is expected over the coming 120 days.

Separately, the U.S. wants to assemble a coalition of Western nations to create and enforce a new buffer zone in northern Syria, according to U.S. officials and the Wall Street Journal, but none have yet agreed to the proposal, which includes the promise of American military assistance.

But Turkey wants its own safe zone, which would put at risk U.S.-backed Syrian Kurdish fighters, while the White House wants to persuade the U.K., France and Australia to take responsibility for northern Syria, to address Turkey’s concerns while keeping its military away from the Kurds.

Of course given President Trump’s statement of withdrawal, it’s hard to get any allies to go along with U.S. recommendations and offers of ongoing assistance in the form of intelligence, surveillance and reconnaissance, knowing Trump can change his mind in a flash.

And through it all, the Kurds are left wondering which side they should turn to...the U.S. and the coalition or Syria’s Bashar Assad in terms of protection, with Assad committing to allow the Kurds to govern their own areas, the Syrian Democratic Forces (now backed by the U.S.) becoming part of the new Syrian army.

Editorial / Wall Street Journal

“Donald Trump’s alleged isolationist takeover of the Republican Party seems to have been greatly exaggerated. The GOP-controlled Senate on Thursday voted 68-23 to warn Mr. Trump against a premature withdrawal of U.S. troops from Syria and Afghanistan, and the sponsor of the effort was no less than Majority Leader Mitch McConnell.

“The nonbinding resolution, which will become part of a larger bill on Middle East policy, focuses on the continuing threat from al Qaeda and Islamic State.  It ‘warns that a precipitous withdrawal of United States forces from the ongoing fight against these groups’ could ‘allow terrorists to regroup, destabilize critical regions, and create vacuums that could be filled by Iran or Russia.’

“More pointedly, the resolution ‘calls upon the Administration to certify that conditions have been met for the enduring defeat of al Qaeda and ISIS before initiating any significant withdrawal of United States forces from Syria or Afghanistan.’

“Forth-three Republicans and 25 Democrats voted for the resolution.  Twenty Democrats voted no, including Amy Klobuchar, Bernie Sanders, Kamala Harris, Cory Booker and Elizabeth Warren.  Don’t look for a hawkish foreign-policy challenge to Mr. Trump in 2020 if one of these Democrats is the nominee.

“Republicans are a different story, and Mr. Trump should take this vote seriously. It shows that his own party members are greatly concerned about his impulsive announcement in December that he wants to withdraw troops from Syria even before the Islamic State threat is gone.

“Republicans are also worried that Mr. Trump can’t wait to get out of Afghanistan even as the U.S. is negotiating with the Taliban.  After 17 years of fighting there, it’s reasonable to seek a way to reduce the U.S. commitment. But it has to be done in a way that doesn’t leave Afghanistan at the mercy of the Taliban or the jihadists who want to use it as a safe haven.

“Republicans saw what happened in Iraq after Barack Obama pulled out in 2011, with the rise of Islamic State and the return of U.S. troops within three years.  Mr. Obama’s motive then was the same as Mr. Trump’s now – fulfill a campaign promise. Democrats paid for Mr. Obama’s withdrawal in 2016 when Mr. Trump made defeating Islamic State a major campaign issue.  Mr. Trump should recognize that his GOP allies are giving him good advice – strategic and political.”

Speaking of Afghanistan...American and Taliban officials agreed in principle to the framework of a peace deal in which the insurgents guarantee to prevent Afghan territory from being used by terrorists, and that could lead to a full pullout of American troops in return for a cease-fire and Taliban talks with the Afghan government, American envoy Zalmay Khalilzad told the New York Times in an interview.

“We have a draft of the framework that has to be fleshed out before it becomes an agreement,” Khalilzad said.  “The Taliban has committed, to our satisfaction, to do what is necessary that would prevent Afghanistan from ever becoming a platform for international terrorist groups or individuals.”

I noted last week that this is totally nuts.

Afghan President Ashraf Ghani said, “We want peace quickly, we want it soon, but we want it with prudence. Prudence is important so we do not repeat past mistakes.”

And consider the fact that the Afghan government has not been part of the talks.

Editorial / Washington Post

“A tentative deal between the Trump administration and the Taliban appears to offer the United States a negotiated way out of its longest war – a prospect most Americans would welcome.

“Unfortunately, it seems to do so mostly on the enemy’s terms.  U.S. forces would leave the country, but there would be no guarantee that the government and political order they have spent 17 years defending, at enormous cost, would survive – or that the gains Afghans have made in women’s and other civil rights would be preserved.

“As described by envoy Zalmay Khalilzad, the ‘framework’ for an accord reached in talks last week begins with a commitment by the United States to a troop pullout and a Taliban pledge to prevent Afghan territory from serving as a base for international terrorism.  Mr. Khalilzad said that bare-bones exchange could be supplemented by the Taliban’s agreement to a cease-fire and talks with the Afghan government.  But the insurgents have not yet agreed to those steps; the group is to conduct internal consultations about them before talks resume next month.

“Unless it were linked to a full peace settlement, a withdrawal of U.S. and NATO forces would leave the Afghan government deeply vulnerable. As it is, its army and police forces have been suffering heavy losses and losing ground to the Taliban even with the backing of a modest number of Western troops.  While some analysts believe the Taliban would not seek to re-create the fundamentalist and profoundly repressive regime they led up until late 2001, they remain implacably hostile to democracy. Afghan women say they fear any end to the conflict would come at their expense.

“It’s also not clear how the Taliban would deliver on its promise to ‘prevent Afghanistan from ever becoming a platform for international terrorist groups or individuals,’ as Mr. Khalilzad described it to the New York Times. As it is, a branch of the Islamic State has entrenched itself in the mountainous east of the country, with the aim of establishing a new caliphate.  U.S. and Afghan government forces have been unable to eliminate the terrorists, and it’s hard to believe the Taliban would have the capacity to do so even if it had the will....

“When Mr. Trump increased U.S. troop levels to 14,000 in 2017, his purpose was to force the enemy to bargain.  Now that bargaining is underway, the president has seemingly grown eager to pull the plug on the mission.  Last month, he ordered the force reduced by nearly half. That, no doubt, has curtailed Mr. Khalilzad’s leverage.  The Taliban may calculate that, rather than insist on an acceptable political settlement, the White House will settle for the fig leaf of their assurances about preventing terrorist attacks.

“It should not.  An end to the Afghan war is desirable, but not at the expense of everything the United States has helped to build there since 2001, including a civil society where girls go to school.  President Ashraf Ghani warned Monday against rushing into a deal that could return Afghanistan to the chaos it saw following the Soviet withdrawal.  He should be heeded.”

Lebanon: Political factions agreed Thursday on the formation of a new government, breaking a nine-month deadlock that had deepened the country’s economic woes.

Rival political groups had been locked in disagreement over the makeup of a new government since last May, after the country’s first parliamentary elections in nine years.

The government will be led by Saad Hariri, the Sunni who headed the outgoing government since 2016; the post always going to a Sunni politician under the country’s political system.

But the new government also saw an increase in the number of ministries affiliated with the Shiite Hezbollah that is under tightening sanctions from the United States, which labels the group a terrorist organization.

Yes, Lebanon is complicated.

Israel: Former military chief Benny Gantz broke his silence for the first time since joining the April election campaign, vowing to pursue peacemaking and clean government in swipes at Prime Minister Benjamin Netanyahu, the popular ex-general the main threat to take him down.

Gantz did not directly attack Netanyahu by name, the PM under investigation for corruption.

Instead, he criticized what he described as a “divisive” leadership that was detached from the people, too concerned with hanging on to power and too loose with its tongue on matters of security.

“The mere notion that in Israel a prime minister can remain in office while under indictment is ridiculous,” said Gantz.

Netanyahu maintains he is the victim of a political witch hunt and has lashed out at the police, the media and the left.

Israel’s attorney-general continues to weigh whether to charge the prime minister in three corruption cases.

Polls currently show Netanyahu would win re-election, with Gantz’s Resilience party coming in a distant second. 

But Netanyahu will again have to cobble together a coalition and Gantz has not ruled out joining a Netanyahu government.

Iran: President Hassan Rouhani said on Wednesday his country was facing its toughest economic situation in 40 years, and the United States, not the government, was to blame.

“Today our problems are primarily because of pressure from America and its followers. And the dutiful government and Islamic system should not be blamed,” he added.

North Korea: North Korea promised to destroy all its nuclear enrichment facilities, according to Stephen Biegun, the top U.S. nuclear negotiator, in a sign that Washington is seeking more specific denuclearization measures from Pyongyang prior to a second Trump-Kim summit to be held end of the month, presumably in Vietnam.

The country committed “to the dismantlement and destruction” of all its uranium and plutonium-enrichment facilities when Secretary of State Mike Pompeo visited Pyongyang in October, according to Biegun.

The pledge goes beyond the Yongbyon nuclear complex, which Kim Jong Un offered to demolish when he met South Korea president Moon Jae-in in Pyongyang in September, Biegun said in a speech at Stanford University.

“This complex of sites extending beyond Yongbyon represents the totality of the North Korean plutonium-reprocessing and uranium-enrichment programs,” Biegun said.

He added that Pyongyang demanded “corresponding measures” from Washington and he will discuss them with his North Korean counterpart in a meeting at the demilitarized zone on Sunday.

But, which wasn’t reported in some accounts of the Stanford speech, Biegun also called for North Korea to declare all its nuclear and missile programs and warned that Washington had “contingencies” if the diplomatic process failed.

Biegun said Washington would have to have expert access and monitoring mechanisms of the key nuclear and missile sites and “ultimately ensure removal or destruction of stockpiles of fissile material, weapons, missiles, launchers and other weapons of mass destruction.”

Pyongyang has rejected declaring its weapons programs for decades.

Biegun’s comments came after President Trump said “tremendous progress” was made in talks between the two countries.

China: Beijing’s envoy to the EU launched a blistering attack on the “slander” and “discrimination” faced by Huawei and other Chinese companies in Europe, warning that efforts to exclude China from 5G mobile projects would be self-defeating.

Ambassador Zhang Ming warned that any attempts to curb the involvement of Chinese technology in upcoming European projects for high-speed 5G networks would risk “serious consequences” for global economic and scientific cooperation.

In an interview with the Financial Times, Zhang said: “It is not helpful to make slander, discrimination, pressure, coercion or speculation against anyone else.  Now someone is sparing no effort to fabricate a security story about Huawei. I do not think that this story has anything to do with security.”

Zhang warned that global industrial, supply and value chains were “highly intertwined” in the 5G market – in which Huawei is a leading equipment maker – and so could not be “artificially and deliberately cut” by anyone.

Russia: The United States announced today that it was withdrawing from the Intermediate-Range Nuclear Forces Treaty, a major pact with Russia that has played a key role in European security since the Cold War.

Secretary of State Mike Pompeo said in making the announcement: “There’s no mistaking that the Russians have chosen to not comply with this treaty.

“For years, Russia has violated the terms of the (INF) Treaty without remorse,” he said.

This was not a surprise, the Trump administration telegraphing its plans for months to pull out of the 1987 pact, which bans certain ground-launched cruise missiles.

The U.S. and Europe accuses Moscow of violating the treaty since 2014.  Russia denied having done so.

But the move renews concerns about a new arms race and that has Europe on edge.

President Trump said in a statement:

“For far too long, Russia has violated the Intermediate-Range Nuclear Forces Treaty with impunity, covertly developing and fielding a prohibited missile system that poses a direct threat to our allies and troops abroad.

“Tomorrow, the United States will suspend its obligations under the INF Treaty and begin the process of withdrawing from the INF Treaty, which will be completed in 6 months unless Russia comes back into compliance by destroying all of its violating missiles, launchers, and associated equipment,” he continued.

“Our NATO Allies fully support us, because they understand the threat posed by Russia’s violation and the risks to arms control posed by ignoring treaty violations.”

The White House said it has “fully adhered to the INF Treaty for more than 30  years,” but will “not remain constrained by its terms while Russia misrepresents its actions.”

“We cannot be the only country in the world unilaterally bound by this treaty, or any other. We will move forward with developing our own military response options and will work with NATO and our other allies and partners to deny Russia any military advantage from its unlawful conduct.”

U.S. officials also have expressed concern that China, which isn’t bound by the treaty, is deploying large numbers of missiles in Asia that the U.S. can’t counter because it’s bound by the treaty.

Random Musings

--Presidential tracking polls....

Gallup: 37% approval of President Trump’s job performance, 59% disapproval, 88% Republicans, 31% Independents (Jan. 15)
Rasmussen: 43% approval, 57% disapproval (Feb. 1)

A new Wall Street Journal/NBC News poll had President Trump with a 43% approval rating, 54% disapproving of his job performance. This was the same as a December survey taken 10 days before the shutdown.

Trump was blamed by 50% of respondents for the shutdown, 37% blamed congressional Democrats.

[Nancy Pelosi’s approval rating was just 28%, unchanged since December.]

--In a new Washington Post/ABC News poll, when asked whom they would support today for the Democratic presidential nomination, 56 percent of self-identified Democrats or Democratic-leaning independents did not offer a name.  No candidate received double-digit support, with former vice president Joe Biden and Sen. Kamala Harris leading the pack.

The same 56 percent of all Americans say they would “definitely not vote for him” should President Trump become the Republican nominee, while 14 percent say they would consider voting for him and 28 percent would definitely vote for him.  Majorities of independents (59 percent), women (64 percent) and suburbanites (56 percent) rule out supporting Trump for a second term.

In an interview with The Post, Trump said of the numbers, “I think (they are) going to change very easily.  I think we are going to do very well.”

And indeed he might.  It depends on the opponent, the state of the economy, and any issues on the geopolitical front (which is likely to have an impact on the state of the economy).

Among Democratic-leaning voters, just 44 percent said they had a preference and no one was in double digits:  Biden 9 percent, Kamala Harris 8, Bernie Sanders and Trump (yes) 4 percent, Beto O’Rourke 3 percent.

That’s pathetic.  But it is significant early on that Sen. Harris is distancing herself from some of her competition.  Her stated policies are nuts, and not reflective of the Democrat I think she is (rather than fake pinko-Communist), which is why I said last week she’ll be one to survive Iowa and New Hampshire, which about 20 of them won’t in an assumed 25-30 candidate field.

[New Jersey Sen. Cory Booker entered the race today, while Sen. Elizabeth Warren apologized to the Cherokee Nation for her decision to take a DNA test to prove her Native American ancestry.]

As for Biden, I kind of thought he was a lock to run, but I imagine right now he’s thinking, ‘Yeah, I always wanted to be president, but why bother with all the garbage.’

I mean what’s wrong with being an elder statesman, traveling first-class to some speaking gigs, on your schedule, and being a valued guest on the Sunday talk shows?

Answer:  Nothing.

--Howard Schultz...and more...

Schultz, the billionaire who took Starbucks from a four-store idea in Seattle to a global coffee empire, spoke to “60 Minutes” last Sunday and announced he was mulling a bid for president as an independent, having assembled a campaign team that can get him on the ballot in every county and in all 50 states.

“I am seriously thinking of running for president,” Schultz said.  “I will run as a centrist independent, outside of the two-party system. We’re living at a most-fragile time, not only the fact that this president is not qualified to be the president, but the fact that both parties are consistently not doing what’s necessary on behalf of the American people and are engaged, every single day, in revenge politics.”

Schultz positioned himself as an alternative to a failing two-party system.

Kevin Williamson / National Review (via the New York Post)

“My view of American life is one of short-term pessimism and long-term optimism. And here is a bit of optimism that I’ll share: I think this may be the last time I am obliged to write about the Clintons. The Clinton era is over.

“Ask Howard Schultz.

“The 1990s were a hoot of a decade, epitomized by Nirvana, the Clinton presidency and Starbucks – each of which in its way exhibited the characteristic style of the ‘90s, when the countercultural ambitions of the 1960s were wedded to the frank, cheerful materialism of the 1980s.

“Seattle was the center of the ‘90s aesthetic. Grunge is long gone, along with all those flannel shirts, but Starbucks is still here.  It is the McDonald’s of its age, the thermonuclear-proof cockroach of the corporate food-service scene.  And now chairman emeritus Howard Schultz is contemplating a Ross Perot-style run for the presidency.

“Schultz was a Clinton Democrat when that meant Bill Clinton, though as  a donor he stuck with Hillary and dutifully wrote checks to Barack Obama, John Edwards, the Democratic National Committee and others. But in 2019, he says he can’t in good conscience run as a Democrat.

“ ‘What the Democrats are proposing is something that is as false as the Wall,’ he says, indicating ‘free’ health care, ‘free’ college and the entire litany of ‘free’ things ‘which the country cannot afford.’  He worries about the national debt, unfunded liabilities and other examples of fiscal recklessness.

“He thinks that the Democrats’ current liquidate-the-kulaks approach to taxes may prove counterproductive to the long-term interests of the United States.  He worries that ‘extremists’ have taken over both parties.

“As you might imagine, he isn’t exactly setting on fire the hearts of his fellow Democratic co-partisans. They believe that an independent candidacy from the center-left may give President Trump a second term.

“The Democrats are in a funny position. They all assume that 2020 is the year to run as a Democrat, believing Trump to be doomed. Their triumphalism may be premature, but they aren’t without reason for hope. They believe that 2020 is theirs because they think the Republican Party has gone mad, an opportunity that Democrats have decided to make the most of by...going just as bonkers themselves.

“Self-proclaimed socialists are the Democratic headliners of 2019, along with Sen. Liz Warren, who boasted that she ‘created much of the intellectual foundation’ for Occupy Wall Street. Reasonably sane figures with respectable executive resumes, like former Mayor Mike Bloomberg, are spat at.

“Ditto for Schultz, who is only a little behind Bloomberg in the years and the billions (11 years and...oh, $44 billion or so).  Schultz, like Bloomberg, is on cultural issues where the Democrats are, but he is not culturally where they are, which at the moment is somewhere in the leafy suburbs of Pyongyang.

“All that balanced-budget stuff, efficiency, sobriety, good government – so ‘90s.  It’s as though he got his policy agenda at the Gap.

“If Alexandria Ocasio-Cortez is the Democrats’ answer to Trump, then Howard Schultz is their John Kasich.

“The GOP hasn’t, endless klaxons of alarm notwithstanding, embraced radicalism in terms of policy. What the GOP has embraced, very likely to its long-term detriment, is the Republican version of radical chic, that obstreperous, mulish mode of talk-radio/cable-news politics that is now the Republican mother tongue.

“That this is likely to cost the Republicans a great deal of support in the parts of the country where the people and the money are seems obvious enough.

“All the Democrats really need to do in the short term is provide a sober, sensible and neighborly alternative to that – a politics of genuine republican collaboration rather than Kulturkampf.  Lucky for Republicans, Democrats don’t seem much interested in republican collaboration.

“Which leaves Howard Schultz out in the cold, with only his billions to comfort him. Building a third-party campaign of any consequence is an extraordinarily difficult thing in the American system – the real political genius of Trump was to forgo that and basically run the Perot campaign inside the GOP.

“But that option isn’t available to Schultz, because the Democrats want radicalism in style and substance.  He may have been a big deal back in 1996.  In 2019, he’s just another white man in a suit.”

Daniel Henninger / Wall Street Journal

“The Democrats’ carpet-bombing of Starbucks founder Howard Schultz’s third-party bid proves one thing: The party thinks whoever it nominates to run against Donald Trump will be the next president of the United States.

“Rather than the distractions of an independent candidate asking what the meaning of ‘free’ is (free health care, free college, free lunch), Democrats want voters focused all the time on Mr. Trump’s bumptious, chaotic personality.

“He won in 2016 in part because so many people voted ‘against’ Hillary Clinton.  Now Democrats believe the midterm election results – in which Democrats defeated Republicans in competitive suburban districts everywhere – show that their best bet is to reduce the 2020 election to ABT – Anyone But Trump.

“It could be that a lot of voters are on the Trump bubble.  But the left’s hysteria over an outlier like Howard Schultz is intriguing. It suggests that if Mr. Trump is re-elected, Democrats are planning to stage a sort of political Jonestown, which for some might be reason enough to vote for the devil you know.

“It also suggests that if the Democrats expect to win in 2020 with a strategy of subtraction, then anything additive Mr. Trump can do to make the case for his presidency will put his 40 or 50 Democratic presidential opponents in a hole.

“On Tuesday the world will be watching his State of the Union speech. This would be the moment, nearly two years before the election, to wrap this thing up. He could do that by saving the Dreamers.

“The Dreamers – innocent bystanders to an immigration system Mr. Trump calls ‘a source of shame’ – are the biggest unclaimed political prize in American politics.

“Polls, such as those done by Pew Research, conclude that what most people want is both border security and a solution for the Dreamers.

“During the shutdown fight, President Trump pressed his case for a wall and secure border.  Nothing new there. What was new, oddly so, was that Nancy Pelosi and Chuck Schumer effectively left the Dreamers out of their arguments.  They had only one idea: Whatever Donald Trump is for, we’re against.

“The left has pushed the notion that Mr. Trump is racist and anti-immigrant.  Implanting that idea more deeply into voters’ minds is surely the reason the Democrats have chosen Stacey Abrams, the black woman and Georgia gubernatorial candidate, to give the party’s reply to Mr. Trump’s Tuesday speech.

“The Democrats assume they’ll gain ground with uncommitted voters by posing Ms. Abrams’ presence against what they assume will be Mr. Trump’s riffs on Central American gangs, rapists, drug smugglers and homicidal aliens.

“If, in addition, Mr. Trump stands before the world and proposes permanent legal status for the Dreamers and an eventual path to citizenship, the Democrats running on ABT are done.  Once Mr. Trump takes the Dreamers away from the Democrats, they’ll never recover....

“But won’t the Trump base abandon him if he saves the Dreamers?  Well, yes, he is likely to lose the votes of four or five restrictionist pundits, who will insult him for ‘caving.’  This proposal is too big to be a cave....The Republicans’ stunning November losses in the Houston and Dallas suburbs suggests this sort of rejectionism has now put Texas – and Mr. Trump – at risk....

“Now Mr. Trump gets to reset the stakes Tuesday by describing the state of the American union. If with that audience he’s the one who invites the Dreamers into the union, see if Nancy Pelosi, on camera right behind him, is the last one in the room still seated. That won’t be a good look.”

--So some of you no doubt saw the story from New Jersey that a Girl Scout troop had over $1,000 in cash and checks from their sale of cookies stolen by some lowlifes at the Woodbridge Center Mall, the troop leader saying she had placed the money in an envelope, which was then swiped from their table.

Jessica Medina pointed the finger at a handicapped man and an elderly woman as the thieves, while bringing her 5-year-old daughter out to be photographed tearfully clutching a box of shortbreads.

The perfect national news filler, and thousands in donations were given to the troop to make up for the pilfered cash.

But Woodbridge police said a few days later that Medina’s tale turned out to be half-baked.  The accused man and woman were located and eliminated as suspects.  The money, it seems, was in a cash box that never left the table.

When confronted, Medina told the cops that she “agreed with the findings, speculating that perhaps the envelope containing the money was accidentally discarded with the trash as the scouts cleaned up the area.”

The Girl Scouts removed her from her volunteer position as troop leader.

When reached by the New York Post, Medina had the gall to insist she never changed her original story and instead blamed cops for a “bungled” investigation.  She added there was no reason to take the money herself because her husband “makes $200,000 a year.”

Well, my dear, congratulations!  You are going in the “Bar Chat” December file for “Dirtball of the Year” consideration.

Yes, boys and girls, another “wait 24 hours” lesson.

[If she isn’t charged, as it seems she won’t, I’ll probably just give her an Honorable Mention citation.]

--No doubt we had some rather cold weather across the Midwest and Northeast this week. For the record, the coldest air temperature I’ve seen was in Norris Camp, Minn., where the thermometer hit minus-48 on Wednesday (wind chill minus-65). Then Thursday, Cotton, Minnesota, checked in at minus-56, just four degrees shy of the state record of minus-60.

Minneapolis, a larger place than Norris Camp and Cotton, with thus more suffering, saw a low of minus-28 Wednesday (and minus-24 air temp Thursday). 

Milwaukee topped a record that had stood since 1899 by six degrees with a low of minus-21.

But temps could be 70-80 degrees warmer by Sunday and Monday in the likes of Minneapolis and Chicago, which is rather staggering. I wonder what the president will tweet then?

Meanwhile, Australia recorded its hottest month ever in January, with average temperatures exceeding 86F for the first time.  At least five January days were among the 10 warmest on record, with daily national temperature highs of 40C (104F!).

The new record surpasses conditions recorded in 2013, previously considered the nation’s worst heatwave.

But the flipside of Australia, aside from the record cold in the U.S., is massive amounts of snow in January in California, which is great...doubling the snowpack in the Sierra Nevada, with the state’s overall snowpack now at 100% of average, with two more months to accumulate before the April 1 measurement, when snowpack is typically the highest, according to the State Dept. of Water Resources.  Good news on a number of levels for the state.

---

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

God bless America.

---

Gold $1322
Oil $55.37

Returns for the week 1/28-2/1

Dow Jones  +1.3%  [25063]
S&P 500  +1.6%  [2706]
S&P MidCap  +1.3%
Russell 2000  +1.3%
Nasdaq  +1.4%  [7263]

Returns for the period 1/1/19-2/1/19

Dow Jones  +7.4%
S&P 500  +8.0%
S&P MidCap  +10.7%
Russell 2000  +11.4%
Nasdaq  +9.5%

Bulls 45.8
Bears
20.6

Have a great week.

Brian Trumbore