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10/06/2018

For the week 10/1-10/5

[Posted 11:30 PM ET]

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Edition 1,017

Trump World

This was the most successful week of the Trump presidency to date.  The president could tout a new trade agreement, even if it’s hardly anything special...doesn’t matter, the base won’t know...the economic news continued to be terrific, with third quarter growth destined to be 3.5% or greater, and an unemployment rate not seen since the days the Mets were the toast of New York and the baseball world (1969), and he is about to get his second conservative Supreme Court justice confirmed.  Seeing as Brett Kavanaugh is replacing Anthony Kennedy, the swing vote in an otherwise 4-4 bench, yes, this is a massive change in direction.  Conservatives are dancing like it was Christmas morning, ordering the big goose in the butcher’s window, while Progressives are, err, not real pleased, to say the least.

The nation is more divided than ever and I’ll be damned if anyone honestly knows which base will truly turn out come November 6.

But it bears repeating.  If you’re a Republican, you desperately want the president to just shut up for the next four weeks.  Not one tweet, or one disparaging comment at a rally, is going to get people going, “Yeah, I love how he just slammed that woman...by gosh, I’m now going to make sure I vote Republican!”  Those in his audience who eat that stuff up were long already heading to the polls.

On the other hand, it’s easy to say the Progressives are all riled up and gearing up to vote, but we all know the trends when it comes to the younger segment in this crowd.  They love to protest and make life miserable for elected officials trying to have a quiet dinner with the family, but then come Election Day history shows their attitude is “whatever.”

But has this now changed?  Are they truly energized to the point of finding out their actual polling location?  Do they know they better be prepared to submit an ID?

On the other hand, we do know suburban housewives and female professionals tend to vote, and here the trends aren’t good for the elephants.  I’m guessing Trump, in his own triumphant way, now that Kavanaugh has a seat on the High Court, will still mock Dr. Christine Blasey Ford more than one more time, and that will be another few votes for the donkeys.

Here’s what I know locally.  My own congressman is a classic moderate Republican, Leonard Lance.  Lance is a good guy.  He’s the only reason why I’m voting in November.

But while there has never been a Democrat in this seat since I’ve been alive, the last poll I saw had Lance losing to his Democratic challenger Tom Malinowski by eight points.   Startling.

There is another district that starts literally one block from where I live and in this case, we have a longtime Republican, Rodney Frelinghuysen, who is walking into the sunset and the Democrat running for the seat, Mikie (sic) Sherrill, is out of central casting and is going to clean the Republican challenger’s clock.  Understand this seat has been in Republican control since George Washington was establishing his encampment at nearby Jockey Hollow, or so it seems.

These are two true Republican seats that look to be going Democrat, so if you’re into following early election results for patterns, look no further than New Jersey and my neighborhood.

Anyway, I got off track.

While this was a great week for the president, the challenges he faces on the geopolitical front the next few months are critical, especially China.  As I describe down below, we are headed to a major confrontation come November in the South China Sea, and with the aggressive tone that has been set by the White House on dealing with Beijing on a myriad of issues, of which I have no problem, Americans need to be prepared for some potentially unpleasant surprises.  It’s why I wish our trade negotiations with China were low-key...hard as nails in our approach...but behind closed doors.  I warned you a few weeks ago of what is coming.  We are publicly poking them in the eye.  They aren’t going to respond well.  And they sure as hell aren’t going to cooperate when it comes to enforcing sanctions on North Korea...ditto Russia.

Kavanaugh:

Judge Brett Kavanaugh cleared a major hurdle Friday as the Senate voted narrowly to cut off debate on his nomination and move to a final vote on his Supreme Court nomination on Saturday, Kavanaugh confirmed by a 51-49 margin.  Among those reputed to be on the fence, Republican senators Susan Collins (Me.) and Jeff Flake (Ariz.) are voting in the affirmative, while Alaska’s Lisa Murkowski is voting against confirmation (though tonight it’s unclear if she is voting ‘present’ as a favor to another member).  West Virginia Democrat Joe Manchin, who I long said should have jumped parties, is voting for Kavanaugh, Manchin locked in a tough reelection fight in his very red state.

I have been for Kavanaugh since day one, I just felt after his hearing and Dr. Ford’s allegations, that he may have stretched the truth a bit on his youthful experiences, but as I wrote last week, that didn’t mean he was involved in a sexual assault.   As for the FBI investigation, the others at the ‘party’ had no recollection of an event 36 years earlier.  The rest that’s out there is just ‘talk.’

I also continue to hold Democratic Sen. Dianne Feinstein culpable for her total mishandling of Dr. Ford’s letter and for this Feinstein’s legacy is secured.  What had been a distinguished career in the Senate will forever be tarnished by this fiasco.

Opinion....

David Brooks / New York Times

“Over the past few years, hundreds of organizations and thousands of people (myself included) have mobilized to reduce political polarization, encourage civil dialogue and heal national divisions.

“The first test case for our movement was the Kavanaugh hearings. It’s clear that at least so far our work is a complete failure. Sixty-nine percent of Americans in one poll called the hearings a ‘national disgrace,’ and the only shocking thing is that there are 31 percent who don’t agree.

“What we saw in these hearings was the unvarnished tribalization of national life.  At the heart of the hearings were two dueling narratives, one from Christine Blasey Ford and one from Brett Kavanaugh.  These narratives were about what did or did not happen at a party 36 years ago. There was nothing particularly ideological about the narratives, nothing that touched on capitalism, immigration or any of the other great disputes of national life.

“And yet reactions to the narratives have been determined almost entirely by partisan affiliation.  Among the commentators I’ve seen and read, those who support Democrats embrace Blasey’s narrative and dismissed Kavanaugh’s.  Those who support Republicans side with Kavanaugh’s narratives and see holes in Ford’s.  I can think of few exceptions.

“These hearings were also a devastating blow to intellectual humility.  At the heart of this case is a mystery: What happened at that party 36 years ago? There is no corroborating evidence either way. So the crucial questions are: How do we sit with this uncertainty?  How do we weigh the two contradictory testimonies?  How do we measure these testimonies when all of the cognitive science tells us that human beings are really bad at spotting falsehood? Should a person’s adult life be defined by something he did in high school?

“Commentators and others may have acknowledged uncertainty on these questions for about 2.5 seconds, but then they took sides.  If they couldn’t take sides based on the original evidence, they found new reasons to confirm their previous positions.  Kavanaugh is too angry and dishonest. He drank beer and threw ice while in college. With tribal warfare all around, uncertainty is the one state you are not permitted to be in.

“This, of course, led to an upsurge in base mobilization.  Persuasion is no longer an important part of public conversation.  Public statements are meant to mobilize your mob. Senator Cory Booker can’t just sort through the evidence. He has to get Spartacus-like histrionic in order to whip Democrats toward his presidential candidacy.  Kavanaugh can’t just dispassionately try to disprove the allegations made against him. Instead, he gets furious and stokes up culture war rage in order to fire up the Republican base.

“This leads to an epidemic of bigotry.  Bigotry involves creating a stereotype about a disfavored group and then applying that stereotype to an individual you’ve never met.... It was bigotry against young black males that got the Central Park Five convicted in 1990.  It was bigotry against preppy lacrosse players that led to the bogus Duke lacrosse scandal.

“This past month we’ve seen thousands of people convinced that they know how Kavanaugh behaved because they know how ‘privileged’ people behave. We’ve seen thousands of people lining up behind Kavanaugh because they know that there’s this vicious thing called ‘the Left,’ which hates them.

“This is a complete pulverization of the actual individuals involved in this case – a retreat from complex particularity to simplistic group prejudice.

“The core problem behind all of this is a complete breakdown in the legitimacy of our public institutions.  The Supreme Court is no longer a place where justices dispassionately rule on the Constitution.  It’s a place where they cast predictable party-line votes. Therefore, senators no longer deliberate on nominees. They cast predictable party-line votes.  The members of the public no longer reason with one another. They fall into predictable party-line formation and then invent post-hoc, bad-faith rationalizations to give cover to their ideologically driven positions (Drank too much! Bad temperament!  Bad yearbook entry!).

“It’s clear that we need a new sort of environmental movement, a movement to police our civic environment.  That environment isn’t polluted by a vague condition called ‘polarization.’  It is polluted by the specific toxic emissions we all produce in our low moments. Those emissions have to be precisely identified, classified, called out as shameful....

“Finally, the good trends have to be fenced off from poisonous politics. American society is taking concrete action to make sexual assault intolerable. But this movement will not succeed if it becomes a pinball in the partisan politics of personal destruction.

“The Kavanaugh hearings were a look in the mirror, and a vivid display of how ugly things have become. What are we going to do about it?”

Editorial / Wall Street Journal

“Judge Kavanaugh is by all accounts one of the most qualified nominees for the Supreme Court in recent history. He has more appellate-court experience than Antonin Scalia did in 1986, and he has had more of his judicial reasoning adopted by the Supreme Court.  Nothing in his three decades of public life echoes the behavior that his accusers claim they saw in his high school and college days.  On the merits, confirmation is an easy vote.

“Yet the stakes are larger because of the smears and character assassination. To reject Judge Kavanaugh now would ratify these Democratic tactics, with damaging consequences for the Senate, the Supreme Court and American politics. If uncorroborated accusations from decades ago can destroy a distinguished career for political reasons, then the same can happen to anyone and will happen to many.

“Democrats have done great damage to the Senate that will take years to undo, but the first crucial step is confirming Brett Kavanaugh.”

Brett Kavanaugh / Wall Street Journal

“I was deeply honored to stand at the White House July 9 with my wife, Ashley, and my daughters, Margaret and Liza, to accept President Trump’s nomination to succeed my former boss and mentor, Justice Anthony Kennedy, on the Supreme Court.  My mom, Martha – one of the first women to serve as a Maryland prosecutor and trial judge, and my inspiration to become a lawyer – sat in the audience with my dad, Ed.

“That night, I told the American people who I am and what I believe. I talked about my 28-year career as a lawyer, almost all of which has been in public service.  I talked about my 12 years as a judge on the U.S. Court of Appeals for the District of Columbia Circuit, often called the second most important court in the country, and my five years of service in the White House for President George W. Bush.  I talked about my long record of advancing and promoting women, including as a judge – a majority of my 48 law clerks have been women – and as a longtime coach of girls’ basketball teams.

“As I explained that night, a good judge must be an umpire – a neutral and impartial arbiter who favors no political party, litigant or policy. As Justice Kennedy has stated, judges do not make decisions to reach a preferred result. Judges make decisions because the law and the Constitution compel the result.  Over the past 12 years, I have ruled sometimes for the prosecution and sometimes for criminal defendants, sometimes for workers and sometimes for businesses, sometimes for environmentalists and sometimes for coal miners.  In each case, I have followed the law.  I do not decide cases based on personal or policy preferences. I am not a pro-plaintiff or pro-defendant judge.  I am not a pro-prosecution or pro-defense judge.  I am a pro-law judge.

“As Justice Kennedy showed us, a judge must be independent, not swayed by public pressure....

“The Supreme Court must never be viewed as a partisan institution. The justices do not sit on opposite sides of an aisle. They do not caucus in separate rooms.  As I have said repeatedly, if confirmed to the court, I would be part of a team of nine, committed to deciding cases according to the Constitution and laws of the United States.  I would always strive to be a team player....

“(But after meeting with 65 senators) and after my initial hearing concluded, I was subjected to wrongful and sometimes vicious allegations.  My time in high school and college, more than 30 years ago, has been ridiculously distorted.  My wife and daughters have faced vile and violent threats.

“Against that backdrop, I testified before the Judiciary Committee last Thursday to defend my family, my good name and my lifetime of public service. My hearing testimony was forceful and passionate. That is because I forcefully and passionately denied the allegation against me.  At times, my testimony – both in my opening statement and in response to questions – reflected my overwhelming frustration at being wrongly accused, without corroboration, of horrible conduct completely contrary to my record and character.  My statement and answers also reflected my deep distress at the unfairness of how this allegation has been handled.

“I was very emotional last Thursday, more so than I have ever been.  I might have been too emotional at times.  I know that my tone was sharp, and I said a few things I should not have said. I hope everyone can understand that I was there as a son, husband and dad....

“Going forward, you can count on me to be the same kind of judge and person I have been for my entire 28-year legal career: hardworking, even-keeled, open-minded, independent and dedicated to the Constitution and the public good.  As a judge, I have always treated colleagues and litigants with the utmost respect....

“I will remain optimistic, on the sunrise side of the mountain.  I will continue to see the day that is coming, not the day that is gone.

“I revere the Constitution.  I believe that an independent and impartial judiciary is essential to our constitutional republic.  If confirmed by the Senate to serve on the Supreme Court, I will keep an open mind in every case and always strive to preserve the Constitution of the United States and the American rule of law.”

Trumpets....

--An incredibly extensive New York Times report on President Trump’s wealth, and his story that he was a self-made billionaire, revealed that he received at least $413 million in today’s dollars from his father’s real estate empire, much of it through tax dodges in the 1990s.

“President Trump participated in dubious tax schemes during the 1990s, including instances of outright fraud, that greatly increased the fortune he received from his parents...

“Much of this money came to Mr. Trump because he helped his parents dodge taxes.  He and his siblings set up a sham corporation to disguise millions of dollars in gifts from their parents, records and interviews show.  Records indicate that Mr. Trump helped his father take improper tax deductions worth millions more....

“The president’s parents, Fred and Mary Trump, transferred well over $1 billion in wealth to their children, which could have produced a tax bill of at least $550 million under the 55 percent tax rate then imposed on gifts and inheritances.

“The Trumps paid a total of $52.2 million, or about 5 percent, tax records show.”

--Trump tweets: “The Failing New York Times did something I have never seen done before.  They used the concept of ‘time value of money’ in doing a very old, boring and often told hit piece on me.  Added up, this means that 97% of their stories on me are bad.  Never recovered from bad election call!”

“I see it each time I go out to Rallies in order to help some of our great Republican candidates.  VOTERS ARE REALLY ANGRY AT THE VICIOUS AND DESPICABLE WAY DEMOCRATS ARE TREATING BRETT KAVANAUGH!  He and his wonderful family deserve much better.”

“Wow, such enthusiasm and energy for Judge Brett Kavanaugh.  Look at the Energy, look at the Polls.  Something very big is happening.  He is a fine man and great intellect. The country is with him all the way!”

Yeah, like in a 51-49ish way, Mr. President.

Or a national Quinnipiac University Poll that had 41 percent of American voters supporting a Kavanaugh confirmation, 42 percent opposed.  Interestingly in this one, Independent voters, who supported Kavanaugh 45-39 September 10, opposed his confirmation today 49-39.

--Rod Rosenstein’s name will be back in play this coming week.  Stay tuned.

Wall Street and Trade

Another strong week of economic data for the U.S., with today’s jobs report for September showing that while the nonfarm payroll report was below expectations at 134,000, vs. an estimate of 184,000, July and August were revised sharply higher, the former from 147,000 to 165,000, the latter from 201,000 to 270,000, so the three-month average is a solid 190,000.  Plus the unemployment rate fell to 3.7%, the lowest since Dec. 1969.  Not too shabby.  U6, the underemployment rate, did tick up to 7.5%.

The key average hourly earnings component was up a strong 0.3%, but the year-over-year figure is 2.8%, far from poor, but still disappointing in terms of the length of the recovery from the Great Recession.  This figure should be 3.5% or higher.

Earlier, we had the ISM figures on manufacturing and the service sector.  Manufacturing came in at a solid 59.8 (50 representing the dividing line between growth and contraction), but the services readings was the star of the week, 61.6, the best reading ever for the non-manufacturing sector per this particular survey.

Construction spending for August was on the light side, 0.1%, but factory orders for the month were up 2.3%.

Put it all together and the Atlanta Fed’s GDPNow barometer for the third quarter is back to 4.1% from the prior week’s 3.8%.

As for the stock market...Sunday night’s trade deal on a revised NAFTA pact removed one source of anxiety for stocks, and Wednesday’s ISM services reading helped bolster the bullish tone, though by that afternoon, bond yields were beginning to rise sharply and that hurt the market the rest of the week.

In an address to business economists Tuesday in Boston, Fed Chairman Jerome Powell said he doesn’t see evidence the labor market is at risk of overheating or of pressuring up prices., pushing back against critics who say the Fed’s projections of sustained, very low unemployment are underestimating the prospect of inflation rising significantly above the central bank’s 2% target.

Powell conceded his outlook of 4% or lower unemployment over the next three years, though with inflation never rising much above 2%, is “remarkably positive” and that the U.S. hasn’t witnessed such a sustained spell since 1950.  But he argued that these projections aren’t too good to be true.

The chairman did add the Fed would be particularly attentive to changes in inflation expectations and “stand ready to act with authority if expectations drift materially up or down.”

On the trade issue and a revised NAFTA agreement...

After a few final hectic weeks and a last-minute scramble to secure Canada, the United States, Canada and Mexico reached an agreement in principle – a resolution 14 months in the making.  The leaders of all three took a victory lap on Monday, with President Trump heralding the still-to-be-ratified pact as “truly historic.”

The original 1994 deal has been renamed, and is now the United States-Mexico-Canada Agreement, or USMCA.  $1.2 trillion in annual trade between the three partners is in play, with the most eye-catching changes to the deal involving the auto industry, details of which follow in the opinion pieces below so I won’t go through them here.

The main thing for Canada is that it will escape potentially devastating national security tariffs on car part imports that have been threatened by President Trump.

For his part, Canadian Prime Minister Justin Trudeau has a tough sell in certain segments of his country, namely dairy farmers. Trudeau defended the deal at a press conference and in the Canadian legislature on Monday, saying the trade-dependent economy – in which three quarters of its exports are U.S.-bound – is on more solid footing.  “Free and fair trade in North America...is in a much more stable place than it was yesterday,” he said.  “We now have a path forward.”

The USMCA will grant U.S. dairy producers a 3.6% slice of Canada’s domestic market, which for all the bitching in Canada is just 1% above the existing quota.  Still, the Dairy Farmers of Canada, an industry group, claimed that 220,000 Canadians in the sector were “sacrificed” to secure a deal.

But the bottom line is major portions were borrowed from, or built on, provisions in the Trans-Pacific Partnership, the 12-nation trade pact completed by President Obama that Trump promptly killed his first day in office.  The U.S., Canada and Mexico were part of this Pacific Rim accord.  U.S. Trade Representative Robert Lighthizer conceded as much in a briefing with reporters Monday, but said “our agreement is substantially better.”

Regardless of whether or not the USMCA is simply TPP repackaged, it’s hard to see this as anything but a partial victory for President Trump, that he’ll insist the rest of his presidency was the greatest deal of all time.  He will use it to boast of his negotiating prowess and delivery of a core campaign promise.

But the whole freakin’, ugly, process wasn’t necessary!

Opinion....

Greg Ip / Wall Street Journal

“To free traders, the new NAFTA is a bitter pill to swallow. It introduces managed trade to autos, waters down the foreign rights of corporations and normalizes national security as a pretext for tariffs.  Many of its improvements, such as on intellectual property and labor rights, were already in the 12-nation Trans-Pacific Partnership, from which President Donald Trump has withdrawn.

“But the verdict is different when judged by a different standard – how the world’s trading system survives the most protectionist U.S. administration in memory.  The new deal shows the limits to Mr. Trump’s ‘America First’ agenda and an underlying resilience to the existing order.  The reason: The resistance Mr. Trump encountered from Congress, business, his own advisers and U.S. trading partners circumscribed his leverage and may again in the future.

“At the outset, the U.S. held all the cards: Mexico and Canada depended far more on exports to the U.S. than vice versa.  Mr. Trump shared none of his predecessors’ affection for trade agreements, either on their own merits or as tools of foreign policy.  Hs threats to abandon the North American Free Trade Agreement, the U.S.-Korea Free Trade Agreement and even the World Trade Organization weren’t hollow.  He proved this with unilateral tariffs on washing machines, solar panels, steel and aluminum. He told U.S. Trade Representative Robert Lighthizer, ‘I will back you up like no other USTR has been backed up in history,’ Mr. Lighthizer recounted to reporters on Monday. ‘And he did that.’

“Yet in the end, the new U.S.-Mexico-Canada Agreement looks a lot like the old NAFTA.  Mexico’s only significant concession was on autos and parts: rules requiring more production in North America, higher wages for workers, and potential tariffs if its exports to the U.S. exceed 2.6 million vehicles.

“Yet these auto rules may have little practical significance.  Jeff Schuster of LMC Automotive, a consulting firm, says some lower-priced models now assembled by Volkswagen, Mazda and a few other manufacturers in Mexico may no longer qualify for duty-free entry. Rather than shift production to the U.S., they may simply pay the 2.5% tariff, he says.  That would hurt U.S. consumers (especially on lower incomes) without helping U.S. workers.

“The cap on exports may discourage manufacturers from expanding capacity in Mexico but won’t affect current shipments, since U.S. auto demand has stagnated. Canada also faces an export cap, but it is far above current exports and thus even less likely to bind. This is reminiscent of South Korea’s agreement to double the quota of imported American cars that don’t have to comply with its safety standards.  No manufacturer had filled the old quota....

“The outcome has important lessons for future trade negotiations.  Mr. Trump will soon be negotiating with Japan and the EU over steel and autos.  Yet his leverage will be constrained by pressure from exporters and businesses in the U.S. that stand to lose from higher costs at home and retaliation abroad, and consequently resistance from Congress.  (This won’t help China, which gets far less sympathy in Congress.)  Meantime Mr. Trump’s threats to upend the WTO are likely to meet even more resistance from Congress than his threats to scrap NAFTA.

“And sometime next year Mr. Trump will have to get Congress to approve the USMCA.  He may then find himself extolling the sorts of deals he has long disparaged.”

Editorial / USA TODAY

“President Donald Trump announced his new North American trade deal with much fanfare.  It was, he said, ‘the most important trade deal we’ve ever made – by far!’ And it would replace what he described as ‘the worst trade deal ever...the job-killing disaster known as NAFTA.’

“What a Trumpian moment this was. The deal to succeed the North American Free Trade Agreement, and all the pomp and circumstance surrounding the announcement, was Trump in microcosm.

“Trump has spent much of his presidency breaking things, both to garner the attention he craves and to make the point that the previous presidents and congresses who made these laws, policies and agreements lacked his brilliance.

“In some cases, his plan has been to leave the detritus strewn about the playroom floor like Lego blocks and dismembered GI Joe parts. With North American trade, his plan is to reassemble the parts in more or less the same order and claim he has created something new and marvelous.

“Some observers will find NAFTA 2.0 – which Trump has rebranded USMCA, for the United States-Mexico-Canada Agreement – modestly better than NAFTA.   Others will find it modestly worse. We find ourselves in the modestly worse camp.

“The deal’s big ‘win’ for the United States is an agreement by Canada to remove some protections for its domestic dairy industry. This might mean a lot to American dairy farmers, but not so much for the 99.9% of the country. What’s more, Canada had already agreed to similar language with other countries in Asia and the Americas as part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

“The deal is also said to include some protections for U.S. patents and anti-piracy efforts. These reflect changes in the tech world since NAFTA became law in 1994.

“In return, the Trump deal includes a number of questionable provisions:

“-- It would increase domestic content regulations on automobiles. NAFTA stipulated that any vehicle wishing to avoid tariffs would have to be at least 62.5 percent made in North America. The Trump deal would increase the percentage to 75 percent. That could be good for autoworkers. But it will make cars marginally more expensive and could produce unintended consequences, particularly for the growing industry of exporting U.S.-made German and Japanese vehicles....

“-- The deal includes a sunset clause that will cause it to end after 16 years. For years, American companies have complained about a tax code that is subject to uncertainty. Now they will have the same fears with trade.

“For all the hoopla surrounding Monday’s announcement, Trump was quick to downplay its chances in Congress, which must approve the deal for it to take effect.  Democrats, who have largely been quiet, will ultimately line up against the measure, he argued. And many Republicans will wonder why they should support domestic-content regulations that are stricter than those they didn’t like in the first place.

“That leads to the question of why the president would invest so much time and effort on a NAFTA tweak that might not even be approved. The best answer seems to be that Trump wants something new to put his name on.”

Editorial / Wall Street Journal

“Canada joined the U.S. and Mexico Monday in a revised trade agreement to replace the North American Free Trade Agreement, and stocks rallied in relief. The new deal’s main virtue is that it stows one of Donald Trump’s main protectionist wrecking balls, even if the new NAFTA is worse for trade and economic growth than the status quo.

“Oh, and please don’t call it NAFTA 2.0.  Mr. Trump is calling it the U.S.-Mexico-Canada Agreement to showcase that he has fulfilled one of his main campaign promises. And in that sense we’re happy to avoid the great harm that would have come from a unilateral U.S. withdrawal.

“But the new deal is more relief than vindication. Stocks are only now reaching their heights from January before Mr. Trump began picking trade fights willy-nilly around the world.  Markets have fallen and risen over the last nine months depending in part on how bloody-minded Mr. Trump seemed on trade.  They began to rise more consistently after Mr. Trump declared a truce with Europe and ordered his trade negotiators to get NAFTA done.

“Canada’s inclusion is especially crucial, and the last-minute compromise a step forward. The big gain for U.S. farmers is that Canada agreed to eliminate its quota and pricing system on certain dairy products, though the overall quota on the U.S. share of the Canadian dairy market will rise by less than one percentage point. Canada’s dairy exports could face a new tax to discourage its producers from pricing their exports below market prices.

“In return, the Trump Administration wisely agreed to preserve NAFTA’s Chapter 19 and 20 dispute-settlement mechanisms. The new text preserves the right to challenge antidumping and countervailing duties imposed by the neighbors.  Panels to resolve state-to-state disputes also survived. This is vital to Canada to avoid America’s many protectionist business lobbies that use other U.S. laws to punish competition from imports such as lumber.

“The trilateral text also incorporates most details from the U.S.-Mexico pact reached in August, and much of this is important modernization based on new economic realities. This includes chapters on digital trade, financial services and intellectual property, plus important clarification of investment rules for telecommunications and energy in Mexico.

“The deal bars discrimination against genetically modified crops, and data protection for biologic drugs will be doubled to 10 years. Free traders also defeated the Trump demand to automatically sunset the deal every five years. The compromise to extend the pact for 16 years, with a review period every six years, still adds needless uncertainty but probably isn’t fatal to new investment.

“That more or less exhausts the good news. The new deal strips protections against predatory government behavior for most foreign investors.  In Mexico only oil and gas, electricity, telecommunications, transportation and public works will have access to multilateral dispute panels. The rest will have to go through local courts unless their property is directly confiscated. This is worse than the status quo.

“The new deal also takes a giant step toward politically managed trade by imposing new rules of origin and labor regulations.  Passenger vehicles will no longer enjoy duty-free access across borders unless they meet higher North-American-made content requirements in both finished products and parts.  This  will add costs and complexity to building cars on the continent, and make the final products less competitive world-wide.

“Worse, the deal opens the door for using trade deals to dictate a minimum wage and labor policy in Mexico. Car companies in Mexico will have to pay well above market wages on 40% of their output to qualify for duty-free treatment. Ford and GM have resigned themselves to this and may be able to finesse it, but some people we respect think the net result will drive car production at the margin away from North America.

“Mexico and Canada also bought some insurance against possible U.S. Section 232 ‘national security’ tariffs on autos.  Mexico will be allowed to export to the U.S. 2.6 million cars duty-free if those tariffs are imposed. After exporting 1.7 million passenger vehicles last year, Mexico has some room to grow. But if the tariff is punitive, the new rule will act as a cap. By the way, the punitive Trump tariffs of 25% on steel and 10% on aluminum imports remain in effect for Canada despite the new deal.

“Whether this can pass Congress will have to await a careful reading of the fine print.  Passage this year might be possible if Mr. Trump is willing to give up the trade-promotion-authority protection of a simple majority vote in the Senate.  More likely the vote will have to come next year when Democrats might control Congress.

“Trade Rep Robert Lighthizer has been telling Mr. Trump he has roped in Democrats by co-opting Big Labor with the new wage and union mandates. But note that even the United Auto Workers said Monday they are withholding judgment. Only a handful of House Democrats voted to give Barack Obama trade-promotion authority. Would Nancy Pelosi really give Mr. Trump a political trade victory?

“Meanwhile, U.S. business is likely to be ambivalent about a pact that is worse than NAFTA. GOP free-traders will also prefer the status quo, and Republicans always provide the bulk of the votes for trade deals. The new trade deal could have been worse given Mr. Trump’s protectionist beliefs, but that’s about the best we can say for it.”

Jeff Moon / Wall Street Journal...on a separate trade issue....

“President Trump has raised the stakes so high in his China trade war that he can’t afford to lose.  If he comes away with anything less than a deal guaranteeing significant, verifiable reforms to Beijing’s mercantilist trading practices, he risks imperiling American business prospects in China for years.

“A settlement that merely tinkers with the status quo – like the recent reworking of the North American Free Trade Agreement – would spell long-term political and economic disaster.  The Chinese know that future U.S. presidents are unlikely to match Mr. Trump’s rhetoric and personal political investment in the trade issue.  Beijing would interpret any unfulfilled threat from Mr. Trump as proof that it need never yield to U.S. trade demands, having shown it can withstand maximum American economic pressure.  Chinese leaders will conclude that they have survived the Americans’ best effort to pry open their markets. They will then feel free to perpetuate indefinitely their discriminatory trading practices and industrial policies.

“History provides a cautionary tale.  President Clinton threatened during the post-Tiananmen period to condition China’s most-favored-nation trading status on its progress on human-rights issues.  After much wrangling, Mr. Clinton realized he had overplayed his hand.  He backed down in 1994, leaving the affair as the high-water mark of American pressure on China over human rights.  The issue subsequently receded into the background of the bilateral relationship, to the point that the Trump administration now raises human rights with the Chinese as an afterthought, if at all.

“The American business community appears not to appreciate fully that precedent, and they underestimate the danger ahead. Businesses and trade associations overwhelmingly have opposed Mr. Trump’s tariff policy, and they hope to avoid short-term pain by pressuring the president to withdraw the tariffs.  But the long-term stakes of the trade war have increased now that Mr. Trump has escalated the conflict beyond the point of no return.  If Mr. Trump now settles the fight he has picked with China for little or nothing, he will signal that China can ignore longstanding demands into the indefinite future, along with any threats seeking a level playing field for U.S. businesses in the Chinese market.

“Mr. Trump is living out the old maxim that you need to be careful what you ask for because you just might get it. Now that he has the trade war he so vigorously sought, he bears ultimate responsibility for his gamble over America’s trade with China. He better win, or else.”

Trump tweets: “Late last night, our deadline, we reached a wonderful new Trade Deal with Canada, to be added into the deal already reached with Mexico. The new name will be The United States Mexico Canada Agreement, or USMCA.  It is a great deal for all three countries, solves the many...

“...deficiencies and mistakes in NAFTA, greatly opens markets to our Farmers and Manufacturers, reduces Trade Barriers to the U.S. and will bring all three Great Nations together in competition with the rest of the world.  The USMCA is a historic transaction!”

Europe and Asia

The start of a new month and time for the PMI data, and then some. For the euro area (EA19), the composite PMI for September was 54.1 vs. 54.5 in August.  Manufacturing came in at 53.2 vs. 54.6 the prior month, services at 54.7 vs. 54.4.

Germany: 53.7 Sept. mfg., a 25-month low; services 55.9
France: 52.5 mfg., 54.8 services
Spain: 51.4 mfg., a 25-mo. low; 52.5 services, a 58-mo. low!
Italy: 50.0 mfg., a 25-mo. low; 53.3 services

Other manufacturing PMIs for the EA19 had Greece at 53.6; Netherlands 59.8; and non-euro UK 53.8 for September. [All the preceding courtesy of IHS Markit.]

Separately, Eurostat reported that the unemployment rate in the EA19 ticked down to 8.1%, the lowest since the 8.0% reading of November 2008.

Germany’s jobless rate was 3.4%; France 9.3% (up from July’s 9.1%); Spain 15.2%; Italy 9.7%; Greece 19.1% (June); Netherlands 3.9%; Ireland 5.6%; UK 4.0% (June)

Chris Williamson / IHS Markit

“Eurozone manufacturing shifted down yet another gear at the end of the third quarter.  The sector has seen booming growth at the start of the year rapidly fade to the worst performance for two years in September as production and jobs growth have slowed in response to a stalling of export trade.

“The survey paints the worst trade picture for over five years, with export growth having slumped sharply from a series record high in late 2017 to near-stagnation in September.

“The slowdown can be linked to sluggish demand and increased risk aversion among customers, often linked to worries about trade wars and tariffs, but also ascribed to rising political uncertainty and higher prices.

“Forward-looking survey indicators suggest the worst is yet to come: optimism about the year ahead is close to a three-year low, inflows of new orders and input buying are the weakest for over two years and backlogs of work are dropping for the first time in over three years.

“Production also continues to run ahead of order book growth, which is a key sign that output and jobs growth will be reined-in further as we move into the fourth quarter unless demand revives.”

Eurobits....

Brexit:  We are down to the wire for reaching some kind of consensus on Brexit in time for the EU summit on Oct. 17-18, with the recognition that a final deal, if there is to be one, could be completed as late as a Nov. 17-18 summit.

The European Union’s Brexit negotiators believe a divorce deal with Britain is “very close,” according to a Reuters report Friday afternoon, in a sign that the contentious Irish border issue is about to be resolved.

The EU signaled on Thursday it was engaging with new proposals emerging in Britain on how to avoid extensive Irish border checks after Brexit, the key potential deal-breaker in the talks.

A senior EU diplomat said “We are going in the right direction,” re the Irish fix, though despite the optimism among some key figures in Brussels, Britain has yet to formally put any new proposals to the bloc in writing.

But under the plan being discussed, Britain would have a limited emergency Irish border solution.  It would get its way in having all of the United Kingdom – rather than just Northern Ireland – stay in a customs union with the bloc if the “backstop” is triggered.  Ireland’s Prime Minister Leo Varadkar, speaking in Brussels on Thursday, urged Britain to make new proposals well ahead of the October summit to leave enough time for analysis.

The EU is concerned that any compromise over the border could allow Britain to use Northern Ireland’s special access to the bloc’s single market to sell cheaper goods that would not adhere to EU  labor, environment and other standards.

For Britain, the problem is agreeing to checks on goods and livestock within Northern Ireland, something strongly opposed by the province’s Democratic Unionist Party – on whose votes British Prime Minister Theresa May relies on to govern.

Britain’s Brexit ministry said today that London’s new proposals on the Irish border would preserve the integrity of the United Kingdom.

As for the overall post-Brexit relationship, Donald Tusk, the chairman of EU leaders, said a “Canada plus plus plus” was one offer, meaning an advanced free trade agreement coupled with close security ties, tight cooperation on global affairs and research, among other elements.

Another senior EU diplomat told Reuters that the EU would propose “zero tariffs and zero quotas” in trade with Britain after Brexit; such a proposal favored by May’s critics inside her own party who are seeking an uncompromising split with the EU, more so than May is seeking.

Meanwhile, Theresa May weathered the storm at her Conservative Party conference, rejecting criticisms of her Brexit plan from rebels within the party, such as former foreign secretary Boris Johnson’s claim that the prime minister’s Brexit plan was “deranged” and “preposterous.”  As the festivities wrapped up Wednesday, Mrs. May hit back and defended her proposal as the only one that would minimize economic disruptions and deliver “frictionless trade” with the EU while also respecting the result of the 2016 referendum to leave the bloc.  Critics say the proposal still ties the UK too closely to the EU.

The May proposal aligns the UK with EU standards on goods and food products, but diverges on the regulation of services.  It would also pull the UK out of a host of EU programs related to farm, fisheries and migration policy.

“What we are proposing is very challenging for the EU,” she said as the conference wrapped up.  “But if we stick together and hold our nerve I know we can get a deal that delivers for Britain.”

The prime minister survived to fight another day, week, maybe months.  For now, concern among other EU leaders as to whether she would face a leadership challenge in the coming months was alleviated.

Reminder, any agreement reached Oct. 17-18, and/or in November, must then be approved by both EU and British parliaments, in order to avoid a disastrous no-deal Brexit.

Italy: I nailed one market call, the yield on the Italian 10-year bond, which I warned was way too low given the country’s debt level and stagnant economy, has soared from 1.73% on April 27 to today’s close of 3.42%; as in some investors/traders got killed, while those on the ‘short’ side have made a killing of a different kind.

How significant is this move? Despite a 10-basis rise in the German 10-year (the Bund) to 0.57% this week, that is exactly the same yield as on April 27.

James Mackintosh / Wall Street Journal...his column written Thursday.

“The Italian bond market has a whiff of panic about it, while the rest of Europe has remained remarkably calm. This makes little sense, and is unlikely to last. The basic logic runs like this. The rise in Italian yields relative to those of safe Germany is a sign that investors think Italy is more likely to default on its bonds, more likely to leave the euro and repay in devalued lira, or both. Fair enough: The populists now governing in Rome are unpredictable, and Italy’s government-debt pile is large.

“Yet, it is obvious to everyone that if the third-biggest economy in the eurozone were to default on $2.64 trillion of debt or leave the currency area, it would at the very least blow up the rest of the Southern European countries.  The bond yields of Spain, Portugal and Greece would soar, even if somehow they were able to remain within the euro.

“ ‘Italy is not Greece’ is usually invoked as reassurance.  In fact, the situation in Italy is a whole lot worse than Greece, because the solution applied to Athens – a default within the eurozone and capital controls – couldn’t plausibly be applied to Italy’s much more important economy and much larger debts.

“This should mean that higher risk to Italy is also a higher risk to other countries that would face trouble, not to mention the many large European bank with significant Italian exposure.”

Today, with a 10-year at 3.42%, that still isn’t high enough to prevent Italy from making its debt payments, but if the market pushes up borrowing costs too much, Italy would not be able to service the debt, barring politically implausible tax hikes, when the current coalition is looking to lower them.  Ergo, things could spiral out of control.

Watch the 4.00% level for Italy.   

This week, eurozone finance ministers warned Italy’s coalition that all governments must respect the bloc’s spending rules, as they called for more detail from Rome on draft budget plans that began unsettling markets a few weeks ago.

Bruno Le Maire, France’s economy minister, stressed that the euro area’s budget rule book was meant to protect countries from higher borrowing costs.

Italy’s new government announced last week it plans to rip up previous budget agreements with Brussels and to aim for a public deficit of 2.4 percent of gross domestic product, far higher than the 1.6 percent which the country’s finance minister had previously called for.

But by week’s end, the government said it would offer some concessions to fend off EU pressure about its finances, committing to reduce its budget deficit targets in 2020 and 2021, while sticking to its spending plans for next year.

That said, late today the European Commission said in a letter that Italy’s budget plan was a “source of serious concern.”

Also today, Italy’s Deputy Prime Minister Matteo Salvini accused European Commission President Jan-Claude Juncker of destroying Europe, upping the rhetoric in his increasingly acrimonious war of words with European Union officials.

Salvini, who heads the far-right League party and is tapping into an increasingly Eurosceptic mood in Italy after years of anemic growth and high unemployment, took aim at Juncker and EU Economic Affairs Commissioner Pierre Moscovici.

“People like Juncker and Moscovici have ruined Europe and our country.”

Juncker then replied: “I hope he will never have to remove the heap of ruins.”

Salvini then fired back: “The insults and threats that arrive every day from Brussels and European bureaucrats are incredible and unacceptable.   The only ruins that I will have to scoop up are those of the beautiful European dream, destroyed by people like Juncker.”

European parliamentary elections are set for next May and the likes of Salvini will be targeting them.

France: President Emmanuel Macron continues to see his popularity crumble after a series of ministerial departures dims his aura of invincibility that accompanied his first year in power.  [This week it was Interior Minister Gerald Collomb who suddenly announced his resignation.] Macron has been trying to channel war hero Charles de Gaulle in response.  The other day, while laying a wreath at deGaulle’s tom, Macron hailed the durability of France’s presidential system.

“It allows me to avoid the tyranny of immediacy, which is an absurdity of our times, which means day-to-day vagaries should not decide a nation’s course.”

Macron is seeking to paint himself as a leader in the mold of de Gaulle, a towering father-figure of modern-day France. De Gaulle made strong authority a hallmark of his presidency and he had a deep belief in self, though he was also an imperious, prickly sort (such as in his relations with the United States).

But just as de Gaulle had to bring France back from both World War II and a vicious colonial war in Algeria amid unstable institutions, Macron is seeking to overhaul France to make its institutions more efficient, create growth and counter the rise of far-right populism.

“It was the spirit of 1958, it must be that of 2018, because today as then and today perhaps more than then, the people want to feel listened to by political elites constantly asked to prove themselves.,” Macron said in his speech Thursday.

But it’s a tough task, especially his goal of cutting the number of lawmakers by a third.

On a totally separate issue, in a global mystery, French police opened an investigation into the disappearance of Meng Hongwei, the Chinese head of the international police agency Interpol.

His family has not heard from him since he left Interpol HQ in the French city of Lyon for a trip back to China on September 25, officials said.

“He did not disappear in France,” a source told AFP.

The South China Morning Post is reporting that Meng, 64, was “taken away” for questioning in China.

It is not clear why he was being investigated by “discipline authorities” or where he was being held.

Officials in China have made no public comments on Meng, who is a senior Communist Party official there.       

Turning to Asia.... China had its Golden Week national holiday so some of the government data for September, and the quarter, is yet to come in.  [China’s equity markets were closed all week.]  The government did report its manufacturing PMI for last month was 50.8 vs. 51.3, while services was at a 54.9 clip.  The Caixin private readings, however, had Sept. manufacturing at 50.0 vs. 50.6 for August. [No service reading yet.]

Regardless of whether you take the government’s or private data, China’s economy continues to slow.

Japan’s Sept. manufacturing PMI was 52.5, unchanged from August, with the services reading slumping to 50.2 vs. 51.5 the prior month.

Japan also reported today that household spending jumped in August at the fastest annual pace in three years as bigger bonuses boosted consumption, suggesting robust domestic demand could help offset the ill-effects from escalating trade frictions.

Household spending rose 2.8% from a year earlier.  But...inflation-adjusted real wages fell in August for the first time in four months, with rising gasoline costs pushing up living costs.

Separately, Taiwan’s manufacturing PMI for September was 50.8 vs. 53.0 in August; South Korea’s was 51.3, up from August’s 49.9.

Street Bytes

--Stocks fell across the board this week, though because of the revised trade deal between the U.S., Mexico and Canada, the Dow Jones, with its industrial components that most benefit from trade certainty, finished down just 11 points, 0.04%, to 26447, after hitting new highs earlier in the week.  The S&P 500 lost 1.0% and Nasdaq suffered its worst week since March, down 3.2%, as the tech barometer was slammed late  in the week on the Bloomberg / China tech story I cover below.

The markets were also hit hard Thursday and Friday on rising bond yields, specifically the 10-year, and next week we have the official start of earnings season, which your editor absolutely despises for very selfish reasons.

It also doesn’t help market psyche that at some point, rising bond yields represent competition for the investment dollar.

--U.S. Treasury Yields

6-mo. 2.36%  2-yr. 1.82%  10-yr. 3.06%  30-yr. 3.21%

The yield on the 10-year closed the week at 3.23%, its highest since June 2011. 

--Shares in Lenovo Group Ltd and ZTE Corp. plunged on concerns their sales could suffer in the wake of a Bloomberg Businessweek expose that talked of U.S. companies’ systems having been infiltrated by malicious computer chips inserted by Chinese spies.

Bloomberg cited 17 unidentified sources from intelligence agencies and business that Chinese spies had placed computer chips inside equipment used by about 30 companies and multiple U.S. government agencies, which would give Beijing secret access to internal networks.

Apple Inc. and Amazon.com Inc. were cited as being among the U.S. companies subject to the attack, but both denied they had been.

Lenovo and ZTE saw their shares tumble on fears consumers and businesses may become reluctant to buy Chinese tech goods.  Lenovo saw its shares fall as much as 23% in Hong Kong.

--Russia and Saudi Arabia struck a private deal in September to raise oil output to cool rising prices and informed the United States before a meeting in Algiers with other producers, four sources familiar with the plan told Reuters.  This was at a time President Trump was criticizing high prices, blaming OPEC and calling on it to boost output to bring prices down.

The story makes total sense because, while prices continue to rise to multi-year levels, the president hasn’t tweeted about the topic.

At the Algiers meeting, the two countries had hoped to announce an overall increase of 500,000, but deferred the move until a full OPEC meeting in December upon facing opposition from other OPEC members, including Iran, which is getting slammed by U.S. sanctions.  The state-run National Iranian Oil Co. said it expects its crude shipments to drop to 1.5 million barrels a day, compared with 2.3 million in June.

Russia produced 11.36 million barrels per day in September, up from 11.21m in August, Energy Ministry data showed, while Saudi Arabia said it would increase output from 10.7 million bpd, that level a record just reached (equaling November 2016’s level), according to Saudi energy minister Khalid al Falih.

Late tonight, Saudi Crown Prince Mohammed bin Salman told Bloomberg that the kingdom has met its promise to Washington to make up for Iranian crude oil supplies lost through U.S. sanctions. 

“Iran reduced their exports by 700,000 barrels a day...And Saudi Arabia and OPEC and non-OPEC countries, they’ve produced 1.5 million barrels a day. So we export as much as 2 barrels for any barrel that disappeared from Iran recently.  So we did our job and more.”

Separately, the Energy Information Administration reported that U.S. crude inventories rose by 7.98m barrels in the week ended September 28, the biggest weekly increase since March 2017, and now stand at 1.25 billion barrels, the highest total in 10 months, though this is largely due to seasonal factors and refiners stepping up their maintenance this time of year, meaning refineries aren’t taking in as much crude.

So on the week, West Texas Intermediate and its global counterpart, Brent, hit multi-year highs, WTI finishing the week at $74.29...after hitting $75.50.

--U.S. auto sales declined in September, with the industry expecting a 7% drop compared with the same period a year ago.  There was one fewer selling day in the month, but also the comparisons aren’t exactly fair since last September saw a surge in buying to replace vehicles damaged from Hurricanes Harvey and Irma.

Ford Motor Co.’s sales last month were down 11.3%, with GM’s down 11.1% over the prior year, but that was for the entire quarter.  [GM only reports sales on a quarterly basis these days, and for September alone, analysts estimate sales were down 15%.]

Fiat Chrysler bucked the trend, with U.S. sales up 15%, an increase driven by strong demand for its Jeep sport-utility brand.

As alluded to above, the new U.S.-Mexico-Canada Agreement – which requires automakers to build a greater portion of their cars in North America and with higher-wage workers, could complicate operations for automakers building small cars in low-wage Mexico and importing parts, such as engines and transmissions, from overseas. The costs will inevitably be passed on to the consumer.  Plus there still aren’t any final agreements with the European Union and Japan.

--Tesla Inc. announced record quarterly car production numbers on Tuesday but warned of major problems with selling cars in China due to new tariffs that would force it to accelerate investment in its factory in Shanghai.  Tesla said it produced a record 83,350 cars, topping Wall Street’s forecasts, with 55,840 Model 3 sedans delivered, the key to the company’s drive for profitability.

The numbers helped lift shares initially, but then the stock fell as investors worried about the company’s warning that a 40-ercent tariff on Chinese imports of its cars was blocking sales in the world’s biggest electric car market.

Tesla also said it missed its production target of 6,000 Model 3s by 700 cars in the final week of September and outlined hurdles it faced due to the worsening trade war with China.

Tesla at the same time said it was speeding up construction of its Shanghai giga factory to combat a huge competitive disadvantage against other producers and even other imported cars that carry a lower 15 percent tariff.  “Tesla is now operating at a 55 percent to 60 percent cost disadvantage compared to the exact same car locally produced in China,” the company said.

As for the turmoil concerning Elon Musk, after initially balking at settling with the SEC, he finally agreed to be banned from serving as chairman for three years, and he was fined $20 million.  Tesla itself will pay another $20 million fine, and Mr. Musk agreed to personally buy the same amount in Tesla stock.  A permanent committee to monitor Musk’s communications with investors and the public, including his postings on Twitter and other social media, is to be formed.  The members of this special committee will be subject to the review and approval of the SEC.

The SEC is also requiring the company to add two independent directors and to elect an independent director as chairman.

But with the suit settled, investors are turning back to production, and Tesla has said it needed to reach a consistent rate of 5,000 Models 3s a week, a figure it first hit during the final week in June, but, during the third quarter, it averaged about 4,000, and this after the company said it was aiming for 6,000 a week by the end of August.

But wait...there’s more!  So much for the committee that was to monitor Musk’s tweets. Thursday, he tweeted that he just wanted to say “the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!”

The stock fell 7% today on the latest Musk tweet to $262.50.  Last Friday it was $264.75, then shot to $316, intraday, on the SEC settlement, and then as is per his want, Musk, his own worst enemy, tapped his fingers on the keypad Thursday and, presto, we are back down to the levels of last week.  Some people never learn.

--Honda and General Motors are teaming up to develop self-driving cars, creating the most powerful rival from the traditional automotive industry to tech upstarts such as Google’s (Alphabet’s) Waymo.

Cruise, the self-driving arm of GM, announced it  had secured a $2.75bn investment from Honda.

Honda said it had taken a $750m equity stake in Cruise (5.7%) and would invest a further $2bn in the unit over the next 12 years.

GM has said it plans to launch a commercial fleet of autonomous cars without steering wheels or pedals next year, and is viewed as having an edge over Detroit rival Ford and other traditional manufacturers in developing its own systems.

--Editorial / Wall Street Journal

“Jeff Bezos didn’t become one of the world’s richest men by missing a business opportunity, and on Tuesday the Amazon CEO showed he also has impeccable political timing.  His decision to raise Amazon’s minimum wage to $15 an hour will buy the tech company some political insurance while also helping it steal workers from smaller competitors.

“The decision is great news for Amazon workers and is probably overdue given the company’s success.   Starting Nov. 1, the company will raise the pay of some 250,000 workers, including part-time, seasonal and temp workers hired by other agencies. Amazon will stop giving stock options to some warehouse workers, but the company says its hourly operations and customer-service employees who already earn $15 will also get wage bumps.

“Amazon’s timing is shrewd given the tight national labor market that has companies competing for the best employees. Amazon expects to hire 100,000 temporary workers for this holiday season alone, and the $15 wage will make it harder for competitors to retain workers who make less.

“That may explain why Mr. Bezos also announced that Amazon will now lobby Congress to raise the national minimum wage from $7.25 an hour.  If Amazon is already paying $15, it’s no competitive sweat for Mr. Bezos to look virtuous for the media and politicians. Amazon is rapidly automating – an e-commerce warehouse in China has only four human employees – and its competitors lack Amazon’s scale and far lower cost of capital.

“Mr. Bezos’ $15 wage would be a lot more  praiseworthy if he hadn’t combined it with a plea for government to raise the labor costs of his competitors. Beware when big business conspires with big government.

“Speaking of government, Amazon’s wage increase may also buy some insurance against a looming assault from Congress.  Bernie Sanders, the Vermont socialist and likely presidential candidate in 2020, has introduced the Stop Bezos Act that would tax Amazon to finance government transfer payments like food stamps.  Bernie tweeted Tuesday that Amazon’s $15 minimum wage is ‘a big step forward for workers across the nation.’  Mr. Bezos also wants to hold off the federal antitrust cops, but that may cost more than $15 an hour.

“Politics aside, Amazon’s wage increase wouldn’t be possible if the U.S. economy hadn’t risen out of its eight-year Obama doldrums. As always, the best way to raise living standards is faster growth, not political coercion.”

--General Electric shares surged on Monday on word CEO John Flannery was being replaced with H. Lawrence Culp as chairman and CEO, while the company announced it would “fall short” of guidance of 2018 cash flow and earnings, ostensibly due to weakness in its power generation unit, with GE now taking a non-cash charge of about $23bn to write down the value of goodwill in the power business.

Culp, who was appointed to GE’s board in April, was previously a successful CEO of Danaher.

The decision to replace Flannery, who was only in the job a little over a year, was sudden, but unanimous by the board and effective immediately.  It was the issue of the power generation sector that did him in in the end.

“GE remains a fundamentally strong company with great businesses and tremendous talent,” Culp said.  “We will be working very hard in the coming weeks to drive superior execution, and we will move with urgency. We remain committed to strengthening the balance sheet including deleveraging.”

GE stock had tumbled 26% this year (54% over the past 12 months since Flannery took control) as it struggled to drive growth.  In June, Flannery outlined results of a strategic review, saying the company would focus on aviation, power and renewable energy, make health care a standalone business and at the time, made Culp lead director.

But GE continues to miss its targets, quarter after quarter.

Flannery was a longtime employee at GE, going back to 1987.

As for the long-term destruction in GE’s share price, while it rose 9 percent on Monday, and a bit further the rest of the week, the company’s market value is about $114bn, having slipped below $100bn before the rally.  Compare that to $600bn roughly 18 years ago.

--Verizon  Communications Inc. is offering voluntary severance packages to roughly 44,000 employees, or more than a quarter of its workforce, as it seeks to cut $10 billion in costs and upgrade to a faster, 5G network.

Employees eligible for the packages were offered three weeks’ pay for each year of service up to 60 weeks.

--PepsiCo’s revenue for the third quarter rose 1.5% to $16.49 billion.  North American beverages revenue climbing 2%, the first quarterly rise since the second period of 2017.

The company is forecasting revenue growth that it previously announced, this as CEO Indra Nooyi, who led PepsiCo for 12 years, exited this week, to be succeeded by company veteran Ramon Laguarta, who was promoted to president last year.

--Costco Wholesale Corp. posted terrific sales growth in its fiscal fourth quarter (ending Sept. 2), comparable-store sales up 9.5% year-over-year, with in-store traffic “as strong as it’s ever been,” according to CFO Richard Galanti, up 4.9%.  Profit increased 14% to $1.04 billion.

--A group of hedge funds is in line to take control of Toys “R” Us – the same group that pulled the plug on the company’s reorganization this year. Now, the new plan, as introduced in court papers this week, has the hedge fund group proposing “a new, operating Toys ‘R’ Us and Babies ‘R’ Us branding company that maintains existing global license agreements and can invest in and create new, domestic, retail operating businesses” under the brand name.

The group had initially sought bids for brand name and other intellectual-property assets, but now it has determined the potential bids wouldn’t “yield a superior alternative to the (new) plan.”

Well this is nuts.

--Nike has said it is “deeply concerned” by rape allegations against soccer star Cristiano Ronaldo.  The sportswear giant reportedly has a contract worth $1 billion with the global icon, the company saying it would “continue to closely monitor the situation.”

Ronaldo has “firmly” denied assaulting Kathryn Mayorga at a Las Vegas hotel in 2009.  It’s complicated.

--Mall vacancy rates rose to 9.1% in the third quarter, this despite the fact that retailers are anticipating a robust holiday season, boosted by the economy and strong consumer confidence.

The National Retail Federation on Wednesday said it expects holiday retail sales for November and December to increase by 4.3% to 4.8% over last year; the average the previous five years being 3.9%.

But lower-end malls in particular are suffering.  All the Sears and Macy’s store closings doesn’t help.

--California Gov. Jerry Brown signed a bill mandating that all publicly traded companies with headquarters in the state have at least one woman on their boards by the end of next year. By 2021, companies with at least five directors would need to have two or three female directors, depending on the size of the board.  Those that don’t face financial penalties.

--Flight attendants celebrated passage of a five-year FAA Reauthorization Bill that includes a 10-hour minimum rest provision to combat Flight Attendant fatigue.  The bill includes other safety priorities long sought by the group, including forever banning knives on planes, no voice calls on planes, and extending the smoking ban to e-cigarettes.

The final bill received overwhelming bipartisan support in Congress.

The legislation also includes “Emotional Support and Service Animal Standards.”  Good.

--A few weeks ago, Dan C. in Wisconsin, a longtime supporter of the site, sent me a note inquiring if I had a position on hemp oil, CBD, which I really don’t.  But it was interesting to see a piece the other day discussing the case of “a former Playboy model” who has refused chemotherapy to treat her brain tumor.  “Instead she’s turning to cannabis oil – which is illegal in the UK, where she lives.”

“Kerri Parker, 34, said she will risk five years behind bars rather than undergo 12 rounds of chemo, arguing it was her ‘only chance’ to live....

“Speaking to The Mirror, the former lab technician from Norwich said: ‘I know using cannabis means I could be put in prison but I truly believe it is the only chance I have of living right now.’

“ ‘I’ve been working hard over the past few years.  I’m training for a black belt in martial arts and I’m the fittest and healthiest I’ve been, so when doctors say they want me to have treatment which will make me sick, it makes no sense to me.’

“She said doctors told her no one with brain cancer had managed to make it through the 12 rounds of chemo without succumbing to the disease....

“Instead, she said, she would put her faith in cannabis oil, adding: ‘It’s a risk I’m ready to take.’”

Parker is looking to use the CBD with a higher dose of THC (tetrahydrocannabinol), the psychoactive component in cannabis that makes users feel “high.”

In terms of Ms. Parker’s case (she has been a body double for Megan Fox, by the way...cough cough...), doctors seem far from reaching a consensus that CBD and THC has anti-cancer benefits, though obviously THC has benefits in alleviating the side-effects of cancer treatment including nausea during chemotherapy.

So note to Dan, I still have no real opinion, but obviously some of the stocks in the cannabis sector have been flying.  [Be careful.]  Kerri Parker’s story can help with your research at least.

--“Saturday Night Live” opened to better ratings last weekend than 2017’s opener, and second-best since 2012, proof that “SNL” continues to be TV’s go-to sketch/variety show for the latest in political humor.  I stayed up just for the opening and whether you liked the content or not, you have to admit Matt Damon was pretty good as Brett Kavanaugh.

Foreign Affairs

Iran: President Hassan Rouhani praised Europe on Wednesday for taking a “big step” to maintain business with Tehran after the United States’ unilateral withdrawal from a 2015 nuclear deal and re-imposition of new sanctions on the Islamic Republic.

And Prime Minister Benjamin Netanyahu’s UN address a week ago Thursday continued to make waves, with the head of the UN’s nuclear watchdog, the International Atomic Energy Agency, refusing to take at face value evidence presented by the prime minister about a secret atomic warehouse in Tehran.

IAEA chief Yukiya Amano said in a statement on Tuesday: “The agency sends inspectors to sites and locations only when needed. The agency uses all safeguards relevant to information available to it but it does not take any information at face value.”

Amano didn’t refer to Netanyahu’s comments specifically, but it was clear who he was addressing as he said the IAEA had carried out so-called complementary access inspections, which are often at short notice, at all locations in Iran it has needed to visit.

“All information obtained, including from third parties, is subject to rigorous review and assessed together with other available information to arrive at an independent assessment based on the agency’s own expertise,” Amano said.

Netanyahu urged the IAEA to do much more.

Syria: Russia delivered an S-300 surface-to-air missile system to Syria this week.  Russian Foreign Minister Sergei Lavrov said the deployment of the S-300 “will be devoted to ensure 100 percent safety and security of our men in Syria, and we will do this.”

Turkey sent a military convoy into rebel-held northwester Syria, as a deadline for establishing a buffer zone between rebel and government forces draws nearer.  Turkey is expected to deploy the troops at “observation posts” similar to the ones it currently has in Idlib and Aleppo provinces.

Last month, Turkey and Russia agreed to set up a demilitarized zone ringing rebel territory to avert a threatened Syrian government offensive in Idlib. But all factions in the zone were to withdraw their heavy weapons by Oct. 10, and radical groups must leave by Oct. 15.  It will then be monitored  by Turkish troops and Russian military police.

The region’s dominant armed group, Hayat Tahrir al-Sham (HTS), however, an alliance led by militants of Syria’s former Al-Qaeda affiliate, has still not officially responded to the accord.

Anti-Assad forces say they are deeply distrustful of Russia’s presence in the neutral zone, while Turkey has long backed rebel groups that are opposed to Assad.

So we wait to see what happens over the coming week or two.

Iraq: A new government was formed, five months after May’s election, but the new prime minister, Adel Abdul Mahdi, a Shiite independent, faces deepening political and economic turmoil. 

Violent protests against Iraq’s entire political class spurred rival factions to coalesce around Abdul Mahdi, 76, a former vice president and oil minister.  He now has 30 days to form a cabinet.

The economy is a mess and there has been no great effort to rebuild infrastructure destroyed in the war against Islamic State.  Iraqi security forces are also trying to prevent a resurgence of the extremist group.

Under Iraq’s complex system, the presidency is reserved for Kurds, the speaker of parliament is a Sunni and the prime minister is from the Shiite majority.  But as Isabel Coles and Ali Nabhan note in the Wall Street Journal: “Those positions have usually been filled by quid-pro-quo deals between different parties, which includes sharing out ministries and using them for patronage. That has created an ineffective, corrupt bureaucracy and bloated payroll on which most of Iraq’s oil revenue is wasted.”

Meanwhile, you have the United States and Iran and their influence in Iraq.  The U.S. didn’t want a new government dictated by Iran’s allies among the rival groupings, and Iran is seeking a friendly government next door as it is pressured by Washington.

The tensions between Iran and the U.S. in Iraq are best exemplified by the dangerous protests in the southern city of Bara, which evolved into a demonstration against Iraq’s entire political class, with the Iranian consulate torched, and the U.S. closing its consulate there.  Both blamed the other for the attacks on their missions.

Secretary of State Mike Pompeo called out Iran on Wednesday for threats to American missions in the country and said the United States was terminating a treaty of amity with Tehran.  “Iran is the origin of the current threat to Americans in Iraq,” Pompeo told reporters.  “Our intelligence in this regard is solid.  We can see the hand of the ayatollah and his henchmen supporting these attacks on the United States.”

North Korea / China: Secretary of State Pompeo was to head to Japan, South Korea and China Oct. 6-8, after meetings in Pyongyang, Saturday, on denuclearization talks and a potential second summit between Kim Jong Un and Donald Trump. Who he meets with in Beijing will be most interesting...ditto North Korea, where he is expected to meet with Kim.

North Korea this week ruled out dismantling its nuclear arsenal in exchange for the U.S. declaring an end to the Korean War, saying a peace treaty should “never be a bargaining chip.”

Benny Avni / New York Post

“President Trump is planning a second summit with North Korea’s Kim Jong-un. Fine. But what’s with the president’s lovey-dovey words for the mad butcher of the North?

“After all, sending Valentines to Kim won’t make him any more willing to disarm.  Pyongyang is much more likely to react to increased pressure, as top Trump advisers are well aware, than to public displays of affection.

“Fact is, the president’s unbecoming bromance with the North Korean strongman may be harming his own team’s efforts to maintain, and even ratchet up, pressure on Pyongyang until it verifiably and irreversibly gives up its nukes and intercontinental missiles.

“ ‘We went back and forth. Then we fell in love,” Trump gushed, in a stump speech last (weekend).  Speaking of Kim, he added, ‘He wrote me beautiful letters. And they are great letters. We fell in love.’

“Isolated from the world as they are, North Korean bigwigs are no fools.  When they hear love, they want it consummated.

“ ‘Without any trust in the U.S., there will be no confidence in our national security.  And under such circumstances, there is no way we will unilaterally disarm ourselves first,’ the North’s foreign minister, Ri Yong Ho warned the UN General Assembly on Saturday.

“As Ri explained, Pyongyang has conducted no nuke tests or launched any missiles for a year; now it’s America’s turn to end its punishment of the North – or to forget about disarmament.

“You can hardly blame Ri. Trump has told audiences over and over again that his threats and diplomacy stopped North Korea from testing nukes and missiles.

“Yet the North’s year-long pause doesn’t resolve the issue.  National Security Adviser John Bolton, Secretary of State Mike Pompeo and UN Ambassador Nikki Haley have rightly made clear that this is no time to go soft....

“Meanwhile, South Korean president, Moon Jae-in, the matchmaker in the Trump-Kim love affair, is pushing joint economic ventures with Pyongyang – and asking the Security Council to exempt his projects from the sanctions regime.

“Moon’s appeasement clearly goes against the kind of pressure top Washington officials say is needed to achieve denuclearization. But his efforts are widely applauded worldwide. Bet on him to win the Nobel Peace Prize and you won’t be sorry.

“Trump, who should know better, will get no such prize. When he expresses his love for Kim, Russia, China and South Korea only become more eager to reward the North.

“In some cases – such as the negotiations over the new trade deal between the United States, Mexico and Canada – Trump’s rhetorical excess is harmless, maybe even beneficial.  Not so his self-defeating love affair with the devious, murderous tyrant scion of a devious, murderous tyrannical dynasty.

“Trump’s cooing may well reverse the modest gains reached so far on the North Korea front.  He shouldn’t be blinded: This love affair may end in disaster.”

Meanwhile, in a major speech Thursday at the Hudson Institute, Vice President Mike Pence charged that Russia’s influence operations in America pale in comparison with the covert and overt activities China is taking to interfere in the U.S. midterm elections and counter President Trump’s tough trade policies against Beijing.

Pence laid out measures Beijing is employing to undermine the Trump administration, including targeting Chinese tariffs to industries in states that are crucial to Trump in the midterms as well as behind-the-scenes actions like coercing U.S. businesses to speak out against the administration and intimidating scholars.

Pence also denounced maneuvers in the South China Sea, its oppression of Christians, Muslims and other religious believers, and Chinese President Xi Jinping’s signature infrastructure and foreign policy initiative.  Pence’s aggressive criticism indicates the administration could be preparing to take a more confrontational approach with China on issues beyond trade, such as in the South China Sea.

A Chinese foreign ministry spokeswoman said Beijing objected to Pence’s “groundless” allegations and urged the U.S. to stop hurting ties between the two countries.

“This is nothing but speaking on hearsay evidence, confusing right and wrong and creating something out of thin air,” said Hua Chunying, in a statement issued early Friday in Beijing.

“We have no interest in meddling in U.S. internal affairs and elections,” Hua said.  But Pence said Beijing’s actions added up to a simple message.  “China wants a different American president.”

“Beijing has mobilized covert actors, front groups and propaganda outlets to shift Americans’ perception of Chinese politics,” he said.  “As a senior career member of our intelligence community recently told me just this week, what the Russians are doing pales in comparison to what China is doing across this country and the American people deserve to know.”

Some analysts, however, say the charges of Chinese meddling in our elections are simply an effort by Trump to distract from the special counsel’s investigation into Russian interference.

At the same time, as per the Bloomberg Businessweek story noted above, China’s prime focus has been on conducting economic espionage, while long using joint ventures to try to acquire technical know-how, as well as seeking partnerships with U.S. government labs to learn about specific technology and information about running such facilities, and using front companies to hide the hand of the Chinese government and acquire technology under U.S. export controls, as the Trump administration correctly alleges.

Josh Rogin / Washington Post

“The Trump administration has now publicly unveiled its plan to fundamentally shift U.S. strategy toward China.  It’s an important acknowledgment that U.S.-China competition is heating up, an overdue admission that the past approach has failed and a national call to action.

“Vice President Pence’s landmark speech on U.S.-China relations on Thursday was notable for two reasons. First, it called out the Chinese government for perpetrating a multi-faceted, well-resourced and shady campaign of foreign influence operations on U.S. soil. Second, it placed that campaign in the context of a global competition between the United States and China that is being waged on every continent and in every realm.

“Set aside Pence’s claim that the Chinese government is targeting President Trump’s political interests (which is true). The speech’s real significance was its promise that the United States will newly confront Beijing’s worldwide economic and strategic aggression, oppose its internal repression and compel the Chinese government to change its behavior on both fronts.

“ ‘We will not relent until our relationship with China is grounded in fairness, reciprocity and respect for our sovereignty,’ Pence said, promising the Trump administration will ‘reset’ the bilateral relationship in a fundamental way.

“The vice president laid out a litany of ways the Chinese Communist Party spreads influence inside the United States and around the world.  Pence linked China’s economic aggression, military adventurism, influence operations and authoritarian expansion to argue that Beijing long ago decided to abandon true cooperative engagement with the United States and therefore we must respond.  ‘We want a construction relationship with Beijing,’ he said.  ‘While Beijing has been moving further away from this vision, China’s leaders can still change course.’

“The speech is a culmination of nearly two years of work inside the Trump administration to identify, expose and confront increasing Chinese-government-sponsored efforts to interfere in all aspects of American public life, including politics, policy, academia and journalism.

“Pence correctly connected those efforts to Beijing’s plans for economic and strategic expansion....

“On Friday, Trump will unveil a major study into vulnerabilities in the United States’ defense-industrial base.  I obtained an advance copy of the report, which found that our military is beholden to products from China, and Beijing has intentionally sought to undermine America’s ability to control the resources crucial to building the weapons we rely on.

“ ‘A key finding of this report is that China represents a significant and growing risk to the supply of materials deemed strategic and critical to U.S. national security,’ the report states.

“That was written before this week’s revelation that the U.S. intelligence community believes the People’s Liberation Army implanted tiny chips on components used by dozens of U.S. tech companies, the most significant known attack on the U.S. supply chain.

“The new China strategy merges the hawkishness of national security adviser John Bolton, the strategic positioning of Defense Secretary Jim Mattis, the economic nationalism of White House trade adviser Peter Navarro and Pence’s values-based advocacy.  It would have been unthinkable coming from the Obama administration....

“There’s no desire in the Trump administration to provoke a confrontation with China, a senior administration official told me, arguing that it’s Beijing’s activity that is causing the deterioration in the relationship.

“ ‘The notion that this somehow represents disengagement is just dead wrong. It’s the opposite,’ the official told me.  ‘It’s saying to the American people that we need to wake up to this. And the Chinese need to wake up to the fact that if they continue to pursue this policy – which is unacceptable – there will be consequences.’

“Hoping China’s rise would be constructive while ignoring Beijing’s bad behavior didn’t work. Opposing China’s rise won’t work either.  This course correction in the U.S.-China relationship is absolutely necessary to protect American interests and values and must be carefully managed to avoid unintended consequences.  Whether that causes undue friction or hostility between the United States and China is largely up to Beijing.”

So in keeping with the above, the United States Pacific Fleet has drawn up a plan for a major show of force as a warning to China that will indicate its determination to counter Beijing’s military activity, amid rising tension over the disputed South China Sea.

The plan will see planes and ships passing close to Chinese-claimed waters in the South China Sea and Taiwan Strait in a freedom of navigation operation, as first reported by CNN, citing several unnamed U.S. defense officials.

No doubt the proximity of the ships and aircraft will trigger a strong reaction from Beijing.

On Sunday, a Chinese destroyer nearly collided with the USS Decatur, which was carrying out a freedom of navigation operation and sailing close to the China-claimed Gaven Reef.

The Chinese destroyer came within 41 meters (135 feet) of the American warship, the U.S. navy said, describing the Chinese action as “unsafe and unprofessional.”

In a Gallup Korea survey conducted between July 12 and August 3, results just released, 46 percent of respondents in South Korea viewed China as “the most threatening country to peace on the Korean peninsula,” a dramatic increase from 2016, when 17 percent said China was the most threatening.

At the same time, only 33 percent viewed North Korea as the country posing the biggest threat, well down from 64 percent last year and the first time it had been eclipsed by China since the survey began in 2007.

Separately, China ordered A-list movie star Fan Bingbing to pay about $129 million in overdue taxes and fines, state news agency Xinhua said on Wednesday, as a crackdown on tax evasion in the entertainment industry gathers momentum...which has stopped the film sector cold.

The 37-year-old actress, whose June disappearance touched off wild speculation about her whereabouts, has appeared in the “X-Men” and “Iron Man” film franchises.

In a letter posted on her official account on the Twitter-like platform Weibo, Fan said she fully accepted the authorities’ decision, would overcome “all difficulties” to pay the penalties, and step up supervision of her companies.

“I’m ashamed of my behavior and I apologize here to everyone,” Fan wrote.

Russia: A source at Russia’s Ministry of Foreign Affairs said on Thursday that Dutch allegations about an alleged Russian attempt to hack the chemical weapons watchdog were absurd, the RIA news agency reported.  Dutch authorities disrupted an attempt in April by Russian intelligence agents to hack the Organization for the Prohibition of Chemical Weapons (OPCW), Defense Minister Ank Bijleveld said on Thursday.

“There was no attack,” RIA cited the unnamed source as saying, adding that the allegations stemmed from a Western campaign against Russia.  “We are part of all the (OPCW’s) structures so why would we hack it? We have access, their entire network is open to us. This is another absurdity.”

Editorial / Wall Street Journal

“Several governments on Thursday made a coordinated release of new information about Russian cyber espionage, including an indictment of seven Russian intelligence agents from the Department of Justice in Washington. Authorities are performing a public service by lifting the veil of secrecy that usually envelops counterintelligence.

“The Justice indictment names seven agents in the Kremlin’s intelligence agency, the GRU, for hacking attacks against sports antidoping agencies and Westinghouse Electric Co.  As payback for investigations into Russian athletes’ use of banned performance-enhancing drugs, the GRU stole online data about hundreds of other athletes – even sending agents to Rio de Janeiro to hack the computers of antidoping officials at a conference. Then it leaked confidential information to embarrass innocent sportsmen and women.

“Meanwhile, the Dutch government says four Russian agents showed up in April intending to hack the wireless network at the Organization for the Prohibition of Chemical Weapons in the Hague. The plan appears to have been to place sophisticated equipment in a rental car and then park outside the building with the trunk pointed toward the offices to pick up wireless computer transmissions.

“The OPCW at the time was investigating the Kremlin’s use of a nerve agent to try to assassinate a Russian double agent in the U.K. – an attack that killed an innocent civilian.  The agency also was investigating the use of chemical weapons by Russia’s client regime in Syria....

“Governments are right to expose all this, despite longstanding and often reasonable aversion to casting too much public light on counterintelligence. The technical complexity of cybercrime too often gives rogue leaders such as Vladimir Putin room to hide, and offers sympathetic politicians in the West scope to obscure or excuse.

“Thursday’s coordinated reveal is part of a growing willingness of Western governments to inform citizens about the true scale of the cyber threat, and it’s important for voters to know.  Mr. Putin is beyond embarrassment, but he’s not beyond exposure.”

Brazil: Far-right presidential candidate Jair Bolsonaro is expected to emerge as one of two candidates that will proceed to a runoff following this weekend’s first round of voting. A Datafolha poll on Tuesday showed Bolsonaro extending his lead over second-place Fernando Haddad, with Bolsonaro then poised to win the runoff Oct. 28 if nobody clinches a majority on Sunday.

Bolsonaro is at 35% and surging, and some think that the way Brazilians vote, versus the polling, his support might be far stronger.  Haddad polls around 20%.

Random Musings

--Presidential tracking polls...

Gallup: 42% approval, 53% disapproval of Trump’s performance; 87% Republicans approve, 37% Independents (Sept. 30)
Rasmussen: 51% approval (highest since March 2017), 48% disapprove (Oct. 5)

According to a new Quinnipiac national poll, Trump has a 41% approval rating, up three points from Sept. 10, 53% disapproval.  [83% Republicans, 37% Independents.]

In the critical generic House poll, Quinnipiac found the margin to be seven points in favor of the Democrats, 49-42, which is down from a 52-38 margin in a Sept. 12 survey.

--According to a new Gallup poll, American’s trust in the legislative branch of the U.S. government is at its highest level – 40 percent – in nearly a decade.

The survey found that the number of Americans who have a “great deal” or a “fair amount” of trust in Congress – both the House and Senate – rose from 35 percent in 2017 to 40.

The last time the number was above 40 was in 2009.  The all-time high was 71 percent in 1972.

Republicans have the most trust in the legislative branch, at 49 percent, compared to 34 percent of Democrats.

Of course this means that 59 percent of Americans don’t trust Congress.

Trust in the executive branch in the same survey dropped from 45 percent to 42.

The judicial branch polls at 68 percent who have a great or fair amount of trust in it.

--A Stockton University (N.J.) poll released Monday had a statistical dead heat in the U.S. Senate race between incumbent Bob Menendez and Republican challenger Bob Hugin, 45-43, Menendez, which is a bit of a shocker...and within the margin of error.

But a new Quinnipiac University poll of likely New Jersey voters had Sen. Menendez with a solid 53-42 lead, with women backing him 57-38, while men are divided 48-48.

In this one, Republicans back Hugin 93-6, while Democrats back Menendez by the same margin.

No Republican has been elected to the U.S. Senate in New Jersey since 1972.

[New Jersey voters said by a 59-35 margin that the U.S. Senate should not confirm Judge Kavanaugh.]

--New York Gov. Andrew Cuomo is well ahead of Republican challenger Marc Molinaro, 22 points, as Cuomo seeks a third term.

Cuomo doesn’t score well upstate, though, with 58% disliking him, according to the poll from Siena Research Institute. 

--A North Carolina man died last week after contracting a bacterial infection while cleaning up in the aftermath of Hurricane Florence.  The man wound up in intensive care after scraping his leg while working. He had his leg amputated as a result of the infection, but it was too late. 

Officials are seeing a big pickup in accidents, such as chainsaw injuries, as you would expect.  Also, people getting tired working long hours in the heat and then falling off the roof.

On Thursday, the North Carolina Coastal Federation issued a strong warning for residents to stay out of the ocean and intracoastal waters due to heightened levels of potentially harmful bacteria caused by “massive stormwater runoff” from Florence, specifically noting that waters “contaminated with polluted runoff carry bacteria, parasites and viruses that  can cause...severe infections.”

The Carolinas have also been hit with a mosquito infestation.

--U.S. traffic fatalities fell in 2017 but remained at a near decade-high level, according to National Highway Traffic Safety Administration data released this week.  Deaths tied to speeding were down 5.6%, and alcohol-related fatalities fell 1.1%.

Distracted driving was the cause of about 8.5% of all traffic fatalities in 2017, a decrease from 9.2% in 2016. But the NHTSA says the figures could be (are) higher because driver distraction as a cause of roadway death is difficult to track.

37,133 died on the nation’s roads last year.  In 2007, the figure was 41,259.  In 1993, motor-vehicle deaths hit 40,150.

--NBC’s Jeff Rossen had a particularly gross report on the “Today” show the other day; that being the cleanliness of TSA bins at our airports.  As in the bins are far dirtier, “germier,” than even airport restrooms, though airplane tray tables are pretty close.

But I have to admit I never gave the topic any thought.  Yeah, I knew tray tables were beyond gross, let alone touching the airline magazine, which I nonetheless always read, but the bins?

It makes perfect sense in hindsight.  What is the worst thing you can put in a bin in terms of germs...shoes! So you start there, and then we willingly throw our wallets, car keys, and cellphones in there...as in, we then put the cellphone next to our ear, and are handling it constantly.  Rossen’s report didn’t talk about this aspect, but he didn’t have to.

--Steve Lopez of the Los Angeles Times had a terrific piece on the passing of a figure famous for a tragic photo...Juan Romero.

“Juan Romero struggled for decades with a memory he could not escape. He left Los Angeles and moved to Wyoming, later came back west and settled in San Jose, raised a family and devoted himself to construction work.

“But still he was haunted by what happened just after midnight on June 5, 1968, when he was on duty as a busboy at the Ambassador Hotel on Wilshire Boulevard near Koreatown. That was the night an assassin took aim at Robert F. Kennedy, a candidate for president of the United States. Romero, just 17 at the time, squatted next to the fallen U.S. attorney general, cradled Kennedy’s head, and tried to help him up realizing how gravely wounded Kennedy was.

“The photos of that moment, with confusion and despair in Romero’s young, dark eyes, made for searing portraits of 1960s upheaval and followed by two months the assassination of the Rev. Martin Luther King Jr. and by five years the assassination of RFK’s brother, President John F. Kennedy.

“It was only in recent years that Romero began to let go... Finally, he said, he was able to mark his birthday after years of refusing to celebrate because it was in the same month as RFK’s assassination.

“That only made the news of Romero’s death this week in Modesto, at age 68, seem all the more tragic.”

Steve Lopez last saw Romero in June, on the 50th anniversary of Kennedy’s death, the two getting together near a monument to Kennedy at a downtown San Jose Park.  Romero was in the habit of leaving flowers there each year to mark RFK’s death.

“When I met Romero in 1998, just prior to the 30th anniversary of the assassination, he fell apart in recalling the fateful night and how he happened to be in the hotel pantry area where Kennedy was shot. Romero told me he had met Kennedy the night before when the candidate ordered room service, and he felt honored by the way Kennedy shook his hand firmly and looked him in the eye with respect.

“ ‘I remember walking out of that room...feeling 10 feet tall, feeling like an American,’ said Romero, who had moved to Los Angeles from Mexico seven years earlier.  He became an Ambassador busboy on the advice of his strict stepfather, who worked at the hotel and wanted Romero to be sure to stay out of trouble on the streets of East Los Angeles.

“The next night, after Kennedy won California’s Democratic primary and made a victory speech, he retreated through the kitchen pantry area and Romero pushed through the crowd to congratulate him.  He said that just as he shook Kennedy’s hand, the shots were fired.  Romero thought the pops were from firecrackers and that Kennedy had fallen in fright, but Romero then saw blood spilling onto his own hand and realized what had happened as Sirhan Sirhan, the man with the gun, was apprehended.  Romero said he was carrying rosary beads in his pocket and stuffed them into Kennedy’s hands.

“Romero was taken to the Rampart police station for questioning, then took a bus to Roosevelt High the next morning.  He still had Kennedy’s blood on his hand and said he chose not to wash it off.

“As if the experience wasn’t traumatic enough, Romero said he got letters from people congratulating him for what he did. That made him uncomfortable, and so did letters from people asking him why he didn’t do something to prevent the assassination.  He got tired of being asked by Ambassador guests to pose for autographs, found work in Wyoming, then made his home in San Jose.”

Lopez and Romero met in Washington, D.C., in 2010 and visited RFK’s grave.  “(Romero) said he wanted to pay his respects, tell Kennedy he had tried to live a life of tolerance and humility, and to apologize.  His buddy Chacon and I told him he had nothing to apologize for, but Romero knelt at the grave, spoke softly and wept....

“I heard from former California First Lady Maria Shriver, a niece of Bobby Kennedy, after I wrote that column. She said she wanted an address to send a thank-you note to Romero.

“ ‘I always felt a great deal of empathy for him...because of how difficult it was for him to move past that,’ Shriver told me Wednesday evening when I called her with the news of Romero’s death.

“Shriver said she never met Romero but hoped he came to realize he did  the humane thing in a tragic moment, and she hoped he had found peace in the end.

“ ‘God bless him,’ Shriver said.  ‘It’s kind of hard to know why someone gets put into a situation that they’re locked in forever.  But as I see it, he was locked into an image of helping someone.’”

If you’re too young to remember the photo, it’s easy to find.  RIP, Juan Romero.

---

Pray for the men and women of our armed forces...and all the fallen.  We lost a soldier in Afghanistan this week, I believe the sixth this year.

God bless America.

---

Gold $1206
Oil $74.29...highest weekly close since Nov. 2014

Returns for the week 10/1-10/5

Dow Jones  -0.04%  [26447]
S&P 500  -1.0%  [2885]
S&P MidCap  -2.6%
Russell 2000  -3.8%
Nasdaq  -3.2%  [7788]

Returns for the period 1/1/18-10/5/18

Dow Jones  +7.0%
S&P 500  +7.9%
S&P MidCap  +3.6%
Russell 2000  +6.3%
Nasdaq   +12.8%

Bulls 61.8
Bears 18.6...prior week, which was unavailable last time, was 60.6/18.3.  Anything above 60 on the ‘bull’ side is a strong warning sign.

Dr. Bortrum posted a new column.

Have a great week.

Brian Trumbore



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Week in Review

10/06/2018

For the week 10/1-10/5

[Posted 11:30 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 1,017

Trump World

This was the most successful week of the Trump presidency to date.  The president could tout a new trade agreement, even if it’s hardly anything special...doesn’t matter, the base won’t know...the economic news continued to be terrific, with third quarter growth destined to be 3.5% or greater, and an unemployment rate not seen since the days the Mets were the toast of New York and the baseball world (1969), and he is about to get his second conservative Supreme Court justice confirmed.  Seeing as Brett Kavanaugh is replacing Anthony Kennedy, the swing vote in an otherwise 4-4 bench, yes, this is a massive change in direction.  Conservatives are dancing like it was Christmas morning, ordering the big goose in the butcher’s window, while Progressives are, err, not real pleased, to say the least.

The nation is more divided than ever and I’ll be damned if anyone honestly knows which base will truly turn out come November 6.

But it bears repeating.  If you’re a Republican, you desperately want the president to just shut up for the next four weeks.  Not one tweet, or one disparaging comment at a rally, is going to get people going, “Yeah, I love how he just slammed that woman...by gosh, I’m now going to make sure I vote Republican!”  Those in his audience who eat that stuff up were long already heading to the polls.

On the other hand, it’s easy to say the Progressives are all riled up and gearing up to vote, but we all know the trends when it comes to the younger segment in this crowd.  They love to protest and make life miserable for elected officials trying to have a quiet dinner with the family, but then come Election Day history shows their attitude is “whatever.”

But has this now changed?  Are they truly energized to the point of finding out their actual polling location?  Do they know they better be prepared to submit an ID?

On the other hand, we do know suburban housewives and female professionals tend to vote, and here the trends aren’t good for the elephants.  I’m guessing Trump, in his own triumphant way, now that Kavanaugh has a seat on the High Court, will still mock Dr. Christine Blasey Ford more than one more time, and that will be another few votes for the donkeys.

Here’s what I know locally.  My own congressman is a classic moderate Republican, Leonard Lance.  Lance is a good guy.  He’s the only reason why I’m voting in November.

But while there has never been a Democrat in this seat since I’ve been alive, the last poll I saw had Lance losing to his Democratic challenger Tom Malinowski by eight points.   Startling.

There is another district that starts literally one block from where I live and in this case, we have a longtime Republican, Rodney Frelinghuysen, who is walking into the sunset and the Democrat running for the seat, Mikie (sic) Sherrill, is out of central casting and is going to clean the Republican challenger’s clock.  Understand this seat has been in Republican control since George Washington was establishing his encampment at nearby Jockey Hollow, or so it seems.

These are two true Republican seats that look to be going Democrat, so if you’re into following early election results for patterns, look no further than New Jersey and my neighborhood.

Anyway, I got off track.

While this was a great week for the president, the challenges he faces on the geopolitical front the next few months are critical, especially China.  As I describe down below, we are headed to a major confrontation come November in the South China Sea, and with the aggressive tone that has been set by the White House on dealing with Beijing on a myriad of issues, of which I have no problem, Americans need to be prepared for some potentially unpleasant surprises.  It’s why I wish our trade negotiations with China were low-key...hard as nails in our approach...but behind closed doors.  I warned you a few weeks ago of what is coming.  We are publicly poking them in the eye.  They aren’t going to respond well.  And they sure as hell aren’t going to cooperate when it comes to enforcing sanctions on North Korea...ditto Russia.

Kavanaugh:

Judge Brett Kavanaugh cleared a major hurdle Friday as the Senate voted narrowly to cut off debate on his nomination and move to a final vote on his Supreme Court nomination on Saturday, Kavanaugh confirmed by a 51-49 margin.  Among those reputed to be on the fence, Republican senators Susan Collins (Me.) and Jeff Flake (Ariz.) are voting in the affirmative, while Alaska’s Lisa Murkowski is voting against confirmation (though tonight it’s unclear if she is voting ‘present’ as a favor to another member).  West Virginia Democrat Joe Manchin, who I long said should have jumped parties, is voting for Kavanaugh, Manchin locked in a tough reelection fight in his very red state.

I have been for Kavanaugh since day one, I just felt after his hearing and Dr. Ford’s allegations, that he may have stretched the truth a bit on his youthful experiences, but as I wrote last week, that didn’t mean he was involved in a sexual assault.   As for the FBI investigation, the others at the ‘party’ had no recollection of an event 36 years earlier.  The rest that’s out there is just ‘talk.’

I also continue to hold Democratic Sen. Dianne Feinstein culpable for her total mishandling of Dr. Ford’s letter and for this Feinstein’s legacy is secured.  What had been a distinguished career in the Senate will forever be tarnished by this fiasco.

Opinion....

David Brooks / New York Times

“Over the past few years, hundreds of organizations and thousands of people (myself included) have mobilized to reduce political polarization, encourage civil dialogue and heal national divisions.

“The first test case for our movement was the Kavanaugh hearings. It’s clear that at least so far our work is a complete failure. Sixty-nine percent of Americans in one poll called the hearings a ‘national disgrace,’ and the only shocking thing is that there are 31 percent who don’t agree.

“What we saw in these hearings was the unvarnished tribalization of national life.  At the heart of the hearings were two dueling narratives, one from Christine Blasey Ford and one from Brett Kavanaugh.  These narratives were about what did or did not happen at a party 36 years ago. There was nothing particularly ideological about the narratives, nothing that touched on capitalism, immigration or any of the other great disputes of national life.

“And yet reactions to the narratives have been determined almost entirely by partisan affiliation.  Among the commentators I’ve seen and read, those who support Democrats embrace Blasey’s narrative and dismissed Kavanaugh’s.  Those who support Republicans side with Kavanaugh’s narratives and see holes in Ford’s.  I can think of few exceptions.

“These hearings were also a devastating blow to intellectual humility.  At the heart of this case is a mystery: What happened at that party 36 years ago? There is no corroborating evidence either way. So the crucial questions are: How do we sit with this uncertainty?  How do we weigh the two contradictory testimonies?  How do we measure these testimonies when all of the cognitive science tells us that human beings are really bad at spotting falsehood? Should a person’s adult life be defined by something he did in high school?

“Commentators and others may have acknowledged uncertainty on these questions for about 2.5 seconds, but then they took sides.  If they couldn’t take sides based on the original evidence, they found new reasons to confirm their previous positions.  Kavanaugh is too angry and dishonest. He drank beer and threw ice while in college. With tribal warfare all around, uncertainty is the one state you are not permitted to be in.

“This, of course, led to an upsurge in base mobilization.  Persuasion is no longer an important part of public conversation.  Public statements are meant to mobilize your mob. Senator Cory Booker can’t just sort through the evidence. He has to get Spartacus-like histrionic in order to whip Democrats toward his presidential candidacy.  Kavanaugh can’t just dispassionately try to disprove the allegations made against him. Instead, he gets furious and stokes up culture war rage in order to fire up the Republican base.

“This leads to an epidemic of bigotry.  Bigotry involves creating a stereotype about a disfavored group and then applying that stereotype to an individual you’ve never met.... It was bigotry against young black males that got the Central Park Five convicted in 1990.  It was bigotry against preppy lacrosse players that led to the bogus Duke lacrosse scandal.

“This past month we’ve seen thousands of people convinced that they know how Kavanaugh behaved because they know how ‘privileged’ people behave. We’ve seen thousands of people lining up behind Kavanaugh because they know that there’s this vicious thing called ‘the Left,’ which hates them.

“This is a complete pulverization of the actual individuals involved in this case – a retreat from complex particularity to simplistic group prejudice.

“The core problem behind all of this is a complete breakdown in the legitimacy of our public institutions.  The Supreme Court is no longer a place where justices dispassionately rule on the Constitution.  It’s a place where they cast predictable party-line votes. Therefore, senators no longer deliberate on nominees. They cast predictable party-line votes.  The members of the public no longer reason with one another. They fall into predictable party-line formation and then invent post-hoc, bad-faith rationalizations to give cover to their ideologically driven positions (Drank too much! Bad temperament!  Bad yearbook entry!).

“It’s clear that we need a new sort of environmental movement, a movement to police our civic environment.  That environment isn’t polluted by a vague condition called ‘polarization.’  It is polluted by the specific toxic emissions we all produce in our low moments. Those emissions have to be precisely identified, classified, called out as shameful....

“Finally, the good trends have to be fenced off from poisonous politics. American society is taking concrete action to make sexual assault intolerable. But this movement will not succeed if it becomes a pinball in the partisan politics of personal destruction.

“The Kavanaugh hearings were a look in the mirror, and a vivid display of how ugly things have become. What are we going to do about it?”

Editorial / Wall Street Journal

“Judge Kavanaugh is by all accounts one of the most qualified nominees for the Supreme Court in recent history. He has more appellate-court experience than Antonin Scalia did in 1986, and he has had more of his judicial reasoning adopted by the Supreme Court.  Nothing in his three decades of public life echoes the behavior that his accusers claim they saw in his high school and college days.  On the merits, confirmation is an easy vote.

“Yet the stakes are larger because of the smears and character assassination. To reject Judge Kavanaugh now would ratify these Democratic tactics, with damaging consequences for the Senate, the Supreme Court and American politics. If uncorroborated accusations from decades ago can destroy a distinguished career for political reasons, then the same can happen to anyone and will happen to many.

“Democrats have done great damage to the Senate that will take years to undo, but the first crucial step is confirming Brett Kavanaugh.”

Brett Kavanaugh / Wall Street Journal

“I was deeply honored to stand at the White House July 9 with my wife, Ashley, and my daughters, Margaret and Liza, to accept President Trump’s nomination to succeed my former boss and mentor, Justice Anthony Kennedy, on the Supreme Court.  My mom, Martha – one of the first women to serve as a Maryland prosecutor and trial judge, and my inspiration to become a lawyer – sat in the audience with my dad, Ed.

“That night, I told the American people who I am and what I believe. I talked about my 28-year career as a lawyer, almost all of which has been in public service.  I talked about my 12 years as a judge on the U.S. Court of Appeals for the District of Columbia Circuit, often called the second most important court in the country, and my five years of service in the White House for President George W. Bush.  I talked about my long record of advancing and promoting women, including as a judge – a majority of my 48 law clerks have been women – and as a longtime coach of girls’ basketball teams.

“As I explained that night, a good judge must be an umpire – a neutral and impartial arbiter who favors no political party, litigant or policy. As Justice Kennedy has stated, judges do not make decisions to reach a preferred result. Judges make decisions because the law and the Constitution compel the result.  Over the past 12 years, I have ruled sometimes for the prosecution and sometimes for criminal defendants, sometimes for workers and sometimes for businesses, sometimes for environmentalists and sometimes for coal miners.  In each case, I have followed the law.  I do not decide cases based on personal or policy preferences. I am not a pro-plaintiff or pro-defendant judge.  I am not a pro-prosecution or pro-defense judge.  I am a pro-law judge.

“As Justice Kennedy showed us, a judge must be independent, not swayed by public pressure....

“The Supreme Court must never be viewed as a partisan institution. The justices do not sit on opposite sides of an aisle. They do not caucus in separate rooms.  As I have said repeatedly, if confirmed to the court, I would be part of a team of nine, committed to deciding cases according to the Constitution and laws of the United States.  I would always strive to be a team player....

“(But after meeting with 65 senators) and after my initial hearing concluded, I was subjected to wrongful and sometimes vicious allegations.  My time in high school and college, more than 30 years ago, has been ridiculously distorted.  My wife and daughters have faced vile and violent threats.

“Against that backdrop, I testified before the Judiciary Committee last Thursday to defend my family, my good name and my lifetime of public service. My hearing testimony was forceful and passionate. That is because I forcefully and passionately denied the allegation against me.  At times, my testimony – both in my opening statement and in response to questions – reflected my overwhelming frustration at being wrongly accused, without corroboration, of horrible conduct completely contrary to my record and character.  My statement and answers also reflected my deep distress at the unfairness of how this allegation has been handled.

“I was very emotional last Thursday, more so than I have ever been.  I might have been too emotional at times.  I know that my tone was sharp, and I said a few things I should not have said. I hope everyone can understand that I was there as a son, husband and dad....

“Going forward, you can count on me to be the same kind of judge and person I have been for my entire 28-year legal career: hardworking, even-keeled, open-minded, independent and dedicated to the Constitution and the public good.  As a judge, I have always treated colleagues and litigants with the utmost respect....

“I will remain optimistic, on the sunrise side of the mountain.  I will continue to see the day that is coming, not the day that is gone.

“I revere the Constitution.  I believe that an independent and impartial judiciary is essential to our constitutional republic.  If confirmed by the Senate to serve on the Supreme Court, I will keep an open mind in every case and always strive to preserve the Constitution of the United States and the American rule of law.”

Trumpets....

--An incredibly extensive New York Times report on President Trump’s wealth, and his story that he was a self-made billionaire, revealed that he received at least $413 million in today’s dollars from his father’s real estate empire, much of it through tax dodges in the 1990s.

“President Trump participated in dubious tax schemes during the 1990s, including instances of outright fraud, that greatly increased the fortune he received from his parents...

“Much of this money came to Mr. Trump because he helped his parents dodge taxes.  He and his siblings set up a sham corporation to disguise millions of dollars in gifts from their parents, records and interviews show.  Records indicate that Mr. Trump helped his father take improper tax deductions worth millions more....

“The president’s parents, Fred and Mary Trump, transferred well over $1 billion in wealth to their children, which could have produced a tax bill of at least $550 million under the 55 percent tax rate then imposed on gifts and inheritances.

“The Trumps paid a total of $52.2 million, or about 5 percent, tax records show.”

--Trump tweets: “The Failing New York Times did something I have never seen done before.  They used the concept of ‘time value of money’ in doing a very old, boring and often told hit piece on me.  Added up, this means that 97% of their stories on me are bad.  Never recovered from bad election call!”

“I see it each time I go out to Rallies in order to help some of our great Republican candidates.  VOTERS ARE REALLY ANGRY AT THE VICIOUS AND DESPICABLE WAY DEMOCRATS ARE TREATING BRETT KAVANAUGH!  He and his wonderful family deserve much better.”

“Wow, such enthusiasm and energy for Judge Brett Kavanaugh.  Look at the Energy, look at the Polls.  Something very big is happening.  He is a fine man and great intellect. The country is with him all the way!”

Yeah, like in a 51-49ish way, Mr. President.

Or a national Quinnipiac University Poll that had 41 percent of American voters supporting a Kavanaugh confirmation, 42 percent opposed.  Interestingly in this one, Independent voters, who supported Kavanaugh 45-39 September 10, opposed his confirmation today 49-39.

--Rod Rosenstein’s name will be back in play this coming week.  Stay tuned.

Wall Street and Trade

Another strong week of economic data for the U.S., with today’s jobs report for September showing that while the nonfarm payroll report was below expectations at 134,000, vs. an estimate of 184,000, July and August were revised sharply higher, the former from 147,000 to 165,000, the latter from 201,000 to 270,000, so the three-month average is a solid 190,000.  Plus the unemployment rate fell to 3.7%, the lowest since Dec. 1969.  Not too shabby.  U6, the underemployment rate, did tick up to 7.5%.

The key average hourly earnings component was up a strong 0.3%, but the year-over-year figure is 2.8%, far from poor, but still disappointing in terms of the length of the recovery from the Great Recession.  This figure should be 3.5% or higher.

Earlier, we had the ISM figures on manufacturing and the service sector.  Manufacturing came in at a solid 59.8 (50 representing the dividing line between growth and contraction), but the services readings was the star of the week, 61.6, the best reading ever for the non-manufacturing sector per this particular survey.

Construction spending for August was on the light side, 0.1%, but factory orders for the month were up 2.3%.

Put it all together and the Atlanta Fed’s GDPNow barometer for the third quarter is back to 4.1% from the prior week’s 3.8%.

As for the stock market...Sunday night’s trade deal on a revised NAFTA pact removed one source of anxiety for stocks, and Wednesday’s ISM services reading helped bolster the bullish tone, though by that afternoon, bond yields were beginning to rise sharply and that hurt the market the rest of the week.

In an address to business economists Tuesday in Boston, Fed Chairman Jerome Powell said he doesn’t see evidence the labor market is at risk of overheating or of pressuring up prices., pushing back against critics who say the Fed’s projections of sustained, very low unemployment are underestimating the prospect of inflation rising significantly above the central bank’s 2% target.

Powell conceded his outlook of 4% or lower unemployment over the next three years, though with inflation never rising much above 2%, is “remarkably positive” and that the U.S. hasn’t witnessed such a sustained spell since 1950.  But he argued that these projections aren’t too good to be true.

The chairman did add the Fed would be particularly attentive to changes in inflation expectations and “stand ready to act with authority if expectations drift materially up or down.”

On the trade issue and a revised NAFTA agreement...

After a few final hectic weeks and a last-minute scramble to secure Canada, the United States, Canada and Mexico reached an agreement in principle – a resolution 14 months in the making.  The leaders of all three took a victory lap on Monday, with President Trump heralding the still-to-be-ratified pact as “truly historic.”

The original 1994 deal has been renamed, and is now the United States-Mexico-Canada Agreement, or USMCA.  $1.2 trillion in annual trade between the three partners is in play, with the most eye-catching changes to the deal involving the auto industry, details of which follow in the opinion pieces below so I won’t go through them here.

The main thing for Canada is that it will escape potentially devastating national security tariffs on car part imports that have been threatened by President Trump.

For his part, Canadian Prime Minister Justin Trudeau has a tough sell in certain segments of his country, namely dairy farmers. Trudeau defended the deal at a press conference and in the Canadian legislature on Monday, saying the trade-dependent economy – in which three quarters of its exports are U.S.-bound – is on more solid footing.  “Free and fair trade in North America...is in a much more stable place than it was yesterday,” he said.  “We now have a path forward.”

The USMCA will grant U.S. dairy producers a 3.6% slice of Canada’s domestic market, which for all the bitching in Canada is just 1% above the existing quota.  Still, the Dairy Farmers of Canada, an industry group, claimed that 220,000 Canadians in the sector were “sacrificed” to secure a deal.

But the bottom line is major portions were borrowed from, or built on, provisions in the Trans-Pacific Partnership, the 12-nation trade pact completed by President Obama that Trump promptly killed his first day in office.  The U.S., Canada and Mexico were part of this Pacific Rim accord.  U.S. Trade Representative Robert Lighthizer conceded as much in a briefing with reporters Monday, but said “our agreement is substantially better.”

Regardless of whether or not the USMCA is simply TPP repackaged, it’s hard to see this as anything but a partial victory for President Trump, that he’ll insist the rest of his presidency was the greatest deal of all time.  He will use it to boast of his negotiating prowess and delivery of a core campaign promise.

But the whole freakin’, ugly, process wasn’t necessary!

Opinion....

Greg Ip / Wall Street Journal

“To free traders, the new NAFTA is a bitter pill to swallow. It introduces managed trade to autos, waters down the foreign rights of corporations and normalizes national security as a pretext for tariffs.  Many of its improvements, such as on intellectual property and labor rights, were already in the 12-nation Trans-Pacific Partnership, from which President Donald Trump has withdrawn.

“But the verdict is different when judged by a different standard – how the world’s trading system survives the most protectionist U.S. administration in memory.  The new deal shows the limits to Mr. Trump’s ‘America First’ agenda and an underlying resilience to the existing order.  The reason: The resistance Mr. Trump encountered from Congress, business, his own advisers and U.S. trading partners circumscribed his leverage and may again in the future.

“At the outset, the U.S. held all the cards: Mexico and Canada depended far more on exports to the U.S. than vice versa.  Mr. Trump shared none of his predecessors’ affection for trade agreements, either on their own merits or as tools of foreign policy.  Hs threats to abandon the North American Free Trade Agreement, the U.S.-Korea Free Trade Agreement and even the World Trade Organization weren’t hollow.  He proved this with unilateral tariffs on washing machines, solar panels, steel and aluminum. He told U.S. Trade Representative Robert Lighthizer, ‘I will back you up like no other USTR has been backed up in history,’ Mr. Lighthizer recounted to reporters on Monday. ‘And he did that.’

“Yet in the end, the new U.S.-Mexico-Canada Agreement looks a lot like the old NAFTA.  Mexico’s only significant concession was on autos and parts: rules requiring more production in North America, higher wages for workers, and potential tariffs if its exports to the U.S. exceed 2.6 million vehicles.

“Yet these auto rules may have little practical significance.  Jeff Schuster of LMC Automotive, a consulting firm, says some lower-priced models now assembled by Volkswagen, Mazda and a few other manufacturers in Mexico may no longer qualify for duty-free entry. Rather than shift production to the U.S., they may simply pay the 2.5% tariff, he says.  That would hurt U.S. consumers (especially on lower incomes) without helping U.S. workers.

“The cap on exports may discourage manufacturers from expanding capacity in Mexico but won’t affect current shipments, since U.S. auto demand has stagnated. Canada also faces an export cap, but it is far above current exports and thus even less likely to bind. This is reminiscent of South Korea’s agreement to double the quota of imported American cars that don’t have to comply with its safety standards.  No manufacturer had filled the old quota....

“The outcome has important lessons for future trade negotiations.  Mr. Trump will soon be negotiating with Japan and the EU over steel and autos.  Yet his leverage will be constrained by pressure from exporters and businesses in the U.S. that stand to lose from higher costs at home and retaliation abroad, and consequently resistance from Congress.  (This won’t help China, which gets far less sympathy in Congress.)  Meantime Mr. Trump’s threats to upend the WTO are likely to meet even more resistance from Congress than his threats to scrap NAFTA.

“And sometime next year Mr. Trump will have to get Congress to approve the USMCA.  He may then find himself extolling the sorts of deals he has long disparaged.”

Editorial / USA TODAY

“President Donald Trump announced his new North American trade deal with much fanfare.  It was, he said, ‘the most important trade deal we’ve ever made – by far!’ And it would replace what he described as ‘the worst trade deal ever...the job-killing disaster known as NAFTA.’

“What a Trumpian moment this was. The deal to succeed the North American Free Trade Agreement, and all the pomp and circumstance surrounding the announcement, was Trump in microcosm.

“Trump has spent much of his presidency breaking things, both to garner the attention he craves and to make the point that the previous presidents and congresses who made these laws, policies and agreements lacked his brilliance.

“In some cases, his plan has been to leave the detritus strewn about the playroom floor like Lego blocks and dismembered GI Joe parts. With North American trade, his plan is to reassemble the parts in more or less the same order and claim he has created something new and marvelous.

“Some observers will find NAFTA 2.0 – which Trump has rebranded USMCA, for the United States-Mexico-Canada Agreement – modestly better than NAFTA.   Others will find it modestly worse. We find ourselves in the modestly worse camp.

“The deal’s big ‘win’ for the United States is an agreement by Canada to remove some protections for its domestic dairy industry. This might mean a lot to American dairy farmers, but not so much for the 99.9% of the country. What’s more, Canada had already agreed to similar language with other countries in Asia and the Americas as part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

“The deal is also said to include some protections for U.S. patents and anti-piracy efforts. These reflect changes in the tech world since NAFTA became law in 1994.

“In return, the Trump deal includes a number of questionable provisions:

“-- It would increase domestic content regulations on automobiles. NAFTA stipulated that any vehicle wishing to avoid tariffs would have to be at least 62.5 percent made in North America. The Trump deal would increase the percentage to 75 percent. That could be good for autoworkers. But it will make cars marginally more expensive and could produce unintended consequences, particularly for the growing industry of exporting U.S.-made German and Japanese vehicles....

“-- The deal includes a sunset clause that will cause it to end after 16 years. For years, American companies have complained about a tax code that is subject to uncertainty. Now they will have the same fears with trade.

“For all the hoopla surrounding Monday’s announcement, Trump was quick to downplay its chances in Congress, which must approve the deal for it to take effect.  Democrats, who have largely been quiet, will ultimately line up against the measure, he argued. And many Republicans will wonder why they should support domestic-content regulations that are stricter than those they didn’t like in the first place.

“That leads to the question of why the president would invest so much time and effort on a NAFTA tweak that might not even be approved. The best answer seems to be that Trump wants something new to put his name on.”

Editorial / Wall Street Journal

“Canada joined the U.S. and Mexico Monday in a revised trade agreement to replace the North American Free Trade Agreement, and stocks rallied in relief. The new deal’s main virtue is that it stows one of Donald Trump’s main protectionist wrecking balls, even if the new NAFTA is worse for trade and economic growth than the status quo.

“Oh, and please don’t call it NAFTA 2.0.  Mr. Trump is calling it the U.S.-Mexico-Canada Agreement to showcase that he has fulfilled one of his main campaign promises. And in that sense we’re happy to avoid the great harm that would have come from a unilateral U.S. withdrawal.

“But the new deal is more relief than vindication. Stocks are only now reaching their heights from January before Mr. Trump began picking trade fights willy-nilly around the world.  Markets have fallen and risen over the last nine months depending in part on how bloody-minded Mr. Trump seemed on trade.  They began to rise more consistently after Mr. Trump declared a truce with Europe and ordered his trade negotiators to get NAFTA done.

“Canada’s inclusion is especially crucial, and the last-minute compromise a step forward. The big gain for U.S. farmers is that Canada agreed to eliminate its quota and pricing system on certain dairy products, though the overall quota on the U.S. share of the Canadian dairy market will rise by less than one percentage point. Canada’s dairy exports could face a new tax to discourage its producers from pricing their exports below market prices.

“In return, the Trump Administration wisely agreed to preserve NAFTA’s Chapter 19 and 20 dispute-settlement mechanisms. The new text preserves the right to challenge antidumping and countervailing duties imposed by the neighbors.  Panels to resolve state-to-state disputes also survived. This is vital to Canada to avoid America’s many protectionist business lobbies that use other U.S. laws to punish competition from imports such as lumber.

“The trilateral text also incorporates most details from the U.S.-Mexico pact reached in August, and much of this is important modernization based on new economic realities. This includes chapters on digital trade, financial services and intellectual property, plus important clarification of investment rules for telecommunications and energy in Mexico.

“The deal bars discrimination against genetically modified crops, and data protection for biologic drugs will be doubled to 10 years. Free traders also defeated the Trump demand to automatically sunset the deal every five years. The compromise to extend the pact for 16 years, with a review period every six years, still adds needless uncertainty but probably isn’t fatal to new investment.

“That more or less exhausts the good news. The new deal strips protections against predatory government behavior for most foreign investors.  In Mexico only oil and gas, electricity, telecommunications, transportation and public works will have access to multilateral dispute panels. The rest will have to go through local courts unless their property is directly confiscated. This is worse than the status quo.

“The new deal also takes a giant step toward politically managed trade by imposing new rules of origin and labor regulations.  Passenger vehicles will no longer enjoy duty-free access across borders unless they meet higher North-American-made content requirements in both finished products and parts.  This  will add costs and complexity to building cars on the continent, and make the final products less competitive world-wide.

“Worse, the deal opens the door for using trade deals to dictate a minimum wage and labor policy in Mexico. Car companies in Mexico will have to pay well above market wages on 40% of their output to qualify for duty-free treatment. Ford and GM have resigned themselves to this and may be able to finesse it, but some people we respect think the net result will drive car production at the margin away from North America.

“Mexico and Canada also bought some insurance against possible U.S. Section 232 ‘national security’ tariffs on autos.  Mexico will be allowed to export to the U.S. 2.6 million cars duty-free if those tariffs are imposed. After exporting 1.7 million passenger vehicles last year, Mexico has some room to grow. But if the tariff is punitive, the new rule will act as a cap. By the way, the punitive Trump tariffs of 25% on steel and 10% on aluminum imports remain in effect for Canada despite the new deal.

“Whether this can pass Congress will have to await a careful reading of the fine print.  Passage this year might be possible if Mr. Trump is willing to give up the trade-promotion-authority protection of a simple majority vote in the Senate.  More likely the vote will have to come next year when Democrats might control Congress.

“Trade Rep Robert Lighthizer has been telling Mr. Trump he has roped in Democrats by co-opting Big Labor with the new wage and union mandates. But note that even the United Auto Workers said Monday they are withholding judgment. Only a handful of House Democrats voted to give Barack Obama trade-promotion authority. Would Nancy Pelosi really give Mr. Trump a political trade victory?

“Meanwhile, U.S. business is likely to be ambivalent about a pact that is worse than NAFTA. GOP free-traders will also prefer the status quo, and Republicans always provide the bulk of the votes for trade deals. The new trade deal could have been worse given Mr. Trump’s protectionist beliefs, but that’s about the best we can say for it.”

Jeff Moon / Wall Street Journal...on a separate trade issue....

“President Trump has raised the stakes so high in his China trade war that he can’t afford to lose.  If he comes away with anything less than a deal guaranteeing significant, verifiable reforms to Beijing’s mercantilist trading practices, he risks imperiling American business prospects in China for years.

“A settlement that merely tinkers with the status quo – like the recent reworking of the North American Free Trade Agreement – would spell long-term political and economic disaster.  The Chinese know that future U.S. presidents are unlikely to match Mr. Trump’s rhetoric and personal political investment in the trade issue.  Beijing would interpret any unfulfilled threat from Mr. Trump as proof that it need never yield to U.S. trade demands, having shown it can withstand maximum American economic pressure.  Chinese leaders will conclude that they have survived the Americans’ best effort to pry open their markets. They will then feel free to perpetuate indefinitely their discriminatory trading practices and industrial policies.

“History provides a cautionary tale.  President Clinton threatened during the post-Tiananmen period to condition China’s most-favored-nation trading status on its progress on human-rights issues.  After much wrangling, Mr. Clinton realized he had overplayed his hand.  He backed down in 1994, leaving the affair as the high-water mark of American pressure on China over human rights.  The issue subsequently receded into the background of the bilateral relationship, to the point that the Trump administration now raises human rights with the Chinese as an afterthought, if at all.

“The American business community appears not to appreciate fully that precedent, and they underestimate the danger ahead. Businesses and trade associations overwhelmingly have opposed Mr. Trump’s tariff policy, and they hope to avoid short-term pain by pressuring the president to withdraw the tariffs.  But the long-term stakes of the trade war have increased now that Mr. Trump has escalated the conflict beyond the point of no return.  If Mr. Trump now settles the fight he has picked with China for little or nothing, he will signal that China can ignore longstanding demands into the indefinite future, along with any threats seeking a level playing field for U.S. businesses in the Chinese market.

“Mr. Trump is living out the old maxim that you need to be careful what you ask for because you just might get it. Now that he has the trade war he so vigorously sought, he bears ultimate responsibility for his gamble over America’s trade with China. He better win, or else.”

Trump tweets: “Late last night, our deadline, we reached a wonderful new Trade Deal with Canada, to be added into the deal already reached with Mexico. The new name will be The United States Mexico Canada Agreement, or USMCA.  It is a great deal for all three countries, solves the many...

“...deficiencies and mistakes in NAFTA, greatly opens markets to our Farmers and Manufacturers, reduces Trade Barriers to the U.S. and will bring all three Great Nations together in competition with the rest of the world.  The USMCA is a historic transaction!”

Europe and Asia

The start of a new month and time for the PMI data, and then some. For the euro area (EA19), the composite PMI for September was 54.1 vs. 54.5 in August.  Manufacturing came in at 53.2 vs. 54.6 the prior month, services at 54.7 vs. 54.4.

Germany: 53.7 Sept. mfg., a 25-month low; services 55.9
France: 52.5 mfg., 54.8 services
Spain: 51.4 mfg., a 25-mo. low; 52.5 services, a 58-mo. low!
Italy: 50.0 mfg., a 25-mo. low; 53.3 services

Other manufacturing PMIs for the EA19 had Greece at 53.6; Netherlands 59.8; and non-euro UK 53.8 for September. [All the preceding courtesy of IHS Markit.]

Separately, Eurostat reported that the unemployment rate in the EA19 ticked down to 8.1%, the lowest since the 8.0% reading of November 2008.

Germany’s jobless rate was 3.4%; France 9.3% (up from July’s 9.1%); Spain 15.2%; Italy 9.7%; Greece 19.1% (June); Netherlands 3.9%; Ireland 5.6%; UK 4.0% (June)

Chris Williamson / IHS Markit

“Eurozone manufacturing shifted down yet another gear at the end of the third quarter.  The sector has seen booming growth at the start of the year rapidly fade to the worst performance for two years in September as production and jobs growth have slowed in response to a stalling of export trade.

“The survey paints the worst trade picture for over five years, with export growth having slumped sharply from a series record high in late 2017 to near-stagnation in September.

“The slowdown can be linked to sluggish demand and increased risk aversion among customers, often linked to worries about trade wars and tariffs, but also ascribed to rising political uncertainty and higher prices.

“Forward-looking survey indicators suggest the worst is yet to come: optimism about the year ahead is close to a three-year low, inflows of new orders and input buying are the weakest for over two years and backlogs of work are dropping for the first time in over three years.

“Production also continues to run ahead of order book growth, which is a key sign that output and jobs growth will be reined-in further as we move into the fourth quarter unless demand revives.”

Eurobits....

Brexit:  We are down to the wire for reaching some kind of consensus on Brexit in time for the EU summit on Oct. 17-18, with the recognition that a final deal, if there is to be one, could be completed as late as a Nov. 17-18 summit.

The European Union’s Brexit negotiators believe a divorce deal with Britain is “very close,” according to a Reuters report Friday afternoon, in a sign that the contentious Irish border issue is about to be resolved.

The EU signaled on Thursday it was engaging with new proposals emerging in Britain on how to avoid extensive Irish border checks after Brexit, the key potential deal-breaker in the talks.

A senior EU diplomat said “We are going in the right direction,” re the Irish fix, though despite the optimism among some key figures in Brussels, Britain has yet to formally put any new proposals to the bloc in writing.

But under the plan being discussed, Britain would have a limited emergency Irish border solution.  It would get its way in having all of the United Kingdom – rather than just Northern Ireland – stay in a customs union with the bloc if the “backstop” is triggered.  Ireland’s Prime Minister Leo Varadkar, speaking in Brussels on Thursday, urged Britain to make new proposals well ahead of the October summit to leave enough time for analysis.

The EU is concerned that any compromise over the border could allow Britain to use Northern Ireland’s special access to the bloc’s single market to sell cheaper goods that would not adhere to EU  labor, environment and other standards.

For Britain, the problem is agreeing to checks on goods and livestock within Northern Ireland, something strongly opposed by the province’s Democratic Unionist Party – on whose votes British Prime Minister Theresa May relies on to govern.

Britain’s Brexit ministry said today that London’s new proposals on the Irish border would preserve the integrity of the United Kingdom.

As for the overall post-Brexit relationship, Donald Tusk, the chairman of EU leaders, said a “Canada plus plus plus” was one offer, meaning an advanced free trade agreement coupled with close security ties, tight cooperation on global affairs and research, among other elements.

Another senior EU diplomat told Reuters that the EU would propose “zero tariffs and zero quotas” in trade with Britain after Brexit; such a proposal favored by May’s critics inside her own party who are seeking an uncompromising split with the EU, more so than May is seeking.

Meanwhile, Theresa May weathered the storm at her Conservative Party conference, rejecting criticisms of her Brexit plan from rebels within the party, such as former foreign secretary Boris Johnson’s claim that the prime minister’s Brexit plan was “deranged” and “preposterous.”  As the festivities wrapped up Wednesday, Mrs. May hit back and defended her proposal as the only one that would minimize economic disruptions and deliver “frictionless trade” with the EU while also respecting the result of the 2016 referendum to leave the bloc.  Critics say the proposal still ties the UK too closely to the EU.

The May proposal aligns the UK with EU standards on goods and food products, but diverges on the regulation of services.  It would also pull the UK out of a host of EU programs related to farm, fisheries and migration policy.

“What we are proposing is very challenging for the EU,” she said as the conference wrapped up.  “But if we stick together and hold our nerve I know we can get a deal that delivers for Britain.”

The prime minister survived to fight another day, week, maybe months.  For now, concern among other EU leaders as to whether she would face a leadership challenge in the coming months was alleviated.

Reminder, any agreement reached Oct. 17-18, and/or in November, must then be approved by both EU and British parliaments, in order to avoid a disastrous no-deal Brexit.

Italy: I nailed one market call, the yield on the Italian 10-year bond, which I warned was way too low given the country’s debt level and stagnant economy, has soared from 1.73% on April 27 to today’s close of 3.42%; as in some investors/traders got killed, while those on the ‘short’ side have made a killing of a different kind.

How significant is this move? Despite a 10-basis rise in the German 10-year (the Bund) to 0.57% this week, that is exactly the same yield as on April 27.

James Mackintosh / Wall Street Journal...his column written Thursday.

“The Italian bond market has a whiff of panic about it, while the rest of Europe has remained remarkably calm. This makes little sense, and is unlikely to last. The basic logic runs like this. The rise in Italian yields relative to those of safe Germany is a sign that investors think Italy is more likely to default on its bonds, more likely to leave the euro and repay in devalued lira, or both. Fair enough: The populists now governing in Rome are unpredictable, and Italy’s government-debt pile is large.

“Yet, it is obvious to everyone that if the third-biggest economy in the eurozone were to default on $2.64 trillion of debt or leave the currency area, it would at the very least blow up the rest of the Southern European countries.  The bond yields of Spain, Portugal and Greece would soar, even if somehow they were able to remain within the euro.

“ ‘Italy is not Greece’ is usually invoked as reassurance.  In fact, the situation in Italy is a whole lot worse than Greece, because the solution applied to Athens – a default within the eurozone and capital controls – couldn’t plausibly be applied to Italy’s much more important economy and much larger debts.

“This should mean that higher risk to Italy is also a higher risk to other countries that would face trouble, not to mention the many large European bank with significant Italian exposure.”

Today, with a 10-year at 3.42%, that still isn’t high enough to prevent Italy from making its debt payments, but if the market pushes up borrowing costs too much, Italy would not be able to service the debt, barring politically implausible tax hikes, when the current coalition is looking to lower them.  Ergo, things could spiral out of control.

Watch the 4.00% level for Italy.   

This week, eurozone finance ministers warned Italy’s coalition that all governments must respect the bloc’s spending rules, as they called for more detail from Rome on draft budget plans that began unsettling markets a few weeks ago.

Bruno Le Maire, France’s economy minister, stressed that the euro area’s budget rule book was meant to protect countries from higher borrowing costs.

Italy’s new government announced last week it plans to rip up previous budget agreements with Brussels and to aim for a public deficit of 2.4 percent of gross domestic product, far higher than the 1.6 percent which the country’s finance minister had previously called for.

But by week’s end, the government said it would offer some concessions to fend off EU pressure about its finances, committing to reduce its budget deficit targets in 2020 and 2021, while sticking to its spending plans for next year.

That said, late today the European Commission said in a letter that Italy’s budget plan was a “source of serious concern.”

Also today, Italy’s Deputy Prime Minister Matteo Salvini accused European Commission President Jan-Claude Juncker of destroying Europe, upping the rhetoric in his increasingly acrimonious war of words with European Union officials.

Salvini, who heads the far-right League party and is tapping into an increasingly Eurosceptic mood in Italy after years of anemic growth and high unemployment, took aim at Juncker and EU Economic Affairs Commissioner Pierre Moscovici.

“People like Juncker and Moscovici have ruined Europe and our country.”

Juncker then replied: “I hope he will never have to remove the heap of ruins.”

Salvini then fired back: “The insults and threats that arrive every day from Brussels and European bureaucrats are incredible and unacceptable.   The only ruins that I will have to scoop up are those of the beautiful European dream, destroyed by people like Juncker.”

European parliamentary elections are set for next May and the likes of Salvini will be targeting them.

France: President Emmanuel Macron continues to see his popularity crumble after a series of ministerial departures dims his aura of invincibility that accompanied his first year in power.  [This week it was Interior Minister Gerald Collomb who suddenly announced his resignation.] Macron has been trying to channel war hero Charles de Gaulle in response.  The other day, while laying a wreath at deGaulle’s tom, Macron hailed the durability of France’s presidential system.

“It allows me to avoid the tyranny of immediacy, which is an absurdity of our times, which means day-to-day vagaries should not decide a nation’s course.”

Macron is seeking to paint himself as a leader in the mold of de Gaulle, a towering father-figure of modern-day France. De Gaulle made strong authority a hallmark of his presidency and he had a deep belief in self, though he was also an imperious, prickly sort (such as in his relations with the United States).

But just as de Gaulle had to bring France back from both World War II and a vicious colonial war in Algeria amid unstable institutions, Macron is seeking to overhaul France to make its institutions more efficient, create growth and counter the rise of far-right populism.

“It was the spirit of 1958, it must be that of 2018, because today as then and today perhaps more than then, the people want to feel listened to by political elites constantly asked to prove themselves.,” Macron said in his speech Thursday.

But it’s a tough task, especially his goal of cutting the number of lawmakers by a third.

On a totally separate issue, in a global mystery, French police opened an investigation into the disappearance of Meng Hongwei, the Chinese head of the international police agency Interpol.

His family has not heard from him since he left Interpol HQ in the French city of Lyon for a trip back to China on September 25, officials said.

“He did not disappear in France,” a source told AFP.

The South China Morning Post is reporting that Meng, 64, was “taken away” for questioning in China.

It is not clear why he was being investigated by “discipline authorities” or where he was being held.

Officials in China have made no public comments on Meng, who is a senior Communist Party official there.       

Turning to Asia.... China had its Golden Week national holiday so some of the government data for September, and the quarter, is yet to come in.  [China’s equity markets were closed all week.]  The government did report its manufacturing PMI for last month was 50.8 vs. 51.3, while services was at a 54.9 clip.  The Caixin private readings, however, had Sept. manufacturing at 50.0 vs. 50.6 for August. [No service reading yet.]

Regardless of whether you take the government’s or private data, China’s economy continues to slow.

Japan’s Sept. manufacturing PMI was 52.5, unchanged from August, with the services reading slumping to 50.2 vs. 51.5 the prior month.

Japan also reported today that household spending jumped in August at the fastest annual pace in three years as bigger bonuses boosted consumption, suggesting robust domestic demand could help offset the ill-effects from escalating trade frictions.

Household spending rose 2.8% from a year earlier.  But...inflation-adjusted real wages fell in August for the first time in four months, with rising gasoline costs pushing up living costs.

Separately, Taiwan’s manufacturing PMI for September was 50.8 vs. 53.0 in August; South Korea’s was 51.3, up from August’s 49.9.

Street Bytes

--Stocks fell across the board this week, though because of the revised trade deal between the U.S., Mexico and Canada, the Dow Jones, with its industrial components that most benefit from trade certainty, finished down just 11 points, 0.04%, to 26447, after hitting new highs earlier in the week.  The S&P 500 lost 1.0% and Nasdaq suffered its worst week since March, down 3.2%, as the tech barometer was slammed late  in the week on the Bloomberg / China tech story I cover below.

The markets were also hit hard Thursday and Friday on rising bond yields, specifically the 10-year, and next week we have the official start of earnings season, which your editor absolutely despises for very selfish reasons.

It also doesn’t help market psyche that at some point, rising bond yields represent competition for the investment dollar.

--U.S. Treasury Yields

6-mo. 2.36%  2-yr. 1.82%  10-yr. 3.06%  30-yr. 3.21%

The yield on the 10-year closed the week at 3.23%, its highest since June 2011. 

--Shares in Lenovo Group Ltd and ZTE Corp. plunged on concerns their sales could suffer in the wake of a Bloomberg Businessweek expose that talked of U.S. companies’ systems having been infiltrated by malicious computer chips inserted by Chinese spies.

Bloomberg cited 17 unidentified sources from intelligence agencies and business that Chinese spies had placed computer chips inside equipment used by about 30 companies and multiple U.S. government agencies, which would give Beijing secret access to internal networks.

Apple Inc. and Amazon.com Inc. were cited as being among the U.S. companies subject to the attack, but both denied they had been.

Lenovo and ZTE saw their shares tumble on fears consumers and businesses may become reluctant to buy Chinese tech goods.  Lenovo saw its shares fall as much as 23% in Hong Kong.

--Russia and Saudi Arabia struck a private deal in September to raise oil output to cool rising prices and informed the United States before a meeting in Algiers with other producers, four sources familiar with the plan told Reuters.  This was at a time President Trump was criticizing high prices, blaming OPEC and calling on it to boost output to bring prices down.

The story makes total sense because, while prices continue to rise to multi-year levels, the president hasn’t tweeted about the topic.

At the Algiers meeting, the two countries had hoped to announce an overall increase of 500,000, but deferred the move until a full OPEC meeting in December upon facing opposition from other OPEC members, including Iran, which is getting slammed by U.S. sanctions.  The state-run National Iranian Oil Co. said it expects its crude shipments to drop to 1.5 million barrels a day, compared with 2.3 million in June.

Russia produced 11.36 million barrels per day in September, up from 11.21m in August, Energy Ministry data showed, while Saudi Arabia said it would increase output from 10.7 million bpd, that level a record just reached (equaling November 2016’s level), according to Saudi energy minister Khalid al Falih.

Late tonight, Saudi Crown Prince Mohammed bin Salman told Bloomberg that the kingdom has met its promise to Washington to make up for Iranian crude oil supplies lost through U.S. sanctions. 

“Iran reduced their exports by 700,000 barrels a day...And Saudi Arabia and OPEC and non-OPEC countries, they’ve produced 1.5 million barrels a day. So we export as much as 2 barrels for any barrel that disappeared from Iran recently.  So we did our job and more.”

Separately, the Energy Information Administration reported that U.S. crude inventories rose by 7.98m barrels in the week ended September 28, the biggest weekly increase since March 2017, and now stand at 1.25 billion barrels, the highest total in 10 months, though this is largely due to seasonal factors and refiners stepping up their maintenance this time of year, meaning refineries aren’t taking in as much crude.

So on the week, West Texas Intermediate and its global counterpart, Brent, hit multi-year highs, WTI finishing the week at $74.29...after hitting $75.50.

--U.S. auto sales declined in September, with the industry expecting a 7% drop compared with the same period a year ago.  There was one fewer selling day in the month, but also the comparisons aren’t exactly fair since last September saw a surge in buying to replace vehicles damaged from Hurricanes Harvey and Irma.

Ford Motor Co.’s sales last month were down 11.3%, with GM’s down 11.1% over the prior year, but that was for the entire quarter.  [GM only reports sales on a quarterly basis these days, and for September alone, analysts estimate sales were down 15%.]

Fiat Chrysler bucked the trend, with U.S. sales up 15%, an increase driven by strong demand for its Jeep sport-utility brand.

As alluded to above, the new U.S.-Mexico-Canada Agreement – which requires automakers to build a greater portion of their cars in North America and with higher-wage workers, could complicate operations for automakers building small cars in low-wage Mexico and importing parts, such as engines and transmissions, from overseas. The costs will inevitably be passed on to the consumer.  Plus there still aren’t any final agreements with the European Union and Japan.

--Tesla Inc. announced record quarterly car production numbers on Tuesday but warned of major problems with selling cars in China due to new tariffs that would force it to accelerate investment in its factory in Shanghai.  Tesla said it produced a record 83,350 cars, topping Wall Street’s forecasts, with 55,840 Model 3 sedans delivered, the key to the company’s drive for profitability.

The numbers helped lift shares initially, but then the stock fell as investors worried about the company’s warning that a 40-ercent tariff on Chinese imports of its cars was blocking sales in the world’s biggest electric car market.

Tesla also said it missed its production target of 6,000 Model 3s by 700 cars in the final week of September and outlined hurdles it faced due to the worsening trade war with China.

Tesla at the same time said it was speeding up construction of its Shanghai giga factory to combat a huge competitive disadvantage against other producers and even other imported cars that carry a lower 15 percent tariff.  “Tesla is now operating at a 55 percent to 60 percent cost disadvantage compared to the exact same car locally produced in China,” the company said.

As for the turmoil concerning Elon Musk, after initially balking at settling with the SEC, he finally agreed to be banned from serving as chairman for three years, and he was fined $20 million.  Tesla itself will pay another $20 million fine, and Mr. Musk agreed to personally buy the same amount in Tesla stock.  A permanent committee to monitor Musk’s communications with investors and the public, including his postings on Twitter and other social media, is to be formed.  The members of this special committee will be subject to the review and approval of the SEC.

The SEC is also requiring the company to add two independent directors and to elect an independent director as chairman.

But with the suit settled, investors are turning back to production, and Tesla has said it needed to reach a consistent rate of 5,000 Models 3s a week, a figure it first hit during the final week in June, but, during the third quarter, it averaged about 4,000, and this after the company said it was aiming for 6,000 a week by the end of August.

But wait...there’s more!  So much for the committee that was to monitor Musk’s tweets. Thursday, he tweeted that he just wanted to say “the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!”

The stock fell 7% today on the latest Musk tweet to $262.50.  Last Friday it was $264.75, then shot to $316, intraday, on the SEC settlement, and then as is per his want, Musk, his own worst enemy, tapped his fingers on the keypad Thursday and, presto, we are back down to the levels of last week.  Some people never learn.

--Honda and General Motors are teaming up to develop self-driving cars, creating the most powerful rival from the traditional automotive industry to tech upstarts such as Google’s (Alphabet’s) Waymo.

Cruise, the self-driving arm of GM, announced it  had secured a $2.75bn investment from Honda.

Honda said it had taken a $750m equity stake in Cruise (5.7%) and would invest a further $2bn in the unit over the next 12 years.

GM has said it plans to launch a commercial fleet of autonomous cars without steering wheels or pedals next year, and is viewed as having an edge over Detroit rival Ford and other traditional manufacturers in developing its own systems.

--Editorial / Wall Street Journal

“Jeff Bezos didn’t become one of the world’s richest men by missing a business opportunity, and on Tuesday the Amazon CEO showed he also has impeccable political timing.  His decision to raise Amazon’s minimum wage to $15 an hour will buy the tech company some political insurance while also helping it steal workers from smaller competitors.

“The decision is great news for Amazon workers and is probably overdue given the company’s success.   Starting Nov. 1, the company will raise the pay of some 250,000 workers, including part-time, seasonal and temp workers hired by other agencies. Amazon will stop giving stock options to some warehouse workers, but the company says its hourly operations and customer-service employees who already earn $15 will also get wage bumps.

“Amazon’s timing is shrewd given the tight national labor market that has companies competing for the best employees. Amazon expects to hire 100,000 temporary workers for this holiday season alone, and the $15 wage will make it harder for competitors to retain workers who make less.

“That may explain why Mr. Bezos also announced that Amazon will now lobby Congress to raise the national minimum wage from $7.25 an hour.  If Amazon is already paying $15, it’s no competitive sweat for Mr. Bezos to look virtuous for the media and politicians. Amazon is rapidly automating – an e-commerce warehouse in China has only four human employees – and its competitors lack Amazon’s scale and far lower cost of capital.

“Mr. Bezos’ $15 wage would be a lot more  praiseworthy if he hadn’t combined it with a plea for government to raise the labor costs of his competitors. Beware when big business conspires with big government.

“Speaking of government, Amazon’s wage increase may also buy some insurance against a looming assault from Congress.  Bernie Sanders, the Vermont socialist and likely presidential candidate in 2020, has introduced the Stop Bezos Act that would tax Amazon to finance government transfer payments like food stamps.  Bernie tweeted Tuesday that Amazon’s $15 minimum wage is ‘a big step forward for workers across the nation.’  Mr. Bezos also wants to hold off the federal antitrust cops, but that may cost more than $15 an hour.

“Politics aside, Amazon’s wage increase wouldn’t be possible if the U.S. economy hadn’t risen out of its eight-year Obama doldrums. As always, the best way to raise living standards is faster growth, not political coercion.”

--General Electric shares surged on Monday on word CEO John Flannery was being replaced with H. Lawrence Culp as chairman and CEO, while the company announced it would “fall short” of guidance of 2018 cash flow and earnings, ostensibly due to weakness in its power generation unit, with GE now taking a non-cash charge of about $23bn to write down the value of goodwill in the power business.

Culp, who was appointed to GE’s board in April, was previously a successful CEO of Danaher.

The decision to replace Flannery, who was only in the job a little over a year, was sudden, but unanimous by the board and effective immediately.  It was the issue of the power generation sector that did him in in the end.

“GE remains a fundamentally strong company with great businesses and tremendous talent,” Culp said.  “We will be working very hard in the coming weeks to drive superior execution, and we will move with urgency. We remain committed to strengthening the balance sheet including deleveraging.”

GE stock had tumbled 26% this year (54% over the past 12 months since Flannery took control) as it struggled to drive growth.  In June, Flannery outlined results of a strategic review, saying the company would focus on aviation, power and renewable energy, make health care a standalone business and at the time, made Culp lead director.

But GE continues to miss its targets, quarter after quarter.

Flannery was a longtime employee at GE, going back to 1987.

As for the long-term destruction in GE’s share price, while it rose 9 percent on Monday, and a bit further the rest of the week, the company’s market value is about $114bn, having slipped below $100bn before the rally.  Compare that to $600bn roughly 18 years ago.

--Verizon  Communications Inc. is offering voluntary severance packages to roughly 44,000 employees, or more than a quarter of its workforce, as it seeks to cut $10 billion in costs and upgrade to a faster, 5G network.

Employees eligible for the packages were offered three weeks’ pay for each year of service up to 60 weeks.

--PepsiCo’s revenue for the third quarter rose 1.5% to $16.49 billion.  North American beverages revenue climbing 2%, the first quarterly rise since the second period of 2017.

The company is forecasting revenue growth that it previously announced, this as CEO Indra Nooyi, who led PepsiCo for 12 years, exited this week, to be succeeded by company veteran Ramon Laguarta, who was promoted to president last year.

--Costco Wholesale Corp. posted terrific sales growth in its fiscal fourth quarter (ending Sept. 2), comparable-store sales up 9.5% year-over-year, with in-store traffic “as strong as it’s ever been,” according to CFO Richard Galanti, up 4.9%.  Profit increased 14% to $1.04 billion.

--A group of hedge funds is in line to take control of Toys “R” Us – the same group that pulled the plug on the company’s reorganization this year. Now, the new plan, as introduced in court papers this week, has the hedge fund group proposing “a new, operating Toys ‘R’ Us and Babies ‘R’ Us branding company that maintains existing global license agreements and can invest in and create new, domestic, retail operating businesses” under the brand name.

The group had initially sought bids for brand name and other intellectual-property assets, but now it has determined the potential bids wouldn’t “yield a superior alternative to the (new) plan.”

Well this is nuts.

--Nike has said it is “deeply concerned” by rape allegations against soccer star Cristiano Ronaldo.  The sportswear giant reportedly has a contract worth $1 billion with the global icon, the company saying it would “continue to closely monitor the situation.”

Ronaldo has “firmly” denied assaulting Kathryn Mayorga at a Las Vegas hotel in 2009.  It’s complicated.

--Mall vacancy rates rose to 9.1% in the third quarter, this despite the fact that retailers are anticipating a robust holiday season, boosted by the economy and strong consumer confidence.

The National Retail Federation on Wednesday said it expects holiday retail sales for November and December to increase by 4.3% to 4.8% over last year; the average the previous five years being 3.9%.

But lower-end malls in particular are suffering.  All the Sears and Macy’s store closings doesn’t help.

--California Gov. Jerry Brown signed a bill mandating that all publicly traded companies with headquarters in the state have at least one woman on their boards by the end of next year. By 2021, companies with at least five directors would need to have two or three female directors, depending on the size of the board.  Those that don’t face financial penalties.

--Flight attendants celebrated passage of a five-year FAA Reauthorization Bill that includes a 10-hour minimum rest provision to combat Flight Attendant fatigue.  The bill includes other safety priorities long sought by the group, including forever banning knives on planes, no voice calls on planes, and extending the smoking ban to e-cigarettes.

The final bill received overwhelming bipartisan support in Congress.

The legislation also includes “Emotional Support and Service Animal Standards.”  Good.

--A few weeks ago, Dan C. in Wisconsin, a longtime supporter of the site, sent me a note inquiring if I had a position on hemp oil, CBD, which I really don’t.  But it was interesting to see a piece the other day discussing the case of “a former Playboy model” who has refused chemotherapy to treat her brain tumor.  “Instead she’s turning to cannabis oil – which is illegal in the UK, where she lives.”

“Kerri Parker, 34, said she will risk five years behind bars rather than undergo 12 rounds of chemo, arguing it was her ‘only chance’ to live....

“Speaking to The Mirror, the former lab technician from Norwich said: ‘I know using cannabis means I could be put in prison but I truly believe it is the only chance I have of living right now.’

“ ‘I’ve been working hard over the past few years.  I’m training for a black belt in martial arts and I’m the fittest and healthiest I’ve been, so when doctors say they want me to have treatment which will make me sick, it makes no sense to me.’

“She said doctors told her no one with brain cancer had managed to make it through the 12 rounds of chemo without succumbing to the disease....

“Instead, she said, she would put her faith in cannabis oil, adding: ‘It’s a risk I’m ready to take.’”

Parker is looking to use the CBD with a higher dose of THC (tetrahydrocannabinol), the psychoactive component in cannabis that makes users feel “high.”

In terms of Ms. Parker’s case (she has been a body double for Megan Fox, by the way...cough cough...), doctors seem far from reaching a consensus that CBD and THC has anti-cancer benefits, though obviously THC has benefits in alleviating the side-effects of cancer treatment including nausea during chemotherapy.

So note to Dan, I still have no real opinion, but obviously some of the stocks in the cannabis sector have been flying.  [Be careful.]  Kerri Parker’s story can help with your research at least.

--“Saturday Night Live” opened to better ratings last weekend than 2017’s opener, and second-best since 2012, proof that “SNL” continues to be TV’s go-to sketch/variety show for the latest in political humor.  I stayed up just for the opening and whether you liked the content or not, you have to admit Matt Damon was pretty good as Brett Kavanaugh.

Foreign Affairs

Iran: President Hassan Rouhani praised Europe on Wednesday for taking a “big step” to maintain business with Tehran after the United States’ unilateral withdrawal from a 2015 nuclear deal and re-imposition of new sanctions on the Islamic Republic.

And Prime Minister Benjamin Netanyahu’s UN address a week ago Thursday continued to make waves, with the head of the UN’s nuclear watchdog, the International Atomic Energy Agency, refusing to take at face value evidence presented by the prime minister about a secret atomic warehouse in Tehran.

IAEA chief Yukiya Amano said in a statement on Tuesday: “The agency sends inspectors to sites and locations only when needed. The agency uses all safeguards relevant to information available to it but it does not take any information at face value.”

Amano didn’t refer to Netanyahu’s comments specifically, but it was clear who he was addressing as he said the IAEA had carried out so-called complementary access inspections, which are often at short notice, at all locations in Iran it has needed to visit.

“All information obtained, including from third parties, is subject to rigorous review and assessed together with other available information to arrive at an independent assessment based on the agency’s own expertise,” Amano said.

Netanyahu urged the IAEA to do much more.

Syria: Russia delivered an S-300 surface-to-air missile system to Syria this week.  Russian Foreign Minister Sergei Lavrov said the deployment of the S-300 “will be devoted to ensure 100 percent safety and security of our men in Syria, and we will do this.”

Turkey sent a military convoy into rebel-held northwester Syria, as a deadline for establishing a buffer zone between rebel and government forces draws nearer.  Turkey is expected to deploy the troops at “observation posts” similar to the ones it currently has in Idlib and Aleppo provinces.

Last month, Turkey and Russia agreed to set up a demilitarized zone ringing rebel territory to avert a threatened Syrian government offensive in Idlib. But all factions in the zone were to withdraw their heavy weapons by Oct. 10, and radical groups must leave by Oct. 15.  It will then be monitored  by Turkish troops and Russian military police.

The region’s dominant armed group, Hayat Tahrir al-Sham (HTS), however, an alliance led by militants of Syria’s former Al-Qaeda affiliate, has still not officially responded to the accord.

Anti-Assad forces say they are deeply distrustful of Russia’s presence in the neutral zone, while Turkey has long backed rebel groups that are opposed to Assad.

So we wait to see what happens over the coming week or two.

Iraq: A new government was formed, five months after May’s election, but the new prime minister, Adel Abdul Mahdi, a Shiite independent, faces deepening political and economic turmoil. 

Violent protests against Iraq’s entire political class spurred rival factions to coalesce around Abdul Mahdi, 76, a former vice president and oil minister.  He now has 30 days to form a cabinet.

The economy is a mess and there has been no great effort to rebuild infrastructure destroyed in the war against Islamic State.  Iraqi security forces are also trying to prevent a resurgence of the extremist group.

Under Iraq’s complex system, the presidency is reserved for Kurds, the speaker of parliament is a Sunni and the prime minister is from the Shiite majority.  But as Isabel Coles and Ali Nabhan note in the Wall Street Journal: “Those positions have usually been filled by quid-pro-quo deals between different parties, which includes sharing out ministries and using them for patronage. That has created an ineffective, corrupt bureaucracy and bloated payroll on which most of Iraq’s oil revenue is wasted.”

Meanwhile, you have the United States and Iran and their influence in Iraq.  The U.S. didn’t want a new government dictated by Iran’s allies among the rival groupings, and Iran is seeking a friendly government next door as it is pressured by Washington.

The tensions between Iran and the U.S. in Iraq are best exemplified by the dangerous protests in the southern city of Bara, which evolved into a demonstration against Iraq’s entire political class, with the Iranian consulate torched, and the U.S. closing its consulate there.  Both blamed the other for the attacks on their missions.

Secretary of State Mike Pompeo called out Iran on Wednesday for threats to American missions in the country and said the United States was terminating a treaty of amity with Tehran.  “Iran is the origin of the current threat to Americans in Iraq,” Pompeo told reporters.  “Our intelligence in this regard is solid.  We can see the hand of the ayatollah and his henchmen supporting these attacks on the United States.”

North Korea / China: Secretary of State Pompeo was to head to Japan, South Korea and China Oct. 6-8, after meetings in Pyongyang, Saturday, on denuclearization talks and a potential second summit between Kim Jong Un and Donald Trump. Who he meets with in Beijing will be most interesting...ditto North Korea, where he is expected to meet with Kim.

North Korea this week ruled out dismantling its nuclear arsenal in exchange for the U.S. declaring an end to the Korean War, saying a peace treaty should “never be a bargaining chip.”

Benny Avni / New York Post

“President Trump is planning a second summit with North Korea’s Kim Jong-un. Fine. But what’s with the president’s lovey-dovey words for the mad butcher of the North?

“After all, sending Valentines to Kim won’t make him any more willing to disarm.  Pyongyang is much more likely to react to increased pressure, as top Trump advisers are well aware, than to public displays of affection.

“Fact is, the president’s unbecoming bromance with the North Korean strongman may be harming his own team’s efforts to maintain, and even ratchet up, pressure on Pyongyang until it verifiably and irreversibly gives up its nukes and intercontinental missiles.

“ ‘We went back and forth. Then we fell in love,” Trump gushed, in a stump speech last (weekend).  Speaking of Kim, he added, ‘He wrote me beautiful letters. And they are great letters. We fell in love.’

“Isolated from the world as they are, North Korean bigwigs are no fools.  When they hear love, they want it consummated.

“ ‘Without any trust in the U.S., there will be no confidence in our national security.  And under such circumstances, there is no way we will unilaterally disarm ourselves first,’ the North’s foreign minister, Ri Yong Ho warned the UN General Assembly on Saturday.

“As Ri explained, Pyongyang has conducted no nuke tests or launched any missiles for a year; now it’s America’s turn to end its punishment of the North – or to forget about disarmament.

“You can hardly blame Ri. Trump has told audiences over and over again that his threats and diplomacy stopped North Korea from testing nukes and missiles.

“Yet the North’s year-long pause doesn’t resolve the issue.  National Security Adviser John Bolton, Secretary of State Mike Pompeo and UN Ambassador Nikki Haley have rightly made clear that this is no time to go soft....

“Meanwhile, South Korean president, Moon Jae-in, the matchmaker in the Trump-Kim love affair, is pushing joint economic ventures with Pyongyang – and asking the Security Council to exempt his projects from the sanctions regime.

“Moon’s appeasement clearly goes against the kind of pressure top Washington officials say is needed to achieve denuclearization. But his efforts are widely applauded worldwide. Bet on him to win the Nobel Peace Prize and you won’t be sorry.

“Trump, who should know better, will get no such prize. When he expresses his love for Kim, Russia, China and South Korea only become more eager to reward the North.

“In some cases – such as the negotiations over the new trade deal between the United States, Mexico and Canada – Trump’s rhetorical excess is harmless, maybe even beneficial.  Not so his self-defeating love affair with the devious, murderous tyrant scion of a devious, murderous tyrannical dynasty.

“Trump’s cooing may well reverse the modest gains reached so far on the North Korea front.  He shouldn’t be blinded: This love affair may end in disaster.”

Meanwhile, in a major speech Thursday at the Hudson Institute, Vice President Mike Pence charged that Russia’s influence operations in America pale in comparison with the covert and overt activities China is taking to interfere in the U.S. midterm elections and counter President Trump’s tough trade policies against Beijing.

Pence laid out measures Beijing is employing to undermine the Trump administration, including targeting Chinese tariffs to industries in states that are crucial to Trump in the midterms as well as behind-the-scenes actions like coercing U.S. businesses to speak out against the administration and intimidating scholars.

Pence also denounced maneuvers in the South China Sea, its oppression of Christians, Muslims and other religious believers, and Chinese President Xi Jinping’s signature infrastructure and foreign policy initiative.  Pence’s aggressive criticism indicates the administration could be preparing to take a more confrontational approach with China on issues beyond trade, such as in the South China Sea.

A Chinese foreign ministry spokeswoman said Beijing objected to Pence’s “groundless” allegations and urged the U.S. to stop hurting ties between the two countries.

“This is nothing but speaking on hearsay evidence, confusing right and wrong and creating something out of thin air,” said Hua Chunying, in a statement issued early Friday in Beijing.

“We have no interest in meddling in U.S. internal affairs and elections,” Hua said.  But Pence said Beijing’s actions added up to a simple message.  “China wants a different American president.”

“Beijing has mobilized covert actors, front groups and propaganda outlets to shift Americans’ perception of Chinese politics,” he said.  “As a senior career member of our intelligence community recently told me just this week, what the Russians are doing pales in comparison to what China is doing across this country and the American people deserve to know.”

Some analysts, however, say the charges of Chinese meddling in our elections are simply an effort by Trump to distract from the special counsel’s investigation into Russian interference.

At the same time, as per the Bloomberg Businessweek story noted above, China’s prime focus has been on conducting economic espionage, while long using joint ventures to try to acquire technical know-how, as well as seeking partnerships with U.S. government labs to learn about specific technology and information about running such facilities, and using front companies to hide the hand of the Chinese government and acquire technology under U.S. export controls, as the Trump administration correctly alleges.

Josh Rogin / Washington Post

“The Trump administration has now publicly unveiled its plan to fundamentally shift U.S. strategy toward China.  It’s an important acknowledgment that U.S.-China competition is heating up, an overdue admission that the past approach has failed and a national call to action.

“Vice President Pence’s landmark speech on U.S.-China relations on Thursday was notable for two reasons. First, it called out the Chinese government for perpetrating a multi-faceted, well-resourced and shady campaign of foreign influence operations on U.S. soil. Second, it placed that campaign in the context of a global competition between the United States and China that is being waged on every continent and in every realm.

“Set aside Pence’s claim that the Chinese government is targeting President Trump’s political interests (which is true). The speech’s real significance was its promise that the United States will newly confront Beijing’s worldwide economic and strategic aggression, oppose its internal repression and compel the Chinese government to change its behavior on both fronts.

“ ‘We will not relent until our relationship with China is grounded in fairness, reciprocity and respect for our sovereignty,’ Pence said, promising the Trump administration will ‘reset’ the bilateral relationship in a fundamental way.

“The vice president laid out a litany of ways the Chinese Communist Party spreads influence inside the United States and around the world.  Pence linked China’s economic aggression, military adventurism, influence operations and authoritarian expansion to argue that Beijing long ago decided to abandon true cooperative engagement with the United States and therefore we must respond.  ‘We want a construction relationship with Beijing,’ he said.  ‘While Beijing has been moving further away from this vision, China’s leaders can still change course.’

“The speech is a culmination of nearly two years of work inside the Trump administration to identify, expose and confront increasing Chinese-government-sponsored efforts to interfere in all aspects of American public life, including politics, policy, academia and journalism.

“Pence correctly connected those efforts to Beijing’s plans for economic and strategic expansion....

“On Friday, Trump will unveil a major study into vulnerabilities in the United States’ defense-industrial base.  I obtained an advance copy of the report, which found that our military is beholden to products from China, and Beijing has intentionally sought to undermine America’s ability to control the resources crucial to building the weapons we rely on.

“ ‘A key finding of this report is that China represents a significant and growing risk to the supply of materials deemed strategic and critical to U.S. national security,’ the report states.

“That was written before this week’s revelation that the U.S. intelligence community believes the People’s Liberation Army implanted tiny chips on components used by dozens of U.S. tech companies, the most significant known attack on the U.S. supply chain.

“The new China strategy merges the hawkishness of national security adviser John Bolton, the strategic positioning of Defense Secretary Jim Mattis, the economic nationalism of White House trade adviser Peter Navarro and Pence’s values-based advocacy.  It would have been unthinkable coming from the Obama administration....

“There’s no desire in the Trump administration to provoke a confrontation with China, a senior administration official told me, arguing that it’s Beijing’s activity that is causing the deterioration in the relationship.

“ ‘The notion that this somehow represents disengagement is just dead wrong. It’s the opposite,’ the official told me.  ‘It’s saying to the American people that we need to wake up to this. And the Chinese need to wake up to the fact that if they continue to pursue this policy – which is unacceptable – there will be consequences.’

“Hoping China’s rise would be constructive while ignoring Beijing’s bad behavior didn’t work. Opposing China’s rise won’t work either.  This course correction in the U.S.-China relationship is absolutely necessary to protect American interests and values and must be carefully managed to avoid unintended consequences.  Whether that causes undue friction or hostility between the United States and China is largely up to Beijing.”

So in keeping with the above, the United States Pacific Fleet has drawn up a plan for a major show of force as a warning to China that will indicate its determination to counter Beijing’s military activity, amid rising tension over the disputed South China Sea.

The plan will see planes and ships passing close to Chinese-claimed waters in the South China Sea and Taiwan Strait in a freedom of navigation operation, as first reported by CNN, citing several unnamed U.S. defense officials.

No doubt the proximity of the ships and aircraft will trigger a strong reaction from Beijing.

On Sunday, a Chinese destroyer nearly collided with the USS Decatur, which was carrying out a freedom of navigation operation and sailing close to the China-claimed Gaven Reef.

The Chinese destroyer came within 41 meters (135 feet) of the American warship, the U.S. navy said, describing the Chinese action as “unsafe and unprofessional.”

In a Gallup Korea survey conducted between July 12 and August 3, results just released, 46 percent of respondents in South Korea viewed China as “the most threatening country to peace on the Korean peninsula,” a dramatic increase from 2016, when 17 percent said China was the most threatening.

At the same time, only 33 percent viewed North Korea as the country posing the biggest threat, well down from 64 percent last year and the first time it had been eclipsed by China since the survey began in 2007.

Separately, China ordered A-list movie star Fan Bingbing to pay about $129 million in overdue taxes and fines, state news agency Xinhua said on Wednesday, as a crackdown on tax evasion in the entertainment industry gathers momentum...which has stopped the film sector cold.

The 37-year-old actress, whose June disappearance touched off wild speculation about her whereabouts, has appeared in the “X-Men” and “Iron Man” film franchises.

In a letter posted on her official account on the Twitter-like platform Weibo, Fan said she fully accepted the authorities’ decision, would overcome “all difficulties” to pay the penalties, and step up supervision of her companies.

“I’m ashamed of my behavior and I apologize here to everyone,” Fan wrote.

Russia: A source at Russia’s Ministry of Foreign Affairs said on Thursday that Dutch allegations about an alleged Russian attempt to hack the chemical weapons watchdog were absurd, the RIA news agency reported.  Dutch authorities disrupted an attempt in April by Russian intelligence agents to hack the Organization for the Prohibition of Chemical Weapons (OPCW), Defense Minister Ank Bijleveld said on Thursday.

“There was no attack,” RIA cited the unnamed source as saying, adding that the allegations stemmed from a Western campaign against Russia.  “We are part of all the (OPCW’s) structures so why would we hack it? We have access, their entire network is open to us. This is another absurdity.”

Editorial / Wall Street Journal

“Several governments on Thursday made a coordinated release of new information about Russian cyber espionage, including an indictment of seven Russian intelligence agents from the Department of Justice in Washington. Authorities are performing a public service by lifting the veil of secrecy that usually envelops counterintelligence.

“The Justice indictment names seven agents in the Kremlin’s intelligence agency, the GRU, for hacking attacks against sports antidoping agencies and Westinghouse Electric Co.  As payback for investigations into Russian athletes’ use of banned performance-enhancing drugs, the GRU stole online data about hundreds of other athletes – even sending agents to Rio de Janeiro to hack the computers of antidoping officials at a conference. Then it leaked confidential information to embarrass innocent sportsmen and women.

“Meanwhile, the Dutch government says four Russian agents showed up in April intending to hack the wireless network at the Organization for the Prohibition of Chemical Weapons in the Hague. The plan appears to have been to place sophisticated equipment in a rental car and then park outside the building with the trunk pointed toward the offices to pick up wireless computer transmissions.

“The OPCW at the time was investigating the Kremlin’s use of a nerve agent to try to assassinate a Russian double agent in the U.K. – an attack that killed an innocent civilian.  The agency also was investigating the use of chemical weapons by Russia’s client regime in Syria....

“Governments are right to expose all this, despite longstanding and often reasonable aversion to casting too much public light on counterintelligence. The technical complexity of cybercrime too often gives rogue leaders such as Vladimir Putin room to hide, and offers sympathetic politicians in the West scope to obscure or excuse.

“Thursday’s coordinated reveal is part of a growing willingness of Western governments to inform citizens about the true scale of the cyber threat, and it’s important for voters to know.  Mr. Putin is beyond embarrassment, but he’s not beyond exposure.”

Brazil: Far-right presidential candidate Jair Bolsonaro is expected to emerge as one of two candidates that will proceed to a runoff following this weekend’s first round of voting. A Datafolha poll on Tuesday showed Bolsonaro extending his lead over second-place Fernando Haddad, with Bolsonaro then poised to win the runoff Oct. 28 if nobody clinches a majority on Sunday.

Bolsonaro is at 35% and surging, and some think that the way Brazilians vote, versus the polling, his support might be far stronger.  Haddad polls around 20%.

Random Musings

--Presidential tracking polls...

Gallup: 42% approval, 53% disapproval of Trump’s performance; 87% Republicans approve, 37% Independents (Sept. 30)
Rasmussen: 51% approval (highest since March 2017), 48% disapprove (Oct. 5)

According to a new Quinnipiac national poll, Trump has a 41% approval rating, up three points from Sept. 10, 53% disapproval.  [83% Republicans, 37% Independents.]

In the critical generic House poll, Quinnipiac found the margin to be seven points in favor of the Democrats, 49-42, which is down from a 52-38 margin in a Sept. 12 survey.

--According to a new Gallup poll, American’s trust in the legislative branch of the U.S. government is at its highest level – 40 percent – in nearly a decade.

The survey found that the number of Americans who have a “great deal” or a “fair amount” of trust in Congress – both the House and Senate – rose from 35 percent in 2017 to 40.

The last time the number was above 40 was in 2009.  The all-time high was 71 percent in 1972.

Republicans have the most trust in the legislative branch, at 49 percent, compared to 34 percent of Democrats.

Of course this means that 59 percent of Americans don’t trust Congress.

Trust in the executive branch in the same survey dropped from 45 percent to 42.

The judicial branch polls at 68 percent who have a great or fair amount of trust in it.

--A Stockton University (N.J.) poll released Monday had a statistical dead heat in the U.S. Senate race between incumbent Bob Menendez and Republican challenger Bob Hugin, 45-43, Menendez, which is a bit of a shocker...and within the margin of error.

But a new Quinnipiac University poll of likely New Jersey voters had Sen. Menendez with a solid 53-42 lead, with women backing him 57-38, while men are divided 48-48.

In this one, Republicans back Hugin 93-6, while Democrats back Menendez by the same margin.

No Republican has been elected to the U.S. Senate in New Jersey since 1972.

[New Jersey voters said by a 59-35 margin that the U.S. Senate should not confirm Judge Kavanaugh.]

--New York Gov. Andrew Cuomo is well ahead of Republican challenger Marc Molinaro, 22 points, as Cuomo seeks a third term.

Cuomo doesn’t score well upstate, though, with 58% disliking him, according to the poll from Siena Research Institute. 

--A North Carolina man died last week after contracting a bacterial infection while cleaning up in the aftermath of Hurricane Florence.  The man wound up in intensive care after scraping his leg while working. He had his leg amputated as a result of the infection, but it was too late. 

Officials are seeing a big pickup in accidents, such as chainsaw injuries, as you would expect.  Also, people getting tired working long hours in the heat and then falling off the roof.

On Thursday, the North Carolina Coastal Federation issued a strong warning for residents to stay out of the ocean and intracoastal waters due to heightened levels of potentially harmful bacteria caused by “massive stormwater runoff” from Florence, specifically noting that waters “contaminated with polluted runoff carry bacteria, parasites and viruses that  can cause...severe infections.”

The Carolinas have also been hit with a mosquito infestation.

--U.S. traffic fatalities fell in 2017 but remained at a near decade-high level, according to National Highway Traffic Safety Administration data released this week.  Deaths tied to speeding were down 5.6%, and alcohol-related fatalities fell 1.1%.

Distracted driving was the cause of about 8.5% of all traffic fatalities in 2017, a decrease from 9.2% in 2016. But the NHTSA says the figures could be (are) higher because driver distraction as a cause of roadway death is difficult to track.

37,133 died on the nation’s roads last year.  In 2007, the figure was 41,259.  In 1993, motor-vehicle deaths hit 40,150.

--NBC’s Jeff Rossen had a particularly gross report on the “Today” show the other day; that being the cleanliness of TSA bins at our airports.  As in the bins are far dirtier, “germier,” than even airport restrooms, though airplane tray tables are pretty close.

But I have to admit I never gave the topic any thought.  Yeah, I knew tray tables were beyond gross, let alone touching the airline magazine, which I nonetheless always read, but the bins?

It makes perfect sense in hindsight.  What is the worst thing you can put in a bin in terms of germs...shoes! So you start there, and then we willingly throw our wallets, car keys, and cellphones in there...as in, we then put the cellphone next to our ear, and are handling it constantly.  Rossen’s report didn’t talk about this aspect, but he didn’t have to.

--Steve Lopez of the Los Angeles Times had a terrific piece on the passing of a figure famous for a tragic photo...Juan Romero.

“Juan Romero struggled for decades with a memory he could not escape. He left Los Angeles and moved to Wyoming, later came back west and settled in San Jose, raised a family and devoted himself to construction work.

“But still he was haunted by what happened just after midnight on June 5, 1968, when he was on duty as a busboy at the Ambassador Hotel on Wilshire Boulevard near Koreatown. That was the night an assassin took aim at Robert F. Kennedy, a candidate for president of the United States. Romero, just 17 at the time, squatted next to the fallen U.S. attorney general, cradled Kennedy’s head, and tried to help him up realizing how gravely wounded Kennedy was.

“The photos of that moment, with confusion and despair in Romero’s young, dark eyes, made for searing portraits of 1960s upheaval and followed by two months the assassination of the Rev. Martin Luther King Jr. and by five years the assassination of RFK’s brother, President John F. Kennedy.

“It was only in recent years that Romero began to let go... Finally, he said, he was able to mark his birthday after years of refusing to celebrate because it was in the same month as RFK’s assassination.

“That only made the news of Romero’s death this week in Modesto, at age 68, seem all the more tragic.”

Steve Lopez last saw Romero in June, on the 50th anniversary of Kennedy’s death, the two getting together near a monument to Kennedy at a downtown San Jose Park.  Romero was in the habit of leaving flowers there each year to mark RFK’s death.

“When I met Romero in 1998, just prior to the 30th anniversary of the assassination, he fell apart in recalling the fateful night and how he happened to be in the hotel pantry area where Kennedy was shot. Romero told me he had met Kennedy the night before when the candidate ordered room service, and he felt honored by the way Kennedy shook his hand firmly and looked him in the eye with respect.

“ ‘I remember walking out of that room...feeling 10 feet tall, feeling like an American,’ said Romero, who had moved to Los Angeles from Mexico seven years earlier.  He became an Ambassador busboy on the advice of his strict stepfather, who worked at the hotel and wanted Romero to be sure to stay out of trouble on the streets of East Los Angeles.

“The next night, after Kennedy won California’s Democratic primary and made a victory speech, he retreated through the kitchen pantry area and Romero pushed through the crowd to congratulate him.  He said that just as he shook Kennedy’s hand, the shots were fired.  Romero thought the pops were from firecrackers and that Kennedy had fallen in fright, but Romero then saw blood spilling onto his own hand and realized what had happened as Sirhan Sirhan, the man with the gun, was apprehended.  Romero said he was carrying rosary beads in his pocket and stuffed them into Kennedy’s hands.

“Romero was taken to the Rampart police station for questioning, then took a bus to Roosevelt High the next morning.  He still had Kennedy’s blood on his hand and said he chose not to wash it off.

“As if the experience wasn’t traumatic enough, Romero said he got letters from people congratulating him for what he did. That made him uncomfortable, and so did letters from people asking him why he didn’t do something to prevent the assassination.  He got tired of being asked by Ambassador guests to pose for autographs, found work in Wyoming, then made his home in San Jose.”

Lopez and Romero met in Washington, D.C., in 2010 and visited RFK’s grave.  “(Romero) said he wanted to pay his respects, tell Kennedy he had tried to live a life of tolerance and humility, and to apologize.  His buddy Chacon and I told him he had nothing to apologize for, but Romero knelt at the grave, spoke softly and wept....

“I heard from former California First Lady Maria Shriver, a niece of Bobby Kennedy, after I wrote that column. She said she wanted an address to send a thank-you note to Romero.

“ ‘I always felt a great deal of empathy for him...because of how difficult it was for him to move past that,’ Shriver told me Wednesday evening when I called her with the news of Romero’s death.

“Shriver said she never met Romero but hoped he came to realize he did  the humane thing in a tragic moment, and she hoped he had found peace in the end.

“ ‘God bless him,’ Shriver said.  ‘It’s kind of hard to know why someone gets put into a situation that they’re locked in forever.  But as I see it, he was locked into an image of helping someone.’”

If you’re too young to remember the photo, it’s easy to find.  RIP, Juan Romero.

---

Pray for the men and women of our armed forces...and all the fallen.  We lost a soldier in Afghanistan this week, I believe the sixth this year.

God bless America.

---

Gold $1206
Oil $74.29...highest weekly close since Nov. 2014

Returns for the week 10/1-10/5

Dow Jones  -0.04%  [26447]
S&P 500  -1.0%  [2885]
S&P MidCap  -2.6%
Russell 2000  -3.8%
Nasdaq  -3.2%  [7788]

Returns for the period 1/1/18-10/5/18

Dow Jones  +7.0%
S&P 500  +7.9%
S&P MidCap  +3.6%
Russell 2000  +6.3%
Nasdaq   +12.8%

Bulls 61.8
Bears 18.6...prior week, which was unavailable last time, was 60.6/18.3.  Anything above 60 on the ‘bull’ side is a strong warning sign.

Dr. Bortrum posted a new column.

Have a great week.

Brian Trumbore