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Week in Review

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10/13/2018

For the week 10/8-10/12

[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.

*Special thanks to Jim D. this week.

Edition 1,018             

I can’t help but start by defending the National Weather Service after the horrific devastation of Hurricane Michael.  There were many on the air Wednesday, both local officials and residents, saying they didn’t get enough warning there was going to be a major weather event.

Yes, Michael burst on the scene quickly, but anyone older than about 18 should know this is what happens with storms originating in the Gulf of Mexico.  I follow the weather radar, around the country, a few times a day (one of my addictions), and about four weeks ago I was concerned about this cluster of thunderstorms in the western Gulf that just hung around for days, never developing, before petering out.  I know the NWS was following it...and kind of surprised nothing happened in the end.

Well, a similar situation developed with Michael, as it started out as a bunch of storms off the Yucatan and then by Sunday evening, anyone following the news knew there was going to be an event of some kind later in the week in an area between Florida and Alabama.

Then Monday, the National Weather Service said Michael would hit the Panhandle with “life threatening” storm surges, winds and flooding, with the NWS expecting the system to become a major Category 3 storm by Tuesday.  The NWS was forecasting 12-foot storm surges in its Monday forecast.

Florida Gov. Rick Scott also tweeted on Monday, “The FL panhandle needs to be prepared for a direct hit with sustained hurricane force winds.”

Yes, we all would like more notice, but there was time between Monday and Wednesday for residents to save their lives.  As for the final intensity, a CAT 3 forecast should have been enough.

So we’ve all now seen what a near-CAT 5 storm can do, and it’s depressing...and sad and tragic.  No one knows what the eventual death toll will be (17 officially as I go to post, including victims from the catastrophic flooding in Virginia).  But your heart goes out to those who lost their dreams, homes and livelihoods along the panhandle and north.  Local and state officials no doubt feel overwhelmed tonight, and will for months to come.

One thing stands out when you look at the damage. With floods, such as in the case of Hurricanes Harvey and Florence, normally certain key structures, especially hospitals, are located in relatively safe areas, higher ground, away from rivers.  Same with most schools.

But with a hurricane packing 150 mph winds, there is no safe ground.

In the aftermath of Hurricane Katrina, long-time readers might recall that I flew down to Pensacola, FL, and then drove across to the Biloxi, MS, area, distributing cash to those who I thought could use it.  Yeah, I was wealthy then.  Wish I could do that today. 

The folks in Florida, Georgia, and Virginia will need our help, as do the folks still just beginning to recover in the Carolinas from Florence.  Do what you can.  It’s beyond sickening what we have witnessed.  Count your blessings.

Wall Street and Trade

Wall Street took it on the chin this week, with the major indexes down a combined 5%+ on just Wednesday and Thursday, the Dow Jones suffering point losses of 831 (-3.1%) and 545 (-2.1%) the two days, before a relief rally on Friday of 287 points (+1.15%).  On the week the Dow lost 4.2%, the S&P 4.1% and Nasdaq 3.7%.

Fears over rising interest rates and the ongoing trade war with China were the chief culprits; some saying the latter will severely hobble the supply chain...with anecdotal evidence of this already bubbling up from the surface daily.

President Trump didn’t hold back either, renewing his criticism of the Federal Reserve on Thursday, saying it was being “too aggressive” in its policies and was making a big mistake on interest rates, the Fed headed towards a fourth rate hike of the year in December.

Trump said in an interview on “Fox & Friends” that the Fed was getting “a little bit too cute.”  Earlier in the week he called the Fed “loco,” as he blamed Chairman Jerome Powell and Co. for the market drop, not his trade war with China, or anything else.

[Powell continues to pay the price for a comment he made in an interview Oct. 3: “Interest rates are still accommodative, but we’re gradually moving to a place where they will be neutral.  We may go past neutral, but we’re a long way from neutral at this point, probably.”  Ergo, at least four more rate hikes.  Critics say he should have just said something like, “The number of future rate hikes will be data dependent...” and then talked about the weather.]

There is no doubt the rate hikes are finally beginning to bite.  According to data from Freddie Mac on Thursday, the average 30-year fixed rate on a mortgage is up to 4.9%, the highest in more than seven years, though effectively, most buyers have already been paying more than 5% and this is having a real impact on the housing market, far more than some expected.

For a house with a $250,000 mortgage, rates of 5% add about $150 to the monthly payments compared with the rate of 4% that borrowers could have had less than a year ago, according to LendingTree Inc., excluding taxes and insurance.  That’s a big difference.

Existing home sales have fallen for six consecutive months, and once-hot markets are showing signs of cooling.

Yes, 5% is still on the low side, historically, but when you’ve been used to 3% to 4% for years now, that’s a huge difference, both psychologically and in the pocketbook.

As for the economic data on the week, it was all about the inflation numbers and they were tame.  Producer prices in September were up 0.2%, ditto on core, ex-food and energy, with the headline number up 2.6% year-over-year, the core figure 2.5%.

The next day consumer price data was released and it was below expectations, 0.1% on both headline and core, and 2.3% and 2.2%, respectively, over the past 12 months.  So the Fed, at least for the moment, should have no concerns regarding these factoids.

On trade, President Trump said his economic and trade policies have hurt China’s economy and that “I have a lot more to do,” as he said in his “Fox & Friends” interview Thursday.

Trump on Tuesday repeated his threat to slap tariffs on an additional $267 billion of Chinese imports if Beijing retaliates for the recent levies and other measures the United States has imposed.

Trump also told reporters China is not ready to reach a deal.

“China wants to make a deal, and I say they’re not ready yet,” Trump said.  “And we’ve canceled a couple of meetings because I say they’re not ready to make a deal.”

When asked whether he was ready to levy new tariffs in case of retaliation from China, Trump said, “sure, absolutely.”

For its part, China’s Commerce Minister Zhong Shan has said China will not cave in to U.S. demands even if it faces further tariffs on its exports.

“There is a view in the U.S. that so long as the U.S. keeps increasing tariffs, China will back down.  They don’t know the history and culture of China,” Zhong said, in a statement to Bloomberg News.

“This unyielding nation suffered foreign bullying for many times in history, but never succumbed to it even in the most difficult conditions. China doesn’t want a trade war, but would rise up to it should it break out.

“The U.S. should not underestimate China’s resolve and will.”

The comments from Zhong are significant in that his ministry is in the front line of any possible talks with the U.S.

Lastly, the International Monetary Fund said the world economy is plateauing as the lender cuts its growth forecast for the first time in more than two years (July 2016), blaming escalating trade tensions and stresses in emerging markets.

On the eve of its annual meetings in Bali, Indonesia, the fund on Tuesday projected a global expansion of 3.7 percent this year and next, down from the 3.9 percent projected three months ago. 

IMF Chief Economist Maurice Obstfeld told reporters: “There are clouds on the horizon.  Growth has proven to be less balanced than we had hoped.  Not only have some downside risks we identified in the last WEO (World Economic Outlook) been realized, the likelihood of further negative shocks to our growth forecast has risen.”

If the trade war continues, the IMF projects it could take a significant bite out of global growth; global output  falling by more than 0.8 percent in 2020, and remaining 0.4 percent below its trend line over the long term, in a scenario where Trump follows through on all his threats, including global duties on cars.  Output could fall by more than 1.6 percent in China and over 0.9 percent in the U.S. next year, according to the IMF’s models.

The IMF downgraded its forecast for U.S. growth in 2019 to 2.5 percent, down 0.2 percentage points from July, after factoring in the impact of tariffs imposed by the Trump administration and retaliatory duties by other nations.  It left its U.S. growth projection for this year at 2.9 percent.

The IMF cut its outlook for China as a result of the tariffs, from 6.4 percent next year to 6.2 percent.  [China growth was 6.9 percent in 2017, and is projected to be 6.6 percent this year.]

The euro area will expand 2 percent this year, down 0.2 points from July’s IMF forecast. 

And the fund upgraded its outlook for Japan from 1 percent this year to 1.1 percent.

Opinion....

Editorial / Wall Street Journal

“The question that no one can answer with certainty is whether the correction in asset prices will be longer and deeper because the Fed’s financial repression was so extended.  Some of our friends think it is irrelevant and that higher corporate earnings and faster growth will carry stocks to new heights, give or take the occasional adjustment. We hope they’re right.

“But an honest assessment has to be that no one knows.  We have never seen the kind of central bank experiment that Mr. Bernanke began and that Europe and Japan followed.  It’s certainly possible that as long bond rates rise, capital will flow out of certain risk assets and back to a more normal pattern of investment allocation and risk.

“No one knows, too, how much such a reversal will affect the real economy.  Growth and overall economic confidence are strong enough now that even a major stock correction may not get in the way. Then again, if the ‘wealth effect’ of rising 401(k)s and stock prices contributed to consumer confidence on the way up, perhaps it will subtract on the way down.

“Keynesian economists also worry about what happens when government spending is scheduled to slow after 2019, but this underestimates the supply-side impact from the incentive changes of tax reform.  Unless Democrats take Congress in November and reverse reform, or Mr. Trump’s trade war escalates, a recession doesn’t seem imminent.

“All of this leaves current Fed Chairman Jerome Powell with some difficult decisions. But no one should think that this end game will be his legacy alone.  Mr. Powell and the current Fed inherited this clean-up operation after the long QE and zero-interest rate era.

“Mr. Bernanke had begun only very modest tapering in Fed bond buying by the time he left the Fed in 2014.  Janet Yellen succeeded him and began raising rates off zero very slowly with a similarly slow bond taper. Their legacies are as much on the line as Mr. Powell’s as the Fed steers through the end of this era of financial repression and toward a more complete verdict on post-crisis monetary policy.

“The good news is that, thanks to the Trump-GOP policy mix, the economy is strong. The economic gains from faster growth, rising productivity and a tight labor market are also likely to flow more broadly than they did from the bull market in equities of the repression era. But as stock prices are showing, the transition is uncertain and may be bumpy.”

Robert Kagan / Washington Post

“If the world was just about money, and the primary goal of U.S. foreign policy was just to get more of it, then Donald Trump might be someone you would want in the White House. With tough talk, threats of tariffs, and last-minute accommodations and concessions, the president has squeezed new deals out of allies such as Canada and Mexico that may be marginally better for some U.S. industries than were the old ones. He may have similar successes in his trade war with China, if only because, contrary to the declinist talk of the past decade, the United States, with its massive and lucrative market, enjoys real advantages over its trading partners.  If a president is willing to exploit them, as Trump has been, he can force others to knuckle under.

“Unfortunately, however, geoeconomics is not the only game in town. There is also geopolitics, a game Trump does not understand – as his naïve dealings with North Korean dictator Kim Jong Un show. And so, while Trump’s economic hardball may get us some jobs and money, it could also get us into trouble for which we are neither psychologically nor materially prepared....

“It would be one thing if Trump’s trade policy were part of an overall geopolitical strategy to deal with a rising China, but it isn’t. On the contrary, Trump and Congress are weakening our tools for dealing with the Chinese challenge. Strategists such as Robert Blackwill (sic) and Ashley Tellis have been calling for a combined economic, political and military approach that would include preferential trading agreements with Asian partners – excluding China – such as the Trans-Pacific Partnership agreement that Trump jettisoned, or an international technology-control regime – which requires the kind of international solidarity that Trump’s policies are undermining.  Also needed is a substantial strengthening of U.S. power-projection capabilities in the Asia-Pacific region, which requires Congress to spend more on defense at a time when Trump’s tax cuts are blowing up the deficit.

[Ed. The budget deficit for fiscal 2018, which ended Sept. 30, was an estimated $782bn.]

“The Democrats are just as irresponsible.  They want to play hardball on trade while cutting the defense budget and reducing forces overseas. They would squeeze China economically while failing to deter them militarily.

“In our current inward-looking myopia, we think about jobs and votes.  The Chinese, as always, think about power.  In case you didn’t recognize it, this is what sleepwalking into war looks like.”

Europe and Asia

After last week’s crush of economic data for the eurozone, there was zero broad-based news of note, at least to moi, so we move on to...

Brexit: British Prime Minister Theresa May was among those expressing optimism at week’s end that a deal on Brexit could be near.  May briefed ministers on negotiations Thursday amid speculation that the Government is moving closer to an accord with Brussels, though the European Commission said there was “no breakthrough yet.”  May’s negotiating team in Brussels, though, has been dropping hints they are close.

Cabinet ministers briefed on the talks said the issue of the Irish backstop* – the last outstanding issue in negotiations on an exit withdrawal treaty – was close to being settled.

*[The backstop is essentially a safety net if there is no Brexit trade deal, the trade deal being negotiated once Brexit formally takes place in March 2019. It sets out a list of proposals for customs arrangements with the EU, for one.]

But while there is optimism in the air, many of Mrs. May’s ministers may resign if they see too much compromise with the EU, and Democratic Unionist MPs from Northern Ireland, who prop up her minority government, were threatening to vote any proposal down.

Two Eurosceptic cabinet ministers were said to be on the verge of quitting and MPs were fuming that Mrs. May was ready to sign up to a “backstop” plan under which the whole of the UK would stay in a “temporary” customs union, but without an end date.

The DUP is withholding its support because of Britain’s acceptance that Northern Ireland should remain part of the EU’s single market regulatory area under the backstop plan.

Mrs. May has signaled she can accept demands by Brussels that Northern Ireland remain part of the single market during the period of a backstop – the treaty guarantee that there would be no return to a physical border in Ireland.

That would mean checks on industrial goods and other products travelling from mainland Britain to Northern Ireland, although Michel Barnier, EU chief negotiator, insisted these would be minimal.

Barnier said he is set to agree to Britain’s demand for the backstop to include references to a customs union to the whole UK, which would avoid a customs border in the Irish Sea while a more comprehensive UK-EU trade agreement is completed.

The EU originally insisted that customs and regulatory checks must be made along the Irish Sea between mainland Britain and Northern Ireland.  But Mrs. May has said that would effectively carve the UK into two customs areas and undermine Britain’s constitutional integrity.

The leader of the pro-Brexit European Research Group, Jacob Rees-Mogg, said: “It is worth remembering that income tax was introduced as a temporary measure.  Without an end date, we could be in the customs union forever.”

Separately, a solution is emerging on who has final say on disputes over a divorce agreement. The EU has long said the European Court of Justice should be the arbiter, while Britain has said it wants to end the EU court’s role in Britain after Brexit.  [This was a huge reason for the referendum in the first place...to get out from under the ECJ.]

Under an emerging compromise, a joint EU-UK panel could refer a dispute to the ECJ. The EU wouldn’t be able to unilaterally request the ECJ’s intervention.

Well, we’re down to crunch time, and a critical EU summit next week, Oct. 17-18.  The two sides are aiming to agree on an outline then, that would be legally binding after a final summit in November.  Official trade talks can start only once the UK leaves the EU on March 29 of next year.

Dec. 31, 2020 is the tentative end of a post-Brexit transition period, when the new rules would begin.

But wait...there’s more!  As I go to post, Bloomberg is reporting that there is an effort underway to extend the 12/31/2020 transition date, which would likely take the sting out of the Irish backstop by making it less likely that it would ever be invoked.

This makes total sense.  I’ve always thought the transition period was too limited.  I mean, do you realize what all is involved?  The EU is going to be hiring thousands of extra customs officials, for one, let alone all the computer systems that need to be updated and revised, people trained...you get the picture.

On the other hand, extending the transition period will only enrage further the pro-Brexit folks in Mrs. May’s own party who didn’t want a transition in the first place.  Of course these people are affectionately known where I come from as “idiots.”

[To be fair, some say extending the transition period tips the UK into another EU budget cycle, meaning further payments.]

Italy: Parliament voted in favor of the populist government’s fiscal outline including a higher deficit target for 2019, which has unsettled markets and been sharply criticized by the European Union.

The two houses passed motions backing the government’s update to the so-called Economic and Financial Document, setting a 2019 deficit goal of 2.4 percent of gross domestic product which the EU has signaled puts Italy in breach of the bloc’s rules.  The government is also targeting a deficit of 2.1 percent of GDP in 2020 and 1.8 percent in 2021.

Finance Minister Giovanni Tria said that the extra deficit will help fund planned measures including a new income-support tool, a lower retirement age and corporate tax cuts, all campaign pledges, but EU economy chief Pierre Moscovici and his fellow EU commissioners have told the Italian government that their wider-than-expected budget targets are a “significant deviation” from the bloc’s agreed-upon fiscal path, so we have conflict.

The European Central Bank has said it won’t come to Italy’s rescue if either the government or the banking system run out of cash, unless the country secures a bailout from the EU, according to Reuters.

But the budget process in Italy will potentially play out until the end of the year, when final parliamentary approval needs to be granted.

As for the benchmark yield on the Italian 10-year bond that I have been following, it rose to 3.57% from 3.42% over the past week, due to the ongoing budget concerns, while the yield on the German bund was falling to 0.50%.  That huge spread between the two continues to represent a major warning signal for both the continent and global markets.

Germany: It’s a big weekend here as voters in Bavaria go to the polls on Sunday, with surveys showing Chancellor Angela Merkel’s allies, the Christian Social Union (CSU) winning at most 35 percent, losing the absolute majority with which it has controlled its southeastern heartland for most of the post-war period.  That stable power base has allowed the CSU, sister party to Merkel’s Christian Democratic Union (CDU), to punch above its weight in Berlin.

But since Merkel’s 2015 decision to open Germany’s borders to more than 1 million migrants, CSU leader Horst Seehofer has been a thorn in her side, as Seehofer and the CSU shift to the right to deal with the threat posed by the anti-immigration Alternative for Germany (AfD) party.

This is getting increasingly ugly, with Merkel’s fourth and probably final government coming close to collapsing a few times already over immigration and a scandal involving Germany’s former domestic spymaster, while the phasing out of polluting diesel cars is back in the forefront.

Another of Merkel’s coalition partners, the Social Democrats (SPD) is again questioning just what the heck it is doing in the government, as in its (declining) fortunes are probably best served being part of the opposition.

Since 1954, the CSU’s shares of the vote in Bavaria has not fallen below 43 percent and a fall in its share, with a commensurate rise in the vote for the AfD and the Green, will lead to further infighting in Berlin.

Meanwhile, Germany’s economy minister cut his growth forecasts from 2.3 and 2.1 percent for 2018 and 2019, to 1.8 percent both years.  In 2017, the German economy grew 2.5 percent.

Companies are having a hard time finding skilled workers.  Trade tensions aren’t helping either.

Turning to Asia, China’s key stock benchmark, the Shanghai Composite index, fell a whopping 7.6% on the week, though it was closed the prior one due to the national holidays and it was catch up time...and then some.  There was also a little economic news from China, with the private Caixin PMI reading for non-manufacturing (services) in September coming in at a solid 53.1 vs. 51.5 in August (50 being the dividing line between growth and contraction), but as you saw the previous week, the manufacturing data has been weakening considerably.

That said China’s exports for September rose a solid 14.5 percent from a year earlier, well above expectations despite wider application of U.S. tariffs and signs of shrinking export orders for Chinese companies. Analysts polled by Reuters, for example, had forecast exports would rise 9 percent for the month from a year earlier, slowing from 9.8 percent in August.

Imports grew 14.3 percent, customs data showed on Friday.

China posted a larger trade surplus of $31.69 billion for the month, when analysts had expected the surplus to shrink to $19.4 billion from $27.89 billion in August.

Despite the trade war with the U.S. and the tariffs, China’s surplus with the United States surged to a record high of $34.13, compared with $31.05 billion in August.  For January-September, China’s surplus with the U.S. was $225.79 billion, compared with about $196bn in the same period last year.  What will President Trump do now?

One more...China’s Association of Automobile Manufacturers said today that sales of passenger vehicles plunged a third straight month in September, down 12 percent to 2.06 million units, leaving the market up just 0.6 percent for the first nine months of the year.

But this comes just as global brands are making a bigger push into China, helped by the government opening up the economy.  BMW announced on Thursday it had a $4.1 billion deal to secure control of its Chinese joint venture, becoming the first automaker to take advantage of China’s policy to let foreign companies own a majority holding of their local partnerships.  [Bloomberg]

Trump World

--President Trump’s ambassador to the UN, Nikki Haley, suddenly announced her resignation on Tuesday, surprising many in the White House, while distracting from Brett Kavanaugh’s first day as a justice on the Supreme Court.

Trump, appearing with Haley in the Oval Office, said Haley told him six months ago she wanted a break after spending two years in the post. She’ll stay on through year-end, which makes the timing even more curious.  What was the hurry?

The president defended the timing, saying “there’s no good time” for Haley to have made the announcement, and that if she had waited until after the midterms there would have been speculation that the election results influenced her decision.

But no one would have questioned Haley’s move after Nov. 6, as in no one really expected her to stay on after two years, but to announce it now?  And stepping on the Kavanaugh story?

Former chief strategist Steve Bannon said: “The timing was exquisite from a bad point of view,” Bannon commenting at a Bloomberg investment forum in London.  “Everything she said yesterday and everything she said about stepping down could have been done on the evening of November 6.  The timing could not have been worse.”  Bannon added Haley’s move undermines Trump’s message to voters with the Republican majority in the House of Representatives.

At the same time, everyone knows Haley has presidential ambitions, though she made very clear she is not about to run against Trump in 2020, and instead will be campaigning for him. Strangely, she also volunteered that Jared Kushner is a “hidden genius.”

Chris Cillizza / CNN

“Remember that episode of ‘Seinfeld’ where George Costanza realizes that once he tells a successful joke, he should immediately declare victory and leave the premises?  The plan succeeds beyond his wildest dreams as his boss finds himself always wanting more George – to the point that he fires everyone on the project because he thinks George can handle it all himself.

“That’s kind of what – I suspect – Nikki Haley did on Tuesday when she shocked the political world (no matter what President Donald Trump said) by announcing her resignation. 

“Haley will have spent, roughly, two years in the Trump administration by the time she officially leaves at the end of the year. She will depart as a Trump favorite – as he made clear when he held a quasi press conference with Haley on Tuesday to announce her departure.  He praised Haley’s service and said that if she ever wanted to return to the administration, she could have whatever position she liked.

“So, she’s checked the ‘OK with Trump’ box. And she’s done so, somewhat amazingly, without turning off Democrats (and non-Trump Republicans).  In a Quinnipiac University poll conducted in late April, more than six in 10 people approved of the way Haley was doing her job. That number included, again somewhat remarkably, 75% of Republicans AND 55% of Democrats.

“The truth is, given Trump’s volatility as it relates to his advisers and the tremendous tribalism of our politics, it’s hard to see how things get much better than they are right now for Haley. And so, like Costanza, she went out on a high note.”

Kathleen Parker / Washington Post

“In decades of writing about politics, I’ve run across few with Haley’s innate talents. She’s a natural with people, whether crouching with children on the ground in Africa – reminiscent of Princess Diana on similar travels – or speaking to leaders in the tense theater of the United Nations. As governor, she led the legislature to remove the Confederate battle flag from the statehouse grounds, while also guiding South Carolina through the shock and grief of the 2015 church massacre in Charleston.

“It won’t serve her presidential aspirations well to stay out of politics for long, as Haley surely knows. Thus, the burning question – what’s next? – has only one certain answer: Whatever she wants.”

--Meanwhile, Monday night, President Trump had a public swearing in of Brett Kavanaugh, with the president opening with an extraordinary apology on behalf of the country to Kavanaugh and his family “for the terrible pain and suffering” they endured during the brutal confirmation process.

Kavanaugh said he would assume the role “with gratitude and  no bitterness.”

“The Senate confirmation process was contentious and emotional,” he said.  “That process is over.  My focus now is to be the best justice I can be.”

Alluding to charges that the court has emerged from his confirmation process more partisan than ever before.

“The Supreme Court is an institution of law.  It is not a partisan or political institution, and the justices do not sit on opposite sides of the aisle,” he said. He pledged to be “an independent and impartial justice.”

Kavanaugh kept to his word by bringing with him the high court’s first all-female group of law clerks.... “Brett’s Babes”....

Just kidding!!! 

Michael Goodwin / New York Post

“The event was something of a spike-the-football moment in front of a cheering White House audience and as such was a clever piece of stagecraft, where Republican Sens. Mitch McConnell, Charles Grassley, Lindsey Graham and Susan Collins were saluted.

“But the ceremony was much more than that mere boosterism. With the eight other Supremes sitting in the front row, Trump aimed to restore dignity to the judiciary at a time when the dirtiest tricks of politics have buried the court in a mountain of mud.

“The president is right to worry that the character-assassination attempt on Kavanaugh may turn out to be a seminal moment in American political and cultural history.  The idea that the court is just another political branch and that the presumption of innocence no longer applies if you are on the other team represent a seismic shift in how we look at each other and the nation as a whole.

“If those ideas stick, we are in more trouble than we can imagine.”

--According to a CNN poll conducted by SSRS in the final days of the fight over his nomination to the Supreme Court, 51% opposed Brett Kavanaugh’s confirmation, up from 39% who opposed it in early September, after his initial confirmation hearing but before accusations of sexual misconduct emerged.  Support for his confirmation, by contrast, inched up from 38% to 41%.

Not surprisingly, 91% of Democrats now oppose the confirmation, 89% of Republicans support the judge.

52% of Americans say they believe the women accusing Kavanaugh of sexual misconduct over the judge’s denial of those accusations (38% said they believed him more than the women).

--Editorial / Wall Street Journal

“In the movie ‘Field of Dreams,’ someone asks the lead character played by Kevin Costner if this is heaven?  No, he says, ‘it’s Iowa.’  But it is political heaven if you’re a corn farmer who sells to ethanol refiners, as President Trump is proving this week with one more favor for the fuel made with corn and your tax dollars.

“ ‘And my Administration is protecting ethanol, all right? That’s what you want to hear,’ Mr. Trump said at a rally in Iowa on Tuesday, and give him points for political candor.  Mr. Trump then announced that his Administration will now allow fuel with 15% ethanol to be sold all year long. The Clean Air Act sets standards for fuel volatility, and E15 hasn’t been allowed in the summer because it can cause smog. Most blends contain 10% of ethanol.

“On the plus side, the White House isn’t mandating or subsidizing more ethanol, which is already pushed into the fuel supply at increasing rates under the renewable fuel standard.  In an ideal market, ethanol blends could compete with regular gasoline year round without the potpourri of government distortions.  (We can dream too.)

“Some 20 Senators from both parties pointed out in a letter last week that the agency doesn’t have the legal authority to waive the Clean Air Act’s summer standards. The law lays out a waiver process for ‘blends containing gasoline and 10 percent denatured anhydrous ethanol.’  But nowhere is a 15% blend mentioned.

“EPA said in 2011 that it doesn’t believe it has the authority to allow year-round sales of E15, and that is not remembered as an era of agency restraint. If the standards are too strict, then Congress should change them. Oil companies plan to sue, even if their less than pure motive is heading off competition from cheap ethanol amid rising oil prices.

“The other issue is how little reformers appear to be getting in exchange.  The Trump Administration says it’s considering changes to compliance credits known in the lingua franca as ‘renewable identification numbers,’ or RINs, which companies have to buy if  they don’t reach ethanol blending quotas.  The East Coast refiner Philadelphia Energy Solutions paid $300 million for RINs in 2017 (twice the company’s payroll).

“The White House cited speculators as one area for reform, but RINs are expensive because so many companies have to buy credits in lieu of blending a marginal gallon of ethanol....

“We almost feel like chumps for bringing up small matters like the law and economics, since the new policy is so clearly a sop to farmers hit hard by Mr. Trump’s tariff policy.  As ever, one bad policy inevitably leads to another.”

Street Bytes

--As noted above, stocks fell hard, the Dow, S&P and Nasdaq falling over 3.7% each.  On the year, the Dow is up just 2.5%, the S&P 500 up only 3.5%.  The S&P is now off 5.6% from its Sept. 20 all-time high.  For all the hoopla in 2018, as former NBA All-Star Derrick Coleman would say, “Whoopty-damn-do.”

But now third-quarter corporate earnings are going to be released at a furious pace and what will companies say, particularly of the larger, multinational variety, about the trade situation and the impact on their bottom lines?  Or about the state of the global economy in general?

--U.S. Treasury Yields

6-mo. 2.43%  2-yr. 2.85%  10-yr. 3.16%  30-yr. 3.33%

Bonds rallied a bit (yields down) on the heels of the nosedive in stocks, but I would expect yields to rise anew shortly.  At one point the 10-year traded at 3.25%, the highest level since May 2011.

--Oil demand will grow at a weaker rate than initially anticipated this year and next due to trade tensions and higher crude prices, that will put “acute” pressure on the global economy, according to the International Energy Agency’s latest report.

The IEA reduced growth estimates for 2018 and 2019 by 110,000 barrels a day to 1.3m b/d and 1.4m b/d.

A rising U.S. dollar has also depressed emerging market currencies, making it more expensive for some consumers to import oil.

OPEC production rose by 100,000 b/d in September to 32.8m b/d. Non-OPEC output is forecast to expand by 2.2m b/d and 1.8m b/d in 2018 and 2019, led by the U.S.

--The banking industry is enjoying the benefits of a growing economy and lower taxes, while net interest margins – the difference between what they pay on deposits and what they charge on loans – has widened.

JPMorgan Chase reported earnings per share that beat the Street’s forecast, $2.34 vs. $2.25, up from $1.76 in the same period a year ago.

Total revenue of $27.26 billion was up from $25.58 billion in the same period a year ago and fell short of expectations.

CEO Jamie Dimon said the expanding list of geopolitical and economic uncertainties raises the risk that one of them will hurt the economy; pointing to escalating trade tensions, rates rising faster than expected, Brexit, Italian sovereign-debt problems, rising tensions with Saudi Arabia and higher mortgage rates, among other events that could take a toll on global and U.S. growth.

Citigroup said its third-quarter profits rose 12 percent from a year earlier, as the banking conglomerate was able to cut expenses and benefited from lower taxes.

Citi earned $4.62 billion in the third quarter, up from $4.13bn a year ago.  Citi’s profit of $1.74 per share beat expectations.

The bank did report a small drop in revenue from $18.42 billion to $18.39bn.

Most of Citi’s profit growth came from the tax cuts.  The amount of money the bank set aside for income taxes last quarter was down 21 percent from a year earlier.

Wells Fargo & Co. posted a 32 percent jump in quarterly profit as the bank makes headway in its cost-cutting plan and worked to put past misdeeds behind it.

Wells has promised to reduce about $3 billion in expenses by 2020. It is closing roughly 800 branches and cutting up to 10 percent of its workforce over the next three years.

But revenue was stagnant and total loans fell 1 percent.  Plus the Federal Reserve has its asset growth cap on Wells.

That said, I love all my local Wells tellers and managers...Faith, Sashka, Egrin, Kimberly...and at the end of the day....

--From Bloomberg News: “A major U.S. telecommunications company discovered manipulated hardware from Super Micro Computer in its network and removed it in August, fresh evidence of tampering in China of critical technology components bound for the U.S., according to a security expert working on the telecom company....

“Yossi Appleboum, provided documents, analysis and other evidence of the discovery following the publication of an investigative report in Bloomberg Businessweek that detailed how China’s intelligence services had ordered subcontractors to plant malicious chips in Supermicro server motherboards over a two-year period ending in 2015.

“Appleboum previously worked in the technology unit of the Israeli Army Intelligence Corps and is now co-chief executive officer of Sepio Systems in Gaithersburg, Maryland.  His firm specializes in hardware security and was hired to scan several large data centers belonging to the telecommunications company.  Blomberg is not identifying the company due to Appleboum’s nondisclosure agreement with the client....

“The executive said he has seen similar manipulations of different vendors’ computer hardware made by contractors in China, not just products from Supermicro.  ‘Supermicro is a victim – so is everyone else,’ he said. Appleboum said his concern is that there are countless points in the supply chain in China where manipulations can be introduced, and deducing them can in many cases be impossible. ‘That’s the problem with the Chinese supply chain,’ he said.”

Supermicro strongly refuted Bloomberg’s earlier report that servers it sold to customers contained malicious microchips.  Last week the report found that the Chinese infiltration through Supermicro reached almost 30 companies, including Amazon.com and Apple, both of which also disputed the findings.

“The U.S. Department of Homeland Security said it has ‘no reason to doubt’ the companies’ denials of Bloomberg Businessweek’s reporting.”

Other officials cited by Bloomberg said the threat from hardware implants is very real. [Jordan Robertson and Michael Riley / Bloomberg Businessweek]

--Douglas MacMillan and Robert McMillan / Wall Street Journal

“Google exposed the private data of hundreds of thousands of users of the Google+ social network and then opted not to disclose the issue this past spring, in part because of fears that doing so would draw regulatory scrutiny and cause reputational damage, according to people briefed on the incident and documents reviewed by The Wall Street Journal.

“As part of its response to the incident, the Alphabet Inc. unit on Monday announced a sweeping set of data privacy measures that include permanently shutting down all consumer functionality of Google+.  The move effectively puts the final nail in the coffin of a product that was launched in 2011 to challenge Facebook Inc. and is widely seen as one of Google’s biggest failures.

“A software glitch in the social site gave outside developers potential access to private Google+ profile data between 2015 and March 2018, when internal investigators discovered and fixed the issue, according to the documents and people briefed on the incident.  A memo reviewed by the Journal prepared by Google’s legal and policy staff and shared with senior executives warned that disclosing the incident would likely trigger ‘immediate regulatory interest’ and invite comparisons to Facebook’s leak of user information to data firm Cambridge Analytica.”

CEO Sundar Pichai was told of the plan not to notify users after an internal committee had reached that decision.

“The episode involving Google+, which hasn’t been previously reported, shows the company’s concerted efforts to avoid public scrutiny of how it handles user information, particularly at a time when regulators and consumer privacy groups are leading a charge to hold tech giants accountable for the vast power they wield over the personal data of billions of people.

“The snafu threatens to give Google a black eye on privacy after public assurances that it was less susceptible to data gaffes like those that have befallen Facebook.”

But while the Journal piece talks of Google facing unfavorable regulation in Washington, my immediate concern would be Europe, where Google is currently appealing a $5 billion fine levied by the EU’s antitrust regulators.

--Sears Holdings Corp. has started to miss payments to vendors, after a report it was close to filing for bankruptcy.   Three vendors told Reuters that Sears had missed scheduled payments to them in the last couple of weeks.

This comes ahead of the holiday shopping season and vendors could stop shipments if they are concerned Sears can’t pay.

Sears has started talks with banks about securing a sizable financing package to carry it through bankruptcy, which would in turn give vendors confidence.  It needs to stock the shelves for the critical months of November and December.

But there is also the story that CEO Eddie Lampert prefers to restructure Sears’ debt without filing for bankruptcy protection, because he views bankruptcy as too risky for retailers, i.e., Toys “R” Us, which entered bankruptcy hoping to restructure but wound up in liquidation.  It also seems clear that Lampert isn’t using anymore of his own funds to help bail out the company as he has in the past.

Sears shares once hit $145 over a decade ago and today they finished the week at $0.38.

--Delta Air Lines reported a profit of $1.3 billion for the third quarter, up 13 percent from a year ago despite higher fuel prices and a $30 million hit from Hurricane Florence.

The airline reported record revenues with passengers paying more for premium tickets.  Revenue growth of 8 percent to $11.95 billion, helped offset a $655 million increase in fuel costs.

This month marks the tenth anniversary of Delta’s merger with Northwest. Where does the time fly?  [On Delta...]

--LVMH, Moet Hennessy Louis Vuitton SE, the world’s biggest luxury goods company, sent a shudder across the sector as the overall market was tanking Wednesday, amid fears that a pullback by China’s big-spending shoppers could end a yearslong boom for the industry.

Louis Vuitton reported slightly slower sales from Chinese shoppers during the third quarter, and LVMH CFO Jean-Jacques Guiony told investors and analysts, “But we are really talking about going from high-teens [growth rate] to midteens.”  Hardly a disaster, but the sector took it as such.

That said, there is a legitimate fear China’s slowdown could lead to Chinese shoppers reining in spending.

LVMH did also add that the watch market was weak, particularly for watches priced less than $3,000.  Mr. Guiony said, “We are having a tough period with TAG Heuer in the U.S.”

Tiffany & Co.’s shares fell hard in sympathy with the news from LVMH of a slowdown in Japan as well as China, Tiffany receiving 14% of its sales from Japan.  Tiffany was down 10% on Thursday, though it had been up 30% the past year.

--Seniors and other Americans receiving Social Security will see the largest increase to their benefits in seven years in January, a 2019 cost-of-living increase of 2.8%, the Social Security Administration announced, which translates into an average increase in retiree benefits of about $40 a month.

--Facebook’s fight against fake accounts and spam continued this week as the social networking giant removed 559 Facebook Pages and 251 Facebook accounts over breaking the site’s rules for “spam and coordinated inauthentic behavior.”

“Many were using fake accounts or multiple accounts with the same names and posted massive amounts of content across a network of Groups and Pages to drive traffic to their websites,” wrote Facebook officials in a blog post.

“Many used the same techniques to make their content appear more popular on Facebook than it really was. Others were ad farms using Facebook to mislead people into thinking that they were forums for legitimate political debate.”

--Sales of U.S. military equipment to foreign governments rose 33 percent this year, to $55.6 billion, an administration official told Reuters on Tuesday, a result, at least in part, of the ‘Buy American’ plan that loosened regulations around sales while encouraging U.S. officials to take a bigger role in increasing business overseas for the defense industry.  But now you have the Saudi controversy, see below.

--The shine is off Amazon’s announcement of a new minimum wage of $15 an hour, now that reality has set in.  Many longtime workers, it turns out, could end up making thousands of dollars less, with the realization that while Amazon is paying a higher wage figure, it will no longer give out new stock grants and monthly bonuses.

Sen. Bernie Sanders (I-Vt.) who had repeatedly criticized Amazon for its low wages, and then applauded the company’s announcement, is now asking the company “to confirm how the total compensation of employees who would have received stock options – those with the company for two or more years – will be affected as a result of the recent changes.”

As the New York Times’ Karen Weise reports:

“The difference between what some  employees believe is their total compensation and what the company believes they are being paid also may come down to accounting rules.  Amazon said that if employees in 2018 get stock that was granted to them two years ago, that legally counts as compensation this year. But some employees believe that was compensation for work done two years ago.

“The difference – whether due to miscommunication or incomplete information given to employees – has resonated in Amazon warehouses around the country, particularly with employees with a longer tenure at the company.”

--The U.S. Postal Service has proposed raising the price of a first-class stamp by 10% to 55 cents and increasing rates on a popular option used by Amazon.com Inc. and other shippers by more than 12% as the agency seeks to shore up its finances.  On a percentage basis this would be the largest increase in more than three decades.

Should regulators approve the pricing changes, they would go into effect Jan. 27, 2019.  Start hoarding Forever stamps today, just as we will do in the home office of StocksandNews.

--The world’s longest non-stop commercial flight landed Friday morning at Newark International Airport, 17 hours and 52 minutes after it left Singapore.

Singapore Airlines relaunched the service five years after it was cut because it had become too expensive.  There were 150 passengers and 17 crew on the Airbus aircraft.  One passenger told the BBC, “On board the consensus was that the time passed very quickly and didn’t seem like 17 ½ hours.”

Qantas launched a 17-hour non-stop service from Perth to London earlier this year, while Qatar runs a 17 ½-hour service between Auckland and Doha.

Foreign Affairs

North Korea: U.S. Secretary of State Mike Pompeo visited North Korea for the fourth time last Sunday and held talks with Kim Jong Un.

“While there’s still a long way to go and much work to do, we can now see a path where we will achieve [our] ultimate goal, which is the full and final verified denuclearization of North Korea,” Pompeo said Tuesday at the White House.

He added that international inspectors could soon be arriving at two North Korean nuclear sites.

A second meeting between President Trump and Kim will be held sometime after the mid-term elections, Trump announced himself this week.

South Korean President Moon Jae-in told the BBC on Friday that it is only a matter of time before the U.S. and North Korea declare an end to their state of war on the Korean peninsula.

The war ended in 1953 with an armistice but a peace treaty was never signed.

But Moon acknowledged there could be more diplomatic “bumps and bruises” as he tries to persuade Kim Jong Un to give up his nuclear weapons.

Moon has now met with Kim three times this year and has acted as a mediator between him and President Trump.

“If North Korea takes certain measures,” Moon said, “the end of war declaration would be a political statement that would announce that the longstanding hostile relations between Pyongyang and Washington has ended.”

Separately, President Trump said on Wednesday that South Korea will not lift sanctions on Pyongyang without U.S. approval, after the South Korean foreign minister softened earlier comments that some of its unilateral sanctions were under review.  Trump’s rejection of South Korea easing sanctions alone outlines the official position of the United States and South Korea that the two countries remain in lockstep on North Korea.  The administration has encouraged its allies to maintain the sanctions until Pyongyang denuclearizes as part of Trump’s “maximum pressure” campaign.

That said, there are indeed growing pressures among some in the South Korean government, along with China, Russia and North Korea, for easing U.N. sanctions at an appropriate time, China’s foreign ministry said on Wednesday.

And South Korea’s foreign minister, Kang Kyung-wha, said Wednesday that Secretary of State Pompeo had expressed “discontent” with an inter-Korean military pact reached during a summit last month.

Editorial / Wall Street Journal

“Secretary of State Mike Pompeo heralded ‘significant progress’ after his weekend trip to North Korea, but it looks like that depends on how you define ‘significant.’ The diplomatic atmospherics look good, and the bonhomie is nice, but there still isn’t much progress toward denuclearization.

“Mr. Pompeo said the North had agreed in principle to open its Punggye-ri nuclear testing site to inspectors, which isn’t all that significant since the North says it has already destroyed the site. More important would be if the North allows inspectors to visit a missile-engine test site at Tongchang-ri, though that could also be dismantled by the time inspectors arrive.

“ ‘As President Trump said, there are many steps along the way and we took one of them today,’ Mr. Pompeo said.  ‘It was another step forward. So this is, I think, a good outcome for all of us.’

“What North Korea still hasn’t provided is a list with the location of all nuclear facilities, including research and development, uranium enrichment, warhead construction and weapons storage.  The U.S. needs such a list to compare to its intelligence and decide if the Kim Jong Un regime is sincere.  One-off inspections provide no such reassurance.

“Mr. Pompeo said the two sides also made progress toward a second summit between Kim and President Trump, perhaps to Pyongyang. Mr. Trump wants another summit to show progress, but the North’s price for that public show is likely to be a ‘peace declaration’ between North and South Korea. The risk is that this could undermine the case for keeping U.S. troops in South Korea.  It would also be an excuse for the South to flood the North with investment that would further erode global sanctions before the North has denuclearized.

“The best argument for Mr. Pompeo’s optimism is that all of this amounts to confidence-building that would make the North feel comfortable with nuclear disarmament. But the fact that it is being done on the North’s slow timetable, and perhaps with U.S. concessions up front, means the North has the diplomatic advantage.  Kim could decide after months of haggling that the doesn’t need to give up his nuclear weapons because the U.S.-South Korea alliance and the sanctions regime are eroding.

“That’s more likely if China decides to help Kim by refusing to enforce sanctions. Mr. Pompeo had a testy exchange Monday with his Chinese counterpart over tariffs and recent U.S. actions against China’s military.

“Mr. Trump has supreme confidence in his personal diplomacy, and perhaps he believes he can win over Kim with another face-to-face meeting.  Not to be spoilsports, but we’ll believe it when the North turns over its list of nuclear facilities and lets inspectors have the run of the sites to dismantle them.”

China: As alluded to above, Sec. of State Pompeo did have a chilly exchange with Chinese Foreign Minister Wang Yi on Monday in Beijing, the latest sign of sharply deteriorating relations between the world’s two largest economies.

Wang demanded the U.S. stop its “mistaken actions” against China, accusing the U.S. of escalating friction on a range of fronts involving the country’s affairs.

Pompeo countered that the United States had fundamental differences with China, with tensions over hefty trade tariffs, near-conflict between U.S. and China warships in the South China Sea, spy scandals, and disagreements over the likes of Taiwan, and what follows....

Editorial / Washington Post

“When reports began filtering out of China last year about a massive indoctrination and internment drive against ethnic Muslim Uighurs in the western region of Xinjiang, the government in Beijing denied that anything was going on.  Later, China acknowledged that criminals and people who committed minor offenses might be sent to ‘vocational education’ centers there. Now, the regime has gone a step further, revising a regional law to admit the dark reality: An archipelago of concentration camps has been built....

“According to (Adrian) Zenz (a lecturer in social research methods at the European School of Culture and Theology, in Korntal, Germany), there are now more than 1 million Uighurs and others incarcerated, or 11.5 percent of the Uighur population of Xinjiang between ages 20 and 79.  There may be as many as 1,200 facilities.... (Zenz) pointed out that the intent is not to kill people but to kill the memory of who they are, to wipe out their separate identity, language and history. Even the slightest perceived infraction, such as having a copy of the Koran on a phone or making a contact abroad, can result in incarceration, he said....

“The goal (of a new regional law, ‘de-extremification,’) is to...brainwash them.

“The U.S.-China agenda is admittedly tense over trade, North Korea and the South China Sea.  But something as brazen and dangerous as this calls for action.  A good start would be for Congress and the administration to demand unfettered international inspections in Xinjiang, and to consider selected sanctions under the Global Magnitsky Act against officials who commit gross human rights abuses – such as wiping out an entire people’s identity.”

Josh Rogin / Washington Post

“The Trump administration has announced a new, bold and risky strategy to shift the U.S. relationship with China from engagement to competition, and to confront Chinese economic aggression, military expansion, internal repression and overseas political interference. Whether the administration has the commitment and capability to make this strategy a reality is an open question.

“Its first big test is coming soon, over the issue of human rights and Tibet. Congress is quickly moving legislation to President Trump’s desk that would compel Beijing to open Tibet to U.S. officials and journalists or face restrictions on some Chinese Communist Party officials’ ability to visit the United States. If Trump signs the bill into law and his administration enforces it, Washington’s new policy of enforcing ‘reciprocity’ in the U.S.-China relationship will be on.

“Reciprocity is one key principle that Vice President Pence laid out during his speech last week, along with ‘fairness’ and ‘sovereignty.’  He specifically mentioned Tibet as well as the Chinese government’s internment of hundreds of thousands of Uighurs and other ethnic minorities in the Xinjiang region, another atrocity that Congress wants the Trump administration to address.

“The Senate is hoping to pass the Reciprocal Access to Tibet Act by the end of the year.  ‘The Chinese government and Communist Party use far-reaching, intrusive surveillance, and pervasive military and police force in Tibet, so no one should be surprised by their reluctance to grant access to American diplomats, journalists and others who might expose their egregious violations of human rights and religious freedom violations against the Tibetan people,’ said Sen. Marco Rubio (R-Fla.), the lead sponsor to the Senate version of the bill....

“Reciprocity is not a panacea, and it does not apply to all aspects of U.S.-China relations. But its adoption is evidence the conversation in Washington over how to confront various aspects of Beijing’s bad behavior is changing....

“Critics of the new approach, such as former secretary of state Colin Powell, warn that the Trump administration is creating a new Cold War with China. The Trump administration official told me that if Beijing wants to avoid a Cold War with the United States, it should ‘stop engaging in Cold War activity on their part.’

“By escalating against China, the United States certainly risks disruptions and unintended consequences that could have repercussions against it if the strategy is not managed carefully.  But that risk must be balanced against the cost of allowing Chinese practices to go unchecked.

“ ‘We didn’t start this. We’re not looking for this,’ the administration official said.  ‘But by not resetting the relationship, we’re accepting pain.’

“The Trump administration’s new China approach will face other huge tests in the months ahead. Will Trump’s tariff threats result in Beijing agreeing to more ‘fairness’ in the economic relationship?  Will stepped-up U.S. military activity in the South China Sea persuade China to back down from its expansive and illegitimate territorial claims?

“The objective of any strategy is to change the behavior of whomever the strategy is pointed at. So far, Beijing has not changed its behavior one iota, which means the strategy is not yet working. But it has only just begun. It took almost two years of infighting for the administration to get to this point. The internal battle over the next steps is raging now.

“By responding to China’s increasing external aggression and internal repression, the United States is not causing a confrontation – quite the opposite. Shifting to a more competitive, clear-eyed approach now is the best way to head off real confrontation later. That’s why the Trump administration’s new rhetoric on China must be followed by new action.”

So in terms of my own opinion, I just have to repeat some of what I wrote in this space in the past few weeks.

9/22/18

“Again, the Trump administration’s stance on China is correct.  The method, the ratcheting up of tensions to a level not seen before on the trade front between the two of us, is wrong. We will pay a price. And, of course, I believe we never should have walked away from the Trans-Pacific Partnership (and don’t give me this, ‘well even Hillary didn’t support it’...that was politics, not leadership, post-an election).  As the Wall Street Journal opined above, we need to confront China on a united front, with our allies, not think we can do it alone.  That’s a fools’ game.”

10/6/18

“(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.... 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.”

As for the probable meeting between Trump and Xi Jinping in Buenos Aires the latter part of November as part of the G-20 summit, that will amount to nothing.

--In other China news...federal agents successfully lured a Chinese government spy to Belgium, where authorities transferred him this week to the United States to face charges of economic espionage, U.S. officials said Wednesday.

Yanjun Xu, a senior officer with China’s Ministry of State Security (MSS), is accused of seeking to steal trade secrets from leading aviation firms, top Justice Department officials said.

This is apparently the first time a Chinese government spy has been brought to the United States to face charges.

“No one begrudges a nation that generates the most innovative ideas and from them develops the best technology,” Assistant Attorney General for National Security John Demers said.  “But we cannot tolerate a nation stealing our firepower and the fruits of our brainpower. We will not tolerate a nation that reaps what it does not sow.”

Beginning in December 2013, and continuing through his April 1 arrest in Belgium, Xu targeted experts working for aeronautics companies inside and outside the United States, including GE Aviation, which has spent decades developing its unique jet engines and fan blades.

Xu recruited experts to travel to China, often under the guise of asking them to deliver a university presentation and passing himself off as an official with the Jiangsu Science and Technology Promotion Association.

Separately, in a startling move, the Chinese Communist Party announced late Sunday that the missing president of Interpol, Meng Hongwei, was indeed under investigation, as suspected, on “suspicion of violating the law” and was “under the supervision” of an anticorruption watchdog tied to the party.

A few hours later, Interpol announced it had received Mr. Meng’s resignation “with immediate effect.”

The detention of Meng is an audacious step, even by the Communist Party’s standards.  As Edward Wong and Alissa J. Rubin point out in the Washington Post: “China has sought legitimacy and a leadership role in international organizations, and Mr. Meng’s appointment in November 2016 as the president of Interpol, the first Chinese head of the global policing agency, was seen by many as a significant step in that direction. His detention undermines that campaign.”

Meng’s wife has not heard from her husband since he arrived in China.  He did manage to send an email with a knife emoji, which Mrs. Meng took to mean he was in danger.

Finally, Taiwan President Tsai Ing-wen praised the island as a beacon of democracy and urged China to avoid conflict, in a speech that riled up Beijing.

In a National Day address on Wednesday, Tsai called on like-minded nations to support Taiwan, which she described as a democracy standing on the front line of China’s expanding interest.  She pledged to increase military spending and ensure the positon of Taiwan’s high-tech industry in the global supply chain.

The best way to defend Taiwan, Tsai said, is to “make it indispensable and irreplaceable to the world.”

Tsai’s tone was cautious, but the address was filled with direct criticisms of China’s policy toward the island.

A Chinese official said Tsai’s speech revealed the “evil intentions” of Western forces, and that any attempt at Taiwan independence was doomed to fail.

“The speech will only aggravate relations between the two sides and bring Taiwan to an even more perilous situation,” said Ma Xiaoguang, spokesperson for the State Council’s Taiwan Affairs Office.

Monday, Chinese Foreign Minister Wang told Sec. Pompeo: “Recently, as the U.S. has been constantly escalating trade friction toward China, it has also adopted a series of actions on the Taiwan issue that harm China’s rights, and has made groundless criticism of China’s domestic and foreign policies,” Wang said.  “These actions have affected the mutual trust between both sides, and have cast a shadow over the prospects for China-U.S. relations, which completely go against the interest of our two peoples. We demand that the U.S. stop these kinds of mistaken actions.”

Pompeo told Wang: “We have great concerns about the actions that China has taken, and I look forward to having the opportunity to discuss each of those today because this is an incredibly important relationship.”

China’s foreign ministry described Vice President Mike Pence’s speech of the week before, detailed in my last review, as unwarranted slander and warned that nothing could stop China’s progress.  [Robyn Dixon / L.A. Times]

Turkey / Saudi Arabia: Saudi Arabian journalist Jamal Khashoggi was killed or kidnapped at the Saudi consulate in Istanbul, Turkey.  Khashoggi, a prolific writer, was one of the best-known voices in the region, contributing columns and commentary to outlets including the BBC, Al Jazeera and the Washington Post, while building a Twitter following of nearly 2 million.

He advocated on behalf of expanded democracy in Saudi Arabia and other regimes in the Middle East, while maintaining that Islamist movements such as the Muslim Brotherhood should be available to the citizens as a political choice for the region’s citizens. Saudi Arabia classifies the Muslim Brotherhood as a terrorist group.

Khashoggi was last seen entering the Saudi consulate in Istanbul Oct. 2 to obtain paperwork so he could marry a Turkish citizen, his fiancée then waiting outside for eleven hours, but he never came out.

15 Saudis were seen arriving in Istanbul hours before Khashoggi disappeared, on two private planes, one of whom was a known forensics expert who has worked in the Saudi Intelligence Ministry for years.  The 15 were then seen leaving the consulate hours after it is assumed Khashoggi was murdered and, probably, dismembered.  The 15 then departed at four different times, according to a Turkish newspaper.

The Saudis denied he was in custody, but as the days passed, CCTV images emerged of him going in, but none showed him coming out.

The White House said on Wednesday it requested transparency from the Saudis in its investigation.

Turkey, which had sought to conduct its own investigation inside the consulate, reached an agreement to join the Saudis in a joint investigation.

Friday, the Turkish government said it has what it describes as audio and video recordings purporting to show that Khashoggi was killed inside the consulate, and according to various reports, has shared the evidence with U.S. officials.  Turkey may release the evidence in the coming days, sources told the Wall Street Journal and Washington Post.

“Turkish investigators have sound [audio] from inside the consulate which makes it clear they killed him,” one of the people told the Journal.

Saudi Arabia maintains it had nothing to do with Khashoggi’s disappearance.  U.S. intelligence intercepts of Saudi officials, however, implicate Crown Prince Mohammed bin Salman.

President Trump, for a second day, expressed concern Thursday over reports Khashoggi was dead, and that the Saudi government was implicated, but he said he wouldn’t favor a halt in arms sales to Saudi Arabia should an investigation implicate Riyadh, although he would be open to other actions.  “(We) would not be in favor of stopping a country from spending $110 billion and letting Russia and China have that money.”

Behind the scenes, senior Trump adviser Jared Kushner, along with national security adviser John Bolton, have been working to defuse tensions.  Kushner, in particular, has become close to  bin Salman, the de facto ruler of the kingdom, and Secretary of State Mike Pompeo has also been in contact with Prince Mohammed, aka MBS.

Trump had made Saudi Arabia his first foreign trip as president in May 2017, but in recent weeks appears to have been souring on his relationship with Riyadh, principally over rising oil prices.

Meanwhile, Sen. Bob Corker (R-Tenn.), chairman of the Foreign Relations Committee, told reporters Thursday that the White House will be under “immense pressure” to punish Saudi Arabia if an investigation determines their culpability for the killing of Khashoggi.

“If it turns out to be what we all think it is today, there will have to be significant sanctions placed at the highest levels,” Corker said.  “They will be under immense pressure – immense pressure – if it’s determined that Saudi Arabia was involved to sanction, very severely, the people who’ve been involved in this.”

Sen. Cory Gardner (R-Colo.) said, “Arms sales are certainly going to be, I think, a huge concern if there is [Saudi responsibility] that is irrefutable.”

Khashoggi is not an American citizen (though he lives in the D.C. area), so the FBI’s access is limited unless the Turkish government invites it to participate in a probe.

Among the consequences of the presumed Saudi action, Virgin Group founder Richard Branson suspended a $1 billion investment project with Saudi Arabia.

Branson said in a statement: “What has reportedly happened in Turkey...if proved true, would clearly change the ability of any of us in the West to do business with the Saudi Government.”

The Saudi government had announced its intention to invest $1 billion into Virgin Galactic and Virgin Orbit last year, according to CNBC.

An upcoming Saudi investment/media forum has seen scores of news organizations pull out as a result of the Kashoggi situation, but the United States, thus far, has said it will attend.

Elliott Abrams / Washington Post

“The disappearance and reported killing of Saudi journalist  Jamal Khashoggi will have many victims, starting with his family and his fiancée.  But unless the Saudi government speaks and acts quickly and honestly about this terrible event, its own reputation will incur irreparable damage.

“Since the emergence of the current government under Crown Prince Mohammed bin Salman, critics (including Khashoggi) have argued that its central characteristic and greatest flaw was despotism: one-man rule by the young crown prince.  To this critique were added descriptions of his impulsiveness, inexperience and repression of any criticism of his approach to modernization.

“Defenders of the new regime (including me) have argued in essence that MBS is in the traditional and positive sense of the term an ‘enlightened despot.’  Though he was an absolute ruler, in this reading, he was one who used his power rationally to bring economic and social reforms, modernize his country and address the many developmental problems that hamper Saudi Arabia despite its wealth.  He appears, for example, to have reined in the ultra-conservative clergy, has begun to improve the status and role women, and has adopted plans aimed at creating a productive economy not dependent solely on oil production.

“There has been no political reform.  Internal critics have been harshly repressed, including women who urged a faster pace of change. Even this could be explained within the enlightened-despot model.  The defense was that the modernization steps MBS is undertaking are radical and face many internal enemies, so gauging the right pace of change is a delicate and fateful decision.  He must keep it in his hands and cannot permit public pressure either to go faster or to slow down.  His detention of many very rich Saudis in the Riyadh Ritz-Carlton hotel until they paid ransoms was apparently fairly popular in the kingdom, because it was widely believed few of those men had gained their fortunes legitimately.  Those ransoms were equivalent to the taxes they had never paid.

“That has been the defense, and the accusation of impulsiveness had for a while little evidence to back it.  Last year, most of the discussions about Saudi Arabia in which I participated questioned only whether the crown prince’s terrific reform program could really succeed. His highly successful two-week visit to the United States this year deepened the enthusiasm.

“The alleged killing of Khashoggi is a death blow to all those hopes and expectations, unless the Saudis can somehow explain what happened and accept full responsibility....

“Any government that thinks it cannot survive (Khashoggi’s) thoughtful criticism telegraphs to the world that it thinks itself shaky indeed.

“When the revolutionary regime in France in 1804 executed the Duke D’Enghien, one commentator observed: ‘It’s worse than a crime, it’s a mistake.’  Killing Khashoggi would be both: a great crime and a great mistake. It suggests either a regime without internal procedures and controls, or one in which an impulsive decision to kill a critic living in Washington cannot be contradicted or even questioned.  The Saudis may not realize what a wide impact that conclusion will have on governments and on investors, but it will be profound. All Saudi decision-making will come into question, and the government’s reliability as a partner will be rendered uncertain....

“What the crown prince must grasp is that his entire modernization program, indeed every defense of his own personal power, is undermined by what all the evidence suggests was a carefully planned murder. Jamal Khashoggi lost control of his fate when he entered the Saudi consulate in Istanbul.  Mohammed bin Salman must act quickly to regain control of his own.”

Late tonight, the Saudi Interior Minister said that allegations about orders to murder Khashoggi were “lies” targeting the government, according to the official Saudi Press Agency.

Separately, but not unrelated given the above, a Turkish court today ordered the release of the American pastor Andrew Brunson from house arrest, a move that will end his 24-month imprisonment, signaling a truce of sorts between Washington and Ankara.

The Trump administration has been pressing hard for the release of Brunson, an evangelical pastor who runs a small church in Izmir.  He was one of two dozen Americans detained in the aftermath of a failed coup in 2016 and was charged with aiding terrorist groups and espionages, charges he denies.

Syria: The government announced an amnesty for army deserters and those who avoided military service, a gesture that could draw thousands of refugees who fled the violence back to the country. Syrian President Bashar Assad issued the decree, the amnesty applying to those who “turn themselves in” within four months if they are in Syria or within six months if they are abroad, according to the decree. It does not include defectors who have fought against the government.

Syrian men over 18 must serve in the army for two years unless they are university graduates, who are required to serve 18 months.  Desertion and draft dodging carry stiff punishments, including years of imprisonment.

Meanwhile, Syrian rebels have completed the withdrawal of heavy weapons from the frontline in Idlib, under the agreement between Russia and Turkey regarding the creation of a demilitarized zone, according to the state-run Anadolu news agency.

Iran / Iraq: Kenneth M. Pollack / Wall Street Journal

“The outlines of a new Iraqi government have formed, after nearly four months of postelection politicking. Iraqis have much to be optimistic about.  On Tuesday Iraq’s Kurdish parties selected Barham Salih to be the new president of Iraq. He immediately named veteran Shiite politician Adel Abdul Mahdi to serve as prime minister and form a government.

“Mr. Salih is a dynamic, creative, reform-minded leader. As a politician he has promoted democracy, integrity and economic opportunity. Mr. Mahdi is a sober, pragmatic and moderate statesman respected by effectively every Iraqi – a rare feat in a fractured country

“Perhaps more heartening, their competitors were equally commendable.  Mr. Salih beat Fuad Hussein – known for his wisdom and ability to forge compromises. Mr. Mahdi was ultimately chosen over Mustafa al-Kadhimi, Iraq’s competent and professional intelligence chief, whose appointment to that delicate position was one of the most brilliant strokes of Haider al-Abadi’s term as prime minister.

“Given how badly Iraq’s May elections turned out – rampant fraud, miserable voter turnout and a badly fragmented Parliament – the ultimate outcome should provide hope for Iraq’s future.  A government led by Mr. Salih, Mr. Mahdi and the Sunni Arab speaker of Parliament, Mohammed al-Halbusi, is probably better than anyone could have imagined in May.

“While encouraging, the new government still faces two potentially lethal sets of problems.

“First, Iraqis are fed up with successive governments’ corruption, incompetence and sclerosis.  The country’s economy remains moribund, and the government has not been able to do anything meaningful about it.  Sustained protests have erupted across southern Iraq. They could snowball into revolution or prompt another civil war....

“Only a prime minister strong enough to override the parties can have any chance of enacting real reform. But like his predecessors, Mr. Mahdi was the product of a compromise. He almost certainly will lead a national unity government.  No party will stand to benefit by backing a prime minister trying to champion real reform, and politicians again will jealously guard the patronage networks they are awarded for supporting the new government.

“The second problem is Iran – or, more specifically, the Trump administration’s Iran policy.  Washington’s new approach puts heavy economic pressure on Tehran.  Yet the administration largely has overlooked that Iraq is the snorkel through which Iran breathes under sanctions.  The more economic pressure, the more Iran needs Iraq for trade, illicit hard-currency exchange and smuggling.

“That’s why Tehran wants a weak and corrupt Baghdad.  A strong reformist government could shut down Iran’s manipulation. It is also why a well-conceived policy of pressuring Iran should include a concerted effort to bolster Iraq.  But the Trump administration has steadfastly refused to plug the Iraqi leak in its Iran policy. What would it take?

“-- Retain 5,000 to 10,000 U.S. troops in Iraq to reassure Iraqis that no one – including the Iraqi federal government and the Iranian-backed Popular Mobilization Forces – can use violence to advance a political agenda.

“-- Make a significant commitment of economic assistance... Put at the disposal of the prime minister, the aid would help circumvent the Iraqi bureaucracy’s lethargy and corruption, while enabling him to build support by producing legitimate economic benefits.

“-- Work with Baghdad to identify discrete projects that can be completed over the next two years to address popular grievances. It is critical to demonstrate to the Iraqi people that the new government understands their misery and is working to improve their lives. That’s the only way to convince voters the government deserves more time to make the deeper fixes that can turn around Iraq’s bureaucracy and economy.

“Since the 2003 invasion, the U.S. repeatedly has won major military victories – then thrown them away by failing to provide the economic and political support needed to address the problems of peace. Iraq stands on the brink once again.  Miraculously, its political process has produced leadership that will try to move the country in the right direction. This may be the best and last chance to save Iraq – and save the U.S. from another expensive intervention. But the Iraqis cannot do it without U.S. help.”

India / Russia: India signed a deal to acquire the S-400 air defense missile system from Russia, despite the possibility this could trigger U.S. sanctions.

Indian Prime Minister Narendra Modi and Russian President Vladimir Putin announced the $5 billion deal in Delhi last weekend.

The S-400 is one of the most sophisticated surface-to-air defense systems in the world, with a range of 248 miles and the ability to shoot down up to 80 targets simultaneously, aiming two missiles at each one.

China also has the same system, so for India it was imperative to boost its defense capabilities, especially in light of the fact a two-front conflict with both China and Pakistan is possible at some point.

But Washington has put several Russian firms under sanctions, and the 2017 Countering America’s Adversaries Through Sanctions Act was introduced to target Russia, Iran and North Korea.

It also prohibits any country from signing defense deals with these nations.

But President Trump can provide individual waivers and India is hoping to secure one, though there are mixed signals coming from the administration thus far.

What I didn’t realize is how woefully inadequate India’s air force is, currently just 31 squadrons of largely ageing Russian aircraft, when defense experts say India needs at least 42 if it’s to wage a two-front war.

The S-400, however, would be a big help.

Random Musings

--Presidential tracking polls....

Gallup: 43% approval for President Trump, 53% disapproval (Oct. 7). The split was 38 / 56 three weeks earlier.  86% of Republicans approve, 39% of Independents (this was 88 / 33 three weeks ago).
Rasmussen: 49% approval, 50% disapproval (Oct. 12)

In a CNN/SSRS survey, President Trump’s job approval rose to 41%, compared with 36% in early September, though it was 42% in early August.

Those who disapprove of the job the president is doing decreased to 52% from 58% in September.

But in the critical House generic ballot matchup, 54% of likely voters say they support the Democrats in their district and 41% back a Republican, the widest margin of support for Democrats in a midterm cycle since 2006, when at this point, the party held a whopping 21-point lead over Republicans among likely voters. That’s also when Democrats seized control of the House from Republicans, making Nancy Pelosi speaker until 2011.

63% of women say they’ll vote for the Democrat and only a third say they’ll vote for the Republican.  Men are more closely divided, with half backing the Republican and 45% behind the Democrat.

The previous record for women voting Democratic was in 1982, when Democrats got the nod of 58% of women voters.

[A recent Wall Street Journal/NBC News poll found women want Democrats rather than Republicans to control Congress by a 58% to 33% margin.  Men favored Republican control in this survey, 47% to 44%.  So consistency in both polls.]

Both men and women have about the same amount of enthusiasm when it comes to going to the voting booth.

And when it comes to the expectations game, while Democrats lead by a big margin in the generic ballot question, 50% of Americans still say they expect Republicans to remain in control of Congress, while just a third think Democrats will win control.

A recent Cook Political Report has 15 GOP-held House districts as likely to go Democratic or leaning that way. Another 29 are considered tossups. Democrats need a net gain of 23 seats to win the majority.

But at the same time, Republican enthusiasm for the midterms has surged since the Kavanaugh hearings.  As Senate Majority Leader Mitch McConnell told Fox News on Sunday, “Nothing turns Republicans of all stripes – whether they’re Bush Republicans or Trump Republicans – on like a court fight.”

We are still weeks away, however.  Will the enthusiasm last?

--Daniel Henninger / Wall Street Journal

“At a time when it’s said that anything is possible in American politics, the impossible just happened.  Hillary Clinton has aligned herself with Donald Trump’s view of the Democratic Party.

“Mr. Trump has been using his political rallies to denounce ‘the radical Democrats’ as ‘an angry mob.’  On Tuesday, Mrs. Clinton told CNN: ‘You cannot be civil with a political party that wants to destroy what you stand for, what you care about.’ You cannot be civil.  Behold the Trump sun and the Clinton moon in a moment of political eclipse.

“It’s hard to pick out exactly when in the past month the Democrats shifted the national focus away from Mr. Trump and onto their own behavior.  I’d say it was the Senate’s final vote Saturday on Brett Kavanaugh’s confirmation.

“Democrats had thrown everything at Judge Kavanaugh, and it was over. But not in the Senate gallery. On cue, literally, spectators started shrieking at the senators on the floor. Guards moved toward the chamber’s doors, and the vote stopped while the screamers were removed.

“During Ronald Reagan’s presidency, the U.S. ambassador to the United Nations was Jeane (sic) Kirkpatrick, who in some ways was a template for Nikki Haley’s U.N. tenure as an unapologetic defender of America’s interests. At the Republicans’ 1984 national convention, Kirkpatrick delivered a speech memorable for one phrase – ‘the San Francisco Democrats.’ The idea behind ‘the San Francisco Democrats’ has never died. It stands for a party of the unelectable left.  That year, Reagan defeated Walter Mondale by 525 to 13 electoral votes.

“Democrats will complain it is beyond chutzpah for Donald Trump to brand them as divisive or radical after he has spent his presidency polarizing the electorate with his rhetoric and Twitter account. Maybe, but that was then. Whatever else was at issue in the midterm elections, it has been overtaken by the Kavanaugh nomination, which transfixed the nation for weeks....

“In conversations I’ve had recently with Democrats, once past the Kavanaugh arguments, most express a desire for more political civility. This is wishful thinking.  The party has a problem: The San Francisco Democrats are back.

“There are policy types on the left who would rather contest campaigns over health care and income disparities. But the Kavanaugh episode shows that the party is being taken over by what I would call the Code Pink Left.

“The professional network of the Code Pink Left, typified by the George-Soros-funded woman who trapped Sen. Jeff Flake in an elevator, has virtually no interest in substantive policy goals.

“The Code Pink Left specializes in creating political story lines of ‘frames’ – such as that conservatives are weak on sexual abuse – which it promotes with theatrical protests, distributes on social media, and depends on mainstream media for constant repetition.  This is something familiar. It is called agitprop.

“The goal is to make the broader electorate nervous and doubtful.  It worked.  Many voters are now nervous about the Democrats’ street-fighting men and women.  Every Republican from Donald Trump down to dogcatcher is running against the Democrats’ ‘angry mob’ of Senate screamers and restaurant marauders.

“What about the alt-right’s role in the new incivility? Good question. The answer is, they’re gone. The most visible face of conservatism through the Kavanaugh fight was...Sen. Charles Grassley.

“A valid criticism of Donald Trump is that he hasn’t expanded his base into a broader coalition. But his luck in attracting self-destructive opponents is astonishing.

“The Democrats are contracting whatever coalition Barack Obama left them into a delimited activist resistance, whose ‘rage’ is mostly a practiced act.

“Democrats are becoming too taken with their own tactics. They’ve turned Twitter into basically a 24/7 open-mic night.  Look how cool and clever we are.  Kamala Harris and Cory Booker are mostly milking this niche audience for applause. It’s all so rote and theatrical.

“Here’s Eric Holder at a campaign event in Georgia: ‘Michelle [Obama] always says, ‘When they go low, we go high.’  No.  No.  When they go low, we kick them.’  Maybe it’s historical determinism. The constant-protest left captured the Democratic Party in the late 1960s and frightened the country into Richard Nixon’s overwhelming win against George McGovern in 1972. Four-and-a-half decades later, another generation of Democratic politicians is answering the same old radical siren song, ‘You can’t be civil.’

“For a time, Jimmy Carter and Bill Clinton, governors from the American South, taught them that won’t win.  One thing never changes with the American left: It always goes too far.”

--Editorial / New York Post

“With much of the Democratic Party going nuts, former first lady Michelle Obama is sticking by her ‘when they go low, we go high’ advice.  Thank you, ma’am.

“Her husband’s attorney general, Eric Holder, on Sunday begged to differ with what ‘Michelle always says,’ telling a Georgia crowd.  ‘No.  No. When they go low, we kick them.’

“Of course, Holder’s one of the 200 or so Democrats eyeing a 2020 presidential run and eagerly courting the party’s most rabid elements. On the other hand, Hillary Clinton isn’t running (please!), yet she now insists that ‘civility’ is only for after Democrats ‘win back the House and/or the Senate.’

“So it’s beyond wonderful that Obama told NBC’s Savannah Guthrie on Thursday that she ‘absolutely’ stands by her slogan.

“As she explained: ‘If you think about how you want your kids to be raised, how you want them to think about life and their opportunities, do you want them afraid of their neighbors?  Do you want them angry? Do you want them vengeful?’

“No, Obama added, ‘we want them to grow up with promise and hope.’  More: ‘We can’t model something different if we want them to be better than that.’

“It’s a message worth heeding across the spectrum: Treat everyone who disagrees with you as a mortal enemy and you risk making them into just that – while also distorting your life and those around you.  It’s madness.”

--Bret Stephens / New York Times

“Since when did the possibility of innocence become, for today’s liberals, something to wave off with an archly unfeeling ‘boo hoo’?”....

Stephens citing Cory Booker and his explanation on Tuesday “that ‘ultimately’ it doesn’t matter if Kavanaugh is ‘guilty or innocent,’ because ‘enough questions’ have been raised that it was time to ‘move on to another candidate.’”

--Former New York City Mayor Michael Bloomberg announced Wednesday that he will vote as a Democrat.  In a tweet explaining his decision in historical terms, Bloomberg said that “one of the two parties has served as a bulwark against those who threaten our Constitution.”

Bloomberg, who was a Democrat most of his life, but a Republican and then independent while mayor of New York, said, “We need Democrats to provide the checks and balance our nation so badly needs.”

Clearly, Bloomberg is gearing up for a possible run for president in 2020, but he is already 76 years old.

Earlier this month, Bloomberg said he would donate $20 million to a political-action committee supporting Senate Democrats.  According to the Wall Street Journal, he has actually dedicated $100 million to 2018 races; focusing on climate change and gun safety.

--A landmark report released Sunday from the world’s top climate change group said “rapid, far-reaching and unprecedented changes in all aspects of society” are required to ward off the worst impacts of global warming.

The report was released in South Korea by the United Nations’ Intergovernmental Panel on Climate Change (IPCC), which concluded that the world’s economies must quickly reduce fossil fuel use while at the same time dramatically increasing use of clean, efficient energy.  These transitions must start now and be well underway in the next 20 years.

The goal is to cap global warming at 1.5 Celsius (2.7 Fahrenheit) above pre-industrial levels, which the group says is nearly impossible unless immediate action is taken.

--Pope Francis accepted the resignation of Cardinal Donald Wuerl, the archbishop of Washington, but instead of making an example of Wuerl, who was named in a recent Pennsylvania grand jury report that accused church leaders of covering up abuse, Francis held him up as a model for the future unity of the Roman Catholic Church.  The Pope cited Wuerl’s “nobility” and announced that the 77-year-old prelate would stay on as the archdiocese’s caretaker until the appointment of his successor.

So Francis, by making it clear he thought Cardinal Wuerl had served the church well, sent yet another mixed message to abuse survivors, and to those of us who have simply walked away, in my case years ago.

--South Dakota is in my top 3-4 states in America, the others being Pennsylvania, North Carolina and Arizona, and I read the Rapid City Journal every day.  As you know the Black Hills area is my favorite spot in the country, awesome scenery, down-to-earth people (go to Deadwood on Halloween for a true flavor, as I’ve done twice).

But like all of the U.S., the state is suffering from the meth epidemic and I read a piece the other day that could be anywhere in the country.

“The number of women in prison has increased 35 percent since 2013.  By comparison, the number of men in prison grew 9 percent in that time period.

“South Dakota now has the fourth-highest rate of incarceration of women in the country, behind only Oklahoma, Wyoming and Kentucky. The South Dakota rate is nearly twice the national average.”

But, of course, here is the real issue....

“A large percentage of the women are serving sentences for non-violent, drug-related crimes.  Their relatively short prison sentences not only cost taxpayers more to house and care for them, but also don’t allow time to address the addiction issues that landed them in prison in the first place.”

Tough drug enforcement laws are in place to protect citizens, and reduce ancillary crimes such as burglary, robbery and assault, for starters.

But, “According to the National Institute on Drug Abuse within the National Institutes of Health, the average cost of treatment for a drug addict is $4,700, compared to the $24,000 to incarcerate them.”

And then you have the fate of the children of women who are imprisoned.  It’s just sad all around.

--And speaking of sad, I was driving to a NASCAR race in Dover, DE, on Sunday when I heard of the limousine crash in New York State that claimed 20 lives.  Of all the stories I heard in the aftermath of this tragedy, to me the worst was the victim who texted a loved one that the original limo had been replaced, and when she saw what the new vehicle was, she wrote ‘I don’t know if we’ll make it.’

--Finally, in a miracle amidst all the gloomy news of the week, two astronauts survived an emergency landing in Kazakhstan after the Soyuz rocket carrying them to the International Space Station (ISS) failed in mid-flight.

The latest failure comes amid a long string of Russian rocket crashes and represents another black eye for the Roscosmos space agency. The rocket, which carried an American astronaut, Nick Hague, and a Russian cosmonaut, began to plummet to earth about two minutes into the six-hour mission due to what launch controllers initially called a “vehicle malfunction.”

The engines were seen to cut out, after which the Soyuz MS-10 spaceship jettisoned from the drifting launch vehicle.

The pair then plunged toward the ground in “ballistic descent mode,” experiencing gravitational forces six times normal.

The capsule’s parachute deployed successfully, however, landing them on the grassy steppe about 250 miles from the Baikonur Cosmodrome rented by Russia.

Shockingly, the two astronauts were in good condition.             

Coincidentally, this week saw the opening of the film “First Man,” the tale of Neil Armstrong and the space program.  I just read a review by the Wall Street Journal’s Joe Morgenstern and he could not have praised the film more, concluding:

“Most movies aim to take us out of ourselves. This one goes to majestic extremes.”

---

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

God bless America.

---

Gold $1221
Oil $71.51...down almost $3 on the week

Returns for the week 10/8-10/12

Dow Jones  -4.2%  [25339]
S&P 500  -4.1%  [2767]
S&P MidCap  -4.9%
Russell 2000  -5.2%
Nasdaq  -3.7%  [7496]

Returns for the period 1/1/18-10/12/18

Dow Jones  +2.5%
S&P 500  +3.5%
S&P MidCap  -1.5%
Russell 2000  +0.7%
Nasdaq  +8.6%

Bulls 56.3
Bears 18.5 [Just last week I told you the ‘bull’ number, then 61.8, was a warning sign; this being a contrarian indicator.]

Have a great week.

Brian Trumbore



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Week in Review

10/13/2018

For the week 10/8-10/12

[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.

*Special thanks to Jim D. this week.

Edition 1,018             

I can’t help but start by defending the National Weather Service after the horrific devastation of Hurricane Michael.  There were many on the air Wednesday, both local officials and residents, saying they didn’t get enough warning there was going to be a major weather event.

Yes, Michael burst on the scene quickly, but anyone older than about 18 should know this is what happens with storms originating in the Gulf of Mexico.  I follow the weather radar, around the country, a few times a day (one of my addictions), and about four weeks ago I was concerned about this cluster of thunderstorms in the western Gulf that just hung around for days, never developing, before petering out.  I know the NWS was following it...and kind of surprised nothing happened in the end.

Well, a similar situation developed with Michael, as it started out as a bunch of storms off the Yucatan and then by Sunday evening, anyone following the news knew there was going to be an event of some kind later in the week in an area between Florida and Alabama.

Then Monday, the National Weather Service said Michael would hit the Panhandle with “life threatening” storm surges, winds and flooding, with the NWS expecting the system to become a major Category 3 storm by Tuesday.  The NWS was forecasting 12-foot storm surges in its Monday forecast.

Florida Gov. Rick Scott also tweeted on Monday, “The FL panhandle needs to be prepared for a direct hit with sustained hurricane force winds.”

Yes, we all would like more notice, but there was time between Monday and Wednesday for residents to save their lives.  As for the final intensity, a CAT 3 forecast should have been enough.

So we’ve all now seen what a near-CAT 5 storm can do, and it’s depressing...and sad and tragic.  No one knows what the eventual death toll will be (17 officially as I go to post, including victims from the catastrophic flooding in Virginia).  But your heart goes out to those who lost their dreams, homes and livelihoods along the panhandle and north.  Local and state officials no doubt feel overwhelmed tonight, and will for months to come.

One thing stands out when you look at the damage. With floods, such as in the case of Hurricanes Harvey and Florence, normally certain key structures, especially hospitals, are located in relatively safe areas, higher ground, away from rivers.  Same with most schools.

But with a hurricane packing 150 mph winds, there is no safe ground.

In the aftermath of Hurricane Katrina, long-time readers might recall that I flew down to Pensacola, FL, and then drove across to the Biloxi, MS, area, distributing cash to those who I thought could use it.  Yeah, I was wealthy then.  Wish I could do that today. 

The folks in Florida, Georgia, and Virginia will need our help, as do the folks still just beginning to recover in the Carolinas from Florence.  Do what you can.  It’s beyond sickening what we have witnessed.  Count your blessings.

Wall Street and Trade

Wall Street took it on the chin this week, with the major indexes down a combined 5%+ on just Wednesday and Thursday, the Dow Jones suffering point losses of 831 (-3.1%) and 545 (-2.1%) the two days, before a relief rally on Friday of 287 points (+1.15%).  On the week the Dow lost 4.2%, the S&P 4.1% and Nasdaq 3.7%.

Fears over rising interest rates and the ongoing trade war with China were the chief culprits; some saying the latter will severely hobble the supply chain...with anecdotal evidence of this already bubbling up from the surface daily.

President Trump didn’t hold back either, renewing his criticism of the Federal Reserve on Thursday, saying it was being “too aggressive” in its policies and was making a big mistake on interest rates, the Fed headed towards a fourth rate hike of the year in December.

Trump said in an interview on “Fox & Friends” that the Fed was getting “a little bit too cute.”  Earlier in the week he called the Fed “loco,” as he blamed Chairman Jerome Powell and Co. for the market drop, not his trade war with China, or anything else.

[Powell continues to pay the price for a comment he made in an interview Oct. 3: “Interest rates are still accommodative, but we’re gradually moving to a place where they will be neutral.  We may go past neutral, but we’re a long way from neutral at this point, probably.”  Ergo, at least four more rate hikes.  Critics say he should have just said something like, “The number of future rate hikes will be data dependent...” and then talked about the weather.]

There is no doubt the rate hikes are finally beginning to bite.  According to data from Freddie Mac on Thursday, the average 30-year fixed rate on a mortgage is up to 4.9%, the highest in more than seven years, though effectively, most buyers have already been paying more than 5% and this is having a real impact on the housing market, far more than some expected.

For a house with a $250,000 mortgage, rates of 5% add about $150 to the monthly payments compared with the rate of 4% that borrowers could have had less than a year ago, according to LendingTree Inc., excluding taxes and insurance.  That’s a big difference.

Existing home sales have fallen for six consecutive months, and once-hot markets are showing signs of cooling.

Yes, 5% is still on the low side, historically, but when you’ve been used to 3% to 4% for years now, that’s a huge difference, both psychologically and in the pocketbook.

As for the economic data on the week, it was all about the inflation numbers and they were tame.  Producer prices in September were up 0.2%, ditto on core, ex-food and energy, with the headline number up 2.6% year-over-year, the core figure 2.5%.

The next day consumer price data was released and it was below expectations, 0.1% on both headline and core, and 2.3% and 2.2%, respectively, over the past 12 months.  So the Fed, at least for the moment, should have no concerns regarding these factoids.

On trade, President Trump said his economic and trade policies have hurt China’s economy and that “I have a lot more to do,” as he said in his “Fox & Friends” interview Thursday.

Trump on Tuesday repeated his threat to slap tariffs on an additional $267 billion of Chinese imports if Beijing retaliates for the recent levies and other measures the United States has imposed.

Trump also told reporters China is not ready to reach a deal.

“China wants to make a deal, and I say they’re not ready yet,” Trump said.  “And we’ve canceled a couple of meetings because I say they’re not ready to make a deal.”

When asked whether he was ready to levy new tariffs in case of retaliation from China, Trump said, “sure, absolutely.”

For its part, China’s Commerce Minister Zhong Shan has said China will not cave in to U.S. demands even if it faces further tariffs on its exports.

“There is a view in the U.S. that so long as the U.S. keeps increasing tariffs, China will back down.  They don’t know the history and culture of China,” Zhong said, in a statement to Bloomberg News.

“This unyielding nation suffered foreign bullying for many times in history, but never succumbed to it even in the most difficult conditions. China doesn’t want a trade war, but would rise up to it should it break out.

“The U.S. should not underestimate China’s resolve and will.”

The comments from Zhong are significant in that his ministry is in the front line of any possible talks with the U.S.

Lastly, the International Monetary Fund said the world economy is plateauing as the lender cuts its growth forecast for the first time in more than two years (July 2016), blaming escalating trade tensions and stresses in emerging markets.

On the eve of its annual meetings in Bali, Indonesia, the fund on Tuesday projected a global expansion of 3.7 percent this year and next, down from the 3.9 percent projected three months ago. 

IMF Chief Economist Maurice Obstfeld told reporters: “There are clouds on the horizon.  Growth has proven to be less balanced than we had hoped.  Not only have some downside risks we identified in the last WEO (World Economic Outlook) been realized, the likelihood of further negative shocks to our growth forecast has risen.”

If the trade war continues, the IMF projects it could take a significant bite out of global growth; global output  falling by more than 0.8 percent in 2020, and remaining 0.4 percent below its trend line over the long term, in a scenario where Trump follows through on all his threats, including global duties on cars.  Output could fall by more than 1.6 percent in China and over 0.9 percent in the U.S. next year, according to the IMF’s models.

The IMF downgraded its forecast for U.S. growth in 2019 to 2.5 percent, down 0.2 percentage points from July, after factoring in the impact of tariffs imposed by the Trump administration and retaliatory duties by other nations.  It left its U.S. growth projection for this year at 2.9 percent.

The IMF cut its outlook for China as a result of the tariffs, from 6.4 percent next year to 6.2 percent.  [China growth was 6.9 percent in 2017, and is projected to be 6.6 percent this year.]

The euro area will expand 2 percent this year, down 0.2 points from July’s IMF forecast. 

And the fund upgraded its outlook for Japan from 1 percent this year to 1.1 percent.

Opinion....

Editorial / Wall Street Journal

“The question that no one can answer with certainty is whether the correction in asset prices will be longer and deeper because the Fed’s financial repression was so extended.  Some of our friends think it is irrelevant and that higher corporate earnings and faster growth will carry stocks to new heights, give or take the occasional adjustment. We hope they’re right.

“But an honest assessment has to be that no one knows.  We have never seen the kind of central bank experiment that Mr. Bernanke began and that Europe and Japan followed.  It’s certainly possible that as long bond rates rise, capital will flow out of certain risk assets and back to a more normal pattern of investment allocation and risk.

“No one knows, too, how much such a reversal will affect the real economy.  Growth and overall economic confidence are strong enough now that even a major stock correction may not get in the way. Then again, if the ‘wealth effect’ of rising 401(k)s and stock prices contributed to consumer confidence on the way up, perhaps it will subtract on the way down.

“Keynesian economists also worry about what happens when government spending is scheduled to slow after 2019, but this underestimates the supply-side impact from the incentive changes of tax reform.  Unless Democrats take Congress in November and reverse reform, or Mr. Trump’s trade war escalates, a recession doesn’t seem imminent.

“All of this leaves current Fed Chairman Jerome Powell with some difficult decisions. But no one should think that this end game will be his legacy alone.  Mr. Powell and the current Fed inherited this clean-up operation after the long QE and zero-interest rate era.

“Mr. Bernanke had begun only very modest tapering in Fed bond buying by the time he left the Fed in 2014.  Janet Yellen succeeded him and began raising rates off zero very slowly with a similarly slow bond taper. Their legacies are as much on the line as Mr. Powell’s as the Fed steers through the end of this era of financial repression and toward a more complete verdict on post-crisis monetary policy.

“The good news is that, thanks to the Trump-GOP policy mix, the economy is strong. The economic gains from faster growth, rising productivity and a tight labor market are also likely to flow more broadly than they did from the bull market in equities of the repression era. But as stock prices are showing, the transition is uncertain and may be bumpy.”

Robert Kagan / Washington Post

“If the world was just about money, and the primary goal of U.S. foreign policy was just to get more of it, then Donald Trump might be someone you would want in the White House. With tough talk, threats of tariffs, and last-minute accommodations and concessions, the president has squeezed new deals out of allies such as Canada and Mexico that may be marginally better for some U.S. industries than were the old ones. He may have similar successes in his trade war with China, if only because, contrary to the declinist talk of the past decade, the United States, with its massive and lucrative market, enjoys real advantages over its trading partners.  If a president is willing to exploit them, as Trump has been, he can force others to knuckle under.

“Unfortunately, however, geoeconomics is not the only game in town. There is also geopolitics, a game Trump does not understand – as his naïve dealings with North Korean dictator Kim Jong Un show. And so, while Trump’s economic hardball may get us some jobs and money, it could also get us into trouble for which we are neither psychologically nor materially prepared....

“It would be one thing if Trump’s trade policy were part of an overall geopolitical strategy to deal with a rising China, but it isn’t. On the contrary, Trump and Congress are weakening our tools for dealing with the Chinese challenge. Strategists such as Robert Blackwill (sic) and Ashley Tellis have been calling for a combined economic, political and military approach that would include preferential trading agreements with Asian partners – excluding China – such as the Trans-Pacific Partnership agreement that Trump jettisoned, or an international technology-control regime – which requires the kind of international solidarity that Trump’s policies are undermining.  Also needed is a substantial strengthening of U.S. power-projection capabilities in the Asia-Pacific region, which requires Congress to spend more on defense at a time when Trump’s tax cuts are blowing up the deficit.

[Ed. The budget deficit for fiscal 2018, which ended Sept. 30, was an estimated $782bn.]

“The Democrats are just as irresponsible.  They want to play hardball on trade while cutting the defense budget and reducing forces overseas. They would squeeze China economically while failing to deter them militarily.

“In our current inward-looking myopia, we think about jobs and votes.  The Chinese, as always, think about power.  In case you didn’t recognize it, this is what sleepwalking into war looks like.”

Europe and Asia

After last week’s crush of economic data for the eurozone, there was zero broad-based news of note, at least to moi, so we move on to...

Brexit: British Prime Minister Theresa May was among those expressing optimism at week’s end that a deal on Brexit could be near.  May briefed ministers on negotiations Thursday amid speculation that the Government is moving closer to an accord with Brussels, though the European Commission said there was “no breakthrough yet.”  May’s negotiating team in Brussels, though, has been dropping hints they are close.

Cabinet ministers briefed on the talks said the issue of the Irish backstop* – the last outstanding issue in negotiations on an exit withdrawal treaty – was close to being settled.

*[The backstop is essentially a safety net if there is no Brexit trade deal, the trade deal being negotiated once Brexit formally takes place in March 2019. It sets out a list of proposals for customs arrangements with the EU, for one.]

But while there is optimism in the air, many of Mrs. May’s ministers may resign if they see too much compromise with the EU, and Democratic Unionist MPs from Northern Ireland, who prop up her minority government, were threatening to vote any proposal down.

Two Eurosceptic cabinet ministers were said to be on the verge of quitting and MPs were fuming that Mrs. May was ready to sign up to a “backstop” plan under which the whole of the UK would stay in a “temporary” customs union, but without an end date.

The DUP is withholding its support because of Britain’s acceptance that Northern Ireland should remain part of the EU’s single market regulatory area under the backstop plan.

Mrs. May has signaled she can accept demands by Brussels that Northern Ireland remain part of the single market during the period of a backstop – the treaty guarantee that there would be no return to a physical border in Ireland.

That would mean checks on industrial goods and other products travelling from mainland Britain to Northern Ireland, although Michel Barnier, EU chief negotiator, insisted these would be minimal.

Barnier said he is set to agree to Britain’s demand for the backstop to include references to a customs union to the whole UK, which would avoid a customs border in the Irish Sea while a more comprehensive UK-EU trade agreement is completed.

The EU originally insisted that customs and regulatory checks must be made along the Irish Sea between mainland Britain and Northern Ireland.  But Mrs. May has said that would effectively carve the UK into two customs areas and undermine Britain’s constitutional integrity.

The leader of the pro-Brexit European Research Group, Jacob Rees-Mogg, said: “It is worth remembering that income tax was introduced as a temporary measure.  Without an end date, we could be in the customs union forever.”

Separately, a solution is emerging on who has final say on disputes over a divorce agreement. The EU has long said the European Court of Justice should be the arbiter, while Britain has said it wants to end the EU court’s role in Britain after Brexit.  [This was a huge reason for the referendum in the first place...to get out from under the ECJ.]

Under an emerging compromise, a joint EU-UK panel could refer a dispute to the ECJ. The EU wouldn’t be able to unilaterally request the ECJ’s intervention.

Well, we’re down to crunch time, and a critical EU summit next week, Oct. 17-18.  The two sides are aiming to agree on an outline then, that would be legally binding after a final summit in November.  Official trade talks can start only once the UK leaves the EU on March 29 of next year.

Dec. 31, 2020 is the tentative end of a post-Brexit transition period, when the new rules would begin.

But wait...there’s more!  As I go to post, Bloomberg is reporting that there is an effort underway to extend the 12/31/2020 transition date, which would likely take the sting out of the Irish backstop by making it less likely that it would ever be invoked.

This makes total sense.  I’ve always thought the transition period was too limited.  I mean, do you realize what all is involved?  The EU is going to be hiring thousands of extra customs officials, for one, let alone all the computer systems that need to be updated and revised, people trained...you get the picture.

On the other hand, extending the transition period will only enrage further the pro-Brexit folks in Mrs. May’s own party who didn’t want a transition in the first place.  Of course these people are affectionately known where I come from as “idiots.”

[To be fair, some say extending the transition period tips the UK into another EU budget cycle, meaning further payments.]

Italy: Parliament voted in favor of the populist government’s fiscal outline including a higher deficit target for 2019, which has unsettled markets and been sharply criticized by the European Union.

The two houses passed motions backing the government’s update to the so-called Economic and Financial Document, setting a 2019 deficit goal of 2.4 percent of gross domestic product which the EU has signaled puts Italy in breach of the bloc’s rules.  The government is also targeting a deficit of 2.1 percent of GDP in 2020 and 1.8 percent in 2021.

Finance Minister Giovanni Tria said that the extra deficit will help fund planned measures including a new income-support tool, a lower retirement age and corporate tax cuts, all campaign pledges, but EU economy chief Pierre Moscovici and his fellow EU commissioners have told the Italian government that their wider-than-expected budget targets are a “significant deviation” from the bloc’s agreed-upon fiscal path, so we have conflict.

The European Central Bank has said it won’t come to Italy’s rescue if either the government or the banking system run out of cash, unless the country secures a bailout from the EU, according to Reuters.

But the budget process in Italy will potentially play out until the end of the year, when final parliamentary approval needs to be granted.

As for the benchmark yield on the Italian 10-year bond that I have been following, it rose to 3.57% from 3.42% over the past week, due to the ongoing budget concerns, while the yield on the German bund was falling to 0.50%.  That huge spread between the two continues to represent a major warning signal for both the continent and global markets.

Germany: It’s a big weekend here as voters in Bavaria go to the polls on Sunday, with surveys showing Chancellor Angela Merkel’s allies, the Christian Social Union (CSU) winning at most 35 percent, losing the absolute majority with which it has controlled its southeastern heartland for most of the post-war period.  That stable power base has allowed the CSU, sister party to Merkel’s Christian Democratic Union (CDU), to punch above its weight in Berlin.

But since Merkel’s 2015 decision to open Germany’s borders to more than 1 million migrants, CSU leader Horst Seehofer has been a thorn in her side, as Seehofer and the CSU shift to the right to deal with the threat posed by the anti-immigration Alternative for Germany (AfD) party.

This is getting increasingly ugly, with Merkel’s fourth and probably final government coming close to collapsing a few times already over immigration and a scandal involving Germany’s former domestic spymaster, while the phasing out of polluting diesel cars is back in the forefront.

Another of Merkel’s coalition partners, the Social Democrats (SPD) is again questioning just what the heck it is doing in the government, as in its (declining) fortunes are probably best served being part of the opposition.

Since 1954, the CSU’s shares of the vote in Bavaria has not fallen below 43 percent and a fall in its share, with a commensurate rise in the vote for the AfD and the Green, will lead to further infighting in Berlin.

Meanwhile, Germany’s economy minister cut his growth forecasts from 2.3 and 2.1 percent for 2018 and 2019, to 1.8 percent both years.  In 2017, the German economy grew 2.5 percent.

Companies are having a hard time finding skilled workers.  Trade tensions aren’t helping either.

Turning to Asia, China’s key stock benchmark, the Shanghai Composite index, fell a whopping 7.6% on the week, though it was closed the prior one due to the national holidays and it was catch up time...and then some.  There was also a little economic news from China, with the private Caixin PMI reading for non-manufacturing (services) in September coming in at a solid 53.1 vs. 51.5 in August (50 being the dividing line between growth and contraction), but as you saw the previous week, the manufacturing data has been weakening considerably.

That said China’s exports for September rose a solid 14.5 percent from a year earlier, well above expectations despite wider application of U.S. tariffs and signs of shrinking export orders for Chinese companies. Analysts polled by Reuters, for example, had forecast exports would rise 9 percent for the month from a year earlier, slowing from 9.8 percent in August.

Imports grew 14.3 percent, customs data showed on Friday.

China posted a larger trade surplus of $31.69 billion for the month, when analysts had expected the surplus to shrink to $19.4 billion from $27.89 billion in August.

Despite the trade war with the U.S. and the tariffs, China’s surplus with the United States surged to a record high of $34.13, compared with $31.05 billion in August.  For January-September, China’s surplus with the U.S. was $225.79 billion, compared with about $196bn in the same period last year.  What will President Trump do now?

One more...China’s Association of Automobile Manufacturers said today that sales of passenger vehicles plunged a third straight month in September, down 12 percent to 2.06 million units, leaving the market up just 0.6 percent for the first nine months of the year.

But this comes just as global brands are making a bigger push into China, helped by the government opening up the economy.  BMW announced on Thursday it had a $4.1 billion deal to secure control of its Chinese joint venture, becoming the first automaker to take advantage of China’s policy to let foreign companies own a majority holding of their local partnerships.  [Bloomberg]

Trump World

--President Trump’s ambassador to the UN, Nikki Haley, suddenly announced her resignation on Tuesday, surprising many in the White House, while distracting from Brett Kavanaugh’s first day as a justice on the Supreme Court.

Trump, appearing with Haley in the Oval Office, said Haley told him six months ago she wanted a break after spending two years in the post. She’ll stay on through year-end, which makes the timing even more curious.  What was the hurry?

The president defended the timing, saying “there’s no good time” for Haley to have made the announcement, and that if she had waited until after the midterms there would have been speculation that the election results influenced her decision.

But no one would have questioned Haley’s move after Nov. 6, as in no one really expected her to stay on after two years, but to announce it now?  And stepping on the Kavanaugh story?

Former chief strategist Steve Bannon said: “The timing was exquisite from a bad point of view,” Bannon commenting at a Bloomberg investment forum in London.  “Everything she said yesterday and everything she said about stepping down could have been done on the evening of November 6.  The timing could not have been worse.”  Bannon added Haley’s move undermines Trump’s message to voters with the Republican majority in the House of Representatives.

At the same time, everyone knows Haley has presidential ambitions, though she made very clear she is not about to run against Trump in 2020, and instead will be campaigning for him. Strangely, she also volunteered that Jared Kushner is a “hidden genius.”

Chris Cillizza / CNN

“Remember that episode of ‘Seinfeld’ where George Costanza realizes that once he tells a successful joke, he should immediately declare victory and leave the premises?  The plan succeeds beyond his wildest dreams as his boss finds himself always wanting more George – to the point that he fires everyone on the project because he thinks George can handle it all himself.

“That’s kind of what – I suspect – Nikki Haley did on Tuesday when she shocked the political world (no matter what President Donald Trump said) by announcing her resignation. 

“Haley will have spent, roughly, two years in the Trump administration by the time she officially leaves at the end of the year. She will depart as a Trump favorite – as he made clear when he held a quasi press conference with Haley on Tuesday to announce her departure.  He praised Haley’s service and said that if she ever wanted to return to the administration, she could have whatever position she liked.

“So, she’s checked the ‘OK with Trump’ box. And she’s done so, somewhat amazingly, without turning off Democrats (and non-Trump Republicans).  In a Quinnipiac University poll conducted in late April, more than six in 10 people approved of the way Haley was doing her job. That number included, again somewhat remarkably, 75% of Republicans AND 55% of Democrats.

“The truth is, given Trump’s volatility as it relates to his advisers and the tremendous tribalism of our politics, it’s hard to see how things get much better than they are right now for Haley. And so, like Costanza, she went out on a high note.”

Kathleen Parker / Washington Post

“In decades of writing about politics, I’ve run across few with Haley’s innate talents. She’s a natural with people, whether crouching with children on the ground in Africa – reminiscent of Princess Diana on similar travels – or speaking to leaders in the tense theater of the United Nations. As governor, she led the legislature to remove the Confederate battle flag from the statehouse grounds, while also guiding South Carolina through the shock and grief of the 2015 church massacre in Charleston.

“It won’t serve her presidential aspirations well to stay out of politics for long, as Haley surely knows. Thus, the burning question – what’s next? – has only one certain answer: Whatever she wants.”

--Meanwhile, Monday night, President Trump had a public swearing in of Brett Kavanaugh, with the president opening with an extraordinary apology on behalf of the country to Kavanaugh and his family “for the terrible pain and suffering” they endured during the brutal confirmation process.

Kavanaugh said he would assume the role “with gratitude and  no bitterness.”

“The Senate confirmation process was contentious and emotional,” he said.  “That process is over.  My focus now is to be the best justice I can be.”

Alluding to charges that the court has emerged from his confirmation process more partisan than ever before.

“The Supreme Court is an institution of law.  It is not a partisan or political institution, and the justices do not sit on opposite sides of the aisle,” he said. He pledged to be “an independent and impartial justice.”

Kavanaugh kept to his word by bringing with him the high court’s first all-female group of law clerks.... “Brett’s Babes”....

Just kidding!!! 

Michael Goodwin / New York Post

“The event was something of a spike-the-football moment in front of a cheering White House audience and as such was a clever piece of stagecraft, where Republican Sens. Mitch McConnell, Charles Grassley, Lindsey Graham and Susan Collins were saluted.

“But the ceremony was much more than that mere boosterism. With the eight other Supremes sitting in the front row, Trump aimed to restore dignity to the judiciary at a time when the dirtiest tricks of politics have buried the court in a mountain of mud.

“The president is right to worry that the character-assassination attempt on Kavanaugh may turn out to be a seminal moment in American political and cultural history.  The idea that the court is just another political branch and that the presumption of innocence no longer applies if you are on the other team represent a seismic shift in how we look at each other and the nation as a whole.

“If those ideas stick, we are in more trouble than we can imagine.”

--According to a CNN poll conducted by SSRS in the final days of the fight over his nomination to the Supreme Court, 51% opposed Brett Kavanaugh’s confirmation, up from 39% who opposed it in early September, after his initial confirmation hearing but before accusations of sexual misconduct emerged.  Support for his confirmation, by contrast, inched up from 38% to 41%.

Not surprisingly, 91% of Democrats now oppose the confirmation, 89% of Republicans support the judge.

52% of Americans say they believe the women accusing Kavanaugh of sexual misconduct over the judge’s denial of those accusations (38% said they believed him more than the women).

--Editorial / Wall Street Journal

“In the movie ‘Field of Dreams,’ someone asks the lead character played by Kevin Costner if this is heaven?  No, he says, ‘it’s Iowa.’  But it is political heaven if you’re a corn farmer who sells to ethanol refiners, as President Trump is proving this week with one more favor for the fuel made with corn and your tax dollars.

“ ‘And my Administration is protecting ethanol, all right? That’s what you want to hear,’ Mr. Trump said at a rally in Iowa on Tuesday, and give him points for political candor.  Mr. Trump then announced that his Administration will now allow fuel with 15% ethanol to be sold all year long. The Clean Air Act sets standards for fuel volatility, and E15 hasn’t been allowed in the summer because it can cause smog. Most blends contain 10% of ethanol.

“On the plus side, the White House isn’t mandating or subsidizing more ethanol, which is already pushed into the fuel supply at increasing rates under the renewable fuel standard.  In an ideal market, ethanol blends could compete with regular gasoline year round without the potpourri of government distortions.  (We can dream too.)

“Some 20 Senators from both parties pointed out in a letter last week that the agency doesn’t have the legal authority to waive the Clean Air Act’s summer standards. The law lays out a waiver process for ‘blends containing gasoline and 10 percent denatured anhydrous ethanol.’  But nowhere is a 15% blend mentioned.

“EPA said in 2011 that it doesn’t believe it has the authority to allow year-round sales of E15, and that is not remembered as an era of agency restraint. If the standards are too strict, then Congress should change them. Oil companies plan to sue, even if their less than pure motive is heading off competition from cheap ethanol amid rising oil prices.

“The other issue is how little reformers appear to be getting in exchange.  The Trump Administration says it’s considering changes to compliance credits known in the lingua franca as ‘renewable identification numbers,’ or RINs, which companies have to buy if  they don’t reach ethanol blending quotas.  The East Coast refiner Philadelphia Energy Solutions paid $300 million for RINs in 2017 (twice the company’s payroll).

“The White House cited speculators as one area for reform, but RINs are expensive because so many companies have to buy credits in lieu of blending a marginal gallon of ethanol....

“We almost feel like chumps for bringing up small matters like the law and economics, since the new policy is so clearly a sop to farmers hit hard by Mr. Trump’s tariff policy.  As ever, one bad policy inevitably leads to another.”

Street Bytes

--As noted above, stocks fell hard, the Dow, S&P and Nasdaq falling over 3.7% each.  On the year, the Dow is up just 2.5%, the S&P 500 up only 3.5%.  The S&P is now off 5.6% from its Sept. 20 all-time high.  For all the hoopla in 2018, as former NBA All-Star Derrick Coleman would say, “Whoopty-damn-do.”

But now third-quarter corporate earnings are going to be released at a furious pace and what will companies say, particularly of the larger, multinational variety, about the trade situation and the impact on their bottom lines?  Or about the state of the global economy in general?

--U.S. Treasury Yields

6-mo. 2.43%  2-yr. 2.85%  10-yr. 3.16%  30-yr. 3.33%

Bonds rallied a bit (yields down) on the heels of the nosedive in stocks, but I would expect yields to rise anew shortly.  At one point the 10-year traded at 3.25%, the highest level since May 2011.

--Oil demand will grow at a weaker rate than initially anticipated this year and next due to trade tensions and higher crude prices, that will put “acute” pressure on the global economy, according to the International Energy Agency’s latest report.

The IEA reduced growth estimates for 2018 and 2019 by 110,000 barrels a day to 1.3m b/d and 1.4m b/d.

A rising U.S. dollar has also depressed emerging market currencies, making it more expensive for some consumers to import oil.

OPEC production rose by 100,000 b/d in September to 32.8m b/d. Non-OPEC output is forecast to expand by 2.2m b/d and 1.8m b/d in 2018 and 2019, led by the U.S.

--The banking industry is enjoying the benefits of a growing economy and lower taxes, while net interest margins – the difference between what they pay on deposits and what they charge on loans – has widened.

JPMorgan Chase reported earnings per share that beat the Street’s forecast, $2.34 vs. $2.25, up from $1.76 in the same period a year ago.

Total revenue of $27.26 billion was up from $25.58 billion in the same period a year ago and fell short of expectations.

CEO Jamie Dimon said the expanding list of geopolitical and economic uncertainties raises the risk that one of them will hurt the economy; pointing to escalating trade tensions, rates rising faster than expected, Brexit, Italian sovereign-debt problems, rising tensions with Saudi Arabia and higher mortgage rates, among other events that could take a toll on global and U.S. growth.

Citigroup said its third-quarter profits rose 12 percent from a year earlier, as the banking conglomerate was able to cut expenses and benefited from lower taxes.

Citi earned $4.62 billion in the third quarter, up from $4.13bn a year ago.  Citi’s profit of $1.74 per share beat expectations.

The bank did report a small drop in revenue from $18.42 billion to $18.39bn.

Most of Citi’s profit growth came from the tax cuts.  The amount of money the bank set aside for income taxes last quarter was down 21 percent from a year earlier.

Wells Fargo & Co. posted a 32 percent jump in quarterly profit as the bank makes headway in its cost-cutting plan and worked to put past misdeeds behind it.

Wells has promised to reduce about $3 billion in expenses by 2020. It is closing roughly 800 branches and cutting up to 10 percent of its workforce over the next three years.

But revenue was stagnant and total loans fell 1 percent.  Plus the Federal Reserve has its asset growth cap on Wells.

That said, I love all my local Wells tellers and managers...Faith, Sashka, Egrin, Kimberly...and at the end of the day....

--From Bloomberg News: “A major U.S. telecommunications company discovered manipulated hardware from Super Micro Computer in its network and removed it in August, fresh evidence of tampering in China of critical technology components bound for the U.S., according to a security expert working on the telecom company....

“Yossi Appleboum, provided documents, analysis and other evidence of the discovery following the publication of an investigative report in Bloomberg Businessweek that detailed how China’s intelligence services had ordered subcontractors to plant malicious chips in Supermicro server motherboards over a two-year period ending in 2015.

“Appleboum previously worked in the technology unit of the Israeli Army Intelligence Corps and is now co-chief executive officer of Sepio Systems in Gaithersburg, Maryland.  His firm specializes in hardware security and was hired to scan several large data centers belonging to the telecommunications company.  Blomberg is not identifying the company due to Appleboum’s nondisclosure agreement with the client....

“The executive said he has seen similar manipulations of different vendors’ computer hardware made by contractors in China, not just products from Supermicro.  ‘Supermicro is a victim – so is everyone else,’ he said. Appleboum said his concern is that there are countless points in the supply chain in China where manipulations can be introduced, and deducing them can in many cases be impossible. ‘That’s the problem with the Chinese supply chain,’ he said.”

Supermicro strongly refuted Bloomberg’s earlier report that servers it sold to customers contained malicious microchips.  Last week the report found that the Chinese infiltration through Supermicro reached almost 30 companies, including Amazon.com and Apple, both of which also disputed the findings.

“The U.S. Department of Homeland Security said it has ‘no reason to doubt’ the companies’ denials of Bloomberg Businessweek’s reporting.”

Other officials cited by Bloomberg said the threat from hardware implants is very real. [Jordan Robertson and Michael Riley / Bloomberg Businessweek]

--Douglas MacMillan and Robert McMillan / Wall Street Journal

“Google exposed the private data of hundreds of thousands of users of the Google+ social network and then opted not to disclose the issue this past spring, in part because of fears that doing so would draw regulatory scrutiny and cause reputational damage, according to people briefed on the incident and documents reviewed by The Wall Street Journal.

“As part of its response to the incident, the Alphabet Inc. unit on Monday announced a sweeping set of data privacy measures that include permanently shutting down all consumer functionality of Google+.  The move effectively puts the final nail in the coffin of a product that was launched in 2011 to challenge Facebook Inc. and is widely seen as one of Google’s biggest failures.

“A software glitch in the social site gave outside developers potential access to private Google+ profile data between 2015 and March 2018, when internal investigators discovered and fixed the issue, according to the documents and people briefed on the incident.  A memo reviewed by the Journal prepared by Google’s legal and policy staff and shared with senior executives warned that disclosing the incident would likely trigger ‘immediate regulatory interest’ and invite comparisons to Facebook’s leak of user information to data firm Cambridge Analytica.”

CEO Sundar Pichai was told of the plan not to notify users after an internal committee had reached that decision.

“The episode involving Google+, which hasn’t been previously reported, shows the company’s concerted efforts to avoid public scrutiny of how it handles user information, particularly at a time when regulators and consumer privacy groups are leading a charge to hold tech giants accountable for the vast power they wield over the personal data of billions of people.

“The snafu threatens to give Google a black eye on privacy after public assurances that it was less susceptible to data gaffes like those that have befallen Facebook.”

But while the Journal piece talks of Google facing unfavorable regulation in Washington, my immediate concern would be Europe, where Google is currently appealing a $5 billion fine levied by the EU’s antitrust regulators.

--Sears Holdings Corp. has started to miss payments to vendors, after a report it was close to filing for bankruptcy.   Three vendors told Reuters that Sears had missed scheduled payments to them in the last couple of weeks.

This comes ahead of the holiday shopping season and vendors could stop shipments if they are concerned Sears can’t pay.

Sears has started talks with banks about securing a sizable financing package to carry it through bankruptcy, which would in turn give vendors confidence.  It needs to stock the shelves for the critical months of November and December.

But there is also the story that CEO Eddie Lampert prefers to restructure Sears’ debt without filing for bankruptcy protection, because he views bankruptcy as too risky for retailers, i.e., Toys “R” Us, which entered bankruptcy hoping to restructure but wound up in liquidation.  It also seems clear that Lampert isn’t using anymore of his own funds to help bail out the company as he has in the past.

Sears shares once hit $145 over a decade ago and today they finished the week at $0.38.

--Delta Air Lines reported a profit of $1.3 billion for the third quarter, up 13 percent from a year ago despite higher fuel prices and a $30 million hit from Hurricane Florence.

The airline reported record revenues with passengers paying more for premium tickets.  Revenue growth of 8 percent to $11.95 billion, helped offset a $655 million increase in fuel costs.

This month marks the tenth anniversary of Delta’s merger with Northwest. Where does the time fly?  [On Delta...]

--LVMH, Moet Hennessy Louis Vuitton SE, the world’s biggest luxury goods company, sent a shudder across the sector as the overall market was tanking Wednesday, amid fears that a pullback by China’s big-spending shoppers could end a yearslong boom for the industry.

Louis Vuitton reported slightly slower sales from Chinese shoppers during the third quarter, and LVMH CFO Jean-Jacques Guiony told investors and analysts, “But we are really talking about going from high-teens [growth rate] to midteens.”  Hardly a disaster, but the sector took it as such.

That said, there is a legitimate fear China’s slowdown could lead to Chinese shoppers reining in spending.

LVMH did also add that the watch market was weak, particularly for watches priced less than $3,000.  Mr. Guiony said, “We are having a tough period with TAG Heuer in the U.S.”

Tiffany & Co.’s shares fell hard in sympathy with the news from LVMH of a slowdown in Japan as well as China, Tiffany receiving 14% of its sales from Japan.  Tiffany was down 10% on Thursday, though it had been up 30% the past year.

--Seniors and other Americans receiving Social Security will see the largest increase to their benefits in seven years in January, a 2019 cost-of-living increase of 2.8%, the Social Security Administration announced, which translates into an average increase in retiree benefits of about $40 a month.

--Facebook’s fight against fake accounts and spam continued this week as the social networking giant removed 559 Facebook Pages and 251 Facebook accounts over breaking the site’s rules for “spam and coordinated inauthentic behavior.”

“Many were using fake accounts or multiple accounts with the same names and posted massive amounts of content across a network of Groups and Pages to drive traffic to their websites,” wrote Facebook officials in a blog post.

“Many used the same techniques to make their content appear more popular on Facebook than it really was. Others were ad farms using Facebook to mislead people into thinking that they were forums for legitimate political debate.”

--Sales of U.S. military equipment to foreign governments rose 33 percent this year, to $55.6 billion, an administration official told Reuters on Tuesday, a result, at least in part, of the ‘Buy American’ plan that loosened regulations around sales while encouraging U.S. officials to take a bigger role in increasing business overseas for the defense industry.  But now you have the Saudi controversy, see below.

--The shine is off Amazon’s announcement of a new minimum wage of $15 an hour, now that reality has set in.  Many longtime workers, it turns out, could end up making thousands of dollars less, with the realization that while Amazon is paying a higher wage figure, it will no longer give out new stock grants and monthly bonuses.

Sen. Bernie Sanders (I-Vt.) who had repeatedly criticized Amazon for its low wages, and then applauded the company’s announcement, is now asking the company “to confirm how the total compensation of employees who would have received stock options – those with the company for two or more years – will be affected as a result of the recent changes.”

As the New York Times’ Karen Weise reports:

“The difference between what some  employees believe is their total compensation and what the company believes they are being paid also may come down to accounting rules.  Amazon said that if employees in 2018 get stock that was granted to them two years ago, that legally counts as compensation this year. But some employees believe that was compensation for work done two years ago.

“The difference – whether due to miscommunication or incomplete information given to employees – has resonated in Amazon warehouses around the country, particularly with employees with a longer tenure at the company.”

--The U.S. Postal Service has proposed raising the price of a first-class stamp by 10% to 55 cents and increasing rates on a popular option used by Amazon.com Inc. and other shippers by more than 12% as the agency seeks to shore up its finances.  On a percentage basis this would be the largest increase in more than three decades.

Should regulators approve the pricing changes, they would go into effect Jan. 27, 2019.  Start hoarding Forever stamps today, just as we will do in the home office of StocksandNews.

--The world’s longest non-stop commercial flight landed Friday morning at Newark International Airport, 17 hours and 52 minutes after it left Singapore.

Singapore Airlines relaunched the service five years after it was cut because it had become too expensive.  There were 150 passengers and 17 crew on the Airbus aircraft.  One passenger told the BBC, “On board the consensus was that the time passed very quickly and didn’t seem like 17 ½ hours.”

Qantas launched a 17-hour non-stop service from Perth to London earlier this year, while Qatar runs a 17 ½-hour service between Auckland and Doha.

Foreign Affairs

North Korea: U.S. Secretary of State Mike Pompeo visited North Korea for the fourth time last Sunday and held talks with Kim Jong Un.

“While there’s still a long way to go and much work to do, we can now see a path where we will achieve [our] ultimate goal, which is the full and final verified denuclearization of North Korea,” Pompeo said Tuesday at the White House.

He added that international inspectors could soon be arriving at two North Korean nuclear sites.

A second meeting between President Trump and Kim will be held sometime after the mid-term elections, Trump announced himself this week.

South Korean President Moon Jae-in told the BBC on Friday that it is only a matter of time before the U.S. and North Korea declare an end to their state of war on the Korean peninsula.

The war ended in 1953 with an armistice but a peace treaty was never signed.

But Moon acknowledged there could be more diplomatic “bumps and bruises” as he tries to persuade Kim Jong Un to give up his nuclear weapons.

Moon has now met with Kim three times this year and has acted as a mediator between him and President Trump.

“If North Korea takes certain measures,” Moon said, “the end of war declaration would be a political statement that would announce that the longstanding hostile relations between Pyongyang and Washington has ended.”

Separately, President Trump said on Wednesday that South Korea will not lift sanctions on Pyongyang without U.S. approval, after the South Korean foreign minister softened earlier comments that some of its unilateral sanctions were under review.  Trump’s rejection of South Korea easing sanctions alone outlines the official position of the United States and South Korea that the two countries remain in lockstep on North Korea.  The administration has encouraged its allies to maintain the sanctions until Pyongyang denuclearizes as part of Trump’s “maximum pressure” campaign.

That said, there are indeed growing pressures among some in the South Korean government, along with China, Russia and North Korea, for easing U.N. sanctions at an appropriate time, China’s foreign ministry said on Wednesday.

And South Korea’s foreign minister, Kang Kyung-wha, said Wednesday that Secretary of State Pompeo had expressed “discontent” with an inter-Korean military pact reached during a summit last month.

Editorial / Wall Street Journal

“Secretary of State Mike Pompeo heralded ‘significant progress’ after his weekend trip to North Korea, but it looks like that depends on how you define ‘significant.’ The diplomatic atmospherics look good, and the bonhomie is nice, but there still isn’t much progress toward denuclearization.

“Mr. Pompeo said the North had agreed in principle to open its Punggye-ri nuclear testing site to inspectors, which isn’t all that significant since the North says it has already destroyed the site. More important would be if the North allows inspectors to visit a missile-engine test site at Tongchang-ri, though that could also be dismantled by the time inspectors arrive.

“ ‘As President Trump said, there are many steps along the way and we took one of them today,’ Mr. Pompeo said.  ‘It was another step forward. So this is, I think, a good outcome for all of us.’

“What North Korea still hasn’t provided is a list with the location of all nuclear facilities, including research and development, uranium enrichment, warhead construction and weapons storage.  The U.S. needs such a list to compare to its intelligence and decide if the Kim Jong Un regime is sincere.  One-off inspections provide no such reassurance.

“Mr. Pompeo said the two sides also made progress toward a second summit between Kim and President Trump, perhaps to Pyongyang. Mr. Trump wants another summit to show progress, but the North’s price for that public show is likely to be a ‘peace declaration’ between North and South Korea. The risk is that this could undermine the case for keeping U.S. troops in South Korea.  It would also be an excuse for the South to flood the North with investment that would further erode global sanctions before the North has denuclearized.

“The best argument for Mr. Pompeo’s optimism is that all of this amounts to confidence-building that would make the North feel comfortable with nuclear disarmament. But the fact that it is being done on the North’s slow timetable, and perhaps with U.S. concessions up front, means the North has the diplomatic advantage.  Kim could decide after months of haggling that the doesn’t need to give up his nuclear weapons because the U.S.-South Korea alliance and the sanctions regime are eroding.

“That’s more likely if China decides to help Kim by refusing to enforce sanctions. Mr. Pompeo had a testy exchange Monday with his Chinese counterpart over tariffs and recent U.S. actions against China’s military.

“Mr. Trump has supreme confidence in his personal diplomacy, and perhaps he believes he can win over Kim with another face-to-face meeting.  Not to be spoilsports, but we’ll believe it when the North turns over its list of nuclear facilities and lets inspectors have the run of the sites to dismantle them.”

China: As alluded to above, Sec. of State Pompeo did have a chilly exchange with Chinese Foreign Minister Wang Yi on Monday in Beijing, the latest sign of sharply deteriorating relations between the world’s two largest economies.

Wang demanded the U.S. stop its “mistaken actions” against China, accusing the U.S. of escalating friction on a range of fronts involving the country’s affairs.

Pompeo countered that the United States had fundamental differences with China, with tensions over hefty trade tariffs, near-conflict between U.S. and China warships in the South China Sea, spy scandals, and disagreements over the likes of Taiwan, and what follows....

Editorial / Washington Post

“When reports began filtering out of China last year about a massive indoctrination and internment drive against ethnic Muslim Uighurs in the western region of Xinjiang, the government in Beijing denied that anything was going on.  Later, China acknowledged that criminals and people who committed minor offenses might be sent to ‘vocational education’ centers there. Now, the regime has gone a step further, revising a regional law to admit the dark reality: An archipelago of concentration camps has been built....

“According to (Adrian) Zenz (a lecturer in social research methods at the European School of Culture and Theology, in Korntal, Germany), there are now more than 1 million Uighurs and others incarcerated, or 11.5 percent of the Uighur population of Xinjiang between ages 20 and 79.  There may be as many as 1,200 facilities.... (Zenz) pointed out that the intent is not to kill people but to kill the memory of who they are, to wipe out their separate identity, language and history. Even the slightest perceived infraction, such as having a copy of the Koran on a phone or making a contact abroad, can result in incarceration, he said....

“The goal (of a new regional law, ‘de-extremification,’) is to...brainwash them.

“The U.S.-China agenda is admittedly tense over trade, North Korea and the South China Sea.  But something as brazen and dangerous as this calls for action.  A good start would be for Congress and the administration to demand unfettered international inspections in Xinjiang, and to consider selected sanctions under the Global Magnitsky Act against officials who commit gross human rights abuses – such as wiping out an entire people’s identity.”

Josh Rogin / Washington Post

“The Trump administration has announced a new, bold and risky strategy to shift the U.S. relationship with China from engagement to competition, and to confront Chinese economic aggression, military expansion, internal repression and overseas political interference. Whether the administration has the commitment and capability to make this strategy a reality is an open question.

“Its first big test is coming soon, over the issue of human rights and Tibet. Congress is quickly moving legislation to President Trump’s desk that would compel Beijing to open Tibet to U.S. officials and journalists or face restrictions on some Chinese Communist Party officials’ ability to visit the United States. If Trump signs the bill into law and his administration enforces it, Washington’s new policy of enforcing ‘reciprocity’ in the U.S.-China relationship will be on.

“Reciprocity is one key principle that Vice President Pence laid out during his speech last week, along with ‘fairness’ and ‘sovereignty.’  He specifically mentioned Tibet as well as the Chinese government’s internment of hundreds of thousands of Uighurs and other ethnic minorities in the Xinjiang region, another atrocity that Congress wants the Trump administration to address.

“The Senate is hoping to pass the Reciprocal Access to Tibet Act by the end of the year.  ‘The Chinese government and Communist Party use far-reaching, intrusive surveillance, and pervasive military and police force in Tibet, so no one should be surprised by their reluctance to grant access to American diplomats, journalists and others who might expose their egregious violations of human rights and religious freedom violations against the Tibetan people,’ said Sen. Marco Rubio (R-Fla.), the lead sponsor to the Senate version of the bill....

“Reciprocity is not a panacea, and it does not apply to all aspects of U.S.-China relations. But its adoption is evidence the conversation in Washington over how to confront various aspects of Beijing’s bad behavior is changing....

“Critics of the new approach, such as former secretary of state Colin Powell, warn that the Trump administration is creating a new Cold War with China. The Trump administration official told me that if Beijing wants to avoid a Cold War with the United States, it should ‘stop engaging in Cold War activity on their part.’

“By escalating against China, the United States certainly risks disruptions and unintended consequences that could have repercussions against it if the strategy is not managed carefully.  But that risk must be balanced against the cost of allowing Chinese practices to go unchecked.

“ ‘We didn’t start this. We’re not looking for this,’ the administration official said.  ‘But by not resetting the relationship, we’re accepting pain.’

“The Trump administration’s new China approach will face other huge tests in the months ahead. Will Trump’s tariff threats result in Beijing agreeing to more ‘fairness’ in the economic relationship?  Will stepped-up U.S. military activity in the South China Sea persuade China to back down from its expansive and illegitimate territorial claims?

“The objective of any strategy is to change the behavior of whomever the strategy is pointed at. So far, Beijing has not changed its behavior one iota, which means the strategy is not yet working. But it has only just begun. It took almost two years of infighting for the administration to get to this point. The internal battle over the next steps is raging now.

“By responding to China’s increasing external aggression and internal repression, the United States is not causing a confrontation – quite the opposite. Shifting to a more competitive, clear-eyed approach now is the best way to head off real confrontation later. That’s why the Trump administration’s new rhetoric on China must be followed by new action.”

So in terms of my own opinion, I just have to repeat some of what I wrote in this space in the past few weeks.

9/22/18

“Again, the Trump administration’s stance on China is correct.  The method, the ratcheting up of tensions to a level not seen before on the trade front between the two of us, is wrong. We will pay a price. And, of course, I believe we never should have walked away from the Trans-Pacific Partnership (and don’t give me this, ‘well even Hillary didn’t support it’...that was politics, not leadership, post-an election).  As the Wall Street Journal opined above, we need to confront China on a united front, with our allies, not think we can do it alone.  That’s a fools’ game.”

10/6/18

“(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.... 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.”

As for the probable meeting between Trump and Xi Jinping in Buenos Aires the latter part of November as part of the G-20 summit, that will amount to nothing.

--In other China news...federal agents successfully lured a Chinese government spy to Belgium, where authorities transferred him this week to the United States to face charges of economic espionage, U.S. officials said Wednesday.

Yanjun Xu, a senior officer with China’s Ministry of State Security (MSS), is accused of seeking to steal trade secrets from leading aviation firms, top Justice Department officials said.

This is apparently the first time a Chinese government spy has been brought to the United States to face charges.

“No one begrudges a nation that generates the most innovative ideas and from them develops the best technology,” Assistant Attorney General for National Security John Demers said.  “But we cannot tolerate a nation stealing our firepower and the fruits of our brainpower. We will not tolerate a nation that reaps what it does not sow.”

Beginning in December 2013, and continuing through his April 1 arrest in Belgium, Xu targeted experts working for aeronautics companies inside and outside the United States, including GE Aviation, which has spent decades developing its unique jet engines and fan blades.

Xu recruited experts to travel to China, often under the guise of asking them to deliver a university presentation and passing himself off as an official with the Jiangsu Science and Technology Promotion Association.

Separately, in a startling move, the Chinese Communist Party announced late Sunday that the missing president of Interpol, Meng Hongwei, was indeed under investigation, as suspected, on “suspicion of violating the law” and was “under the supervision” of an anticorruption watchdog tied to the party.

A few hours later, Interpol announced it had received Mr. Meng’s resignation “with immediate effect.”

The detention of Meng is an audacious step, even by the Communist Party’s standards.  As Edward Wong and Alissa J. Rubin point out in the Washington Post: “China has sought legitimacy and a leadership role in international organizations, and Mr. Meng’s appointment in November 2016 as the president of Interpol, the first Chinese head of the global policing agency, was seen by many as a significant step in that direction. His detention undermines that campaign.”

Meng’s wife has not heard from her husband since he arrived in China.  He did manage to send an email with a knife emoji, which Mrs. Meng took to mean he was in danger.

Finally, Taiwan President Tsai Ing-wen praised the island as a beacon of democracy and urged China to avoid conflict, in a speech that riled up Beijing.

In a National Day address on Wednesday, Tsai called on like-minded nations to support Taiwan, which she described as a democracy standing on the front line of China’s expanding interest.  She pledged to increase military spending and ensure the positon of Taiwan’s high-tech industry in the global supply chain.

The best way to defend Taiwan, Tsai said, is to “make it indispensable and irreplaceable to the world.”

Tsai’s tone was cautious, but the address was filled with direct criticisms of China’s policy toward the island.

A Chinese official said Tsai’s speech revealed the “evil intentions” of Western forces, and that any attempt at Taiwan independence was doomed to fail.

“The speech will only aggravate relations between the two sides and bring Taiwan to an even more perilous situation,” said Ma Xiaoguang, spokesperson for the State Council’s Taiwan Affairs Office.

Monday, Chinese Foreign Minister Wang told Sec. Pompeo: “Recently, as the U.S. has been constantly escalating trade friction toward China, it has also adopted a series of actions on the Taiwan issue that harm China’s rights, and has made groundless criticism of China’s domestic and foreign policies,” Wang said.  “These actions have affected the mutual trust between both sides, and have cast a shadow over the prospects for China-U.S. relations, which completely go against the interest of our two peoples. We demand that the U.S. stop these kinds of mistaken actions.”

Pompeo told Wang: “We have great concerns about the actions that China has taken, and I look forward to having the opportunity to discuss each of those today because this is an incredibly important relationship.”

China’s foreign ministry described Vice President Mike Pence’s speech of the week before, detailed in my last review, as unwarranted slander and warned that nothing could stop China’s progress.  [Robyn Dixon / L.A. Times]

Turkey / Saudi Arabia: Saudi Arabian journalist Jamal Khashoggi was killed or kidnapped at the Saudi consulate in Istanbul, Turkey.  Khashoggi, a prolific writer, was one of the best-known voices in the region, contributing columns and commentary to outlets including the BBC, Al Jazeera and the Washington Post, while building a Twitter following of nearly 2 million.

He advocated on behalf of expanded democracy in Saudi Arabia and other regimes in the Middle East, while maintaining that Islamist movements such as the Muslim Brotherhood should be available to the citizens as a political choice for the region’s citizens. Saudi Arabia classifies the Muslim Brotherhood as a terrorist group.

Khashoggi was last seen entering the Saudi consulate in Istanbul Oct. 2 to obtain paperwork so he could marry a Turkish citizen, his fiancée then waiting outside for eleven hours, but he never came out.

15 Saudis were seen arriving in Istanbul hours before Khashoggi disappeared, on two private planes, one of whom was a known forensics expert who has worked in the Saudi Intelligence Ministry for years.  The 15 were then seen leaving the consulate hours after it is assumed Khashoggi was murdered and, probably, dismembered.  The 15 then departed at four different times, according to a Turkish newspaper.

The Saudis denied he was in custody, but as the days passed, CCTV images emerged of him going in, but none showed him coming out.

The White House said on Wednesday it requested transparency from the Saudis in its investigation.

Turkey, which had sought to conduct its own investigation inside the consulate, reached an agreement to join the Saudis in a joint investigation.

Friday, the Turkish government said it has what it describes as audio and video recordings purporting to show that Khashoggi was killed inside the consulate, and according to various reports, has shared the evidence with U.S. officials.  Turkey may release the evidence in the coming days, sources told the Wall Street Journal and Washington Post.

“Turkish investigators have sound [audio] from inside the consulate which makes it clear they killed him,” one of the people told the Journal.

Saudi Arabia maintains it had nothing to do with Khashoggi’s disappearance.  U.S. intelligence intercepts of Saudi officials, however, implicate Crown Prince Mohammed bin Salman.

President Trump, for a second day, expressed concern Thursday over reports Khashoggi was dead, and that the Saudi government was implicated, but he said he wouldn’t favor a halt in arms sales to Saudi Arabia should an investigation implicate Riyadh, although he would be open to other actions.  “(We) would not be in favor of stopping a country from spending $110 billion and letting Russia and China have that money.”

Behind the scenes, senior Trump adviser Jared Kushner, along with national security adviser John Bolton, have been working to defuse tensions.  Kushner, in particular, has become close to  bin Salman, the de facto ruler of the kingdom, and Secretary of State Mike Pompeo has also been in contact with Prince Mohammed, aka MBS.

Trump had made Saudi Arabia his first foreign trip as president in May 2017, but in recent weeks appears to have been souring on his relationship with Riyadh, principally over rising oil prices.

Meanwhile, Sen. Bob Corker (R-Tenn.), chairman of the Foreign Relations Committee, told reporters Thursday that the White House will be under “immense pressure” to punish Saudi Arabia if an investigation determines their culpability for the killing of Khashoggi.

“If it turns out to be what we all think it is today, there will have to be significant sanctions placed at the highest levels,” Corker said.  “They will be under immense pressure – immense pressure – if it’s determined that Saudi Arabia was involved to sanction, very severely, the people who’ve been involved in this.”

Sen. Cory Gardner (R-Colo.) said, “Arms sales are certainly going to be, I think, a huge concern if there is [Saudi responsibility] that is irrefutable.”

Khashoggi is not an American citizen (though he lives in the D.C. area), so the FBI’s access is limited unless the Turkish government invites it to participate in a probe.

Among the consequences of the presumed Saudi action, Virgin Group founder Richard Branson suspended a $1 billion investment project with Saudi Arabia.

Branson said in a statement: “What has reportedly happened in Turkey...if proved true, would clearly change the ability of any of us in the West to do business with the Saudi Government.”

The Saudi government had announced its intention to invest $1 billion into Virgin Galactic and Virgin Orbit last year, according to CNBC.

An upcoming Saudi investment/media forum has seen scores of news organizations pull out as a result of the Kashoggi situation, but the United States, thus far, has said it will attend.

Elliott Abrams / Washington Post

“The disappearance and reported killing of Saudi journalist  Jamal Khashoggi will have many victims, starting with his family and his fiancée.  But unless the Saudi government speaks and acts quickly and honestly about this terrible event, its own reputation will incur irreparable damage.

“Since the emergence of the current government under Crown Prince Mohammed bin Salman, critics (including Khashoggi) have argued that its central characteristic and greatest flaw was despotism: one-man rule by the young crown prince.  To this critique were added descriptions of his impulsiveness, inexperience and repression of any criticism of his approach to modernization.

“Defenders of the new regime (including me) have argued in essence that MBS is in the traditional and positive sense of the term an ‘enlightened despot.’  Though he was an absolute ruler, in this reading, he was one who used his power rationally to bring economic and social reforms, modernize his country and address the many developmental problems that hamper Saudi Arabia despite its wealth.  He appears, for example, to have reined in the ultra-conservative clergy, has begun to improve the status and role women, and has adopted plans aimed at creating a productive economy not dependent solely on oil production.

“There has been no political reform.  Internal critics have been harshly repressed, including women who urged a faster pace of change. Even this could be explained within the enlightened-despot model.  The defense was that the modernization steps MBS is undertaking are radical and face many internal enemies, so gauging the right pace of change is a delicate and fateful decision.  He must keep it in his hands and cannot permit public pressure either to go faster or to slow down.  His detention of many very rich Saudis in the Riyadh Ritz-Carlton hotel until they paid ransoms was apparently fairly popular in the kingdom, because it was widely believed few of those men had gained their fortunes legitimately.  Those ransoms were equivalent to the taxes they had never paid.

“That has been the defense, and the accusation of impulsiveness had for a while little evidence to back it.  Last year, most of the discussions about Saudi Arabia in which I participated questioned only whether the crown prince’s terrific reform program could really succeed. His highly successful two-week visit to the United States this year deepened the enthusiasm.

“The alleged killing of Khashoggi is a death blow to all those hopes and expectations, unless the Saudis can somehow explain what happened and accept full responsibility....

“Any government that thinks it cannot survive (Khashoggi’s) thoughtful criticism telegraphs to the world that it thinks itself shaky indeed.

“When the revolutionary regime in France in 1804 executed the Duke D’Enghien, one commentator observed: ‘It’s worse than a crime, it’s a mistake.’  Killing Khashoggi would be both: a great crime and a great mistake. It suggests either a regime without internal procedures and controls, or one in which an impulsive decision to kill a critic living in Washington cannot be contradicted or even questioned.  The Saudis may not realize what a wide impact that conclusion will have on governments and on investors, but it will be profound. All Saudi decision-making will come into question, and the government’s reliability as a partner will be rendered uncertain....

“What the crown prince must grasp is that his entire modernization program, indeed every defense of his own personal power, is undermined by what all the evidence suggests was a carefully planned murder. Jamal Khashoggi lost control of his fate when he entered the Saudi consulate in Istanbul.  Mohammed bin Salman must act quickly to regain control of his own.”

Late tonight, the Saudi Interior Minister said that allegations about orders to murder Khashoggi were “lies” targeting the government, according to the official Saudi Press Agency.

Separately, but not unrelated given the above, a Turkish court today ordered the release of the American pastor Andrew Brunson from house arrest, a move that will end his 24-month imprisonment, signaling a truce of sorts between Washington and Ankara.

The Trump administration has been pressing hard for the release of Brunson, an evangelical pastor who runs a small church in Izmir.  He was one of two dozen Americans detained in the aftermath of a failed coup in 2016 and was charged with aiding terrorist groups and espionages, charges he denies.

Syria: The government announced an amnesty for army deserters and those who avoided military service, a gesture that could draw thousands of refugees who fled the violence back to the country. Syrian President Bashar Assad issued the decree, the amnesty applying to those who “turn themselves in” within four months if they are in Syria or within six months if they are abroad, according to the decree. It does not include defectors who have fought against the government.

Syrian men over 18 must serve in the army for two years unless they are university graduates, who are required to serve 18 months.  Desertion and draft dodging carry stiff punishments, including years of imprisonment.

Meanwhile, Syrian rebels have completed the withdrawal of heavy weapons from the frontline in Idlib, under the agreement between Russia and Turkey regarding the creation of a demilitarized zone, according to the state-run Anadolu news agency.

Iran / Iraq: Kenneth M. Pollack / Wall Street Journal

“The outlines of a new Iraqi government have formed, after nearly four months of postelection politicking. Iraqis have much to be optimistic about.  On Tuesday Iraq’s Kurdish parties selected Barham Salih to be the new president of Iraq. He immediately named veteran Shiite politician Adel Abdul Mahdi to serve as prime minister and form a government.

“Mr. Salih is a dynamic, creative, reform-minded leader. As a politician he has promoted democracy, integrity and economic opportunity. Mr. Mahdi is a sober, pragmatic and moderate statesman respected by effectively every Iraqi – a rare feat in a fractured country

“Perhaps more heartening, their competitors were equally commendable.  Mr. Salih beat Fuad Hussein – known for his wisdom and ability to forge compromises. Mr. Mahdi was ultimately chosen over Mustafa al-Kadhimi, Iraq’s competent and professional intelligence chief, whose appointment to that delicate position was one of the most brilliant strokes of Haider al-Abadi’s term as prime minister.

“Given how badly Iraq’s May elections turned out – rampant fraud, miserable voter turnout and a badly fragmented Parliament – the ultimate outcome should provide hope for Iraq’s future.  A government led by Mr. Salih, Mr. Mahdi and the Sunni Arab speaker of Parliament, Mohammed al-Halbusi, is probably better than anyone could have imagined in May.

“While encouraging, the new government still faces two potentially lethal sets of problems.

“First, Iraqis are fed up with successive governments’ corruption, incompetence and sclerosis.  The country’s economy remains moribund, and the government has not been able to do anything meaningful about it.  Sustained protests have erupted across southern Iraq. They could snowball into revolution or prompt another civil war....

“Only a prime minister strong enough to override the parties can have any chance of enacting real reform. But like his predecessors, Mr. Mahdi was the product of a compromise. He almost certainly will lead a national unity government.  No party will stand to benefit by backing a prime minister trying to champion real reform, and politicians again will jealously guard the patronage networks they are awarded for supporting the new government.

“The second problem is Iran – or, more specifically, the Trump administration’s Iran policy.  Washington’s new approach puts heavy economic pressure on Tehran.  Yet the administration largely has overlooked that Iraq is the snorkel through which Iran breathes under sanctions.  The more economic pressure, the more Iran needs Iraq for trade, illicit hard-currency exchange and smuggling.

“That’s why Tehran wants a weak and corrupt Baghdad.  A strong reformist government could shut down Iran’s manipulation. It is also why a well-conceived policy of pressuring Iran should include a concerted effort to bolster Iraq.  But the Trump administration has steadfastly refused to plug the Iraqi leak in its Iran policy. What would it take?

“-- Retain 5,000 to 10,000 U.S. troops in Iraq to reassure Iraqis that no one – including the Iraqi federal government and the Iranian-backed Popular Mobilization Forces – can use violence to advance a political agenda.

“-- Make a significant commitment of economic assistance... Put at the disposal of the prime minister, the aid would help circumvent the Iraqi bureaucracy’s lethargy and corruption, while enabling him to build support by producing legitimate economic benefits.

“-- Work with Baghdad to identify discrete projects that can be completed over the next two years to address popular grievances. It is critical to demonstrate to the Iraqi people that the new government understands their misery and is working to improve their lives. That’s the only way to convince voters the government deserves more time to make the deeper fixes that can turn around Iraq’s bureaucracy and economy.

“Since the 2003 invasion, the U.S. repeatedly has won major military victories – then thrown them away by failing to provide the economic and political support needed to address the problems of peace. Iraq stands on the brink once again.  Miraculously, its political process has produced leadership that will try to move the country in the right direction. This may be the best and last chance to save Iraq – and save the U.S. from another expensive intervention. But the Iraqis cannot do it without U.S. help.”

India / Russia: India signed a deal to acquire the S-400 air defense missile system from Russia, despite the possibility this could trigger U.S. sanctions.

Indian Prime Minister Narendra Modi and Russian President Vladimir Putin announced the $5 billion deal in Delhi last weekend.

The S-400 is one of the most sophisticated surface-to-air defense systems in the world, with a range of 248 miles and the ability to shoot down up to 80 targets simultaneously, aiming two missiles at each one.

China also has the same system, so for India it was imperative to boost its defense capabilities, especially in light of the fact a two-front conflict with both China and Pakistan is possible at some point.

But Washington has put several Russian firms under sanctions, and the 2017 Countering America’s Adversaries Through Sanctions Act was introduced to target Russia, Iran and North Korea.

It also prohibits any country from signing defense deals with these nations.

But President Trump can provide individual waivers and India is hoping to secure one, though there are mixed signals coming from the administration thus far.

What I didn’t realize is how woefully inadequate India’s air force is, currently just 31 squadrons of largely ageing Russian aircraft, when defense experts say India needs at least 42 if it’s to wage a two-front war.

The S-400, however, would be a big help.

Random Musings

--Presidential tracking polls....

Gallup: 43% approval for President Trump, 53% disapproval (Oct. 7). The split was 38 / 56 three weeks earlier.  86% of Republicans approve, 39% of Independents (this was 88 / 33 three weeks ago).
Rasmussen: 49% approval, 50% disapproval (Oct. 12)

In a CNN/SSRS survey, President Trump’s job approval rose to 41%, compared with 36% in early September, though it was 42% in early August.

Those who disapprove of the job the president is doing decreased to 52% from 58% in September.

But in the critical House generic ballot matchup, 54% of likely voters say they support the Democrats in their district and 41% back a Republican, the widest margin of support for Democrats in a midterm cycle since 2006, when at this point, the party held a whopping 21-point lead over Republicans among likely voters. That’s also when Democrats seized control of the House from Republicans, making Nancy Pelosi speaker until 2011.

63% of women say they’ll vote for the Democrat and only a third say they’ll vote for the Republican.  Men are more closely divided, with half backing the Republican and 45% behind the Democrat.

The previous record for women voting Democratic was in 1982, when Democrats got the nod of 58% of women voters.

[A recent Wall Street Journal/NBC News poll found women want Democrats rather than Republicans to control Congress by a 58% to 33% margin.  Men favored Republican control in this survey, 47% to 44%.  So consistency in both polls.]

Both men and women have about the same amount of enthusiasm when it comes to going to the voting booth.

And when it comes to the expectations game, while Democrats lead by a big margin in the generic ballot question, 50% of Americans still say they expect Republicans to remain in control of Congress, while just a third think Democrats will win control.

A recent Cook Political Report has 15 GOP-held House districts as likely to go Democratic or leaning that way. Another 29 are considered tossups. Democrats need a net gain of 23 seats to win the majority.

But at the same time, Republican enthusiasm for the midterms has surged since the Kavanaugh hearings.  As Senate Majority Leader Mitch McConnell told Fox News on Sunday, “Nothing turns Republicans of all stripes – whether they’re Bush Republicans or Trump Republicans – on like a court fight.”

We are still weeks away, however.  Will the enthusiasm last?

--Daniel Henninger / Wall Street Journal

“At a time when it’s said that anything is possible in American politics, the impossible just happened.  Hillary Clinton has aligned herself with Donald Trump’s view of the Democratic Party.

“Mr. Trump has been using his political rallies to denounce ‘the radical Democrats’ as ‘an angry mob.’  On Tuesday, Mrs. Clinton told CNN: ‘You cannot be civil with a political party that wants to destroy what you stand for, what you care about.’ You cannot be civil.  Behold the Trump sun and the Clinton moon in a moment of political eclipse.

“It’s hard to pick out exactly when in the past month the Democrats shifted the national focus away from Mr. Trump and onto their own behavior.  I’d say it was the Senate’s final vote Saturday on Brett Kavanaugh’s confirmation.

“Democrats had thrown everything at Judge Kavanaugh, and it was over. But not in the Senate gallery. On cue, literally, spectators started shrieking at the senators on the floor. Guards moved toward the chamber’s doors, and the vote stopped while the screamers were removed.

“During Ronald Reagan’s presidency, the U.S. ambassador to the United Nations was Jeane (sic) Kirkpatrick, who in some ways was a template for Nikki Haley’s U.N. tenure as an unapologetic defender of America’s interests. At the Republicans’ 1984 national convention, Kirkpatrick delivered a speech memorable for one phrase – ‘the San Francisco Democrats.’ The idea behind ‘the San Francisco Democrats’ has never died. It stands for a party of the unelectable left.  That year, Reagan defeated Walter Mondale by 525 to 13 electoral votes.

“Democrats will complain it is beyond chutzpah for Donald Trump to brand them as divisive or radical after he has spent his presidency polarizing the electorate with his rhetoric and Twitter account. Maybe, but that was then. Whatever else was at issue in the midterm elections, it has been overtaken by the Kavanaugh nomination, which transfixed the nation for weeks....

“In conversations I’ve had recently with Democrats, once past the Kavanaugh arguments, most express a desire for more political civility. This is wishful thinking.  The party has a problem: The San Francisco Democrats are back.

“There are policy types on the left who would rather contest campaigns over health care and income disparities. But the Kavanaugh episode shows that the party is being taken over by what I would call the Code Pink Left.

“The professional network of the Code Pink Left, typified by the George-Soros-funded woman who trapped Sen. Jeff Flake in an elevator, has virtually no interest in substantive policy goals.

“The Code Pink Left specializes in creating political story lines of ‘frames’ – such as that conservatives are weak on sexual abuse – which it promotes with theatrical protests, distributes on social media, and depends on mainstream media for constant repetition.  This is something familiar. It is called agitprop.

“The goal is to make the broader electorate nervous and doubtful.  It worked.  Many voters are now nervous about the Democrats’ street-fighting men and women.  Every Republican from Donald Trump down to dogcatcher is running against the Democrats’ ‘angry mob’ of Senate screamers and restaurant marauders.

“What about the alt-right’s role in the new incivility? Good question. The answer is, they’re gone. The most visible face of conservatism through the Kavanaugh fight was...Sen. Charles Grassley.

“A valid criticism of Donald Trump is that he hasn’t expanded his base into a broader coalition. But his luck in attracting self-destructive opponents is astonishing.

“The Democrats are contracting whatever coalition Barack Obama left them into a delimited activist resistance, whose ‘rage’ is mostly a practiced act.

“Democrats are becoming too taken with their own tactics. They’ve turned Twitter into basically a 24/7 open-mic night.  Look how cool and clever we are.  Kamala Harris and Cory Booker are mostly milking this niche audience for applause. It’s all so rote and theatrical.

“Here’s Eric Holder at a campaign event in Georgia: ‘Michelle [Obama] always says, ‘When they go low, we go high.’  No.  No.  When they go low, we kick them.’  Maybe it’s historical determinism. The constant-protest left captured the Democratic Party in the late 1960s and frightened the country into Richard Nixon’s overwhelming win against George McGovern in 1972. Four-and-a-half decades later, another generation of Democratic politicians is answering the same old radical siren song, ‘You can’t be civil.’

“For a time, Jimmy Carter and Bill Clinton, governors from the American South, taught them that won’t win.  One thing never changes with the American left: It always goes too far.”

--Editorial / New York Post

“With much of the Democratic Party going nuts, former first lady Michelle Obama is sticking by her ‘when they go low, we go high’ advice.  Thank you, ma’am.

“Her husband’s attorney general, Eric Holder, on Sunday begged to differ with what ‘Michelle always says,’ telling a Georgia crowd.  ‘No.  No. When they go low, we kick them.’

“Of course, Holder’s one of the 200 or so Democrats eyeing a 2020 presidential run and eagerly courting the party’s most rabid elements. On the other hand, Hillary Clinton isn’t running (please!), yet she now insists that ‘civility’ is only for after Democrats ‘win back the House and/or the Senate.’

“So it’s beyond wonderful that Obama told NBC’s Savannah Guthrie on Thursday that she ‘absolutely’ stands by her slogan.

“As she explained: ‘If you think about how you want your kids to be raised, how you want them to think about life and their opportunities, do you want them afraid of their neighbors?  Do you want them angry? Do you want them vengeful?’

“No, Obama added, ‘we want them to grow up with promise and hope.’  More: ‘We can’t model something different if we want them to be better than that.’

“It’s a message worth heeding across the spectrum: Treat everyone who disagrees with you as a mortal enemy and you risk making them into just that – while also distorting your life and those around you.  It’s madness.”

--Bret Stephens / New York Times

“Since when did the possibility of innocence become, for today’s liberals, something to wave off with an archly unfeeling ‘boo hoo’?”....

Stephens citing Cory Booker and his explanation on Tuesday “that ‘ultimately’ it doesn’t matter if Kavanaugh is ‘guilty or innocent,’ because ‘enough questions’ have been raised that it was time to ‘move on to another candidate.’”

--Former New York City Mayor Michael Bloomberg announced Wednesday that he will vote as a Democrat.  In a tweet explaining his decision in historical terms, Bloomberg said that “one of the two parties has served as a bulwark against those who threaten our Constitution.”

Bloomberg, who was a Democrat most of his life, but a Republican and then independent while mayor of New York, said, “We need Democrats to provide the checks and balance our nation so badly needs.”

Clearly, Bloomberg is gearing up for a possible run for president in 2020, but he is already 76 years old.

Earlier this month, Bloomberg said he would donate $20 million to a political-action committee supporting Senate Democrats.  According to the Wall Street Journal, he has actually dedicated $100 million to 2018 races; focusing on climate change and gun safety.

--A landmark report released Sunday from the world’s top climate change group said “rapid, far-reaching and unprecedented changes in all aspects of society” are required to ward off the worst impacts of global warming.

The report was released in South Korea by the United Nations’ Intergovernmental Panel on Climate Change (IPCC), which concluded that the world’s economies must quickly reduce fossil fuel use while at the same time dramatically increasing use of clean, efficient energy.  These transitions must start now and be well underway in the next 20 years.

The goal is to cap global warming at 1.5 Celsius (2.7 Fahrenheit) above pre-industrial levels, which the group says is nearly impossible unless immediate action is taken.

--Pope Francis accepted the resignation of Cardinal Donald Wuerl, the archbishop of Washington, but instead of making an example of Wuerl, who was named in a recent Pennsylvania grand jury report that accused church leaders of covering up abuse, Francis held him up as a model for the future unity of the Roman Catholic Church.  The Pope cited Wuerl’s “nobility” and announced that the 77-year-old prelate would stay on as the archdiocese’s caretaker until the appointment of his successor.

So Francis, by making it clear he thought Cardinal Wuerl had served the church well, sent yet another mixed message to abuse survivors, and to those of us who have simply walked away, in my case years ago.

--South Dakota is in my top 3-4 states in America, the others being Pennsylvania, North Carolina and Arizona, and I read the Rapid City Journal every day.  As you know the Black Hills area is my favorite spot in the country, awesome scenery, down-to-earth people (go to Deadwood on Halloween for a true flavor, as I’ve done twice).

But like all of the U.S., the state is suffering from the meth epidemic and I read a piece the other day that could be anywhere in the country.

“The number of women in prison has increased 35 percent since 2013.  By comparison, the number of men in prison grew 9 percent in that time period.

“South Dakota now has the fourth-highest rate of incarceration of women in the country, behind only Oklahoma, Wyoming and Kentucky. The South Dakota rate is nearly twice the national average.”

But, of course, here is the real issue....

“A large percentage of the women are serving sentences for non-violent, drug-related crimes.  Their relatively short prison sentences not only cost taxpayers more to house and care for them, but also don’t allow time to address the addiction issues that landed them in prison in the first place.”

Tough drug enforcement laws are in place to protect citizens, and reduce ancillary crimes such as burglary, robbery and assault, for starters.

But, “According to the National Institute on Drug Abuse within the National Institutes of Health, the average cost of treatment for a drug addict is $4,700, compared to the $24,000 to incarcerate them.”

And then you have the fate of the children of women who are imprisoned.  It’s just sad all around.

--And speaking of sad, I was driving to a NASCAR race in Dover, DE, on Sunday when I heard of the limousine crash in New York State that claimed 20 lives.  Of all the stories I heard in the aftermath of this tragedy, to me the worst was the victim who texted a loved one that the original limo had been replaced, and when she saw what the new vehicle was, she wrote ‘I don’t know if we’ll make it.’

--Finally, in a miracle amidst all the gloomy news of the week, two astronauts survived an emergency landing in Kazakhstan after the Soyuz rocket carrying them to the International Space Station (ISS) failed in mid-flight.

The latest failure comes amid a long string of Russian rocket crashes and represents another black eye for the Roscosmos space agency. The rocket, which carried an American astronaut, Nick Hague, and a Russian cosmonaut, began to plummet to earth about two minutes into the six-hour mission due to what launch controllers initially called a “vehicle malfunction.”

The engines were seen to cut out, after which the Soyuz MS-10 spaceship jettisoned from the drifting launch vehicle.

The pair then plunged toward the ground in “ballistic descent mode,” experiencing gravitational forces six times normal.

The capsule’s parachute deployed successfully, however, landing them on the grassy steppe about 250 miles from the Baikonur Cosmodrome rented by Russia.

Shockingly, the two astronauts were in good condition.             

Coincidentally, this week saw the opening of the film “First Man,” the tale of Neil Armstrong and the space program.  I just read a review by the Wall Street Journal’s Joe Morgenstern and he could not have praised the film more, concluding:

“Most movies aim to take us out of ourselves. This one goes to majestic extremes.”

---

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

God bless America.

---

Gold $1221
Oil $71.51...down almost $3 on the week

Returns for the week 10/8-10/12

Dow Jones  -4.2%  [25339]
S&P 500  -4.1%  [2767]
S&P MidCap  -4.9%
Russell 2000  -5.2%
Nasdaq  -3.7%  [7496]

Returns for the period 1/1/18-10/12/18

Dow Jones  +2.5%
S&P 500  +3.5%
S&P MidCap  -1.5%
Russell 2000  +0.7%
Nasdaq  +8.6%

Bulls 56.3
Bears 18.5 [Just last week I told you the ‘bull’ number, then 61.8, was a warning sign; this being a contrarian indicator.]

Have a great week.

Brian Trumbore