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Week in Review

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10/27/2018

For the week 10/22-10/26

[Posted 11:45 PM ET]

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Edition 1,020

Trump World

Eleven days to go until the midterms.  I already mailed in my ballot and am voting for my Republican congressman, Leonard Lance.  [I’ll tell you about my Senate vote next week.]

But it will be a long eleven days, sports fans.  I’m trying like heck to leave this review’s opening on the ‘light’ side.  It was another stressful week for the country.  Nerves frayed.  The country ripped further apart.  Financial markets, across the globe, struggling mightily as well for different reasons.

Until the pipe bomb story hit and enveloped us, however, I was prepared to open on how the week had started out, including last weekend, with President Trump’s non-stop lying reaching critical mass.

Like with the amazing expansion of the Saudi Jobs Act (I’m being facetious)...from a figure of 40,000 that Trump touted in his meeting with Saudi Crown Prince Mohammed bin Salman at the White House last March, based on $19.4 billion in deals the president said he was creating in agreements with MBS (even though most of the programs had been negotiated by President Obama), to within the span of six days, Oct. 13-19, the growth of the Jobs Act from 40,000 to 500,000, to 600,000, to “over a million jobs,” said Trump.

Oh, and as I pointed out last time, the “$110 billion” Trump has now said he negotiated with the Saudis for the procurement of U.S. arms, is more like $14 billion thus far, and that’s stretching it.

Prior to the pipe bombs, I was going to talk about how Trump can’t even tell the truth on the Opioid bill that was recently passed by a 98-1 vote in the Senate; Trump now claiming there was “no Democrat support.”

Or Trump’s claim at a rally that President Xi Jinping is “a wonderful and great leader.”

Or that he is bringing in “$100 billion a year” from NATO.

No, I can’t open this week’s column with the above.  Wouldn’t be prudent, as Bush 41 would have said (or was it Dana Carvey?).

Instead, I need to remark how once again I marvel at the stupidity of some of the American people, who fail to heed my dictum of ‘wait 24 hours’ when it comes to situations like the pipe bomb case.

I didn’t tweet about it, or post an inane comment on Facebook (or even go on Facebook for that matter, save to post a few of my other columns).  At times like these I honestly couldn’t care less what others believe.

Recall, I was the guy who did not relay a single fake news / conspiracy item from the 2016 election.  I received all kinds of stories over the transom, people asking me for my opinion on whether something was true or not, or urging me to post it to my readership, and it was pretty simple.  I didn’t reply to one of those notes.

And so as tensions soared this week between Trump’s base and the Left, thankfully, because no one was hurt by the devices, I was frankly mildly amused.

I just waited for the real experts, U.S. law enforcement, to break the case. 

Oh, I watched all “the shows,” as I have to do every night...Fox and CNN...Hannity’s opening (and his endless repetition of the same videos over and over and over...) and Chris Cuomo and sometimes Don Lemon.  I get both sides.  I watch NBC Nightly News for their spin. 

Tonight, Hannity talked of how the Left, including the media, has “waged war (from day one) to delegitimize this president,” and I could only shake my head, since Hannity never, ever, talks about Trump’s incessant lies, on very important topics, that it is the duty of the press, and, yes, yours truly, to expose and call Trump out on.

Last night, it was Don Lemon who made some outrageous claims against the Right, pertaining to the pipe bomb case, and the history of bombers like Timothy McVeigh, when there were simply no facts for any of us to fall back on in this instance.

Wolf Blitzer all week was going, “this is a critical moment.”  Well, yeah, Wolf, but we have no facts!

So now we do...a few of them as I go to post...more to follow in the days ahead, and just like a Civil War set piece, the Right and Left will resume their positions, waiting for the order to ‘Fire!’ [For Civil War buffs, I’m thinking Spotsylvania and ‘Bloody Angle,’ full trees reduced to twigs by the time the action ended.]

Today, a 56-year-old man, Cesar Sayoc, was arrested in Florida and charged with sending 14 packages containing improvised explosive devices to high-profile figures across the country.

The arrest came on the same day law enforcement found four more devices – in Florida, New York and California – capping off an increasingly tense five-day stretch in which at least one explosive device was found each day.  None of them detonated.  All of them were sent to people who have criticized or clashed with President Trump, and there yet may be more devices out there; Sayoc, who has an extensive criminal record, having lawyered up.

FBI Director Christopher Wray said the explosives “are not hoax devices,” describing them as IEDs, an abbreviation for improvised explosive devices that have claimed a large portion of the about 7,000 American lives lost in Iraq and Afghanistan since 9/11.

According to the criminal complaint filed by federal prosecutors in the Southern District of New York, inside three of the packages sent to three potential targets, former President Obama, former CIA director John Brennan and Rep. Maxine Waters, was a picture of each person with red “X” marks.

An hour before the announcement that the FBI had made an arrest, President Trump tweeted:

“Republicans are doing so well in early voting, and at the polls, and now this ‘Bomb’ stuff happens and the momentum greatly slows – news not talking politics. Very unfortunate, what is going on.  Republicans, go out and vote!”

Later, as he was headed to a campaign rally in Charlotte tonight, he said he could actually “tone it up” when it comes to the rhetoric.

At the rally itself, the president accused the media:

“We have seen an effort by the media in recent hours to use the sinister actions of one individual to score political points against me and the Republican Party.”

Wednesday, at a rally in Wisconsin, having earlier in the day at the White House said, “We have to unify,” the president called on journalists “to set a civil tone” and to “stop the endless hostility and constant negative and often false attacks and stories.”

Then he directed the crowd’s attention to his bipartisan efforts: “By the way, do you see how nice I’m behaving tonight?” he asked.  “Have you ever seen this? We’re all behaving very well!”

Trumpets....

--The caravan of Central Americans heading toward the United States is more than 1,000 miles from the border, but the political potency of their journey is center stage for the midterm elections, President Trump is hoping the images will energize GOP voters in battleground states and potentially tip the balance in the fight for the House.

“As we speak, the Democrat Party is openly encouraging caravan after caravan of illegal aliens to violate our laws and break into our country,” Trump said at the aforementioned rally Wednesday in Wisconsin, echoing a line he has repeated for a week.

“The crisis on the border – and it is a crisis, it’s crazy – right now is the sole result of Democrat laws and activist Democrat judges that do whatever they want,” he added.

Trump sees a political windfall.

So then on Thursday the president said he was “bringing out the military” to protect the border against the caravan, a potential deployment of as many as 1,000 additional troops to assist in security operations at the southern border in anticipation of the caravan’s arrival.

An executive order under consideration would suspend the provision allowing foreign nationals fleeing persecution to apply for asylum once they reach American soil.

“I am bringing out the military for this National Emergency. They will be stopped!” Trump tweeted.

Other Trump tweets on the topic:

“Every time you see a Caravan, or people illegally coming, or attempting to come, into our Country illegally, think of and blame the Democrats for not giving us the votes to change our pathetic Immigration Laws! Remember the Midterms!  So unfair to those who come in legally.

“Guatemala, Honduras and El Salvador were not able to do the job of stopping people from leaving their country and coming illegally to the U.S. We will now begin cutting off, or substantially reducing, the massive foreign aid routinely given to them.”

--The president was working his little fingers to the bone all week...more tweets....

“Twitter has removed many people from my account and, more importantly, they have seemingly done something that makes it much harder to join – they have stifled growth to a point where it is obvious to all.  A few weeks ago it was a Rocket Ship, now it is a Blimp! Total Bias!”

“The United States has been spending Billions of Dollars a year on Illegal Immigration. This will not continue. Democrats must give us the votes to pass strong (but fair) laws. If not, we will be forced to play a much tougher hand.”

“Funny how lowly rated CNN, and others, can criticize me at will, even blaming me for the current spate of Bombs and ridiculously comparing this to September 11th and the Oklahoma City bombings, yet when I criticize them they go wild and scream, ‘it’s just not Presidential!’”

“The New York Times has a new Fake Story that now the Russians and Chinese (glad they finally added China) are listening to all of my calls on cellphones.  Except that I rarely use a cellphone, & when I do it’s government authorized.  I like Hard Lines.  Just more made up Fake News!”

“A very big part of the Anger we see today in our society is caused by the purposely false and inaccurate reporting of the Mainstream Media that I refer to as Fake News.  It has gotten so bad and hateful that it is beyond description.  Mainstream Media must clean up its act, FAST!”

“The Fake News Media has been talking about recent approval ratings of me by countries around the world, including the European Union, as being very low...

“...I say of course they’re low – because for the first time in 50 years I am making them pay a big price for doing business with America. Why should they like me? – But I still like them!”

Lastly...

“All levels of government and Law Enforcement are watching carefully for VOTER FRAUD, including during EARLY VOTING.  Cheat at your own peril. Violators will be subject to maximum penalties, both civil and criminal!”

Don’t waste your time...as many a Republican state attorney general found when the president first told them to look at 2016 election results for fraud.

--Newt Gingrich is relying on Supreme Court Justice Brett Kavanaugh to quash any investigation into President Trump’s finances.

Gingrich was asked Thursday about what would happen if the Democrats subpoena Trump’s tax returns if they take over the House after the midterms.

“Then they’ll be trapped into appealing to the Supreme Court, and we’ll see whether or not the Kavanaugh fight was worth it,” Gingrich said during a live interview hosted by the Washington Post.

--Michael Gerson / Washington Post

“The most fundamental moral principle in the universe may well be: ‘You break it, you buy it.’  But a close second is: You can’t call women cruel and misogynist names, defame ethnic groups, discriminate based on religion, accuse opponents of being ‘un-American’ and ‘treasonous,’ excuse and encourage violence by your supporters, threaten political rivals with prison, tear migrant children from the arms of parents and then credibly call for national ‘unity’ when it is politically useful.

“This is the horrible reality of our political moment. The president of the United States says something entirely presidential – ‘We want all sides to come together in peace and harmony’ – and it did nothing more than add another layer to his lies.  More specifically, President Trump wants Americans to join him in a fake reality – to prove their loyalty by taking outlandish hypocrisy at face value.  It is like the sophomoric entrance ritual to some secret society. Eat this cow eye and pig intestine, and we will be bound forever by our willingness to do asinine things on command.  Trump’s call for national unity is the functional equivalent of an offal banquet.

“It would be different if Trump had accompanied his words of reconciliation with any sense of remorse. But this is a difficult thing for a narcissist to fake (though some have that talent).  I come from a religious tradition where anything can be forgiven – but only if repentance involves demonstrated sincerity.  Trump could not maintain his ruse of reconciliation for 15 seconds. He used his call for unity to blame the news media for hostility and negativity. This is like a leper blaming the mirror for his sores.

“Here is the reason that Trump’s deception is so destructive: He is asking for voters to ignore consistency, rationality and morality in the midst of a midterm campaign that he has infected with bigotry.  Having started his presidential campaign with the false charge that Mexico was sending ‘rapists’ to America, Trump is returning to a similar theme in the last days before the midterm election. A migrant caravan headed for the southern border – in Trump’s depiction, and against all evidence – is infiltrated by ‘unknown Middle Easterners’ and may be organized by Democrats.  Democratic policies, according to Trump, would invite the MS-13 gang members and terrorists into the country on competing murder sprees. And Californians are so enraged by sanctuary cities that there are riots in the streets.

“All this is an elaborate deception designed to incite those who are already inclined to believe it. Trump’s electoral strategy is damaging to the country, because the systematic organization of racial and ethnic hatreds is damaging to the country. This approach is damaging because it invites partisans to live in a dream world of ideology and conspiracy that is immune to evidence, immune to persuasion, immune to reason. And it is damaging because it provides permission for copycat prejudice....

“We have a president who summons the darkness.  It is sad and sick that so many have responded. And it would be nice if more Democrats began appealing to our better angels, in addition to talking about health-care policy.

“But the promise of equality and solidarity has a power of its own, and it has defeated far more impressive enemies.”

Wall Street               

After a steep drop on Wednesday, stocks had erased all their gains for the year, when measured by the Dow Jones Industrial Average and the S&P 500, the Dow down 2.4%, the S&P 3.1% and Nasdaq 4.4% Wednesday alone, before recouping a small portion of the losses Thursday and Friday (Dow up 401 points yesterday, down 296 today).

President Trump has loved to extoll the rising stock market since his election so I’ll just give you some benchmarks.

On Nov. 8, 2016, Election Day, the major averages closed at the following:

Dow Jones 18332
S&P 2139
Nasdaq 5193

[The yield on the 10-year Treasury, by the way, was 1.78%.]

So as of today’s close, the Dow is +34.7% since the election, the S&P +24.3%, and Nasdaq +38.0%.

But, this year, the Dow is now -0.1%, the S&P -0.6% and Nasdaq is +3.8%.

As strongly as the economy seems to be growing, a first look at third-quarter GDP today showed a pace of 3.5%, after the second quarter’s 4.2% rate (as reported by the Bureau of Economic Analysis), the recent problems on Wall Street are many fold.

The global economy is fragile, with growth slowing virtually across the board; in the U.S., corporate sales growth, while still high, is at its lowest rate in four quarter; there are broad signs of price pressures (see tariffs); I’ve argued that the corporate tax cut was front-end loaded in terms of the 100% write-off for capital expenditures, as in, will there be final demand for all the investment; and we started out with a market priced for perfection.

Back to the GDP report, consumption (consumer spending) was strong at a 4% annualized rate, fastest in four years, but capital (business) spending rose only 0.8% in the third, after jumping 8.7% annualized in the second quarter, and that’s worrisome.

We had a record monthly trade deficit for September as well, $76 billion, as imports surged, owing to companies trying to get ahead of the latest tariffs on Chinese goods.

Prior to the GDP report, September new home sales were released, down 5.5% and way below expectations, down a fourth month in a row as the housing sector, no doubt beset by rising mortgage rates, continues to struggle.

September durable goods came in a little better than forecast.

One item of note pertaining to the makeup of GDP these days.  As the Wall Street Journal reported: “A stark pickup in government spending, particularly in defense, has helped fuel a broad acceleration in U.S. economic growth in the past year and a half, according to a Wall Street Journal analysis of Commerce Department data.”

Defense shifted from contracting at a 2.1% annual rate between June 2009 and March 2017, to growing at a 2.9% rate since April 2017. The turnaround added 0.21 percentage points on average to the nation’s overall economic growth rate. But a slowdown in home building has subtracted about 0.2 percentage points.

Anyway, President Trump, no doubt disappointed in the equity markets’ performance heading into the midterms, is looking for a scapegoat and it’s the Federal Reserve.

In an interview with the Wall Street Journal, Trump acknowledged the independence the Fed has long enjoyed in setting economic policy, while also making clear he was intentionally sending a direct message to Chairman Jerome Powell that he wanted lower interest rates.

“Every time we do something great, he raises the interest rates,” Trump said, adding that Mr. Powell “almost looks like he’s happy raising interest rates.”

Trump added it was “too early to say, but maybe” he regretted nominating Powell.

The Fed has raised their benchmark funds rate three times this year, and is preparing to do it again in December, with three more hikes currently forecast for 2019.  Powell has been transparent in saying the Fed wants to raise rates at least to a so-called neutral level that seeks to neither spur nor slow economic growth.

In the Journal interview, Trump repeatedly described  the economy in personal terms, referring to gains during his time in office as “my numbers,” saying, “I have a hot economy going.”

Asked an open-ended question about what he viewed as the biggest risks to the economy, Mr. Trump gave a single answer: the Fed.

“To me the Fed is the biggest risk, because I think interest rates are being raised too quickly.”

And Trump is fixated on the fact that “Obama had zero interest.”  As in, “How the hell do you compete with that?”

Editorial / Wall Street Journal

“Donald J. Trump is a real estate man, so naturally he prefers low interest rates. But he’s also President, and publicly mau-mauing the Federal Reserve to keep rates low as he has been doing will lead to the opposite of what he wants. This is Fed Politics 101.

“ ‘Every time we do something great, he raises the interest rates,’ Mr. Trump said Tuesday in an interview with our Journal colleagues, referring to Fed Chairman Jay Powell.  “He was supposed to be a low-interest-rate guy. It’s turned out that he’s not.”

“Now, who would say such a thing about Mr. Powell?  None other than Mr. Trump’s Treasury Secretary, Steven Mnuchin, who supervised the Fed Chairman’s selection in 2017.  As we reported at the time, Mr. Mnuchin told Mr. Trump to select Mr. Powell in substantial part because he could be more easily influenced than other candidates. Mr. Trump could have taken other advice.

“The truth is that no Fed Chairman can afford to be seen by markets to be taking interest-rate dictation from the White House, and when they do it typically ends in tears.  See Arthur Burns under Richard Nixon and G. William Miller under Jimmy Carter. Alan Greenspan and Ben Bernanke were also too cozy politically with administrations in power, but that influence was mostly behind the scenes.

“Poor Mr. Powell has the harrowing task of managing the transition from the largest experiment in monetary-policy history.  Mr. Bernanke and later Janet Yellen enjoyed the ride down to near-zero short-term rates and unprecedented bond-buying to keep long-term rates artificially low. The policy pushed investors into riskier assets such as stocks even though it didn’t do much for a real economy that grew slowly during the Obama Administration.

“Growth and animal spirits have revived with Mr. Trump’s policy mix of tax reform and deregulation.  Now Mr. Powell has to manage the more treacherous monetary road back to normalcy, and Mr. Trump’s public battering won’t make the Chairman’s job any easier.  The Fed has signaled it will raise short-term rates again in December, the fourth time this year.  Mr. Powell won’t want to look like he’s backing down under political pressure – even if economic events suggest he should.

“A better criticism of the Fed would be that it should have unwound its massive bond portfolio first and faster than it has. That would have loosened the Fed’s control over the long-term bond market, encouraging an earlier adjustment out of risk assets before the Fed also began raising rates.

“Now the Fed is doing both at the same time, with more risk for asset prices and greater political risk for the Fed.  See Wednesday’s rout in equity prices that are now near the formal correction territory of a 10% decline in recent weeks....

“Fed politics aside, the substantive question is whether Mr. Trump is right that the central bank is too tight. We’ve thought not to this point, as short-term rates are still at or below the rate of inflation.  Rates should rise from their historic lows in an economy that is growing by nearly 4%.

“Yet there are some signs of slower growth, in particular in housing....

“The bigger economic risk is slower growth abroad, which Mr. Trump should care about though he professes not to.  Faster U.S. growth and rising interest rates are drawing capital from other markets. Mr. Trump’s tariffs are also hurting trade flows and causing companies to delay some investment. Border taxes are never a free lunch, no matter what White House adviser Peter Navarro tells Mr. Trump.

“White House economics chief Larry Kudlow says Mr. Trump is merely offering his opinion on the Fed, not issuing an order to Mr. Powell.  No doubt the President is also deflecting blame from the White House for any economic slowdown.  Mr. Trump needs a foil more than even most politicians.  All of which is good reason for the Fed to ignore the President and focus on getting its policy right – whether or not that means raising rates in December.”

One note on the trade front, the aforementioned Larry Kudlow said China had offered no sign that it was willing to meet U.S. demands in a way that could lead to a breakthrough between the countries.

Presidents Trump and Xi are slated to meet on the sidelines of the G20 end of November in Buenos Aires, but nothing will come of this...wrote the editor, as of today.

The U.S. is still expected to press ahead with plans to ramp up the tariff rate on $200bn of Chinese imports from 10 percent to 25 percent come January, raising the stakes further for both sides.

Europe and Asia

The European Central Bank warned of “financial uneasiness in markets” should negotiations over the UK’s exit from the European Union fail to reach a solution.

ECB president Mario Draghi made the comments at a news conference announcing that the  central bank was keeping its key interest rates unchanged.  In responding to a question over the central bank’s planning regarding Brexit, Draghi said:

“We are not party to the negotiations (between the UK and the European Union), so everything will depend on what is the final outcome.  We are monitoring and working together with the Bank of England to identify potential risks of a sudden, hard Brexit event.”

But Draghi added, “by and large I’m still confident that a good, common-sense solution will be found where financial stability risks will be minimized.”

Then he warned about another possibility: “If this lack of solution will continue and we approach the end date, the private sector itself will have to prepare on the assumption that there will be a hard Brexit.  And that’s where things may be – I wouldn’t call it necessarily a big financial stability risk – but certainly uneasiness...so financial uneasiness in markets and intermediaries and (central counterparties) and member banks and so on,” he said.

More on Brexit in a bit, but, separately, the ECB said it would also keep net purchases under its asset purchase program at 15bn euro ($17.3 billion) per month until the end of the year.

We had some key eurozone economic data this week, IHS Markit’s flash readings on the euro area (EA19) for October.  The EA19 composite PMI was 52.7 for October vs. 54.1 in September (50 being the dividing line between growth and contraction), a 25-month low.  The manufacturing reading was 52.1 vs. 53.2, a 26-mo. low, and services were 53.3 vs. 54.7, a 24-mo. low.

The flash readings also give figures for France and Germany.

France: Manufacturing 51.2 October vs. 52.5 in September, 25-mo. low; services 55.6 vs. 54.8.

Germany: Manufacturing 52.3 vs. 53.7, 29-mo. low; services 53.6 vs. 55.9.

Eurostat also released the government debt figures for the second quarter, 86.8% of GDP for the eurozone as a whole, down from 91.8% in 2014.

Germany 63.9% (74.5% 2014); Sweden 40.9%; Netherlands 57.0%; France 98.5%; Spain 98.1%; Italy 131.2%; Greece 176.1%.  [UK 87.4%]

Chris Williamson / IHS Markit

“The pace of Eurozone economic growth slipped markedly lower in October, with the PMI setting the scene for a disappointing end to the year. The survey is indicative of GDP growth waning to 0.3% in the fourth quarter, and forward-looking indicators, such as measures of future expectations and new business inflows, suggest further momentum could be lost in coming months.

“The slowdown is being led by a drop in exports, linked in turn by many survey respondents to trade wars and tariffs, which appears to have darkened the global economic environment and led to increased risk aversion.  It is therefore not surprising to see the slowdown broadening out across the economy, hitting the service sector.

“The survey will make for uncomfortable reading at the ECB. Although the survey’s price gauges remain elevated and close to seven-year highs, the headline PMI has fallen to a level that would historically be consistent with a bias towards loosening monetary policy in order to prevent any further deterioration of economic growth.”

Eurobits....

Brexit: The can keeps getting kicked down the road and now we’re told the absolute deadline for reaching an agreement on Britain’s exit from the European Union is an EU summit in December.  As of now, there are zero plans for a special summit in November.

Prime Minister Theresa May has said she is prepared to “explore every possible option” to break the deadlock in talks. She told MPs this week that 95% of the terms of exit were agreed to but the Irish border was still a “considerable sticking point.”

Mrs. May said it was “undesirable” to extend the UK’s transition period beyond 2020, but it was on the table, though it would have to end “well before” May 2022.

The European Parliament’s Brexit coordinator Guy Verhofstadt has said the withdrawal agreement was 90% complete.

Opposition Labour Party leader Jeremy Corbyn said the Tories were “terminally incompetent and hamstrung by their own divisions.”

The prime minister continues to face fierce opposition from within her party, with International Trade Secretary Liam Fox telling the BBC that speculation about the Conservative leadership was “unhelpful” and some of the language used about Mrs. May was “dreadful.”

Fox said Tory MPs “need to give her the space to finish the negotiation,” adding “it is very difficult to negotiate with the European Union when you also have to negotiate with your own colleagues.”

But both Tory Brexiteers and Remainers worry that an extension of the transition period would further delay the moment of the UK’s proper departure from the EU, and potentially cost billions in terms of extra payments to the bloc.

Mrs. May has told MPs that protecting the UK’s integrity was too important not to explore “every possible solution” to keeping the Irish border open and ensuring no new barriers between Northern Ireland and the rest of the UK.

EU chief Brexit negotiator Michel Barnier stood firm this week on the need for checks on goods shipped from mainland Britain to Northern Ireland after Brexit, but insisted this would not amount to a new border.

Britain says the EU’s backstop proposal of keeping Northern Ireland in its customs union is unacceptable as it would create a border in the Irish Sea.  It favors a backstop in which the whole of Britain would stay inside the customs union but says it must be time-limited or have a clear exit mechanism.

The prime minister is rejecting calls for another referendum, even as an estimated 500,000 anti-Brexit campaigners gathered in London last weekend, calling for a fresh vote.

Italy: The rating on Italy’s debt was slashed late last Friday by Moody’s Investors Service to one level above junk in a reaction to the Italian government’s decision to accept higher budget deficits in coming years.

Moody’s highlighted the fact that higher deficits would keep Italy’s debt at its current high levels of 130 percent of the overall economy.

So on Monday, Italy said it still plans for a sharp increase in public spending, but that this would not threaten the EU’s financial stability, in its formal response to Brussels’ strong criticism of its initial budget proposal.

Then Tuesday, the European Union took the unprecedented step of rejecting Italy’s draft budget as incompatible with the bloc’s rules on fiscal discipline.

Following a meeting of the European Commission – the EU’s executive arm – Commission Vice President Valdis Dombrovskis said the Italian government was “openly and consciously going against commitments made” to drive down the country’s debt and deficit levels.

The government – a coalition of the antiestablishment 5 Star Movement and the nationalist League – vowed after Dombrovskis’ rejection to press ahead with its plans to cut taxes and expand welfare and pension entitlements, insisting the nation’s economy needs a fiscal boost.

So now Italy has three weeks to submit a revised budget and the Commission then has three weeks to respond.  Thus we’re looking at things coming to a head in December.  The key with this date is that the European Central Bank, as planned, will be ceasing its bond purchases by the end of the year, which have been vital in moderating Italy’s borrowing costs.

If Italy gives the EU the middle finger and refuses to adopt a compliant budget, the EU, under its rules, can levy large fines and freeze some funding.

In recent opinion polls, over 60% of Italy’s electorate support the League or 5 Star, with a similar share supporting the draft budget.

The yield on the Italian 10-year bond finished the week at 3.44%, vs. just 0.35% for the German bund, a massive spread.

Meanwhile, today, Italy was hit by a nationwide transit strike as public transport workers walked off for 24 hours calling for better work conditions.  Saturday, a nonpolitical sit-in at Rome’s city hall is scheduled to protest against the poor state of the Italian capital, including uncollected rubbish on the city’s transport system, as well as potholed streets.

Germany: Chancellor Angela Merkel has offered her government’s support to the construction of a liquefied natural gas shipping terminal in northern Germany, a key concession to President Trump* as he tries to loosen Russia’s grip on Europe’s largest energy market.

The project had failed to get off the ground as Germany was content to get most of its gas cheaply from Russia.

The complex process of converting the LNG back into gas once it reaches the terminal makes the gas around 20% more expensive than Russian gas.  Merkel has told lawmakers an LNG terminal wouldn’t break even for at least a decade and would require long-term government support.

Currently, Russia accounts for over 50% of German gas imports, with the rest primarily from Norway and the Netherlands, according to a world energy review put out by BP.

Separately, there is another big state election in Germany, in Hesse, Sunday.  A further erosion in support for Merkel’s party would prove most troublesome.

*President Trump picked up another win (seeing as he claims credit for everything positive) as Belgium said on Thursday it had chosen Lockheed Martin’s F-35 stealth jets over the Eurofighter Typhoon to replace its ageing F-16s in a $4.55 bilion deal, saying the decision came down to price.

After months of deliberation, the decision to buy 34 of the planes was announced at a government news conference. Belgium joins a list of other European NATO allies, including Britain, the Netherlands, Italy and Turkey, to take the American-made plane, which is also set to be the U.S. military’s main fighter aircraft for decades to come.

The decision is a blow to Britain, Germany, Italy and Spain, who are behind the Eurofighter program, and also means the rejection of France’s Rafale fighter built by Dassault Aviation.  However, Britain’s BAE Systems is a partner on the F-35.

Turning to Asia, China’s stock market stabilized after a crazy start to the week, with the Shanghai Composite up 4.1% Monday, down 2.7% Tuesday, but up 1.9% for the week.

China’s currency weakened to its lowest level in a decade on Friday, against a backdrop of mounting geopolitical tension and uncertainty over the country’s trade impasses with the U.S.

A reading on new home prices in the country for September showed an increase of 0.9% from a month earlier in the 70-major city index.  Versus a year ago, new home prices climbed 7.9 percent.

Prices continue to rise despite tougher curbs designed to rein in a near-three real estate boom that has spilled over from megacities to the hinterland.

According to the National Bureau of Statistics, prices rose in 64 of the 70 cities surveyed.

Japan’s Nikkei index fell a fourth consecutive week.  But its flash manufacturing PMI for October came in at 53.1% vs. 52.5%.

Street Bytes

--On the week, the Dow lost 3.0%, the S&P 3.9% and Nasdaq 3.8%.

The Dow is now 7.7% off its all-time high, the S&P is down 9.3% from its record, and Nasdaq has fallen 11.6%, a true correction.

In Thursday’s after-hours trading, Amazon and Google, on the heels of their tepid earnings reports, vs. expectations, lost a collective $100bn in market cap, with Amazon losing as much as 9 percent and Google, 5 percent.  More on them below.

--U.S. Treasury Yields

6-mo. 2.46%  2-yr. 2.81%  10-yr. 3.08%  30-yr. 3.31%

--Oil finished down on the week, though as in the case of equities, price action was volatile, with the Energy Information Administration reporting that U.S. crude-oil inventories rose another 6.3 million barrels to 423 million, which is the highest total in more than four months. But while bearish for oil, the data also showed inventories of gasoline and distillates fell by a combined 7.1 million barrels, while motor gasoline supplied to the U.S. market, a proxy for demand, jumped 141,000 barrels a day to 9.3 million barrels a day...so that is bullish.

Oil slid Friday on word the Saudis were talking about a global market that is oversupplied. 

That said, investors are still trying to gauge the eventual impact of the looming sanctions on Iran, Nov. 5, and how much Iranian oil will disappear from the market as a result.  Saudi Arabia reportedly is ready to increase its own crude production to 11 million barrels a day, compared with an average 10.7 million.

--Amazon reported earnings per share of $5.75, far above the consensus forecast of $3.14. Amazon Web Services contributed operating income of $2.1bn in the quarter, more than half of its total operating income of $3.7bn.  Net income was $2.9bn, compared with $256m in the same quarter the year before.

But the company issued a disappointing fourth quarter forecast, despite exceeding expectations in Q3, but it was look out below for the share price today, down 8%.

Brian Olsavsky, Amazon’s CFO, said the company was “ready to roll” for the holiday season – but always had to deal with uncertainty over the outlook for its traditionally biggest quarter of the year, with Amazon expecting net sales to grow between 10 and 20 percent year-on-year in the fourth quarter to between $66.5bn and $72.5bn, but this was lower than some analysts had estimated, with the Street forecasting growth of about 22 percent.

Amazon’s international sales growth dropped significantly from a 29 percent year-on-year growth rate in the second quarter to a 13 percent rate in the third quarter.

Sales of subscription services, which include Prime and other video and audiobook subscriptions, were up 52 percent yoy.

The company’s pledge to increase wages goes into effect in November and December in the U.S. and UK, with Olsavsky saying the cost of the rise for 400,000 employees had been incorporated into the guidance.

--Alphabet, the parent company of Google, reported a net profit of $9.19 billion in the third quarter, up 37 percent from a year earlier, and far better than expected, with quarterly revenue of $33.74 billion, an increase of 21 percent but lower than expected, which pushed the company’s share price down sharply in after-hours trading Thursday, but recovering somewhat today to finish down just 2% from Thursday’s close.

The company said it is continuing to invest, though, with capital spending up almost 50 percent to $5.3bn, as Alphabet ploughed ahead with 20 data centers that are under development, spending heavily on new equipment, which the Street doesn’t necessarily like to hear.  The company hired 9,000 employees in the United States this year, raising its total to 94,372 as of September, an increase of more than 16,000 from a year earlier.

In a conference call with analysts, Sundar Pichai, Google’s CEO, said it was still too early to determine the potential impact of new policies that the company was putting in place in Europe.

The European Union fined Google $5.1 billion in July for abusing its market dominance in smartphone software.

Separately, CEO Pichai said the company is “dead serious” about allegations of sexual harassment and misconduct, in an internal memo sent to employees on Thursday.  As many as 48 people have been fired from Google over sexual harassment allegations over the last two years, Pichai said, 13 of whom were senior managers and above.

“None of these individuals received an exit package,” he wrote in the memo.  The memo came after the New York Times reported that Google paid Andy Rubin, the creator of the Android mobile operating system, $90 million after he left the company in 2014 over an allegation of sexual misconduct.  Google then invested heavily in Rubin’s next venture, according to the report. 

In his memo, Pichai conceded that the Times’ report was “difficult to read.”  But Google now faces questions not only about a cover-up, but also about why it was rewarding those engaged in such behavior.

--Microsoft saw revenue rise 19% in the third quarter to $29.08 billion, with net income increasing 34% to $8.82 billion, beating on both the top and bottom lines.

The company said its cloud service business is decelerating, but it is benefiting from an offshoot of the business that mixes in its software sales, a strategy called hybrid computing, in which customers run some software in their own data centers but also use cloud services.  Microsoft’s server products and cloud-services revenue rose 28% in what is their fiscal first quarter.

The cloud-computing business, called Azure, grew 76%, but this was the slowest pace of growth since the company began disclosing quarterly percentage gains for the unit.  Microsoft still doesn’t disclose revenue figures for it, but it is estimated by analysts to be around $2.7 billion for the quarter.

--Intel defied Wall Street’s concerns about semiconductor stocks, beating analysts’ forecasts by a wide margin in its recent quarter, while raising its guidance for the rest of the year.

Intel reported third-quarter revenue of $19.2bn, up 19 percent year-over-year, driven by a strong performance in both PCs and its data center business.  Net income rose 42 percent to $6.4bn.

Intel increased its outlook for fourth-quarter revenues by $1.7bn to around $19bn.

Sales from the PC-centric “client computing” division were up 16 percent to $10.2bn, thanks to sales to businesses and video gamers, as overall PC chip volumes increased 6 percent.

--Twitter Inc. topped estimates for earnings and revenue in the third quarter amid higher spending from advertisers, a much-needed boost for a company under scrutiny from regulators and lawmakers about fake or offensive accounts.

Monthly active users averaged 326 million, a decrease of 9 million from the second quarter, though the company had warned in July that there would be a continued drop in the metric as a result of efforts to clean up its service and stricter privacy rules in Europe.  Twitter forecast a further drop in the current quarter.

But the company’s 29% jump in revenue in the prior quarter represented the third consecutive quarter of double-digit growth, while Twitter has reported positive net income four straight quarters.

In Q3, revenue jumped to $758.1 million, far ahead of expectations, while profit was 21 cents a share, higher than the average estimate of 14 cents.  The shares surged 12% on the week.

--Snap Inc. said revenue rose 43% in the third quarter, but its number of users declined as the company struggles following a poorly received redesign. The $297.7 million in revenue that Snap recorded did exceed expectations, and marked the most money the company has ever made in a quarter, but it was the second consecutive quarter since Snap went public that the number of people who use its flagship product declined.

Snap, the parent company of app Snapchat, lost two million daily users, bringing its total user base to 186 million. Snap’s base of daily users in the U.S. declined to 79 million, from 80 million.

Snap said its loss in the quarter was $325.15 million, down from $443.16 million a year ago.

Add it all up and the shares hit a new low of $5.80, before finishing the week at $6.25.

--Tesla Inc. reported a net profit, positive cash flow and wider-than-expected margins for the latest quarter on Wednesday, delivering on CEO Elon Musk’s promise to turn the electric carmaker profitable as higher production volumes of its new Model 3 began to pay off.

Tesla reiterated that it expected to repeat its net profit in the current quarter, helping drive the company’s shares up 10 percent on the news.

Time after time, Tesla, and Musk, have failed to hit goals and deadlines, but this time the company surprised investors by delivering on the pledge to make Tesla profitable for only the third quarter in its 15-year existence; a positive end to a most tumultuous quarter for Musk.

“We can actually be cash flow positive and profitable in all quarters going forward,” he said, though he is excluding quarters in which a big debt payment is due, such as the first quarter of 2019.

Musk reiterated that Tesla does not plan to raise equity or debt, which the Street likes to hear.

Tesla said it would begin taking orders in Europe and China for the Model 3 before the end of 2018. Deliveries would begin to Europe in late February or March, and those to China in the second quarter, Musk said.

Tesla earned $311.5 million on $6.82 billion in revenue, or $1.82 a share, well above analyst forecasts, which ranged from a $1.75 loss to an 88-cent gain.

Musk said he sees worldwide demand for the Model 3 eventually reaching 500,000 to 1 million cars a year.  That would place the Model 3 among the top 25 models, based on 2017 sales. Only Ford’s F-series pickups sold more than 1 million units that year.

But Musk had promised a base price of $35,000 for the Model 3, and the average price of the ones delivered in the third quarter was $59,000 – good for profits but not the price tag for the customers who laid down deposits for the promised low-cost version.  Musk conceded the car can’t be made profitably at $35,000, though he said the other day, “We’re probably less than six months from that, but that’s our mission.”

Results were bolstered by a 30% reduction in labor hours required to build the Model 3, a sign Tesla was emerging from what Musk had called “production hell.”

But the 4,000-cars-a week average Tesla recorded on the Model 3 for the quarter is well below the forecast of 5,000 a week made in December and his 7,500-a-week prediction of July 2017.

Tesla ended the quarter with $3.5 billion in cash, and the company said cash would remain at least unchanged in the fourth quarter, despite a repayment of $230 million in convertible notes coming due. Another $920 million is due in March.

But while Tesla has had the electric car market nearly to itself since the Model S sedan was introduced in 2012, competition is ramping up, with several automakers introducing EVs in 2019 and dozens of models planned for 2020.  Jaguar’s new I-Pace electric compact SUV already outsells Tesla in Norway, Tesla’s largest market outside the U.S. and China.

Sales in China are being hurt by a 40% import tax that country levied in response to U.S. tariffs on Chinese goods.

*Separately, Tesla dropped six spots to rank near the bottom of Consumer Reports’ new-car reliability list, now third-worst among 29 auto brands.  Only Cadillac and Volvo ranked lower.

The highest reliability scores went to Lexus, Toyota and Mazda, in that order.

Seven of the top 10 brands are Japanese or South Korean. Audi, ranked seventh, was the top European brand.  No U.S. automaker finished in the top half of the list.

Tesla’s poor showing led Consumer Reports to drop its “recommended” opinion on the Model S, a car that costs well over $100,000, including various options. 

--Ford Motor Co.’s third-quarter net income fell 37% amid sharply lower results in China and Europe, which are complicating turnaround plans, though Ford reaffirmed its full-year profit outlook this year of $1.30 to $1.50 per share.

The nation’s No. 2 auto maker did report surprisingly strong results in North America, owing to its mix of pricey trucks and SUVs in the U.S. market, which helped push revenue up 3% to $37.6 billion, well above expectations.  Net profit was $1 billion for Q3, with earnings per share beating the Street by a penny at 29 cents.

Ford did swing to a $378 million third-quarter loss in China, after turning a profit of $102 million last year.  Ford’s sales in China were down 30% in the first nine months of the year, while the overall auto industry in the country has seen sales tick up 1.5% in that period. 

But Ford’s operating profit in North America rose 5% to $2 billion.  The F-Series pickup truck now has an average price of $46,224, nearly $900 higher than a year ago.

Outside of North America, Ford’s regional businesses collectively lost $560 million, with losses in Europe widening to $245 million, from $53 million a year earlier, owing to higher foreign-exchange costs and weaker results in Turkey and Russia.

Ford lost $152 million in South America, flat from a year ago.

Ford’s shares continue to languish at a near decade low, though they finished up on the week.

Lastly, the company recalled nearly 1.5 million Ford Focuses that have a malfunctioning part which could cause the cars to stall and increase the risk of a crash. This is for 2012-2018 vehicles.

--Boeing reported better-than-expected results for the quarter and raised its revenue and earnings outlook for the year.

Global passenger traffic rose 6.8% for the first eight months of 2018, according to the company, while cargo traffic increased 4% over that period, meaning Boeing is racing to meet global demand for commercial aircraft.

“The airline industry is very healthy overall, across all of the different types of business models including low-cost carriers,” said CEO Dennis Muilenburg on a conference call with analysts and reporters.

Boeing expects to bring in as much as $100 billion in revenue for the entire year, up $1 billion from a previous forecast, as the company’s backlog of orders has risen $17 billion this year to $491 billion, representing some 5,800 commercial aircraft that have yet to be delivered.

Boeing has had problems with a supplier bottleneck for single-aisle 737s, the company’s top moneymaker.

Overall, Boeing reported earnings of $2.4 billion, up 31% from the same period a year ago, with revenue up 4% to $25 billion.

--UPS reported weaker-than-expected third quarter sales on Wednesday, as a strong dollar and higher fuel prices added to cost pressures on the business.

The company, as a bellwether of U.S. economic activity, said the strengthening dollar resulted in a $28m hit to earnings from its international business.  The company has also been ramping up investment in new technology to cope with the delivery bottlenecks that have resulted from the surge in demand for e-commerce related deliveries.

For the third quarter, revenues rose nearly 8% to $17.44bn, slightly below what the Street expected.  In the U.S., it was also up 8% to $10.4bn.

Net income was $1.51bn, compared to the $1.25bn reported in the prior year period.  Earnings of $1.82 per share were in line.

--Caterpillar Inc. reported sales of $13.5 billion for the third quarter, with record profits, as demand for construction equipment remained strong, both the top and bottom line beating expectations.

But the shares were hit hard, CAT the victim of lofty expectations and the company’s failure to raise its profit guidance for all of 2018, when investors clearly did expect a boost.

Plus a strong dollar is starting to hamper U.S. multinationals in general, and the tariffs are beginning to bite, with the company saying it now expects to raise material costs by $100 million to $200 million in the final six months of the year.  And freight costs are rising due to supply-chain challenges.  The company plans to raise prices on some machines and engines, but the global economy is starting to wobble.

--Bayer AG’s $63 billion acquisition of Monsanto Co. this year made the German drug and chemicals company the world’s biggest supplier of crop seeds and pesticides, but it also brought thousands of lawsuits alleging Monsanto’s Roundup herbicide causes cancer.

Monday, a judge rejected Bayer’s request to reverse an August jury verdict against the company in the first Roundup case to go to trial.

Bayer has argued that glyphosate, the main chemical in Roundup, doesn’t cause cancer and has been reviewed and approved in more than 160 countries.  The company is appealing the verdict.

The jury’s $289 million award in August did a number on Bayer’s valuation, slicing off $billions, and while a judge reduced the award to $78.5 million, the court rejected Bayer’s request to reverse it, sending the shares down more than 11%.

--Harley-Davidson reported higher quarterly earnings, but Harley’s U.S. sales continue to plunge, while it is being hurt by a 25-percent tariff imposed by the European Union on U.S. motorcycles in retaliation for President Trump slapping tariffs on foreign steel and aluminum.

In the U.S., Harley is struggling to attract younger customers who haven’t shown interest in motorcycling like past generations.  U.S. sales fell 13.3 percent for the quarter over a year ago.

But Harley did earn $113.9 million, up 67 percent from a year earlier, with overall revenue up nearly 15 percent to $1.32 billion.

International sales rose 2.6 percent.

--McDonald’s Corp. is still struggling to attract more U.S. customers, but same-store sales did grow 2.4% in the home market, driven mostly by menu price increases prompted in part by rising commodity costs.

Globally, the story was better, with same-store sales growth of 4.2%, resulting in its 13th consecutive quarter of comp-store growth globally.

The shares rose smartly in response.

But U.S. franchisees, who own roughly 95% of the company’s more than 14,000 restaurants in the country, say they need to attract more customers to grow, as rival fast-food chains have been gaining market share in the morning hours, which account for about 25% of the chain’s U.S. sales, by offering low-priced breakfast meals.

So in response, McDonald’s said it planned to introduce new breakfast items later this year.

The company’s third-quarter profit fell 13% to $1.64 billion, though excluding a prior-year gain on restructuring charges from its ongoing construction project, earnings per share increased 19% and beat analyst expectations.

--Chipotle Mexican Grill reported solid comparable restaurant sales, up 4.4%, for the third quarter, with revenue up 8.6% to $1.2 billion..

The company opened 28 new restaurants and closed or relocated 32 in the quarter, with the figures for the first nine months being 97 and 42 in the two categories.

--My neighbor across the street, Celgene, saw its shares plunge to a 4-year low after its earnings report.  While the EPS of $2.29 beat analysts’ estimates, the figure was helped by sales of psoriasis drug Otezla.

That’s good, right?  Well, it seems investor enthusiasm over Otezla “kind of fizzled away” after the company’s comments on the conference call, which suggested most of the beat was from inventory build-up and not demand.

--Apple Inc. CEO Tim Cook, in a speech before a privacy conference organized by the European Union, called for U.S.-wide data-protection regulation, saying individuals’ personal information has been “weaponized.”

The EU enacted the General Data Protection Regulation in May in a bid to improve user rights and bolster the bloc’s power as a global rule maker.  Cook told the audience the U.S. should enact a similar law.

“Our own information – from the everyday to the deeply personal – is being weaponized against us with military efficiency. Today, that trade has exploded into a data-industrial complex.”

Cook is trying to insulate Apple from rivals Facebook and Google  that have been dealing with recent scandals involving access to personal information.  Apple’s point is that it makes the bulk of its money by selling devices, rather than advertising, and thus has far less incentive to exploit its customers’ data. But Cook told the EU conference that the data-collection practices being employed – targeting the online-advertising world – amounts to surveillance.

“These scraps of data, each one harmless enough on its own, are carefully assembled, synthesized, traded and sold,” Cook said.  “This is surveillance. And these stockpiles of personal data serve only to enrich the companies that collect them. This should make us very uncomfortable.”  [Sam Schechner and Emre Peker / Wall Street Journal]

--A majority of Americans reports that their financial situation has not improved since the 2016 presidential election, despite low unemployment and a booming stock market (until recently, regarding the latter).

According to a Bankrate.com report released Wednesday, more than six in 10 said they’re no better-off financially than they were two years ago.

78 percent of Americans earning less than $30,000 a year also report that their financial situation has not improved.

--Sears is quickly chewing through the $300 million in financing it received when it filed for Chapter 11 bankruptcy this month – and the company is pleading for more time to scare up extra funds, or it won’t get through the holidays, which would spell one thing...liquidation.

Sears, according to the New York Post, is seeking to push back a Nov. 1 court hearing on a second $300 million loan – a so-called debtor in possession loan – to Nov. 8, sources told the paper.

Former CEO, now chairman, Eddie Lampert, is contributing to the loan through his investment vehicle, hedge fund ESL Investments, but finding other investors is taking longer than expected.

In its first month in bankruptcy, Sears is on target to burn through $220 million.

Sears stock was delisted from Nasdaq for not meeting the minimum requirement of trading above $1 for 30 consecutive days.  The shares are now over the counter at about $0.20.

--Bill Gates, in an op-ed for the Wall Street Journal, on the passing of friend, and partner, Paul Allen.

“I met Paul Allen when I was in 7th grade, and it changed my life.

“I looked up to him right away. He was two years ahead of me in school, really tall, and proved to be a genius with computers... We bonded over the teletype that some students’ mothers had bought for the school and had connected to a remote mainframe.

“Eventually we were spending just about all our free time messing around with any machine we could get our hands on.  At an age when other high school kids were sneaking out of the house to go partying, Paul and I would sneak out at night to go use the computers in a lab at the University of Washington. It sounds geeky, and it sure was, but it was also a formative experience, and I’m not sure I would have had the courage to do it without Paul.  I know it would have been a lot less fun.  (‘Borrowing’ computer time illicitly would become something of a theme for us.  Later, when I was a student at Harvard, I got in trouble for letting Paul use the campus computer lab without permission.)

“Even in high school, before most people knew what a personal computer was, Paul predicted that chips would get super-powerful and would eventually give rise to a whole new industry....

“(In December 1971), Paul and I were both living in the Boston area – he was working, and I was going to college.  One day he came and got me, insisting that I rush over to a nearby newsstand with him.  When we arrived, he showed the cover of the January issue of  Popular Electronics.  It featured a new computer called the Altair 8800, which ran on a powerful new chip.  Paul looked at me and said: ‘This is happening without us!’ That moment marked the end of my college career and the beginning of our new company, Microsoft....

“As the first person I ever partnered with, Paul set a standard that few other people could meet. He had a wide-ranging mind and a special talent for explaining complicated subjects in a simple way.  As an adult, he pursued a huge spectrum of interests, including the arts, conservation, and artificial intelligence. He wanted to prevent elephant poaching, promote smart cities, and accelerate brain research.

“Because I was lucky enough to know him from such a younger age, I saw that before the rest of the world did....

“Paul was cooler than I was. He was really into Jimi Hendrix, and I remember him playing ‘Are You Experienced?’ for me.  I wasn’t experienced at much of anything back then, and Paul wanted to share this amazing music with me. That’s the kind of person he was.  He loved life and the people around him, and it showed.

“His generosity was as wide-ranging as his interests. In our hometown of Seattle, Paul helped fund homeless shelters, brain research, and arts education. He also built the amazing Museum of Pop Culture, which houses some of his huge collection of music, science fiction, and movie memorabilia.

“When I think about Paul, I remember a passionate man who held his family and friends dear.  I also remember a brilliant technologist and philanthropist who wanted to accomplish great things, and did.

“Paul deserved more time in life.  He would have made the most of it.  I will miss him tremendously.”

We learned after I wrote of Allen’s passing last review that his death didn’t come without tremendous pain, which is so sad.  He died of septic shock.

--Cathay Pacific Airways came under fire from the head of Hong Kong’s privacy watchdog on Thursday after the city’s flagship airline failed to alert passengers about a massive data leak that took place seven months ago.

Cathay struggled to explain the serious delay on a radio program Thursday morning, hours after it had released a statement on Wednesday night.  Executive Paul Loo said the reason for the delay was to avoid causing unnecessary panic among customers.

The airline uncovered unauthorized access to the personal data belonging to 9.4 million passengers, including names, nationalities, dates of birth, identity card numbers and historical travel details.

50,000 Hong Kong passport numbers had also been accessed.

But it’s atrocious the airline is only now committed to notifying affected customers through email.

--Mark R. said I need not worry about global warming impacting the production of barley, but that I needed to be more concerned with the lantern fly, which are known to destroy an entire crop of hops in one sitting.

Mark told me that experts at Penn State University (the bug being prevalent today in eastern Pennsylvania), said the current infestation could be one of the most devastating in the last 150 years.

So the day after I received Mark’s note, the local NBC affiliate in New York reported that the lantern fly had been spotted on Long Island and authorities there are now on the watch.

I’m stocking up on Coors Light.

--I cannot believe the stupidity of Megyn Kelly, whose time on “Today” and her “Megyn Kelly Today” is coming to an end after she defended wearing blackface on Halloween.  The network opted Thursday to run re-runs for a while.  Then today, Megyn was formally removed from the gig, though she remains with the network...as I go to post. 

Kelly, who is halfway through a three-year contract, at $20-$23 million per year, said on her show of costumes that use blackface: “Back when I was a kid that was OK as long as you were dressing up as a character.”

Personally, being older than Ms. Kelly, I don’t remember a time growing up when it was OK at all to wear blackface.

NBC News boss Andy Lack told staff in a previously scheduled town hall meeting on Wednesday that regarding Kelly’s comments: “There is no other way to put this, but I condemn those remarks.  There is no place on our air or in this workplace for them.  Very unfortunate.”

Bye-bye, Megyn.

Foreign Affairs

Saudi Arabia / Turkey: Saudi Arabia’s public prosecutor said on Thursday that the death of the Saudi dissident journalist Jamal Khashoggi had been ‘premeditated,’ the latest change in the kingdom’s official story of how he was killed.

Previously, Saudi officials said that a 15-man team that had flown to Turkey to confront Khashoggi inside the Saudi Consulate in Istanbul on Oct. 2, led to a “fistfight.” When he screamed, one of the men put him in a chokehold, killing him accidentally, officials claimed.

But the prosecutor’s new statement said the conclusion was based on new information received from a joint Saudi-Turkish investigation taking place in Turkey.  The authorities said the agents were there to discuss Khashoggi’s desire to return to the kingdom, but offered no indication of who had sent them.

The Saudi narrative has changed a few times, and is being met with increasing skepticism, particularly from Turkish President Erdogan, and Donald Trump.  After all, it took weeks for Saudi authorities to change its original story that they had no information on Khashoggi’s whereabouts.

In the three Saudi versions, though, one thing is consistent – an insistence that Mohammed bin Salman (MBS), the crown prince, was not responsible for the killing.

MBS has vowed to punish all the “culprits” responsible.

Speaking at a business forum in Riyadh, the crown prince said “the crime was painful to all Saudis” but he would never allow any rift with Turkey.

In his first public comments since the Saudis admitted Khashoggi had been killed at the consulate, MBS said the killing was “a heinous crime that cannot be justified” and vowed that “those behind this crime will be held accountable...in the end justice will prevail.”

Turkey continues to maintain the Saudi team killed Khashoggi soon after he entered the consulate and then dismembered his body with a bone saw for disposal.

The Turks have slowly leaked, drip by drip, information to the news media on the names of the men on the Saudi team as well as photos of them arriving and moving around Istanbul, including the release this week of photos of a Saudi “body double” wearing Khashoggi’s clothes and walking around Istanbul shortly after his death, in an attempt to leave a trail of surveillance footage suggesting that he was still alive.

But Khashoggi’s body has not been found, despite rumors earlier in the week that it was disposed of at the home of the Saudi consul general in Istanbul.

Meanwhile, Saudi Energy Minister Khalid Al-Falih said on Thursday that companies that pulled out of the Future Investment Initiative conference in Riyadh had apologized for missing the event. “All the companies which did not come have been calling us during the past 48 hours, apologizing, expressing their regret, and promising to apply to open offices (in the country) during the coming weeks and restore relationships to their norms,” Al-Falih told state TV.  I don’t doubt this for a moment.

CIA Director Gina Haspel briefed President Trump on Thursday about her trip to Turkey, where she listened to audio purportedly capturing the killing of Khashoggi.  U.S. intelligence officials continue to maintain the murder could not have taken place without the knowledge of the kingdom’s most senior leaders.

As for the president, Trump said he is passing responsibility to Congress for responding to the killing of Khashoggi, and he criticized the conflicting accounts from Saudi Arabia afterward as “one of the worst” cover-ups in history.

Trump added it was “a very bad original concept.”

“It was carried out poorly. And the cover-up was one of the worst in the history of cover-ups.”

Trump said of the attack on Khashoggi that “whoever thought of that idea, I think, is in big trouble.”

In an interview in the Wall Street Journal, the president, asked about Prince Mohammed’s possible involvement, said, “He’s running things and so if anybody were going to, it would be him.”

For his part, this week Turkish President Erdogan declared the killing a “ferocious” premeditated murder, demanding that Saudi Arabia hold accountable those responsible.  In a speech to parliament Tuesday, though, he only dribbled out Turkey’s version of events, and did not detail the evidence to back it up, making no mention of the audiotape of the murder that Turkish investigators say they have, and which was played for Gina Haspel.

David Ignatius / Washington Post

“Why was Crown Prince Mohammed bin Salman so afraid of Jamal Khashoggi that he reportedly gave orders this past summer to bring the Post contributing columnist back to Saudi Arabia?

“We’ll still be left with that question after the Saudi and Turkish investigations are done and the designated culprits are convicted. What was the threat that had to be silenced?  My guess is that Khashoggi was seen as dangerous for the simple reason that he couldn’t be intimidated or controlled.  He was an uncensored mind. He didn’t observe the kingdom’s ‘red lines.’  He was an insistent, defiant journalist.

“If you want to visualize what Khashoggi was struggling against, watch some of the slickly packaged video coverage of this week’s Future Investment Initiative conference in Riyadh.  It was a captive audience, so to speak: MBS, as he’s known, got a prolonged, raucous ovation Wednesday when he denounced Khashoggi’s murder and promised cooperation with Turkey.

“A gushing story in the Riyadh-based Arab News praised MBS’s ‘war’ for modernization, which is ‘restoring the Middle East to its past glory,’ and quoted the crown prince: ‘I believe the new Europe is the Middle East.’

“Who wouldn’t like MBS’s vision of a modern, Europe-like Arab world at peace with its neighbors, including Israel?  But the crown prince doesn’t seem to understand that a united, peaceful Europe was possible only because it had a shared culture of freedom and tolerance. Troublesome journalists don’t get murdered in that Europe.  Leaders don’t order ‘renditions’ of dissenters, as MBS did with Khashoggi in July, according to a U.S. official.

“There’s a danger now that Khashoggi will be seen as a creature of the West and not an authentic Saudi voice. But that view is false: Khashoggi was part of an Arab journalism tradition with a long, brave history. He is the latest Arab martyr for press freedom, but he isn’t the first.  I’ve encountered many similar heroes over the past 40 years who shared Khashoggi’s ambition....

“Those who truly want a modern and prosperous Saudi Arabia could start by building on Khashoggi’s legacy.  A country that cannot tolerate criticism will never be, as one of the slogans at this week’s Riyadh conference put it, ‘a road map for the future of civilization.’ That could be Khashoggi’s gift in death: a chance for Saudi modernizers to make a fresh start, without the brutal trappings of autocratic power.”

Syria: Russia’s deputy defense minister Aleksandr Fomin accused a U.S. airplane of manually controlling 13 drones that attempted to attack a Russian air base in Syria, the accusation made at a forum in Beijing on Thursday.  A Russian diplomat then alleged some Syrian militants in Idlib are being used by the U.S. to create instability in northern Syria.

As for the drones, Fomin said they were destroyed.

The allegation comes on the heels of new satellite images from ImageSat International, which showed the presence of the S-300 systems Russia supplied Syria in the wake of the downing of the Russian IL-20 in September during an Israeli air strike on Syria.  Russia blamed Israel for creating the events that led to the downing, even though Syrian air defense shot the Russian plane down.

The recent news of the drones is one of many allegations in Russia media over the years that has sought to link the U.S. to extremist groups.  In the past, Russia has claimed the U.S. had evacuated ISIS fighters and commanders in Syria using helicopters.

More disinformation from the Russkies.  But by making the latest allegations in Beijing, it’s a way for Moscow to warn the U.S. about any provocations in Syria, and could be used as a pretext if Moscow responds to any U.S. attack from the sea or Idlib.  Russia never shows clear evidence of its charges.

But the Syrian Observatory for Human Rights said the U.S.-led coalition launched air strikes in eastern Syria, where ISIS still has a few villages, and according to the Observatory, 41 people were killed, including 10 children, with many of the victims Iraqi relatives of ISIS fighters.  Syria claimed at least 62 civilians were killed in al-Sousa and a nearby village.

The coalition said it destroyed a mosque ISIS was using as a headquarters in al-Sousa.

Separately, a top Red Cross official said Friday after visiting the former rebel stronghold of Eastern Ghouta that the destruction is overwhelming and the humanitarian needs huge.

Dominik Stillhart, director of operations for the International Committee of the Red Cross, said the scope of the devastation was still emerging, six months after the fighting ended.

“I’ve never seen anything like this ever before,” he told journalists in Beirut.

After retaking significant territory from ISIS, the government set its sights on recapturing Eastern Ghouta earlier this year, viewing the rebel presence so close to the capital as an affront to its authority.

So it launched a massive Russian-backed offensive against the besieged enclave that killed more than 1,700 civilians. Tens of thousands were forced to flee as the enclave’s towns surrendered one after the other.

Stillhart said that in some parts of the region, “up to 90 percent of infrastructure is completely destroyed.  It’s really breathtaking the level of destruction there.”

China:  Leaders of China and Japan announced they had agreed to boost economic cooperation and not to pose a threat to each other at a joint press conference in Beijing on Friday.

Chinese Premier Lie Keqiang, alongside Japanese Prime Minister Shinzo Abe, also announced that the two countries had signed over 500 business deals during Abe’s ongoing visit to China, the first by a Japanese leader in seven years.

Li said: “We both feel that it is in our mutual interest to maintain a long-term stable China-Japan relationship, which is also beneficial to the stability of the region.

“We also agreed that we do not threaten each other and do not direct aggression towards each other,” Li said.  “We need to have constructive ways to eliminate any kind of frictions or conflicts between the two countries.”

Abe’s visit, in which he was accompanied by about 500 Japanese businesspeople, was hailed as an important step in their rapprochement after years of tension over wartime grievances, geopolitical rivalry and competing sovereignty claims over the East China Sea.

Abe said at the press conference that the nature of the relationship between Beijing and Tokyo had been transformed from competitive to cooperative.

“From competition to cooperation, I believe our relationship is entering a new phase,” he said. “We want to expand our relationship significantly.

“We are neighbors.  We are partners cooperating with each other. We have to avoid becoming a threat to each other.”

Washington should be concerned that uncertainties in its relationship with China, as well as Japan on the trade front, have pushed the two Asian rivals closer together.  Japan is increasingly worried about the decline of the U.S. presence in the region, while China looks to Japan to ease the impact of its escalating trade conflict with the U.S.

Meanwhile, President Xi Jinping visited his country’s manufacturing hub in Guangdong province this week and said the country must develop its manufacturing industry and technology to become a “strong” country, according to People’s Daily,  the official party mouthpiece.

“To go from a big country to a strong one, we must give paramount importance to the development of the real economy” Xi said.

“Manufacturing is a key to the real economy, and the core strength of manufacturing is innovation, or the control of core technologies.

“We must...seek innovation by relying on ourselves, and I hope all enterprises will work in this direction.”

Editorial / Wall Street Journal

“A pair of U.S. warships sailed through the Taiwan Strait on Monday, a welcome show of support for America’s friends in Taiwan and the right to open navigation in international waters....

“The U.S. is the only nation with the naval firepower to deter China’s ambition.  The warships’ trip also sends a note of reassurance to the government of Taiwan, which China has increasingly tried to isolate in global forums by using promises of investment to cause Taiwan’s few remaining friends to throw the island over.

“The sail-by looks to be part of the Trump Administration’s larger effort to push back against China’s military aggressiveness. This has included more frequent trips past atolls on which China has built runways and other assets to project power in the South China Sea.  Like Russia and Iran, China took advantage of the Obama years to expand its influence and try to become a dominant regional power. The Trump Administration is showing that the days of this free ride may be over.”

North Korea: A North Korean general got a warm welcome in Beijing on Thursday, a rare high-profile showing at an international military forum, underscoring an improvement in ties with China and the world.

Kim Hyong Ryong, vice minister of North Korea’s People’s Armed Forces, was greeted warmly by other attendees. Addressing the forum, Kim said peace was the priority.

“Until only a year ago, the danger of military conflict lingered on the Korean Peninsula but today we are witnessing a series of events beyond all our expectations giving rise to the warm atmosphere of reconciliation, unity and peace. Today’s dramatic reality of the Korean Peninsula is the fruition of Chairman Kim Jong Un’s determination and bold decision to turn the Korean Peninsula into a cradle of peace without any nuclear weapons or nuclear threats and achieve national reunification.”

Kim said North Korea was making “sincere efforts” to successfully implement agreements reached by leader Kim and Donald Trump in Singapore.  [Reuters]

Right.

Benny Avni / New York Post

“If President Trump isn’t careful, his North Korea concessions will soon resemble President Barack Obama’s pre-nuclear-deal gifts to Iran.

“Trump denies ever making concessions to Pyongyang strongman Kim Jong Un. But last week the Pentagon announced the cancellation of the Vigilant Ace exercise, the annual winter drill America and South Korea jointly conduct to prepare for North Korean aggression.

“The Department of Defense said the exercise’s ‘suspension’ was done in support of Trump’s Pyongyang diplomacy. So how’s that going?

“Secretary of State Mike Pompeo went to Pyongyang two weeks ago for the fourth time.  He lunched with Kim and quickly left town.  Ostensibly the lunch was about charting a second Trump-Kim summit, the date and venue of which are yet to be announced.

“But Pompeo told reporters the North also agreed to allow outside inspectors into Punggye-ri, a nuclear site Pyongyang claims to have dismantled.  The inspectors will arrive once ‘logistics’ are worked out, Pompeo said, acknowledging however they won’t be allowed into Yongbyon, the site where real nuclear work is conducted.

“Meanwhile Tomas Ojea Quintana, a UN human-rights observer, notes that North Korean atrocities aren’t even on the agenda in the disarmament talks. And as he told reporters Tuesday, ‘The situation on the ground, according to information I gathered this year, indicates there’s no change’ in the horrors Kim inflicts on his people.

“In other words, the planned Trump-Kim summit will be marked by little real progress beyond atmospherics. And the arms layoff.

“The latest Pentagon announcement resembled last spring’s cancellation of the Ulchi Freedom Guardian drill, the summer joint exercise, on the eve of the Singapore summit.

“Not to be outdone, Seoul this week announced it and Pyongyang agreed to remove troops and arms from their border.

“South Korean President Moon Jae-in’s ‘Moonshine policy’ consists of endless concessions, gestures and showering love on Kim, so his latest actions are no surprise. But what explains Trump?  Especially given how he endlessly takes Obama to task for handing Iran ‘bribes’?

“Trump claims his opening to Kim is easily reversible.  ‘We gave nothing,’ he insisted on Fox News after the Singapore summit. Besides canceling military exercises saves us a lot of money.  And they can resume as soon as Trump so orders.

“Well, not quite. The Vigilant Ace exercise involves up to 12,000 U.S. and South Korean troops and many aircraft and naval assets.  It requires complex coordination and long-term preparation.  Once canceled, it’ll remain canceled, at least for this year.

“But what if, heaven forbid, Kim, a ruler known to act erratically, renews aggressive missile or nuke testing? Or his missile launches? Will we be ready?

“Trump rightly notes that Pyongyang continues to face pressure. We’ve yet to remove the sanctions cobbled together by outgoing UN Ambassador Nikki Haley, which clearly hurt the North.  But according to a leaked draft of a new UN report, Russia, China and others already violate those sanctions.  (The draft has yet to be officially issued, as Russia is demanding its culpability be edited out.) And Moon has been asking for sanctions exemptions for pet joint projects with North Korea.

“A global sanctions regime, as we learned from the run-up to the Iraq war, can be watered down and lead to war.  Canceling military drills as a goodwill gesture sends the wrong signal about America’s resolve to keep the heat up. It’ll only hasten an end to tough sanctions.

“And remember: Trump actually favors pressuring adversaries by displaying military might.  This week, the U.S. Navy concluded a higher-profile display of defiance by sailing ships through the Taiwan Straits.  Trump knew how much that would anger China but sought to signal America’s commitment to freedom of navigation and to the defense of our ally, Taiwan.

“Sure, sometimes goodwill gestures could bolster diplomatic efforts, but Kim isn’t versed in such nuances.  Worse: We have little reliable intelligence about Pyongyang’s goings-on, and what we do know is often colored by Seoul’s increasingly rosy glasses.

“Trump rightly criticizes Obama’s clumsy attempt to declaw Iran by showering it with gifts. Yet his eagerness to turn the Korean Peninsula into a peaceful oasis, preferably before the 2020 election, is leading him to take a similar approach with the Kim regime.”

Russia: The United States is serious about pulling out of a landmark nuclear agreement with Russia, national-security adviser John Bolton told the Wall Street Journal last weekend, as President Trump announced the prospective exit from the agreement during a campaign rally in Nevada on Saturday.  Trump then told reporters at the White House on Monday that the U.S. would build up its overall nuclear arsenal, if necessary, aiming unusually tough language at Russia.

“We’ll build it up until they come to their senses,” Trump said.  “When they do, then we’ll all be smart and we’ll all stop and, by the way, not only stop [but] reduce, which I would love to do.”

Asked if he meant to deliver a threat to Russia, Trump said: “It’s a threat to whoever you want,” adding, “It includes China, and it includes Russia and whoever wants to play that game.  You can’t play that game on me.”

Bolton said the administration was “going to be doing a lot of consultation with allies in Europe and Asia [and] certainly we’re going to have more discussions with Russia.”

The Kremlin said on Tuesday that the INF Treaty had its weak points, but that it did not welcome what it called the dangerous U.S. approach of talking of withdrawal without proposing a replacement.

From Moscow, John Bolton said the United States would press ahead with its plans to quit the pact.

“There’s a new strategic reality out there,” Bolton said, saying that a Cold War-era treaty no longer meets the demands of the world as it is now.  “In terms of filing the formal notice of withdrawal, that has not been filed but it will be in due course.”

President Vladimir Putin, in opening remarks at his meeting with Bolton, said: “We barely respond to any of your steps but they keep on coming.  On the coat of the arms of the United States there’s an eagle holding 13 arrows in one talon and an olive branch in the other. My question is whether your eagle has gobbled up all the olives leaving only the arrows?”

Putin then said on Wednesday that if the United States decides to withdraw from the INF Treaty, Russia will have to respond in kind, and will do so very quickly and effectively.

“If the United States does withdraw from the INF Treaty, the main question is what they will do with these newly available missiles. If they will deliver them to Europe, naturally our response will have to mirror this,” Putin said.

China, Iran and North Korea aren’t bound by the INF treaty.  The U.S. estimates that a third to one half of all of China’s ballistic-missile capabilities would violate the pact if Beijing were a party to it, according to Bolton.

European leaders weren’t happy.

Editorial / Wall Street Journal

“Donald Trump says the U.S. plans to withdraw from the 1987 INF nuclear arms-control treaty that everyone agrees Russia has been violating for a decade.  Yet somehow this is said to be reckless behavior by – Donald Trump? Welcome to the high church of arms control in which treaties are sacrosanct no matter the violation.

“The Intermediate-Range Nuclear Forces Treaty bans ground-fired ballistic and cruise missiles with a range between 500 and 5,500 kilometers and is an artifact of the late Cole War. Ronald Reagan and NATO deployed mid-range missiles in Europe in the early 1980s to counter Soviet deployments. After years of tense negotiation, Mikhail Gorbachev finally agreed to the modest INF accord on U.S. terms that traded U.S. missiles for Russia’s. This was hailed as a diplomatic triumph.

“Yet when the Warsaw Pact and Soviet Union collapsed over the next few years, nuclear arms control faded in importance. Which is the key point.  Arms control didn’t make the world safer; the fall of the Soviet Union did that. Arms control tends to work when it is between countries that get along, while it fails with adversaries that can’t be trusted.

“Enter Vladimir Putin, who has been developing a new medium-range cruise missile since the mid-2000s.  The U.S. believes Moscow first tested the new missile in 2008, but the Obama Administration hid that intelligence from the Senate when it debated and ratified the New Start treaty with Mr. Putin in 2010.

“The Obama Administration first went public with this news in 2014, and the State Department has noted Russian noncompliance every year.  Moscow started deploying its new missiles in late 2016. This is in addition to a new ballistic missile Russia has tested that may be INF compliant only because it can travel slightly farther than 5,500 kilometers.

“The question has been whether the U.S. was ever going to do something about it. The diplomatic impulse is to keep quiet about violations and work behind the scenes to prod an adversary to comply, but that clearly hasn’t worked. Mr. Putin wants the new missiles as a show of Russian power and as leverage over Europe in a conflict. Why would he give them up if the U.S. and Europe look the other way?

“As he so often does, Mr. Trump has now broken this reverie by showing there will be costs to noncompliance. By pulling out of the accord, the U.S. would be free to develop a missile of comparable range to counter the Soviet threat. This would restore an element of mutual deterrence to the European theater.  It also shows Mr. Putin that he can’t use a violation of one treaty to prod Mr. Trump to sign another, which was the hope the Russian expressed this summer at the fiasco summit in Helsinki....

“You’d think the arms controllers in particular would understand that doing nothing about violations undermines the rationale for new arms agreements.  One reason the Obama Administration finally went public about Russia’s INF violations was to show the Senate that it would take potential violations of the Iran nuclear deal seriously. By withdrawing from INF, Mr. Trump is sending a similar signal with more fortitude to Iran and North Korea.

“Yet the immediate response to Mr. Trump’s decision has been to blame him for daring to acknowledge nuclear reality.  ‘The world doesn’t need a new arms race that would benefit no one and on the contrary would bring even more instability,’ said a statement from the European Commission.  But the instability is caused by Mr. Putin, and a new ‘arms race’ won’t stop simply because the West chooses not to compete.

“At least the Brits showed sterner stuff, with Defense Secretary Gavin Williamson noting that ‘it is Russia that is in breach and it is Russia that needs to get its house in order.’

“Senate Democrats are also criticizing Mr. Trump, though these are the same worthies who have spent two years arguing that the U.S. President is a secret Putin agent.  Once again, Mr. Trump appears to be adopting a tougher policy in response to Russian aggression than Barack Obama ever did.”

Max Boot / Washington Post

“I have been critical of the Trump presidency because I think it has been a calamity for America and the world. But just because President Trump does something doesn’t mean it’s wrong.  Even Trump gets a few things right, and it’s incumbent on his critics to acknowledge it when he does.

“Case in point: Trump’s decision this week to withdraw from the 1987 Intermediate-range Nuclear Forces (INF) Treaty. This was a landmark arms-control agreement between President Ronald Reagan and Soviet leader Mikhail Gorbachev that banned land-based missiles with a range of 310 miles to 3,400 miles.  It led to the destruction of thousands of missiles, lowered tensions in Europe and contributed to the end of the Cold War.

“But that was then. This is now.

“Under Vladimir Putin, Russia has been building an intermediate-range cruise missile, code-named the SSC-8 by NATO, that is in violation of the treaty. This is not a figment of Trump’s imagination, such as the presence of ‘unknown Middle Easterners’ among a caravan of Central American refugees. The Obama administration discovered the Russian violation in 2014, and the United States has been working unsuccessfully ever since to persuade the Russians to come into compliance.

“Meanwhile, China, which is not bound by the INF Treaty, has been rapidly expanding its intermediate-range rocket forces.  It has recently begun deployment of the DF-26 ballistic missile, which has been dubbed both a ‘Guam killer’ and a ‘carrier killer’ because it can effectively target both the U.S. naval and air bases at Guam, and the U.S. aircraft carriers that have been the mainstay of American naval dominance since 1942. The military balance of power is shifting against the United States in the western Pacific, in no small part because of China’s missile buildup.

“Because of the limits still imposed on the United States by the INF Treaty, the United States today can only respond with a relatively small number of intermediate-range Tomahawk cruise missiles carried on vulnerable, costly platforms such as Arleigh Burke-class destroyers (cost $1.8 billion).  ‘Ground-launched systems with an intermediate-range in, for example, Guam, Japan and Northern Australia, would provide planners with a means to augment air and maritime strike platforms with new land component capabilities at a fraction of the cost,’ argues Eric Sayers of the Center for Strategic and International Studies. China would have to devote greater resources to missile defenses rather than power projection, he argues, and would find it harder to cripple the U.S. military by striking a handful of major U.S. bases in Asia.  Land-based missiles could be deployed in many locations, protecting against a Pearl Harbor-like first strike and increasing deterrence.

“There is scant chance that China would join the INF Treaty and voluntarily give up one of its core military advantages.  It might be possible to renegotiate the treaty with Russia to limit its sphere to Europe, or to negotiate a new three-way treaty with Russia and China limiting the number of intermediate-range missiles but not banning them altogether.  But simply staying in the INF Treaty and making futile protests about Russian violations wouldn’t achieve anything. Declaring that the United States is ready to walk away is a good first step toward dealing with the security challenges of today’s world, which are vastly different from those of 1987.  The United States can now develop a new land-based intermediate-range ballistic missile to counter a growing Chinese threat – a successor to the Pershing II missiles destroyed under the INF Treaty – while retrofitting the Tomahawk cruise missile, already ubiquitous at sea, for launchers on land.  Hypersonic weapons might be a promising new technology. So why are so many well-respected foreign-policy experts and American allies aghast at the administration’s decision?  Trump has no one to blame but himself. When it comes to international obligations, he is the boy who cried wolf.  Trump is a unilateralist and nationalist who has never seen an international obligation he liked.  He has walked away from the Trans-Pacific Partnership, the Paris climate accord, the Iran nuclear deal, the UN Human Rights Council, and the UN Relief and Works Agency for Palestine Refugees in the Near East. The administration is even exiting the Universal Postal Union, a convention that has governed international mail delivery since 1874.

“Trump’s worst instincts are reinforced by his national security adviser. John Bolton is a lawyer, not a strategist, and he nurtures an irrational hatred of international law, which he sees as a threat to American sovereignty.  He even devoted his first speech as national security adviser to trashing the International Criminal Court, an obscure and ineffectual boogeyman that has long obsessed him.

“Every one of the administration’s decisions to withdraw from international obligations was a mistake – until now.  But, given its track record, it’s nearly impossible for the administration to convince anyone that it made the INF Treaty decision on the merits alone.

“There is a valuable lesson here for Trump and his aides in the unlikely event that they are prepared to learn from their mistakes: Stop making so many ridiculous, erroneous, offensive arguments.  Otherwise, when you have a good case to make, no one will be listening.”

Brazil: The big election is Sunday, Brazil’s presidential run-off, with far-right Jair Bolsonaro expected to win handily over leftist candidate Fernando Haddad, the last poll I saw showing Bolsonaro with a 57-43 lead.

Haddad has been warning a Bolsonaro victory would threaten democratic institutions and the country’s young democracy.

Belatedly, Facebook shut down 43 accounts associated with a Brazilian marketing group for violating the social media network’s misrepresentation and spam policies.  The newspaper O Estado de S. Paulo said the group (RFA) was the main network of support for Bolsonaro on the internet.

Facebook said RFA created pages using fake accounts or multiple accounts with the same names and posted massive amounts of clickbait intended to direct people to third-party websites. WhatsApp was the messaging service used to send out bulk amounts of misleading information during the campaign.

Random Musings

--Presidential tracking polls....

Gallup: 44% approval of President Trump, 50% disapproval; 91% Republicans, 39% Independents (Oct. 21)
Rasmussen: 48% approve of Trump’s performance, 51% disapprove (Oct. 26)

In a new Wall Street Journal/NBC News poll, President Trump achieved his highest approval rating ever for the survey, 47%, with 49% disapproving of his performance, up from a 44-52 split in September.

On the generic House ballot question, 50% of likely voters said they prefer Democrats to control Congress, while 41% prefer Republicans, in keeping with most other national surveys on this question the past few weeks.

But...nearly two-thirds of registered voters showed a high level of interest in the election – the highest ever recorded in a midterm election since the WSJ/NBC poll began asking the question in 2006, and, 68% of Republican voters and 72% of Democrats say they are very interested – the highest recorded for either party in a midterm for this survey.

The narrower spread between Republican and Democrat enthusiasm than the 9-point generic ballot question should bode well for Republicans.

For the second month in a row, women in the survey said they prefer a Democratic-controlled Congress by 25 points, 57% favoring Democrats, 32% favoring Republicans.  Male voters want Republicans to lead Congress by a 14-point margin, 52% favoring Republicans and 38% Democrats.

Separately, 80% said the U.S. today was a divided country, and 90% said the political divisions between Republicans and Democrats are a problem.

--Sen. Ben Sasse (Neb.) / Washington Post

“Flash forward two years and consider these hypotheticals.  You’re seated at your desk, having taken your second sip of coffee and just beginning to contemplate the breakfast sandwich steaming in the bag in front of you.  You click on your favorite news site, one you trust.  ‘Unearthed Video Shows President Conspiring with Putin.’  You can’t resist.

“The video, in ultrahigh definition, shows then-presidential candidate Donald Trump and Vladimir Putin examining an electoral map of the United States. They are nodding and laughing as they appear to discuss efforts to swing the election to Trump.  Jared Kushner and Ivanka Trump smile wanly in the background.  The report notes that Trump’s movements on the day in question are difficult to pin down.

“Alternate scenario: Same day, same coffee and sandwich. This time, the headline reports the discovery of an audio recording of Democratic presidential candidate Hillary Clinton and Attorney General Loretta E. Lynch brainstorming about how to derail the FBI investigation of Clinton’s use of a private server to handle classified emails. The recording’s date is unclear, but its quality is perfect; Clinton and Lynch can be heard discussing the attorney general’s airport tarmac meeting with former president Bill Clinton in Phoenix on June 27, 2016.

“The recordings in these hypothetical  scenarios are fake – but who are you going to believe? Who will your neighbors believe? The government?  A news outlet you distrust?

“If you thought the fight over Brett M. Kavanaugh’s Supreme Court confirmation couldn’t have been more horrible, buckle your seat belts.  Imagine how the public divisions would have deepened had there been fake-but-plausible video of an undergraduate Kavanaugh partying hard at Yale, or fake-but-plausible audio of Senate Democratic Leader Charles E. Schumer (N.Y.) huddling on strategy calls with lawyers for Kavanaugh’s accusers.

“Deepfakes – seemingly authentic video or audio recordings that can spread like wildfire online – are likely to send American politics into a tailspin, and Washington isn’t paying nearly enough attention to the very real danger that’s right around the corner.

“Consider: In December 2017, an amateur coder named ‘DeepFakes’ was altering porn videos by digitally substituting the faces of female celebrities for the porn stars’.  Not much of a hobby, but it was effective enough to prompt news coverage. Since then, the technology has improved and is readily available. The word deepfake has become a generic noun for the use of machine-learning algorithms and facial-mapping technology to digitally manipulating people’s voices, bodies and faces.   And the technology is increasingly so realistic that the deepfakes are almost impossible to detect.

“Creepy, right?  Now imagine what will happen when America’s enemies use this technology for less sleazy but more strategically sinister purposes.

“I spoke recently with one of the most senior U.S. intelligence officials, who told me that many leaders in his community think we’re on the verge of a deepfakes ‘perfect storm.’ The storm has three critical ingredients: First, this new technology is staggering in its disruptive potential yet relatively simple and cheap to produce. Second, our enemies are eager to undermine us. With the collapse of the Russian economy, Putin is trying to maintain unity at home by finding a common enemy abroad.  He has little to lose and lots to gain – it’s far easier to weaken U.S. domestic support for NATO than to actually fight NATO head-on.  Russia hasn’t mastered these information operations yet, but China is running scout-team offense behind every play. China will eventually be incredibly good at this, and we are not ready.

“The United States isn’t ready largely because of this perfect storm’s third ingredient: We are so domestically divided right now, about who we are and what we hold in common, that malevolent foreign actors can pick at dozens of scabs as they seek to weaken us. In many of the current domestic flash points – over guns and geography, race and gender, religion and institutions – the nation’s cultural, political and even economic leaders often seem more interested in fomenting discord than in rallying us around a shared battle plan....

“The U.S. military and intelligence communities are not yet where they need to be to fight the wicked hybrid and technologically enabled ‘gray space’ war. The government itself must be modernized for the digital age in a host of ways....

“Rising political tribalism, shamelessly exaggerating our opponents’ claims or behavior, is leaving us vulnerable: No one loves America’s internal fighting – and our  increasingly siloed news consumption – more than Vladimir Putin.

“One of the most important ways to combat the gathering storm is to be aware that it’s coming – to become more mindful of the ways that confirmation bias and narrower networks distort our view of reality.  Another step: Vow to give your perceived political antagonists the benefit of the doubt.  Some of the United States’ enemies now assume, perhaps rightly, that we hate each other so much that we’d sooner collaborate with them than do the difficult work of listening to each other.

“It doesn’t need to be this way – but national recovery won’t come from Washington. It has to start with you.”

--I was reading a Los Angeles Times piece on overtime for firemen in Los Angeles County, as the department grapples with staffing shortages and seasons of extreme wildfires, and more than 640 workers received at least $100,000 in overtime in the 2017 calendar year.  This is versus 28 such employees in the L.A. County Sheriff’s Department, which has twice the number of workers.

Yes, from a budget standpoint this is insane.  But the county has an around-the-clock staffing model, even in neighborhoods that don’t have constant overnight calls.

--Super Typhoon Yutu wreaked havoc on the Northern Marianas islands, specifically Tinian and Saipan, and with sustained winds of 178 mph as its eye passed directly over Tinian, Yutu became the strongest storm on record to ever hit U.S. soil and tied for the most powerful storm on earth in 2018, according to the National Oceanic and Atmospheric Administration.

Tinian was devastated...infrastructure severely compromised, according to the mayor.  The mayor also said the power plant had been damaged and the “distribution system is completely destroyed.”

President Trump issued an emergency disaster declaration on Wednesday for the two islands, with Saipan also receiving severe damage.

Years ago, on my first trip to the Micronesian island of Yap, with Guam as my base, I took a day trip to Saipan.  I was heavily involved with the Jesuits who oversaw the region at that time, which is how I ended up building a church on Yap, but I wanted to see Saipan, site of a major battle near the end of World War II, as the United States and the Allies prepared for a potential invasion of Japan, that then didn’t become necessary.

Father Gary (who would drop dead serving Mass a year later) picked me up at the airport, took me to his church, where we celebrated Mass with his parishioners, and then after, I had the awesome opportunity of talking to the local women, then in their  late 50s and early 60s, who as young girls had survived the U.S. invasion of their island, as the Japanese retreated up the mountain, chased by the Marines, the locals hiding in caves in the middle.

I then went to Suicide Cliff, where many of the Japanese soldiers committed suicide by throwing themselves over it, rather than be taken by the ‘enemy.’

But it was also around the time of my trip that a video from long ago had emerged, a very controversial one that showed some of the Japanese jumping off with women and children (against their will).

Anyway, I toured the entire island with Father Gary, saw a Nike sweatshop (ugh...talk about oppressive conditions), as Father told me of the awful drug problem on Saipan that he had to deal with.  That was over 20 years ago. I can’t imagine what it is like there today, pre-Yutu, and now this.

As for Tinian, that is where the Enola Gay took off from, after that island was secured, following the battle for Saipan.

Say a prayer for the people of both islands.

[Saipan and Tinian are part of the U.S. Commonwealth of the Northern Mariana Islands.  Saipan, because of its beautiful beaches and resorts, was/is a big spot for day-trippers from Japan, who would fly in on endless 747s, at least when I was there.  When I was at the airport, I marveled at all these kids taking an hours-long flight to spend about four hours on the beach and then fly home.]

--In PBS’ “The Great American Read” survey, No. 1 was “To Kill a Mockingbird,” the coming-of-age story about racism and injustice hopefully every American schoolchild is still required to read, though I know some districts have banned it, because adults can be idiots.

The other top-five finishers in order of votes were Diana Gabaldon’s “Outlander” series about a time-spanning love; J.K. Rowling’s “Harry Potter”; Jane Austen’s romance “Pride and Prejudice”; and J.R.R. Tolkien’s “The Lord of the Rings” saga.

---

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

God  bless America.

---

Gold $1235
Oil $67.62

Returns for the week 10/22-10/26

Dow Jones  -3.0%  [24688]
S&P 500  -3.9%  [2658]
S&P MidCap  -4.1%
Russell 2000  -3.8%
Nasdaq  -3.8%  [7167]

Returns for the period 1/1/18-10/26/18

Dow Jones  -0.1%
S&P 500  -0.6%
S&P MidCap  -5.6%
Russell 2000  -3.4%
Nasdaq  +3.8%

Bulls 50.5
Bears 19.0

Have a great week.

Brian Trumbore



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-10/27/2018-      
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Week in Review

10/27/2018

For the week 10/22-10/26

[Posted 11:45 PM ET]

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

Edition 1,020

Trump World

Eleven days to go until the midterms.  I already mailed in my ballot and am voting for my Republican congressman, Leonard Lance.  [I’ll tell you about my Senate vote next week.]

But it will be a long eleven days, sports fans.  I’m trying like heck to leave this review’s opening on the ‘light’ side.  It was another stressful week for the country.  Nerves frayed.  The country ripped further apart.  Financial markets, across the globe, struggling mightily as well for different reasons.

Until the pipe bomb story hit and enveloped us, however, I was prepared to open on how the week had started out, including last weekend, with President Trump’s non-stop lying reaching critical mass.

Like with the amazing expansion of the Saudi Jobs Act (I’m being facetious)...from a figure of 40,000 that Trump touted in his meeting with Saudi Crown Prince Mohammed bin Salman at the White House last March, based on $19.4 billion in deals the president said he was creating in agreements with MBS (even though most of the programs had been negotiated by President Obama), to within the span of six days, Oct. 13-19, the growth of the Jobs Act from 40,000 to 500,000, to 600,000, to “over a million jobs,” said Trump.

Oh, and as I pointed out last time, the “$110 billion” Trump has now said he negotiated with the Saudis for the procurement of U.S. arms, is more like $14 billion thus far, and that’s stretching it.

Prior to the pipe bombs, I was going to talk about how Trump can’t even tell the truth on the Opioid bill that was recently passed by a 98-1 vote in the Senate; Trump now claiming there was “no Democrat support.”

Or Trump’s claim at a rally that President Xi Jinping is “a wonderful and great leader.”

Or that he is bringing in “$100 billion a year” from NATO.

No, I can’t open this week’s column with the above.  Wouldn’t be prudent, as Bush 41 would have said (or was it Dana Carvey?).

Instead, I need to remark how once again I marvel at the stupidity of some of the American people, who fail to heed my dictum of ‘wait 24 hours’ when it comes to situations like the pipe bomb case.

I didn’t tweet about it, or post an inane comment on Facebook (or even go on Facebook for that matter, save to post a few of my other columns).  At times like these I honestly couldn’t care less what others believe.

Recall, I was the guy who did not relay a single fake news / conspiracy item from the 2016 election.  I received all kinds of stories over the transom, people asking me for my opinion on whether something was true or not, or urging me to post it to my readership, and it was pretty simple.  I didn’t reply to one of those notes.

And so as tensions soared this week between Trump’s base and the Left, thankfully, because no one was hurt by the devices, I was frankly mildly amused.

I just waited for the real experts, U.S. law enforcement, to break the case. 

Oh, I watched all “the shows,” as I have to do every night...Fox and CNN...Hannity’s opening (and his endless repetition of the same videos over and over and over...) and Chris Cuomo and sometimes Don Lemon.  I get both sides.  I watch NBC Nightly News for their spin. 

Tonight, Hannity talked of how the Left, including the media, has “waged war (from day one) to delegitimize this president,” and I could only shake my head, since Hannity never, ever, talks about Trump’s incessant lies, on very important topics, that it is the duty of the press, and, yes, yours truly, to expose and call Trump out on.

Last night, it was Don Lemon who made some outrageous claims against the Right, pertaining to the pipe bomb case, and the history of bombers like Timothy McVeigh, when there were simply no facts for any of us to fall back on in this instance.

Wolf Blitzer all week was going, “this is a critical moment.”  Well, yeah, Wolf, but we have no facts!

So now we do...a few of them as I go to post...more to follow in the days ahead, and just like a Civil War set piece, the Right and Left will resume their positions, waiting for the order to ‘Fire!’ [For Civil War buffs, I’m thinking Spotsylvania and ‘Bloody Angle,’ full trees reduced to twigs by the time the action ended.]

Today, a 56-year-old man, Cesar Sayoc, was arrested in Florida and charged with sending 14 packages containing improvised explosive devices to high-profile figures across the country.

The arrest came on the same day law enforcement found four more devices – in Florida, New York and California – capping off an increasingly tense five-day stretch in which at least one explosive device was found each day.  None of them detonated.  All of them were sent to people who have criticized or clashed with President Trump, and there yet may be more devices out there; Sayoc, who has an extensive criminal record, having lawyered up.

FBI Director Christopher Wray said the explosives “are not hoax devices,” describing them as IEDs, an abbreviation for improvised explosive devices that have claimed a large portion of the about 7,000 American lives lost in Iraq and Afghanistan since 9/11.

According to the criminal complaint filed by federal prosecutors in the Southern District of New York, inside three of the packages sent to three potential targets, former President Obama, former CIA director John Brennan and Rep. Maxine Waters, was a picture of each person with red “X” marks.

An hour before the announcement that the FBI had made an arrest, President Trump tweeted:

“Republicans are doing so well in early voting, and at the polls, and now this ‘Bomb’ stuff happens and the momentum greatly slows – news not talking politics. Very unfortunate, what is going on.  Republicans, go out and vote!”

Later, as he was headed to a campaign rally in Charlotte tonight, he said he could actually “tone it up” when it comes to the rhetoric.

At the rally itself, the president accused the media:

“We have seen an effort by the media in recent hours to use the sinister actions of one individual to score political points against me and the Republican Party.”

Wednesday, at a rally in Wisconsin, having earlier in the day at the White House said, “We have to unify,” the president called on journalists “to set a civil tone” and to “stop the endless hostility and constant negative and often false attacks and stories.”

Then he directed the crowd’s attention to his bipartisan efforts: “By the way, do you see how nice I’m behaving tonight?” he asked.  “Have you ever seen this? We’re all behaving very well!”

Trumpets....

--The caravan of Central Americans heading toward the United States is more than 1,000 miles from the border, but the political potency of their journey is center stage for the midterm elections, President Trump is hoping the images will energize GOP voters in battleground states and potentially tip the balance in the fight for the House.

“As we speak, the Democrat Party is openly encouraging caravan after caravan of illegal aliens to violate our laws and break into our country,” Trump said at the aforementioned rally Wednesday in Wisconsin, echoing a line he has repeated for a week.

“The crisis on the border – and it is a crisis, it’s crazy – right now is the sole result of Democrat laws and activist Democrat judges that do whatever they want,” he added.

Trump sees a political windfall.

So then on Thursday the president said he was “bringing out the military” to protect the border against the caravan, a potential deployment of as many as 1,000 additional troops to assist in security operations at the southern border in anticipation of the caravan’s arrival.

An executive order under consideration would suspend the provision allowing foreign nationals fleeing persecution to apply for asylum once they reach American soil.

“I am bringing out the military for this National Emergency. They will be stopped!” Trump tweeted.

Other Trump tweets on the topic:

“Every time you see a Caravan, or people illegally coming, or attempting to come, into our Country illegally, think of and blame the Democrats for not giving us the votes to change our pathetic Immigration Laws! Remember the Midterms!  So unfair to those who come in legally.

“Guatemala, Honduras and El Salvador were not able to do the job of stopping people from leaving their country and coming illegally to the U.S. We will now begin cutting off, or substantially reducing, the massive foreign aid routinely given to them.”

--The president was working his little fingers to the bone all week...more tweets....

“Twitter has removed many people from my account and, more importantly, they have seemingly done something that makes it much harder to join – they have stifled growth to a point where it is obvious to all.  A few weeks ago it was a Rocket Ship, now it is a Blimp! Total Bias!”

“The United States has been spending Billions of Dollars a year on Illegal Immigration. This will not continue. Democrats must give us the votes to pass strong (but fair) laws. If not, we will be forced to play a much tougher hand.”

“Funny how lowly rated CNN, and others, can criticize me at will, even blaming me for the current spate of Bombs and ridiculously comparing this to September 11th and the Oklahoma City bombings, yet when I criticize them they go wild and scream, ‘it’s just not Presidential!’”

“The New York Times has a new Fake Story that now the Russians and Chinese (glad they finally added China) are listening to all of my calls on cellphones.  Except that I rarely use a cellphone, & when I do it’s government authorized.  I like Hard Lines.  Just more made up Fake News!”

“A very big part of the Anger we see today in our society is caused by the purposely false and inaccurate reporting of the Mainstream Media that I refer to as Fake News.  It has gotten so bad and hateful that it is beyond description.  Mainstream Media must clean up its act, FAST!”

“The Fake News Media has been talking about recent approval ratings of me by countries around the world, including the European Union, as being very low...

“...I say of course they’re low – because for the first time in 50 years I am making them pay a big price for doing business with America. Why should they like me? – But I still like them!”

Lastly...

“All levels of government and Law Enforcement are watching carefully for VOTER FRAUD, including during EARLY VOTING.  Cheat at your own peril. Violators will be subject to maximum penalties, both civil and criminal!”

Don’t waste your time...as many a Republican state attorney general found when the president first told them to look at 2016 election results for fraud.

--Newt Gingrich is relying on Supreme Court Justice Brett Kavanaugh to quash any investigation into President Trump’s finances.

Gingrich was asked Thursday about what would happen if the Democrats subpoena Trump’s tax returns if they take over the House after the midterms.

“Then they’ll be trapped into appealing to the Supreme Court, and we’ll see whether or not the Kavanaugh fight was worth it,” Gingrich said during a live interview hosted by the Washington Post.

--Michael Gerson / Washington Post

“The most fundamental moral principle in the universe may well be: ‘You break it, you buy it.’  But a close second is: You can’t call women cruel and misogynist names, defame ethnic groups, discriminate based on religion, accuse opponents of being ‘un-American’ and ‘treasonous,’ excuse and encourage violence by your supporters, threaten political rivals with prison, tear migrant children from the arms of parents and then credibly call for national ‘unity’ when it is politically useful.

“This is the horrible reality of our political moment. The president of the United States says something entirely presidential – ‘We want all sides to come together in peace and harmony’ – and it did nothing more than add another layer to his lies.  More specifically, President Trump wants Americans to join him in a fake reality – to prove their loyalty by taking outlandish hypocrisy at face value.  It is like the sophomoric entrance ritual to some secret society. Eat this cow eye and pig intestine, and we will be bound forever by our willingness to do asinine things on command.  Trump’s call for national unity is the functional equivalent of an offal banquet.

“It would be different if Trump had accompanied his words of reconciliation with any sense of remorse. But this is a difficult thing for a narcissist to fake (though some have that talent).  I come from a religious tradition where anything can be forgiven – but only if repentance involves demonstrated sincerity.  Trump could not maintain his ruse of reconciliation for 15 seconds. He used his call for unity to blame the news media for hostility and negativity. This is like a leper blaming the mirror for his sores.

“Here is the reason that Trump’s deception is so destructive: He is asking for voters to ignore consistency, rationality and morality in the midst of a midterm campaign that he has infected with bigotry.  Having started his presidential campaign with the false charge that Mexico was sending ‘rapists’ to America, Trump is returning to a similar theme in the last days before the midterm election. A migrant caravan headed for the southern border – in Trump’s depiction, and against all evidence – is infiltrated by ‘unknown Middle Easterners’ and may be organized by Democrats.  Democratic policies, according to Trump, would invite the MS-13 gang members and terrorists into the country on competing murder sprees. And Californians are so enraged by sanctuary cities that there are riots in the streets.

“All this is an elaborate deception designed to incite those who are already inclined to believe it. Trump’s electoral strategy is damaging to the country, because the systematic organization of racial and ethnic hatreds is damaging to the country. This approach is damaging because it invites partisans to live in a dream world of ideology and conspiracy that is immune to evidence, immune to persuasion, immune to reason. And it is damaging because it provides permission for copycat prejudice....

“We have a president who summons the darkness.  It is sad and sick that so many have responded. And it would be nice if more Democrats began appealing to our better angels, in addition to talking about health-care policy.

“But the promise of equality and solidarity has a power of its own, and it has defeated far more impressive enemies.”

Wall Street               

After a steep drop on Wednesday, stocks had erased all their gains for the year, when measured by the Dow Jones Industrial Average and the S&P 500, the Dow down 2.4%, the S&P 3.1% and Nasdaq 4.4% Wednesday alone, before recouping a small portion of the losses Thursday and Friday (Dow up 401 points yesterday, down 296 today).

President Trump has loved to extoll the rising stock market since his election so I’ll just give you some benchmarks.

On Nov. 8, 2016, Election Day, the major averages closed at the following:

Dow Jones 18332
S&P 2139
Nasdaq 5193

[The yield on the 10-year Treasury, by the way, was 1.78%.]

So as of today’s close, the Dow is +34.7% since the election, the S&P +24.3%, and Nasdaq +38.0%.

But, this year, the Dow is now -0.1%, the S&P -0.6% and Nasdaq is +3.8%.

As strongly as the economy seems to be growing, a first look at third-quarter GDP today showed a pace of 3.5%, after the second quarter’s 4.2% rate (as reported by the Bureau of Economic Analysis), the recent problems on Wall Street are many fold.

The global economy is fragile, with growth slowing virtually across the board; in the U.S., corporate sales growth, while still high, is at its lowest rate in four quarter; there are broad signs of price pressures (see tariffs); I’ve argued that the corporate tax cut was front-end loaded in terms of the 100% write-off for capital expenditures, as in, will there be final demand for all the investment; and we started out with a market priced for perfection.

Back to the GDP report, consumption (consumer spending) was strong at a 4% annualized rate, fastest in four years, but capital (business) spending rose only 0.8% in the third, after jumping 8.7% annualized in the second quarter, and that’s worrisome.

We had a record monthly trade deficit for September as well, $76 billion, as imports surged, owing to companies trying to get ahead of the latest tariffs on Chinese goods.

Prior to the GDP report, September new home sales were released, down 5.5% and way below expectations, down a fourth month in a row as the housing sector, no doubt beset by rising mortgage rates, continues to struggle.

September durable goods came in a little better than forecast.

One item of note pertaining to the makeup of GDP these days.  As the Wall Street Journal reported: “A stark pickup in government spending, particularly in defense, has helped fuel a broad acceleration in U.S. economic growth in the past year and a half, according to a Wall Street Journal analysis of Commerce Department data.”

Defense shifted from contracting at a 2.1% annual rate between June 2009 and March 2017, to growing at a 2.9% rate since April 2017. The turnaround added 0.21 percentage points on average to the nation’s overall economic growth rate. But a slowdown in home building has subtracted about 0.2 percentage points.

Anyway, President Trump, no doubt disappointed in the equity markets’ performance heading into the midterms, is looking for a scapegoat and it’s the Federal Reserve.

In an interview with the Wall Street Journal, Trump acknowledged the independence the Fed has long enjoyed in setting economic policy, while also making clear he was intentionally sending a direct message to Chairman Jerome Powell that he wanted lower interest rates.

“Every time we do something great, he raises the interest rates,” Trump said, adding that Mr. Powell “almost looks like he’s happy raising interest rates.”

Trump added it was “too early to say, but maybe” he regretted nominating Powell.

The Fed has raised their benchmark funds rate three times this year, and is preparing to do it again in December, with three more hikes currently forecast for 2019.  Powell has been transparent in saying the Fed wants to raise rates at least to a so-called neutral level that seeks to neither spur nor slow economic growth.

In the Journal interview, Trump repeatedly described  the economy in personal terms, referring to gains during his time in office as “my numbers,” saying, “I have a hot economy going.”

Asked an open-ended question about what he viewed as the biggest risks to the economy, Mr. Trump gave a single answer: the Fed.

“To me the Fed is the biggest risk, because I think interest rates are being raised too quickly.”

And Trump is fixated on the fact that “Obama had zero interest.”  As in, “How the hell do you compete with that?”

Editorial / Wall Street Journal

“Donald J. Trump is a real estate man, so naturally he prefers low interest rates. But he’s also President, and publicly mau-mauing the Federal Reserve to keep rates low as he has been doing will lead to the opposite of what he wants. This is Fed Politics 101.

“ ‘Every time we do something great, he raises the interest rates,’ Mr. Trump said Tuesday in an interview with our Journal colleagues, referring to Fed Chairman Jay Powell.  “He was supposed to be a low-interest-rate guy. It’s turned out that he’s not.”

“Now, who would say such a thing about Mr. Powell?  None other than Mr. Trump’s Treasury Secretary, Steven Mnuchin, who supervised the Fed Chairman’s selection in 2017.  As we reported at the time, Mr. Mnuchin told Mr. Trump to select Mr. Powell in substantial part because he could be more easily influenced than other candidates. Mr. Trump could have taken other advice.

“The truth is that no Fed Chairman can afford to be seen by markets to be taking interest-rate dictation from the White House, and when they do it typically ends in tears.  See Arthur Burns under Richard Nixon and G. William Miller under Jimmy Carter. Alan Greenspan and Ben Bernanke were also too cozy politically with administrations in power, but that influence was mostly behind the scenes.

“Poor Mr. Powell has the harrowing task of managing the transition from the largest experiment in monetary-policy history.  Mr. Bernanke and later Janet Yellen enjoyed the ride down to near-zero short-term rates and unprecedented bond-buying to keep long-term rates artificially low. The policy pushed investors into riskier assets such as stocks even though it didn’t do much for a real economy that grew slowly during the Obama Administration.

“Growth and animal spirits have revived with Mr. Trump’s policy mix of tax reform and deregulation.  Now Mr. Powell has to manage the more treacherous monetary road back to normalcy, and Mr. Trump’s public battering won’t make the Chairman’s job any easier.  The Fed has signaled it will raise short-term rates again in December, the fourth time this year.  Mr. Powell won’t want to look like he’s backing down under political pressure – even if economic events suggest he should.

“A better criticism of the Fed would be that it should have unwound its massive bond portfolio first and faster than it has. That would have loosened the Fed’s control over the long-term bond market, encouraging an earlier adjustment out of risk assets before the Fed also began raising rates.

“Now the Fed is doing both at the same time, with more risk for asset prices and greater political risk for the Fed.  See Wednesday’s rout in equity prices that are now near the formal correction territory of a 10% decline in recent weeks....

“Fed politics aside, the substantive question is whether Mr. Trump is right that the central bank is too tight. We’ve thought not to this point, as short-term rates are still at or below the rate of inflation.  Rates should rise from their historic lows in an economy that is growing by nearly 4%.

“Yet there are some signs of slower growth, in particular in housing....

“The bigger economic risk is slower growth abroad, which Mr. Trump should care about though he professes not to.  Faster U.S. growth and rising interest rates are drawing capital from other markets. Mr. Trump’s tariffs are also hurting trade flows and causing companies to delay some investment. Border taxes are never a free lunch, no matter what White House adviser Peter Navarro tells Mr. Trump.

“White House economics chief Larry Kudlow says Mr. Trump is merely offering his opinion on the Fed, not issuing an order to Mr. Powell.  No doubt the President is also deflecting blame from the White House for any economic slowdown.  Mr. Trump needs a foil more than even most politicians.  All of which is good reason for the Fed to ignore the President and focus on getting its policy right – whether or not that means raising rates in December.”

One note on the trade front, the aforementioned Larry Kudlow said China had offered no sign that it was willing to meet U.S. demands in a way that could lead to a breakthrough between the countries.

Presidents Trump and Xi are slated to meet on the sidelines of the G20 end of November in Buenos Aires, but nothing will come of this...wrote the editor, as of today.

The U.S. is still expected to press ahead with plans to ramp up the tariff rate on $200bn of Chinese imports from 10 percent to 25 percent come January, raising the stakes further for both sides.

Europe and Asia

The European Central Bank warned of “financial uneasiness in markets” should negotiations over the UK’s exit from the European Union fail to reach a solution.

ECB president Mario Draghi made the comments at a news conference announcing that the  central bank was keeping its key interest rates unchanged.  In responding to a question over the central bank’s planning regarding Brexit, Draghi said:

“We are not party to the negotiations (between the UK and the European Union), so everything will depend on what is the final outcome.  We are monitoring and working together with the Bank of England to identify potential risks of a sudden, hard Brexit event.”

But Draghi added, “by and large I’m still confident that a good, common-sense solution will be found where financial stability risks will be minimized.”

Then he warned about another possibility: “If this lack of solution will continue and we approach the end date, the private sector itself will have to prepare on the assumption that there will be a hard Brexit.  And that’s where things may be – I wouldn’t call it necessarily a big financial stability risk – but certainly uneasiness...so financial uneasiness in markets and intermediaries and (central counterparties) and member banks and so on,” he said.

More on Brexit in a bit, but, separately, the ECB said it would also keep net purchases under its asset purchase program at 15bn euro ($17.3 billion) per month until the end of the year.

We had some key eurozone economic data this week, IHS Markit’s flash readings on the euro area (EA19) for October.  The EA19 composite PMI was 52.7 for October vs. 54.1 in September (50 being the dividing line between growth and contraction), a 25-month low.  The manufacturing reading was 52.1 vs. 53.2, a 26-mo. low, and services were 53.3 vs. 54.7, a 24-mo. low.

The flash readings also give figures for France and Germany.

France: Manufacturing 51.2 October vs. 52.5 in September, 25-mo. low; services 55.6 vs. 54.8.

Germany: Manufacturing 52.3 vs. 53.7, 29-mo. low; services 53.6 vs. 55.9.

Eurostat also released the government debt figures for the second quarter, 86.8% of GDP for the eurozone as a whole, down from 91.8% in 2014.

Germany 63.9% (74.5% 2014); Sweden 40.9%; Netherlands 57.0%; France 98.5%; Spain 98.1%; Italy 131.2%; Greece 176.1%.  [UK 87.4%]

Chris Williamson / IHS Markit

“The pace of Eurozone economic growth slipped markedly lower in October, with the PMI setting the scene for a disappointing end to the year. The survey is indicative of GDP growth waning to 0.3% in the fourth quarter, and forward-looking indicators, such as measures of future expectations and new business inflows, suggest further momentum could be lost in coming months.

“The slowdown is being led by a drop in exports, linked in turn by many survey respondents to trade wars and tariffs, which appears to have darkened the global economic environment and led to increased risk aversion.  It is therefore not surprising to see the slowdown broadening out across the economy, hitting the service sector.

“The survey will make for uncomfortable reading at the ECB. Although the survey’s price gauges remain elevated and close to seven-year highs, the headline PMI has fallen to a level that would historically be consistent with a bias towards loosening monetary policy in order to prevent any further deterioration of economic growth.”

Eurobits....

Brexit: The can keeps getting kicked down the road and now we’re told the absolute deadline for reaching an agreement on Britain’s exit from the European Union is an EU summit in December.  As of now, there are zero plans for a special summit in November.

Prime Minister Theresa May has said she is prepared to “explore every possible option” to break the deadlock in talks. She told MPs this week that 95% of the terms of exit were agreed to but the Irish border was still a “considerable sticking point.”

Mrs. May said it was “undesirable” to extend the UK’s transition period beyond 2020, but it was on the table, though it would have to end “well before” May 2022.

The European Parliament’s Brexit coordinator Guy Verhofstadt has said the withdrawal agreement was 90% complete.

Opposition Labour Party leader Jeremy Corbyn said the Tories were “terminally incompetent and hamstrung by their own divisions.”

The prime minister continues to face fierce opposition from within her party, with International Trade Secretary Liam Fox telling the BBC that speculation about the Conservative leadership was “unhelpful” and some of the language used about Mrs. May was “dreadful.”

Fox said Tory MPs “need to give her the space to finish the negotiation,” adding “it is very difficult to negotiate with the European Union when you also have to negotiate with your own colleagues.”

But both Tory Brexiteers and Remainers worry that an extension of the transition period would further delay the moment of the UK’s proper departure from the EU, and potentially cost billions in terms of extra payments to the bloc.

Mrs. May has told MPs that protecting the UK’s integrity was too important not to explore “every possible solution” to keeping the Irish border open and ensuring no new barriers between Northern Ireland and the rest of the UK.

EU chief Brexit negotiator Michel Barnier stood firm this week on the need for checks on goods shipped from mainland Britain to Northern Ireland after Brexit, but insisted this would not amount to a new border.

Britain says the EU’s backstop proposal of keeping Northern Ireland in its customs union is unacceptable as it would create a border in the Irish Sea.  It favors a backstop in which the whole of Britain would stay inside the customs union but says it must be time-limited or have a clear exit mechanism.

The prime minister is rejecting calls for another referendum, even as an estimated 500,000 anti-Brexit campaigners gathered in London last weekend, calling for a fresh vote.

Italy: The rating on Italy’s debt was slashed late last Friday by Moody’s Investors Service to one level above junk in a reaction to the Italian government’s decision to accept higher budget deficits in coming years.

Moody’s highlighted the fact that higher deficits would keep Italy’s debt at its current high levels of 130 percent of the overall economy.

So on Monday, Italy said it still plans for a sharp increase in public spending, but that this would not threaten the EU’s financial stability, in its formal response to Brussels’ strong criticism of its initial budget proposal.

Then Tuesday, the European Union took the unprecedented step of rejecting Italy’s draft budget as incompatible with the bloc’s rules on fiscal discipline.

Following a meeting of the European Commission – the EU’s executive arm – Commission Vice President Valdis Dombrovskis said the Italian government was “openly and consciously going against commitments made” to drive down the country’s debt and deficit levels.

The government – a coalition of the antiestablishment 5 Star Movement and the nationalist League – vowed after Dombrovskis’ rejection to press ahead with its plans to cut taxes and expand welfare and pension entitlements, insisting the nation’s economy needs a fiscal boost.

So now Italy has three weeks to submit a revised budget and the Commission then has three weeks to respond.  Thus we’re looking at things coming to a head in December.  The key with this date is that the European Central Bank, as planned, will be ceasing its bond purchases by the end of the year, which have been vital in moderating Italy’s borrowing costs.

If Italy gives the EU the middle finger and refuses to adopt a compliant budget, the EU, under its rules, can levy large fines and freeze some funding.

In recent opinion polls, over 60% of Italy’s electorate support the League or 5 Star, with a similar share supporting the draft budget.

The yield on the Italian 10-year bond finished the week at 3.44%, vs. just 0.35% for the German bund, a massive spread.

Meanwhile, today, Italy was hit by a nationwide transit strike as public transport workers walked off for 24 hours calling for better work conditions.  Saturday, a nonpolitical sit-in at Rome’s city hall is scheduled to protest against the poor state of the Italian capital, including uncollected rubbish on the city’s transport system, as well as potholed streets.

Germany: Chancellor Angela Merkel has offered her government’s support to the construction of a liquefied natural gas shipping terminal in northern Germany, a key concession to President Trump* as he tries to loosen Russia’s grip on Europe’s largest energy market.

The project had failed to get off the ground as Germany was content to get most of its gas cheaply from Russia.

The complex process of converting the LNG back into gas once it reaches the terminal makes the gas around 20% more expensive than Russian gas.  Merkel has told lawmakers an LNG terminal wouldn’t break even for at least a decade and would require long-term government support.

Currently, Russia accounts for over 50% of German gas imports, with the rest primarily from Norway and the Netherlands, according to a world energy review put out by BP.

Separately, there is another big state election in Germany, in Hesse, Sunday.  A further erosion in support for Merkel’s party would prove most troublesome.

*President Trump picked up another win (seeing as he claims credit for everything positive) as Belgium said on Thursday it had chosen Lockheed Martin’s F-35 stealth jets over the Eurofighter Typhoon to replace its ageing F-16s in a $4.55 bilion deal, saying the decision came down to price.

After months of deliberation, the decision to buy 34 of the planes was announced at a government news conference. Belgium joins a list of other European NATO allies, including Britain, the Netherlands, Italy and Turkey, to take the American-made plane, which is also set to be the U.S. military’s main fighter aircraft for decades to come.

The decision is a blow to Britain, Germany, Italy and Spain, who are behind the Eurofighter program, and also means the rejection of France’s Rafale fighter built by Dassault Aviation.  However, Britain’s BAE Systems is a partner on the F-35.

Turning to Asia, China’s stock market stabilized after a crazy start to the week, with the Shanghai Composite up 4.1% Monday, down 2.7% Tuesday, but up 1.9% for the week.

China’s currency weakened to its lowest level in a decade on Friday, against a backdrop of mounting geopolitical tension and uncertainty over the country’s trade impasses with the U.S.

A reading on new home prices in the country for September showed an increase of 0.9% from a month earlier in the 70-major city index.  Versus a year ago, new home prices climbed 7.9 percent.

Prices continue to rise despite tougher curbs designed to rein in a near-three real estate boom that has spilled over from megacities to the hinterland.

According to the National Bureau of Statistics, prices rose in 64 of the 70 cities surveyed.

Japan’s Nikkei index fell a fourth consecutive week.  But its flash manufacturing PMI for October came in at 53.1% vs. 52.5%.

Street Bytes

--On the week, the Dow lost 3.0%, the S&P 3.9% and Nasdaq 3.8%.

The Dow is now 7.7% off its all-time high, the S&P is down 9.3% from its record, and Nasdaq has fallen 11.6%, a true correction.

In Thursday’s after-hours trading, Amazon and Google, on the heels of their tepid earnings reports, vs. expectations, lost a collective $100bn in market cap, with Amazon losing as much as 9 percent and Google, 5 percent.  More on them below.

--U.S. Treasury Yields

6-mo. 2.46%  2-yr. 2.81%  10-yr. 3.08%  30-yr. 3.31%

--Oil finished down on the week, though as in the case of equities, price action was volatile, with the Energy Information Administration reporting that U.S. crude-oil inventories rose another 6.3 million barrels to 423 million, which is the highest total in more than four months. But while bearish for oil, the data also showed inventories of gasoline and distillates fell by a combined 7.1 million barrels, while motor gasoline supplied to the U.S. market, a proxy for demand, jumped 141,000 barrels a day to 9.3 million barrels a day...so that is bullish.

Oil slid Friday on word the Saudis were talking about a global market that is oversupplied. 

That said, investors are still trying to gauge the eventual impact of the looming sanctions on Iran, Nov. 5, and how much Iranian oil will disappear from the market as a result.  Saudi Arabia reportedly is ready to increase its own crude production to 11 million barrels a day, compared with an average 10.7 million.

--Amazon reported earnings per share of $5.75, far above the consensus forecast of $3.14. Amazon Web Services contributed operating income of $2.1bn in the quarter, more than half of its total operating income of $3.7bn.  Net income was $2.9bn, compared with $256m in the same quarter the year before.

But the company issued a disappointing fourth quarter forecast, despite exceeding expectations in Q3, but it was look out below for the share price today, down 8%.

Brian Olsavsky, Amazon’s CFO, said the company was “ready to roll” for the holiday season – but always had to deal with uncertainty over the outlook for its traditionally biggest quarter of the year, with Amazon expecting net sales to grow between 10 and 20 percent year-on-year in the fourth quarter to between $66.5bn and $72.5bn, but this was lower than some analysts had estimated, with the Street forecasting growth of about 22 percent.

Amazon’s international sales growth dropped significantly from a 29 percent year-on-year growth rate in the second quarter to a 13 percent rate in the third quarter.

Sales of subscription services, which include Prime and other video and audiobook subscriptions, were up 52 percent yoy.

The company’s pledge to increase wages goes into effect in November and December in the U.S. and UK, with Olsavsky saying the cost of the rise for 400,000 employees had been incorporated into the guidance.

--Alphabet, the parent company of Google, reported a net profit of $9.19 billion in the third quarter, up 37 percent from a year earlier, and far better than expected, with quarterly revenue of $33.74 billion, an increase of 21 percent but lower than expected, which pushed the company’s share price down sharply in after-hours trading Thursday, but recovering somewhat today to finish down just 2% from Thursday’s close.

The company said it is continuing to invest, though, with capital spending up almost 50 percent to $5.3bn, as Alphabet ploughed ahead with 20 data centers that are under development, spending heavily on new equipment, which the Street doesn’t necessarily like to hear.  The company hired 9,000 employees in the United States this year, raising its total to 94,372 as of September, an increase of more than 16,000 from a year earlier.

In a conference call with analysts, Sundar Pichai, Google’s CEO, said it was still too early to determine the potential impact of new policies that the company was putting in place in Europe.

The European Union fined Google $5.1 billion in July for abusing its market dominance in smartphone software.

Separately, CEO Pichai said the company is “dead serious” about allegations of sexual harassment and misconduct, in an internal memo sent to employees on Thursday.  As many as 48 people have been fired from Google over sexual harassment allegations over the last two years, Pichai said, 13 of whom were senior managers and above.

“None of these individuals received an exit package,” he wrote in the memo.  The memo came after the New York Times reported that Google paid Andy Rubin, the creator of the Android mobile operating system, $90 million after he left the company in 2014 over an allegation of sexual misconduct.  Google then invested heavily in Rubin’s next venture, according to the report. 

In his memo, Pichai conceded that the Times’ report was “difficult to read.”  But Google now faces questions not only about a cover-up, but also about why it was rewarding those engaged in such behavior.

--Microsoft saw revenue rise 19% in the third quarter to $29.08 billion, with net income increasing 34% to $8.82 billion, beating on both the top and bottom lines.

The company said its cloud service business is decelerating, but it is benefiting from an offshoot of the business that mixes in its software sales, a strategy called hybrid computing, in which customers run some software in their own data centers but also use cloud services.  Microsoft’s server products and cloud-services revenue rose 28% in what is their fiscal first quarter.

The cloud-computing business, called Azure, grew 76%, but this was the slowest pace of growth since the company began disclosing quarterly percentage gains for the unit.  Microsoft still doesn’t disclose revenue figures for it, but it is estimated by analysts to be around $2.7 billion for the quarter.

--Intel defied Wall Street’s concerns about semiconductor stocks, beating analysts’ forecasts by a wide margin in its recent quarter, while raising its guidance for the rest of the year.

Intel reported third-quarter revenue of $19.2bn, up 19 percent year-over-year, driven by a strong performance in both PCs and its data center business.  Net income rose 42 percent to $6.4bn.

Intel increased its outlook for fourth-quarter revenues by $1.7bn to around $19bn.

Sales from the PC-centric “client computing” division were up 16 percent to $10.2bn, thanks to sales to businesses and video gamers, as overall PC chip volumes increased 6 percent.

--Twitter Inc. topped estimates for earnings and revenue in the third quarter amid higher spending from advertisers, a much-needed boost for a company under scrutiny from regulators and lawmakers about fake or offensive accounts.

Monthly active users averaged 326 million, a decrease of 9 million from the second quarter, though the company had warned in July that there would be a continued drop in the metric as a result of efforts to clean up its service and stricter privacy rules in Europe.  Twitter forecast a further drop in the current quarter.

But the company’s 29% jump in revenue in the prior quarter represented the third consecutive quarter of double-digit growth, while Twitter has reported positive net income four straight quarters.

In Q3, revenue jumped to $758.1 million, far ahead of expectations, while profit was 21 cents a share, higher than the average estimate of 14 cents.  The shares surged 12% on the week.

--Snap Inc. said revenue rose 43% in the third quarter, but its number of users declined as the company struggles following a poorly received redesign. The $297.7 million in revenue that Snap recorded did exceed expectations, and marked the most money the company has ever made in a quarter, but it was the second consecutive quarter since Snap went public that the number of people who use its flagship product declined.

Snap, the parent company of app Snapchat, lost two million daily users, bringing its total user base to 186 million. Snap’s base of daily users in the U.S. declined to 79 million, from 80 million.

Snap said its loss in the quarter was $325.15 million, down from $443.16 million a year ago.

Add it all up and the shares hit a new low of $5.80, before finishing the week at $6.25.

--Tesla Inc. reported a net profit, positive cash flow and wider-than-expected margins for the latest quarter on Wednesday, delivering on CEO Elon Musk’s promise to turn the electric carmaker profitable as higher production volumes of its new Model 3 began to pay off.

Tesla reiterated that it expected to repeat its net profit in the current quarter, helping drive the company’s shares up 10 percent on the news.

Time after time, Tesla, and Musk, have failed to hit goals and deadlines, but this time the company surprised investors by delivering on the pledge to make Tesla profitable for only the third quarter in its 15-year existence; a positive end to a most tumultuous quarter for Musk.

“We can actually be cash flow positive and profitable in all quarters going forward,” he said, though he is excluding quarters in which a big debt payment is due, such as the first quarter of 2019.

Musk reiterated that Tesla does not plan to raise equity or debt, which the Street likes to hear.

Tesla said it would begin taking orders in Europe and China for the Model 3 before the end of 2018. Deliveries would begin to Europe in late February or March, and those to China in the second quarter, Musk said.

Tesla earned $311.5 million on $6.82 billion in revenue, or $1.82 a share, well above analyst forecasts, which ranged from a $1.75 loss to an 88-cent gain.

Musk said he sees worldwide demand for the Model 3 eventually reaching 500,000 to 1 million cars a year.  That would place the Model 3 among the top 25 models, based on 2017 sales. Only Ford’s F-series pickups sold more than 1 million units that year.

But Musk had promised a base price of $35,000 for the Model 3, and the average price of the ones delivered in the third quarter was $59,000 – good for profits but not the price tag for the customers who laid down deposits for the promised low-cost version.  Musk conceded the car can’t be made profitably at $35,000, though he said the other day, “We’re probably less than six months from that, but that’s our mission.”

Results were bolstered by a 30% reduction in labor hours required to build the Model 3, a sign Tesla was emerging from what Musk had called “production hell.”

But the 4,000-cars-a week average Tesla recorded on the Model 3 for the quarter is well below the forecast of 5,000 a week made in December and his 7,500-a-week prediction of July 2017.

Tesla ended the quarter with $3.5 billion in cash, and the company said cash would remain at least unchanged in the fourth quarter, despite a repayment of $230 million in convertible notes coming due. Another $920 million is due in March.

But while Tesla has had the electric car market nearly to itself since the Model S sedan was introduced in 2012, competition is ramping up, with several automakers introducing EVs in 2019 and dozens of models planned for 2020.  Jaguar’s new I-Pace electric compact SUV already outsells Tesla in Norway, Tesla’s largest market outside the U.S. and China.

Sales in China are being hurt by a 40% import tax that country levied in response to U.S. tariffs on Chinese goods.

*Separately, Tesla dropped six spots to rank near the bottom of Consumer Reports’ new-car reliability list, now third-worst among 29 auto brands.  Only Cadillac and Volvo ranked lower.

The highest reliability scores went to Lexus, Toyota and Mazda, in that order.

Seven of the top 10 brands are Japanese or South Korean. Audi, ranked seventh, was the top European brand.  No U.S. automaker finished in the top half of the list.

Tesla’s poor showing led Consumer Reports to drop its “recommended” opinion on the Model S, a car that costs well over $100,000, including various options. 

--Ford Motor Co.’s third-quarter net income fell 37% amid sharply lower results in China and Europe, which are complicating turnaround plans, though Ford reaffirmed its full-year profit outlook this year of $1.30 to $1.50 per share.

The nation’s No. 2 auto maker did report surprisingly strong results in North America, owing to its mix of pricey trucks and SUVs in the U.S. market, which helped push revenue up 3% to $37.6 billion, well above expectations.  Net profit was $1 billion for Q3, with earnings per share beating the Street by a penny at 29 cents.

Ford did swing to a $378 million third-quarter loss in China, after turning a profit of $102 million last year.  Ford’s sales in China were down 30% in the first nine months of the year, while the overall auto industry in the country has seen sales tick up 1.5% in that period. 

But Ford’s operating profit in North America rose 5% to $2 billion.  The F-Series pickup truck now has an average price of $46,224, nearly $900 higher than a year ago.

Outside of North America, Ford’s regional businesses collectively lost $560 million, with losses in Europe widening to $245 million, from $53 million a year earlier, owing to higher foreign-exchange costs and weaker results in Turkey and Russia.

Ford lost $152 million in South America, flat from a year ago.

Ford’s shares continue to languish at a near decade low, though they finished up on the week.

Lastly, the company recalled nearly 1.5 million Ford Focuses that have a malfunctioning part which could cause the cars to stall and increase the risk of a crash. This is for 2012-2018 vehicles.

--Boeing reported better-than-expected results for the quarter and raised its revenue and earnings outlook for the year.

Global passenger traffic rose 6.8% for the first eight months of 2018, according to the company, while cargo traffic increased 4% over that period, meaning Boeing is racing to meet global demand for commercial aircraft.

“The airline industry is very healthy overall, across all of the different types of business models including low-cost carriers,” said CEO Dennis Muilenburg on a conference call with analysts and reporters.

Boeing expects to bring in as much as $100 billion in revenue for the entire year, up $1 billion from a previous forecast, as the company’s backlog of orders has risen $17 billion this year to $491 billion, representing some 5,800 commercial aircraft that have yet to be delivered.

Boeing has had problems with a supplier bottleneck for single-aisle 737s, the company’s top moneymaker.

Overall, Boeing reported earnings of $2.4 billion, up 31% from the same period a year ago, with revenue up 4% to $25 billion.

--UPS reported weaker-than-expected third quarter sales on Wednesday, as a strong dollar and higher fuel prices added to cost pressures on the business.

The company, as a bellwether of U.S. economic activity, said the strengthening dollar resulted in a $28m hit to earnings from its international business.  The company has also been ramping up investment in new technology to cope with the delivery bottlenecks that have resulted from the surge in demand for e-commerce related deliveries.

For the third quarter, revenues rose nearly 8% to $17.44bn, slightly below what the Street expected.  In the U.S., it was also up 8% to $10.4bn.

Net income was $1.51bn, compared to the $1.25bn reported in the prior year period.  Earnings of $1.82 per share were in line.

--Caterpillar Inc. reported sales of $13.5 billion for the third quarter, with record profits, as demand for construction equipment remained strong, both the top and bottom line beating expectations.

But the shares were hit hard, CAT the victim of lofty expectations and the company’s failure to raise its profit guidance for all of 2018, when investors clearly did expect a boost.

Plus a strong dollar is starting to hamper U.S. multinationals in general, and the tariffs are beginning to bite, with the company saying it now expects to raise material costs by $100 million to $200 million in the final six months of the year.  And freight costs are rising due to supply-chain challenges.  The company plans to raise prices on some machines and engines, but the global economy is starting to wobble.

--Bayer AG’s $63 billion acquisition of Monsanto Co. this year made the German drug and chemicals company the world’s biggest supplier of crop seeds and pesticides, but it also brought thousands of lawsuits alleging Monsanto’s Roundup herbicide causes cancer.

Monday, a judge rejected Bayer’s request to reverse an August jury verdict against the company in the first Roundup case to go to trial.

Bayer has argued that glyphosate, the main chemical in Roundup, doesn’t cause cancer and has been reviewed and approved in more than 160 countries.  The company is appealing the verdict.

The jury’s $289 million award in August did a number on Bayer’s valuation, slicing off $billions, and while a judge reduced the award to $78.5 million, the court rejected Bayer’s request to reverse it, sending the shares down more than 11%.

--Harley-Davidson reported higher quarterly earnings, but Harley’s U.S. sales continue to plunge, while it is being hurt by a 25-percent tariff imposed by the European Union on U.S. motorcycles in retaliation for President Trump slapping tariffs on foreign steel and aluminum.

In the U.S., Harley is struggling to attract younger customers who haven’t shown interest in motorcycling like past generations.  U.S. sales fell 13.3 percent for the quarter over a year ago.

But Harley did earn $113.9 million, up 67 percent from a year earlier, with overall revenue up nearly 15 percent to $1.32 billion.

International sales rose 2.6 percent.

--McDonald’s Corp. is still struggling to attract more U.S. customers, but same-store sales did grow 2.4% in the home market, driven mostly by menu price increases prompted in part by rising commodity costs.

Globally, the story was better, with same-store sales growth of 4.2%, resulting in its 13th consecutive quarter of comp-store growth globally.

The shares rose smartly in response.

But U.S. franchisees, who own roughly 95% of the company’s more than 14,000 restaurants in the country, say they need to attract more customers to grow, as rival fast-food chains have been gaining market share in the morning hours, which account for about 25% of the chain’s U.S. sales, by offering low-priced breakfast meals.

So in response, McDonald’s said it planned to introduce new breakfast items later this year.

The company’s third-quarter profit fell 13% to $1.64 billion, though excluding a prior-year gain on restructuring charges from its ongoing construction project, earnings per share increased 19% and beat analyst expectations.

--Chipotle Mexican Grill reported solid comparable restaurant sales, up 4.4%, for the third quarter, with revenue up 8.6% to $1.2 billion..

The company opened 28 new restaurants and closed or relocated 32 in the quarter, with the figures for the first nine months being 97 and 42 in the two categories.

--My neighbor across the street, Celgene, saw its shares plunge to a 4-year low after its earnings report.  While the EPS of $2.29 beat analysts’ estimates, the figure was helped by sales of psoriasis drug Otezla.

That’s good, right?  Well, it seems investor enthusiasm over Otezla “kind of fizzled away” after the company’s comments on the conference call, which suggested most of the beat was from inventory build-up and not demand.

--Apple Inc. CEO Tim Cook, in a speech before a privacy conference organized by the European Union, called for U.S.-wide data-protection regulation, saying individuals’ personal information has been “weaponized.”

The EU enacted the General Data Protection Regulation in May in a bid to improve user rights and bolster the bloc’s power as a global rule maker.  Cook told the audience the U.S. should enact a similar law.

“Our own information – from the everyday to the deeply personal – is being weaponized against us with military efficiency. Today, that trade has exploded into a data-industrial complex.”

Cook is trying to insulate Apple from rivals Facebook and Google  that have been dealing with recent scandals involving access to personal information.  Apple’s point is that it makes the bulk of its money by selling devices, rather than advertising, and thus has far less incentive to exploit its customers’ data. But Cook told the EU conference that the data-collection practices being employed – targeting the online-advertising world – amounts to surveillance.

“These scraps of data, each one harmless enough on its own, are carefully assembled, synthesized, traded and sold,” Cook said.  “This is surveillance. And these stockpiles of personal data serve only to enrich the companies that collect them. This should make us very uncomfortable.”  [Sam Schechner and Emre Peker / Wall Street Journal]

--A majority of Americans reports that their financial situation has not improved since the 2016 presidential election, despite low unemployment and a booming stock market (until recently, regarding the latter).

According to a Bankrate.com report released Wednesday, more than six in 10 said they’re no better-off financially than they were two years ago.

78 percent of Americans earning less than $30,000 a year also report that their financial situation has not improved.

--Sears is quickly chewing through the $300 million in financing it received when it filed for Chapter 11 bankruptcy this month – and the company is pleading for more time to scare up extra funds, or it won’t get through the holidays, which would spell one thing...liquidation.

Sears, according to the New York Post, is seeking to push back a Nov. 1 court hearing on a second $300 million loan – a so-called debtor in possession loan – to Nov. 8, sources told the paper.

Former CEO, now chairman, Eddie Lampert, is contributing to the loan through his investment vehicle, hedge fund ESL Investments, but finding other investors is taking longer than expected.

In its first month in bankruptcy, Sears is on target to burn through $220 million.

Sears stock was delisted from Nasdaq for not meeting the minimum requirement of trading above $1 for 30 consecutive days.  The shares are now over the counter at about $0.20.

--Bill Gates, in an op-ed for the Wall Street Journal, on the passing of friend, and partner, Paul Allen.

“I met Paul Allen when I was in 7th grade, and it changed my life.

“I looked up to him right away. He was two years ahead of me in school, really tall, and proved to be a genius with computers... We bonded over the teletype that some students’ mothers had bought for the school and had connected to a remote mainframe.

“Eventually we were spending just about all our free time messing around with any machine we could get our hands on.  At an age when other high school kids were sneaking out of the house to go partying, Paul and I would sneak out at night to go use the computers in a lab at the University of Washington. It sounds geeky, and it sure was, but it was also a formative experience, and I’m not sure I would have had the courage to do it without Paul.  I know it would have been a lot less fun.  (‘Borrowing’ computer time illicitly would become something of a theme for us.  Later, when I was a student at Harvard, I got in trouble for letting Paul use the campus computer lab without permission.)

“Even in high school, before most people knew what a personal computer was, Paul predicted that chips would get super-powerful and would eventually give rise to a whole new industry....

“(In December 1971), Paul and I were both living in the Boston area – he was working, and I was going to college.  One day he came and got me, insisting that I rush over to a nearby newsstand with him.  When we arrived, he showed the cover of the January issue of  Popular Electronics.  It featured a new computer called the Altair 8800, which ran on a powerful new chip.  Paul looked at me and said: ‘This is happening without us!’ That moment marked the end of my college career and the beginning of our new company, Microsoft....

“As the first person I ever partnered with, Paul set a standard that few other people could meet. He had a wide-ranging mind and a special talent for explaining complicated subjects in a simple way.  As an adult, he pursued a huge spectrum of interests, including the arts, conservation, and artificial intelligence. He wanted to prevent elephant poaching, promote smart cities, and accelerate brain research.

“Because I was lucky enough to know him from such a younger age, I saw that before the rest of the world did....

“Paul was cooler than I was. He was really into Jimi Hendrix, and I remember him playing ‘Are You Experienced?’ for me.  I wasn’t experienced at much of anything back then, and Paul wanted to share this amazing music with me. That’s the kind of person he was.  He loved life and the people around him, and it showed.

“His generosity was as wide-ranging as his interests. In our hometown of Seattle, Paul helped fund homeless shelters, brain research, and arts education. He also built the amazing Museum of Pop Culture, which houses some of his huge collection of music, science fiction, and movie memorabilia.

“When I think about Paul, I remember a passionate man who held his family and friends dear.  I also remember a brilliant technologist and philanthropist who wanted to accomplish great things, and did.

“Paul deserved more time in life.  He would have made the most of it.  I will miss him tremendously.”

We learned after I wrote of Allen’s passing last review that his death didn’t come without tremendous pain, which is so sad.  He died of septic shock.

--Cathay Pacific Airways came under fire from the head of Hong Kong’s privacy watchdog on Thursday after the city’s flagship airline failed to alert passengers about a massive data leak that took place seven months ago.

Cathay struggled to explain the serious delay on a radio program Thursday morning, hours after it had released a statement on Wednesday night.  Executive Paul Loo said the reason for the delay was to avoid causing unnecessary panic among customers.

The airline uncovered unauthorized access to the personal data belonging to 9.4 million passengers, including names, nationalities, dates of birth, identity card numbers and historical travel details.

50,000 Hong Kong passport numbers had also been accessed.

But it’s atrocious the airline is only now committed to notifying affected customers through email.

--Mark R. said I need not worry about global warming impacting the production of barley, but that I needed to be more concerned with the lantern fly, which are known to destroy an entire crop of hops in one sitting.

Mark told me that experts at Penn State University (the bug being prevalent today in eastern Pennsylvania), said the current infestation could be one of the most devastating in the last 150 years.

So the day after I received Mark’s note, the local NBC affiliate in New York reported that the lantern fly had been spotted on Long Island and authorities there are now on the watch.

I’m stocking up on Coors Light.

--I cannot believe the stupidity of Megyn Kelly, whose time on “Today” and her “Megyn Kelly Today” is coming to an end after she defended wearing blackface on Halloween.  The network opted Thursday to run re-runs for a while.  Then today, Megyn was formally removed from the gig, though she remains with the network...as I go to post. 

Kelly, who is halfway through a three-year contract, at $20-$23 million per year, said on her show of costumes that use blackface: “Back when I was a kid that was OK as long as you were dressing up as a character.”

Personally, being older than Ms. Kelly, I don’t remember a time growing up when it was OK at all to wear blackface.

NBC News boss Andy Lack told staff in a previously scheduled town hall meeting on Wednesday that regarding Kelly’s comments: “There is no other way to put this, but I condemn those remarks.  There is no place on our air or in this workplace for them.  Very unfortunate.”

Bye-bye, Megyn.

Foreign Affairs

Saudi Arabia / Turkey: Saudi Arabia’s public prosecutor said on Thursday that the death of the Saudi dissident journalist Jamal Khashoggi had been ‘premeditated,’ the latest change in the kingdom’s official story of how he was killed.

Previously, Saudi officials said that a 15-man team that had flown to Turkey to confront Khashoggi inside the Saudi Consulate in Istanbul on Oct. 2, led to a “fistfight.” When he screamed, one of the men put him in a chokehold, killing him accidentally, officials claimed.

But the prosecutor’s new statement said the conclusion was based on new information received from a joint Saudi-Turkish investigation taking place in Turkey.  The authorities said the agents were there to discuss Khashoggi’s desire to return to the kingdom, but offered no indication of who had sent them.

The Saudi narrative has changed a few times, and is being met with increasing skepticism, particularly from Turkish President Erdogan, and Donald Trump.  After all, it took weeks for Saudi authorities to change its original story that they had no information on Khashoggi’s whereabouts.

In the three Saudi versions, though, one thing is consistent – an insistence that Mohammed bin Salman (MBS), the crown prince, was not responsible for the killing.

MBS has vowed to punish all the “culprits” responsible.

Speaking at a business forum in Riyadh, the crown prince said “the crime was painful to all Saudis” but he would never allow any rift with Turkey.

In his first public comments since the Saudis admitted Khashoggi had been killed at the consulate, MBS said the killing was “a heinous crime that cannot be justified” and vowed that “those behind this crime will be held accountable...in the end justice will prevail.”

Turkey continues to maintain the Saudi team killed Khashoggi soon after he entered the consulate and then dismembered his body with a bone saw for disposal.

The Turks have slowly leaked, drip by drip, information to the news media on the names of the men on the Saudi team as well as photos of them arriving and moving around Istanbul, including the release this week of photos of a Saudi “body double” wearing Khashoggi’s clothes and walking around Istanbul shortly after his death, in an attempt to leave a trail of surveillance footage suggesting that he was still alive.

But Khashoggi’s body has not been found, despite rumors earlier in the week that it was disposed of at the home of the Saudi consul general in Istanbul.

Meanwhile, Saudi Energy Minister Khalid Al-Falih said on Thursday that companies that pulled out of the Future Investment Initiative conference in Riyadh had apologized for missing the event. “All the companies which did not come have been calling us during the past 48 hours, apologizing, expressing their regret, and promising to apply to open offices (in the country) during the coming weeks and restore relationships to their norms,” Al-Falih told state TV.  I don’t doubt this for a moment.

CIA Director Gina Haspel briefed President Trump on Thursday about her trip to Turkey, where she listened to audio purportedly capturing the killing of Khashoggi.  U.S. intelligence officials continue to maintain the murder could not have taken place without the knowledge of the kingdom’s most senior leaders.

As for the president, Trump said he is passing responsibility to Congress for responding to the killing of Khashoggi, and he criticized the conflicting accounts from Saudi Arabia afterward as “one of the worst” cover-ups in history.

Trump added it was “a very bad original concept.”

“It was carried out poorly. And the cover-up was one of the worst in the history of cover-ups.”

Trump said of the attack on Khashoggi that “whoever thought of that idea, I think, is in big trouble.”

In an interview in the Wall Street Journal, the president, asked about Prince Mohammed’s possible involvement, said, “He’s running things and so if anybody were going to, it would be him.”

For his part, this week Turkish President Erdogan declared the killing a “ferocious” premeditated murder, demanding that Saudi Arabia hold accountable those responsible.  In a speech to parliament Tuesday, though, he only dribbled out Turkey’s version of events, and did not detail the evidence to back it up, making no mention of the audiotape of the murder that Turkish investigators say they have, and which was played for Gina Haspel.

David Ignatius / Washington Post

“Why was Crown Prince Mohammed bin Salman so afraid of Jamal Khashoggi that he reportedly gave orders this past summer to bring the Post contributing columnist back to Saudi Arabia?

“We’ll still be left with that question after the Saudi and Turkish investigations are done and the designated culprits are convicted. What was the threat that had to be silenced?  My guess is that Khashoggi was seen as dangerous for the simple reason that he couldn’t be intimidated or controlled.  He was an uncensored mind. He didn’t observe the kingdom’s ‘red lines.’  He was an insistent, defiant journalist.

“If you want to visualize what Khashoggi was struggling against, watch some of the slickly packaged video coverage of this week’s Future Investment Initiative conference in Riyadh.  It was a captive audience, so to speak: MBS, as he’s known, got a prolonged, raucous ovation Wednesday when he denounced Khashoggi’s murder and promised cooperation with Turkey.

“A gushing story in the Riyadh-based Arab News praised MBS’s ‘war’ for modernization, which is ‘restoring the Middle East to its past glory,’ and quoted the crown prince: ‘I believe the new Europe is the Middle East.’

“Who wouldn’t like MBS’s vision of a modern, Europe-like Arab world at peace with its neighbors, including Israel?  But the crown prince doesn’t seem to understand that a united, peaceful Europe was possible only because it had a shared culture of freedom and tolerance. Troublesome journalists don’t get murdered in that Europe.  Leaders don’t order ‘renditions’ of dissenters, as MBS did with Khashoggi in July, according to a U.S. official.

“There’s a danger now that Khashoggi will be seen as a creature of the West and not an authentic Saudi voice. But that view is false: Khashoggi was part of an Arab journalism tradition with a long, brave history. He is the latest Arab martyr for press freedom, but he isn’t the first.  I’ve encountered many similar heroes over the past 40 years who shared Khashoggi’s ambition....

“Those who truly want a modern and prosperous Saudi Arabia could start by building on Khashoggi’s legacy.  A country that cannot tolerate criticism will never be, as one of the slogans at this week’s Riyadh conference put it, ‘a road map for the future of civilization.’ That could be Khashoggi’s gift in death: a chance for Saudi modernizers to make a fresh start, without the brutal trappings of autocratic power.”

Syria: Russia’s deputy defense minister Aleksandr Fomin accused a U.S. airplane of manually controlling 13 drones that attempted to attack a Russian air base in Syria, the accusation made at a forum in Beijing on Thursday.  A Russian diplomat then alleged some Syrian militants in Idlib are being used by the U.S. to create instability in northern Syria.

As for the drones, Fomin said they were destroyed.

The allegation comes on the heels of new satellite images from ImageSat International, which showed the presence of the S-300 systems Russia supplied Syria in the wake of the downing of the Russian IL-20 in September during an Israeli air strike on Syria.  Russia blamed Israel for creating the events that led to the downing, even though Syrian air defense shot the Russian plane down.

The recent news of the drones is one of many allegations in Russia media over the years that has sought to link the U.S. to extremist groups.  In the past, Russia has claimed the U.S. had evacuated ISIS fighters and commanders in Syria using helicopters.

More disinformation from the Russkies.  But by making the latest allegations in Beijing, it’s a way for Moscow to warn the U.S. about any provocations in Syria, and could be used as a pretext if Moscow responds to any U.S. attack from the sea or Idlib.  Russia never shows clear evidence of its charges.

But the Syrian Observatory for Human Rights said the U.S.-led coalition launched air strikes in eastern Syria, where ISIS still has a few villages, and according to the Observatory, 41 people were killed, including 10 children, with many of the victims Iraqi relatives of ISIS fighters.  Syria claimed at least 62 civilians were killed in al-Sousa and a nearby village.

The coalition said it destroyed a mosque ISIS was using as a headquarters in al-Sousa.

Separately, a top Red Cross official said Friday after visiting the former rebel stronghold of Eastern Ghouta that the destruction is overwhelming and the humanitarian needs huge.

Dominik Stillhart, director of operations for the International Committee of the Red Cross, said the scope of the devastation was still emerging, six months after the fighting ended.

“I’ve never seen anything like this ever before,” he told journalists in Beirut.

After retaking significant territory from ISIS, the government set its sights on recapturing Eastern Ghouta earlier this year, viewing the rebel presence so close to the capital as an affront to its authority.

So it launched a massive Russian-backed offensive against the besieged enclave that killed more than 1,700 civilians. Tens of thousands were forced to flee as the enclave’s towns surrendered one after the other.

Stillhart said that in some parts of the region, “up to 90 percent of infrastructure is completely destroyed.  It’s really breathtaking the level of destruction there.”

China:  Leaders of China and Japan announced they had agreed to boost economic cooperation and not to pose a threat to each other at a joint press conference in Beijing on Friday.

Chinese Premier Lie Keqiang, alongside Japanese Prime Minister Shinzo Abe, also announced that the two countries had signed over 500 business deals during Abe’s ongoing visit to China, the first by a Japanese leader in seven years.

Li said: “We both feel that it is in our mutual interest to maintain a long-term stable China-Japan relationship, which is also beneficial to the stability of the region.

“We also agreed that we do not threaten each other and do not direct aggression towards each other,” Li said.  “We need to have constructive ways to eliminate any kind of frictions or conflicts between the two countries.”

Abe’s visit, in which he was accompanied by about 500 Japanese businesspeople, was hailed as an important step in their rapprochement after years of tension over wartime grievances, geopolitical rivalry and competing sovereignty claims over the East China Sea.

Abe said at the press conference that the nature of the relationship between Beijing and Tokyo had been transformed from competitive to cooperative.

“From competition to cooperation, I believe our relationship is entering a new phase,” he said. “We want to expand our relationship significantly.

“We are neighbors.  We are partners cooperating with each other. We have to avoid becoming a threat to each other.”

Washington should be concerned that uncertainties in its relationship with China, as well as Japan on the trade front, have pushed the two Asian rivals closer together.  Japan is increasingly worried about the decline of the U.S. presence in the region, while China looks to Japan to ease the impact of its escalating trade conflict with the U.S.

Meanwhile, President Xi Jinping visited his country’s manufacturing hub in Guangdong province this week and said the country must develop its manufacturing industry and technology to become a “strong” country, according to People’s Daily,  the official party mouthpiece.

“To go from a big country to a strong one, we must give paramount importance to the development of the real economy” Xi said.

“Manufacturing is a key to the real economy, and the core strength of manufacturing is innovation, or the control of core technologies.

“We must...seek innovation by relying on ourselves, and I hope all enterprises will work in this direction.”

Editorial / Wall Street Journal

“A pair of U.S. warships sailed through the Taiwan Strait on Monday, a welcome show of support for America’s friends in Taiwan and the right to open navigation in international waters....

“The U.S. is the only nation with the naval firepower to deter China’s ambition.  The warships’ trip also sends a note of reassurance to the government of Taiwan, which China has increasingly tried to isolate in global forums by using promises of investment to cause Taiwan’s few remaining friends to throw the island over.

“The sail-by looks to be part of the Trump Administration’s larger effort to push back against China’s military aggressiveness. This has included more frequent trips past atolls on which China has built runways and other assets to project power in the South China Sea.  Like Russia and Iran, China took advantage of the Obama years to expand its influence and try to become a dominant regional power. The Trump Administration is showing that the days of this free ride may be over.”

North Korea: A North Korean general got a warm welcome in Beijing on Thursday, a rare high-profile showing at an international military forum, underscoring an improvement in ties with China and the world.

Kim Hyong Ryong, vice minister of North Korea’s People’s Armed Forces, was greeted warmly by other attendees. Addressing the forum, Kim said peace was the priority.

“Until only a year ago, the danger of military conflict lingered on the Korean Peninsula but today we are witnessing a series of events beyond all our expectations giving rise to the warm atmosphere of reconciliation, unity and peace. Today’s dramatic reality of the Korean Peninsula is the fruition of Chairman Kim Jong Un’s determination and bold decision to turn the Korean Peninsula into a cradle of peace without any nuclear weapons or nuclear threats and achieve national reunification.”

Kim said North Korea was making “sincere efforts” to successfully implement agreements reached by leader Kim and Donald Trump in Singapore.  [Reuters]

Right.

Benny Avni / New York Post

“If President Trump isn’t careful, his North Korea concessions will soon resemble President Barack Obama’s pre-nuclear-deal gifts to Iran.

“Trump denies ever making concessions to Pyongyang strongman Kim Jong Un. But last week the Pentagon announced the cancellation of the Vigilant Ace exercise, the annual winter drill America and South Korea jointly conduct to prepare for North Korean aggression.

“The Department of Defense said the exercise’s ‘suspension’ was done in support of Trump’s Pyongyang diplomacy. So how’s that going?

“Secretary of State Mike Pompeo went to Pyongyang two weeks ago for the fourth time.  He lunched with Kim and quickly left town.  Ostensibly the lunch was about charting a second Trump-Kim summit, the date and venue of which are yet to be announced.

“But Pompeo told reporters the North also agreed to allow outside inspectors into Punggye-ri, a nuclear site Pyongyang claims to have dismantled.  The inspectors will arrive once ‘logistics’ are worked out, Pompeo said, acknowledging however they won’t be allowed into Yongbyon, the site where real nuclear work is conducted.

“Meanwhile Tomas Ojea Quintana, a UN human-rights observer, notes that North Korean atrocities aren’t even on the agenda in the disarmament talks. And as he told reporters Tuesday, ‘The situation on the ground, according to information I gathered this year, indicates there’s no change’ in the horrors Kim inflicts on his people.

“In other words, the planned Trump-Kim summit will be marked by little real progress beyond atmospherics. And the arms layoff.

“The latest Pentagon announcement resembled last spring’s cancellation of the Ulchi Freedom Guardian drill, the summer joint exercise, on the eve of the Singapore summit.

“Not to be outdone, Seoul this week announced it and Pyongyang agreed to remove troops and arms from their border.

“South Korean President Moon Jae-in’s ‘Moonshine policy’ consists of endless concessions, gestures and showering love on Kim, so his latest actions are no surprise. But what explains Trump?  Especially given how he endlessly takes Obama to task for handing Iran ‘bribes’?

“Trump claims his opening to Kim is easily reversible.  ‘We gave nothing,’ he insisted on Fox News after the Singapore summit. Besides canceling military exercises saves us a lot of money.  And they can resume as soon as Trump so orders.

“Well, not quite. The Vigilant Ace exercise involves up to 12,000 U.S. and South Korean troops and many aircraft and naval assets.  It requires complex coordination and long-term preparation.  Once canceled, it’ll remain canceled, at least for this year.

“But what if, heaven forbid, Kim, a ruler known to act erratically, renews aggressive missile or nuke testing? Or his missile launches? Will we be ready?

“Trump rightly notes that Pyongyang continues to face pressure. We’ve yet to remove the sanctions cobbled together by outgoing UN Ambassador Nikki Haley, which clearly hurt the North.  But according to a leaked draft of a new UN report, Russia, China and others already violate those sanctions.  (The draft has yet to be officially issued, as Russia is demanding its culpability be edited out.) And Moon has been asking for sanctions exemptions for pet joint projects with North Korea.

“A global sanctions regime, as we learned from the run-up to the Iraq war, can be watered down and lead to war.  Canceling military drills as a goodwill gesture sends the wrong signal about America’s resolve to keep the heat up. It’ll only hasten an end to tough sanctions.

“And remember: Trump actually favors pressuring adversaries by displaying military might.  This week, the U.S. Navy concluded a higher-profile display of defiance by sailing ships through the Taiwan Straits.  Trump knew how much that would anger China but sought to signal America’s commitment to freedom of navigation and to the defense of our ally, Taiwan.

“Sure, sometimes goodwill gestures could bolster diplomatic efforts, but Kim isn’t versed in such nuances.  Worse: We have little reliable intelligence about Pyongyang’s goings-on, and what we do know is often colored by Seoul’s increasingly rosy glasses.

“Trump rightly criticizes Obama’s clumsy attempt to declaw Iran by showering it with gifts. Yet his eagerness to turn the Korean Peninsula into a peaceful oasis, preferably before the 2020 election, is leading him to take a similar approach with the Kim regime.”

Russia: The United States is serious about pulling out of a landmark nuclear agreement with Russia, national-security adviser John Bolton told the Wall Street Journal last weekend, as President Trump announced the prospective exit from the agreement during a campaign rally in Nevada on Saturday.  Trump then told reporters at the White House on Monday that the U.S. would build up its overall nuclear arsenal, if necessary, aiming unusually tough language at Russia.

“We’ll build it up until they come to their senses,” Trump said.  “When they do, then we’ll all be smart and we’ll all stop and, by the way, not only stop [but] reduce, which I would love to do.”

Asked if he meant to deliver a threat to Russia, Trump said: “It’s a threat to whoever you want,” adding, “It includes China, and it includes Russia and whoever wants to play that game.  You can’t play that game on me.”

Bolton said the administration was “going to be doing a lot of consultation with allies in Europe and Asia [and] certainly we’re going to have more discussions with Russia.”

The Kremlin said on Tuesday that the INF Treaty had its weak points, but that it did not welcome what it called the dangerous U.S. approach of talking of withdrawal without proposing a replacement.

From Moscow, John Bolton said the United States would press ahead with its plans to quit the pact.

“There’s a new strategic reality out there,” Bolton said, saying that a Cold War-era treaty no longer meets the demands of the world as it is now.  “In terms of filing the formal notice of withdrawal, that has not been filed but it will be in due course.”

President Vladimir Putin, in opening remarks at his meeting with Bolton, said: “We barely respond to any of your steps but they keep on coming.  On the coat of the arms of the United States there’s an eagle holding 13 arrows in one talon and an olive branch in the other. My question is whether your eagle has gobbled up all the olives leaving only the arrows?”

Putin then said on Wednesday that if the United States decides to withdraw from the INF Treaty, Russia will have to respond in kind, and will do so very quickly and effectively.

“If the United States does withdraw from the INF Treaty, the main question is what they will do with these newly available missiles. If they will deliver them to Europe, naturally our response will have to mirror this,” Putin said.

China, Iran and North Korea aren’t bound by the INF treaty.  The U.S. estimates that a third to one half of all of China’s ballistic-missile capabilities would violate the pact if Beijing were a party to it, according to Bolton.

European leaders weren’t happy.

Editorial / Wall Street Journal

“Donald Trump says the U.S. plans to withdraw from the 1987 INF nuclear arms-control treaty that everyone agrees Russia has been violating for a decade.  Yet somehow this is said to be reckless behavior by – Donald Trump? Welcome to the high church of arms control in which treaties are sacrosanct no matter the violation.

“The Intermediate-Range Nuclear Forces Treaty bans ground-fired ballistic and cruise missiles with a range between 500 and 5,500 kilometers and is an artifact of the late Cole War. Ronald Reagan and NATO deployed mid-range missiles in Europe in the early 1980s to counter Soviet deployments. After years of tense negotiation, Mikhail Gorbachev finally agreed to the modest INF accord on U.S. terms that traded U.S. missiles for Russia’s. This was hailed as a diplomatic triumph.

“Yet when the Warsaw Pact and Soviet Union collapsed over the next few years, nuclear arms control faded in importance. Which is the key point.  Arms control didn’t make the world safer; the fall of the Soviet Union did that. Arms control tends to work when it is between countries that get along, while it fails with adversaries that can’t be trusted.

“Enter Vladimir Putin, who has been developing a new medium-range cruise missile since the mid-2000s.  The U.S. believes Moscow first tested the new missile in 2008, but the Obama Administration hid that intelligence from the Senate when it debated and ratified the New Start treaty with Mr. Putin in 2010.

“The Obama Administration first went public with this news in 2014, and the State Department has noted Russian noncompliance every year.  Moscow started deploying its new missiles in late 2016. This is in addition to a new ballistic missile Russia has tested that may be INF compliant only because it can travel slightly farther than 5,500 kilometers.

“The question has been whether the U.S. was ever going to do something about it. The diplomatic impulse is to keep quiet about violations and work behind the scenes to prod an adversary to comply, but that clearly hasn’t worked. Mr. Putin wants the new missiles as a show of Russian power and as leverage over Europe in a conflict. Why would he give them up if the U.S. and Europe look the other way?

“As he so often does, Mr. Trump has now broken this reverie by showing there will be costs to noncompliance. By pulling out of the accord, the U.S. would be free to develop a missile of comparable range to counter the Soviet threat. This would restore an element of mutual deterrence to the European theater.  It also shows Mr. Putin that he can’t use a violation of one treaty to prod Mr. Trump to sign another, which was the hope the Russian expressed this summer at the fiasco summit in Helsinki....

“You’d think the arms controllers in particular would understand that doing nothing about violations undermines the rationale for new arms agreements.  One reason the Obama Administration finally went public about Russia’s INF violations was to show the Senate that it would take potential violations of the Iran nuclear deal seriously. By withdrawing from INF, Mr. Trump is sending a similar signal with more fortitude to Iran and North Korea.

“Yet the immediate response to Mr. Trump’s decision has been to blame him for daring to acknowledge nuclear reality.  ‘The world doesn’t need a new arms race that would benefit no one and on the contrary would bring even more instability,’ said a statement from the European Commission.  But the instability is caused by Mr. Putin, and a new ‘arms race’ won’t stop simply because the West chooses not to compete.

“At least the Brits showed sterner stuff, with Defense Secretary Gavin Williamson noting that ‘it is Russia that is in breach and it is Russia that needs to get its house in order.’

“Senate Democrats are also criticizing Mr. Trump, though these are the same worthies who have spent two years arguing that the U.S. President is a secret Putin agent.  Once again, Mr. Trump appears to be adopting a tougher policy in response to Russian aggression than Barack Obama ever did.”

Max Boot / Washington Post

“I have been critical of the Trump presidency because I think it has been a calamity for America and the world. But just because President Trump does something doesn’t mean it’s wrong.  Even Trump gets a few things right, and it’s incumbent on his critics to acknowledge it when he does.

“Case in point: Trump’s decision this week to withdraw from the 1987 Intermediate-range Nuclear Forces (INF) Treaty. This was a landmark arms-control agreement between President Ronald Reagan and Soviet leader Mikhail Gorbachev that banned land-based missiles with a range of 310 miles to 3,400 miles.  It led to the destruction of thousands of missiles, lowered tensions in Europe and contributed to the end of the Cold War.

“But that was then. This is now.

“Under Vladimir Putin, Russia has been building an intermediate-range cruise missile, code-named the SSC-8 by NATO, that is in violation of the treaty. This is not a figment of Trump’s imagination, such as the presence of ‘unknown Middle Easterners’ among a caravan of Central American refugees. The Obama administration discovered the Russian violation in 2014, and the United States has been working unsuccessfully ever since to persuade the Russians to come into compliance.

“Meanwhile, China, which is not bound by the INF Treaty, has been rapidly expanding its intermediate-range rocket forces.  It has recently begun deployment of the DF-26 ballistic missile, which has been dubbed both a ‘Guam killer’ and a ‘carrier killer’ because it can effectively target both the U.S. naval and air bases at Guam, and the U.S. aircraft carriers that have been the mainstay of American naval dominance since 1942. The military balance of power is shifting against the United States in the western Pacific, in no small part because of China’s missile buildup.

“Because of the limits still imposed on the United States by the INF Treaty, the United States today can only respond with a relatively small number of intermediate-range Tomahawk cruise missiles carried on vulnerable, costly platforms such as Arleigh Burke-class destroyers (cost $1.8 billion).  ‘Ground-launched systems with an intermediate-range in, for example, Guam, Japan and Northern Australia, would provide planners with a means to augment air and maritime strike platforms with new land component capabilities at a fraction of the cost,’ argues Eric Sayers of the Center for Strategic and International Studies. China would have to devote greater resources to missile defenses rather than power projection, he argues, and would find it harder to cripple the U.S. military by striking a handful of major U.S. bases in Asia.  Land-based missiles could be deployed in many locations, protecting against a Pearl Harbor-like first strike and increasing deterrence.

“There is scant chance that China would join the INF Treaty and voluntarily give up one of its core military advantages.  It might be possible to renegotiate the treaty with Russia to limit its sphere to Europe, or to negotiate a new three-way treaty with Russia and China limiting the number of intermediate-range missiles but not banning them altogether.  But simply staying in the INF Treaty and making futile protests about Russian violations wouldn’t achieve anything. Declaring that the United States is ready to walk away is a good first step toward dealing with the security challenges of today’s world, which are vastly different from those of 1987.  The United States can now develop a new land-based intermediate-range ballistic missile to counter a growing Chinese threat – a successor to the Pershing II missiles destroyed under the INF Treaty – while retrofitting the Tomahawk cruise missile, already ubiquitous at sea, for launchers on land.  Hypersonic weapons might be a promising new technology. So why are so many well-respected foreign-policy experts and American allies aghast at the administration’s decision?  Trump has no one to blame but himself. When it comes to international obligations, he is the boy who cried wolf.  Trump is a unilateralist and nationalist who has never seen an international obligation he liked.  He has walked away from the Trans-Pacific Partnership, the Paris climate accord, the Iran nuclear deal, the UN Human Rights Council, and the UN Relief and Works Agency for Palestine Refugees in the Near East. The administration is even exiting the Universal Postal Union, a convention that has governed international mail delivery since 1874.

“Trump’s worst instincts are reinforced by his national security adviser. John Bolton is a lawyer, not a strategist, and he nurtures an irrational hatred of international law, which he sees as a threat to American sovereignty.  He even devoted his first speech as national security adviser to trashing the International Criminal Court, an obscure and ineffectual boogeyman that has long obsessed him.

“Every one of the administration’s decisions to withdraw from international obligations was a mistake – until now.  But, given its track record, it’s nearly impossible for the administration to convince anyone that it made the INF Treaty decision on the merits alone.

“There is a valuable lesson here for Trump and his aides in the unlikely event that they are prepared to learn from their mistakes: Stop making so many ridiculous, erroneous, offensive arguments.  Otherwise, when you have a good case to make, no one will be listening.”

Brazil: The big election is Sunday, Brazil’s presidential run-off, with far-right Jair Bolsonaro expected to win handily over leftist candidate Fernando Haddad, the last poll I saw showing Bolsonaro with a 57-43 lead.

Haddad has been warning a Bolsonaro victory would threaten democratic institutions and the country’s young democracy.

Belatedly, Facebook shut down 43 accounts associated with a Brazilian marketing group for violating the social media network’s misrepresentation and spam policies.  The newspaper O Estado de S. Paulo said the group (RFA) was the main network of support for Bolsonaro on the internet.

Facebook said RFA created pages using fake accounts or multiple accounts with the same names and posted massive amounts of clickbait intended to direct people to third-party websites. WhatsApp was the messaging service used to send out bulk amounts of misleading information during the campaign.

Random Musings

--Presidential tracking polls....

Gallup: 44% approval of President Trump, 50% disapproval; 91% Republicans, 39% Independents (Oct. 21)
Rasmussen: 48% approve of Trump’s performance, 51% disapprove (Oct. 26)

In a new Wall Street Journal/NBC News poll, President Trump achieved his highest approval rating ever for the survey, 47%, with 49% disapproving of his performance, up from a 44-52 split in September.

On the generic House ballot question, 50% of likely voters said they prefer Democrats to control Congress, while 41% prefer Republicans, in keeping with most other national surveys on this question the past few weeks.

But...nearly two-thirds of registered voters showed a high level of interest in the election – the highest ever recorded in a midterm election since the WSJ/NBC poll began asking the question in 2006, and, 68% of Republican voters and 72% of Democrats say they are very interested – the highest recorded for either party in a midterm for this survey.

The narrower spread between Republican and Democrat enthusiasm than the 9-point generic ballot question should bode well for Republicans.

For the second month in a row, women in the survey said they prefer a Democratic-controlled Congress by 25 points, 57% favoring Democrats, 32% favoring Republicans.  Male voters want Republicans to lead Congress by a 14-point margin, 52% favoring Republicans and 38% Democrats.

Separately, 80% said the U.S. today was a divided country, and 90% said the political divisions between Republicans and Democrats are a problem.

--Sen. Ben Sasse (Neb.) / Washington Post

“Flash forward two years and consider these hypotheticals.  You’re seated at your desk, having taken your second sip of coffee and just beginning to contemplate the breakfast sandwich steaming in the bag in front of you.  You click on your favorite news site, one you trust.  ‘Unearthed Video Shows President Conspiring with Putin.’  You can’t resist.

“The video, in ultrahigh definition, shows then-presidential candidate Donald Trump and Vladimir Putin examining an electoral map of the United States. They are nodding and laughing as they appear to discuss efforts to swing the election to Trump.  Jared Kushner and Ivanka Trump smile wanly in the background.  The report notes that Trump’s movements on the day in question are difficult to pin down.

“Alternate scenario: Same day, same coffee and sandwich. This time, the headline reports the discovery of an audio recording of Democratic presidential candidate Hillary Clinton and Attorney General Loretta E. Lynch brainstorming about how to derail the FBI investigation of Clinton’s use of a private server to handle classified emails. The recording’s date is unclear, but its quality is perfect; Clinton and Lynch can be heard discussing the attorney general’s airport tarmac meeting with former president Bill Clinton in Phoenix on June 27, 2016.

“The recordings in these hypothetical  scenarios are fake – but who are you going to believe? Who will your neighbors believe? The government?  A news outlet you distrust?

“If you thought the fight over Brett M. Kavanaugh’s Supreme Court confirmation couldn’t have been more horrible, buckle your seat belts.  Imagine how the public divisions would have deepened had there been fake-but-plausible video of an undergraduate Kavanaugh partying hard at Yale, or fake-but-plausible audio of Senate Democratic Leader Charles E. Schumer (N.Y.) huddling on strategy calls with lawyers for Kavanaugh’s accusers.

“Deepfakes – seemingly authentic video or audio recordings that can spread like wildfire online – are likely to send American politics into a tailspin, and Washington isn’t paying nearly enough attention to the very real danger that’s right around the corner.

“Consider: In December 2017, an amateur coder named ‘DeepFakes’ was altering porn videos by digitally substituting the faces of female celebrities for the porn stars’.  Not much of a hobby, but it was effective enough to prompt news coverage. Since then, the technology has improved and is readily available. The word deepfake has become a generic noun for the use of machine-learning algorithms and facial-mapping technology to digitally manipulating people’s voices, bodies and faces.   And the technology is increasingly so realistic that the deepfakes are almost impossible to detect.

“Creepy, right?  Now imagine what will happen when America’s enemies use this technology for less sleazy but more strategically sinister purposes.

“I spoke recently with one of the most senior U.S. intelligence officials, who told me that many leaders in his community think we’re on the verge of a deepfakes ‘perfect storm.’ The storm has three critical ingredients: First, this new technology is staggering in its disruptive potential yet relatively simple and cheap to produce. Second, our enemies are eager to undermine us. With the collapse of the Russian economy, Putin is trying to maintain unity at home by finding a common enemy abroad.  He has little to lose and lots to gain – it’s far easier to weaken U.S. domestic support for NATO than to actually fight NATO head-on.  Russia hasn’t mastered these information operations yet, but China is running scout-team offense behind every play. China will eventually be incredibly good at this, and we are not ready.

“The United States isn’t ready largely because of this perfect storm’s third ingredient: We are so domestically divided right now, about who we are and what we hold in common, that malevolent foreign actors can pick at dozens of scabs as they seek to weaken us. In many of the current domestic flash points – over guns and geography, race and gender, religion and institutions – the nation’s cultural, political and even economic leaders often seem more interested in fomenting discord than in rallying us around a shared battle plan....

“The U.S. military and intelligence communities are not yet where they need to be to fight the wicked hybrid and technologically enabled ‘gray space’ war. The government itself must be modernized for the digital age in a host of ways....

“Rising political tribalism, shamelessly exaggerating our opponents’ claims or behavior, is leaving us vulnerable: No one loves America’s internal fighting – and our  increasingly siloed news consumption – more than Vladimir Putin.

“One of the most important ways to combat the gathering storm is to be aware that it’s coming – to become more mindful of the ways that confirmation bias and narrower networks distort our view of reality.  Another step: Vow to give your perceived political antagonists the benefit of the doubt.  Some of the United States’ enemies now assume, perhaps rightly, that we hate each other so much that we’d sooner collaborate with them than do the difficult work of listening to each other.

“It doesn’t need to be this way – but national recovery won’t come from Washington. It has to start with you.”

--I was reading a Los Angeles Times piece on overtime for firemen in Los Angeles County, as the department grapples with staffing shortages and seasons of extreme wildfires, and more than 640 workers received at least $100,000 in overtime in the 2017 calendar year.  This is versus 28 such employees in the L.A. County Sheriff’s Department, which has twice the number of workers.

Yes, from a budget standpoint this is insane.  But the county has an around-the-clock staffing model, even in neighborhoods that don’t have constant overnight calls.

--Super Typhoon Yutu wreaked havoc on the Northern Marianas islands, specifically Tinian and Saipan, and with sustained winds of 178 mph as its eye passed directly over Tinian, Yutu became the strongest storm on record to ever hit U.S. soil and tied for the most powerful storm on earth in 2018, according to the National Oceanic and Atmospheric Administration.

Tinian was devastated...infrastructure severely compromised, according to the mayor.  The mayor also said the power plant had been damaged and the “distribution system is completely destroyed.”

President Trump issued an emergency disaster declaration on Wednesday for the two islands, with Saipan also receiving severe damage.

Years ago, on my first trip to the Micronesian island of Yap, with Guam as my base, I took a day trip to Saipan.  I was heavily involved with the Jesuits who oversaw the region at that time, which is how I ended up building a church on Yap, but I wanted to see Saipan, site of a major battle near the end of World War II, as the United States and the Allies prepared for a potential invasion of Japan, that then didn’t become necessary.

Father Gary (who would drop dead serving Mass a year later) picked me up at the airport, took me to his church, where we celebrated Mass with his parishioners, and then after, I had the awesome opportunity of talking to the local women, then in their  late 50s and early 60s, who as young girls had survived the U.S. invasion of their island, as the Japanese retreated up the mountain, chased by the Marines, the locals hiding in caves in the middle.

I then went to Suicide Cliff, where many of the Japanese soldiers committed suicide by throwing themselves over it, rather than be taken by the ‘enemy.’

But it was also around the time of my trip that a video from long ago had emerged, a very controversial one that showed some of the Japanese jumping off with women and children (against their will).

Anyway, I toured the entire island with Father Gary, saw a Nike sweatshop (ugh...talk about oppressive conditions), as Father told me of the awful drug problem on Saipan that he had to deal with.  That was over 20 years ago. I can’t imagine what it is like there today, pre-Yutu, and now this.

As for Tinian, that is where the Enola Gay took off from, after that island was secured, following the battle for Saipan.

Say a prayer for the people of both islands.

[Saipan and Tinian are part of the U.S. Commonwealth of the Northern Mariana Islands.  Saipan, because of its beautiful beaches and resorts, was/is a big spot for day-trippers from Japan, who would fly in on endless 747s, at least when I was there.  When I was at the airport, I marveled at all these kids taking an hours-long flight to spend about four hours on the beach and then fly home.]

--In PBS’ “The Great American Read” survey, No. 1 was “To Kill a Mockingbird,” the coming-of-age story about racism and injustice hopefully every American schoolchild is still required to read, though I know some districts have banned it, because adults can be idiots.

The other top-five finishers in order of votes were Diana Gabaldon’s “Outlander” series about a time-spanning love; J.K. Rowling’s “Harry Potter”; Jane Austen’s romance “Pride and Prejudice”; and J.R.R. Tolkien’s “The Lord of the Rings” saga.

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

God  bless America.

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Gold $1235
Oil $67.62

Returns for the week 10/22-10/26

Dow Jones  -3.0%  [24688]
S&P 500  -3.9%  [2658]
S&P MidCap  -4.1%
Russell 2000  -3.8%
Nasdaq  -3.8%  [7167]

Returns for the period 1/1/18-10/26/18

Dow Jones  -0.1%
S&P 500  -0.6%
S&P MidCap  -5.6%
Russell 2000  -3.4%
Nasdaq  +3.8%

Bulls 50.5
Bears 19.0

Have a great week.

Brian Trumbore