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For the week 7/8-7/12
[Posted 10:30 PM ET, Friday]
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As I go to post tonight, there is nothing more important than praying for our friends in Louisiana, and surrounding states, as “Barry” is about to hit. May the levees hold.
But this was another amazing week in the stressful presidency of Donald J. Trump. Further record gains in the stock market; Iran giving the world the finger in deciding to enrich uranium above the agreed-upon limits (at least with the remaining signatories to the nuclear deal); a major diplomatic incident with our best ally that didn’t have to be a big deal at all, but the occupant of the Oval Office is who he is.
But I’m still trying to figure out why the Trump administration would so openly pre-announce ICE raids on Sunday, and I’ll point to another issue that could be very telling when it comes to our president; that being his treatment of Turkey, a NATO ally, as it defiantly accepts a highly-sophisticated Russian-made anti-missile defense system that is literally Vladimir Putin’s Trojan Horse. What will the president do? We will learn an awful lot through his actions. Details below.
So let’s move on....
--President Trump reversed course and will no longer pursue adding a question on citizenship to the 2020 census questionnaire.
Instead, he said officials would obtain the information through an executive order for government agencies, as court challenges would have delayed a census.
The retreat follows a long fight over the inclusion of the question, which the Supreme Court blocked in June, temporarily, saying that the government’s reason for including the question seemed “contrived,” and it had not provided adequate justification for it. But it left open the possibility that the government could provide new legal arguments for the question to a lower court – but this would have delayed the census.
Critics of the president said the question was politically motivated and would lead to fewer immigrant households taking part.
Thursday, Trump said: “We are not backing down on our effort to determine the citizenship status of the United States population. We will leave no stone unturned.”
Trump said that his executive order would require government agencies to hand over documents regarding citizenship.
Of course now a lot of folks want to know what the administration will do with all this data, but this will take forever to put together. As in, this is the least of our worries.
--The job of any ambassador is to report back to his or her government with intelligence on the leadership of the country they are assigned to. The ambassador has to be able to build the trust of those inside his host country to thus gain the insight that will be valuable to their own government.
By all accounts, Britain’s ambassador to the United States, Sir Kim Darroch, a highly-experienced diplomat, was doing just that in supplying Prime Minister Theresa May and her cabinet with insights into President Donald Trump and his administration.
Then someone in the UK, wanting to embarrass the government, or possibly a foreign entity (Russia) wanting to sow discord between the United States and its chief ally, released Darroch’s internal cables.
The reaction was devastating...for Darroch and Theresa May, though possibly of some aid to a candidate to succeed the prime minister, Boris Johnson.
In his confidential memos dating from 2017 to the present, Darroch wrote reports of in-fighting in the White House were “mostly true,” and last month described confusion within the administration over President Trump’s decision to call off a military strike on Iran.
“We don’t really believe this administration is going to become substantially more normal; less dysfunctional; less unpredictable; less faction-riven; less diplomatically clumsy and inept,” Darroch wrote in one cable.
The president responded in classic Trump fashion by tweet:
“The wacky Ambassador that the U.K. foisted upon the United States is not someone we are thrilled with, a very stupid guy. He should speak to his country, and Prime Minister May, about their failed Brexit negotiation, and not be upset with my criticism of how badly it was....
“....handled. I told @theresa_may how to do that deal, but she went her own foolish way – was unable to get it done. A disaster! I don’t know the Ambassador but have been told he is a pompous fool. Tell him the USA now has the best Economy & Military anywhere in the World, by far....
“....and they are both only getting bigger, better and stronger....Thank you, Mr. President!”
Prime Minister May defended Darroch, as did Foreign Secretary Jeremy Hunt, who is battling Johnson to succeed her.
“Friends speak frankly so I will: these comments (of Trump’s) are disrespectful and wrong to our prime minister and my country,” Hunt tweeted in kind. Hunt said he would keep Sir Kim in his post until he retires at Christmas.
Which gave President Trump a further opportunity to take down Mrs. May in yet another classless tweetstorm, mindlessly repeating some of his first thoughts.
“I have been very critical about the way the U.K. and Prime Minister Theresa May handled Brexit. What a mess she and her representatives have created. I told her how it should be done, but she decided to go another way. I do not know the Ambassador, but he is not liked or well....
“....thought of within the U.S. We will no longer deal with him. The good news for the wonderful United Kingdom is that they will soon have a new Prime Minister. While I thoroughly enjoyed the magnificent State Visit last month, it was the Queen who I was most impressed with!”
Many in the U.S. government do like Darroch, including Sen. Lindsey Graham, who publicly defended him.
But it was during a televised debate that Boris Johnson, the Tory leadership frontrunner, was pushed on whether he would keep the ambassador, and said he “wouldn’t be so presumptuous” as to think he would be in a position to do that.
Johnson said he had “a good relationship” with the White House and that it was important to have a “close partnership” with the U.S.
Well after this incredibly stupid remark, Johnson’s fellow Conservatives ripped into him. Defend your country’s honor, you fool!
But the damage was done...Darroch quickly saw the handwriting on the wall and resigned.
“Since the leak of official documents from this embassy there has been a great deal of speculation surrounding my position and the duration of my remaining term as ambassador,” he wrote in a statement.
“I want to put an end to that speculation. The current situation is making it impossible for me to carry out my role as I would like.”
Theresa May said that while her government did not share Mr. Darroch’s views of the Trump administration, she said British ambassadors should have the freedom to give frank assessments.
“I have told him it is a matter of great regret that he has felt it necessary to leave his position as ambassador to Washington,” she said. “The whole cabinet rightly gave its full support to Sir Kim on Tuesday.”
Dan Balz / Washington Post
“The once ‘special relationship’ between the United States and Great Britain is in tatters, shredded by the fallout from the 2016 Brexit referendum and President Trump’s determination to intervene in the politics of another country. If it improves, it likely will be on terms set by the president.
“Wednesday’s resignation under fire by Kim Darroch, the British ambassador to the United States, sealed the state of the relationship at a low point in the recent history of the two countries. Leaked cables from Darroch back to his government that included critical comments about Trump and his administration were the ambassador’s undoing. Trump saw an opportunity to embarrass the government and used it to drive a wedge into another country.
“Darroch’s resignation has caused an understandable uproar in Britain. Ahead of his decision to resign, he received strong support from outgoing Prime Minister Theresa May. In the aftermath of his letter of resignation, he has received an outpouring of praise from many others in the government, who said he had acted with utmost professionalism in providing candid analysis of the state of affairs in Washington. They blamed the leaker for taking revenge against the government.”
Editorial / Wall Street Journal
“As so often happens these days, everyone’s a loser in the matter of President Trump’s feud with Britain’s Ambassador to the U.S. Must it always be this way in the Trump-Brexit era?....
“Leaks like this happen, and it would have been nice – and a one-day story – if Mr. Trump had laughed it off, perhaps with a quip about how he’s closely following the continuing success of Brexit. But Mr. Trump never lets a slight go unanswered, and so he let loose a Twitter fusillade calling Mr. Darroch ‘a stupid guy’ and ‘a pompous fool’ whom he would no longer deal with. Oh, and he insulted the lame duck Mrs. May too.
“In doing so he played into the hands of whoever in British politics (or whatever external enemy) leaked the memos to embarrass the government. Britain is a crucial U.S. ally and a major trading partner. Mr. Darroch’s cables were condescending, but Mr. Trump’s overblown response reminds the world how sensitive to criticism the President is and what a fickle friend he can be.
“This won’t help him as he tries to build support for a united front against Iran, Russia or any other joint challenge. This behavior is one reason that many foreign leaders have concluded they will wait on hard decisions until 2020 to see if Mr. Trump is reelected.
“Mr. Darroch’s resignation was inevitable once the cables leaked. He did his country a service by doing it quickly, rather than wait for the next Prime Minister to dismiss him later this month. Former Foreign Minister Boris Johnson is the favorite for that job, and if he wins he will now have the ability to appoint a new diplomat in Washington.
“That’s when the important business will start. Mr. Johnson has to prove his Tory Party and the government aren’t as inept and dysfunctional as they’ve looked for three years. He should also work with Mr. Trump to close a bilateral trade deal as rapidly as possible post-Brexit. The best response to dueling charges of ineptitude is diplomatic policy success.”
More on Johnson, and Brexit, below.
--I cover the Alexander Acosta / Jeffrey Epstein story in “random musings.”
The following at first seemed out of left field, on Thursday.
“Paul Ryan, the failed V.P. candidate & former Speaker of the House, whose record of achievement was atrocious (except during my first two years as President), ultimately became a long running lame duck failure, leaving his Party in the lurch both as a fundraiser & leader....
“....When Mitt chose Paul I told people that’s the end of that Presidential run. He quit Congress because he didn’t know how to Win. They gave me standing O’s in the Great State of Wisconsin, & booed him off the stage. He promised me the Wall, & failed (happening anyway!)....
“....He had the Majority & blew it away with his poor leadership and bad timing. Never knew how to go after the Dems like they go after us. Couldn’t get him out of Congress fast enough!”
So it seemed Trump felt compelled to lash out at Ryan in response to a Washington Post report, which listed excerpts from a new book by Politico’s Tim Alberta, in which the ex-speaker claimed to have grown “numb” to Trump’s “bad” decision-making.
Ryan reportedly told Alberta:
“Those of us around (Trump) really helped to stop him from making bad decisions. All the time. We helped him make much better decisions, which were contrary to kind of what his knee-jerk reaction was. Now I think he’s making some of these knee-jerk reactions.”
“We’ve gotten so numbed by it all. Not in government, but where we live our lives, we have a responsibility to try and rebuild. Don’t call a woman a ‘horse face.’ Don’t cheat on your wife. Don’t cheat on anything. Be a good person. Set a good example.”
Today, Trump said to reporters, “Paul Ryan was not a talent.”
President Trump on his Social Media ‘summit’:
“Each of you is fulfilling a vital role in our nation – you are challenging the media gatekeepers and the corporate censors to bring the facts straight to the American People. Together, you reach more people than any television broadcast, BY FAR! #SocialMediaSummit”
“A big subject today at the White House Social Media Summit will be the tremendous dishonesty, bias, discrimination and suppression practiced by certain companies. We will not let them get away with it much longer. The Fake News Media will also be there, but for a limited period....
“....The Fake News is not as important, or as powerful, as Social Media. They have lost tremendous credibility since that day in November, 2016, that I came down the escalator with the person who was to become your future First Lady. When I ultimately leave office in six....
“....years, or maybe 10 or 14 (just kidding), they will quickly go out of business for lack of credibility, or approval, from the public. That’s why they will all be Endorsing me at some point, one way or the other. Could you imagine having Sleepy Joe Biden, or @AlfredENeuman99....
“....or a very nervous and skinny version of Pocahontas (1000/24th), as your President, rather than what you have now, so great looking and smart, a true Stable Genius! Sorry to say that even Social Media would be driven out of business along with them, and finally, the Fake News Media!”
“Word just out that I won a big part of the Deep State and Democrat induced Witch Hunt. Unanimous decision in my favor from The United States Court of Appeals For The Fourth Circuit on the ridiculous Emoluments Case. I don’t make money, but lose a fortune for the honor of....
“....serving and doing a great job as your President (including accepting Zero salary!).”
[The District of Columbia and Maryland have claimed that Trump’s hotel in Washington harms other hotels and businesses the states partially own. The court’s decision effectively keeps the states’ attorneys general offices from gathering financial information from the Trump Organization and Trump himself.]
Wall Street and Trade
Morgan Stanley, in a note over the weekend from its strategy group, cut its global equities allocation to the lowest level in five years:
“We see a market too sanguine about what lower bond yields may be suggesting – a worsening growth outlook. Continued deterioration in global PMIs suggests a macro environment with plenty of downside risks.”
JPMorgan issued a report saying the recent moves in the markets “owe entirely to hopes of global policy stimulus,” the driving force behind almost all the other major rallies over the past decade.
Certainly global growth hasn’t been the engine for stocks, though JPM’s equity strategists forecast another 15 percent or so in returns over the next 12 months.
Well, stocks hit new highs, the three major indices – Dow Jones, S&P 500 and Nasdaq – all closing at record levels today, as it’s all about easy money and the expectation of lower interest rates to come.
But any optimism over the U.S.-China trade war is grossly misguided. When Xi Jinping came to power in 2012, he promoted his “four confidences” doctrine, in which ordinary people and public officials alike are urged to be “confident in China’s path, political system, guiding theories and culture.”
And while Chinese leaders can learn from being more inclusive, tolerant of different ideas, and open to criticism, these days the opposite is happening. And that should be all you need to know regarding the trade negotiations, whenever they get restarted.
But in terms of Wall Street and the market, Federal Reserve Chairman Jerome Powell suggested that the central bank has room to ease monetary policy as the tie between inflation and the unemployment rate has broken down.
“The relationship between unemployment and inflation became weak” about twenty years ago, Powell told the Senate Banking Committee Thursday. “It’s become weaker and weaker and weaker.”
In his two days of semi-annual testimony before House and Senate committees, Powell said the U.S. economy is “in a very good place.” But he said the central bank wants “to use our tools to keep it there,” and offset any weakness stemming from a global slump in manufacturing and business confidence linked to trade tensions.
Powell said that since Fed officials met last month, “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”
Powell also said that the co-called “neutral rate,” or policy rate that keeps the economy on an even keel, is lower than past estimates have put it – i.e., Powell was admitting the Fed may have been too restrictive.
So the odds are basically 100% that the Fed will be cutting its benchmark rate when it gathers July 30-31, though most likely just a quarter point, not the half point the market was calling for. But the market celebrated anyway.
As to President Trump’s criticism of his work, Trump having called the Fed his biggest threat in his reelection campaign, Powell made no mention of the president in his prepared testimony to Congress, though in response to Rep. Maxine Waters, chair of the House Financial Services Committee, who asked, “Mr. Chairman, if you got a call from the president today or tomorrow, and he said, ‘I’m firing you. Pack up. It’s time to go,’ what would you do?” Powell responded, “Well, of course I would not do that.”
But it’s true the Fed, when it does cut rates, will look to many like its caving to political pressures, which will only grow if, after the second quarter’s presumed lower print on GDP, things begin to heat up again.
Regarding the economic data for the week, we had data on consumer and producer prices for June; the CPI coming in at 0.1%, 0.3% ex-food and energy; 1.6% year-over-year on the headline, 2.1% on core. The PPI was also 0.1% for June, 0.3% on core; 1.7% last 12 months and the lowest since Jan. 2017, 2.3% ex-food and energy.
The core PPI has now been 2% or higher for 23 consecutive months. While this is the target for the Fed, its official benchmark, the personal consumption expenditure index (PCE) remains below 2%.
The Atlanta Fed’s GDPNow barometer for the second quarter is at just 1.4%, after Q1’s final reading of 3.1%.
Then there is the federal budget deficit. The Treasury Department released the deficit for June, $-8.5 billion, which means the deficit for the first nine months of fiscal 2019 (October thru June), is $747.1 billion, 23.1 percent deeper than in the same period in fiscal 2018.
For the first nine months of fiscal 2019, total receipts were $2.609 trillion, up 2.7 percent from the same period last year. Individual income taxes brought in $1.301 trillion, 0.3 percent less than in F2018, while receipts from corporate taxes were $164.4 billion, 1.6 percent more. Among other categories, receipts from customs duties, largely reflecting duties on China, rose 78.2 percent to $50.5 billion.
But outlays for the first nine months of F2019 totaled $3.356 trillion, 6.6 percent more than in the same period last year. Spending on defense during the period totaled $512.5 billion, up 8.4 percent over F2018. My favorite topic, interest costs, rose 16.4 percent from a year ago to $335.6 billion.
Bottom line, spending in the first nine months was a record for the federal government, while tax revenues are falling short of the growth proponents of the massive tax cuts were saying they would be.
Also, between the Department of Health and Human Services and the Social Security Administration, i.e., entitlements, the combined $1.725 trillion on the two represented 51.4 percent of total federal spending.
In terms of a budget deal for fiscal 2020, and the looming debt ceiling, which on the latter Treasury said we could hit soon as early September, House Speaker Nancy Pelosi said she is seeking to finalize a deal to both raise the debt ceiling and resolve an impasse over the budget before the August congressional break, but that would require an extraordinary amount of work in just about two weeks’ time. If the debt ceiling isn’t raised, at least through some kind of short-term extension (or fiscal games on the part of the Treasury), we’re talking government shutdown, and neither side wants that.
The fiscal pileup, however, is also imperiling President Trump’s effort to update the North American Free Trade Agreement, USMCA.
Turning back to the trade war with China... According to White House adviser Peter Navarro today, the United States is in a “quiet period” with China over trade negotiations. In an interview with CNBC, Navarro said in-person talks would start soon in China, with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin traveling to Beijing “in the very near future.”
U.S. and Chinese negotiators spoke earlier in the week by phone, but it’s now been two weeks since Presidents Trump and Xi met in Osaka and there are no set dates for the resumption of talks, though at the same time, there is no deadline for the process to conclude. After Tuesday’s call between Lighthizer, Mnuchin and Chinese Vice Premier Liu He, all that was said in an emailed statement was, “Both sides will continue these talks as appropriate.”
White House economic adviser Larry Kudlow said separately Tuesday that China was expected to move forward “quickly” with agricultural purchases, but there is zero evidence this is about to happen.
Trump himself tweeted the other day, contradicting his own past claims:
“Mexico is doing great at the Border, but China is letting us down in that they have not been buying the agricultural products from our great Farmers that they said they would. Hopefully the will start soon!”
China laid out three red lines for a trade deal when the talks collapsed back in May. As well as the removal of all the tariffs, any purchases must be in line with the country’s real demand and the deal must be based on equality and mutual respect.
Some U.S. officials, however, have insisted that some tariffs will stay even after a deal as an enforcement mechanism. So there’s one major hurdle.
And China’s large purchase of agricultural products will only come about if Beijing believes it is being treated equally and with respect. [I hasten to add that pork purchases are different due to China’s ongoing crisis with swine fever in the country and across Asia that is decimating the hogs...so there have been stories that hog purchases from the U.S. and around the world are up considerably on a percentage basis.]
Lastly, we had this tweet from President Trump this afternoon on Trade....
“When you are the big ‘piggy bank’ that other countries have been ripping off for years (to a level that is not to be believed), Tariffs are a great negotiating tool, a great revenue producer and, most importantly, a powerful way to get....
“....companies to come to the USA and to get companies that have left us for other lands to COME BACK HOME. We stupidly lost 30% of our auto business to Mexico. If the Tariffs went on at the higher level, they would all come back, and fast. But very happy with the deal I made....
“....if Mexico produces (which I think they will). Biggest part of deal with Mexico has not yet been revealed!* China is similar, except they devalue currency & subsidize companies to lessen effect of 25% Tariffs. So far, little effect to consumers. Companies will relocate to U.S.”
*Free Corona for all Americans?!
Europe and Asia
No big data from the eurozone, though industrial production for May was up a solid 0.9% in the EA19 over April (courtesy of Eurostat), an improvement over recent results, though compared with May 2018, industrial production was down 0.5%, giving you a sense of the slump in manufacturing, as reflected by the PMI numbers I give you each month, which is cited by Fed Chairman Powell as something his people are focused on.
Eurostat also released a report on the population of the full European Union, now 513 million as of Jan. 1, 2019, compared with 512.4 million a year earlier.
Turkey 82,003,000...just as an aside
Brexit / PM race: After the above-noted storm over Ambassador Darroch and Boris Johnson’s initial reaction, Johnson vowed to stand up for Britain’s diplomats around the world and take a robust approach toward President Trump if he succeeds in becoming the UK’s next prime minister. Johnson remains the odds-on favorite to be named Theresa May’s successor on July 23.
At first Johnson, a favorite of Trump’s, refused to back Darroch during a televised debate, leading to accusations from fellow Conservative Party lawmakers that he had thrown the ambassador “under the bus” in order to bolster his own ties with Trump.
But at a leadership campaign rally yesterday, Johnson said: “I will stand up for our fantastic diplomats across the world.”
The former London mayor said there were reasons to believe Britain’s relationship with the United States was the “single most important strategic fact of our times.” But he said he had criticized President Trump before and would do so again if necessary.
“I criticized him as foreign secretary,” Johnson said. “We in the UK do not agree with the position of the United States on global warming...[or] their approach to the Iran nuclear deal. We were very robust and will continue to be robust with the U.S.”
Chancellor of the Exchequer Philip Hammond made clear that he thought former foreign secretary Johnson had not handled the crisis correctly and should have backed the beleaguered envoy to the U.S. more strongly.
Meanwhile, an internal investigation into the source of the devastating leak, and a police probe, will now be conducted.
Separately, a poll in The Independent in London showed that Conservatives and Labour are at 28 and 27 percent, respectively, if a UK general election were held today, with the Liberal Democrats on 18 percent and Nigel Farage’s Brexit Party on 14 percent, which is a loss of four points since the last survey, while the Conservatives are up two percent. [The Green Party is at 6 percent.]
But the bottom line for now is, Boris Johnson is expected to beat Foreign Minister Jeremy Hunt handily, and then he’ll have a whopping three months to finalize a Brexit deal with the EU (who has long said will not renegotiate the agreement they carved out with Theresa May), get the deal approved by Parliament (highly doubtful) or risk crashing out Oct. 31, as Johnson has vowed, while Hunt said he’d be willing to look at a further extension, though to appeal to hardliners he’s been toughening this stance of late.
Greece: The nation has a new center-right government, following New Democracy’s landslide victory on Sunday, Kyriakos Mitsotakis the new prime minister, who vowed the country will “proudly raise its head again.”
Under the Greek system, New Democracy, which won nearly 40% of the vote, will have an outright majority in parliament as the winner receives 50 extra seats.
Mitsotakis, the son of former Prime Minister Konstantinos Mitsotakis, said the result gave him a strong mandate for change. He has promised lower taxes, greater privatization of public services and plans to renegotiate a deal with Greece’s creditors that would allow more money to be reinvested in the country.
“I want to see this people prosper. I want to see the children who left to return,” he told supporters.
The vote ends four years of Alexis Tsipras’ leftist Syriza party, which swept to power promising an end to austerity, but then was forced to accept tough fiscal measures in return for an international bailout. Tsipras did the right thing, but it cost him deeply politically.
Germany: Chancellor Angela Merkel suffered her third public shaking episode, involuntary trembling, in just over three weeks, continuing to fuel speculation about the 64-year-old’s health.
But it seems to occur only when she’s standing. Regardless, you can’t help but wonder if she’ll be able to finish out her term.
Turning to Asia...Chinese export data for June was released today by the customs administration, with exports declining 1.3 percent vs. a year ago, after May showed only marginal growth, owing to the ongoing trade tensions with the U.S.
“China-U.S. trade friction has brought some pressure on our foreign trade, but the influence can be controlled,” Li Kuiwen, spokesperson for the customs administration, told reporters.
The value of imports also decreased, falling 7.3 percent in dollar terms, partially reflecting softer commodity prices. Imports normally slow in the summer but weak figures can also reflect manufacturers’ caution while buying raw materials.
Over the first half of the year, China’s exports grew just 0.1 percent, a far cry from 12.8 percent during the same period last year, according to official data. Imports were down 4.3 percent from January to June, compared to growth of 19.9 percent last year. Again, all about the trade war.
Estimates have China’s exports to the U.S. falling by 7.8 percent in June alone, while imports fell 31.4 percent.
In Japan, core machinery orders fell 7.8% in May from the previous month, logging its biggest drop since last September, government data showed on Monday. The fall in core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, was worse than expected.
Separately, inflation-adjusted real wages in Japan fell in May from a year earlier, a fifth straight month of decline that raises worries about the strength of consumer spending. Real wages fell 1.0% in May, labor ministry data showed on Tuesday.
So these two data points suck.
Then you have this Japan-South Korea dispute with roots back to World War II. The two sides failed today to mend a conflict that could threaten global supplies of microchips and smartphone displays after officials met in Tokyo for five hours, which drew media attention for its “frosty start.”
Japan has tightened restrictions on the export of three materials used in high-tech equipment, officially citing what Japan has called “inadequate management” of sensitive items exported to South Korea, as well as a lack of consultation about export controls.
But the dispute also appears to be rooted in a decades-old wartime disagreement. It comes amid deep frustration in Japan over what is seen as Seoul’s failure to act in response to a South Korean court ruling ordering a Japanese company to compensate former forced laborers.
The media picked up on the fact that in this tiny room for the press conference, the two South Korean bureaucrats didn’t greet their Japanese counterparts, all played out on television, as the two sides faced each other “in stony silence.”
It’s complicated. Perhaps more next time if I am able to tell the story better, but it seems the bottom line is the dispute could disrupt supplies of chips and displays from South Korea’s tech giants Samsung and SK Hynix, which count Apple and other smartphone makers among their customers.
Japan is concerned some of its products are being shipped to North Korea, after being exported to South Korea.
I mean North Korea doesn’t exactly have a friendship agreement with Japan, and the North has nukes.
Japan and South Korea have always had a dispute over Japan’s colonization of the peninsula from 1910-45, including the matter of “comfort women,” i.e., girls and women forced to work in Japanese wartime military brothels. Japan claims the dispute was settled by a 1965 treaty, but South Korea has been demanding compensation from time to time.
--The major averages hit new highs, but some of the other indexes such as the Russell 2000 had down weeks. Nonetheless, the Dow Jones rose 1.5% to close at a record 27332, the S&P 500 was up 0.8% to a record 3013, and Nasdaq is also at a record high, 8244, up 1.0% on the week for all the reasons enumerated above. Actually, one real reason...expectations over a Fed rate cut, not to beat a dead horse, which given the recent experience at Santa Anita Raceway is no longer an appropriate aphorism, if it ever was.
--U.S. Treasury Yields
6-mo. 2.07% 2-yr. 1.84% 10-yr. 2.12% 30-yr. 2.65%
The short end of the yield curve rallied, while the long end fell (yields up) on Chairman Powell’s testimony.
European 10-year yields also rose on the thought that maybe the eurozone economy isn’t all that bad, which I think may be the case.
That said, the yield on the German bund is still -0.21%, while the yield on the French 10-year is a whopping 0.06%, which is an improvement over the prior week’s close of -0.09%. It’s all nuts. I mean you still have an Italian 10-year at 1.73%....which is really nuts.
--Oil extended its gains after a weekly report from the Energy Information Administration showed a larger than expected draw in U.S. crude stockpiles, which fell by 9.5m barrels to 459m barrels in the week ended July 5.
The White House is also considering letting Venezuelan waivers expire for Chevron and other U.S. companies, which would rapidly hasten the deterioration in Venezuelan oil production.
The flipside is concerns over the global economy owing to the trade war, i.e., demand, has kept a lid on prices.
One more...U.S. crude exports are gaining traction in Europe as even Ukraine turns into a significant consumer of American barrels at the expense of Russian supplies amid heightened U.S. political pressure on Moscow and problems over contaminated Russian oil. Ukraine this month received its first ever barrels from the United States, according to Refinitiv Eikon flows data.
The crisis that erupted at the end of April over the contaminated oil delivered through a key pipeline caused buyers to look for alternatives.
On the week West Texas Intermediate rallied back above $60 to $60.31, the highest weekly close in two months.
--Commerce Secretary Wilbur Ross said the U.S. will allow American companies to sell technology to the blacklisted Chinese telecom giant Huawei where there is no threat to national security.
“To implement the president’s G20 summit directive two weeks ago, Commerce will issue licenses [for sales to Huawei] where there is no threat to U.S. national security,” Ross said.
--Ryanair warned on Wednesday the impact of the prolonged grounding of Boeing’s 737 MAX on the airline’s growth plans may start to spill over to next summer if the airplane is not flying again by November. Europe’s largest budget carrier needs up to eight months to take delivery of some 50 newly built planes left at the factory by the grounding crisis, so it may have to trim its capacity growth plans for next year if the MAX isn’t back in the fall.
CEO Michael O’Leary said, “Boeing are telling us at the moment they expect to be back flying by the end of September. I think it will fly before the end of this year. I am not sure they will meet the end of September date, but I take comfort from the fact that it seems that now the American, European, Brazilian and Canadian regulators are working together,” he added.
Boeing maintains it will have its software fix to present to regulators in September.
The problem that Ryanair and others have is you can’t just accept 50 planes at once. Now the airlines must ensure they have pilots trained for the MAX, aside from other issues in the delivery process.
--American Airlines raised its revenue guidance for the second quarter due to fuller flights, but said it will take a $185 million profit hit related to the grounding of its 737 MAX fleet. American said it had canceled about 7,800 flights in the second quarter due to the FAA order on March 13 to ground all of its 24 MAX 8 aircraft and an additional 76 that were on order.
The company removed the 737 MAX flights from its schedule through Sept. 3.
--Delta Air Lines reported second-quarter results that were better than analysts had forecast, with guidance for the current quarter ahead of projections and a boost to the full-year outlook.
Adjusted earnings came in at $2.35 per share, which beat the Street, with operating revenue at $12.5 billion from $11.8 billion a year ago.
Delta doesn’t have the 737 MAX exposure that American, Southwest and United do.
--With all of the above, Boeing is about to lose its place as the world’s largest plane maker to Airbus SE after a reign of seven years, with its jetliner deliveries falling by more than a third in the first half with the grounding of the 737 MAX.
More than 150 undelivered MAX jets are parked at sites around the U.S., along with the 380 in airlines’ hands that have been grounded by regulators.
For the third straight month, Boeing reported on Tuesday no new orders of MAX aircraft, and its first-half deliveries overall fell to 239 planes, from 378 in the same period last year.
Airbus shipped 389 planes through June and is on track to deliver a record number of jets this year after shaking off some production issues. Airbus had previously announced it was stepping up production of its rival to the MAX, the A320neo.
Separately, last weekend, Boeing lost a deal for its MAX jetliners to Airbus, with Saudi Arabia’s flyadeal announcing it would buy up to 50 A320neo planes. [“flyadel” is the discount arm of Saudi Arabian Airlines Corp., or Saudia.]
And, finally, Boeing said the head of its 737 MAX production facility will retire after less than a year at the division. Eric Lindblad is a 34-year company veteran; Boeing saying the move wasn’t a consequence of the two fatal crashes involving MAX planes. Lindblad was not involved in the development of the aircraft.
--Tesla finds ways to keep itself in the headlines each week, or rather Elon Musk does. The company said on Tuesday it is poised to increase production at its California plant and is back in hiring mode, according to an internal email from the automotive president, Jerome Guillen. “While we can’t be too specific in this email, I know you will be delighted with the upcoming developments.”
“As we continue to ramp up production, please tell your friends and neighbors that we have lots of exciting new positions open, both in Fremont and at Giga,” Guillen wrote, referring to the battery factory near Reno.
So the shares rose nearly 4% on the news and about 5% for the week.
--China’s Association of Automobile Manufacturers announced that auto sales in China fell for a 12th straight month in June, the slowing economy depressing sales of new vehicles after three decades of growth.
Auto sales fell 9.6% from a year earlier last month to 2.06 million vehicles. For the first six months, they are down 12% at 12.32 million, the weakest in four years. For 12 months, the decline is 11% to 26.29 million, the lowest July-June tally since 2015-16.
Needless to say, U.S. auto makers in China are suffering as well, with GM reporting a 15% drop in first-half sales to 1.57 million vehicles, its weakest showing since 2013.
Ford’s were down a whopping 27% from 2018 in the January-June period.
It doesn’t help that the much-improved Chinese brands are challenging the likes of Ford, Hyundai, and Peugeot, among those catering to the mass market.
But some Japanese brands are doing just fine. Honda’s first-half sales rose 22% and Toyota’s 12%.
Electric-vehicle sales did also rise 50% in the first half, to 617,000, or 5% of national sales. [Trefor Moss / Wall Street Journal]
--Ford Motor Co. shares rose nearly 3% today on word it was teaming up with Volkswagen AG to develop autonomous and electric cars.
--The Trump administration said on Wednesday that it would investigate whether a French plan to impose a tax on U.S. tech giants like Facebook and Google amounts to an unfair trade practice that could be punished with retaliatory tariffs, which would obviously escalate the global trade war.
President Trump has previously threatened the European Union with auto tariffs, which would be a killer, while criticizing the EU for the existing trade deficit. Trump has said the EU is worse than China when it comes to the topic, but Wednesday’s announcement talks of targeting France, alone, for now.
French officials said the tax, which they expect would bring in about $560 million, would apply to digital businesses with annual global revenue of more than 750 million euros ($840 million).
The European Commission estimates that digital companies pay an average effective tax rate of 9.5 percent, compared with the 23 percent paid by traditional businesses. [Ana Swanson / New York Times]
--Deutsche Bank AG has been fine-tuning its massive reorganization plan, the German lender announcing this week that it will slash its workforce of 92,000 by 18,000 employees globally, vs. earlier estimates of 15-20,000. Workers from Sydney to London to New York received the details of their exit packages Monday. It isn’t going to be easy to find another comparable job in an industry that has lost hundreds of thousands since the 2008 financial crisis. Automation and new technology have been replacing workers while reduced risk-taking has trimmed demand in areas such as structured finance.
Those who are able to find work will likely face pay cuts, and across the pond, the Deutsche Bank cuts in the UK come amid a gloomy summer for the sector as Brexit uncertainties were already leading to job cuts.
--A U.S. Circuit Court of Appeals in Manhattan ruled 3-0 that President Trump can’t use Twitter’s “blocking” function to limit access to his account.
“The First Amendment does not permit a public official who utilizes a social media account for all manner of official purposes to exclude persons from an otherwise-open online dialogue because they expressed views with which the official disagrees,” wrote Circuit Judge Barrington Parker, citing several Supreme Court decisions.
--Speaking of Twitter, President Trump took to it Tuesday in support of Home Depot after social media calls to boycott the home improvement giant, following news that co-founder Bernie Marcus plans to back Trump’s re-election bid.
“A truly great, patriotic & charitable man, Bernie Marcus, co-founder of Home Depot who, at the age of 90, is coming under attack by the Radical Left Democrats with one of their often used weapons,” Trump tweeted.
“They don’t want people to shop at those GREAT stores,” Trump continued, because Marcus contributed “to your favorite President, me!”
Mr. Marcus reportedly donated $7 million to Trump’s campaign in 2016, but he retired from HD in 2002. Like find something else to boycott, people.
--Fed Chairman Powell, in his aforementioned testimony to the House Financial Services Committee, warned that Facebook’s planned cryptocurrency, called Libra, cannot move forward unless the social media giant resolves “serious concerns” about the product.
“Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability. These are concerns that should be thoroughly and publicly addressed before proceeding.”
The Fed and the Treasury Dept. have met with Facebook officials on Libra and as Powell said, “The process of addressing these concerns should be a patient and careful one, and not a sprint to implementation.”
Needless to say, Facebook is drawing serious scrutiny over its vision for a digital currency that would allow users to make instant international money transfers from their smartphones.
Thursday, Bank of England Governor Mark Carney said Facebook must show that Libra is “rock solid” before it can be allowed to launch.
“If you are a systemic payment system, you have to be on all the time. You can’t have teething issues, you can’t have people losing money out of their wallets,” Carney said. “This is not learning on the job stuff, it’s got to be rock solid right from the start or it’s not going to start.”
President Trump weighed in on the topic by tweet:
“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity....
“....Similarly, Facebook Libra’s ‘virtual currency’ will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National...
“...and International. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!”
One more on Facebook from tonight, via the Wall Street Journal:
“The Federal Trade Commission has endorsed a roughly $5 billion settlement with Facebook Inc. over a long-running probe into the tech giant’s privacy missteps, according to people familiar with the matter.”
Now the Justice Department’s civil division must finalize it and it’s unclear how long this would take.
“A settlement is expected to tighten government restrictions on how Facebook treats user privacy.”
Neither the FTC nor Facebook has commented as yet, but a point of disagreement “was the extent to which Facebook CEO Mark Zuckerberg should be held responsible or made accountable for future missteps.”
Well I’ve long said he should be flat-out indicted for all the death the company is responsible for in places like Myanmar. [All laid out in PBS’ sterling “Frontline” documentary on the outfit.]
--Shares in drug companies and pharmacy-benefit managers, like CVS and Cigna, rose on Thursday after the Trump administration dropped a major piece of its plan to curb drug prices, the latest sign that central planks of the president’s proposal are faltering amid legal challenges, among other things.
The White House said it won’t proceed with a proposal to curb industry rebates that drugmakers give to middlemen in Medicare. It comes after a federal judge blocked on Monday a separate rule that required drugmakers to put list prices in television ads. Both proposals were aimed at reducing sharply rising drug costs for consumers and the federal government.
Some congressional Republicans worried the proposals would raise Medicare premiums, while a recent report on the projected cost to the federal government put the price tag at about $200 billion over a decade.
--Shares in Apple were basically unchanged on the week, despite another “sell” rating from an analyst, bringing the number of sell ratings on the company to five, the first time there has been five who recommended selling the stock since 1997, according to Bloomberg.
The issue is Apple’s current batch of $1,000 phones, which some argue will continue to see disappointing sales, while the other products won’t pull enough weight to keep Apple’s revenue numbers high enough for investors, at least so says Rosenblatt Securities analyst Jun Zhang.
--According to research firms Gartner Inc. and IDC, personal-computer shipments rose in the second quarter for the first time since last year, with Gartner saying they rose 1.5% to 63 million world-wide, and IDC saying 4.7% to 64.9 million units. IDC and Gartner exclude different products from their calculations.
Gartner said U.S. shipments fell 0.4% from last year’s second quarter, while IDC said the market returned to high-single-digit percentage growth as shipments rose for both desktop PCs and notebooks.
--PepsiCo Inc. posted higher quarterly profit and sales, owing in part to new products such as Pepsi Mango and ramped up marketing of some of its more established brands.
Revenue in the company’s North America beverage division increased 2.5% in the second quarter, with volume rising in ready-to-drink coffee and water brands. The company said the Pepsi and Mountain Dew brands have been turning around after a long slump. I don’t think I’ve had a Mountain Dew since I was a kid. Gatorade continues to struggle, according to analysts.
But increased marketing spending has helped boost Pepsi’s Quaker Oats business, and Aunt Jemima syrup has returned to volume growth!
Overall, PepsiCo’s revenue rose 2.2% from a year ago for the quarter to $16.45 billion. Take out currency fluctuations, acquisitions and divestitures, though, and revenue rose 4.5%. Adjusted earnings per share of $1.54 beat expectations.
The company also announced that with the mounting concerns over plastic waste, it will reduce the use of virgin plastic in its water brands.
--Nike is proceeding with a new factory in Arizona after a flap with Republican Gov. Doug Ducey led to speculation that the project was up in the air.
Nike announced yesterday the new plant, located outside of Phoenix in the suburb of Goodyear, will generate more than 500 full-time jobs and an investment of at least $184 million.
Ducey had moved to rescind up to $1 million in incentives offered to Nike, in criticizing Nike’s decision to recall shoes with a Revolutionary War-era flag called the Betsy Ross, after former quarterback and Nike representative Colin Kaepernick said the symbol was offensive to people of color.
--California lawmakers approved complex legislation to overhaul the state’s method of paying for utility wildfire damages at the urging of Gov. Gavin Newsom; the bill creating a fund of at least $21 billion that power companies can use to pay damages from blazes linked to their equipment.
Critics say the bill goes too far to help the utilities and PG&E, which has admitted that its equipment likely caused the Camp fire, which in November killed more than 80 people in Butte County.
The credit ratings agencies had threatened to downgrade the state’s power companies if lawmakers failed to act this week.
Iran: European powers accused Iran on Tuesday of “pursuing activities inconsistent with its commitments” under a 2015 nuclear deal and called for an urgent meeting of the parties to the agreement to discuss Tehran’s compliance, after Iran announced steps that breach the nuclear pact’s limits. Britain, Germany, France, Russia, China and Iran are the remaining signatories to the deal abandoned by the U.S. last year.
In a phone call between French President Emmanuel Macron and Iranian President Hassan Rouhani, Rouhani said, “The U.S. sanctions are a full-scale economic war against Iran that could create more crisis in the region and the world,” according to Iranian state TV. But Rouhani said, “Lifting all sanctions can be the beginning of a move between Iran and six major powers.”
Macron said the two were looking to resume dialogue by all the parties by July 15, Monday.
Over the past ten days, Iran has announced it had amassed more enriched uranium than allowed under the agreement and said it had refined uranium to a higher purity. Tehran argues its steps were permitted under the deal as a response to U.S. non-compliance. Iran has said it could take further steps in 60 days, including restarting dismantled centrifuges and purifying uranium to a sharply higher threshold. A spokesman for Tehran’s nuclear agency said Iran could ramp up its enrichment to 20 percent purity as a further potential move. [You need 90 percent for a nuclear weapon.]
Iran’s Atomic Energy Organization confirmed an announcement that Tehran had enriched uranium beyond the deal’s limit of 3.67 percent purity, passing 4.5 percent, according to news agency ISNA.
Separately, Iranian boats tried to impede a British oil tanker near the Gulf – before being driven off by a Royal navy ship, according to Britain’s Ministry of Defense.
A British frigate was forced to move between the three boats and the tanker, a spokesman said, adding Iran’s actions were “contrary to international law.”
The Iranian boats were believed to belong to the Islamic Revolutionary Guard Corps and apparently tried to bring the tanker to a halt as it was moving from the Gulf into the Strait of Hormuz.
The British frigate trained its guns on the Iranian boats, which then heeded a warning to back off and no shots were fired. A U.S. aircraft was also supposedly overhead, observing the incident.
Iran’s foreign minister Mohammad Javad Zarif said the UK made the claims “for creating tension.”
“These claims have no value,” Zarif added, according to Fars.
Iran was no doubt responding to last week’s seizing of an Iranian oil tanker by Britain, which says the vessel was bound for Syria in violation of European Union sanctions.
For its part, Israeli Prime Minister Benjamin Netanyahu said Tuesday, in touring a F-35 squadron at an Israeli air base, “Iran has threatened recently to destroy Israel. It is worthwhile for them to remember that these planes can reach everywhere in the Middle East, including Iran and Syria.”
Last week a senior Iranian parliamentarian said that “if the U.S. attack us, only half an hour will remain of Israel’s lifespan.”
Fareed Zakaria / Washington Post
“The best illustration of the incoherence of the Trump administration’s strategy toward Iran came last week in a White House news release. ‘There is little doubt that even before the deal’s existence, Iran was violating its terms,’ it read. The White House has not subsequently explained how a country can violate the terms of a deal before that deal existed.
“This is not the only example of incoherence. When President Trump announced last month that he had called off military strikes against Iran, he said it was because he learned that an estimated 150 Iranians would have died in those attacks. Instead he has further tightened economic sanctions against Iran. The sanctions being levied are having a ‘massive and crippling’ effect on the country, said Jeffrey Sachs, an economist who has studied the effects of such measures. ‘Sanctions like these are known to cause a significant rise in mortality,’ he noted. ‘Given the size of Iran’s population, around 81 million, this is sure to be far larger than 150 deaths.’
“And keep in mind, the people who would have died in the military strikes probably would have been Iranian soldiers. Those who are now dying because of sanctions are newborn babies, mothers, the elderly and sick. An academic study points out that sanctions produce widespread drug shortages, and that those who suffer most are ‘patients struggling with cancer, multiple sclerosis, blood disorders, and other serious conditions.’
“The Trump administration has created a humanitarian crisis in Iran and a geopolitical crisis in the Middle East with no strategy for resolving either. The Iran pact had forced Tehran to commit that it would never develop nuclear weapons, to ship away 98 percent of its enriched uranium, destroy its plutonium reactor, and agree to limits and intrusive inspections for 10 to 25 years. The international inspectors – as well as the intelligence agencies of the major powers – confirmed that Iran was adhering to the deal.
“By withdrawing from the pact, the Trump administration has allowed Iran to start moving away from these limits. For example, Tehran had agreed that it would not develop more than 300 kilograms of low-enriched uranium until 2030. It had kept within those parameters since 2015. Iran exceeded that limit last week, justifying its move by pointing out that the United States had itself abrogated the pact.
“The United States’ actions toward Iran have also created a rift within the Western alliance....
“Other nations in the Middle East sense Iran’s weakness and are moving to take advantage. Israeli officials have privately briefed Western diplomats that they might decide to strike at Iran’s existing nuclear facilities in the near future. Saudi Arabia has celebrated the U.S. campaign of maximum pressure as it pursues a broad anti-Iranian policy on several fronts.
“In other words, Trump has sharply ratcheted up regional tensions with no good plan for resolving them.
“The Trump administration is hoping for capitulation from the Iranians, in which they will return to the negotiating table and accept a deal far more onerous than the one they signed in 2015. It’s possible that this will happen but much more likely that this regional cold war will get more tense and the likelihood of miscalculation or accidental war will rise.”
President Trump’s tweet this week:
“Iran has long been secretly ‘enriching,’ in total violation of the terrible 150 Billion Dollar deal made by John Kerry and the Obama Administration. Remember, that deal was to expire in a short number of years. Sanctions will soon be increased, substantially!”
Last Sunday, after Iran announced it would boost its uranium enrichment above the cap, he said Iran “better be careful.”
Syria: Russian and regime aircraft ramped up their deadly bombardment of the Idlib region – administered by Syria’s former Al-Qaeda affiliate Hay’at Tahrir al-Sham – with 56 killed in clashes Thursday.
Separately, the Syrian Network for Human Rights, reported that since a Russian-led assault in Idlib began two months ago, at least 544 civilians have been killed and over 2,000 injured, in hundreds of attacks carried out by Russian jets and the Syrian army.
The chairman of the SNHR told Reuters, “The Russian military and its Syrian ally are deliberately targeting civilians with a record number of medical facilities bombed.” Russia and Syria deny their jets are hitting civilian areas indiscriminately.
A September deal between Russian and rebel backer Turkey was supposed to avert a massive regime offensive on Idlib, home to some three million, but was never fully implemented. It’s the feared exodus of the 3 million, over to Turkey, that could spark the next European refugee crisis. At least 300,000 have already moved closer to the Turkish border, according to the United Nations.
Turkey: Delivery of Russia’s S-400 air-defense system has begun, the Turkish defense ministry said today, completing a deal that has unnerved Turkey’s NATO allies and is likely to trigger sanctions from the United States.
There was no immediate reaction from the Trump administration, but U.S. officials, like Secretary of State Mike Pompeo, have warned of dire repercussions, including the cancellation of sales of the F-35 fighter jets to Ankara along with the imposition of sanctions under a 2017 law on cooperation with adversaries.
But President Trump has been publicly supportive of Turkish President Erdogan, with Erdogan saying after the two had met at the G20 summit last month that he did not believe the United States would sanction Turkey.
The 2017 Countering America’s Adversaries Through Sanctions Act mandates U.S. sanctions against anyone making a “significant” deal with the Russian defense industry.
U.S. officials have been concerned the S-400 could give Russia access to secrets of the F-35’s stealth technology. The Pentagon has halted the training of Turkish pilots to fly the warplane.
And this afternoon, four leading senators from both parties, the leaders of the Armed Services and Foreign Relations Committees, Jim Inhofe, Jack Reed, Jim Risch, and Bob Menendez, issued a call for President Trump to impose sanctions on Ankara.
The senators wrote in a letter:
“On a strong bipartisan basis, Congress has made it clear that there must be consequences for President Erdogan’s misguided S-400 acquisition, a troubling signal of strategic alignment with Putin’s Russia and a threat to the F-35 program.
“As a result, we urge President Trump to fully implement sanctions as required by law.”
The senators insisted, though, that “Turkey is an important NATO ally, and we hope that the strategic relationship between the United States and Turkey will overcome this setback.”
Libya: The UN said this week that the battle between rival militias for the Libyan capital of Tripoli has killed more than 1,000 (1,048), including 106 civilians.
Forces loyal to Khalifa Haftar opened an offensive on Tripoli in early April, advancing on the city’s outskirts and clashing with an array of militias loosely affiliated with the UN-recognized government.
Lebanon: A story crossed the wires late today from Reuters that Hezbollah leader Hassan Nasrallah, in an interview with Hezbollah’s al-Manar TV, said that Washington was seeking to open channels despite ramping up sanctions against its officials.
“(President) Trump’s administration is seeking to open channels of communication to Hezbollah in Lebanon through mediators. ...These are the American pragmatists,” Nasrallah said without elaborating. Interesting.
Afghanistan: At a peace conference between the Taliban and influential Afghans, including government officials, the two sides agreed to a “roadmap for peace,” with a statement calling for an end to civilian casualties and the protection of women’s rights within an “Islamic framework.”
But this is a non-binding agreement which comes as the U.S. and Taliban are continuing to negotiate separately.
U.S. lead negotiator Zalmay Khalilzad told reporters on Monday, however, that he saw the meeting between the Afghans and the Taliban as “a big success.”
Meanwhile, a massive car bomb claimed by Taliban forces killed at least 12 and wounded nearly 180 in Ghazni province last Sunday, at the same time Taliban and Afghan officials were meeting in Qatar. Many of the victims were schoolchildren going off to class.
North Korea: Kim Jong Un was formally named head of state of North Korea and commander-in-chief of the military in a new constitution that some are saying was possibly aimed at preparing for a peace treaty with the United States.
Pyongyang has long called for a peace deal with Washington to normalize relations and end the technical state of war that has existed since the end of the 1950-53 Korean War, which concluded with an armistice, not a peace treaty.
A previous version of North Korea’s constitution called Kim “supreme leader” who commands the country’s “overall military force.” Now a state news portal says Kim is “the supreme representative of all the Korean people,” which means head of state, and “commander-in-chief.”
This apparently allows Kim to call himself President, instead of being just the leader of a country with a military-first policy. It also may allow Kim to sign a peace treaty as leader of a ‘normal state,’ or so the experts are saying.
U.S. officials have signaled they may be willing to conclude a limited agreement on a treaty to reduce tensions and open liaison offices, as part of the move toward normalizing relations, before North Korea actually takes substantial steps toward denuclearization.
To me, such a move, let’s say signed this fall, would allow President Trump to take the issue off the table (in his mind) for the balance of his reelection campaign.
But of course in reality, any title change for Kim is meaningless as he is still supreme leader who likes to blow opponents to bits.
The State Department also said on Tuesday that it hoped to see a freeze in the North Korean nuclear program as the start of a process of denuclearization. But it really doesn’t matter what State says. It’s up to President Trump.
At the same time as this development, North Korea called the planned delivery to South Korea of two U.S. F-35 stealth fighter jets an affront to last year’s pledge by the two countries to tone down military tensions on the peninsula, saying it had no choice but to develop arms to counter them.
Pyongyang’s threat to Seoul came the same day that a report from U.S. Forces Korea said that North Korean missiles can strike any part of the contiguous U.S., estimating the range of the North’s Hwasong-15 intercontinental ballistic missile to be 8,000 miles.
U.S. Forces Korea oversees the roughly 28,500 American personnel stationed in South Korea. Last April, a separate Pentagon report also concluded North Korea’s weapons testing has “demonstrated its ability to strike the U.S. homeland.”
But many nuclear experts remain skeptical.
China: The extradition bill that sparked Hong Kong’s biggest crisis in decades is dead, the territory’s leader, Carrie Lam, said on Tuesday, adding that the government’s work on the legislation had been a “total failure,” but critics continued to accuse her of playing with words.
The bill, which would allow people in Hong Kong to be sent to mainland China to face trial in courts controlled by the Communist Party, is at the heart of the violent street protests that plunged it into turmoil.
But protesters want the bill formally “withdrawn,” and I haven’t seen that as yet. Lam herself told reporters Tuesday: “There are still lingering doubts about the government’s sincerity or worries whether the government will restart the process in the Legislative Council (Legco).”
One pro-democracy lawmaker who is aligned with the protesters, Fernando Cheung, told Reuters:
“She still doesn’t get it. If she doesn’t establish an independent inquiry commission, it’s the death of her administration, not just the bill. The crisis cannot be settled without some heads rolling.”
Separately, as Taiwan’s President Tsai Ing-wen is in the United States, as part of her trip to visit Caribbean allies, Beijing has demanded the United States reverse its approval of the biggest arms sale to Taiwan since Donald Trump took over as U.S president, while Taipei said it showed Washington’s support in the face of growing military threats from mainland China.
The $2.2 billion sale was approved by the State Department on Monday.
The Taipei government said the transaction was necessary, especially with Beijing repeatedly staging war games to intimidate the self-ruled island and sabotage peace and stability in the region.
--Presidential tracking polls....
Gallup: 41% approval of President Trump’s job performance, 54% disapproval; 90% Republicans, 34% Independents (June 16-30, July 2).
Rasmussen: 46% approval, 52% disapproval (July 12).
A new Washington Post-ABC News poll showed President Trump’s approval rating had risen to 44% among voting-age Americans, up from 39% in April, with 53% saying they disapprove of him. Among registered voters, 47% say they approve of Trump while 50% disapprove. In April the split here was 42-54.
51% say they approve of his handling of the economy. But he has a net negative of 33 points on climate change.
The survey also matched Trump against five possible Democratic nominees: Biden, Sanders, Harris, Warren and Buttigieg.
Among registered voters, only Biden emerges with a clear advantage, leading Trump by 53% to 43%. Against the other four they are basically dead heats.
In a new Wall Street Journal/NBC News poll, 26% of surveyed Democratic primary voters supported Joe Biden, with Elizabeth Warren at 19%. Kamala Harris and Bernie Sanders are next at 13% each, with Pete Buttigieg at 7%.
None of the other 17 candidates tested in the survey garnered more than 2%.
Biden still takes 46% of the black vote, ahead of Sen. Harris with 17%.
47% said they were most impressed by Harris’ debate performance, a far larger share than said so of any other candidate.
--In a Fox News poll of South Carolina Democratic primary voters, Joe Biden leads convincingly with 35% to Bernie Sanders 14% and Kamala Harris’ 12%.
--Dorothy Rabinowitz / Wall Street Journal
“Memories of the first Democratic debates recede, though echoes remain of one bizarrely magnified event – Sen. Kamala Harris’ sustained assault on front-runner Joe Biden. Over the weekend Mr. Biden issued an apology to those who had been pained when he recalled his amicable relations with archsegregationists early in his Senate days. Ms. Harris’ response made it clear that she had no intention of allowing that night of glory on the debate stage to fade – a moment that changed the world and her place in it, according to a fevered commentariat.
“It was good that Mr. Biden recognized the impact of his words, she said. But ‘we cannot rewrite history.’
“Neither can she undo the impact of her own comments during the debate – a histrionic performance likely to cost her more than the donations and improved poll numbers that she gained. She had mounted her offensive against Mr. Biden days after Sen. Cory Booker delivered a lengthy harangue focused on his pain at hearing the former vice president speak of his ability to get on with the likes of Mississippi Sen. James Eastland, who retired in 1978.
“No reasonable person could have doubted Mr. Biden’s meaning – that he had in mind a time when politicians understood the value of working with everyone to achieve results. That idea Lyndon B. Johnson understood so well – that had enabled him, as Senate majority leader and president, to flatter, arm-twist and otherwise seduce opponents of civil-rights legislation into allowing it to pass.
“No one considering Mr. Booker’s abysmal standing in the polls would have much doubt, either, about the impetus that had driven his operative display... It wasn’t that Mr. Biden was a racist. Mr. Booker hadn’t meant that at all, he insisted. He merely wanted an apology for all the pain Mr. Biden had caused.
“Ms. Harris was more ambitious. She chose the debate stage for her charge against the front-runner.
“In doing so she transformed her public image – the tone that had commanded so much rapt attention every time she spoke at a committee hearing. Gone was the deadly cool authority, the presence many viewers had come to admire, as she conducted her steely cross-examinations of witnesses whose misfortune it was to come before her....
“Not least, she brought to mind the kind of candidate who could take on a certain sitting president and defeat him.
“But all that was before the debate transformed her into someone whose relentlessness and self-dramatization seemed to know no bounds. She now portrayed herself as hurt and haunted by memories of a childhood in which she had encountered racism – a torment, she clearly implied, in which Mr. Biden had a hand. He had after all opposed mandated busing.
“Media fanfare over this hit job – admired for its strategy, its qualification as a breakthrough event – lasted several days....
“The hullabaloo couldn’t, however, erase the impression of a Kamala Harris the public had never before seen, or the tone of her self-pitying attack on Mr. Biden that went back decades to the busing era....
“The debate was revelatory, as debates tend to be, and among the things this one revealed was a Kamala Harris who adhered to the comfortable belief that Americans understand the tough lives of politicians, and that all’s fair in these contests. You do what you have to do.
“All of which ignores the reality that America also judges candidates on matters like character and decency and truthfulness – and the likelihood that in the age of the Trump presidency, they will be more than ever inclined to do so.”
George Will / Washington Post
“If Sen. Kamala D. Harris (D-Calif.) is elected president 2020 and reelected in 2024, by the time she leaves office 114 months from now she might have a coherent answer to the question of whether Americans should be forbidden to have what 217 million of them currently have: private health insurance. Her 22 weeks of contradictory statements, and her Trumpian meretriciousness about her contradictions, reveal a frivolity about upending health care’s complex 18 percent of the U.S. economy. And her bumblings illustrate how many of the Democratic presidential aspirants, snug in their intellectual silos, have lost – if they ever had – an aptitude for talking like, and to, normal Americans.”
--Speaking of “Middle Class Joe” Biden, he reported earnings on Tuesday of $15.6 million over the past two years, making him the wealthiest among his chief competitors for the Democratic presidential nomination.
The vast majority of Biden’s income – which totaled $11 million in 2017 and $4.6 million in 2018 – came from book payments and speaking fees. Biden also earned $371,159 in 2017 and $405,368 in 2018 as a professor at the University of Pennsylvania.
Biden gave 49 speeches after leaving office, with fees as high as $234,000. His wife, Jill, delivered 18 speeches, for which she earned about $36,000 each.
--Sen. Elizabeth Warren raised $19.1 million for her presidential campaign in the last three months, more than triple what she raised in the first quarter of 2019. Earlier, Pete Buttigieg announced he had raised $24.8 million, Joe Biden came in at $21.5 million, Bernie Sanders $18m, and Kamala Harris $12m.
But Warren’s haul came from more donors, 384,000; Buttigieg 294,000; Biden 256,000; Harris 279,000.
--It should come as no surprise that billionaire Tom Steyer said he plans to spend at least $100 million running for the presidency, as the environmental activist moves to put his deep pockets to work in the crowded Democratic presidential field.
Steyer announced his candidacy in an online video Tuesday, saying he was “running to end corruption of our democracy by corporations and give more power to the American people.”
--Rep. Alexandria Ocasio-Cortez continued her war of words with House Speaker Nancy Pelosi, calling Pelosi “outright disrespectful” for criticizing women of color. AOC was reacting to the Speaker’s repeated attempts at reigning in some of the more left-wing members of her caucus and chastising the freshman reps for tweeting too much.
“When these comments first started, I kind of thought that she was keeping the progressive flank at more of an arm’s distance in order to protect more moderate members, which I understood,” AOC told the Washington Post.
“But the persistent singling out – it got to a point where it was just outright disrespectful – the explicit singling out of newly elected women of color.”
Earlier in the week Pelosi mocked AOC and fellow freshman progressive colleagues – Rep. Ilhan Omar, Rashida Tlaib and Ayanna Pressley – for their Twitter-based influence.
“All these people have their public whatever and their Twitter world,” Pelosi told the New York Times in a story published Sunday. “But they didn’t have any following. They’re four people and that’s how many votes they got.”
--David Ignatius / Washington Post
“Polls suggest a continuing public distaste for (President) Trump’s erratic, egoistic personal style, with 65 percent finding his behavior ‘unpresidential’ in the Post-ABC News poll. The daily Trump show leaves the country exhausted and frazzled, and you can hypothesize a Democratic challenger who would be calming, trustworthy and unifying.
“But looking at the Democratic field, it’s not clear yet who could actually deflate Trump’s balloon. The Democrats appear increasingly divided; they’re skewing further left as candidates compete for the party’s base; young progressives seem eager to pick fights with House Speaker Nancy Pelosi and other leaders. The public sadly seems almost as weary of Democrats’ investigations as of Trump’s scandals....
“Democrats should wake up: Like it or not, Trump is on something of a roll. Twenty candidates bickering onstage looks worryingly like a recipe for four more years.
“Hillary Clinton thought Trump would beat himself, but she was wrong. The Democrat who can win in 2020 will be the one who presents a reassuring contrast to this loud but chronically insecure president. The polls say Trump is beatable, but it will take a strong, sensible campaign that can pull voters in the middle, where this race will be won or lost.”
--Kathleen Parker / Washington Post
“It helps to know people in high places, especially if you’re a sex offender and your name is Jeffrey Epstein.
“Some might say that Epstein, the multimillionaire financier, reached the summits of wealth and self-indulgence by his own volition. He is undeniably intelligent, a whiz kid at math and science in his early years who built his fortune, in part, by running a money management firm that catered to the mega-rich. He’s also a philanthropist who specializes in collecting brilliant minds.
“His ascent from the middle class in which he was raised to his place among the wealthiest of the wealthy has allowed him to surround himself with the highest and the mightiest, including two presidents, Bill Clinton and Donald Trump. Although Trump now denies a relationship with Epstein, in 2002 he told New York magazine a different tale:
“ ‘I’ve known Jeff for fifteen years. Terrific guy. He’s a lot of fun to be with. It is even said that he likes beautiful women as much as I do, and many of them are on the younger side.’
“Facing a federal indictment in 2007 for sex crimes that could have put him in prison for life, Epstein instead got off easy. His legal team, which included high-priced lawyers Alan Dershowitz and Kenneth W. Starr, secured a sweetheart, non-prosecution deal for Epstein that allowed him to plead guilty to lesser state charges. Epstein’s lawyers received no small amount of cooperation from Alexander Acosta, then U.S. attorney for the Southern District of Florida and now the labor secretary. Thanks to these two sharp legal minds and one dull puppet, Epstein ultimately served just 13 months in county jail and was allowed to spend up to 12 hours a day on ‘work release,’ six days a week. He also had to pay restitution to some of the victims and register as a sex offender.
“This was despite a 53-page federal indictment prepared by the FBI that identified 36 potential victims, some as young as middle-school aged.
“There’s little question that Acosta was out-lawyered, but perhaps he was also disarmed by the attentions of these celebrity attorneys. Dershowitz, then a Harvard law professor, had famously defended O.J. Simpson. Starr, of course, was the independent counsel who investigated the Clinton Whitewater case, leading into the Monica Lewinsky cliffhanger.
“In a 2011 letter trying to defend himself after the cushy plea deal, Acosta wrote that he faced ‘a year-long assault on the prosecution and the prosecutors’ by ‘an army of legal superstars.’ He also asserted that defense lawyers ‘investigated individual prosecutors and their families, looking for personal peccadilloes that may provide a basis for disqualification.’
“Go on, grab a hankie. Acosta also has said he feared the young accusers might not be their own best witnesses. Perhaps not. Then again, seeing girls interrogated and cross-examined by high-profile lawyers might have worked in their favor. Instead, the alleged victims were kept in the dark about the non-prosecution agreement and the records were sealed, in contravention of the federal Crime Victims’ Rights Act.
“Justice is sometimes slow, but she appears to be catching up with Epstein.
“On Monday, a new 14-page federal indictment was unsealed in New York accusing Epstein of sex trafficking and abuse of underage girls at his homes in Manhattan and Palm Beach, Fla., between 2002 and 2005....
“No one has ever overestimated the power of money, and its power to corrupt is absolute. The hubris that passeth all understanding belongs to Epstein.
“Pending further revelations, one thing is clear: Acosta should step down from his Cabinet position for dereliction of duty in his prior role – and because he has the spine of a mollusk. In deciding not to fully prosecute Epstein in 2007 – and then agreeing to bury the proceedings without advising the victims – he violated the law, betrayed the victims’ trust and displayed rare cowardice before justice.
“Finally, nobody likes a whiner.”
Meanwhile, former President Clinton released a statement distancing himself from Epstein.
“President Clinton knows nothing about the terrible crimes [Epstein] pleaded guilty to in Florida some years ago, or those with which he has been recently charged in New York,” the statement said.
“In 2002 and 2003, President Clinton took a total of four trips on Jeffrey Epstein’s airplane: one to Europe, one to Asia, and two to Africa, which included stops in connection with the work of the Clinton Foundation,” the statement added.... “He’s not spoken to Epstein in well over a decade, and he has never been to Little St. James Island, Epstein’s ranch in New Mexico, or his residence in Florida.”
But Clinton was said to have taken more than two dozen trips on Epstein’s private Boeing 727 – dubbed the “Lolita Express’ – before he pleaded guilty in the 2008 Florida case.
Some of the others who could be implicated as friends of Epstein’s include Woody Allen, Alan Dershowitz and Great Britain’s Prince Andrew.
So Alex Acosta gave a press conference Wednesday to try to explain his 2008 decision as a prosecutor and he was less than impressive.
Today, he resigned.
This was when he was labeled a “Level 3” sex offender in 2011 in New York, three years after his controversial 2008 plea bargain in Florida.
--We note the passing of H. Ross Perot, 89.
Perot was a computer-services pioneer who ran two outsider presidential campaigns that especially in the case of the first one, tapped into some antiestablishment sentiments that would later propel Donald Trump to the White House. He was the most successful independent presidential candidate of his time when he picked up 19 percent in 1992.
Perot founded Electronic Data Systems Corp.* and sold it to General Motors Co. in 1984 for $2.5 billion.
While running EDS, in 1979, he famously mounted an operation to free two employees being held for ransom in Tehran, as chronicled in Ken Follett’s best-selling book “On Wings of Eagles.”
Gerald F. Seib and James R. Hagerty / Wall Street Journal
“His first campaign focused on the national debt, and may have determined the outcome of the 1992 election, in which Democrat Bill Clinton defeated incumbent Republican George H.W. Bush. Four years later, he played up trade deficits with Mexico, foreshadowing a theme of the 2016 election.
“James Carville, who faced Mr. Perot’s challenge as chief strategist of Mr. Clinton’s 1992 campaign, said that ‘if Trump is the Jesus of blue-collar populism, then Ross Perot was its John the Baptist.’
“In his campaigns, Mr. Perot tapped into a kind of radical center in American politics, shaking loose and energizing voters who weren’t loyal to either party and whose support was then up for grabs.
“ ‘The guy, I think, was the beginning of the shake-up of the two-party system,’ said Rahm Emanuel, the former Chicago mayor who worked on both of Mr. Clinton’s campaigns and then in the Clinton administration. ‘We had a conscious strategy inside the White House to woo, between ’92 and ’96, the Perot vote.’
“Ed Rollins, a longtime Republican political strategist who helped oversee Mr. Perot’s 1992 presidential run for a time, said that campaign ‘was the forerunner of the tea party movement and eventually the Trump candidacy and election as president.’....
“Mr. Perot first shook up the national political scene in 1992 by declaring he was going to run for president as an independent and would spend up to $100 million of his own money to do it. He chose what was then a novel path to publicize his run – regular appearances on TV talk shows – and railed against excessive spending and bad management in Washington.
“George H.W. Bush and Mr. Perot, both prominent Texans, deeply disliked each other. Indeed, the Perot candidacy was widely seen as a direct attack on the Bush campaign.
“For a time it appeared Mr. Perot might even have a chance to turn the political landscape upside down by winning. In spring 1992, he was running second in national polls behind Mr. Bush, and ahead of the Democratic nominee-to-be, Mr. Clinton.
“But Mr. Perot’s erratic behavior soon became a problem He dropped out of the campaign even before formally announcing his candidacy, blaming undisclosed Republican ‘dirty tricks’ being played on him. Then, in the fall of 1992, he re-entered the race. Though damaged, he still managed to win 19% of the national vote, the highest share of the vote won by an independent or third-party candidate since 1912. He failed to win any states.
“Supporters of President Bush angrily blamed Mr. Perot for their loss that year, arguing he siphoned off votes that otherwise would have gone to the incumbent. Friends of the late Mr. Bush remain deeply bitter at the Perot disruption.
“He ran again in 1996, and this time bore in on his opposition to free-trade agreements, and specifically the North American Free Trade Agreement, which was strongly supported by both Presidents Bush and Clinton. Mr. Perot famously declared that NAFTA was creating a ‘giant sucking sound’ as it pulled jobs out of the U.S. and into Mexico.”
Eliza Collins / Wall Street Journal...on the debate over Perot’s impact in 1992.
“Then-Arkansas Gov. Bill Clinton won the 1992 presidential race with 43% of the vote. Mr. Bush took 37%, and Mr. Perot 19%. Bush supporters say that Mr. Perot’s attacks hurt the incumbent’s credibility and he took voters that would have given Mr. Bush a second term. But pre-debate and exit polls at the time suggest Mr. Clinton would have won with or without Mr. Perot in the race.
“Wall Street Journal polling found Mr. Bush led Mr. Clinton in the spring of 1992. But by that summer, Mr. Clinton had pulled ahead by double-digits and stayed there, even during a brief interlude when Mr. Perot had dropped out and it was a two-man race.
“According to Michael Barone and Grant Ujifusa, in their analysis for ‘The Almanac of American Politics 1994,’ exit polling showed that the second-choice candidates of Perot voters were evenly split between Mr. Bush and Mr. Clinton. By that measure, had Mr. Perot not been in the race Mr. Clinton still would have won – with the caveat that some Perot supporters may not have voted at all had they been left with only two choices.
“Charlie Cook, editor of the Cook Political Report, said the 1992 race was complicated and people will never know just how significant a role Mr. Perot played.
“For Mr. Bush’s team, ‘this was a lot more than sour grapes,’ Mr. Cook said. ‘Lots of people want to blame somebody for a loss – and we see that all the time – this is more than that.’
“Mr. Cook said attacks on the health of the economy by Mr. Perot...carried more credibility with Republican and conservative voters than had they come only from Mr. Clinton.
“Mr. Perot ‘was blasting President Bush so hard that time, it was kind of like he chiseled [voters] out of that Bush column,’ Mr. Cook said.”
Wendy Kopp / Wall Street Journal
“I reached out to Ross Perot in the spring of 1990 It was a long shot, but he agreed to let me come in to pitch my proposal in person. Thanks to that meeting, Teach For America was able to launch.
“I conceived of Teach For America as a college senior, in 1989, to inspire promising future leaders to work in schools in urban and rural communities. It struck people as implausible. But born and raised in Dallas, I had a sense of what it meant to have a massive vision – and how to work to make it a reality. Perot embodied that spirit.
“As I considered who might fund Teach For America’s launch as a nonprofit, he was the first person who came to mind. I grew up knowing of his commitment to national service, his time at the Naval Academy and as a Navy officer, and his deep commitment to education. He had worked tirelessly to improve public education in the state of Texas. I remember the furor over his proposed ‘no pass, no play’ law, which required high-school students to maintain their grades in order to participate in extracurricular activities such as football or hand.
“By the time of our meeting, Teach For America was coming together: 2,500 college seniors had responded to a grass-roots recruitment campaign, we’d selected 500 of them to serve in the first corps, veteran teachers and education-school professors had committed to design and run their training institute, and school districts across the country had promised to hire the first corps members. But we didn’t have the financial resources to make it happen. We needed another $2 million to make it through the first year.
“After a long meeting, Perot told me that if I could raise $1.5 million, he would provide the remaining $500,000. At that moment I knew we’d make it. Sure enough, with the financial leverage of his commitment, other donors stepped up to meet the challenge.
“Without his willingness to bet on someone young and inexperienced, Teach For America might not exist today. Few philanthropists are so open to new ideas or willing to invest in an unproven entrepreneur. Teach For America has placed 60,000 outstanding, diverse young graduates as teachers, 84% of whom still work, full-time to expand opportunity for children in low-income communities.
“The Perot family has been constant in its support, particularly in the Dallas-Fort Worth area where Teach For America has built a strong presence in the past decade....
“Teach For America’s example has helped inspire similar organizations in 49 countries as part of the Teach For All global network. Ross Perot’s willingness to make time for an idealistic recent graduate and then to say yes will be part of his enduring legacy.” [Wendy Kopp is CEO of Teach For All]
--By a vote of 402-12, the House has approved a bill that would replenish and make permanent the 9/11 Victims Compensation Fund. It now moves to the Senate, which is expected to vote on the bill next month.
Republican Congressman Peter King of Long Island summed it up: “This is part of the lasting debt America has to the men and women of 9/11 and those who worked in the days, weeks and months afterwards.”
--This coming week represents the 50th anniversary of the Apollo 11 mission. Take a moment to stare at the moon and let your mind drift away.
Pray for the men and women of our armed forces...and all the fallen.
God bless America.
Returns for the week 7/15-7/19
Dow Jones +1.5% *
S&P 500 +0.8% *
S&P MidCap -0.3%
Russell 2000 -0.4%
Nasdaq +1.0% *
Returns for the period 1/1/19-7/19/19
Dow Jones +17.2%
S&P 500 +20.2%
S&P MidCap +17.9%
Russell 2000 +16.4%
Bears 18.3 [the week before was 55.2 / 18.1]
Have a great week.
*I do not know when I’m posting the next one. I’ll be out in the Midwest for a family wedding, traveling much of Friday, plus Round One of the celebration that evening. Ergo....