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09/07/2019

For the week 9/2-9/6

[Posted 10:30 PM ET, Friday]

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Edition 1,065

Americans were largely consumed with Hurricane Dorian this week, which dealt a devastating blow to the northern Bahamas, the smell of decomposing bodies on Great Abaco Island foretelling an eventual death toll that Bahamian officials are saying tonight will be “unimaginable” and “staggering.”

Yet there was President Trump, who couldn’t simply say he ‘misspoke’ on Sunday when he included Alabama in a non-existent storm track at that point.  The president’s performance in the ensuing days was beyond pathetic.  There are times when he is such a small man.

And yet these are times demanding great leadership.  I’ve been warning the past few weeks of what could be a critically important day for U.S.-China relations, and thus global financial markets, let alone for the likes of Hong Kong and Taiwan.

October 1st...when Chinese President Xi Jinping will give a big speech commemorating a key anniversary in the history of his nation.

We received word U.S.-China trade talks will resume early in the month as well.  The market rallied on this news, but as I’ve said over the 20 years of StocksandNews, Wall Street is peopled with idiots.  I have also been saying this since day one of the trade issue.  There is not going to be a “tremendous” deal, or a great victory for the United States, as President Trump has forecast from time to time.  China is not going to roll over.  The October talks will amount to nothing.

But Trump is up against the election clock and there is no doubt at some point early next year he’ll be desperate for something he can call victory.  The issue is will Xi give it to him...like some concessions on farm purchases.  As Robert Zoellick writes below, not one of President Trump’s supposed victories on the trade front has been an actual win.  I’ve been telling you, for example, that the South Korea-U.S. deal was a total sham....and it was.  And USMCA is a marginal deal, at best.

What has been my point since day one of the Trump administration when he pulled out of the Trans-Pacific Partnership?  It was a mistake, a disastrous move of monumental proportions, and everything that has transpired since then proves this out.  Period.  End of story.

And then there is the charlatan Boris Johnson and Brexit.  This lying blowhard spewed nothing but falsehoods during the referendum campaign in 2016, and now he’s flailing away as prime minister, trying desperately to pull off what would be a catastrophic no-deal Brexit, but he’ll fail.  It’s been curious how President Trump, who has expressed his admiration for Johnson countless times, said nothing this entire week as Boris suffered one humiliating defeat after another.

But despite all the above, and what follows, for the United States it’s really about 2020 and Michigan, Wisconsin and Pennsylvania, and maybe one or two others.  We all know the game President Trump is playing.  He is laying the predicate.

If the dysfunctional Democrats can figure out who is best suited to defeat the president, and out of nowhere the Dems eke out a victory, ostensibly by retaking the three noted states, President Trump will be crying fraud...and it will be an incredibly ugly time for America.

But for now we move on....

Jackson Diehl / Washington Post

“On October 1, huge celebrations of the 70th anniversary of the founding of (Xi’s) Communist regime are planned on the mainland.  Counter-demonstrations in Hong Kong could spoil the show and cause Xi a humiliating loss of face. Xi’s media and military commanders have been threatening intervention for weeks.  They’ve tweeted propaganda videos of People’s Liberation Army troops using machine guns against ‘rioters’; they’ve massed elements of the paramilitary People’s Armed Police in the neighboring city of Shenzhen, where they’ve been carrying out exercises. Fresh soldiers were conspicuously rotated to the existing PLA garrison in Hong Kong last week.”

As Chen Long, an analyst based in Beijing, put it in the South China Morning Post:

“The Chinese leadership could use this opportunity to remind people of the history of foreign powers meddling in Chinese affairs and tell people to unite against the bullying Americans.

“Washington’s aggressiveness has also alienated and annoyed many moderate minds in China. For instance, the ‘currency manipulator’ label has outraged Chinese central bankers, because for many years they had tried to make the renminbi exchange rate more market-driven, and they are probably among the most reform-minded people in the government.

“The U.S. has shown the PBOC (People’s Bank of China) that it doesn’t play by rules, even the rules its sets.  If the moderates in Beijing also lose faith, it is hard to imagine how a ‘trade’ deal can be struck.

“The only chance is for Trump to suddenly soften his stance.  However, despite his mercurial nature, the odds of this happening are low because his political opponents will accuse him of ‘kowtowing’ to China. And that’s not something he wants to risk ahead of the presidential election.”

But Trump will find a way to claim victory.  That’s a certainty.

Trump World

--The Wall Street Journal reported that U.S. Customs and Border Protection took about 64,000 people into custody at the U.S.-Mexico border in August, an official told the paper.  The figure includes arrests of people who crossed the border illegally and those who went to legal border crossings, of which CBP processes about 10,000 a month.

The August figures are about 30% lower than July’s numbers, continuing a sharp decline in illegal crossings since reaching a 13-year high of 132,900 apprehensions in May. Normally, border arrests rise from July to August so this is a victory for the Trump administration and policies making it harder for migrants to apply for asylum in the countries they cross before reaching the U.S.

And then under pressure from the White House, the Mexican government boosted  its own deportations.

“I want to again thank the country of Mexico,” President Trump said in the Oval Office on Wednesday, adding that thousands of Mexican soldiers were “right now protecting our border and they’ve done a fantastic job.”

--Defense Secretary Mark Esper on Tuesday approved a border-wall spending plan that will divert funds from more than 100 military construction projects to earmark $3.6 billion for constructing a wall on the southern border with Mexico.

The plan to allocate money for the border wall will take funds from some 127 existing military projects, according to the Pentagon.  It’s not clear which projects will be affected.

The Pentagon said existing plans are being “deferred,” not canceled.  More much on this next week as more details emerge.  This is atrocious.

--Wednesday, President Trump displayed an altered map to show Alabama in the path of Hurricane Dorian.  Clearly, a sharpie had been taken to it, adding a line that extended the forecast of the storm’s path into the southeastern corner of Alabama.  [White House deputy press secretary Hogan Gidley confirmed the drawing was made using a black sharpie, while criticizing the media for focusing on it.]

This Fake Map came after Trump on Sunday claimed Alabama was projected to be hit by the storm, despite the National Weather Service saying this was not the case.

Asked about the map at a later event, the president insisted he did not know anything about it and had no explanation for who altered the map.

However, he insisted that “Alabama was in the original forecast.”

He added: “Actually, we have a better map than that which is going to be presented, where we had many lines going directly, many models...in all cases, Alabama was hit.”

A week ago Thursday, of all the spaghetti trails/plots you saw of a potential path from Dorian, which was still days from the Bahamas, one was taking it over Florida and into the Gulf.  One of scores of potential paths.  Yes, at that time, had it entered the Gulf, it may have posed a threat to Alabama.

Last Friday, a map showed a small sliver of Alabama at the edge of the five-day cone of uncertainty.

But by Sunday, when Trump met with FEMA, there was zero risk to ‘Bama, yet the president claimed it was potentially in the path.

The National Weather Service was forced to immediately put out a tweet:

“Alabama will NOT see any impacts from #Dorian. We repeat, no impacts from Hurricane #Dorian will be felt across Alabama. The system will remain too far east.”

Yet Thursday, yesterday, Trump continued to double down.

“In the early days of the hurricane, when it was predicted that Dorian would go through Miami or West Palm Beach, even before it reached the Bahamas, certain models strongly suggested that Alabama & Georgia would be hit as it made its way through Florida & to the Gulf....

“...Instead it turned North and went up the coast, where it continues now. In the one model through Florida, the Great State of Alabama would have been hit or grazed. In the path it took, no. Read my FULL FEMA statement. What I saw was accurate! All Fake News in order to demean!”

“Alabama was going to be hit or grazed, and then Hurricane Dorian took a different path (up along the East Coast). The Fake News knows this very well. That’s why they’re the Fake News!”

Today, Trump tweeted again:

“The Fake News Media was fixated on the fact that I properly said, at the beginnings of Hurricane Dorian, that in addition to Florida & other states, Alabama may also be grazed or hit. They went Crazy, hoping against hope that I made a mistake (which I didn’t). Check out maps....

“....This nonsense has never happened to another President. Four days of corrupt reporting, still without an apology. But there are many things that the Fake News Media has not apologized to me for, like the Witch Hunt, or SpyGate! The LameStream Media and their Democrat...

“...partner should start playing it straight. It would be so much better for our Country!”

“The LameStream Media has gone totally CRAZY! They write whatever they want, seldom have sources (even though they say they do), never do ‘fact checking’ anymore, and are only looking for the ‘kill.’  They take good news and make it bad. They are now beyond Fake, they are Corrupt...

“...The good news is that we are winning.  Our real opponent is not the Democrats, or the dwindling number of Republicans that lost their way and got left behind, our primary opponent is the Fake News Media. In the history of our Country, they have never been so bad!”

Of course there is little doubt who used their sharpie to draw the extended cone. 

--Editorial / Washington Post

“In Ireland on Tuesday, Vice President Pence met with Taoiseach Leo Varadkar, greeted business leaders at the U.S. ambassador’s residence and then flew to a resort on the other side of the country, where he is staying. On its face, his choice to lodge in Doonbeg, which requires him to commute to meetings within the island nation aboard Air Force Two, seems odd.  When one factors in that the resort is owned by President Trump, these facts signify much more: They are more evidence of the Trump administration’s casual indifference to government ethics.

“Mr. Pence told reporters Tuesday he had always planned a trip to Doonbeg, because he has familial roots in the town, and that staying at the 120-room Trump resort made sense for his large staff. But that is not a satisfactory explanation for staying across the country from Dublin, the nation’s capital and the site of the meetings he is ostensibly in Ireland to attend.  Marc Short, Mr. Pence’s chief of staff, argued that, after Mr. Trump canceled his trip to Poland, leaving Mr. Pence to fill in for him, the scrambled schedule limited the vice president’s options.  Yet he also admitted that Mr. Trump suggested he stay at Doonbeg....

“Mr. Pence should have been more attuned to the appearance of self-dealing.  If there were ever a good time for such a lapse, this is not it.  Mr. Trump ended last month’s Group of Seven conference by talking up his struggling Doral golf resort in South Florida and suggesting that he would hold the next G-7 summit there.  The Trump International Hotel in Washington has already become a conduit through which foreign and domestic lobbyists can funnel revenue into the president’s business. They have, at grand scale.

“Senior administration officials should not find themselves in the position of deciding whether to spend large amounts of public or private money at a property the president owns.  Mr. Trump claims he is losing money on net during his administration, as though serving were a burden that justified the enrichment his business gains from his office.

“Then again, because the president has refused to release his tax returns, all the public has is Mr. Trump’s word that he is losing money.  That and $395 will buy you one night in the Trump International Hotel.”

--Trump tweetstorm:

“8 FACTS that #FakeNewsCNN will ignore in tonight’s ‘Climate Forum’

“1. Which country has the largest carbon emission reduction?  AMERICA! 2. Who has dumped the most carbon into the air?  CHINA!  3. 91% of the world’s population are exposed to air pollution above the World Health Organization’s level.  NONE ARE IN THE U.S.A.!

“4. The U.S. now leads the world in energy production... BUT... 5. Who’s got the world’s cleanest and safest air and water?  AMERICA!

“6. The Democrats’ destructive ‘environmental’ proposals will raise your energy bill and prices at the pump.  Don’t the Democrats care about fighting American poverty?

“7. The badly flawed Paris Climate Agreement protects the polluters, hurts Americans, and cost a fortune.  NOT ON MY WATCH! 8. I want crystal clean water and the cleanest and the purest air on the planet – we’ve now got that!”

Wall Street and the Trade War

President Trump tweet, Friday: “I agree with @jimcramer, the Fed should lower rates. They were WAY too early to raise, and Way too late to cut – and big dose quantitative tightening didn’t exactly help either. Where did I find this guy Jerome?  Oh well, you can’t win them all!”

We had a number of important economic data points this week, some good, some bad.

The Institute for Supply Management (ISM) report on August manufacturing was poor, 49.1 vs. an estimate of 51.5 (50 the dividing line between growth and contraction).  It was also the lowest since Aug. 2016.

But then the ISM non-manufacturing (services) figure came in at a strong and better-than-expected 56.4 (rebounding from a three-year low), with the new orders component over 60.

July construction spending was less than forecast, 0.1%, while factory orders for the month were better, 1.4%.

Which led to today’s jobs report for August, less than expected, 130,000, with the data for June and July revised downward to 178,000 and 159,000, respectively, giving a three-month average of 156,000.  This is still good, just lower than 2018’s pace and reflective of an economy that is at full employment.

The unemployment rate remained unchanged at 3.7%, while the underemployment rate, U6, rose to 7.2%.  [The black unemployment rate hit 5.5%, an all-time low.]

Average hourly earnings were up 0.4%, 3.2% year over year.

So not an awful report by any stretch, and certainly not recessionary, but the Atlanta Fed’s GDPNow barometer for third quarter growth is at just 1.5%.

President Trump tweeted after the jobs number: “The Economy is great. The only thing adding to ‘uncertainty’ is the Fake News!”

The Federal Reserve meets Sept. 17-18 and there is little doubt it will lower its key lending rate another quarter-point (25 basis points).  Those hoping for 50, including the president, will be disappointed, but the market will be satisfied.

New York Fed President John Williams said in a speech this week: “The economy is in a good place, but not without risk and uncertainty.  Our role is to navigate a complex and at times ambiguous outlook to keep the economy growing and strong.”

And then this afternoon, speaking in Zurich, Chairman Powell said the Federal Reserve will continue to act “as appropriate” to sustain the economic expansion, sticking to a phrase that financial markets have taken to signal further rate reductions, but declining to be more specific.

“Our obligation is to use our tools to support the economy, and that’s what we’ll continue to do,” Powell said at the University of Zurich. Still, he said, “We are clearly at a time where there is a range of views” among Fed policymakers.

Powell said the Fed will be closely watching geopolitical risks, financial conditions, and other incoming economic data as they weigh what to do in less than two weeks.

Meanwhile, stocks rallied anew on false hopes on the trade front.  So stupid.

Speaking of the Trade War...the top trade negotiators of China and the United States will be meeting in Washington in early October.  Chinese Vice Premier Liu He and the United States’ Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin had a phone conversation Thursday (their first formal contact since Aug. 13...the last face-to-face being in Shanghai in July) with both sides agreeing to make concrete efforts to create positive conditions to continue dialogue.

The U.S. imposed tariffs on imports of roughly $110 billion in Chinese goods on Sunday, and China retaliated with tariffs of its own to the tune of $75 billion. The U.S. then plans additional tariffs on Oct. 1, and both sides would increase them again on Dec. 15 barring a breakthrough.

What seems clear is that China is going to stick to its three main principles in the upcoming talks – that the U.S. remove the tariffs, the negotiation text should be fair, and that China’s purchases of U.S. products should be determined by domestic conditions.

But the U.S. has demanded a large portion of the tariffs remain in place until after the 2020 election to keep China committed to delivering on any promises and concessions, which has been unacceptable to Beijing.

Robert B. Zoellick / Wall Street Journal...Zoellick a former World Bank president, U.S. trade representative and deputy secretary of state.

“President Trump’s trade thunder booms so frequently that the public has difficulty discerning what’s really happening.  After more than two years of trial and much error, Congress and the country should step back to survey the big picture.

“The president’s trade policy represents a fundamental break from the past 85 years.  It’s more than a matter of aggressive negotiating tactics. Not since Herbert Hoover has a U.S. president so openly embraced trade protectionism. In his inaugural address, Mr. Trump proudly proclaimed himself a protectionist; we should now believe him. His assertion that he is a ‘tariff man’ should convince any holdouts.  The president also likes unpredictability, creating the kind of uncertainty that confuses business planning and investment. For example, after signing the U.S.-Mexico-Canada Agreement (the new North American Free Trade Agreement), he stomped on his own deal by threatening to hike tariffs on Mexico because he was angry about Central Americans seeking asylum.

“He will not change. Trade – like the wall with Mexico and hostility to immigration – is a core issue for the president’s political base. He must keep it boiling.

“What have been the effects of Mr. Trump’s return to protectionism?  First, the U.S. has lost markets for exports because it dropped out of deals like the Trans-Pacific Partnership. The TPP lowered trade barriers in Asia for others, but not, thanks to Mr. Trump, for the U.S.  The European Union has gained preferential access to Japan and other markets. China has lowered its average tariff for others to 6.7%.

“Second, the tariffs have provoked world-wide retaliation, hurting America’s most productive businesses and farmers. For Americans, China boosted its average tariff to 21.8%. Congress now doles out tens of billions of dollars to U.S. farmers to compensate for lost sales.  U.S. exporters will pay a price for years because of supply-chain shifts.

“Third, the president’s protectionism costs American businesses and families.  The administration raised taxes on 15% of U.S. imports even before the upcoming tariff increase on almost all Chinese goods.  Mr. Trump started by raising tariffs on intermediate goods – on aluminum, for example, even though 97% of U.S. jobs in the sector use aluminum as an input.  The Peterson Institute for International Economics estimated that the cost paid by steel users for each steel job gained by tariffs was about $650,000.  As U.S. firms pay more for inputs, some are regretfully moving operations abroad to remain competitive.  In two years, the president has increased the average tariff on Chinese goods to 24%, up from an average of 3%. Americans will end up paying these in the form of higher prices.

“Fourth, with increased costs and uncertainties about doing business in the U.S., foreign direct investment is falling. This suppresses job and wage growth and disrupts international supply chains.

“Fifth, President Trump’s trade policy ignores how the U.S. has used free-trade agreements to write pro-U.S. rules for cutting-edge sectors such as medical and financial services, intellectual-property rights, and data access and security. Trade agreements also allow the U.S. to establish best practices in anticorruption laws, border procedures and transparency.  Because U.S. businesses have been leaders in innovation, past American negotiators have been at the forefront of international rule-making.  This president disdains rules; he acts as if governments control purchases like in old-style mercantilism.

“Mr. Trump counters that these costs are the price Americans must pay for his deal-making.  But his record is pitiful.  His administration renegotiated with South Korea, adding a steel quota that hurts U.S. users, raising a quota for U.S. autos that companies had already failed to meet, and extending a 25% tariff on trucks.  The USMCA is a mixed bag at best.  It weakens protections for investors in Mexico at a time when that nation’s government is making investors nervous....

“Negotiations with the EU are stalled.  India and the U.S. have each raised barriers to one another.  Mr. Trump is even struggling to strike a small deal with Japan to recover some access that he lost by dropping out of the TPP.... The president’s apologists have retreated to arguing about which country has been hurt more, a sure sign of trade defeatism.

“Mr. Trump has even threatened to leave the World Trade Organization. The Reagan, George H.W. Bush and Clinton administrations fought to create the WTO, including its dispute-settlement procedures, because they knew America could compete successfully with fair, enforceable rules.  The current president, by contrast, has blocked appointments to the WTO appeals body to try to put it out of business by year’s end.  The U.S. sabotages or ignores efforts by other countries – even China – to tighten rules on state-owned enterprises and developing countries....

“Even by the president’s own measure, the U.S. trade deficit, he’s losing.  If the U.S. slides into recession, his policies will make conditions worse.  Congress needs to wake up and push back. Business executives should support them before the trade smashup leads to an economic breakdown.”

Trump tweets:

“We are doing very well in our negotiations with China.  While I am sure they would love to be dealing with a new administration so they could continue their practice of ‘ripoff USA’ ($600 B/year), 16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot....

“....And then, think what happens to China when I win.  Deal would get MUCH TOUGHER!  In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!

“For all the ‘geniuses’ out there, many who have been in other administrations and ‘taken to the cleaners’ by China, that want me to get together with the EU and others to go after China Trade practices remember, the EU & all treat us VERY unfairly on Trade also. Will change!”

Europe and Asia

Eurostat released an estimate on second quarter GDP for the eurozone (EA19), 0.2% over the first quarter, after GDP had grown 0.4% in Q1.

Compared with a year ago, seasonally adjusted GDP rose by 1.2%, after 1.3% in the previous quarter.

But Germany recorded -0.1% in Q2, versus 0.4% in Q1, with the annual percentage rate of growth just 0.4%.  And prior to the report, a separate number from the Federal Statistics Office showed factory orders from foreign buyers dropped 6.7 percent in July from June (down 2.7 percent overall), far greater than expected. 

Italy, unchanged in Q2, is at -0.1% from a year ago. 

France’s comps were 0.3%, 1.4% ann.; Spain 0.5%, 2.3%; and Greece, 0.8%, 1.9% ann.

Earlier, Eurostat reported July retail sales in the EA19 fell 0.6% over June, but still up 2.2% year-over-year.

And we had a slew of August PMI data for the (EA19), courtesy of IHS Markit.

The final eurozone manufacturing PMI came in at 47.0 for last month vs. 46.5 in July.  The services reading was 53.5 vs. 53.2.

Germany 43.5 mfg., 54.8 services [July’s 43.2 on manufacturing was a 7-year low]
France 51.1 mfg., 53.4 services
Italy 48.7 mfg., 50.6 services
Spain 48.8 mfg., 54.3 services
Ireland 48.6 mfg., 54.6 services
Greece 54.9 mfg.

U.K. 47.4 mfg., 50.6 services...the manufacturing data point the worst in seven years.

Chris Williamson / IHS Markit

“The eurozone remained mired in a fragile state of weak and unbalanced growth in August.

“Although up on July, the latest reading indicates that GDP will rise by just 0.2% in the third quarter, assuming no substantial change in September....

“The picture remains very mixed both by sector and country, highlighting how downside risks persist.  A fierce manufacturing downturn, fueled by deteriorating exports and most intensely felt in Germany, continues to be offset by resilient growth in the service sector, in turn propped up to a large extent by solid consumer spending in domestic markets.

“The big question is how long this divergence can persist before the weakness of the manufacturing sector spreads to services and households. With jobs growth waning to the slowest since early-2016 a deteriorating labor market looks set to be a key transmission mechanism by which the trade-led downturn infects the wider economy.  A sharp drop in business optimism about the coming year in the service sector, down to the joint-lowest for six years, suggests that companies are already braced for tougher times ahead.

“We therefore expect to see renewed stimulus from the ECB in September as the central bank seeks to revive demand and stem the spreading malaise.”

And that ECB action could come next week.

Brexit:  It was an awful week for British Prime Minister Boris Johnson and his quest for Brexit.  Even his brother, Jo Johnson, said he was standing down Thursday as minister for universities, tweeting, “In recent weeks I’ve been torn between family loyalty and the national interest. It’s un unresolvable tension.”

After days of internal rebellion in the prime minister’s Conservative Party and one parliamentary defeat after another, the resignation of the brother was a shocker, though at the same time, Jo had advocated remaining in the European Union going back to the 2016 referendum.  He then accepted his brother’s invitation to come into government hoping Boris could work out a deal with the EU for a smooth exit, but now with only a no-deal Brexit in sight, Jo decided to leave.

Wednesday, Boris Johnson suffered back-to-back defeats in Parliament’s lower house after sacking 21 members from his own party in the legislature.

The 21 joined opposition lawmakers in approving a proposal requiring the prime minister to delay Britain’s departure from the EU beyond its current Oct. 31 deadline if Parliament doesn’t ratify a new withdrawal deal.

Parliament also dismissed the prime minister’s call for an election on Oct. 15, which most saw as an attempt by Johnson to reimpose the Oct. 31 deadline if he won.  The prime minister needed to get the backing of two-thirds of MPs to call an election and he failed.

So now the government said it will try again next week to gain approval, but many feel an election will take place in November, after Brexit is delayed.

Johnson, having lost his majority by kicking out the 21 Conservative Party lawmakers, needs a convincing new mandate to deliver on his promise to leave the EU.

Meanwhile, what we saw this week was that there was no love lost between Boris Johnson and Labour Party leader Jeremy Corbyn.  Corbyn repeatedly called for details of the PM’s negotiating plan with the EU – and received zippo.

The PM pushed Corbyn to back an election on Oct. 15, mouthing the words “you great big girl’s blouse” when the answer was not forthcoming, and repeatedly calling the anti-no-deal plan a “surrender bill.”

As for the EU, there is no guarantee leaders will allow Brexit to be delayed again – even if Johnson is humiliated into asking for an extension.

MPs backed legislation requiring the U.K. government to ask for a three-month delay beyond October 31 (327-299).  But Johnson insisted he will never “surrender” in his battle to have the Irish backstop scrapped.

At this point, while Ireland would go for another extension, it will be difficult to get a consensus among all 27 member states.  Finland’s prime minister, whose country currently holds the rotating presidency of the EU, said there is not widespread support for a further Brexit extension. 

Antti Rinne said the EU would require “some sort of future scenario...to underline that something sensible could start happening.”  But he said there is “no sense” in granting something “that seems to lead nowhere, and I don’t think it’s possible to find majority support for such an extension.”

Michel Barnier, the EU’s chief negotiator, told diplomats Wednesday that Brexit talks are stuck in “paralysis” because the U.K. has failed to provide any proposals to break the deadlock.

What began as a week where Prime Minister Boris Johnson reiterated, “I want everybody to know there are no circumstances in which I will ask Brussels to delay.  We are leaving on October 31, no ifs or buts,” ended with more uncertainty than ever.

The House of Lords did approve a bill to prevent a no-deal Brexit and it forces the prime minister to ask the EU for the Brexit deadline to be extended beyond October 31 if no deal is agreed to by the U.K. and Brussels by Oct. 19.  The EU summit is Oct. 17-18.

The opposition will vote against the government or abstain in Monday’s vote on whether to hold a snap poll.

Italy: An agreement between the anti-establishment Five Star Movement and the center-left Democratic party (PD) to form a new coalition government ended weeks of political uncertainty, with Italian government bonds surging in response, the 10-year yield falling to a record low 0.83 percent Wednesday.  It was over 1.80 percent just a month ago.

Investors are betting that the new “yellow-red” coalition will avoid confrontation with the EU over the bloc’s budget in contrast to its predecessor, the alliance between Five Star and the rightwing League party.

But there really is no telling how long an alliance of establishment and antiestablishment parties can last.

Germany: A far-right party made significant gains Sunday in two closely watched state elections, snapping at the heels of parties in Chancellor Angela Merkel’s governing coalition and highlighting a growing political divide between the country’s East and West.

But Merkel’s party and one of her coalition partners won enough support to beat back the Alternative for Germany (AfD), the far-right group.  But AfD was robbed of what would have been a powerful symbolic victory: the chance to emerge as the strongest force in one of the country’s 16 states.

Merkel and her coalition partner did suffer heavy losses to the AfD in two states that were once part of the Communist East of Germany.

AfD earned 28 percent of the vote in Saxony and 24 percent in neighboring Brandenburg, 18 and 12 points better than the previous election in 2014.

But all other political parties have ruled out cooperating with AfD, so it remains in the opposition.

In Saxony, Merkel’s Christian Democratic Union gained more than 32 percent of the vote.  In Brandenburg, her coalition partner, the Social Democrats, emerged as the strongest with 26 percent.

National elections are not scheduled until 2021 and Merkel has said she intends to serve out her full term.  But it’s been a rocky time for her coalition amidst declining popular support.  Many of the Social Democrats want to quit an alliance that has supported Merkel for 10 of her 14 years in power and rebuild in opposition.

Turning to Asia....

China’s private Caixin PMI on mfg. came in at 50.4, 52.1 services.  These figures weren’t bad.

Japan’s mfg. PMI was 49.3, services 53.3.

South Korea had a manufacturing PMI of 49.0 in August; Taiwan 47.9.

Separately, South Korea’s exports tumbled 13.6% in August from a year earlier, down a ninth consecutive month, on sluggish demand from its biggest buyer, China, and depressed prices of computer chips globally.

Street Bytes

--In advancing a second straight week, stocks have largely made up their losses from the four-week swoon prior, with the Dow Jones up 1.5% to 26797, the S&P 500 and Nasdaq each up 1.8%. All three are now back within spitting distance of their record highs.

--U.S. Treasury Yields

6-mo. 1.86%  2-yr.  1.54%  10-yr. 1.56%  30-yr.  2.03%

Yields rose as the flight to safety trade was off for a week.  Even the German bund (10-year) saw its yield ‘rise’ from -0.70% to -0.64%!

--YouTube agreed to pay a fine of $170 million and to provide new protections for children on its platform in a settlement with the Federal Trade Commission and the New York state attorney general that heightens the debate over how to rein in technology giants.

The penalty follows a yearlong investigation in response to complaints from consumer groups, which said the video platform illegally collected data on children to sell ads for products such as Barbie dolls and Play-Doh.  The FTC said YouTube tracked internet activity for children under age 13, with the goal of keeping viewership high.  No executives at YouTube or its parent, Google, were penalized.

YouTube said it would make changes to its platform, including cutting off data collection on videos aimed at kids.

But regulators remain divided, with the FTC voting 3-2. The FTC’s Republican leadership noted the fine far exceeded previous penalties in similar cases, but minority Democrats said the FTC should have sought bigger penalties and larger changes.

It’s all about how far does government go in regulating the tech giants.

But Republican Sen. Josh Hawley (Mo.), a big critic of Silicon Valley, tweeted that the fine is “an insult to every parent in America who has had their children’s privacy violated.”

The Justice Department has opened an antitrust investigation into Google’s dominant search platform, with various state attorneys general formally launching separate antitrust probes of Google and Facebook starting next week.

New York Attorney General Letitia James said Friday that her office was organizing a bipartisan, multi-state probe into Facebook in an attempt “to determine whether Facebook’s actions may have endangered consumer data, reduced the quality of consumers’ choices, or increased the price of advertising.”

The Google probe is to be announced Monday outside the U.S. Supreme Court and is said to be focused on its impact on digital advertising markets, as well as potential harms to consumers from their information and ad choices being concentrated in one company.

--Walmart Inc. will phase out sales of ammunition for handguns and short-barrel rifles, eliminating a small chunk of its sales, while making a big political statement.

Walmart has a 20% share of the $2-billion U.S. ammunition market, $400 million, and CEO Doug McMillon predicted that share would now drop below 10% after the changes.  But considering Walmart’s total revenues in its latest fiscal year were $514 billion, analysts said its decision probably won’t hurt its bottom line.  And some say failing to make a point after a mass shooting in its one of its stores (22 killed in El Paso) may have had a bigger impact.

In a letter to employees dated Tuesday, McMillon said Walmart would also discontinue handgun sales in Alaska – the last state in which Walmart sold that type of firearm – and is “respectfully requesting” customers not to openly carry guns in Walmart or Sam’s Club stores unless they are law enforcement officers.  He also called on Congress to “strengthen background checks and to remove weapons from those who have been determined to pose an imminent danger.”

The National Rifle Assn. called Walmart’s decision “shameful,” saying in a statement that “lines at Walmart will soon be replaced by lines at other retailers who are more supportive of America’s fundamental freedoms.”

The National Shooting Sports Foundation, the trade group for the U.S. firearms industry, said it was disappointed in Walmart’s decision but “appreciates Walmart’s continuing commitment to America’s hunters and recreational target shooters and their equipment needs, as sportsmen and women represent tens of millions of responsible gun owners in this country.”

Walmart will continue to sell long-barrel deer rifles and shotguns, as well as much of the ammunition for those guns, and hunting and sporting accessories and apparel.

Sales of the ammunition Walmart is shunning will shift to outfits like Cabela’s, Bass Pro Shops, and Dick’s Sporting Goods

Four years ago, Walmart stopped selling assault-style rifles and raised the age limit to purchase a gun or ammunition to 21, among other gun control sales measures.

Dick’s Sporting Goods ended sales of assault-style weapons at its stores after the 2012 mass shooting at Sandy Hook Elementary School.  And then after the March 2018 Parkland shooting, Dick’s stopped selling any guns to customers younger than 21.

--Shares in Boeing Co. fell early this week as American Airlines and United Airlines said they were extending cancellations of the 737 MAX well into December, as the Federal Aviation Administration said the other day that a panel of experts around the world will need a few more weeks to finish its review into the MAX certification, the aircraft having been grounded worldwide since mid-March following the second of two fatal crashes, as Boeing updates flight control software.

But Boeing stock had recovered by week’s end largely on the positive trade talk from China.

The thing is, friction between Boeing and international regulators has been a constant as Boeing attempts to get its software fixes approved.  The Wall Street Journal reported on an August conference call between Boeing and regulators in the U.S., Europe, Brazil and elsewhere “that was cut short (after complaints) that the plane maker had failed to provide technical details and answer specific questions about modifications in the operation of MAX flight-control computers.”

European officials are increasingly convinced their aircraft aren’t likely to resume carrying passengers until January at the earliest.

--An American Airlines mechanic is accused of sabotaging a flight over stalled union contract negotiations.  The mechanic admitted during an interview Thursday that he tampered with a navigation system on the plane so that he could collect overtime work.  The plan was discovered as part of an FBI terrorism task force.

The plane, with 150 people on board, was scheduled to fly from Miami to Nassau in the Bahamas on July 17. As the pilots powered up the plane at Miami International Airport, they saw an error message for a system that tracks speed, nose direction and other critical flight information, and aborted the takeoff.

When he was interviewed, the mechanic, Abdul-Majeed Maroud Ahmed Alani, said he did not intend to cause harm but that stalled contract negotiations between American and the mechanics’ unions were hurting him financially, and he tampered with a plane “to cause a delay or have the flight canceled in anticipation of obtaining overtime work,” a member of the terrorism task force wrote in an affidavit.

--WeWork’s pending IPO has been panned royally for its sky-high valuation, estimated to be at $47 billion, but the company is now exploring a dramatic reduction to $20 billion, or thereabouts, after all the questions on the business model and corporate governance.

$47 billion is where the company last raised private capital this year.

One of the company’s biggest investors, SoftBank Group, has discussed the possibility of being an anchor investor in the IPO, buying a significant amount of the roughly $3 billion to $4 billion WeWork is expected to raise.

--Sears and Kmart continue to shrink, Sears’ parent company, Transformco, filing a notice in Illinois that it was laying off approximately 250 employees from its headquarters in Hoffman Estates.  The terminations will begin end of October.

Late last week, Sears announced it was closing nearly 100 more Kmart and Sears stores by the end of the year.

In February, former Sears CEO Eddie Lampert struck a last-minute deal to buy Sears assets out of bankruptcy and keep about 400 stores open under the new entity, Transformco.

As of Aug. 7, the company said about 380 locations remained open.

--In about one year of New Jersey legalizing sports betting, the state is already poised to overtake Nevada as the sports betting capital of the U.S., as noted in various reports recently.  The NFL has a lot to do with this. 

With the new season kicking off last night, sports bettors will be flocking from New York City and Philadelphia to New Jersey, with our sports gambling handle during last year’s September through January season being $1.5 billion, despite the fact it had just become legal.

Nevada’s is $2.7 billion.  And in just 11 months, New Jersey overtook Nevada’s sportsbook wagers on a monthly basis when it booked $318.9 million worth of sports bets in May, versus $318.3 million for Nevada.  The Garden State then did it again in July ($251 million vs. $235m for Nevada).

But now New Jersey has double the online sports betting sites it did for last year’s NFL season.

Online sports betting already accounts for 80 percent of total wagers in New Jersey – according to the New York Post, 20 percent of which are placed by New Yorkers while traveling through the state (AmericanGambler.com).  You have to physically be in New Jersey to legally wager on sports through apps like DraftKings.  So for Philadelphia or New York City residents, it’s a short trip by train or car, while for Los Angelenos to drive to Las Vegas takes about five hours.

--The estimated Hollywood box office for summer (defined as the first weekend in May to Labor Day) was down 2 percent in the United States and Canada, according to Comscore, and is down 6.3 percent for the year (5 percent decline in attendance).  This comes despite the runaway success of “Avengers: Endgame,” which collected a record-breaking $2.8 billion worldwide, nearly $860 million of that in North America.

The movie business ebbs and flows.  Ticket sales soared 15 percent last summer, with the return of the “Incredibles” series, and “Crazy Rich Asians.”

But does this summer’s take mean anything?  Economist Mark Zandi concludes, “It is another sign that the broader economy is in a fragile place,” noting that other leisure businesses, like Disney theme parks and Major League Baseball games, had a soft summer.

I don’t know about the theory, but MLB does have an attendance issue.

Foreign Affairs

China / Hong Kong: Hong Kong, Macau  and Taiwan were singled out by Chinese President Xi Jinping as major risks and challenges that Communist Party members must ‘struggle against.’

In his first major speech to officials on Tuesday since his late-summer party retreat, Xi listed a number of challenges facing the country, even putting this specific category ahead of ‘foreign affairs’ despite the global economic and strategic challenges China faces, including the trade war with the United States.

The other risks identified by Xi include economics, politics, culture and the environment, according to state news agency Xinhua.

In the speech he said: “Cadres must be vigilant to any wind of change. They must know a deer passing by the rustle of grass and leaves, they must know the coming of a tiger by feeling the wind, they must know the arrival of autumn by the color of one leaf.’

Xi urged the officials to ready themselves so they can ‘win in any struggle’ and face down challenges to the Communist Party’s rule, national sovereignty and Beijing’s goal of national rejuvenation.

But with regards to Hong Kong, Chief Executive Carrie Lam announced Wednesday that after 13 weeks of political crisis, she was formally withdrawing the bill that sparked the protest movement, but it is probably too little, too late.

Student activist Joshua Wong, out on bail after being arrested last week, wrote on Twitter that people would not believe the announcement was sincere.

“Whenever there are signs of sending a palm branch, they always come with a far tighter grip on exercising civil rights,” he wrote.  “They have conceded nothing in fact, and a full-scale clampdown is on the way.”

Agnes Chow, another recently arrested student activist, wrote on Facebook: “Do not forget the companions we lost, do not forget our comrades who were injured. If we give up, Hong Kong will die.”

The withdrawal of the bill is the first and only government concession to the five key demands of the protesters.  The others are an independent inquiry into alleged police brutality, amnesty for arrested protesters, the right of Hong Kong citizens to elect their own political leaders and a government edict against describing the protests as “riots.”

“Five key demands, not one less!” is the catchphrase of the protest movement.

China’s Hong Kong and Macau Central Office – which reports directly to China’s Cabinet – cited Article 18 of Hong Kong law, which permits the central government to take control in the event that a crisis spirals beyond the local authority, as in, China refuses to rule out military intervention.

Editorial / Wall Street Journal

“Hong Kong Chief Executive Carrie Lam said Wednesday she’ll withdraw legislation that would allow extradition to mainland China.  The bill was the catalyst for 13 straight weekends of protest and the concession is welcome, but by now it will take more to end the city’s political crisis.

“The demands of protesters have escalated as police have arrested more than 1,100 people, including pro-democracy lawmakers and activists.  Hong Kongers now want the right to directly elect their chief executive and lawmakers.  Beijing won’t allow this, but Ms. Lam could at least acknowledge the excessive use of police force and allow an independent inquiry into abuses.  Yet on Wednesday she claimed that a probe of police enforcement actions is ‘best handled by the existing and well-established Independent Police Complaints Council.’

“The council has authority merely to ‘observe, monitor and review’ internal police investigations and make recommendations, without the independent power even to summon witnesses.  Council members are appointed by Ms. Lam, who answers to Beijing. The council lacks the independence and statutory authority to conduct a credible inquiry.

“Police have also repeatedly refused to issue permits for protests, so some of those arrested now face up to five years in prison for peacefully demonstrating without police approval, and hundreds of thousands could face similar charges.

“Meanwhile, the Chinese foreign ministry on Tuesday denounced Hong Kong publisher and businessman Jimmy Lai as ‘a leading anti-China activist who attempts to mess up Hong Kong.’  The same statement attacked activists Joshua Wong and Agnes Chow.  Mr. Wong was arrested last week on three protest-related charges.  A news report says thugs threw a Molotov cocktail near Mr. Lai’s residence.

“We featured Mr. Lai in our pages in June, and the New York Times recently discovered him.  China’s denunciation shows Mr. Lai is on Beijing’s target list and why Hong Kongers don’t trust Ms. Lam’s assurances. To restore public confidence in the rule of law, Ms. Lam should urge that charges be dropped against nonviolent protesters.”

David Ignatius / Washington Post

“As we move into the fall, there’s one overriding foreign policy priority for the United States: Find a strategy to deal with the rising China that protects U.S. interests but doesn’t subvert the global economy.

“China is the challenge of our time, and the risks of getting it wrong are enormous.  Huawei, the Shenzhen-based communications powerhouse, argues in a slick new YouTube video that its critics want to create a new Berlin Wall. That’s not true – Huawei and other Chinese tech companies have allegedly been stealing intellectual property for years and are finally being held accountable – but there’s a real danger that the United States will talk itself into a digital cold war that lasts for decades.

“We are at a crossroads: At a conference on U.S.-China relations last month at the University of California at San Diego, a Chinese participant offered a blunt prediction about the future: ‘We think we are heading toward a partial decoupling of our relationship.’ Trump administration officials argue that China has been decoupling itself – denying access to Western firms, even as the United States and its allies provided technology, training and market access.

“But what comes next?  Trump administration officials hope that progress toward a trade deal might happen at last, now that a meeting with a senior Chinese official has been set for October.  But Myron Brilliant, who runs the U.S. Chamber of Commerce’s international programs, cautions, ‘There’s a trust deficit between Washington and Beijing that needs to be restored before there’s progress.’

“President Trump reiterated on Wednesday that the administration plans to deny Huawei access to U.S. technology.  ‘It’s a national security concern,’ Trump told reporters at the White House.  ‘Huawei is a big concern of our military, of our intelligence agencies, and we are not doing business with Huawei.’  That leaves a little wiggle room, but not much.

“White House officials tell me the Chinese are mistaken if they think the administration is seeking to cripple China technologically.  Officials say their goal isn’t a rerun of the anti-Soviet strategy of containment but something more flexible.  One administration official says his colleagues sometimes refer to this still-unnamed strategy simply as ‘the noun.’

“The Trump administration’s problem is that it has gutted the national security process that could devise a systematic plan for dealing with China....

“This administration’s sharp policy debates on China strategy are exacerbated because there’s no decision-making process to resolve them. On one side are China hawks such as White House trade adviser Peter Navarro; on the other are would-be dealmakers such as Treasury Secretary Steven Mnuchin.  In the middle is Secretary of State Mike Pompeo, who seems to have an instinct for where Trump will eventually land.

“ ‘On no issue is the lack of a policy process more visible or dramatic than China,’ says Kurt Campbell, who oversaw Asia policy during the Obama administration.  He contrasts how the presidents of the world’s two superpowers spent the last weeks of summer. Chinese President Xi Jinping met with top party officials at a beach resort and emerged with a new honorific, the ‘People’s Leader.’ Trump spent those weeks in very public and sometimes self-destructive Twitter barrages, at home and abroad.

“Trump has a simple four-word summary of his China baseline, notes one administration official: ‘Xi is my friend.’  Personal diplomacy has its uses, but it’s no substitute for clear policy....

“Trump was right to take the China trade and technology problem more seriously than his predecessors. But the time for Twitter diplomacy and deals with ‘my friend’ Xi is over.  U.S. moves on this chessboard should be guided by clear planning, not whim.”

North Korea:  David E. Sanger and William J. Broad / New York Times:

“As North Korea fired off a series of missiles in recent months – at least 18 since May – President Trump has repeatedly dismissed their importance as short-range and ‘very standard’ tests. And although he has conceded ‘there may be a United Nations violation,’ the president says any concerns are overblown.

“Kim Jong-Un, North Korea’s leader, Mr. Trump explained recently, just ‘likes testing missiles.’

“Now, American intelligence officials and outside experts have come to a far different conclusion: that the launchings downplayed by Mr. Trump, including two late last month, have allowed Mr. Kim to test missiles with greater range and maneuverability that could overwhelm American defenses in the region.

“Japan’s defense minister, Takeshi Iwaya, told reporters in Tokyo last week that the irregular trajectories of the most recent tests were more evidence of a program designed to defeat the defenses Japan has deployed, with American technology, at sea and on shore.

“Mr. Kim’s flattery of Mr. Trump with beguiling letters and episodic meetings offering vague assurances of eventual nuclear disarmament, some outside experts say, are part of what they call the North Korean leader’s strategy of buying time to improve this arsenal despite all the sanctions on North Korea....

“ ‘Kim is exploiting loopholes in his agreements with President Trump pretty brilliantly,’ said Vipin Narang, a political-science professor at M.I.T. who studies North Korean missile advances.  ‘These are mobile-launched, they move fast, they fly very low and they are maneuverable. That’s a nightmare for missile defense. And it’s only a matter of time before those technologies are migrated to longer-range missiles.’”

Iran: Tehran said Thursday it would abandon constraints on nuclear research set out in the 2015 nuclear deal, in another violation of the accord, the agreement with Europe on the verge of collapse, Europe attempting to get some sanctions relief for Iran.

The Trump administration has dismissed efforts led by France to throw Iran a lifeline, a $15 billion credit line, for its economy in return for full compliance of the nuclear accord.

A senior Iranian official confirmed Wednesday that Tehran would return to its commitments only if it got $15 billion for oil sales over four months, as stipulated in France’s plan.

But Tehran now has a pattern of gradually pulling away, though it hasn’t slammed the door on negotiations and all the steps Iran has taken can be quickly reversed.

Iranian Foreign Minister Javad Zarid said in a letter to the EU’s foreign-policy chief, Federica Mogherini, that Iran’s latest move on research was in response to the U.S. withdrawal from the deal in May 2018 and the European’s failure to cushion Iran from the effect of renewed U.S. sanctions.

Iran has already pushed through the deal’s limit on its stockpile of enriched uranium and it is producing uranium of a purity above the accepted 3.67% cap, but this is nowhere near the 90% purity required to fuel an atomic bomb.

For Iran to really represent a danger on the fuel side, it needs to mass-produce more advanced centrifuges and that is nowhere near being accomplished.  It needs the better centrifuges to enrich uranium at far faster levels than its current ones can.

Syria: At least three Russian soldiers were killed in a firefight in Syria’s de-escalation zone this week, according to a Russian news source.  Syrian President Assad’s forces, backed by Russian airpower, have been waging an offensive in the Idlib region, the last remaining rebel-held territory in Syria.

President Vladimir Putin said last week that Russia and Turkey had agreed on steps to tackle militants and “normalize” the situation there after a Syrian army offensive encircled rebel fighters and a Turkish military post.

Turkish-backed militants claimed to have killed and wounded several Russian special forces this week, separate from the other attack.  Russia’s Defense Ministry has denied reports of Russian servicemen being killed by Turkish-backed rebels.

Estimates vary between 112 and 175 Russian soldiers killed in Syria since Russia intervened in the war in 2015.

Earlier, at least 40 people died when a missile struck a meeting of terrorist leaders near Idlib, hours after a ceasefire brokered by Russia ended months of bombardment of the last bastion of anti-regime fighters.

A spokesman for the U.S. said, “This operation targeted al-Qaeda in Syria leaders responsible for attacks targeting U.S. citizens, our partners, and innocent civilians,” adding that the strike would “degrade their ability to conduct further attacks and destabilize the region.”

Russia accused the U.S. of “endangering” the ceasefire.  The defense ministry said the U.S. had failed to warn Russia or Turkey before the strikes.

The bottom line is the Idlib region is still a mess and you continue to have the risk of millions of refugees crossing into nearby Turkey, and then on into Europe unless a ceasefire holds.

Israel / Lebanon: Jason Greenblatt, the U.S. special envoy to the Middle East and the architect behind the ‘Deal of the Century,’ is leaving after nearly three years in the administration.

Greenblatt will stay in his role until President Trump unveils his peace plan, expected sometime after the Israeli election on September 17.

The envoy has made numerous trips to Israel, the Palestinian territories and throughout the Middle East since taking office and he has positioned himself as a staunch defender of Israel.

Meanwhile, Israel’s military said on Sunday anti-tank missiles from Lebanon targeted an army base and vehicles and that it responded with fire into southern Lebanon.  Lebanon’s Iran-backed Hezbollah group said its fighters destroyed an Israeli military vehicle, killing or wounding those inside.  Israel didn’t confirm there were casualties.

Israel has been on alert since its drones attacked a target in a Beirut suburb it says was linked to precision-guided missile projects.

Afghanistan: The Taliban claimed responsibility for a suicide attack in the center of Kabul that killed at least 10 civilians and two NATO soldiers, one an American (the 16th fatality this year), destroying cars and shops in an area near the headquarters of the international military force and the U.S. embassy.  The other NATO soldier was Romanian.  The vehicle the two were in appears to have been the main target.

There has been no let-up in violence in Afghanistan even though both the Taliban and U.S. officials have reported progress in negotiations aimed at securing a deal on U.S. withdrawal.

Yet the fact is the Taliban now controls more territory than it has since 2001, when the U.S. launched the military operation against the group.

The U.S. general overseeing American forces in the region, General Kenneth McKenzie, has not been commenting on the negotiations but he sees a continuing need for military pressure on al Qaeda and Islamic State militants going forward, regardless of the outcome of the talks.

A draft agreement is being worked on, which then must be approved by President Trump before it can be signed.  Under it, the U.S. would withdraw almost 5,000 troops and close five bases within 135 days, according to U.S. chief negotiator Zalmay Khalilzad.  In exchange the Taliban would commit not to allow Afghanistan to be used by militants to plot attacks on the United States and its allies.

Last weekend, the Taliban launched a large-scale attack on one of the major Afghan cities, Kunduz, the militants taking hospital patients as hostages.  No official word on casualties.

Russia: Protests have continued ahead of Sunday’s Moscow city legislative elections, thousands demanding a free vote, part of the biggest sustained protest movement in Russia since 2011-2013, when protesters took to the streets against perceived electoral fraud. Chanting “Russia will be free!” and “This is our city!”, up to 2,000 protesters marched through one of Moscow’s thoroughfares.

The demonstrators have been demanding that opposition-minded candidates be allowed to stand in the election after they were blocked from being on the ballot.

But now it’s too late.  We’ll see what kind of post-election protests develop.

Yemen: A Houthi rebel-run detention center was hit by Saudi-led coalition airstrikes, killing more than 100 people, one of the deadliest attacks of the four-year+ war that has claimed tens of thousands of lives, thrust millions to the brink of famine and spawned the world’s worst humanitarian crisis.

The Saudi-led coalition, which has fought the Iran-backed Houthis since 2015, has faced international criticism for numerous attacks on schools, hospitals, and wedding parties that have killed thousands of civilians.

A spokesman for the Saudis said they bombed a “legitimate military target.”

Rights groups have previously documented that the Houthis use civilian detainees as human shields by placing them in detention centers next to army barracks, under constant threat of airstrikes.

Zimbabwe: One of the five or so worst people of the post-World War II era, Robert Mugabe, died today.  He was 95.  Mugabe was a multiple “Dirtball of the Year” here at StocksandNews in its early years.

Editorial / Wall Street Journal

“The perverse accomplishment of the dictator...was to make a thriving country impoverished, corrupt and oppressed....

“Widely reviled at the end of his life for his many abuses of power, he was feted across the globe earlier in his career by politicians and intellectuals who should have known better.  He became a champion of anticolonialism on the left and was even knighted by Britain in 1994.  By then the military he controlled had killed thousands of political opponents and civilians.

“Today Zimbabwe is a broken land thanks to his authoritarian politics, socialist economics and corruption.  His worst economic offense was seizing productive farmland from white owners.  The economy collapsed as capital fled and hyperinflation took hold.  Mugabe perfected a paranoid style that blamed the outside world....

“Mugabe’s legacy is a nation in tatters and few mourners among average citizens.  His admirers in Africa and the West, including New York Mayor Bill de Blasio, might ponder why that is.”

Random Musings

--Presidential tracking polls....

Gallup: New numbers...39% approval of President Trump’s performance, 57% disapproval; 88% of Republicans approve, 34% of independents (Aug. 15-30).
Rasmussen: 46% approval, 52% disapproval (Sept. 6).

--Joe Biden again has some explaining to do.  At a ritzy campaign fundraiser Thursday night in Manhattan, Biden said he doesn’t take political cash from the fossil fuel industry – but the event’s co-host is a co-founder of a natural gas company.

The co-host, Andrew Goldman helped found LNG Western, a Texas-based natural gas producer.

So Biden sought to clear the air.  “Folks, I know there’s been a lot of attention paid to you showing up tonight.  More than I think you anticipated,” Biden opened his speech.

But he said a “misrepresentation” occurred at a CNN climate change town hall on Wednesday night, during which he was asked by a Bernie Sanders supporter why he should be trusted to combat climate change considering the Thursday night fundraiser was to be co-hosted by Goldman.

Biden then didn’t elaborate on what exactly had been misrepresented and didn’t mention Goldman by name.

Instead, Biden maintained his campaign doesn’t depend on any donations from the fossil fuel sector – a pledge echoed by nearly all other Democratic candidates.

Goldman supposedly has stepped down from all day-to-day operations at LNG Western.

--Speaking of the climate change town hall, candidate Bernie Sanders argued population control should be part of tackling the issue.

The senator said women “in poor countries” should have access to birth control.

Conservatives said the remark meant Sanders’ climate change policy was for fewer “brown babies.”

--At least Sen. Cory Booker, another Democratic challenger, and a vegan, said he won’t try to get other Americans to stop eating hamburgers.  “Freedom is one of the most sacred values – whatever you want to eat, go ahead and eat it,” he said.

Booker, more importantly, said that people who don’t think nuclear power needs to be part of the fight against climate change – a group that includes many of his presidential opponents – “aren’t looking at the facts.”

Booker said that he warmed to nuclear power after reading studies about it and talking to nuclear scientists about technological advancements “that make nuclear safer.”

Sanity!

But now we’re on to the next round of debates in Houston, Thursday.

--Hurricane Dorian crashed into the Bahamas on Sunday as the second strongest Atlantic Storm on record, with the National Hurricane Center saying Dorian made landfall on Elbow Cay in the Abaco Islands as a Category 5 with maximum sustained winds of 185 mph and gusts of more than 220 mph.  It made a second landfall on Great Abaco Island near Marsh Harbor.  The estimated storm surge was up to 23 feet.

The winds of 185 tied those of Gilbert (1988), Wilma (2005) and the 1935 Labor Day hurricane for the second strongest.  Allen in 1980 was the most powerful at 190 mph.  Dorian was the strongest to hit the northwest Bahamas.

2019 marks the fourth straight year with a Category 5 in the Atlantic, the longest such streak on record (fifth in four years), following Matthew (2016), Irma (2017), Maria (2017) and Michael (2018).

That said, on Sunday, President Trump expressed surprise after Dorian was upgraded to a Cat 5.

“I’m not sure that I’ve ever even heard of a Category Five,” the president said during a televised briefing at FEMA headquarters in Washington.

“I’ve seen some Category Fours, you don’t even see them that much,” he said.  “But a Category Five is something that, I don’t know that I’ve ever even heard the term, other than I know it’s there.  That’s the ultimate and that’s what we have, unfortunately.”

Irma and Maria caused about $165 billion in damage.

The destruction in the Bahamas is beyond belief, and the death toll, officially 30, will begin to soar as more bodies are found.

--The California dive boat tragedy is unfathomable...that 34 died in a fiery hell below deck, DNA analysis required to identify the badly-burned remains.  The passengers were on a three-day excursion to the Channel Islands.  Five crew members survived as they were sleeping on the bridge.  It will likely take months, if not years, to come up with a definitive cause.

--New York City Mayor Bill de Blasio finally conceded that if he can’t qualify for the October debate, he’ll quit the race.  This comes as a New York Post review shows that de Blasio spent a mere seven hours at City Hall during the month of May, when he launched his bid for the White House.

One ex-aide told the Post, “If he’s trying to show New Yorkers that he’s over doing the job, he’s doing a good job of it.”

A de Blasio spokeswoman, Freddi Goldstein, downplayed the importance of his whereabouts, saying, “Whether at City Hall, Gracie Mansion or on the road, the mayor consistently delivers for 8.6 million New Yorkers.”

Even the rats had a good laugh over that one, before resuming their feast on Gotham’s trash.

--Lena H. Sun / Washington Post

“State and federal health officials investigating mysterious lung illnesses linked to vaping have found the same chemical in samples of marijuana products used by people sickened in different parts of the country and who used different brands of products in recent weeks.

“The chemical is an oil derived from vitamin E.  Investigators at the U.S. Food and Drug Administration found the oil in cannabis products in samples collected from patients who fell ill across the United States.  FDA officials shared that information with state health officials during a telephone briefing this week, according to several officials who took part in the call.

“That same chemical was also found in nearly all cannabis samples from patients who fell ill in New York in recent weeks, a state health department spokeswoman said.

“While this is the first common element found in samples from across the country, health officials said it is too early to know whether this is causing the injuries....

“On Wednesday, Oregon health authorities said a middle-aged adult who died in late July of a severe respiratory illness had used an e-cigarette containing marijuana oil purchased from a legal dispensary.  It’s the second death linked to vaping nationwide and the first to be linked to a product bought at a store.  Illinois officials reported the first death last week.  They did not specify what kind of product was used in that case.”

The CDC is reporting today that the death toll could be five nationwide, with the number of lung-related cases at 450.  This is a huge deal.

--We note the passing of Jim Leavelle, 99, the longtime Dallas lawman captured in one of history’s most iconic photographs as he escorted Lee Harvey Oswald, President John F. Kennedy’s accused assassin, when he was fatally shot by Jack Ruby. 

Nov. 24, 1963, I was watching on live television along with everyone else in America as Oswald was being transferred from the basement of Dallas police headquarters, when Leavelle, the man in white with the white Stetson hat, had his hand on Oswald when Ruby emerged, Oswald grimacing in pain, Leavelle stiffening.

In the decades after the assassination, his daughter, Tanya, said he regularly spoke at schools and before various groups because he believed “he had a responsibility to share his story.”

Tanya said her father through the decades received mail every day from people asking questions or invoking one of several conspiracy theories.

“He really felt a need to address the theories,” Evers said.  “He wanted to make sure that people knew there was no conspiracy and that one misguided person could take a shot at a president and succeed.”

Leavelle joined the Dallas police force in 1950 and retired from active service in 1975.  He was among the lead detectives assigned to investigate Kennedy’s assassination two days earlier.

The photo that captured the attack was taken by Robert H. Jackson, a photographer for the Dallas Times Herald who won a Pulitzer Prize for his image.

--At a ceremony marking the 80th anniversary of the outbreak of World War II in Poland, German President Frank-Walter Steinmeier expressed deep remorse for the suffering his nation inflicted on Poland and the rest of Europe.

“This was a German crime,” he said.  “I bow in mourning to the suffering of the victims. I ask for forgiveness for Germany’s historical debt.  I affirm our lasting responsibility.”

Two weeks after the German invasion, Sept. 1, 1939, the Soviet army invaded Poland from the east, putting the country under a dual occupation that came with atrocities committed by two invaders.  By the war’s end nearly six years later, about six million Poles had been killed, more than half of them Jews.

Poland was occupied until 1989.

Polish President Andrzej Duda recalled Poland’s immense suffering and he appealed to those assembled not to close their eyes now to imperial tendencies and border changes imposed through force; Duda citing aggression against Georgia and Ukraine, though he didn’t name Russia.  Let’s just say it was clear who he was referring to.

“Recently in Europe we are dealing with a return of imperialist tendencies, with attempts to change borders by force, with aggression against countries,” Duda said.  “Turning a blind eye is not the recipe for preserving peace.  It is a simple way to embolden aggressive personalities, a simple way to, in fact, give consent to further attacks.”

It must have been a truly moving experience to be in Warsaw, as church bells tolled across a capital the Germans razed to the ground.  I’ve been there twice...1973, in the Dark Days, and 1999, in much better ones.  Goose-stepping soldiers at the Tomb of the Unknown in 1973 were one of my prime memories of that trip; the excitement of a country reborn were those of my second journey.  [Though I visited Treblinka in ’99.]

--Finally, on a lighter note, researchers in Scotland, who collected DNA from Loch Ness, suggest the fabled monster might be a giant eel.

The research team found a surprisingly high amount of eel DNA in the water, though one of the researchers cautioned it’s not clear whether that indicates a gigantic eel or just a lot of little ones.  But Neil Gemmell of the University of Otago in New Zealand said the idea of a giant eel is at least plausible.

No DNA evidence to support the notion of a long-necked ancient reptile called a plesiosaur was found.  Personally, I’m crushed.

---

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

God bless America.

---

Gold: $1513
Oil: $56.63

Returns for the week 9/2-9/6

Dow Jones  +1.5%  [26797]
S&P 500  +1.8%  [2978]
S&P MidCap  +1.6%
Russell 2000  +0.7%
Nasdaq  +1.8%  [8103]

Returns for the period 1/1/19-9/6/19

Dow Jones  +14.9%
S&P 500  +18.8%
S&P MidCap  +14.9%
Russell 2000  +11.6%
Nasdaq  +22.1%

Bulls:  44.9
Bears: 
18.7... split the week before was 43.9/18.7

Have a great week.

Dr. Bortrum posted a new column!

Brian Trumbore



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Week in Review

09/07/2019

For the week 9/2-9/6

[Posted 10:30 PM ET, Friday]

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 1,065

Americans were largely consumed with Hurricane Dorian this week, which dealt a devastating blow to the northern Bahamas, the smell of decomposing bodies on Great Abaco Island foretelling an eventual death toll that Bahamian officials are saying tonight will be “unimaginable” and “staggering.”

Yet there was President Trump, who couldn’t simply say he ‘misspoke’ on Sunday when he included Alabama in a non-existent storm track at that point.  The president’s performance in the ensuing days was beyond pathetic.  There are times when he is such a small man.

And yet these are times demanding great leadership.  I’ve been warning the past few weeks of what could be a critically important day for U.S.-China relations, and thus global financial markets, let alone for the likes of Hong Kong and Taiwan.

October 1st...when Chinese President Xi Jinping will give a big speech commemorating a key anniversary in the history of his nation.

We received word U.S.-China trade talks will resume early in the month as well.  The market rallied on this news, but as I’ve said over the 20 years of StocksandNews, Wall Street is peopled with idiots.  I have also been saying this since day one of the trade issue.  There is not going to be a “tremendous” deal, or a great victory for the United States, as President Trump has forecast from time to time.  China is not going to roll over.  The October talks will amount to nothing.

But Trump is up against the election clock and there is no doubt at some point early next year he’ll be desperate for something he can call victory.  The issue is will Xi give it to him...like some concessions on farm purchases.  As Robert Zoellick writes below, not one of President Trump’s supposed victories on the trade front has been an actual win.  I’ve been telling you, for example, that the South Korea-U.S. deal was a total sham....and it was.  And USMCA is a marginal deal, at best.

What has been my point since day one of the Trump administration when he pulled out of the Trans-Pacific Partnership?  It was a mistake, a disastrous move of monumental proportions, and everything that has transpired since then proves this out.  Period.  End of story.

And then there is the charlatan Boris Johnson and Brexit.  This lying blowhard spewed nothing but falsehoods during the referendum campaign in 2016, and now he’s flailing away as prime minister, trying desperately to pull off what would be a catastrophic no-deal Brexit, but he’ll fail.  It’s been curious how President Trump, who has expressed his admiration for Johnson countless times, said nothing this entire week as Boris suffered one humiliating defeat after another.

But despite all the above, and what follows, for the United States it’s really about 2020 and Michigan, Wisconsin and Pennsylvania, and maybe one or two others.  We all know the game President Trump is playing.  He is laying the predicate.

If the dysfunctional Democrats can figure out who is best suited to defeat the president, and out of nowhere the Dems eke out a victory, ostensibly by retaking the three noted states, President Trump will be crying fraud...and it will be an incredibly ugly time for America.

But for now we move on....

Jackson Diehl / Washington Post

“On October 1, huge celebrations of the 70th anniversary of the founding of (Xi’s) Communist regime are planned on the mainland.  Counter-demonstrations in Hong Kong could spoil the show and cause Xi a humiliating loss of face. Xi’s media and military commanders have been threatening intervention for weeks.  They’ve tweeted propaganda videos of People’s Liberation Army troops using machine guns against ‘rioters’; they’ve massed elements of the paramilitary People’s Armed Police in the neighboring city of Shenzhen, where they’ve been carrying out exercises. Fresh soldiers were conspicuously rotated to the existing PLA garrison in Hong Kong last week.”

As Chen Long, an analyst based in Beijing, put it in the South China Morning Post:

“The Chinese leadership could use this opportunity to remind people of the history of foreign powers meddling in Chinese affairs and tell people to unite against the bullying Americans.

“Washington’s aggressiveness has also alienated and annoyed many moderate minds in China. For instance, the ‘currency manipulator’ label has outraged Chinese central bankers, because for many years they had tried to make the renminbi exchange rate more market-driven, and they are probably among the most reform-minded people in the government.

“The U.S. has shown the PBOC (People’s Bank of China) that it doesn’t play by rules, even the rules its sets.  If the moderates in Beijing also lose faith, it is hard to imagine how a ‘trade’ deal can be struck.

“The only chance is for Trump to suddenly soften his stance.  However, despite his mercurial nature, the odds of this happening are low because his political opponents will accuse him of ‘kowtowing’ to China. And that’s not something he wants to risk ahead of the presidential election.”

But Trump will find a way to claim victory.  That’s a certainty.

Trump World

--The Wall Street Journal reported that U.S. Customs and Border Protection took about 64,000 people into custody at the U.S.-Mexico border in August, an official told the paper.  The figure includes arrests of people who crossed the border illegally and those who went to legal border crossings, of which CBP processes about 10,000 a month.

The August figures are about 30% lower than July’s numbers, continuing a sharp decline in illegal crossings since reaching a 13-year high of 132,900 apprehensions in May. Normally, border arrests rise from July to August so this is a victory for the Trump administration and policies making it harder for migrants to apply for asylum in the countries they cross before reaching the U.S.

And then under pressure from the White House, the Mexican government boosted  its own deportations.

“I want to again thank the country of Mexico,” President Trump said in the Oval Office on Wednesday, adding that thousands of Mexican soldiers were “right now protecting our border and they’ve done a fantastic job.”

--Defense Secretary Mark Esper on Tuesday approved a border-wall spending plan that will divert funds from more than 100 military construction projects to earmark $3.6 billion for constructing a wall on the southern border with Mexico.

The plan to allocate money for the border wall will take funds from some 127 existing military projects, according to the Pentagon.  It’s not clear which projects will be affected.

The Pentagon said existing plans are being “deferred,” not canceled.  More much on this next week as more details emerge.  This is atrocious.

--Wednesday, President Trump displayed an altered map to show Alabama in the path of Hurricane Dorian.  Clearly, a sharpie had been taken to it, adding a line that extended the forecast of the storm’s path into the southeastern corner of Alabama.  [White House deputy press secretary Hogan Gidley confirmed the drawing was made using a black sharpie, while criticizing the media for focusing on it.]

This Fake Map came after Trump on Sunday claimed Alabama was projected to be hit by the storm, despite the National Weather Service saying this was not the case.

Asked about the map at a later event, the president insisted he did not know anything about it and had no explanation for who altered the map.

However, he insisted that “Alabama was in the original forecast.”

He added: “Actually, we have a better map than that which is going to be presented, where we had many lines going directly, many models...in all cases, Alabama was hit.”

A week ago Thursday, of all the spaghetti trails/plots you saw of a potential path from Dorian, which was still days from the Bahamas, one was taking it over Florida and into the Gulf.  One of scores of potential paths.  Yes, at that time, had it entered the Gulf, it may have posed a threat to Alabama.

Last Friday, a map showed a small sliver of Alabama at the edge of the five-day cone of uncertainty.

But by Sunday, when Trump met with FEMA, there was zero risk to ‘Bama, yet the president claimed it was potentially in the path.

The National Weather Service was forced to immediately put out a tweet:

“Alabama will NOT see any impacts from #Dorian. We repeat, no impacts from Hurricane #Dorian will be felt across Alabama. The system will remain too far east.”

Yet Thursday, yesterday, Trump continued to double down.

“In the early days of the hurricane, when it was predicted that Dorian would go through Miami or West Palm Beach, even before it reached the Bahamas, certain models strongly suggested that Alabama & Georgia would be hit as it made its way through Florida & to the Gulf....

“...Instead it turned North and went up the coast, where it continues now. In the one model through Florida, the Great State of Alabama would have been hit or grazed. In the path it took, no. Read my FULL FEMA statement. What I saw was accurate! All Fake News in order to demean!”

“Alabama was going to be hit or grazed, and then Hurricane Dorian took a different path (up along the East Coast). The Fake News knows this very well. That’s why they’re the Fake News!”

Today, Trump tweeted again:

“The Fake News Media was fixated on the fact that I properly said, at the beginnings of Hurricane Dorian, that in addition to Florida & other states, Alabama may also be grazed or hit. They went Crazy, hoping against hope that I made a mistake (which I didn’t). Check out maps....

“....This nonsense has never happened to another President. Four days of corrupt reporting, still without an apology. But there are many things that the Fake News Media has not apologized to me for, like the Witch Hunt, or SpyGate! The LameStream Media and their Democrat...

“...partner should start playing it straight. It would be so much better for our Country!”

“The LameStream Media has gone totally CRAZY! They write whatever they want, seldom have sources (even though they say they do), never do ‘fact checking’ anymore, and are only looking for the ‘kill.’  They take good news and make it bad. They are now beyond Fake, they are Corrupt...

“...The good news is that we are winning.  Our real opponent is not the Democrats, or the dwindling number of Republicans that lost their way and got left behind, our primary opponent is the Fake News Media. In the history of our Country, they have never been so bad!”

Of course there is little doubt who used their sharpie to draw the extended cone. 

--Editorial / Washington Post

“In Ireland on Tuesday, Vice President Pence met with Taoiseach Leo Varadkar, greeted business leaders at the U.S. ambassador’s residence and then flew to a resort on the other side of the country, where he is staying. On its face, his choice to lodge in Doonbeg, which requires him to commute to meetings within the island nation aboard Air Force Two, seems odd.  When one factors in that the resort is owned by President Trump, these facts signify much more: They are more evidence of the Trump administration’s casual indifference to government ethics.

“Mr. Pence told reporters Tuesday he had always planned a trip to Doonbeg, because he has familial roots in the town, and that staying at the 120-room Trump resort made sense for his large staff. But that is not a satisfactory explanation for staying across the country from Dublin, the nation’s capital and the site of the meetings he is ostensibly in Ireland to attend.  Marc Short, Mr. Pence’s chief of staff, argued that, after Mr. Trump canceled his trip to Poland, leaving Mr. Pence to fill in for him, the scrambled schedule limited the vice president’s options.  Yet he also admitted that Mr. Trump suggested he stay at Doonbeg....

“Mr. Pence should have been more attuned to the appearance of self-dealing.  If there were ever a good time for such a lapse, this is not it.  Mr. Trump ended last month’s Group of Seven conference by talking up his struggling Doral golf resort in South Florida and suggesting that he would hold the next G-7 summit there.  The Trump International Hotel in Washington has already become a conduit through which foreign and domestic lobbyists can funnel revenue into the president’s business. They have, at grand scale.

“Senior administration officials should not find themselves in the position of deciding whether to spend large amounts of public or private money at a property the president owns.  Mr. Trump claims he is losing money on net during his administration, as though serving were a burden that justified the enrichment his business gains from his office.

“Then again, because the president has refused to release his tax returns, all the public has is Mr. Trump’s word that he is losing money.  That and $395 will buy you one night in the Trump International Hotel.”

--Trump tweetstorm:

“8 FACTS that #FakeNewsCNN will ignore in tonight’s ‘Climate Forum’

“1. Which country has the largest carbon emission reduction?  AMERICA! 2. Who has dumped the most carbon into the air?  CHINA!  3. 91% of the world’s population are exposed to air pollution above the World Health Organization’s level.  NONE ARE IN THE U.S.A.!

“4. The U.S. now leads the world in energy production... BUT... 5. Who’s got the world’s cleanest and safest air and water?  AMERICA!

“6. The Democrats’ destructive ‘environmental’ proposals will raise your energy bill and prices at the pump.  Don’t the Democrats care about fighting American poverty?

“7. The badly flawed Paris Climate Agreement protects the polluters, hurts Americans, and cost a fortune.  NOT ON MY WATCH! 8. I want crystal clean water and the cleanest and the purest air on the planet – we’ve now got that!”

Wall Street and the Trade War

President Trump tweet, Friday: “I agree with @jimcramer, the Fed should lower rates. They were WAY too early to raise, and Way too late to cut – and big dose quantitative tightening didn’t exactly help either. Where did I find this guy Jerome?  Oh well, you can’t win them all!”

We had a number of important economic data points this week, some good, some bad.

The Institute for Supply Management (ISM) report on August manufacturing was poor, 49.1 vs. an estimate of 51.5 (50 the dividing line between growth and contraction).  It was also the lowest since Aug. 2016.

But then the ISM non-manufacturing (services) figure came in at a strong and better-than-expected 56.4 (rebounding from a three-year low), with the new orders component over 60.

July construction spending was less than forecast, 0.1%, while factory orders for the month were better, 1.4%.

Which led to today’s jobs report for August, less than expected, 130,000, with the data for June and July revised downward to 178,000 and 159,000, respectively, giving a three-month average of 156,000.  This is still good, just lower than 2018’s pace and reflective of an economy that is at full employment.

The unemployment rate remained unchanged at 3.7%, while the underemployment rate, U6, rose to 7.2%.  [The black unemployment rate hit 5.5%, an all-time low.]

Average hourly earnings were up 0.4%, 3.2% year over year.

So not an awful report by any stretch, and certainly not recessionary, but the Atlanta Fed’s GDPNow barometer for third quarter growth is at just 1.5%.

President Trump tweeted after the jobs number: “The Economy is great. The only thing adding to ‘uncertainty’ is the Fake News!”

The Federal Reserve meets Sept. 17-18 and there is little doubt it will lower its key lending rate another quarter-point (25 basis points).  Those hoping for 50, including the president, will be disappointed, but the market will be satisfied.

New York Fed President John Williams said in a speech this week: “The economy is in a good place, but not without risk and uncertainty.  Our role is to navigate a complex and at times ambiguous outlook to keep the economy growing and strong.”

And then this afternoon, speaking in Zurich, Chairman Powell said the Federal Reserve will continue to act “as appropriate” to sustain the economic expansion, sticking to a phrase that financial markets have taken to signal further rate reductions, but declining to be more specific.

“Our obligation is to use our tools to support the economy, and that’s what we’ll continue to do,” Powell said at the University of Zurich. Still, he said, “We are clearly at a time where there is a range of views” among Fed policymakers.

Powell said the Fed will be closely watching geopolitical risks, financial conditions, and other incoming economic data as they weigh what to do in less than two weeks.

Meanwhile, stocks rallied anew on false hopes on the trade front.  So stupid.

Speaking of the Trade War...the top trade negotiators of China and the United States will be meeting in Washington in early October.  Chinese Vice Premier Liu He and the United States’ Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin had a phone conversation Thursday (their first formal contact since Aug. 13...the last face-to-face being in Shanghai in July) with both sides agreeing to make concrete efforts to create positive conditions to continue dialogue.

The U.S. imposed tariffs on imports of roughly $110 billion in Chinese goods on Sunday, and China retaliated with tariffs of its own to the tune of $75 billion. The U.S. then plans additional tariffs on Oct. 1, and both sides would increase them again on Dec. 15 barring a breakthrough.

What seems clear is that China is going to stick to its three main principles in the upcoming talks – that the U.S. remove the tariffs, the negotiation text should be fair, and that China’s purchases of U.S. products should be determined by domestic conditions.

But the U.S. has demanded a large portion of the tariffs remain in place until after the 2020 election to keep China committed to delivering on any promises and concessions, which has been unacceptable to Beijing.

Robert B. Zoellick / Wall Street Journal...Zoellick a former World Bank president, U.S. trade representative and deputy secretary of state.

“President Trump’s trade thunder booms so frequently that the public has difficulty discerning what’s really happening.  After more than two years of trial and much error, Congress and the country should step back to survey the big picture.

“The president’s trade policy represents a fundamental break from the past 85 years.  It’s more than a matter of aggressive negotiating tactics. Not since Herbert Hoover has a U.S. president so openly embraced trade protectionism. In his inaugural address, Mr. Trump proudly proclaimed himself a protectionist; we should now believe him. His assertion that he is a ‘tariff man’ should convince any holdouts.  The president also likes unpredictability, creating the kind of uncertainty that confuses business planning and investment. For example, after signing the U.S.-Mexico-Canada Agreement (the new North American Free Trade Agreement), he stomped on his own deal by threatening to hike tariffs on Mexico because he was angry about Central Americans seeking asylum.

“He will not change. Trade – like the wall with Mexico and hostility to immigration – is a core issue for the president’s political base. He must keep it boiling.

“What have been the effects of Mr. Trump’s return to protectionism?  First, the U.S. has lost markets for exports because it dropped out of deals like the Trans-Pacific Partnership. The TPP lowered trade barriers in Asia for others, but not, thanks to Mr. Trump, for the U.S.  The European Union has gained preferential access to Japan and other markets. China has lowered its average tariff for others to 6.7%.

“Second, the tariffs have provoked world-wide retaliation, hurting America’s most productive businesses and farmers. For Americans, China boosted its average tariff to 21.8%. Congress now doles out tens of billions of dollars to U.S. farmers to compensate for lost sales.  U.S. exporters will pay a price for years because of supply-chain shifts.

“Third, the president’s protectionism costs American businesses and families.  The administration raised taxes on 15% of U.S. imports even before the upcoming tariff increase on almost all Chinese goods.  Mr. Trump started by raising tariffs on intermediate goods – on aluminum, for example, even though 97% of U.S. jobs in the sector use aluminum as an input.  The Peterson Institute for International Economics estimated that the cost paid by steel users for each steel job gained by tariffs was about $650,000.  As U.S. firms pay more for inputs, some are regretfully moving operations abroad to remain competitive.  In two years, the president has increased the average tariff on Chinese goods to 24%, up from an average of 3%. Americans will end up paying these in the form of higher prices.

“Fourth, with increased costs and uncertainties about doing business in the U.S., foreign direct investment is falling. This suppresses job and wage growth and disrupts international supply chains.

“Fifth, President Trump’s trade policy ignores how the U.S. has used free-trade agreements to write pro-U.S. rules for cutting-edge sectors such as medical and financial services, intellectual-property rights, and data access and security. Trade agreements also allow the U.S. to establish best practices in anticorruption laws, border procedures and transparency.  Because U.S. businesses have been leaders in innovation, past American negotiators have been at the forefront of international rule-making.  This president disdains rules; he acts as if governments control purchases like in old-style mercantilism.

“Mr. Trump counters that these costs are the price Americans must pay for his deal-making.  But his record is pitiful.  His administration renegotiated with South Korea, adding a steel quota that hurts U.S. users, raising a quota for U.S. autos that companies had already failed to meet, and extending a 25% tariff on trucks.  The USMCA is a mixed bag at best.  It weakens protections for investors in Mexico at a time when that nation’s government is making investors nervous....

“Negotiations with the EU are stalled.  India and the U.S. have each raised barriers to one another.  Mr. Trump is even struggling to strike a small deal with Japan to recover some access that he lost by dropping out of the TPP.... The president’s apologists have retreated to arguing about which country has been hurt more, a sure sign of trade defeatism.

“Mr. Trump has even threatened to leave the World Trade Organization. The Reagan, George H.W. Bush and Clinton administrations fought to create the WTO, including its dispute-settlement procedures, because they knew America could compete successfully with fair, enforceable rules.  The current president, by contrast, has blocked appointments to the WTO appeals body to try to put it out of business by year’s end.  The U.S. sabotages or ignores efforts by other countries – even China – to tighten rules on state-owned enterprises and developing countries....

“Even by the president’s own measure, the U.S. trade deficit, he’s losing.  If the U.S. slides into recession, his policies will make conditions worse.  Congress needs to wake up and push back. Business executives should support them before the trade smashup leads to an economic breakdown.”

Trump tweets:

“We are doing very well in our negotiations with China.  While I am sure they would love to be dealing with a new administration so they could continue their practice of ‘ripoff USA’ ($600 B/year), 16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot....

“....And then, think what happens to China when I win.  Deal would get MUCH TOUGHER!  In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!

“For all the ‘geniuses’ out there, many who have been in other administrations and ‘taken to the cleaners’ by China, that want me to get together with the EU and others to go after China Trade practices remember, the EU & all treat us VERY unfairly on Trade also. Will change!”

Europe and Asia

Eurostat released an estimate on second quarter GDP for the eurozone (EA19), 0.2% over the first quarter, after GDP had grown 0.4% in Q1.

Compared with a year ago, seasonally adjusted GDP rose by 1.2%, after 1.3% in the previous quarter.

But Germany recorded -0.1% in Q2, versus 0.4% in Q1, with the annual percentage rate of growth just 0.4%.  And prior to the report, a separate number from the Federal Statistics Office showed factory orders from foreign buyers dropped 6.7 percent in July from June (down 2.7 percent overall), far greater than expected. 

Italy, unchanged in Q2, is at -0.1% from a year ago. 

France’s comps were 0.3%, 1.4% ann.; Spain 0.5%, 2.3%; and Greece, 0.8%, 1.9% ann.

Earlier, Eurostat reported July retail sales in the EA19 fell 0.6% over June, but still up 2.2% year-over-year.

And we had a slew of August PMI data for the (EA19), courtesy of IHS Markit.

The final eurozone manufacturing PMI came in at 47.0 for last month vs. 46.5 in July.  The services reading was 53.5 vs. 53.2.

Germany 43.5 mfg., 54.8 services [July’s 43.2 on manufacturing was a 7-year low]
France 51.1 mfg., 53.4 services
Italy 48.7 mfg., 50.6 services
Spain 48.8 mfg., 54.3 services
Ireland 48.6 mfg., 54.6 services
Greece 54.9 mfg.

U.K. 47.4 mfg., 50.6 services...the manufacturing data point the worst in seven years.

Chris Williamson / IHS Markit

“The eurozone remained mired in a fragile state of weak and unbalanced growth in August.

“Although up on July, the latest reading indicates that GDP will rise by just 0.2% in the third quarter, assuming no substantial change in September....

“The picture remains very mixed both by sector and country, highlighting how downside risks persist.  A fierce manufacturing downturn, fueled by deteriorating exports and most intensely felt in Germany, continues to be offset by resilient growth in the service sector, in turn propped up to a large extent by solid consumer spending in domestic markets.

“The big question is how long this divergence can persist before the weakness of the manufacturing sector spreads to services and households. With jobs growth waning to the slowest since early-2016 a deteriorating labor market looks set to be a key transmission mechanism by which the trade-led downturn infects the wider economy.  A sharp drop in business optimism about the coming year in the service sector, down to the joint-lowest for six years, suggests that companies are already braced for tougher times ahead.

“We therefore expect to see renewed stimulus from the ECB in September as the central bank seeks to revive demand and stem the spreading malaise.”

And that ECB action could come next week.

Brexit:  It was an awful week for British Prime Minister Boris Johnson and his quest for Brexit.  Even his brother, Jo Johnson, said he was standing down Thursday as minister for universities, tweeting, “In recent weeks I’ve been torn between family loyalty and the national interest. It’s un unresolvable tension.”

After days of internal rebellion in the prime minister’s Conservative Party and one parliamentary defeat after another, the resignation of the brother was a shocker, though at the same time, Jo had advocated remaining in the European Union going back to the 2016 referendum.  He then accepted his brother’s invitation to come into government hoping Boris could work out a deal with the EU for a smooth exit, but now with only a no-deal Brexit in sight, Jo decided to leave.

Wednesday, Boris Johnson suffered back-to-back defeats in Parliament’s lower house after sacking 21 members from his own party in the legislature.

The 21 joined opposition lawmakers in approving a proposal requiring the prime minister to delay Britain’s departure from the EU beyond its current Oct. 31 deadline if Parliament doesn’t ratify a new withdrawal deal.

Parliament also dismissed the prime minister’s call for an election on Oct. 15, which most saw as an attempt by Johnson to reimpose the Oct. 31 deadline if he won.  The prime minister needed to get the backing of two-thirds of MPs to call an election and he failed.

So now the government said it will try again next week to gain approval, but many feel an election will take place in November, after Brexit is delayed.

Johnson, having lost his majority by kicking out the 21 Conservative Party lawmakers, needs a convincing new mandate to deliver on his promise to leave the EU.

Meanwhile, what we saw this week was that there was no love lost between Boris Johnson and Labour Party leader Jeremy Corbyn.  Corbyn repeatedly called for details of the PM’s negotiating plan with the EU – and received zippo.

The PM pushed Corbyn to back an election on Oct. 15, mouthing the words “you great big girl’s blouse” when the answer was not forthcoming, and repeatedly calling the anti-no-deal plan a “surrender bill.”

As for the EU, there is no guarantee leaders will allow Brexit to be delayed again – even if Johnson is humiliated into asking for an extension.

MPs backed legislation requiring the U.K. government to ask for a three-month delay beyond October 31 (327-299).  But Johnson insisted he will never “surrender” in his battle to have the Irish backstop scrapped.

At this point, while Ireland would go for another extension, it will be difficult to get a consensus among all 27 member states.  Finland’s prime minister, whose country currently holds the rotating presidency of the EU, said there is not widespread support for a further Brexit extension. 

Antti Rinne said the EU would require “some sort of future scenario...to underline that something sensible could start happening.”  But he said there is “no sense” in granting something “that seems to lead nowhere, and I don’t think it’s possible to find majority support for such an extension.”

Michel Barnier, the EU’s chief negotiator, told diplomats Wednesday that Brexit talks are stuck in “paralysis” because the U.K. has failed to provide any proposals to break the deadlock.

What began as a week where Prime Minister Boris Johnson reiterated, “I want everybody to know there are no circumstances in which I will ask Brussels to delay.  We are leaving on October 31, no ifs or buts,” ended with more uncertainty than ever.

The House of Lords did approve a bill to prevent a no-deal Brexit and it forces the prime minister to ask the EU for the Brexit deadline to be extended beyond October 31 if no deal is agreed to by the U.K. and Brussels by Oct. 19.  The EU summit is Oct. 17-18.

The opposition will vote against the government or abstain in Monday’s vote on whether to hold a snap poll.

Italy: An agreement between the anti-establishment Five Star Movement and the center-left Democratic party (PD) to form a new coalition government ended weeks of political uncertainty, with Italian government bonds surging in response, the 10-year yield falling to a record low 0.83 percent Wednesday.  It was over 1.80 percent just a month ago.

Investors are betting that the new “yellow-red” coalition will avoid confrontation with the EU over the bloc’s budget in contrast to its predecessor, the alliance between Five Star and the rightwing League party.

But there really is no telling how long an alliance of establishment and antiestablishment parties can last.

Germany: A far-right party made significant gains Sunday in two closely watched state elections, snapping at the heels of parties in Chancellor Angela Merkel’s governing coalition and highlighting a growing political divide between the country’s East and West.

But Merkel’s party and one of her coalition partners won enough support to beat back the Alternative for Germany (AfD), the far-right group.  But AfD was robbed of what would have been a powerful symbolic victory: the chance to emerge as the strongest force in one of the country’s 16 states.

Merkel and her coalition partner did suffer heavy losses to the AfD in two states that were once part of the Communist East of Germany.

AfD earned 28 percent of the vote in Saxony and 24 percent in neighboring Brandenburg, 18 and 12 points better than the previous election in 2014.

But all other political parties have ruled out cooperating with AfD, so it remains in the opposition.

In Saxony, Merkel’s Christian Democratic Union gained more than 32 percent of the vote.  In Brandenburg, her coalition partner, the Social Democrats, emerged as the strongest with 26 percent.

National elections are not scheduled until 2021 and Merkel has said she intends to serve out her full term.  But it’s been a rocky time for her coalition amidst declining popular support.  Many of the Social Democrats want to quit an alliance that has supported Merkel for 10 of her 14 years in power and rebuild in opposition.

Turning to Asia....

China’s private Caixin PMI on mfg. came in at 50.4, 52.1 services.  These figures weren’t bad.

Japan’s mfg. PMI was 49.3, services 53.3.

South Korea had a manufacturing PMI of 49.0 in August; Taiwan 47.9.

Separately, South Korea’s exports tumbled 13.6% in August from a year earlier, down a ninth consecutive month, on sluggish demand from its biggest buyer, China, and depressed prices of computer chips globally.

Street Bytes

--In advancing a second straight week, stocks have largely made up their losses from the four-week swoon prior, with the Dow Jones up 1.5% to 26797, the S&P 500 and Nasdaq each up 1.8%. All three are now back within spitting distance of their record highs.

--U.S. Treasury Yields

6-mo. 1.86%  2-yr.  1.54%  10-yr. 1.56%  30-yr.  2.03%

Yields rose as the flight to safety trade was off for a week.  Even the German bund (10-year) saw its yield ‘rise’ from -0.70% to -0.64%!

--YouTube agreed to pay a fine of $170 million and to provide new protections for children on its platform in a settlement with the Federal Trade Commission and the New York state attorney general that heightens the debate over how to rein in technology giants.

The penalty follows a yearlong investigation in response to complaints from consumer groups, which said the video platform illegally collected data on children to sell ads for products such as Barbie dolls and Play-Doh.  The FTC said YouTube tracked internet activity for children under age 13, with the goal of keeping viewership high.  No executives at YouTube or its parent, Google, were penalized.

YouTube said it would make changes to its platform, including cutting off data collection on videos aimed at kids.

But regulators remain divided, with the FTC voting 3-2. The FTC’s Republican leadership noted the fine far exceeded previous penalties in similar cases, but minority Democrats said the FTC should have sought bigger penalties and larger changes.

It’s all about how far does government go in regulating the tech giants.

But Republican Sen. Josh Hawley (Mo.), a big critic of Silicon Valley, tweeted that the fine is “an insult to every parent in America who has had their children’s privacy violated.”

The Justice Department has opened an antitrust investigation into Google’s dominant search platform, with various state attorneys general formally launching separate antitrust probes of Google and Facebook starting next week.

New York Attorney General Letitia James said Friday that her office was organizing a bipartisan, multi-state probe into Facebook in an attempt “to determine whether Facebook’s actions may have endangered consumer data, reduced the quality of consumers’ choices, or increased the price of advertising.”

The Google probe is to be announced Monday outside the U.S. Supreme Court and is said to be focused on its impact on digital advertising markets, as well as potential harms to consumers from their information and ad choices being concentrated in one company.

--Walmart Inc. will phase out sales of ammunition for handguns and short-barrel rifles, eliminating a small chunk of its sales, while making a big political statement.

Walmart has a 20% share of the $2-billion U.S. ammunition market, $400 million, and CEO Doug McMillon predicted that share would now drop below 10% after the changes.  But considering Walmart’s total revenues in its latest fiscal year were $514 billion, analysts said its decision probably won’t hurt its bottom line.  And some say failing to make a point after a mass shooting in its one of its stores (22 killed in El Paso) may have had a bigger impact.

In a letter to employees dated Tuesday, McMillon said Walmart would also discontinue handgun sales in Alaska – the last state in which Walmart sold that type of firearm – and is “respectfully requesting” customers not to openly carry guns in Walmart or Sam’s Club stores unless they are law enforcement officers.  He also called on Congress to “strengthen background checks and to remove weapons from those who have been determined to pose an imminent danger.”

The National Rifle Assn. called Walmart’s decision “shameful,” saying in a statement that “lines at Walmart will soon be replaced by lines at other retailers who are more supportive of America’s fundamental freedoms.”

The National Shooting Sports Foundation, the trade group for the U.S. firearms industry, said it was disappointed in Walmart’s decision but “appreciates Walmart’s continuing commitment to America’s hunters and recreational target shooters and their equipment needs, as sportsmen and women represent tens of millions of responsible gun owners in this country.”

Walmart will continue to sell long-barrel deer rifles and shotguns, as well as much of the ammunition for those guns, and hunting and sporting accessories and apparel.

Sales of the ammunition Walmart is shunning will shift to outfits like Cabela’s, Bass Pro Shops, and Dick’s Sporting Goods

Four years ago, Walmart stopped selling assault-style rifles and raised the age limit to purchase a gun or ammunition to 21, among other gun control sales measures.

Dick’s Sporting Goods ended sales of assault-style weapons at its stores after the 2012 mass shooting at Sandy Hook Elementary School.  And then after the March 2018 Parkland shooting, Dick’s stopped selling any guns to customers younger than 21.

--Shares in Boeing Co. fell early this week as American Airlines and United Airlines said they were extending cancellations of the 737 MAX well into December, as the Federal Aviation Administration said the other day that a panel of experts around the world will need a few more weeks to finish its review into the MAX certification, the aircraft having been grounded worldwide since mid-March following the second of two fatal crashes, as Boeing updates flight control software.

But Boeing stock had recovered by week’s end largely on the positive trade talk from China.

The thing is, friction between Boeing and international regulators has been a constant as Boeing attempts to get its software fixes approved.  The Wall Street Journal reported on an August conference call between Boeing and regulators in the U.S., Europe, Brazil and elsewhere “that was cut short (after complaints) that the plane maker had failed to provide technical details and answer specific questions about modifications in the operation of MAX flight-control computers.”

European officials are increasingly convinced their aircraft aren’t likely to resume carrying passengers until January at the earliest.

--An American Airlines mechanic is accused of sabotaging a flight over stalled union contract negotiations.  The mechanic admitted during an interview Thursday that he tampered with a navigation system on the plane so that he could collect overtime work.  The plan was discovered as part of an FBI terrorism task force.

The plane, with 150 people on board, was scheduled to fly from Miami to Nassau in the Bahamas on July 17. As the pilots powered up the plane at Miami International Airport, they saw an error message for a system that tracks speed, nose direction and other critical flight information, and aborted the takeoff.

When he was interviewed, the mechanic, Abdul-Majeed Maroud Ahmed Alani, said he did not intend to cause harm but that stalled contract negotiations between American and the mechanics’ unions were hurting him financially, and he tampered with a plane “to cause a delay or have the flight canceled in anticipation of obtaining overtime work,” a member of the terrorism task force wrote in an affidavit.

--WeWork’s pending IPO has been panned royally for its sky-high valuation, estimated to be at $47 billion, but the company is now exploring a dramatic reduction to $20 billion, or thereabouts, after all the questions on the business model and corporate governance.

$47 billion is where the company last raised private capital this year.

One of the company’s biggest investors, SoftBank Group, has discussed the possibility of being an anchor investor in the IPO, buying a significant amount of the roughly $3 billion to $4 billion WeWork is expected to raise.

--Sears and Kmart continue to shrink, Sears’ parent company, Transformco, filing a notice in Illinois that it was laying off approximately 250 employees from its headquarters in Hoffman Estates.  The terminations will begin end of October.

Late last week, Sears announced it was closing nearly 100 more Kmart and Sears stores by the end of the year.

In February, former Sears CEO Eddie Lampert struck a last-minute deal to buy Sears assets out of bankruptcy and keep about 400 stores open under the new entity, Transformco.

As of Aug. 7, the company said about 380 locations remained open.

--In about one year of New Jersey legalizing sports betting, the state is already poised to overtake Nevada as the sports betting capital of the U.S., as noted in various reports recently.  The NFL has a lot to do with this. 

With the new season kicking off last night, sports bettors will be flocking from New York City and Philadelphia to New Jersey, with our sports gambling handle during last year’s September through January season being $1.5 billion, despite the fact it had just become legal.

Nevada’s is $2.7 billion.  And in just 11 months, New Jersey overtook Nevada’s sportsbook wagers on a monthly basis when it booked $318.9 million worth of sports bets in May, versus $318.3 million for Nevada.  The Garden State then did it again in July ($251 million vs. $235m for Nevada).

But now New Jersey has double the online sports betting sites it did for last year’s NFL season.

Online sports betting already accounts for 80 percent of total wagers in New Jersey – according to the New York Post, 20 percent of which are placed by New Yorkers while traveling through the state (AmericanGambler.com).  You have to physically be in New Jersey to legally wager on sports through apps like DraftKings.  So for Philadelphia or New York City residents, it’s a short trip by train or car, while for Los Angelenos to drive to Las Vegas takes about five hours.

--The estimated Hollywood box office for summer (defined as the first weekend in May to Labor Day) was down 2 percent in the United States and Canada, according to Comscore, and is down 6.3 percent for the year (5 percent decline in attendance).  This comes despite the runaway success of “Avengers: Endgame,” which collected a record-breaking $2.8 billion worldwide, nearly $860 million of that in North America.

The movie business ebbs and flows.  Ticket sales soared 15 percent last summer, with the return of the “Incredibles” series, and “Crazy Rich Asians.”

But does this summer’s take mean anything?  Economist Mark Zandi concludes, “It is another sign that the broader economy is in a fragile place,” noting that other leisure businesses, like Disney theme parks and Major League Baseball games, had a soft summer.

I don’t know about the theory, but MLB does have an attendance issue.

Foreign Affairs

China / Hong Kong: Hong Kong, Macau  and Taiwan were singled out by Chinese President Xi Jinping as major risks and challenges that Communist Party members must ‘struggle against.’

In his first major speech to officials on Tuesday since his late-summer party retreat, Xi listed a number of challenges facing the country, even putting this specific category ahead of ‘foreign affairs’ despite the global economic and strategic challenges China faces, including the trade war with the United States.

The other risks identified by Xi include economics, politics, culture and the environment, according to state news agency Xinhua.

In the speech he said: “Cadres must be vigilant to any wind of change. They must know a deer passing by the rustle of grass and leaves, they must know the coming of a tiger by feeling the wind, they must know the arrival of autumn by the color of one leaf.’

Xi urged the officials to ready themselves so they can ‘win in any struggle’ and face down challenges to the Communist Party’s rule, national sovereignty and Beijing’s goal of national rejuvenation.

But with regards to Hong Kong, Chief Executive Carrie Lam announced Wednesday that after 13 weeks of political crisis, she was formally withdrawing the bill that sparked the protest movement, but it is probably too little, too late.

Student activist Joshua Wong, out on bail after being arrested last week, wrote on Twitter that people would not believe the announcement was sincere.

“Whenever there are signs of sending a palm branch, they always come with a far tighter grip on exercising civil rights,” he wrote.  “They have conceded nothing in fact, and a full-scale clampdown is on the way.”

Agnes Chow, another recently arrested student activist, wrote on Facebook: “Do not forget the companions we lost, do not forget our comrades who were injured. If we give up, Hong Kong will die.”

The withdrawal of the bill is the first and only government concession to the five key demands of the protesters.  The others are an independent inquiry into alleged police brutality, amnesty for arrested protesters, the right of Hong Kong citizens to elect their own political leaders and a government edict against describing the protests as “riots.”

“Five key demands, not one less!” is the catchphrase of the protest movement.

China’s Hong Kong and Macau Central Office – which reports directly to China’s Cabinet – cited Article 18 of Hong Kong law, which permits the central government to take control in the event that a crisis spirals beyond the local authority, as in, China refuses to rule out military intervention.

Editorial / Wall Street Journal

“Hong Kong Chief Executive Carrie Lam said Wednesday she’ll withdraw legislation that would allow extradition to mainland China.  The bill was the catalyst for 13 straight weekends of protest and the concession is welcome, but by now it will take more to end the city’s political crisis.

“The demands of protesters have escalated as police have arrested more than 1,100 people, including pro-democracy lawmakers and activists.  Hong Kongers now want the right to directly elect their chief executive and lawmakers.  Beijing won’t allow this, but Ms. Lam could at least acknowledge the excessive use of police force and allow an independent inquiry into abuses.  Yet on Wednesday she claimed that a probe of police enforcement actions is ‘best handled by the existing and well-established Independent Police Complaints Council.’

“The council has authority merely to ‘observe, monitor and review’ internal police investigations and make recommendations, without the independent power even to summon witnesses.  Council members are appointed by Ms. Lam, who answers to Beijing. The council lacks the independence and statutory authority to conduct a credible inquiry.

“Police have also repeatedly refused to issue permits for protests, so some of those arrested now face up to five years in prison for peacefully demonstrating without police approval, and hundreds of thousands could face similar charges.

“Meanwhile, the Chinese foreign ministry on Tuesday denounced Hong Kong publisher and businessman Jimmy Lai as ‘a leading anti-China activist who attempts to mess up Hong Kong.’  The same statement attacked activists Joshua Wong and Agnes Chow.  Mr. Wong was arrested last week on three protest-related charges.  A news report says thugs threw a Molotov cocktail near Mr. Lai’s residence.

“We featured Mr. Lai in our pages in June, and the New York Times recently discovered him.  China’s denunciation shows Mr. Lai is on Beijing’s target list and why Hong Kongers don’t trust Ms. Lam’s assurances. To restore public confidence in the rule of law, Ms. Lam should urge that charges be dropped against nonviolent protesters.”

David Ignatius / Washington Post

“As we move into the fall, there’s one overriding foreign policy priority for the United States: Find a strategy to deal with the rising China that protects U.S. interests but doesn’t subvert the global economy.

“China is the challenge of our time, and the risks of getting it wrong are enormous.  Huawei, the Shenzhen-based communications powerhouse, argues in a slick new YouTube video that its critics want to create a new Berlin Wall. That’s not true – Huawei and other Chinese tech companies have allegedly been stealing intellectual property for years and are finally being held accountable – but there’s a real danger that the United States will talk itself into a digital cold war that lasts for decades.

“We are at a crossroads: At a conference on U.S.-China relations last month at the University of California at San Diego, a Chinese participant offered a blunt prediction about the future: ‘We think we are heading toward a partial decoupling of our relationship.’ Trump administration officials argue that China has been decoupling itself – denying access to Western firms, even as the United States and its allies provided technology, training and market access.

“But what comes next?  Trump administration officials hope that progress toward a trade deal might happen at last, now that a meeting with a senior Chinese official has been set for October.  But Myron Brilliant, who runs the U.S. Chamber of Commerce’s international programs, cautions, ‘There’s a trust deficit between Washington and Beijing that needs to be restored before there’s progress.’

“President Trump reiterated on Wednesday that the administration plans to deny Huawei access to U.S. technology.  ‘It’s a national security concern,’ Trump told reporters at the White House.  ‘Huawei is a big concern of our military, of our intelligence agencies, and we are not doing business with Huawei.’  That leaves a little wiggle room, but not much.

“White House officials tell me the Chinese are mistaken if they think the administration is seeking to cripple China technologically.  Officials say their goal isn’t a rerun of the anti-Soviet strategy of containment but something more flexible.  One administration official says his colleagues sometimes refer to this still-unnamed strategy simply as ‘the noun.’

“The Trump administration’s problem is that it has gutted the national security process that could devise a systematic plan for dealing with China....

“This administration’s sharp policy debates on China strategy are exacerbated because there’s no decision-making process to resolve them. On one side are China hawks such as White House trade adviser Peter Navarro; on the other are would-be dealmakers such as Treasury Secretary Steven Mnuchin.  In the middle is Secretary of State Mike Pompeo, who seems to have an instinct for where Trump will eventually land.

“ ‘On no issue is the lack of a policy process more visible or dramatic than China,’ says Kurt Campbell, who oversaw Asia policy during the Obama administration.  He contrasts how the presidents of the world’s two superpowers spent the last weeks of summer. Chinese President Xi Jinping met with top party officials at a beach resort and emerged with a new honorific, the ‘People’s Leader.’ Trump spent those weeks in very public and sometimes self-destructive Twitter barrages, at home and abroad.

“Trump has a simple four-word summary of his China baseline, notes one administration official: ‘Xi is my friend.’  Personal diplomacy has its uses, but it’s no substitute for clear policy....

“Trump was right to take the China trade and technology problem more seriously than his predecessors. But the time for Twitter diplomacy and deals with ‘my friend’ Xi is over.  U.S. moves on this chessboard should be guided by clear planning, not whim.”

North Korea:  David E. Sanger and William J. Broad / New York Times:

“As North Korea fired off a series of missiles in recent months – at least 18 since May – President Trump has repeatedly dismissed their importance as short-range and ‘very standard’ tests. And although he has conceded ‘there may be a United Nations violation,’ the president says any concerns are overblown.

“Kim Jong-Un, North Korea’s leader, Mr. Trump explained recently, just ‘likes testing missiles.’

“Now, American intelligence officials and outside experts have come to a far different conclusion: that the launchings downplayed by Mr. Trump, including two late last month, have allowed Mr. Kim to test missiles with greater range and maneuverability that could overwhelm American defenses in the region.

“Japan’s defense minister, Takeshi Iwaya, told reporters in Tokyo last week that the irregular trajectories of the most recent tests were more evidence of a program designed to defeat the defenses Japan has deployed, with American technology, at sea and on shore.

“Mr. Kim’s flattery of Mr. Trump with beguiling letters and episodic meetings offering vague assurances of eventual nuclear disarmament, some outside experts say, are part of what they call the North Korean leader’s strategy of buying time to improve this arsenal despite all the sanctions on North Korea....

“ ‘Kim is exploiting loopholes in his agreements with President Trump pretty brilliantly,’ said Vipin Narang, a political-science professor at M.I.T. who studies North Korean missile advances.  ‘These are mobile-launched, they move fast, they fly very low and they are maneuverable. That’s a nightmare for missile defense. And it’s only a matter of time before those technologies are migrated to longer-range missiles.’”

Iran: Tehran said Thursday it would abandon constraints on nuclear research set out in the 2015 nuclear deal, in another violation of the accord, the agreement with Europe on the verge of collapse, Europe attempting to get some sanctions relief for Iran.

The Trump administration has dismissed efforts led by France to throw Iran a lifeline, a $15 billion credit line, for its economy in return for full compliance of the nuclear accord.

A senior Iranian official confirmed Wednesday that Tehran would return to its commitments only if it got $15 billion for oil sales over four months, as stipulated in France’s plan.

But Tehran now has a pattern of gradually pulling away, though it hasn’t slammed the door on negotiations and all the steps Iran has taken can be quickly reversed.

Iranian Foreign Minister Javad Zarid said in a letter to the EU’s foreign-policy chief, Federica Mogherini, that Iran’s latest move on research was in response to the U.S. withdrawal from the deal in May 2018 and the European’s failure to cushion Iran from the effect of renewed U.S. sanctions.

Iran has already pushed through the deal’s limit on its stockpile of enriched uranium and it is producing uranium of a purity above the accepted 3.67% cap, but this is nowhere near the 90% purity required to fuel an atomic bomb.

For Iran to really represent a danger on the fuel side, it needs to mass-produce more advanced centrifuges and that is nowhere near being accomplished.  It needs the better centrifuges to enrich uranium at far faster levels than its current ones can.

Syria: At least three Russian soldiers were killed in a firefight in Syria’s de-escalation zone this week, according to a Russian news source.  Syrian President Assad’s forces, backed by Russian airpower, have been waging an offensive in the Idlib region, the last remaining rebel-held territory in Syria.

President Vladimir Putin said last week that Russia and Turkey had agreed on steps to tackle militants and “normalize” the situation there after a Syrian army offensive encircled rebel fighters and a Turkish military post.

Turkish-backed militants claimed to have killed and wounded several Russian special forces this week, separate from the other attack.  Russia’s Defense Ministry has denied reports of Russian servicemen being killed by Turkish-backed rebels.

Estimates vary between 112 and 175 Russian soldiers killed in Syria since Russia intervened in the war in 2015.

Earlier, at least 40 people died when a missile struck a meeting of terrorist leaders near Idlib, hours after a ceasefire brokered by Russia ended months of bombardment of the last bastion of anti-regime fighters.

A spokesman for the U.S. said, “This operation targeted al-Qaeda in Syria leaders responsible for attacks targeting U.S. citizens, our partners, and innocent civilians,” adding that the strike would “degrade their ability to conduct further attacks and destabilize the region.”

Russia accused the U.S. of “endangering” the ceasefire.  The defense ministry said the U.S. had failed to warn Russia or Turkey before the strikes.

The bottom line is the Idlib region is still a mess and you continue to have the risk of millions of refugees crossing into nearby Turkey, and then on into Europe unless a ceasefire holds.

Israel / Lebanon: Jason Greenblatt, the U.S. special envoy to the Middle East and the architect behind the ‘Deal of the Century,’ is leaving after nearly three years in the administration.

Greenblatt will stay in his role until President Trump unveils his peace plan, expected sometime after the Israeli election on September 17.

The envoy has made numerous trips to Israel, the Palestinian territories and throughout the Middle East since taking office and he has positioned himself as a staunch defender of Israel.

Meanwhile, Israel’s military said on Sunday anti-tank missiles from Lebanon targeted an army base and vehicles and that it responded with fire into southern Lebanon.  Lebanon’s Iran-backed Hezbollah group said its fighters destroyed an Israeli military vehicle, killing or wounding those inside.  Israel didn’t confirm there were casualties.

Israel has been on alert since its drones attacked a target in a Beirut suburb it says was linked to precision-guided missile projects.

Afghanistan: The Taliban claimed responsibility for a suicide attack in the center of Kabul that killed at least 10 civilians and two NATO soldiers, one an American (the 16th fatality this year), destroying cars and shops in an area near the headquarters of the international military force and the U.S. embassy.  The other NATO soldier was Romanian.  The vehicle the two were in appears to have been the main target.

There has been no let-up in violence in Afghanistan even though both the Taliban and U.S. officials have reported progress in negotiations aimed at securing a deal on U.S. withdrawal.

Yet the fact is the Taliban now controls more territory than it has since 2001, when the U.S. launched the military operation against the group.

The U.S. general overseeing American forces in the region, General Kenneth McKenzie, has not been commenting on the negotiations but he sees a continuing need for military pressure on al Qaeda and Islamic State militants going forward, regardless of the outcome of the talks.

A draft agreement is being worked on, which then must be approved by President Trump before it can be signed.  Under it, the U.S. would withdraw almost 5,000 troops and close five bases within 135 days, according to U.S. chief negotiator Zalmay Khalilzad.  In exchange the Taliban would commit not to allow Afghanistan to be used by militants to plot attacks on the United States and its allies.

Last weekend, the Taliban launched a large-scale attack on one of the major Afghan cities, Kunduz, the militants taking hospital patients as hostages.  No official word on casualties.

Russia: Protests have continued ahead of Sunday’s Moscow city legislative elections, thousands demanding a free vote, part of the biggest sustained protest movement in Russia since 2011-2013, when protesters took to the streets against perceived electoral fraud. Chanting “Russia will be free!” and “This is our city!”, up to 2,000 protesters marched through one of Moscow’s thoroughfares.

The demonstrators have been demanding that opposition-minded candidates be allowed to stand in the election after they were blocked from being on the ballot.

But now it’s too late.  We’ll see what kind of post-election protests develop.

Yemen: A Houthi rebel-run detention center was hit by Saudi-led coalition airstrikes, killing more than 100 people, one of the deadliest attacks of the four-year+ war that has claimed tens of thousands of lives, thrust millions to the brink of famine and spawned the world’s worst humanitarian crisis.

The Saudi-led coalition, which has fought the Iran-backed Houthis since 2015, has faced international criticism for numerous attacks on schools, hospitals, and wedding parties that have killed thousands of civilians.

A spokesman for the Saudis said they bombed a “legitimate military target.”

Rights groups have previously documented that the Houthis use civilian detainees as human shields by placing them in detention centers next to army barracks, under constant threat of airstrikes.

Zimbabwe: One of the five or so worst people of the post-World War II era, Robert Mugabe, died today.  He was 95.  Mugabe was a multiple “Dirtball of the Year” here at StocksandNews in its early years.

Editorial / Wall Street Journal

“The perverse accomplishment of the dictator...was to make a thriving country impoverished, corrupt and oppressed....

“Widely reviled at the end of his life for his many abuses of power, he was feted across the globe earlier in his career by politicians and intellectuals who should have known better.  He became a champion of anticolonialism on the left and was even knighted by Britain in 1994.  By then the military he controlled had killed thousands of political opponents and civilians.

“Today Zimbabwe is a broken land thanks to his authoritarian politics, socialist economics and corruption.  His worst economic offense was seizing productive farmland from white owners.  The economy collapsed as capital fled and hyperinflation took hold.  Mugabe perfected a paranoid style that blamed the outside world....

“Mugabe’s legacy is a nation in tatters and few mourners among average citizens.  His admirers in Africa and the West, including New York Mayor Bill de Blasio, might ponder why that is.”

Random Musings

--Presidential tracking polls....

Gallup: New numbers...39% approval of President Trump’s performance, 57% disapproval; 88% of Republicans approve, 34% of independents (Aug. 15-30).
Rasmussen: 46% approval, 52% disapproval (Sept. 6).

--Joe Biden again has some explaining to do.  At a ritzy campaign fundraiser Thursday night in Manhattan, Biden said he doesn’t take political cash from the fossil fuel industry – but the event’s co-host is a co-founder of a natural gas company.

The co-host, Andrew Goldman helped found LNG Western, a Texas-based natural gas producer.

So Biden sought to clear the air.  “Folks, I know there’s been a lot of attention paid to you showing up tonight.  More than I think you anticipated,” Biden opened his speech.

But he said a “misrepresentation” occurred at a CNN climate change town hall on Wednesday night, during which he was asked by a Bernie Sanders supporter why he should be trusted to combat climate change considering the Thursday night fundraiser was to be co-hosted by Goldman.

Biden then didn’t elaborate on what exactly had been misrepresented and didn’t mention Goldman by name.

Instead, Biden maintained his campaign doesn’t depend on any donations from the fossil fuel sector – a pledge echoed by nearly all other Democratic candidates.

Goldman supposedly has stepped down from all day-to-day operations at LNG Western.

--Speaking of the climate change town hall, candidate Bernie Sanders argued population control should be part of tackling the issue.

The senator said women “in poor countries” should have access to birth control.

Conservatives said the remark meant Sanders’ climate change policy was for fewer “brown babies.”

--At least Sen. Cory Booker, another Democratic challenger, and a vegan, said he won’t try to get other Americans to stop eating hamburgers.  “Freedom is one of the most sacred values – whatever you want to eat, go ahead and eat it,” he said.

Booker, more importantly, said that people who don’t think nuclear power needs to be part of the fight against climate change – a group that includes many of his presidential opponents – “aren’t looking at the facts.”

Booker said that he warmed to nuclear power after reading studies about it and talking to nuclear scientists about technological advancements “that make nuclear safer.”

Sanity!

But now we’re on to the next round of debates in Houston, Thursday.

--Hurricane Dorian crashed into the Bahamas on Sunday as the second strongest Atlantic Storm on record, with the National Hurricane Center saying Dorian made landfall on Elbow Cay in the Abaco Islands as a Category 5 with maximum sustained winds of 185 mph and gusts of more than 220 mph.  It made a second landfall on Great Abaco Island near Marsh Harbor.  The estimated storm surge was up to 23 feet.

The winds of 185 tied those of Gilbert (1988), Wilma (2005) and the 1935 Labor Day hurricane for the second strongest.  Allen in 1980 was the most powerful at 190 mph.  Dorian was the strongest to hit the northwest Bahamas.

2019 marks the fourth straight year with a Category 5 in the Atlantic, the longest such streak on record (fifth in four years), following Matthew (2016), Irma (2017), Maria (2017) and Michael (2018).

That said, on Sunday, President Trump expressed surprise after Dorian was upgraded to a Cat 5.

“I’m not sure that I’ve ever even heard of a Category Five,” the president said during a televised briefing at FEMA headquarters in Washington.

“I’ve seen some Category Fours, you don’t even see them that much,” he said.  “But a Category Five is something that, I don’t know that I’ve ever even heard the term, other than I know it’s there.  That’s the ultimate and that’s what we have, unfortunately.”

Irma and Maria caused about $165 billion in damage.

The destruction in the Bahamas is beyond belief, and the death toll, officially 30, will begin to soar as more bodies are found.

--The California dive boat tragedy is unfathomable...that 34 died in a fiery hell below deck, DNA analysis required to identify the badly-burned remains.  The passengers were on a three-day excursion to the Channel Islands.  Five crew members survived as they were sleeping on the bridge.  It will likely take months, if not years, to come up with a definitive cause.

--New York City Mayor Bill de Blasio finally conceded that if he can’t qualify for the October debate, he’ll quit the race.  This comes as a New York Post review shows that de Blasio spent a mere seven hours at City Hall during the month of May, when he launched his bid for the White House.

One ex-aide told the Post, “If he’s trying to show New Yorkers that he’s over doing the job, he’s doing a good job of it.”

A de Blasio spokeswoman, Freddi Goldstein, downplayed the importance of his whereabouts, saying, “Whether at City Hall, Gracie Mansion or on the road, the mayor consistently delivers for 8.6 million New Yorkers.”

Even the rats had a good laugh over that one, before resuming their feast on Gotham’s trash.

--Lena H. Sun / Washington Post

“State and federal health officials investigating mysterious lung illnesses linked to vaping have found the same chemical in samples of marijuana products used by people sickened in different parts of the country and who used different brands of products in recent weeks.

“The chemical is an oil derived from vitamin E.  Investigators at the U.S. Food and Drug Administration found the oil in cannabis products in samples collected from patients who fell ill across the United States.  FDA officials shared that information with state health officials during a telephone briefing this week, according to several officials who took part in the call.

“That same chemical was also found in nearly all cannabis samples from patients who fell ill in New York in recent weeks, a state health department spokeswoman said.

“While this is the first common element found in samples from across the country, health officials said it is too early to know whether this is causing the injuries....

“On Wednesday, Oregon health authorities said a middle-aged adult who died in late July of a severe respiratory illness had used an e-cigarette containing marijuana oil purchased from a legal dispensary.  It’s the second death linked to vaping nationwide and the first to be linked to a product bought at a store.  Illinois officials reported the first death last week.  They did not specify what kind of product was used in that case.”

The CDC is reporting today that the death toll could be five nationwide, with the number of lung-related cases at 450.  This is a huge deal.

--We note the passing of Jim Leavelle, 99, the longtime Dallas lawman captured in one of history’s most iconic photographs as he escorted Lee Harvey Oswald, President John F. Kennedy’s accused assassin, when he was fatally shot by Jack Ruby. 

Nov. 24, 1963, I was watching on live television along with everyone else in America as Oswald was being transferred from the basement of Dallas police headquarters, when Leavelle, the man in white with the white Stetson hat, had his hand on Oswald when Ruby emerged, Oswald grimacing in pain, Leavelle stiffening.

In the decades after the assassination, his daughter, Tanya, said he regularly spoke at schools and before various groups because he believed “he had a responsibility to share his story.”

Tanya said her father through the decades received mail every day from people asking questions or invoking one of several conspiracy theories.

“He really felt a need to address the theories,” Evers said.  “He wanted to make sure that people knew there was no conspiracy and that one misguided person could take a shot at a president and succeed.”

Leavelle joined the Dallas police force in 1950 and retired from active service in 1975.  He was among the lead detectives assigned to investigate Kennedy’s assassination two days earlier.

The photo that captured the attack was taken by Robert H. Jackson, a photographer for the Dallas Times Herald who won a Pulitzer Prize for his image.

--At a ceremony marking the 80th anniversary of the outbreak of World War II in Poland, German President Frank-Walter Steinmeier expressed deep remorse for the suffering his nation inflicted on Poland and the rest of Europe.

“This was a German crime,” he said.  “I bow in mourning to the suffering of the victims. I ask for forgiveness for Germany’s historical debt.  I affirm our lasting responsibility.”

Two weeks after the German invasion, Sept. 1, 1939, the Soviet army invaded Poland from the east, putting the country under a dual occupation that came with atrocities committed by two invaders.  By the war’s end nearly six years later, about six million Poles had been killed, more than half of them Jews.

Poland was occupied until 1989.

Polish President Andrzej Duda recalled Poland’s immense suffering and he appealed to those assembled not to close their eyes now to imperial tendencies and border changes imposed through force; Duda citing aggression against Georgia and Ukraine, though he didn’t name Russia.  Let’s just say it was clear who he was referring to.

“Recently in Europe we are dealing with a return of imperialist tendencies, with attempts to change borders by force, with aggression against countries,” Duda said.  “Turning a blind eye is not the recipe for preserving peace.  It is a simple way to embolden aggressive personalities, a simple way to, in fact, give consent to further attacks.”

It must have been a truly moving experience to be in Warsaw, as church bells tolled across a capital the Germans razed to the ground.  I’ve been there twice...1973, in the Dark Days, and 1999, in much better ones.  Goose-stepping soldiers at the Tomb of the Unknown in 1973 were one of my prime memories of that trip; the excitement of a country reborn were those of my second journey.  [Though I visited Treblinka in ’99.]

--Finally, on a lighter note, researchers in Scotland, who collected DNA from Loch Ness, suggest the fabled monster might be a giant eel.

The research team found a surprisingly high amount of eel DNA in the water, though one of the researchers cautioned it’s not clear whether that indicates a gigantic eel or just a lot of little ones.  But Neil Gemmell of the University of Otago in New Zealand said the idea of a giant eel is at least plausible.

No DNA evidence to support the notion of a long-necked ancient reptile called a plesiosaur was found.  Personally, I’m crushed.

---

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

God bless America.

---

Gold: $1513
Oil: $56.63

Returns for the week 9/2-9/6

Dow Jones  +1.5%  [26797]
S&P 500  +1.8%  [2978]
S&P MidCap  +1.6%
Russell 2000  +0.7%
Nasdaq  +1.8%  [8103]

Returns for the period 1/1/19-9/6/19

Dow Jones  +14.9%
S&P 500  +18.8%
S&P MidCap  +14.9%
Russell 2000  +11.6%
Nasdaq  +22.1%

Bulls:  44.9
Bears: 
18.7... split the week before was 43.9/18.7

Have a great week.

Dr. Bortrum posted a new column!

Brian Trumbore