Week in Review

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Week in Review

05/11/2019

For the week 5/6-5/10

[Posted 11:00 PM ET, Friday]

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Edition 1,048

Trade War

Last Friday, President Trump said negotiations between Washington and Beijing on reaching a trade deal were going “very well.”

But by Sunday, the president announced he was prepared to increase tariffs on $200bn in Chinese goods from 10 to 25 percent, effective today if an agreement wasn’t reached this week.  The president blamed Beijing for reneging on previously negotiated commitments; tweeting a threat to the effect that he would raise an existing 10 percent tariff on $200 billion worth of Chinese imports to 25 percent on Friday, with 25 percent tariffs on additional Chinese goods coming “shortly.”

“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results.  The 10% will go up to 25% on Friday.  325 Billion Dollars....

“...of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate.  No!”

U.S. Trade Representative Robert Lighthizer said:

“Over the course of the last week or so, we’ve seen an erosion in commitments by China.  I would say retreating from commitments that have already been made, in our judgement.”

Overseas markets tanked on the news, and stocks in the U.S. then opened steeply lower Monday morning, only to recover much of their losses by the close.  Tuesday, however, the market tanked anew, and the loss stuck. 

In a commentary published on its WeChat account that day, People’s Daily warned the U.S. to “not even think about” concessions.

“When things are unfavorable to us, no matter how you ask, we will not take any step back.   Do not even think about it,” the commentary said.

Sources told the South China Morning Post that President Xi Jinping earlier vetoed extra concessions proposed by his negotiators. “Xi told them ‘I’ll be responsible for all possible consequences,’” one of the sources said.

Wednesday and Thursday saw further market declines, though it was orderly, and then Friday, President Trump followed through on his threat to increase tariffs when it was clear no agreement was being reached between the two sides today.

Trump had said on Thursday he had received “a beautiful letter” from Chinese President Xi Jinping, Trump saying Xi’s message was: “Let’s work together.  Let’s see if we can get something done.”

Chief U.S. Trade negotiator Robert Lighthizer met with Chinese Vice Premier Liu He, who had flown in from Beijing, to continue negotiations.

At 12:01 a.m. Friday, Trump then levied the new tariffs on $200 billion in Chinese goods.

We had been told all along that a potential final accord could be agreed to as soon as this week, but last weekend, China angered the president by trying to water down its commitments, according to Lighthizer. Chinese officials balked at specifying in the agreement which laws would be amended to address U.S. concerns over forced technology transfer and intellectual property protection, U.S. officials said.

The problem is the Trump administration looks at the past 20 years of agreements with China as nothing but broken promises and an unbroken record of cheating, and Robert Lighthizer is determined to reach a deal with ironclad requirements China must adhere to.

But China points to a history of grievances and “unequal treaties” going back centuries, with Xi and the leadership in Beijing not wanting to appear to have given in to foreign dictates.

Trump has tried to reassure China he is not trying to stifle its rise, blaming his predecessors and not Beijing, for the chronic U.S. trade deficit, but China counters, Washington is indeed trying to stifle development, especially, critically, in the field of high tech, and new frontiers such as 5G networks and artificial intelligence.

Lighthizer said earlier this week that Chinese negotiators were seeking “substantial” changes in the agreed to text that he says he negotiated with Liu “line by line.”

President Trump has threatened placing tariffs on all $540 billion in annual Chinese imports – which analysts say would back President Xi into a corner.

But China has been lying time after time, going back to 2010 that it would address U.S. complaints about trade-secrets theft and forced technology transfer.  In 2016, in President Obama’s final visit to China while in the Oval Office, Xi pledged not to require the transfer of intellectual property rights or technology as a condition of doing business in China, and then walked back on the deal.

So it’s more than just talk today.  The U.S., rightfully so, is insisting on enforcement mechanisms giving the administration the right to levy new tariffs if it decides China is not honoring its commitments, with China barred from responding in kind.

It’s this last point that clearly is the hang-up.  There is no way President Xi can let the United States totally dictate the terms.  As I’ve said, though, for weeks, the danger is that if China is granted reciprocal enforcement mechanisms, they will be taking the U.S. to the WTO on a constant basis.

Trump’s trade team has taken pains not to make the trade pact appear one-sided.

After the talks ended today, Trump tweeted:

“Over the course of the past two days, the United States and China have held candid and constructive conversations on the status of the trade relationship between both countries.  The relationship between President Xi and myself remains a very strong one, and conversations...

“...into the future will continue.  In the meantime, the United States has imposed Tariffs on China, which may or may not be removed depending on what happens with respect to future negotiations!”

As for China’s response to the increase in tariffs on the $200 billion of Chinese goods to 25 percent from 10 percent, Beijing has vowed to implement “necessary countermeasures.”

U.S. importers now face higher costs of purchases, U.S. manufacturers in China face challenges in getting their goods back to their home market, while Chinese exporters now have to pay an extra 15 percent tariff on goods sold to U.S. buyers.

Separately, China said it was “fed up” with hearing complaints from the United States about its Belt and Road initiative to re-create the old Silk Road, the government said on Thursday, following stinging criticism from Secretary of State Mike Pompeo.  The initiative, a key thrust of President Xi’s administration, has hit opposition in some countries over fears its opaque financing could lead to unsustainable debt and that it aims more to promote Chinese influence than development.

Editorial / Washington Post

“What should not be in doubt...is that throughout the entire bargaining process with Beijing, the administration has undercut its position by attempting to wage simultaneous tariff battles with other countries.  [Ed. Canada, the EU, South Korea and Japan, for example.] ....

“Though still modest in their economic impact, the tariffs have symbolism that stings these long-standing U.S. allies and trading partners. For the most part, they do not abuse international trade rules as China does.  Indeed, they share many of the United States’ concerns with Chinese protectionism, theft of intellectual property and subsidized state enterprises.  Yet by bracketing old friends with Beijing, even justifying some levies against them (on steel and aluminum) on ‘national security’ grounds, Mr. Trump has made it politically difficult for them to rally to the U.S. side in the dispute with China. They were in fact obliged to retaliate.

“This unforced error is doubly regrettable because Mr. Trump arguably had the upper hand going into his talks with China.  The Chinese economy is more dependent on exports to the United States than vice-versa, and China’s growth rate has been slowing, while the U.S. economy (contrary to Mr. Trump’s inappropriate and ill-founded gripes about Fed policy) is creating jobs at a brisk pace.  In a world where Mr. Trump is deeply unpopular, his complaints – shared by previous U.S. presidents – against China represented a rare case in which other nations conceded him the moral high ground.  A savvier president would take advantage of that.

“The negotiations with China may yet reach a mutually beneficial conclusion, or they may collapse. Either way, Mr. Trump will have defied a lesson of history: Multiple-front wars are the hardest to win, whether they are of the military kind or trade wars. Fighting without allies is harder still.”

Editorial / Wall Street Journal

“Mr. Trump’s unilateral tariffs have had a scattershot logic focused on the dubious measure of the U.S. trade deficit.  He has picked needless fights with allies over steel and aluminum.  But the one country where there is a plausible justification is China. Beijing has too often violated the global trading rules it agreed to and profits from.  It steals trade secrets and intellectual property and handicaps foreign companies with punitive regulation. Chinese abuses have undermined political support for free trade in the U.S.

“Marshalling a united front with allies toward Beijing would have been better, but Mr. Trump is a unilateralist and his household remedy is tariffs. There’s no denying that his border taxes on Chinese goods have prodded Beijing to negotiate, though tariffs have also imposed costs on U.S. consumers and producers, especially in agriculture.  The tariffs will be destructive unless they lead to a deal that causes China to cease its predatory behavior.

“Mr. Trump and Chinese President Xi Jinping both want a deal but neither wants to be seen as conceding too much.  Mr. Trump needs a deal to remove the trade uncertainty that dozens of CEOs say has slowed business investment.  The President’s Sunday claim on Twitter that his tariffs are one reason for the strong U.S. economy is the opposite of reality. The economy is growing despite the tariffs, and U.S. manufacturing jobs have declined this year in part because of China’s slowdown.

“Mr. Trump needs a strong economy as he seeks re-election, and a good China deal would double as a foreign-policy success.  With change in North Korea and Venezuela looking doubtful, a China trade agreement may be his only foreign breakthrough.  It would also fulfill a major 2016 campaign promise....

“A collapse of the talks risks a sharper Chinese economic decline and even political instability.  Mr. Xi has sold his presidency on a return to Chinese greatness, but the trade brawl is already causing some global businesses to move production from China to other countries.  Mr. Xi may want to dominate the world but in the meantime he needs an economy that provides jobs for millions of new workers each year.

“The rub of the talks is that Mr. Xi has to concede more than Mr. Trump does – without being embarrassed in the process....

“With an eye on his re-election, Mr. Trump wants a deal that is strong enough to blunt the inevitable criticism from Democrats that he didn’t deliver enough.  This would take chutzpah since Democrats have been attacking Trump’s tariffs.  But Democrats like Chuck Schumer and Bernie Sanders are sore that Mr. Trump outflanked them as protectionists, and they’ll attack any deal he strikes.  Mr. Trump should win that argument as long as the deal’s details are creditable to trade experts and American businesses....

“The Chinese shouldn’t underestimate how much U.S. opinion has hardened toward their practices across the ideological spectrum.  A deal with Mr. Trump may be the best chance the Chinese have to avoid a protectionist eruption against them in Congress....

“China will suffer from an all-out trade war, but so will the U.S. and the Trump Presidency.”

Trump continued with the insane tweets on Friday.

“Tariffs will bring in FAR MORE wealth to our country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do.  Our Farmers will do better, faster, and starving nations can now be helped.  Waivers on some products will be granted, or go to new source!

“If we bought 15 Billion Dollars of Agriculture from our Farmers, far more than China buys now, we would have more than 85 Billion Dollars left over for new infrastructure.  Healthcare, or anything else. China would greatly slow down, and we would automatically speed up!”

“Talks with China continue in a very congenial manner – there is absolutely no need to rush – as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products.  These massive payments go directly to the Treasury of the U.S....

“...The process has begun to place additional Tariffs at 25% on the remaining 325 Billion Dollars.  The U.S. only sells China approximately 100 Billion Dollars of goods & products, a very big imbalance. With the over 100 Billion Dollars in Tariffs that we take in, we will buy....

“....agricultural products from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance.  In the meantime we will continue to negotiate with China in the hopes that they do not again try to redo deal!”

I beg you.  Someone please tell President Trump that he cannot directly tap funds drawn from Chinese tariffs to unilaterally purchase agricultural goods.  Trump needs Congress to pass an appropriations bill allowing such expenditures.

Former USDA secretary Tom Vilsack said, “I don’t think (Trump) understands that he’s not a dictator...He can’t just order this to happen.”

The Trump administration could tap funds from the Commodity Credit Corporation, a branch of the USDA, but, again, this has to be funded.

And then there’s the topic of soybeans, which were previously the single most valuable U.S. agricultural export crop.  Until the trade war, China bought $12 billion-worth a year from U.S. farmers.  Soybean farmers are getting killed.

And as I discuss below, there is the issue of China’s battle with African swine fever that has resulted in the loss of as many as 200 million pigs to disease or slaughter.  You know what this means?  Far less demand for soybeans, even if there was a quick agreement between the U.S. and China.  [This as China’s heavy retaliatory tariffs on pork from the U.S., going back to last year, impeded U.S. producers from meeting the pork needs of China resulting from swine fever!]

Well, the bottom line on all the above is that talks have not broken down, but while the next round is to be held in Beijing, no date is set and that tells you a lot.  Zero progress was made this week...Zero.

Finally, my opening last week was spot on in so many respects. The Trump administration’s foreign policy is in freefall.  Venezuela, North Korea, Russia, and China.  Iran we need to wait a little more to see where this is headed.

And if you watched Secretary of State Mike Pompeo on last Sunday’s talk shows, you had to be disturbed.  A pathetic performance, across the board...and now the secretary is headed to Sochi on Tuesday for a meeting with Vladimir Putin.  I guarantee Pompeo will emerge saying he confronted Putin on election meddling in 2020, but it’s what comes out of the Oval Office that matters.

This was a bad week, on so many fronts.  America is vulnerable.  3% GDP is no help.  I’m beginning to sense our enemies smell blood. 

Trump World

--President Trump will nominate Patrick Shanahan as his second defense secretary, trying to cement the acting Pentagon chief against an expected challenging battle with lawmakers and Defense Department officials skeptical of him.

Critics rightfully argue Shanahan does not have enough foreign policy experience to run the largest bureaucracy in the American government, one that oversees national security issues around the world.

Michael Morell / Washington Post

“If he is confirmed as the next defense secretary, Patrick Shanahan will probably face more challenges than any Pentagon chief before him. Most important, he will face the most complex and difficult global security environment in our nation’s history.

“To be sure, World War II starred more implacable foes.  The Cold War was a 40-year existential threat.  But never before have so many global and regional powers, rogue nations and nonstate actors converged in such an interconnected world.

“China is the most significant competitor Shanahan will face, as it continues to pursue its goal of becoming the dominant nation in Asia and a significant player across the globe.  The People’s Liberation Army is on a path to become a rival power the likes of which the United States has not seen since the military heyday of the Soviet Union.  Beijing knows that any contest in Asia will probably be a naval and air-combat struggle, and it has prepared accordingly by developing sophisticated counterspace, counterair and countermaritime capabilities.  These investments in weapons programs, coupled with profound organizational reforms, will leave the Chinese capable of projecting military power well beyond their shores.

“Shanahan will also need to confront an emboldened Russia bent on undermining the United States by any means possible.  Russian defense spending has doubled in the past decade, and Moscow has developed and fielded weapons systems designed to thwart the United States in a military contest near Russia’s borders.  Moscow’s reliance on cyberwarfare has been effective at sowing uncertainty and worse; its new doctrine of using tactical nuclear weapons without triggering a strategic nuclear exchange is a particularly dangerous development.

“In Iran, Shanahan will have to contend with a nation that has vivid nostalgia for its imperial past and aspirations for regional hegemony that come with it.  It sees the U.S.-led order in the Middle East, including the existence of Israel, as a roadblock to that hegemony....

“North Korea continues to pose a major threat... Kim continues to expand the regime’s conventional military capabilities with more realistic training, artillery upgrades, and close-range ballistic missiles that improve Pyongyang’s ability to strike regional U.S. and allied targets with little warning.  The threat from the North will be front and center for Shanahan.

“Meanwhile, radical Islamist terrorist groups continue to pose a threat to Americans and U.S. interests....

“Shanahan also faces the need to modernize the U.S. military.  As a recent congressional commission on which I served pointed out, the United States would struggle to win and could even lose a war against Russia or China.  Our ability to fight a conventional war against our main geopolitical rivals has atrophied because we have been engaged in counterterrorism for the past 18 years, because our adversaries have made significant investments to counter our capabilities and because politics in Washington has hit the defense budget hard.

“And finally, Shanahan will need to do all of this while working for the most isolationist president in memory.  Whether it is not recognizing the threats or making it difficult for the United States to work with our allies, Trump will put the new secretary in a challenging position.  Given that the predecessor, Jim Mattis, lost this battle, the odds of Shanahan managing this are not high, making his task of protecting the country today and preparing the department to protect it tomorrow a wickedly hard job.”

Michael R. Gordon / Wall Street Journal

“What makes the moment all the more unusual is that Mr. Trump has put aside the time-honored practice of setting foreign policy priorities – handling one, then another, foreign policy analysts say.

“Instead, Mr. Trump has simultaneously doubled down on an array of goals, any one of which would be an ambitious single undertaking for a U.S. administration: The remaking of China’s economic model, the denuclearization of North Korea, a wholesale change in Iran’s security policy and the ousting of a Latin American government.

“ ‘In all of these cases, the administration had staked out an extraordinary definition of success,’ said Richard Haass, the president of the Council on Foreign Relations and a veteran of the George W. Bush administration.  ‘All of this is taking place with no serious interagency process and with a president who is allergic to the large-scale use of military power.

“ ‘There is an enormous gap between ends and means and sanctions can’t fill the gap,’ he said.”

--The Senate Intelligence Committee decided to subpoena Donald Trump Jr., which has ignited an internal Republican firefight over the fate of the committee’s Russia probe, as the panel’s GOP chairman showed no signs of backing down despite fierce criticism from many of his colleagues that it was time to move on.

Much of the backlash against the decision by Chairman Richard Burr (N.C.) to subpoena Trump’s eldest son came from GOP senators who are up for re-election next year and from those closely aligned with the president.

“This would not go forward without Republican complicity,” Sen. Rand Paul (R-Ky.), an ally of President Trump’s, told reporters on Capitol Hill.  “So I think it’s a mistake for Republicans to keep putting the Trump family through this, and I really think they ought to drop it.”

Earlier, Senate Majority Leader Mitch McConnell (R-Ky.) insisted that he considered as closed all matters investigated by special counsel Robert Mueller.

The Senate Intel Committee began its investigation, separate from Mueller’s, in January 2017, and some GOP senators have made a point to stress the two probes aren’t linked.

Sen. Marco Rubio (R-Fla.), a member of the intelligence panel, said the intense criticism of Burr was in part a misunderstanding of the focus of the committee’s investigation, which Rubio said is being inaccurately conflated with the special counsel probe.

“Mueller is a criminal justice investigation,” Rubio said.  “Ours is an intelligence investigation about the Russia threat and about the way our agencies performed.”

Sen. Mitt Romney (R-Utah), who is not on the committee, said: “I have confidence in Chairman Burr, and if he’s requesting testimony, I presume he has a reason for that.”

--The Trump administration is directing former White House counsel Don McGahn not to comply with a subpoena from the House Judiciary Committee to turn over documents related to the special counsel’s investigation.

--The House Judiciary Committee voted Wednesday to recommend that the House hold Attorney General William Barr in contempt of Congress for failing to turn over Robert Mueller’s unredacted report, hours after President Trump asserted executive privilege to shield the full report and underlying evidence from Congress.

Judiciary Committee chairman, Rep. Jerrold Nadler of New York, said, “We are now in a constitutional crisis.”

“Our fight is not just about the Mueller report – although we must have access to the Mueller report,” Nadler said during the debate.  “Our fight is about defending the rights of Congress, as an independent branch, to hold the president, any president, accountable.”

The Dems are wasting their time on this one.  Ditto going after Trump’s taxes, with the chairman of the House Ways and Means Committee, Rep. Richard Neal of Massachusetts, issuing a subpoena to the Treasury Department and IRS today for six years of Trump’s personal and business returns.

--President Trump, on numerous occasions this week, including at a rally in Panama City, Florida, continued to peddle the lie that Puerto Rico had already received $91 billion in disaster relief funding after Hurricane Maria.  The figure refers to how much the island could receive in the next two decades, according to the Office of Management and Budget, while about $41 billion has been allocated thus far.  A little over $11 billion has been distributed and spent.

--Multiple outlets, including the New York Times and Wall Street Journal are reporting tonight that within a day of the release of the Mueller report last month, President Trump sought to have former White House counsel Don McGahn declare he didn’t consider the president’s 2017 directive that he seek Robert Mueller’s dismissal to be obstruction of justice, but McGahn rebuffed the request, according to various sources.

Trump has publicly denied asking McGahn to fire the special counsel since the release of the report.  Mueller’s report detailed that directive, and a subsequent request by Trump that McGahn deny that conversation ever happened, and McGahn rebuffed both.

As the Journal reports, Trump asked White House special counsel Emmet Flood to inquire whether Mchahn would release a statement asserting that he didn’t believe those interactions with the president amounted to obstruction.

--Justice Department Inspector General Michael Horowitz’s team has been asking why the FBI continued to cite Christopher Steele as a credible source in the investigations of the likes of Carter Page.  Attorney General Barr has said Horowitz’s inquiry should be wrapped up by June.

--Trump tweets:

“Looks to me like it’s going to be SleepyCreepy Joe over Crazy Bernie.  Everyone else is fading fast!”

“Build your products in the United States and there are NO TARIFFS!”

“The average 401(k) balance has SOARED since the bottom of the market – 466%. Wow!”

Referring to a New York Times report that said President Trump reported $1.17 billion in financial losses to the IRS between 1985 and 1994, which kept him from paying income taxes during most of that period, Trump tweeted:

“Real estate developers in the 1980’s & 1990’s, more than 30 years ago, were entitled to massive write offs and depreciation which would, if one was actively building, show losses and tax losses in almost all cases.  Much was non monetary.  Sometimes considered ‘tax shelter,’ ....

“....you would get it by building, or even buying.  You always wanted to show losses for tax purposes...almost all real estate developers did – and often re-negotiate with banks, it was sport.  Additionally, the very old information put out is a highly inaccurate Fake News hit job!”

And we had this....

“The Kentucky Derby decision was not a good one.  It was a rough and tumble race on a wet and sloppy track, actually, a beautiful thing to watch.  Only in these days of political correctness could such an overturn occur.  The best horse did NOT win the Kentucky Derby – not even close!”

Almost a week later, some of us are still trying to figure out what the heck the president was referring to in citing “political correctness.”

Wall Street

Aside from the market action, we did have inflation data for April and it was tame.  The producer price index (PPI) came in at 0.2%. 0.1% ex-food and energy.  For 12 months, the numbers were 2.2% and 2.4%, respectively.

The consumer price index for last month was also basically in line, 0.3%, 0.1% on core; 2.0%, 2.1% year-over-year.

The Atlanta Fed’s GDPNow barometer for the second quarter is at 1.6%, with a lot of key data next week on retail sales, inventories, industrial production and housing starts.

One more, the U.S. budget gap widened 38% in the first seven months of the fiscal year to $531 billion from October through April, the Treasury Department said today, compared with $385 billion during the same period a year earlier.  Federal outlays rose 8% to nearly $2.6 trillion, while revenues increased 2% to $2.04 trillion – a record for the seven-month period.

The timing of certain federal benefit payments made the deficit appear larger, and if not for those timing shifts, the deficit would have risen 23% from the same period in fiscal year 2018.

Tariff collections nearly doubled from October through April, to $39.9 billion from $21.8 billion.

Europe and Asia

We had the PMI figures for the eurozone and the service sector this week, with the overall number for the EA19 at 52.8 vs. 53.3 in March (50 being the dividing line between growth and contraction).

Germany 55.7; France 50.5; Italy 50.4; Spain 53.1.

Retail sales for the euro area in March were unchanged over February, up 1.9% year-over-year, which is less than exciting.

Separately, Germany factory orders in March rose 0.6% over February, but were down 0.6% vs. a year ago on weak domestic demand over this period.

The U.K. reported GDP rose 0.5 percent in the first quarter as Britain’s companies and households engaged in a “stockpiling frenzy” in preparing for a no-deal Brexit, the original exit date having been March 29, now extended to Oct. 31.

With healthy rates of spending, including a recovery in business investment, growth increased from a sluggish 0.2 percent in the fourth quarter, according to figures from the Office for National Statistics.  It does appear to show resilience in the U.K., U.S. and the eurozone at the start of the year.

But Brexit is still a real wildcard, with no deal in sight, and European Parliament elections that will not go well for Prime Minister Theresa May’s Conservatives.

Turning to Asia...China’s private Caixin reading on the service sector came in at 54.5 for April, while exports unexpectedly fell 2.7% in April vs. a year ago, far worse than forecast, with imports up just 4%, as reported by China’s General Administration of Customs.

Exports to the U.S. fell 13.1% yoy last month, with imports cratering 25.7%.

China also reported its inflation figures for April, with the producer price index rising 0.9% year-on-year, its fastest pace since December 2018, per the National Bureau of Statistics.  The consumer price index increased 2.5% last month from a year earlier, its fastest pace in six months.

In Japan, the official manufacturing PMI for April was 50.2 vs. 49.2 in March, with the service sector coming in at 51.8 vs. 52.0.

Separately, Japan’s household spending rose more than expected in March but real wages fell 2.5%, the most in nearly four years, dashing hopes consumer sector activity may soften the blow from external factors such as global trade conflicts.  Japan’s export sector has been hit by slumping shipments to China and soft factory output, and cast doubt on the Bank of Japan’s view that growth will rebound in the second half of the year.

The GDP data for the first quarter is due out May 20 and many believe a weak number could heighten calls for Prime Minister Shinzo Abe to put off an already twice-delayed increase in the sales tax to 10 percent from 8 percent in October.

Street Bytes

--If it wasn’t for a late rally today on the ridiculous idea that the coast might be clear on the trade front, with Treasury Secretary Mnuchin saying the talks were “constructive,” the week would have been far worse than it turned out to be.  The Dow Jones still fell 2.1% to 25942, however, while the S&P 500 lost 2.2%, and Nasdaq 3.0%, both of these two coming off their all-time highs.

--U.S. Treasury Yields

6-mo. 2.43%  2-yr. 2.27%  10-yr. 2.47%  30-yr. 2.89%

Bonds rallied some on the uncertainty in the markets, the yield on the 10-year at its lowest weekly close since March 29.

--Oil fell on Thursday amid concerns over the escalating trade battle between the U.S. and China, despite a surprise decline in U.S. crude inventories; the Energy Information Administration reporting inventories fell by 4 million barrels in the week to May 3.  Crude ended up down a third week in a row today at $61.71.

The trade tensions obviously cloud the global economic outlook, but recently tighter global supply on the back of production cuts from OPEC and Russia* have supported prices. Global supply has also been tightened by the chaos in Venezuela and U.S. sanctions on both Venezuela and Iran.

*There are questions as to the impact of a pipeline shutdown resulting from oil contamination that forced Russia to halt flows into Eastern Europe and Germany in April.  The suspension left refiners scrambling to find supplies and its duration is unclear. A Russian court placed four private oil firm executives under arrest for what authorities say is their role in the tainted oil scandal.  Investigators say the suspects had illegally pumped low-quality oil near the Volga River city of Samara “to conceal thefts” sometime between March and April.

Meanwhile, in a sign that Asia demand remains firm, China’s crude imports in April hit a record for the month, at 10.6 million barrels per day, customs data showed on Wednesday; China being the world’s biggest oil importer.

--Occidental Petroleum Corp. struck a $38 billion agreement to buy Anadarko Petroleum Corp. after Chevron Corp. bowed out of the bidding.

In seeking Anadarko, Chevron and Occidental coveted prized assets in the heart of the U.S. oil boom: the Permian Basin of West Texas and New Mexico.

Chevron had agreed to purchase Anadarko for about $33 billion on April 12, but Occidental then came in with its bid, offering $38 billion on April 24. Chevron CEO Michael Wirth said his company could have outbid Occidental, but instead will take a $1 billion termination fee it negotiated as part of its earlier deal with Anadarko and return the cash to shareholders through share repurchases.

“Costs and capital discipline always matter,” Mr. Wirth said.  “An increased offer would have eroded value to our shareholders.”

--Trump tweet: “GREAT NEWS FOR OHIO! Just spoke to Mary Barra, CEO of General Motors, who informed me that, subject to a UAW agreement etc., GM will be selling their beautiful Lordstown Plant to Workhorse, where they plan to build Electric Trucks. GM will also be spending $700,000,000 in Ohio...

“...in 3 separate locations, creating another 450 jobs. I have been working nicely with GM to get this done. Thank you to Mary B, your GREAT Governor, and Senator Rob Portman. With all the car companies coming back, and much more, THE USA IS BOOMING!”

But as the New York Times’ Nelson D. Schwartz and Neal E. Boudette point out:

“(For) all the seemingly good news in Ohio, which has been hit hard by the loss of manufacturing jobs, the president’s record in delivering on such deals suggests that caution is warranted.

“He helped persuade Carrier to keep a factory in Indianapolis open in 2016, but the company still cut roughly half of the jobs at stake there.  In 2017, he said Foxconn, a Taiwanese electronics supplier, would invest $10 billion to build a manufacturing complex in Wisconsin.  The company was supposed to create 13,000 jobs – positions that have proved illusory.  Mr. Trump’s 2018 assertion that ‘Chrysler is leaving Mexico and moving back to Michigan’ was a stretch by any measure.”

Meanwhile, Workhorse, a heretofore unknown little company based near Cincinnati, makes battery-powered pickup trucks, delivery vans and drones, but has no experience in mass vehicle production, with quarterly revenues less than the price of one high-end sports car, according to the Times.  Trump touted it as a “great company.”

--Boeing admitted that it knew about a problem with its 737 MAX jets a year before the aircraft was involved in two fatal accidents, but took no action.

The aerospace giant said it had inadvertently made an alarm feature optional instead of standard, but insisted this did not jeopardize flight safety.

The feature at issue is known as the Angle of Attack (AOA) Disagree alert and was designed to let pilots know when two different sensors were reporting conflicting data.

Boeing is claiming it intended to provide the feature as standard, but did not realize until deliveries had begun that it was only available if airlines purchased an optional indicator. The company added it had intended to deal with the problem in a later software update.

But Boeing maintains the software problem “did not adversely impact airline safety or operation.”

The FAA told Reuters that Boeing had not informed it of the software issue until November 2018, a month after the Lion Air crash.  The agency did say the issue was “low risk,” but Boeing should have acted sooner to “eliminate possible confusion.”

Boeing has conceded that in both fatal crashes, erroneous AOA data was fed to the jet’s MCAS, anti-stall system, which is at the center of the investigations.

But the pilots did not even know MCAS existed in the first crash, and in the second, the pilots should at least have been aware of MCAS – and the AOA information might have been useful to them, but it is unlikely to have been a decisive factor.

Nonetheless, all the above is not good for Boeing. Critics are asking whether the company was complacent and whether there is anything else which it has chosen not to pass on to customers, whether it’s the MAX or other models.

--Lyft Inc. posted strong growth in its first quarterly report as a public company, with revenue nearly doubling from the year before, while losses continue to mount.

Lyft reported revenue in the first three months of the year, up 95% from a year earlier and better than many analysts expected.

But the ride-hailing company’s losses soared to $1.1 billion, though adjusted for stock-based compensation – an expense related to the company’s IPO in March, the adjusted loss was $211.5 million, versus $228.4 million a year earlier. Analysts expected an adjusted loss of $274 million.

Lyft also announced an extended partnership with Alphabet’s self-driving car unit Waymo, which said Tuesday it is letting people hail its robot taxis through the Lyft app in the Phoenix area.

So overall, the results were encouraging for its much-larger rival Uber Technologies Inc., which then launched its IPO Friday.

--Uber raised $8.1 billion after pricing its shares near the bottom of their marketed range, selling 180 million shares for $45 each, after talking $44 to $50 during the roadshow.  Based on the amount of stock outstanding after the offering, the IPO price gives the San Francisco-based company a market value of $75.5 billion, just below its last private market value of $76 billion. 

At least that was the market cap when it opened.  It’s less than that now, Uber shares closing at $41.44 in an absolutely awful debut for one of the biggest IPOs in years.  It didn’t help that Lyft is down to $51, weeks after its debut at $72, both without any thought of profits for years and years to come.

According to Jay Ritter, a professor at the University of Florida who tracks IPOs back to 1975, Uber investors lost more money, $617 million, than any other initial offering in his data base.  [Wall Street Journal]

Granted, Uber picked a poor week in terms of sentiment to come to market, but still, this doesn’t bode well for other companies yet to debut, like WeWork and Slack Technologies.

Separately, Uber drivers started a strike in New York and London on Wednesday to protest the disparity between gig-economy conditions and the sums that investors are likely to make in Friday’s stock market debut.  But the protests were sparsely attended in both locations, and rides appeared easily available.

--Walt Disney Co.’s earnings topped Wall Street’s estimates for the fiscal second quarter, despite a 13% drop in profit from a year ago.

Disney earned $1.61 a share on revenue of $14.9 billion during the quarter that ended March 30, compared with $1.84 a share on revenue of $14.5 billion last year.

Profit at Disney’s media networks and film studio declined, while its theme park business posted another strong performance.

Operating income at the networks segment, which includes ESPN and ABC, dropped 3% to $2.19 billion.  Regarding ESPN, revenue from rate increases offset a decrease in subscribers.

The company’s movie studio had a major hit in “Captain Marvel,” which racked up more than $1 billion in global box office receipts, but the second-quarter slate couldn’t compare to the same period last year, when the company had “Black Panther” and continuing sales from “Star Wars: The Last Jedi.”  Studio profit was $534 million, down 39% from last year’s second quarter.

But the quarter did not reflect the record-breaking release of “Avengers: Endgame,” which hit theaters in late April.  “Endgame” has collected $2.27 billion at the box office its first two weekends.

Losses more than doubled at Disney’s direct-to-consumer and international business, reflecting the amount of money Disney is spending on new streaming services such as ESPN+ and Disney+.  The segment reported a loss of $393 million, compared with $188 million in the year-ago quarter.

The earnings report comes a month after Disney unveiled plans for its Disney+, which will use the studio’s movies and TV shows to compete with Netflix when it launches in November, the service charging subscribers $6.99 a month.  The market awarded the company handsomely for the move, but the full impact of it won’t be felt for years; Disney saying last month it projected Disney+ will have 60 million to 90 million subscribers and become profitable in 2024.  Disney is expected to spend big on original programming for the service, which will include the company’s movies and shows from brands such as Pixar, “Star Wars,” Marvel, Disney Channel and National Geographic.

“Avengers: Endgame” would become available on the service Dec. 11, a month after the launch of Disney+.

One other. Disney wrote off the rest of its investment in Vice Media, reflecting the ongoing troubles at the onetime media darling.  The charge of $353 million in the quarter marked the second time in the last year that Disney has taken a hit on the investment.

Vice, which produces a high-profile news show for HBO and operates Viceland cable channel, has struggled with sluggish ratings and a difficult market for online video – part of its early growth business.

At one point Vice was valued at $5.7 billion.  Disney had owned a blended 21% stake in Vice, directly and through A&E.  21st Century Fox, which Disney acquired in March, held another 6%.

--Fox Corp. said its profit rose in its first quarterly earnings report since being separated from 21st Century Fox, driven by stronger performances in its cable network and broadcast TV segments.

The company now consists of Fox News; the Fox broadcast network and television stations; and Fox Sports.

Fox revealed plans to launch a sports-betting partnership with The Stars Group.  Fox Bet will roll out two products this fall – one providing customers in states with legalized gambling an opportunity to wager on sporting events, and the other offering a nationwide platform where customers can win cash prizes for correctly predicting the outcome of games, the company said.

Fox reported revenue rose 12% from a year earlier to $2.75 billion, driven in part by a 9% increase in ad revenue.  The broadcast TV unit saw a 20% increase in revenue, driven mainly by a jump in carriage fees for its local stations and the broadcast of one additional NFL divisional playoff game.

Fox, by the way, has next February’s Super Bowl, and it’s already booking spots at $5.5 to $5.6 million for a 30-second spot, which is in line with what CBS charged last season when it broadcast the game.

The NFL and Fox are cutting the number of ad breaks for the Super Bowl to four per quarter instead of the five they had run over the past three decades, but each break will run 30 seconds longer than in previous years.

--The “failing New York Times” added 223,000 digital subscribers in the first quarter as the publisher continues to spend aggressively in pursuit of its goal of reaching 10 million total subscriptions by 2025.

The Times reported net income of $30.2 million, up from $21.9 million a year ago.  Revenue grew 6.1% to $439.1 million.

CEO Mark Thompson said: “Subscription revenues made up two-thirds of the company’s revenues and for the first time, digital-only subscription revenue was more than a quarter of total company revene.”

The 223,000 added digital subscriptions were a decline from 265,000 in the fourth quarter of 2018.  The Times said it ended the quarter with 3.58 million paid digital subscribers.  Including print subscribers, the Times had 4.5 million paying customers at the end of the quarter.

Print advertising revenue fell 12% to $69.5 million, while digital advertising rose 19% to $55.5 million.

--Canada added a record 106,500 jobs in April, the strongest sign yet that the economy has remained remarkably resilient despite uncertainty over the oil price, the energy sector critical to the country’s health.

The unemployment rate ticked down to 5.7 percent, keeping it hovering near four-decade lows.

Canada has been recovering from the late-2018 oil price decline, and the country needs the U.S. and China to strike an agreement on trade to help support Canada’s economy.

--Bret Stephens / New York Times...on Facebook...

“Over the past several years we’ve learned a lot about the unintended consequences of social media.  Platforms intended to bring us closer together make us angrier and more isolated.  Platforms aimed at democratizing speech empower demagogues.  Platforms celebrating community violate our privacy in ways we scarcely realize and serve as conduits for deceptions hiding in plain sight.

“Now Facebook has announced that it has permanently banned Louis Farrakhan, Alex Jones, Milo Yiannopoulos and a few other despicable people from its social platforms.  What could possibly go wrong?

“The issue isn’t whether the people in question deserve censure. They do.  Or that the forms of speech in which they traffic have redeeming qualities. They don’t.

“Nor is the issue that Facebook has a moral duty to protect the free-speech rights of Farrakhan, Jones and their cohorts.  It doesn’t.  With respect to freedom of speech, the First Amendment says nothing more than that Congress shall make no law abridging it. A public company such as Facebook – like a private university or a family-owned newspaper – has broad latitude to feature or censor, platform or de-platform, whatever and whoever it wants.

“Facebook’s house, Facebook’s rules.

“The issue is much simpler: Do you trust Mark Zuckerberg and the other young lords of Silicon Valley to be good stewards of the world’s digital speech?

“I don’t, but not because conservatives believe (sometimes with good reason) that the Valley is culturally, politically and possibility algorithmically biased against them. As with liberalism in academia, the left-wing tilt in tech may be smug and self-serving, but it doesn’t stop conservatives from getting their messages across.  It certainly doesn’t keep Republicans from winning elections.

“The deeper problem is the overwhelming concentration of technical, financial and moral power in the hands of people who lack the training, experience, wisdom, trustworthiness, humility and incentives to exercise that power responsibly.

“That much should have been clear by the way in which Facebook’s leaders attempted to handle their serial scandals over the past two years.  Ordering opposition research on their more prominent critics.  Consistently downplaying the extent of Russian meddling on their platform. Berating company employees who tried to do something about that meddling. Selling the personal information of millions of its users to an unscrupulous broker so that the data could be used for political purposes.

“Now Facebook wants to refurbish its damaged reputation by promising its users much more privacy via encrypted services as well as more aggressively policing hate speech on the site.  Come again? This is what Alex Stamos, Facebook’s former chief security officer, called ‘the judo move: In a world where everything is encrypted and doesn’t last long, entire classes of scandal are invisible to the media.’

“In other words, it’s a cynical exercise in abdication dressed as an act of responsibility.  Knock a few high-profile bigots down. Throw a thick carpet over much of the rest. Then figure out how to extract a profit from your new model.”

Chris Hughes, co-founder of Facebook and Mark Zuckerberg’s roommate at Harvard, had a lengthy op-ed in the New York Times that garnered quite a bit of attention, Hughes calling for the breakup of Facebook, with the sale of WhatsApp and Instagram.

“Mark’s influence is staggering, far beyond that of anyone else in the private sector or in government.  He controls three core communications platforms – Facebook, Instagram and WhatsApp – that billions of people use every day. Facebook’s board works more like an advisory committee than an overseer, because Mark controls around 60 percent of voting shares.  Mark alone can decide how to configure Facebook’s algorithms to determine what people see in their News Feeds, what privacy settings they can use and even which messages get delivered.  He sets the rules for how to distinguish violent and incendiary speech from the merely offensive, and he can choose to shut down a competitor by acquiring, blocking or copying it.

“Mark is a good, kind person.  [Ed. No he’s not.] But I’m angry that his focus on growth led him to sacrifice security and civility for clicks.  I’m disappointed in myself and the early Facebook team for not thinking more about how the News Feed algorithm could change our culture, influence elections and empower nationalist leaders. And I’m worried that Mark has surrounded himself with a team that reinforces his beliefs instead of challenging them.

“The government must hold Mark accountable.  For too long, lawmakers have marveled at Facebook’s explosive growth and overlooked their responsibility to ensure that Americans are protected and markets are competitive....

“We are a nation with a tradition of reining in monopolies, no matter how well intentioned the leaders of these companies may be.  Mark’s power is unprecedented and un-American....

“The most extreme example of Facebook manipulating speech happened in Myanmar in late 2017.  Mark said in a Vox interview that he personally made the decision to delete the private messages of Facebook users who were encouraging genocide there.  ‘I remember, one Saturday morning, I got a phone call,’ he said, ‘and we detected that people were trying to spread sensational messages through – it was Facebook Messenger in this case – to each side of the conflict, basically telling the Muslims, ‘Hey, there’s about to be an uprising of the Buddhists, so make sure that you are armed and go to this place.’ And then the same thing on the other side.’

“Mark made a call: ‘We stopped those messages from going through.’  Most people would agree with his decision, but it’s deeply troubling that he made it with no accountability to any independent authority or government.  Facebook could, in theory, delete en masse the messages of Americans, too, if its leadership decided it didn’t like them.”

But Chris Hughes, incredibly, fails to take this last topic further and note that thousands died in the uprising, directly tied to Facebook!

Responding to Hughes’ piece and calls for a breakup, a spokesman for Facebook, Nick Clegg, said in a statement: “Facebook accepts that with success comes accountability.  But you don’t enforce accountability by calling for the breakup of a successful American company.  Accountability of tech companies can only be achieved through the painstaking introduction of new rules for the internet.  That is exactly what Mark Zuckerberg has called for.”

--Despite its simple menu, Chick-fil-A Inc. is poised to become the third-biggest U.S. restaurant chain by sales behind McDonald’s and Starbucks, according to food-service consultancy Technomic Inc.  The growth for Chick-fil-A reflects consumers’ broader turn toward chicken.

And as Mark Moraitakis, a Chick-fil-A senior director, said about the company’s expansion, “We’ve been pretty consistent in how, over multiple decades, we’re going to take it slow and steady.  It’s paid off for us.”

Sales from Chick-fil-A’s restaurants have tripled over the past decade, reaching $10.2 billion last year, Technomic said, even though the chain has maintained its policy of being closed on Sundays, a practice implemented by founder Truett Cathy.  The company is up to about 2,400 restaurants, a double since 2007, but its faced resistance when moving into some areas, in part because of comments made by CEO Dan Cathy, son of the company’s founder, regarding his opposition to same-sex marriage.  Advocates for a boycott are offset by conservative customers expressing support.

This year, officials in San Antonio stopped the chain from opening a location in the city’s airport because of the views on sexual orientation, and a concessions company at the airport serving Buffalo, N.Y., dropped Chick-fil-A as a potential tenant after facing protests over the same issue. 

Meanwhile, in a survey this spring of teenagers, respondents listed Chick-fil-A as their favorite restaurant, beating out Starbucks, according to Piper Jaffray Cos. 

By the way, last year, fast-food restaurants in the U.S. served more than 2.5 billion breaded-chicken sandwiches, according to market-research firm NPD Group Inc., up 17% over a decade.  Burger servings slipped 5% in that period to 7.4 billion last year. [Micah Maidenberg / Wall Street Journal]

--As referenced above, after China culled tens of millions of hogs (an est. 150 million to 200 million) to contain swine disease in the country, global meat prices are set to rise, according to the CEO of Tyson Foods, the top U.S. meat-processing company.  Tyson said it is already paying higher prices for U.S. hogs and other meat as Chinese buyers crank up purchases to fill the gap created by the crisis in China.

Tyson estimates the global meat supply could decline by 5% as a result of African swine fever.  The fever is fatal to hogs, but not harmful to humans.  CEO Noel White said Tyson is poised to benefit as it expects rising prices for beef and chicken to follow pork higher in the months ahead, and that higher customer prices will more than offset higher wholesale meat costs.

But this all depends on U.S. hog barns staying free of the disease.

--The Congressional Budget Office now estimates the federal student-loan program will cost taxpayers $31.5 billion over the next decade after a surge of borrowers defaulting on loans or enrolling in plans that ultimately will forgive a portion of their debt.  The agency said a year ago that the program would return a profit of $8.7 billion over a decade.

The CBO now estimates that overall, the government will get all its money back, plus a bit of interest, but that figure is falling rapidly, and once administrative costs are factored in, the program overall will run a deficit, it says.

The Wall Street Journal reported the Trump administration is weighing its options and has hired consulting firm McKinsey & Co. to explore options and to figure out how much money could be lost if low repayment rates persist.

--Schick razor owner Edgewell Personal Care announced it was buying shaving startup Harry’s Inc. in a $1.37 billion cash-and-stock deal to expand in a fast-growing U.S. grooming market.  The price exceeds that of rival Dollar Shave Club, purchased for $1 billion by Unilever in 2016.

Unilever, Procter & Gamble and others have put more focus on men’s grooming, trying to coax them into spending more on deodorants, skin creams and hair products.

The global men’s grooming industry is expected to hit $78.6 billion by 2023 from $57.7 billion in 2017, according to a ResearchAndMarkets.com report.

--Jeff Bezos unveiled a lunar lander from his secretive space company Blue Origin for the first time on Thursday – as part of his big plan to send humans to the moon within the next couple of years.

Bezos said he liked Vice President Mike Pence’s challenge to send someone to the moon by 2024 because, “we can help meet that timeline but only because we started three years ago.”

“It’s time to go back to the moon, this time to stay,” Bezos said.

The richest man in the world detailed his dreams that one day humans will live in elaborate space colonies, named “O’Neill colonies,” after American physicist Gerard K. O’Neill who came up with the idea.

Bezos pushed O’Neill’s idea of cylindrical living habitats.  “These are ideal climates,” Bezos said.  “People are going to want to live here, and they’re going to be close to Earth so you can return.”

He downplayed the idea of going to Mars, saying round-trip travel times to the Red Planet were “on the order of years” and that infrequent launch opportunities presented a “very significant logistics problem.”

Fellow billionaire and space rival Elon Musk has been clear about his goal to colonize Mars, with the first crew heading there aboard a spaceship called Starship as early as 2024, or so Elon says.

Foreign Affairs                              

Iran: Over the weekend, the United States received information from Israel concerning an alleged Iranian plot to attack American interests in the Gulf, according to Axios.  National Security advisor John Bolton publicly warned on Sunday that Iran will face “unrelenting force” if it attempts to harm the U.S. in an unusual statement.

In the same statement the U.S. announced that it would deploy the aircraft carrier USS Lincoln to the region, along with bombers.  According to the report, the information was allegedly passed to a U.S. team headed by Bolton two weeks ago by an Israeli delegation led by national security adviser Meir Ben Shabbat.

While it wasn’t clear what Iran’s target was, it might have attempted to hit U.S. forces in Syria or Iraq, or one of its allies in the region such as Saudi Arabia or UAE.

Tuesday, Secretary of State Mike Pompeo made a surprise visit to Baghdad, where he underscored U.S. warnings to Tehran while offering support to allied officials in Iraq.

A State Department official said Pompeo’s visit was intended to send a message to Iranian Maj. Gen. Qassem Soleimani, commander of the Quds Force, “that we are not backing down.  Not in Iraq.  Not anywhere.”

On Wednesday, as threatened earlier, Iran announced it would relax some steps that restrict its stockpiling of nuclear materials in response to new U.S. sanctions imposed by Washington.

Tehran’s initial moves, such as rolling back some of its commitments to stop selling enriched uranium and heavy water to other nations, do not appear to violate the 2015 accord yet.  But President Rouhani said that unless the powers protect Iran’s economy from U.S. sanctions within 60 days, Iran would start enriching uranium beyond limits set by the deal.

“We reject any ultimatums and we will assess Iran’s compliance on the basis of Iran’s performance regarding its nuclear-related commitments...” read a statement issued jointly by the European Union and the foreign ministers of Britain, France and Germany, co-signatories of the deal.

“We are determined to continue pursuing efforts to enable the continuation of legitimate trade with Iran,” they said, adding that this included getting a special purpose vehicle aimed at enabling non-dollar business with Iran off the ground.

In response, Iranian Foreign Minister Mohammad Javad Zarif said on his Twitter account that EU countries should uphold their obligations in the nuclear deal with Iran and normalize economic ties despite U.S. sanctions, “instead of demanding that Iran unilaterally abide by a multilateral accord.”

The nuclear deal required Iran to curb its uranium enrichment capacity to head off any pathway to developing a nuclear bomb, in return for the removal of most international sanctions.  A series of more intrusive UN inspections under the accord have verified that Iran is meeting its commitments.

President Trump on Wednesday imposed new sanctions on Iran, targeting revenue from its exports of industrial metals, iron, steel, aluminum and copper sectors, which the White House said was Tehran’s “largest non-petroleum-related source of export revenue.”

Iran’s foreign ministry said Thursday that U.S. sanctions on Iranian metals are against international norms, warning that Washington would be responsible for Iran’s losses.

“This U.S. measure is against the international commitments of this regime... It is against international norms... The United States will be responsible for the caused losses,” Abbas Mousavi was quoted as saying by the semi-official news agency ISNA.

French President Emmanuel Macron called on Thursday for the nuclear deal to be extended to cover other issues of concern to the West, such as Iran’s regional policies and ballistic missiles, rather than jettisoned.

“Leaving the 2015 nuclear agreement is a mistake because it is undoing what we have already done.  That’s why France is remaining and will remain a part of it and I deeply hope that Iran will remain,” Macron said.

German Chancellor Angela Merkel said the EU wants to avoid an escalation in the dispute and Tehran must recognize that it is in its own interests to remain committed to the deal.

A Kremlin spokesman, Dmitry Peskov, told reporters: “President Putin has repeatedly spoken of the consequences of unthought-out steps regarding Iran and by that I mean the decision taken by Washington (to quit the deal). Now we are seeing those consequences are starting to happen.”

David Ignatius / Washington Post

“Behind recent U.S. and Iranian military mobilizations lies a perception by each side that the other may be about to attack. This doesn’t appear to be posturing by either side but is instead a confrontation that could lead to actual conflict if there’s a miscalculation.

“The United States sent an aircraft carrier task force, bombers and other assets into the region last weekend after officials concluded that Iran had altered its strategy of waiting out the Trump administration’s pressure campaign – and was instead making preparations for a possible military strike on U.S. forces in the region.

“Marine Gen. Frank McKenzie, the new U.S. Central Command leader, said in a speech Wednesday that the buildup came ‘in direct response to a number of troubling and escalatory indicators and warnings.’  His spokesman, Navy Capt. Bill Urban, had said the previous day there were ‘clear indications that Iranian and Iranian proxy forces are making preparations to possibly attack U.S. forces in the region.’

“This sense of an imminent Iranian threat marks a break from what U.S. officials had predicted just two weeks ago.  At that time, officials expected that Tehran would try to ride out President Trump’s campaign of sanctions over the next 20 months, in the hope they would be removed by his successor.

“But last week, based on new information, the United States concluded that the Iranians had decided to reset their strategy now and were moving military equipment to prepare for action.  It’s not clear whether this turnabout happened because U.S. sanctions were squeezing so hard that the Iranians couldn’t wait until January 2021, or because they concluded that Trump might be reelected.

“The message of U.S. willingness to use force appears to have registered with Iran and its proxies.  I received a text message Thursday morning from an American who travels widely in Syria and Iraq.  He said he was contacting me on behalf of the head of the leading Iran-backed Shiite militia organization in Iraq.  According to this intermediary, Iran-backed forces had ‘pre-positioned themselves to respond to U.S. escalation,’ but ‘there was no plan for attack, only a response if the U.S. attacked.’

“The militia leader’s tone seemed conciliatory: ‘There is still an opening to de-escalate things if the other side doesn’t want direct conflict,’ he said, according to the intermediary who had been asked to speak on his behalf.  The American intermediary, whom I’ve known for nearly a decade, conveyed the message on condition that the militia leader’s name and organization wouldn’t be directly identified.

“U.S. officials have been particularly worried about a possible attack by Iranian proxies on the more than 5,000 U.S. troops in Iraq, who are training Iraqi military forces and otherwise bolstering security in the country.  So the message from the Iranian militia leaders speaks, at least indirectly, to a major American concern....

“The larger question emerging from this week’s showdown is where the U.S. strategy of ‘maximum pressure’ is heading. The Iranians clearly are feeling the squeeze and looking for a way to push back.

“Part of Tehran’s pushback was this week’s announcement by President Hassan Rouhani that Iran would withdraw from parts of the 2015 nuclear agreement, in response to Trump’s announcement that he was abandoning the pact and the reimposition of U.S. sanctions.  The Pentagon has feared that the Iranian reset might include kinetic military action, too, in the hope that it would push the United States back toward negotiations....

“What’s clearest, after this week of saber rattling, is that Iran was mistaken if it hoped that a show of force would lead the United States to retreat.  McKenzie put it bluntly in his speech Wednesday: ‘Any attack on U.S. interests will be met with unrelenting force.’ That doesn’t sound like a bluff.”

Syria: The war continues.  Syrian government forces and their Russian allies pounded the rebel-held northwest in Idlib province with heavy air strikes, including barrel bombs, on Saturday, the fifth day of a campaign that has killed dozens of people and forced thousands to flee, sources in the area and a war monitor, the Syrian Observatory for Human Rights, said.  The area is part of the last major foothold of the rebellion against Syrian President Bashar al-Assad.

But the presence of Turkish forces in the northwest and Russian understandings with Ankara have complicated any offensive in the region, home to some 3 million people.  Turkey, already hosting 3.6-million Syrian refugees, is hoping to avoid having to take on more.

Libya: Recent fighting in southern Tripoli in Libya has killed 187 people and wounded 1,157, according to the health ministry.  The offensive launched by eastern Libya-based military commander Khalifa Haftar to take control of Tripoli is now in its fifth week.

And today, Libya’s internationally recognized government denounced Haftar as an “aspiring military dictator,” calling on President Trump to stop foreign support for his offensive.

It is inexcusable that Trump has publicly supported Haftar, but that’s what this president does.  Strongman el-Sisi of Egypt came to Washington and asked Trump to back Haftar, and Trump readily complied. 

So Trump is openly going against the UN-backed government in Libya.  Read that again.

North Korea: North Korea fired what appeared to be two short-range missiles in its second such test in less than a week on Thursday.  Kim oversaw the army’s strike drill at the country’s western and “forefront” regions, state media KCNA said on Friday; the two missiles traveling an estimated 170 and 260 miles...or from New York to Philadelphia, and New York to Washington, approximately.

KCNA did not specify what was fired. Saying “the genuine peace and security of the country are guaranteed only by the strong physical force capable of defending its sovereignty.”

Today, Kim ordered the further increase of the North Korean army’s strike ability “in the forefront area and on the western front,” KCNA said without elaborating.

This week we learned the U.S. seized a large North Korean cargo ship for carrying an illegal shipment of coal, which must have infuriated Kim.  The 17,061-ton Wise Honest is one of the North’s largest cargo ships and was first detained by Indonesia in April 2018, but is now in the possession of the U.S.  There is no connection to the missile tests, the U.S. says.

South Korean President Moon Jae-in said Thursday the missile tests were likely a reaction to the failed second summit with President Trump in Hanoi.  U.S. special envoy for North Korea Stephen Biegun, in Seoul meeting with his South Korean counterpart, said “the door is still open for North Korea to return to the negotiating table,” and that it is very important for South Korea and the United States to continue communication and cooperation, South Korea’s foreign ministry said in a statement.

Separately, in a further sign of renewed tensions, the United States called on Pyongyang to “dismantle all political prison camps” and release all political prisoners, which are said to number between 80,000 and 120,000.  In remarks to the UN Human Right Council in Geneva, Mark Cassayre, U.S. charge d’affaires, also urged North Korean authorities to allow aid workers in the country unrestricted movement and access to populations in need.

North Korean ambassador Han Tae Song told the 47-member forum that “people’s rights to life and fundamental freedoms are fully ensured” in the DPRK but that sanctions were hampering their enjoyment.  Oh brother.

Also, we learned the Pentagon said it has given up hope of recovering any more remains of U.S. troops killed in the 1950-53 Korean War in the near future.  The U.S. Defense POW/MIA Accounting Agency, which works to recover missing American troops in the world, said on Wednesday that it had not heard from North Korean officials since the second U.S.-North Korea summit in February.  The president, however, has been touting the recovery of remains since then at all of his rallies.

For his part, President Trump said of the latest developments on the Korean Peninsula, “Nobody’s happy about it... I don’t think they’re ready to negotiate.”

China: Beijing said on Monday its navy warned U.S. ships sailing near islands claimed by China in the South China Sea to leave the area and that the U.S. should stop such provocative acts.

Two U.S. guided-missile destroyers traveled within 12 nautical miles of Gaven and Johnson Reefs in the disputed Spratly Islands, a U.S. military spokesman told Reuters, a move that angered China further at a time of already tense relations between the two.

Russia: Editorial / Washington Post

“President Trump has been suggesting recently that he’s interested in negotiating a reduction of nuclear weapons stockpiles.  After speaking Friday with President Vladimir Putin of Russia, Mr. Trump said they discussed ‘a nuclear agreement’ in which ‘we get rid of some of the tremendous firepower that we have right now.’  On April 4, meeting with China’s vice premier, Liu He, Mr. Trump said, ‘Between Russia and China and us, we’re all making hundreds of billions of dollars’ worth of weapons, including nuclear, which is ridiculous.’  If he’s serious, it is important that Mr. Trump focus on practical measures to reduce the nuclear danger, not negotiating feints.

The Post reported April 25 that Mr. Trump has ‘ordered his administration to prepare a push for new arms-control agreements with Russia and China.’  The exact nature of his order isn’t known, but Mr. Trump is right to be concerned that many areas of nuclear weapons and systems to deliver them are not covered by treaties and agreements. Soon, the 1987 Intermediate-Range Nuclear Forces Treaty between the United States and Russia will be history; the Trump administration pulled the plug, saying Russia violated it with a new, prohibited ground-based cruise missile system.  Shorter-range nonstrategic or tactical nuclear weapons, such as gravity bombs, of which Russia has a large stockpile and the United States fewer, have never been covered by a treaty. China, which has avoided nuclear arms control treaties, possesses a relatively small nuclear arsenal of about 300 warheads* but has in recent years embarked on an aggressive spree of building new weapons systems, including cruise and other missiles.  China has been given a pass for too long, and negotiations could fruitfully bring some transparency and verification to its opaque yet growing might.

*As I wrote last week, no one has a clue how many China has.

“All these important and worthy goals for negotiation will be extremely difficult and time-consuming.  Before Mr. Trump reaches for the moon, he should tackle extension of the 2010 New START accord with Russia limiting strategic nuclear weapons, which expires in February 2021.  This treaty has proved successful and worthwhile, limiting both sides to 1,550 deployed warheads and 700 delivery vehicles; it’s a cap on the most threatening nuclear weapons, those that can span the globe in tens of minutes.  If Mr. Trump really wants to avert nuclear dangers, this is the place to begin....John Bolton, the national security adviser, has criticized international treaties that tie the hands of the United States and once called the New START limits on weapons launchers ‘profoundly misguided.’  Are Mr. Bolton and Mr. Trump really getting ready to roll up their sleeves for more arms control, or is the latest talk just a disingenuous tactic to avoid it?”

Separately, a Russian passenger plane operated by Aeroflot crashed during an emergency landing in Moscow on Sunday, killing 41 people, with authorities strongly pointing to pilot error, including the fact the crew failed to dump fuel as it was circling back to Sheremetyevo International Airport, which helped lead to a fireball when the fuel tank struck the runway, after bouncing when it first touched down.

The main pilot, who survived the crash, said the plane had been hit by lightning, which caused the aircraft to lose communication.

What was pathetic is that some clearly died because others who made it out were seen holding luggage.

Afghanistan: The Taliban launched a deadly attack in Kabul Wednesday at the entrance of the offices of Counterpart International, a U.S.-based aid organization, which the Taliban said receives funding from the U.S. Agency for International Development, and was involved in “harmful Western activities inside Afghanistan,” including the training of Afghan government and security officials and implementing a program that promotes the “open intermixing of men and women.”

Five were killed, including a police officer, and 24 wounded.

And we are negotiating with the Taliban?  And we believe they will respect human-rights as part of any deal to end the war? 

Turkey: President Erdogan is facing major heat, and protests, over his decision to order Istanbul’s local elections to be re-held after an opposition victory in March.

Erdogan’s AK Party claimed there were “irregularities and corruption” behind the opposition CHP’s slim win.

But CHP’s Ekrem Imamoglu, who was confirmed as Istanbul’s mayor in April, and is now out, called the decision “treacherous.” CHP deputy chair Onursal Adiguzel said the re-run showed it was “illegal to win against the AK Party,” tweeting the decision was “plain dictatorship.”

The European Parliament said the decision to re-run the election would end the credibility of democratic elections in Turkey.

The vote will be held on June 23.

Venezuela: President Trump is questioning his administration’s aggressive strategy in Venezuela following the failure of a U.S.-backed effort to oust Nicolas Maduro, complaining he was misled about how easy it would to replace him with an opposition figure, according to administration officials.

The president’s displeasure has crystallized around national security adviser John Bolton and what Trump has groused is an interventionist stance at odds with his view that the U.S. should stay out of foreign quagmires.

Trump has said in recent days that Bolton wants to get him “into a war” – a comment he has made in jest but that now looks more serious.

After one fizzled power play after another, administration officials have been more cautious in their predictions of Maduro’s swift exit, while re-assessing what one official described as the likelihood of a diplomatic “long haul.”

Trump has told those around him that Maduro is a “tough cookie,” and that aides should not have led him to believe the Venezuela leader could be ousted last week, when Juan Guaido led mass street protests that turned deadly.

Wednesday, Venezuelan intelligence police detained National Assembly Vice President Edgar Zambrano in  a dramatic operation in Caracas, marking the first senior opposition official to be taken into custody by the government in retaliation for the failed military uprising.

Zambrano had earlier been stripped of immunity, along with six others, by the pro-Maduro Constituent Assembly, while Maduro’s Supreme Court earlier accused the lawmakers of conspiracy, rebellion and treason, and on Wednesday accused three other opposition legislators of the same crimes. The opposition says Maduro has stacked the court with his own supporters and does not recognize its legitimacy.

For his part, Juan Guaido said he overestimated military support for his effort to topple Maduro.

“We still need more soldiers to support it, to back the constitution,” he said.

Guaido added he would consider an offer of military assistance if the U.S. made one.

Random Musings

--Presidential tracking polls...

Gallup: 46% approval of Trump’s job performance, 50% disapproval (May 3); 91% Republicans, 37% Independents.
Rasmussen: 49% approve, 50% disapprove.

A new Wall Street Journal/NBC News had President Trump with a 46% approval rating, 51% disapproval; 38% Independents approve.  But for this last category, the 55% disapproval compares with 48% in Sept. 2017.  Not a good sign for Mr. Trump.

--A new Monmouth University Poll of New Hampshire primary voters has former Vice President Joe Biden solidly in the lead with 36% support of registered Democrats and unaffiliated voters who are likely to participate in the February 2020 primary.  Bernie Sanders is next at 18%, followed by South Bend Mayor Pete Buttigieg (9%), Sen. Elizabeth Warren (8%), and Sen. Kamala Harris (6%)

Among voters aged 65 and older, Biden picks up 53%, vs. only 9% for Sanders.

--In a new Hill-HarrisX poll, surveying registered voters across the country who identify as Democrats or independents likely to vote Democratic, Joe Biden picked up 46% to Bernie Sanders’ 14%.  Pete Buttigieg was third at 8%.

--Georgia Gov. Brian Kemp on Tuesday signed a bill that would ban abortions if a fetal heartbeat can be detected.  Currently in Georgia, women are allowed to undergo abortion procedures up to their 20th week of pregnancy.  But starting Jan. 1, the bill Kemp signed generally would ban abortions after a fetal heartbeat is detected, which can be as early as six weeks into a pregnancy – when many women don’t yet know they’re pregnant.

Kemp said Tuesday before signing the legislation at the state Capitol: “(The bill) is very simple but also very powerful: a declaration that all life has value, that all life matters, and that all life is worthy of protection.”

The legislation says that “no abortion is authorized or shall be performed if the unborn child has been determined to have a human heartbeat.”

One antiabortion group, Georgia Right to Life, said the bill doesn’t go far enough.

Legislators in other states have pursued similar bills.  Mississippi signed a bill into law in March that would ban abortions once a fetal heartbeat can be detected, and Ohio passed similar legislation in April.

In January, an Iowa judge struck down that state’s fetal heartbeat bill, declaring it unconstitutional.  The Supreme Court has previously declined to weigh in after lower courts blocked bills in North Dakota and Arkansas.

Thursday, the Alabama Senate erupted in angry clashes during debate over an antiabortion bill that is considered the strictest in the nation and would effectively outlaw the procedure.

The Republican-backed measure, which passed the state House of Representatives’ last month, would make it a felony for doctors to perform an abortion at any point during pregnancy, punishable by up to 99 years in prison.  An attempted abortion would yield a sentence of up to 10 years.

In the Alabama Senate, discord flared over consideration of an amendment that would create exceptions to the bill in the case of rape or incest.  The House version passed without such a provision, but the Senate added one.  Then the Lt. Gov., who presides over the Senate, removed the amendment by a voice vote, setting off boisterous denunciations from Democrats.

The two sides agreed to adjourn until Tuesday, when the bill and the amendment could be taken up again.

To say the least this is going to be a big issue come Nov. 2020.

--A sweeping new United Nations assessment has concluded humans are transforming Earth’s natural landscapes so dramatically that as many as one million plant and animal species are now at risk of extinction, posing a dire threat to ecosystems that people all over the world depend on for their survival.

The 1,500-page report, compiled by hundreds of international experts and based on thousands of scientific studies, is the most exhaustive look yet at the decline of biodiversity across the globe.  The United States was among the 132 counties approving of a summary of the findings.

This isn’t necessarily about global warming, but rather growing activities such as farming, logging, poaching, fishing and mining that are altering the natural world at a rate “unprecedented in human history.”

To me, the biggest single culprit is overfishing (thank you Japan and China).  But where global warming comes into play most is in shrinking the local climates that many mammals, birds, insects, fish and plants evolved to survive in.

Meanwhile, humans may be producing more food than ever, but land degradation is hurting agricultural productivity, while the decline of wild bees and other insects to help pollinate fruits and vegetables is putting up to $577 billion in annual crop production at risk.

The authors call for “transformative changes” that include curbing wasteful consumption, slimming down agriculture’s environmental footprint and cracking down on illegal logging and fishing.

--According to a new Reuters/Ipsos poll, 85% of adults said that all children should be required to be vaccinated unless there was a medical reason not to, such as an allergy or compromised immune system.  77% said children should be immunized even if their parents object to the vaccinations.

It is startling those numbers aren’t in the 90s.  As the experts say, you need 90% to 95% to achieve “herd immunity” that protects those unable to get the measles vaccine, such as infants and people with compromised immune systems.

--When I was going to Wake Forest University in Winston-Salem, N.C., 1976-80, there was an event each fall called the Dixie Classic Fair, which is a typical county fair, highlighting agricultural products and livestock, with food, rides and entertainment.  It was held near campus, and next to the football stadium, and we’d all go over now and then.  I can’t recall anything memorable, but it was OK.  I last went in 2010, in connection with my 30th reunion, just to check it out. The pig races were humorous, as I ate my pulled pork sandwich. 

Well, it’s still called the Dixie Classic Fair, and that’s become a big problem in Winston.  Put it in the category of controversies that includes taking down Confederate statues.

Wake Forest was a classic southern institution when I matriculated (which was part of the reason why it was my first choice for a school...I wanted to experience something different...and I loved it).  When I was looking at fraternities, there were two I was seriously considering, besides the one I ended up joining.  Kappa Alpha was one of the other two.  A friend from New Jersey ended up becoming a brother.

Well, many of you know the KA story.  Had I been a member, somewhere in a yearbook there would undoubtedly have been a picture of me, with my frat bros, and a Confederate flag.  And today, there is a top administrator at Wake Forest, a classmate of mine, who was a ‘little sister’ of KA and she’s under intense heat from some because she’s in one of those group photos with the flag, unearthed amidst all the controversy nationally on the topic.  It’s not fair at all to her, frankly.

So I bring this up because I saw in the Winston-Salem Journal this week that a hearing was held on changing the Dixie Classic Fair’s name, to something like “Twin City Classic Fair,” or “Piedmont Classic Fair,” either of which would be totally appropriate, and one side is against any change (the same folks who fought the removal of a Confederate statue from downtown Winston-Salem), and those who believe the fair’s name represents slavery, the Confederacy, white supremacy, segregation and the oppression of the city’s black residents.

Supporters who want the name to stay said the word “Dixie” symbolizes Southern heritage and southerners without any racist connotation. 

Understand I paid my respects to Robert E. Lee at Washington and Lee University about six years ago (Lee being entombed there) as part of a trip that took me to Appomattox a second time.

Also in Lexington, Va., site of Washington and Lee, as well as VMI, I visited the grave of Stonewall Jackson, buried in a cemetery a few blocks from W&L (sans his arm, if you know your Civil War history).  I did this as a junior historian, nothing more.  [VMI, by the way, has a terrific George C. Marshall museum, Marshall graduating from there.]

But when talking about the song “Dixie,” it’s tough to ignore the opening line: I wish I was in the land of cotton, old times there are not forgotten.

No change in the name of the Dixie Classic Fair is expected before 2020.

--Another week, another school shooting.  And another tragic hero, this time 18-year-old Kendrick Castillo, who charged the shooter who opened fire at STEM School Highlands Ranch in suburban Denver, Kendrick getting shot himself in the process,  and dying.  But through his heroism he gave his classmates time to take cover or run, while other classmates helped subdue the shooter, who happened to be a classmate.

“The next thing I know he’s pulling out a gun,” said one of the girls in the class. “Then he told us not to move and that’s when the shooting started.”

“Kendrick,” she said, “lunged at him and tried to subdue him. As soon as he said, ‘Don’t you move,’ Kendrick lunged, giving us all enough time to hide under our desks, and the shooter ended up shooting Kendrick.”

The young girl said of Kendrick and the others who then helped subdue the shooter, standing alongside her mother, “They are so brave. They all risked their lives to make sure that 10, 15 of us all got out of that classroom safe and that we were able to go home to our families. ...There is nothing greater in this world than these kids willing to do that.”

Added her mother in tears, “I will never be able to thank (Kendrick).  I have no words other than ‘what a hero.’ ...All of these kids are alive because of his sacrifice and because of the sacrifices and the bravery of all the boys that neutralized this student.”

According to the experts, the students did exactly what they were supposed to do.  Where people were once advised to flee or shelter in place, the new mantra for surviving an active shooter situation is “run, hide, fight.”  And fight savagely.

--A week ago, we were talking about another hero, Riley Howell, who confronted the shooter at the University of North Carolina at Charlotte, but died doing so.  Charlotte police said this week no one was shot after Riley body slammed the killer, despite being hit by three bullets.

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

God bless America.

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Gold $1286
Oil $61.71

Returns for the week 5/6-5/10

Dow Jones  -2.1%  [25942]
S&P 500  -2.2%  [2881]
S&P MidCap  -2.4%
Russell 2000  -2.6%
Nasdaq  -3.0%  [7916]

Returns for the period 1/1/19-5/10/19

Dow Jones  +11.2%
S&P 500  +14.9%
S&P MidCap  +16.3%
Russell 2000  +16.6%
Nasdaq  +19.3%

Bulls 55.5
Bears 17.8

Have a great week.

Brian Trumbore

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