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Week in Review

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05/25/2019

For the week 5/20-5/24

[Posted 11:00 PM ET]

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Edition 1,050

The trade war between the United States and China is officially on, now that there has been a total breakdown in talks, with none planned, and no guarantee that Presidents Trump and Xi Jinping will meet for any substantive discussions in Osaka, Japan, in late June at a G20 summit.

Today, China accused U.S. officials of lying to the public about the conflict, as tensions rose further.

Chinese Foreign Ministry spokesman Lu Kang said, “Domestically in the United States there are more and more doubts about the trade war the U.S. side has provoked with China, the market turmoil caused by the technology war and blocked industrial cooperation.”

When asked about Secretary of State Mike Pompeo’s recent criticism of Chinese telecom giant Huawei, Kang said U.S. officials “fabricate lies to try to mislead the American people, and now they are trying to incite ideological opposition.”

In an interview with CNBC on Thursday, Pompeo said Huawei was connected to the Chinese government, dismissing Huawei CEO Ren Zhengfei’s assertions that his company would never share user secrets.

“The company is deeply tied not only to China but to the Chinese Communist Party.  And that connectivity, the existence of those connections, puts American information that crosses those networks at risk,” Pompeo said.

Yup, this is the kind of back and forth you didn’t see among top officials from both sides until recently.  There are no attempts at being diplomatic.  It’s war.

China feels humiliated, and finally exposed.  After President Trump blacklisted Huawei, the Chinese ambassador to the European Union, Zhang Ming, said, “This is wrong behavior, so there will be a necessary response.”

“Chinese companies’ legitimate rights and interests are being undermined, so the Chinese government will not sit idly by.”

It now seems just a matter of time before President Trump slaps a 25% tariff on an additional list of Chinese imports worth about $300 billion.

Meanwhile, China’s move to impose higher tariffs on a revised $60 billion list of U.S. goods is set to go into effect on June 1.

Anti-U.S. sentiment in China is growing.  A privately produced Chinese trade-war fight song has gone viral in Beijing.

“We have been holding on for 5,000 years,” Zhang said.  “Why not another 5,000 years?”

The People’s Daily said in an editorial that when it came to the accusation that China forces firms to hand over technology in exchange for market access, China had never forced U.S. firms to do so and the claim was “an old-fashioned argument used by some people in the United States to suppress China’s development.”

“The U.S. argument about the ‘forced transfer of technology’ can be described as being fabricated from thin air,” it said.

President Xi called for the Chinese people to “start again” and begin a modern “long march,” invoking a turning point in Communist Party history, Xi making the remarks at the historic site of the start of Mao Zedong’s Long March of 1934, a 4,000-mile journey that took more than a year and would ultimately lead to the ousting 15 years later of the Nationalists (who then moved to Taiwan).

Chinese state media has racheted up nationalistic rhetoric in recent days, comparing the trade crisis to the Korean War, during which Chinese troops were in direct combat with American forces.  China’s national movie channel has been running films about the war.

The editor of Communist Party mouthpiece the Global Times tweeted that the takeaway from these films is that “there’s no equal negotiation without fighting.”

Yes, what was once a subdued Chinese media when it came to the early days of the trade conflict is now in full throttle.

I’ve been saying for some time that Americans are in no way prepared for where this could go.  No doubt China is fighting the impulse to give the Americans a bloody nose, as in some kind of operation in the South China Sea, perhaps.  You would think this wouldn’t be a very smart move, but it all depends on the kind of pressure Xi Jinping is feeling internally.

In the meantime, Apple shares continue to fall.

Editorial / The Economist

“Fighting over trade is not the half of it.  The United States and China are contesting every domain, from semiconductors to submarines and from blockbuster films to lunar exploration. The two superpowers used to seek a win-win world.  Today winning seems to involve the other lot’s defeat – a collapse that permanently subordinates China to the American order; or a humbled America that retreats from the western Pacific.  It is a new kind of cold war that could leave no winners at all.

“Superpower relations have soured. America complains that China is cheating its way to the top by stealing technology, and that by muscling into the South China Sea and bullying democracies like Canada and Sweden it is becoming a threat to global peace.  China is caught between the dream of regaining its rightful place in Asia and the fear that tired, jealous America will block its rise because it cannot accept its own decline.

“The potential for catastrophe looms.  Under the Kaiser, Germany dragged the world into war; America and the Soviet Union flirted with nuclear Armageddon.  Even if China and America stop short of conflict, the world will bear the cost as growth slows and problems are left to fester for lack of cooperation.

“Both sides need to feel more secure, but also to learn to live together in a low-trust world.  Nobody should think that achieving this will be easy or quick....

“As well as focusing on its strengths, America needs to shore up its defenses.   This involves hard power as China arms itself, including in novel domains such as space and cyberspace.  But it also means striking a balance between protecting intellectual property and sustaining the flow of ideas, people, capital and goods.  When universities and Silicon Valley geeks scoff at national-security restrictions they are being naïve or disingenuous.  But when defense hawks over-zealously call for shutting out Chinese nationals and investment they forget that American innovation depends on a global network....

“Dealing with China also means finding ways to create trust.  Actions that America intends as defensive may appear to Chinese eyes as aggression that is designed to contain it.  If China feels that it must fight back, a naval collision in the South China Sea could escalate.  Or war might follow an invasion of Taiwan by an angry, hypernationalist China....

“China and America do not have to agree for them to conclude it is in their interest to live within norms.  There is no shortage of projects to work on together, including North Korea, rules for space and cyberwar and, if Mr. Trump faced up to it, climate change.

“Such an agenda demands statesmanship and vision. Just now these are in short supply.  Mr. Trump sneers at the global good, and his base is tired of America acting as the world’s policeman.  China, meanwhile, has a president who wants to harness the dream of national greatness as a way to justify the Communist Party’s total control. He sits at the apex of a system that saw engagement by America’s former president, Barack Obama, as something to exploit.  Future leaders may be more open to enlightened collaboration, but there is no guarantee....

“In China, America faces a vast rival that confidently aspires to be number one.  Business ties and profits, which used to cement the relationship, have become one more matter to fight over.   China and America desperately need to create rules to help manage the rapidly evolving era of superpower competition.  Just now, both see rules as things to break.”

Trump World

--The president ordered intelligence agencies to cooperate with an investigation into whether he was spied on during the 2016 election.

The probe, headed by Attorney General William Barr, is examining the origins of the Russia investigation.

On Thursday, Trump announced a directive that gives Barr sweeping new powers, including to declassify documents.

Barr has previously told Congress that he believes Trump’s presidential campaign was “spied” on and assigned a federal prosecutor to the case.

Democrats allege the attorney general mischaracterized the findings of the Mueller report, and he has been held in contempt of Congress for failing to provide them an unredacted version.

Trump tweeted:

“Today, at the request and recommendation of the Attorney General of the United States, President Donald J. Trump directed the intelligence community to quickly and fully cooperate with the Attorney General’s investigation into surveillance activities....

“....during the 2016 Presidential election.  The Attorney General has also been delegated full and complete authority to declassify information pertaining to this investigation, in accordance with the long-established standards for handling classified information....

“....Today’s action will help ensure that all Americans learn the truth about the events that occurred and the actions that were taken, during the last Presidential election and will restore confidence in our public institutions.”

--In a war of words between House Speaker Nancy Pelosi and Trump, the president defended himself as “extremely calm” a day earlier, when he stormed out of a meeting at the White House with Democrats, in what was to be a discussion on an infrastructure agenda; Trump again describing himself as an “extremely stable genius.”

Hours earlier, Speaker Pelosi said the episode made her concerned about the president’s well-being “and the well-being of the United States of America.”

Trump walked into the Cabinet Room and did not shake anyone’s hand or sit in his seat, according to some in attendance.  He said that he wanted to advance legislation on infrastructure, trade and other matters, but that Ms. Pelosi had said something “terrible” by accusing him of a cover-up hours earlier.

From there, the president headed to the Rose Garden, where a lectern had been set up with a sign that said “No Collusion, No Obstruction” and gave statistics intended to show that he had cooperated with the special counsel.

“Instead of walking in happily into a meeting, I walk in to look at people that have just said that I was doing a cover-up,” Trump said.  “I don’t do cover-ups.”

“I walked into the room and I told Senator Schumer, Speaker Pelosi: ‘I want to do infrastructure.  I want to do it more than you want to do it. I’d be really good at that, that’s what I do.  But you know what?  You can’t do it under these circumstances. So get these phony investigations over with,” he said.

At a press conference at the White House for farmer relief, Trump attempted to defend his temperament by asking several members of his staff to vouch for his calmness in the meeting with the Dems.  It was disturbing.

--Trump called himself “strongly Pro-Life” in several tweets late Saturday night while at the same time appearing to challenge key provisions of strict abortion laws recently passed in Republican controlled states.

“As most people know, and for those who would like to know, I am strongly Pro-Life, with the three exceptions – Rape, Incest and protecting the Life of the mother – the same position taken by Ronald Reagan.”

It was the first time the president publicly commented on the recent wave of abortion laws after making the issue of late-term abortion a key part of the State of the Union address.

While not specifically commenting on the Alabama law, Trump appeared to come out against the lack of exceptions that have caused some conservatives, such as televangelist Pat Robertson, to criticize the measure as going “too far.”

--Julian Assange has been indicted on 17 new counts of violating the Espionage Act for his role in publishing classified military and diplomatic documents in 2010, the Justice Department announced on Thursday – a case that raises profound First Amendment issues.

The secret documents that Assange published were provided by the former Army intelligence analyst Chelsea Manning, who was convicted at a court-martial trial in 2013 of leaking the records.

The crack down on leaks of classified information is aimed squarely at First Amendment protections for journalists.  This has yet to be tested in court because the government had never charged a journalist under the Espionage Act.

--The House, Senate and President Trump agreed to a $19.1 billion disaster aid bill, providing relief to the parts of the country that have been beset by devastating floods, wildfires and hurricanes, without funding for the border that Trump sought.

So a lone Texas Republican congressman, Chip Roy, has blocked it because it didn’t have emergency funding for the border.  And boy, he has ticked off a lot of people, especially those fellow representatives whose districts stand to benefit from the aid.  The House should finally get it through next week, despite the recess.

--Other Trump tweets:

“I don’t know why the Radical Left Democrats want Bob Mueller to testify when he just issued a 40 Million Dollar Report that states, loud & clear & for all to hear, No Collusion and No Obstruction (how do you Obstruct a NO crime? Dems are just looking for trouble and a Do-Over!”

“ ‘If they try to Impeach President Trump, who has done nothing wrong (No Collusion), they will end up getting him re-elected’ @LindseyGrahamSC Impeachment is for High Crimes and Misdemeanors. There were no High Crimes and Misdemeanors, except for those committed by the other side!”

“ ‘Intelligence Agencies were used against an American President.’ @DevinNunes @ShannonBream @FoxNews This should NEVER happen to a President again!  Dems are furious at Robert Mueller for his findings – NO COLLUSION, NO OBSTRUCTION.  Now they should go back to work and legislate!”

“So sad that Nancy Pelosi and Chuck Schumer will never be able to see or understand the great promise of our Country.  They can continue the Witch Hunt which has already cost $40M and been a tremendous waste of time and energy for everyone in America, or get back to work.”

“When is Twitter going to allow the very popular Conservative Voices that it has so viciously shut down, back into the OPEN?  IT IS TIME!”

“Wow! CNN Ratings are WAY DOWN, record lows.  People are getting tired of so many Fake Stories and Anti-Trump lies. Chris Cuomo was rewarded for lowest morning ratings with a prime time spot – which is failing badly and not helping the dumbest man on television, Don Lemon!”

“Rex Tillerson, a man who is ‘dumb as a rock’ and totally ill prepared and ill equipped to be Secretary of State, made up a story (he got fired) that I was out-prepared by Vladimir Putin at a meeting in Hamburg, Germany.  I don’t think Putin would agree.  Look how the U.S. is doing!”

[This comes from the president who loves to say he “hires the best people.”]

“Hard to believe that @FoxNews is wasting airtime on Mayor Pete, as Chris Wallace likes to call him.  Fox is moving more and more to the losing (wrong) side in covering the Dems.  They got dumped from the Democrats boring debates, and they just want in. They forgot the people....

“....who got them there.  Chris Wallace said, ‘I actually think, whether you like his opinions or not, that Mayor Pete has a lot of substance...fascinating biography.’  Gee, he never speaks well of me – I like Mike Wallace better...and Alfred E. Newman will never be President!”

“Without the ILLEGL Witch Hunt, my poll numbers, especially because of our historically ‘great’ economy, would be at 65%.  Too bad!  The greatest Hoax in American History.”

[Today, the president said that if the Fake News Media had reported the truth, his poll numbers would be “at least 70%.”]

Wall Street and the Trade War, part II

As alluded to above, this week the Trump administration put Chinese giant Huawei on a blacklist on grounds its telecommunications gear could be used for Chinese espionage. The order bars U.S. companies from supplying Huawei, although the administration later said it plans to grant temporary exemptions.

Delivering a speech in Shenzhen this week, the Chinese ambassador to Britain, Liu Xiaoming, said the U.S. was only using the trade dispute with China to disguise its intention of containing the country’s emergence as a new technological power.

“Therefore the U.S. would not be satisfied with driving Huawei out of the U.S. market, it also wants to force Huawei out from markets around the world,” he said.

“There is a growing view in the U.S. that China is becoming a formidable competitor in all areas such as geopolitics, international influences, resources, population and talent. This is also evident from the fact that the U.S. government has identified China as a strategic competitor in its National Defense Strategy report.”

But with the U.S. restrictions on Huawei, companies around the world began to comply, such as Japan’s Panasonic, and British chip designer ARM, as well as U.S. companies from Google, to Intel, Qualcomm, Xilinx and Broadcom...all of which said they were halting business with them.

The moves deeply hamstring the world’s largest provider of networking gear and No. 2 smartphone vendor.  Intel is the main supplier of server chips to the Chinese company, for example, while Qualcomm provides processors and modems for many of Huawei’s smartphones.  Broadcom is a supplier of switching chips, another key component in some types of networking machinery.

On Thursday, President Trump described Huawei as “very dangerous,” but then in the same breath said it could be included in some kind of trade deal with China, which is quizzical.

At the same time, China’s state-run Xinhua News Agency said today: “All of the Chinese people are ready to embark on a new ‘Long March’ journey with greater courage and resilience and will never yield to foreign bullying and assault.”  The U.S. “continues to attack Chinese companies not because they have done anything wrong, but because they are too outstanding for the United States to accept.”

Foreign Ministry spokesman Lu Kang said in Beijing that accusations Huawei is a risk to U.S. national security are “lies to try to mislead the American people.”

The U.S. is insisting China change its laws to ensure it complies with any trade accord, but Beijing has resisted that demand as a challenge to its sovereignty.

From Bloomberg:

“President Donald Trump’s trade war against China has so far focused on attacking imports. His new front: Weaponizing American exports.

“The Trump administration is seeking to choke off Beijing’s access to key technologies by limiting the sale of vital U.S. components to China’s Huawei Technologies Co.  The U.S. is considering putting at least five Chinese surveillance companies on the same blacklist.

“The moves are part of a bigger effort by the U.S. to expand and toughen the export control regime that for decades has curbed the sale of defense-related technologies to rogue regimes and strategic rivals.  It’s a process that has prompted fears from business that as Trump’s trade war grows into a broader technology-driven conflict with China the U.S. could end up damaging its own economic future....

“Administration hawks are pushing for broad definitions to restrict exports related to technologies such as artificial intelligence, robotics and 3D printing that they call essential to competitiveness.  The new regulations could also limit the ability of companies to hire foreign engineers and scientists to work in affected areas as the knowledge they gain is considered a sensitive ‘deemed’ export.”

Companies such as General Electric, Microsoft and Google are concerned that export controls could bar them from competing in lucrative markets while reducing America’s capacity to innovate.  Microsoft warned the policy risked isolating the U.S. from international research collaborations behind the development of many technologies.

G.E. cautioned, “Artificial intelligence is a very broad concept,” and defined too broadly could confuse efforts on medical imaging where algorithms are used to scan for diseases with toys like talking teddy bears, according to the company.

David Ignatius / Washington Post

“With the Huawei case, as with so many other Trump administration gambits, the puzzling question is whether President Trump is using tough tactics to make a deal – or whether he really means to put China’s most powerful telecommunications company on what’s informally known as the ‘kill list’ by denying it U.S. technology.

“U.S. financial markets have been fairly calm this week, and investors appear to be assuming that Trump is using the Huawei sanctions as a bargaining chip. They seem to be expecting that Trump will ease Huawei sanctions as part of an eventual overall trade deal with China, perhaps brokered at a summit meeting with President Xi Jinping in Osaka, Japan, next month.

“Several Wall Street contacts told me Wednesday that the markets took it as evidence of flexibility that on Monday the Trump administration granted a 90-day reprieve before Huawei is placed on the deadly ‘Entity List,’ which would block Google and other U.S. companies from selling technology to the Chinese telecom giant. Investors apparently see Trump as repeating his maneuver with ZTE Corp. last year, when he imposed harsh sanctions and then withdrew them, at Xi’s request.

“But analysts who carefully follow China warn that this scenario for an eventual megadeal may be overly optimistic.  They note several factors that could get in the way.

“ – Beijing has signaled through various channels this week that it won’t conduct further trade negotiations with Washington until Huawei issues are resolved...This would require Trump to retreat on Huawei before getting the trade deal he wants, something he may resist.

“ – Trump’s actions against Huawei have a detailed framework.  First came a broad executive order on May 15 declaring a ‘national emergency’ to impose controls on the import of products that threatened U.S. communications security. Then came a designation by the Commerce Department that U.S. companies selling technology to Huawei must obtain a special license because Huawei ‘is engaged in activities that are contrary to U.S. national security,’ according to Commerce. These actions will be hard to reverse.

“ – Trump’s decision to grant the 90-day reprieve may reflect U.S. desire to clean up details of the Entity-List process, rather than willingness to compromise.  Officials say the Commerce designation was imposed in haste, without detailed review or briefing of allies, partly because of Trump’s pique at China’s refusal to cut the expected deal on trade.  Trump wanted action quickly and selected the biggest guns in the U.S. trade arsenal.

“Trump’s anger toward Beijing was voiced by Robert E. Lighthizer, the chief U.S. trade negotiator, on May 6, on the eve of the breakdown of negotiations.  ‘We have seen an erosion in commitments by China... [a] retreating from specific commitments that had already been made,’ he told reporters.

“Since then, U.S.-Chinese trade relations have gone downhill fast, with the imposition of the executive order and the Commerce announcement that Huawei was on the entity list....

“What went wrong?  ‘Both sides miscalculated and overplayed their hand,’ (a trade expert argued).  He predicted: ‘Xi will not surrender to U.S. demands even if some of the asks are reasonable and in line with responsibilities of a great economic power which China has become.’”

Greg Ip / Wall Street Journal

“On China, the U.S. and its allies are of one mind: China, they say, discriminates against foreign products, companies and investment and pursues their intellectual property via commerce, coercion and espionage.  The European Union’s executive arm earlier this year labeled China an ‘economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance.’

“Yet the U.S. has regularly spurned opportunities to cooperate.  Mr. Trump pulled the U.S. out of the 12-nation Trans-Pacific Partnership, designed as a rules-based, free-market alternative to China’s state capitalism.  He used a U.S. law, Section 301 of the Trade Act of 1974, to hit China with tariffs over its trade barriers and is pursuing remedies that may come at others’ expense, for example forcing China to shift purchases of energy and agricultural products to American producers.  Should a deal emerge, it will be enforced bilaterally, bypassing the World Trade Organization.

“The U.S. treats Huawei as a national security concern, but in practice, links that risk to the company’s commercial reach given the close ties between Chinese companies and the state. The U.S. has deployed a broad range of domestic laws to punish the company, such as for violating sanctions on Iran. Washington has threatened to withhold intelligence from allies that don’t ban Huawei equipment from fifth-generation mobile networks.  Last week, the Trump administration barred U.S. companies from doing business with Huawei, though on Monday offered a 90-day reprieve.

“Other countries, drawing a sharper line between China’s commercial and security threat, have been less inclined to ostracize Huawei altogether....

“The administration doesn’t need its allies’ buy-in: It just needs to scare foreign companies that do business in the U.S. into observing its sanctions or risk devastating penalties....

“Nor would a more cooperative U.S. necessarily have achieved more.  All countries pursue their own interest no matter who’s in the White House.  Japan, South Korea and Canada are virtually bound by geography and history to follow the U.S. on strategic questions.  Conversely, Germany is forging ahead with a gas pipeline to Russia that both President Barack Obama and Mr. Trump oppose, while Italy’s populist coalition has both welcomed Huawei and China’s Belt and Road Initiative.

“Still, sanctions will be less effective with the U.S. acting alone....

“Instead of making U.S. allies more amenable to U.S. demands, tariffs have done the opposite. Canada and Mexico had ample incentive to appease the U.S. in a renegotiated North American Free Trade Agreement.  When the U.S. hit them with tariffs on steel and aluminum, both retaliated.  U.S. steel companies claim to be adding 12,800 jobs, but Gary Hufbauer and Euijin Jung of the Peterson Institute for International Economics say higher steel prices cost American steel consumers $11.5 billion – or $900,000 to protect one steel job.  Once those costs plus foreign retaliation are factored in, the tariffs have likely been a net negative, and provoked howls of protest at home and abroad.”

Editorial / Wall Street Journal

“China, Cuba, Russia, al Qaeda, Islamic State, the Toyota Motor Corp., North Korea, Hezbollah, the Islamic Revolutionary Guard Corps.  Which one of the above doesn’t belong on a list of national security threats to the United States?

“If you answered Toyota, you must not work for the Trump Administration, which declared last week that autos or auto parts pose a threat to U.S. national security unless they are ‘American-owned.’  Financial markets were relieved Friday when the White House proclamation offered a 180-day tariff reprieve during trade negotiations with Europe and Japan.  But the proclamation’s ‘American-owned’ language is a sour and illogical note that could lead to punishing tariffs or even controls on investment in the U.S....

“Never mind that Toyota, Honda, Volkswagen, Mercedes-Benz, Mazda, BMW, Subaru, Nissan, Kia, and Hyundai all make or assemble cars and parts in the United States.  The nearly 500 facilities are located in multiple American states and directly employ 130,000 Americans.  Volvo has a plant in South Carolina that may employ 4,000.  By the proclamation’s logic, the only car companies that matter to U.S. security are Ford, GM, Tesla and maybe not even Fiat Chrysler, since Italians are significant owners.

“And here we thought Mr. Trump wanted companies to build plants in America.  He certainly boasts about the investment his tax reform and deregulation policies are attracting, and he’s right.  But as Toyota put it Friday, ‘Today’s proclamation sends a message to Toyota that our investments are not welcomed, and the contributions from each of our employees across America are not valued.’

“Toyota has 10 manufacturing plants across eight states, including Alabama, California, Indiana, Kentucky, Mississippi, Missouri, Tennessee and West Virginia. For the political record, Mr. Trump won all those states in 2016 except for California. Do the Governors of those states care to comment on whether all of these jobs and wages are a security threat?”

Then there’s the U.S. Farm Belt, which has experienced the wettest year on record, stalling fieldwork, raising costs for the biggest agricultural companies, and slowing shipments across the region.

“It’s got to be the worst ever that we’ve seen,” said Jim Collins, head of Corteva Agriscience, the agricultural division of seed and pesticide maker DowDuPont Inc.  Corteva’s sales fell 11% for the most recent quarter it reported this month, partly because of Midwestern floods.

According to the National Oceanic and Atmospheric Administration, the past 12 months were the wettest May-to-April period in the contiguous U.S. since record-keeping began in 1895.  And since March, heavy snow and rain have brought record flooding to parts of the Midwest, from Illinois to Nebraska.

Millions of acres could go unplanted, reducing farmers’ need for seed, pesticides and fertilizer, which is hurting the ag businesses big time.

So President Trump rolled out his rescue plan for farmers yesterday.

Editorial / Wall Street Journal

“The Trump Administration said Thursday it will give $16 billion to farmers to offset their lost income due to the trade brawl with China. The subsidies may buy some political time to resume negotiations, but they also underscore the economic harm and political risk of President Trump’s trade showdown.

“America’s heartland is hurting as farm income has fallen due to low commodity prices, bad weather and flooding, and trade disruption, despite a buoyant national economy....

“The Bureau of Economic Analysis (BEA) reports that in 2018 Nebraska ranked 49th among the states in personal income growth per capita, Kansas was 46th, Missouri 33rd, and Iowa 25th.   The contribution to personal income from agriculture last year was negative in other farm export states like Arizona, New Mexico, Oklahoma, California, Michigan and Illinois, according to the BEA.  Wisconsin’s personal farm income gain was zero.

“This means the trade fight has cost U.S. farmers a bundle when they least can afford it.  In 2017 U.S. farmers sent 25% - some $140 billion – of production abroad.  More than 17% went to China.  But then the U.S. imposed tariffs against Chinese products, and Beijing retaliated with sizable tariffs on 90% of U.S. farm exports. American Farm Bureau Federation President Zippy Duvall says that ‘in 2018, U.S. agricultural exports to China declined $10 billion – about a 50 percent loss.’

“China was once the second largest export market for U.S. agriculture but it’s now fourth.  ‘This is a drastic reversal for what had been a growing market,’ wrote Mr. Duvall in a recent letter to the President.  ‘From 2000 through 2017, the value of our agricultural exports to China grew from 2 percent to 16 percent of total U.S. agricultural exports.’

“American soybean farmers sent about 60% of their exports to China in 2017. But their Brazilian competitors pay a 3% Chinese tariff while Americans now pay 28%.  In 2018 U.S. soybean exports to China fell 75%, and U.S. farmers had to cut prices to unload oversupply in other markets. The total value of soy exports fell $4.3 billion – a 20% decline.

“Or consider pork exports, 40% of which has traditionally gone to Mexico and China.  U.S. pork exports by volume to China dropped 58% in September 2018 from a year earlier and 80% since 2016.  Mexico’s 20% tariff on U.S. pork exports, in retaliation for Mr. Trump’s steel tariffs, cost the pork industry an estimated $1.5 billion in 2018.

“None of this comes as a surprise to Mr. Trump, who has been hearing complaints for months from his Farm Belt supporters. That’s why Mr. Trump is responding with the $16 billion in subsidies, most of which will be direct payments to farmers. These are in addition to the subsidies under traditional U.S. farm programs.

“So in order to make up for losses from trade, Mr. Trump is dunning other American taxpayers.  But as Bill Gordon, vice-president of the American Soybean  Association, recently told the South China Morning Post, farmers don’t want welfare.  ‘Here’s a handout to make you happy?  That doesn’t make us happy.  We want our markets back,’ Mr. Gordon said....

“Not long ago Mr. Trump said he wanted a China trade deal but lately he’s been suggesting he’d be as happy running for re-election in 2020 as the trade hawk who was willing to take on China.  We wonder how Iowans will feel about that if farm incomes continue to decline for another 18 months.”

---

The news on the economic front this week wasn’t great by any stretch.  April existing home sales fell 0.4% over March to 5.19 million annualized, worse than expected, with sales down 4.4% year-over-year, a 14th straight month of annualized declines.

April new-home sales fell 6.9% to 673,000 ann., the largest month-on-month decline since December.

And today, a reading on durable goods (big-ticket items) was down 2.1%, in line with estimates, the number unchanged when you strip out volatile transportation.

The Atlanta Fed’s GDPNow barometer for second quarter growth is at 1.3% at week’s end.

Regarding the Federal Reserve, according to the minutes from the Open Market Committee’s meeting earlier this month, members seem unlikely to raise interest rates this year, even if the economy is cranking.

“Members observed that a patient approach to determining future adjustments to the target range for the federal funds rate would likely remain appropriate for some time,” the minutes read.

Inflation has remained elusive, removing the need for the Fed to hike rates to keep the economy from overheating.

Some market watchers are still betting the Fed will cut rates before year end.  I’m on record as saying there will be one hike, and I’m sticking with that, despite all the trade tensions.  Granted, if the Fed did so, the president would blow a gasket, which could be quite humorous.

Separately, Fed Chairman Jerome Powell gave a speech this week at an investment conference and offered a word of caution on the level of corporate debt these days.

Debt has hit new highs due in part to “aggressive underwriting” using financial vehicles that sell different pieces of debt to different investors, often outside the banking sector, he said.

“Business debt has clearly reached a level that should give businesses and investors reason to pause and reflect,” he said.

Should the economy deteriorate, overly indebted companies will face significant strains, resulting in layoffs and cutbacks in investment.

Europe and Asia

IHS Markit released its flash readings on the state of the eurozone (EA19) economy, with the composite reading for May estimated at 51.6 vs. 51.5 in April (50 being the dividing line between growth and contraction).  Manufacturing for the euro area was just 47.7 (47.9 April), with services at 52.5 (52.8).

Germany’s manufacturing PMI was 44.3, services 55.0.

France’s manufacturing figure was 50.6, services 51.7.

Chris Williamson / IHS Markit

“The eurozone economy remained becalmed in the doldrums in May, adding to signs that only modest growth will be achieved in the second quarter.  At current levels the PMI is so far indicating GDP growth of only 0.2% in Q2.

“A renewed deterioration in optimism about the year ahead suggests that the business situation could deteriorate further in coming months.  Worries reflected concerns over lower economic growth forecasts, signs of weaker sales and rising geopolitical uncertainty, with escalating trade wars and auto sector woes commonly cited as specific causes for concern....

“While some encouragement can be gained from the manufacturing sector showing signs of its downturn having bottomed out in March, the concern is that the slowdown is spreading to the service sector, where new business growth has slipped to one of the weakest seen since 2014.

“Germany is on course for a 0.2% expansion of GDP in the second quarter while the survey for data for France points to a meager 0.1% gain.  However, the bigger concern is for the rest of the region, which collectively saw growth falter amid the first fall in orders for almost six years.”

In the UK, retail sales for the three months to April rose a better than expected 1.8% over the previous three months; 5.4% year-over-year, the best pace since December 2016.

So much for Brexit fears....but speaking of which....

Brexit: In a somber, and emotional, statement from 10 Downing Street this morning, Theresa May said she will quit as Conservative leader on June 7, paving the way for a contest to decide a new prime minister.

Mrs. May said it was a matter of “deep regret” that she had been unable to deliver Brexit.

She will continue to serve as prime minister while the party leadership contest takes place, but she will step down as Tory leader on June 7, as the Conservatives then begin to figure out who is best able to lead the party in the weeks after.

The prime minister faced a backlash from her MPs against her latest Brexit plan, which included concessions aimed at attracting cross-party support.

Andrea Leadsom had quit as Commons leader on Wednesday saying she no longer believed the plan would “deliver on the referendum result.”

Thursday, Mrs. May met with her home secretary and foreign secretary, who both expressed their concerns about the bill.

In her statement on Friday, the prime minister said that in order to deliver Brexit, her successor would have to build agreement in Parliament.

“Such a consensus can only be reached if those on all sides of the debate are willing to compromise,” she said.

Mrs. May said she had done “everything I can” to convince MPs to support the withdrawal deal she had negotiated with the European Union but it was now in the “best interests of the country for a new prime minister to lead that effort.”

May’s voice cracked as she ended her speech saying: “I will shortly leave the job that it has been the honor of my life to hold.

“The second female prime minister, but certainly not the last.

“I do so with no ill will, but with enormous and enduring gratitude to have had the opportunity to serve the country I love.”

Labour Leader Jeremy Corbyn said Mrs. May had been “right to resign” and that the Conservative Party was now “disintegrating,” Corbyn calling for a special election.

Nigel Farage, one of the leading faces of the Brexit campaign, said Prime Minister May had misjudged the mood of the country.

“It is difficult not to feel for Mrs. May, but politically she misjudged the mood of the country and her party,” he said in a statement.  “Two Tory leaders [Ed. the other David Cameron] have now gone whose instincts were pro-EU. Either the party learns that lesson or it dies.”

The European Union’s position on the terms of Britain’s exit from the bloc has not changed despite Theresa May’s resignation, a Commission spokesperson said today.

The fact is, in nearly three years since the June 2016 referendum to leave the EU, Prime Minister May failed badly, and then in the end, as part of her final proposal she offered a vote on a referendum – even though she expected MPs to reject another public vote – but this was over-reaching.

Some of those in her own party seeking to replace the prime minister withdrew their consent of the latest plan, which was the end for her.

But as Mrs. May sought to highlight her accomplishments over the past three years, she departs without securing withdrawal from the EU, and that’s her legacy.  She was a miserable, historic failure.

The problem is going forward, parliament is still deeply divided and there is no way, today, a new Conservative leader can succeed where May failed.

So it would seem we are inevitably headed to a new general election, a new referendum, or the UK crashing out of the EU come October 31.  Those are the only choices.

Next week, the leadership battle will begin, with Boris Johnson the current odds-on favorite.  Once the Conservatives have narrowed it down to two candidates, they are then put to a vote by all Conservative Party members, who number approximately 120,000.

It is presumed a new leader will be in place by end of July, leaving just three months before the revised Brexit deadline.

Meanwhile, President Trump is scheduled to arrive in Britain on June 3 for a very awkward state visit and to take part in events to commemorate the 75th anniversary of the D-Day landings.

Euro Elections:  There are minimal results from the European Parliament elections thus far, with voting in some countries tomorrow and Sunday, so I’ll hold off until next time.  Except to say it’s all about the EU-skeptic movements across Europe, such as Nigel Farage’s Brexit Party, which was way ahead in the pre-vote polling.

Matteo Salvini, head of Italy’s far-right League party, told an audience in Milan last weekend, “The extremists are in Brussels and have governed Europe for 20 years.  We want to construct a future without the bureaucrats who only look to the past.”

Marine Le Pen, leader of France’s far-right National Rally, said, “Now we have a chance to change Europe from inside out.”

But the pro-EU establishment is expected to keep a clear majority in the 751-seat European Parliament, but it seems certain it will become far more fragmented, with some projecting EU-skeptic parties will win up to a third of the seats.

Turning to Asia...some data for Japan this week, with first-quarter GDP coming in at a much-stronger than expected 2.1% annualized pace, according to preliminary data, with Q4 revised up to 1.6%.

But a flash reading on manufacturing for May came in at 49.6, vs. 50.2 in April.

Consumer prices in April rose 0.9% ann. on core (ex-food), and up 0.6% for core-core CPI (ex-food and energy), but this is still well below the Bank of Japan’s elusive 2% target, so no change in policy is expected.

Additionally, the above growth figure is not expected to hold going forward, plus Prime Minister Shinzo Abe has vowed to go through with his October sales-tax hike from 8% to 10%.

Separately, President Trump is making a quick trip to Tokyo this weekend for talks with Abe, trade the focus, though North Korea will also be on the agenda.

In South Korea, preliminary data on exports in May was putrid, down 11.7% from a year ago for the first 20 days of the month, speaking of trade tensions, particularly pertaining to South Korea’s critical tech sector.

Semiconductor exports – which rose almost 30 percent in 2018 and make up one-fifth of the country’s exports – were down 33 percent through May 20 compared with a year earlier, after being down 25% in April.

Street Bytes

--Stocks fell again, the fifth straight week for the Dow Jones, -0.7%, the longest losing streak since 2011, and third straight for the S&P 500 (-1.2%) and Nasdaq (-2.3%).  It’s all about trade and the potential impact on the U.S. growth story.

--U.S. Treasury Yields

6-mo. 2.38%  2-yr. 2.16%  10-yr. 2.32%  30-yr. 2.75%

--Oil prices extended their slide after data Wednesday showed stockpiles of U.S. crude unexpectedly rose to their highest level in nearly two years last week, with West Texas Intermediate tumbling to $59.06 by the close today.

Inventories rose by 4.7m barrels from the previous week when a drawdown had been expected.  That took overall U.S. crude stocks to 476.8m barrels – the highest level since July 2017, according to the Energy Information Administration.

Adding to the downbeat sentiment this week is the ongoing trade war and the impact on global growth and softening demand for oil from China.

This all comes as Libya’s civil war has escalated to the point where the oilfields there could soon be under siege.  Plus you have the tension over Iran.

Related to the inventory picture, Saudi Arabia’s energy minister said last weekend that he recommended driving oil inventories down and that global oil supplies were plentiful.

“Overall, the market is in a delicate situation,” Khalid al-Falih told reporters ahead of an OPEC ministerial confab.  The formal OPEC meeting is next month, when the countries have to reach a new agreement on production, or extend the current one that reduced output by 1.2 million barrels per day.

--The Federal Aviation Authority indicated that the Boeing 737 MAX might return to service later than airlines had hoped, with acting director Dan Elwell saying this week that if it took a year for the grounding order to be lifted “so be it.”

International aviation regulators met on Thursday to discuss the 737 MAX’s return to service.  Europe’s Aviation Safety Agency (EASA) has told the FAA and Boeing it has three “pre-requisite conditions,” including demands that design changes for the plane are approved by the European agency, before it will lift the grounding of the MAX.

Indonesia, site of the first accident last October when a Lion Air flight crashed into the sea, has told the FAA it was considering seeking a second assessment of the FAA’s review of Boeing’s software update; Indonesian authorities claiming Boeing was being “arrogant,” with the company still not sharing sufficient information about the plane.

But Ryanair CEO Michael O’Leary said earlier in the week that he expected the 737 MAX to receive approval by late June or early July, though Elwell, when asked by reporters whether it was realistic the MAX could be flying again by the summer, said:

“If you said October I wouldn’t even say that, only because we haven’t finished determining exactly what the training requirements will be.

“If it takes a year to find everything we need to give us the confidence to lift the [grounding] order so be it.”

He said discussions with Boeing over approving the safety update were “a constant give and take until it is exactly right.  It’s taking as long as it takes to be right.  I’m not tied to a timetable.”

The FAA has yet to decide whether or not to require pilots to undergo simulator training for the safety update.

Boeing has yet to formally submit the software fix to the MCAS system in dispute to the FAA.

All of the above aside, Reuters then reported today that the MAX could be flying again in June and BA’s shares rebounded.

But tonight, the Wall Street Journal is reporting, “A review of (the 737 MAX jets) has expanded to include emergency procedures used by pilots on earlier 737 models, further delaying the MAX’s return to service, according to government officials.

“The (FAA) hasn’t questioned the safety of older jets currently in service, these officials said, but the broadened review has become a significant factor in adding months to the time expected to get the grounded fleet of 737 MAX jets back in the air.”

--Tesla shares continued to plummet to multi-year lows amid analyst downgrades, slowing demand, missed production targets and concerns over the debt load.  At least that was the case early in the week.

Analysts had said Tesla would deliver less than 360,000 vehicles in 2019 versus guidance of 360,000 to 400,000, but those expectations have declined.

Tesla shares were also hit after its recent update for its Autopilot software to allow cars to automatically change lanes was criticized by Consumer Reports, which said “it doesn’t work very well” and may “create potential safety risks for drivers.”

Charley Grant / Wall Street Journal

“More alarming than the selloff itself is the absence of a clear catalyst. It was just this month that Tesla was able to raise a net $2.4 billion by selling shares and convertible debt.  That should have softened the blow of dismal first-quarter results.  In the past, fresh infusions of capital have tended to push Tesla stock higher.

“A change in that pattern portends bigger issues than disappointing the investors who just showed faith in the company.  After all, the infusion didn’t eliminate Tesla’s medium-term need for external funding. Those funds are earmarked for bondholders, banks, suppliers and the significant capital spending its business requires this year.

“As a cash-burning operation, Tesla will continue to depend on the generosity of the capital markets to pay bills and attract talent via stock options.  The easier it is to tap the market, the more ambitious it can be in setting its goals.  Amid talk of a ‘Spartan diet’ by CEO Elon Musk, its horizons are now shrinking.  Tesla has laid off employees, closed stores and cut prices this year.

“Even after the recent tumble, there is a lot more sizzle than steak to Tesla’s story.  Its shares stll sell for more than 30 times next year’s earnings estimate of $6.47 a share, according to FactSet. Toyota and General Motors fetch about 10 and 6 times, respectively – assuming, of course, that consensus earnings hold firm.  Analysts had penciled in more than $11 a share in 2020 at the start of this year.

“Ludicrous speed was fun while it lasted.”

*Despite its recent capital raise, Tesla is due to pay $165 million on a loan in June, and roughly $566 million in convertible bonds that mature in November.

Well Thursday, Tesla shares opened lower again, hitting $186 (after $181 in the pre-market), but then they rallied on a leaked internal email from Elon Musk to staff that the company was on course to deliver a record number of cars in the second quarter, beating the 90,700 it sent to customers in the final quarter of last year.

There are some questions on whether the email needed to be reviewed by the SEC, under an agreement it has with Musk after it sued him for fraud over his use of Twitter.  But because it was an internal email, experts believed it is likely outside the SEC settlement.  How convenient.  The shares hit $200 this morning, but closed the week at $190, down $20 since last Friday.

On a totally different topic, Elon Musk-led SpaceX had a rather spectacular Thursday night, launching 60 of its own small satellites, the first of thousands the company plans to put in orbit.

Musk said late Friday that all 60 flat-panel satellites were deployed and were online a few hundred miles above Earth.  Each satellite is 500 pounds.  The orbiting constellation – named Starlink – will grow.

Musk says 12 launches of 60 satellites each will provide high-speed internet coverage throughout the U.S.  Twenty-four launches will serve most of the populated world, and 30 launches the entire world.  That will be 1,800 satellites in total, with more planned after that.

After Thursday’s launch, Space Exploration Technologies Corp. disclosed having raised more than $1 billion in equity offerings during the last few months.

The company’s major projects are building a giant spaceship and rocket booster capable of carrying humans to Mars and building out the Starlink constellation.

The space-based internet service will be an important source of funding for the company, potentially far greater than the revenue generated from launching rockets for customers, according to Musk.

A lot of us like this story far more than Tesla.

--Home Depot reported weaker-than-expected same-store sales growth of 2.5% because of the rainy weather and a drop in lumber prices, sharply missing expectations for a 4.2% rise.

The company’s net earnings rose to $2.5bn in the first quarter of fiscal 2019, beating expectations.

“We were pleased with the underlying performance of the core business despite unfavorable weather in February and significant deflation in the lumber prices compared to a year ago,” said Craig Menear, CEO.

But HD has said its sales growth was set to slow as the slowing U.S. housing market was denting demand for the do-it-yourself market.

--Lowe’s Co. outpaced rival Home Depot in sales growth for the first time since 2016, but the retailer trimmed its profit expectations for the year and the shares plunged 12%.

Lowe’s said comp store sales rose 3.5% in the quarter ended May 3, picking up later in the period after February’s weather curbed demand.

Lowe’s now expects adjusted earnings between $5.45 and $5.65 a share, lower than its previous guidance of $6 to $6.10 a share, as it’s had problems dealing with cost increases by its own admission.

CEO Marvin Ellison said Lowe’s was looking to raise retail prices to help offset higher costs.

--Target Corp. said sales and profit rose at the start of the year, as improvements to its stores, merchandise and digital capabilities bore fruit, the shares rising 8% in response on Wednesday.

Target reported a strong 4.8% rise in comp store sales for the quarter ended May 4, with CEO Brian Cornell saying Target’s sales and traffic are growing more than the broader market, resulting in share gains.

Online sales rose 42% from a year earlier, accounting for nearly half of overall growth in comp sales, as CEO Cornell added, “We’re continuing to see the bifurcation of winners and losers in retail.”

Target, which is a significant importer from China, has expressed concerns over tariffs.  But Cornell told investors that the company is well-positioned to manage the higher costs.

The company has been investing heavily to compete with the likes of Amazon.com and Walmart, while it benefits from store closures by Toys ‘R’ Us and others.

Target’s first-quarter profit rose 11% from a year earlier to $795 million, with total sales climbing 5.1% to $17.4 billion.

The company said it expects a low-to-mid-single-digit percentage increase for comparable sales in the current quarter, and affirmed its comp-sales expectations and earnings for the full fiscal year.

--Kohl’s shares tumbled 12%, after the department store operator reported same-store sales that badly missed forecasts and slashed its full-year profit outlook.

Comp sales fell 3.4% during the quarter ending May 4, when the Street expected a 0.1% dip.

“The year has started off slower than we’d like, with our first-quarter sales coming in below our expectation,” said CEO Michelle Gass.  “We are actively addressing the opportunities that impacted our first-quarter sales and we have strong initiatives that will enhance our sales performance in the second half.”

Kohl’s imports about a fifth of its goods from China, which is part of the equation in the company lowering its forecast for adjusted earnings in the current year to $5.15 to $5.45 per share, down from prior guidance of $5.80 to $6.15.

--Nordstrom reported a 3.5% decline in comp sales, while guiding lower. The shares had their worst day Thursday in eight years.   But the company said it was expanding its presence in New York City.

TJX, the parent of T.J. Maxx and Marshalls, said its comp-store sales rose 5% in the latest quarter.

J.C. Penney said its comp sales fell 5.5%, with the company hurt by its decision in February to stop selling major appliances, and sell furniture only on its website.

--Best Buy Co.’s shares fell 5% after the appliances and electronics retailer reported total overall sales were flat, while comp sales rose 1.1% in the first quarter to May 4, slower than previous periods but nonetheless the ninth consecutive quarter of growth.  Profit was up at $265 million vs. $208 million a year ago.

Online sales accounted for 15% of overall sales, up 14.5% to $1.31 billion.

CEO Hubert Joly reassured investors about Best Buy’s ability to mitigate the impact of the tariffs and said the company was going to press the Trump administration to limit the inclusion of consumer products on the next list of tariffs on Chinese imports.

Joly, who engineered a tremendous turnaround for Best Buy when he took control in 2012, is now turning the reins over to CFO Corie Barry, who at 44 will be one of the youngest CEOs of an S&P 500 company, let alone one of the few women.

--Dressbarn is closing up shop – 650 stores, 6,800 employees.  CEO Steven Taylor said, “This decision was difficult, but necessary, as the Dressbarn chain has not been operating at an acceptable level of profitability in today’s retail environment.”

Dressbarn was under the Ascena Retail Group’s umbrella, Ascena saying it would focus on its more profitable brands, which include Ann Taylor and Lane Bryant.  Critics say Ascena never invested a dime in Dressbarn, the chain losing out to the likes of Target.

Overall, already in 2019, there have been more than 7,000 store closings announced in the U.S.

--A federal judge in San Jose, Calif., ruled Qualcomm abused its position as a giant of the semiconductor industry to harm competition and overcharge cellphone makers, striking at the heart of the company’s business and sending shock waves through the smartphone industry.

“Qualcomm’s licensing practices have strangled competition” in the market for wireless modem chips for years, Judge Koh wrote as part of her ruling, parts of which were redacted to protect trade secrets.

Qualcomm has been on a rollercoaster the past month or so.  The shares rose from $59 to $89, following a highly-favorable settlement of its multi-year dispute with Apple, but now the stock has slid back to $67 after Judge Koh’s ruling.

Qualcomm requires phone makers to pay patent royalties based on the price of each handset whether or not the companies use its chips.  Unlike other semiconductor makers, Qualcomm makes most of its profit from patent fees rather than from its products.

But Judge Koh ordered Qualcomm to renegotiate all of its existing patent-licensing deals.

--T-Mobile U.S. Inc.’s $26 billion acquisition of rival Sprint Corp won the support of the head of the Federal Communications Commission on Monday, in a big step toward the deal’s approval.  FCC Chairman Ajit Pai, a Republican, came out in favor of the combination after the companies offered concessions, such as in agreeing to invest in new wireless home broadband service, especially in rural areas..  Sprint shares surged 23% on the news, while T-Mobile’s rose 5%.

Pai said the commitments made by the two companies would substantially advance two of the FCC’s key objectives: “closing the digital divide in rural America and advancing United States leadership in 5G.”

Pai’s position is a departure from the stance taken by past FCC leaders who didn’t want to see the U.S. wireless market with fewer than four nationwide operators.  The commission, for example, joined the Justice Department in 2011 by opposing AT&T’s plan to buy T-Mobile.

And DOJ’s antitrust division seemed to indicate its disapproval, their clearance needed to get the deal done.  Democrats, including in the FCC and the Senate, predict prices for cell phone service would rise as a result, but the fact is, no way Sprint survives without the merger and how is that good for anyone?

Note to consumers...prices are going up, regardless, as 5G becomes the norm.

Further meetings with the Justice Department and state officials are in the cards.

T-Mobile has about 80 million customers and Sprint around 55 million.                              

--Ford Motor Co. said on Monday it will eliminate about 10% of its global salaried workforce, cutting about 7,000 jobs by the end of August as part of a larger restructuring in a move that will save the No. 2 automaker $600 million annually.

CEO Jim Hackett told employees that the cuts include both voluntary buyouts and layoffs, while open positions are being frozen.  About 2,300 will be impacted in the U.S.

Hackett said in an email to employees: “To succeed in our competitive industry, and position Ford to win in a fast-changing future, we must reduce bureaucracy, empower managers, speed decision making, focus on the most valuable work and cut costs.”

Ford has been restructuring its operations globally to improve profitability and speed product development, announcing previous cuts in Europe, South America and Russia.

Ford also signed a deal with Volkswagen AG to join forces on commercial vans and pickup trucks.  And the two are negotiating a broader alliance for electric and self-driving vehicle development.

--Southwest Airlines Co.’s mechanics union said it had voted to ratify a tentative contract agreement with the company, ending seven years of labor negotiations.

--The aforementioned Ryanair reported a 29% decline in its full year profit to March 31, on the back of declining fares and higher fuel and staff costs.

Profit for the period was $1.13 billion on revenue of $8.39bn for the 12 months, the latter up 6%.

Ancillary sales, from non-ticket items such as baggage fees and sales of on board food and drinks, key to Ryanair’s business model, performed strongly, up 19% to $2.66bn.

--My former employer, PIMCO, is facing a lot of heat these days, as both staff – and clients – have learned that the central figure in the college admissions scam, “Rick” Singer, gave presentations onsite to employees at one of the world’s biggest bond managers.

As reported by the Wall Street Journal, there has been rising anxiety at headquarters in Newport Beach about whether more employees other than former CEO Douglas Hodge will be ensnared.

Hodge, according to the FBI, paid Singer hundreds of thousands of dollars to help his children get into college.  Last month he pleaded not guilty to money-laundering and conspiracy to commit fraud.

Singer has pleaded guilty to four counts, including racketeering and money-laundering and is awaiting sentencing.

But Hodge wasn’t the only PIMCO executive who hired Singer.  Previously unreported, William Powers also recommended him.

Clients, understandably, are asking what the impact would be if other employees are swept up in the case, though none have pulled their money out as yet.

Powers, who retired in 2010, said Singer had helped his daughters with college admissions, “before he went to the dark side.”  What I remember of the man, he is far too smart to have done anything stupid.

But Hodge?  Well, he allowed Singer to pitch his son to USC as a football recruit.  The boy was admitted to USC and never played for the team.

--Famed hedge-fund manager David Tepper announced he plans to turn Appaloosa LP into a family office managing his personal wealth as he spends more time focused on running his football team, the Carolina Panthers.

Appaloosa has $13 billion in assets, with Tepper’s money making up 70% of it.

Tepper has returned money to investors over the years in an attempt to manage the size of the funds he runs and their returns, but the process to return it all could take a year or two.

Tepper is heavily involved in philanthropic causes such as education and food banks.  His outside investors have done exceedingly well vs. the market averages.

In 2016, he moved his offices from a location a minute from yours truly to Florida, much to the consternation of New Jersey lawmakers concerned with the impact on the state’s revenues.

--HBO’s highly anticipated “Game of  Thrones” finale on Sunday was the most watched program in the cable network’s history, with 19.3 million viewers across all platforms, surpassing the previous episode’s 18.4 million on May 12.

The “GoT” finale was higher than the 18 million who tuned in for the final episode of television’s most watched comedy, “The Big Bang Theory,” which aired Thursday on CBS, though that figure is expected to rise when delayed viewing is added in.

But while these two audiences are big by today’s standards, the finale of “Friends” in 2004 was watched by 52.5 million.  NBC’s “Seinfeld” drew 76 million in its 1998 finale.

And the biggest ever final episode was for “MASH,” viewed by 106 million on CBS in 1983.

--The New York Post is reporting there is turmoil inside the “Tonight Show” amid an executive shakeup and plunging ratings.  Jimmy Fallon’s show has been steadily falling behind Stephen Colbert’s “Late Show” and on Wednesday it was revealed that Colbert has topped Fallon for a full season for the first time.  Insiders say NBC kingpin Lorne Michaels, who championed Fallon’s rise from “SNL” to “Late Night” and then “Tonight,” is stuck in the past and that Fallon has to reinvent himself to compete.

Personally, I can’t watch the “Tonight Show” anymore because there is no real opening monologue.  Some of us of a certain age were spoiled with Johnny Carson, and Jay Leno.  Growing up, I learned about the world through Carson, my parents allowing me to stay up to midnight to watch him.

Foreign Affairs

Iran: Sunday, President Trump tweeted: “If Iran wants to fight, that will be the official end of Iran.  Never threaten the United States again!”

Monday, Trump told reporters: “I think Iran would be making a very big mistake if they did anything. If they do something, it will be met with great force but we have no indication that they will.”

Iranian Foreign Minister Mohammad Javad Zarif replied on his Twitter account: “Try respect – it works!”

And, Mr. Trump “hopes to achieve what Alexander [the Great], Genghis [Khan] & other aggressors failed to do.  Iranians have stood tall for millennia while aggressors all gone.  #EconomicTerrorism & genocidal taunts won’t ‘end Iran,’” Zarif added.

Thursday, a senior commander of Iran’s Revolutionary Guards called the stand-off between Iran and the United States a “clash of wills,” suggesting any enemy “adventurism” would meet a crushing response, as reported by Fars news agency.

Iran’s armed forces chief of staff Major General Mohammad Baqeri said, “The confrontation and face-off of the Islamic Republic of Iran and the malicious government of America is the arena for a clash of wills,” pointing to a battle during the 1980-88 Iran-Iraq war where Iran was victorious and said the outcome could be a message that Iran will have a “hard, crushing and obliterating response” for any enemy “adventurism.”

Iran also said it would not hold talks with the U.S. “under any circumstances” while the rights of the Islamic Republic are not respected, according to a spokesman for the Supreme National Security Council.

Keyvan Khosravi said there had been an uptick in official delegations traveling to Tehran from various capitals, although “most of them are coming on behalf of America.”

Iran has quadrupled its production of low-grade uranium enrichment amid increased tensions, but officials have stressed the uranium would be enriched to the 3.67 percent limit set by the 2015 nuclear deal, making it suitable for civilian nuclear power generation but well below the 90 percent purity required to make atomic bombs.  That said, by increasing production, Iran will soon exceed the stockpile limit of 300kg, above which it is supposed to ship the excess out of the country.

The Trump administration is planning to send several thousand additional troops to the Middle East, while rushing billions of dollars in arms to allies in the region, as reported by multiple news outlets Thursday and Friday.  Today, the president announced an initial deployment of 1,500. 

Trump had said earlier he didn’t believe the extra troops were needed.

The U.S. currently has more than 20,000 military personnel in Iraq, Afghanistan and Syria, along with thousands more as part of a recent deployment of an aircraft carrier and support ships and bombers to the Gulf region.

The administration is expected to declare an emergency under U.S. arms-control laws amid the increased tensions, which would allow it to sidestep normal congressional review and rush billions in weapons to key Middle East allies, especially Saudi Arabia and the UAE.

This is all part of the decision to designate the Islamic Revolutionary Guard Corps, or IRGC, as a foreign terrorist organization.

Syria: The State Department is investigating a suspected chlorine gas attack on Sunday by the Syrian government in northwest Syria.  State Department spokeswoman Morgan Ortagus said that the United States “continues to see signs” that Syrian President Bashar al Assad’s government “may be renewing its use of chemical weapons, including an allege chlorine attack in northwest Syria.”

The acting U.S. representative to the United Nations, Jonathan Cohen, said on Friday that “any use of chemical weapons, including chlorine gas, will be met by a strong, swift response.”

On a different topic, one I’ve discussed for months....

David Ignatius / Washington Post

“For sheer hypocrisy, it’s hard to match the European nations that are refusing responsibility for dozens of their nationals who became jihadist ‘foreign fighters’ over the past five years and are now warehoused in makeshift prisons in northeastern Syria.

“U.S. officials say about 2,000 foreign fighters from more than 50 countries are among the roughly 10,000 captured Islamic State fighters held in several dozen ramshackle prisons in Syria.  The detention facilities are run by the Syrian Democratic Forces, or SDF, the Kurdish militia that partnered with a U.S.-led coalition to defeat the Islamic State. The other 8,000 captives are either Syrian or Iraqi fighters.

“The Pentagon and State Department have implored European nations to repatriate their nationals for trial and imprisonment, or at least pay the SDF to hold them temporarily. But so far, most European nations have refused. The SDF warns that it can’t imprison them indefinitely and doesn’t have laws that would allow formal prosecution in the Kurdish-controlled zone.

“ ‘If these prisoners are not going to be taken, what is the endgame?’ complained one frustrated Pentagon official during an interview: ‘What comes next?  People haven’t thought about it.’

“The Europeans protest that they don’t have adequate laws to try their nationals who committed terrorist offenses on foreign soil, and that they don’t have evidence that would stand up in court. They worry, too, that Islamist extremists in European prisons would radicalize other Muslim prisoners and then be released back into society in a few years, perhaps to commit new terrorist acts.

“It’s a political problem for Europe, too, explained one European who has talked extensively with officials there about the repatriation issue.  ‘The European Union is in denial,’ he told me.  ‘The security and interior ministers don’t want to hear about it.  The Europeans feel that a government that takes them back has no chance for reelection.’

“The problem isn’t just the foreign fighters in the prisons but also their wives and children living in camps. Experts estimate that of the 74,000 people at a huge camp known as al-Hol, about 11,000 may be related to fighters who aren’t Syrian or Iraqi.

“The European desire for self-protection was epitomized by Ben Wallace, Britain’s security minister, who told the Guardian: ‘I’m not putting at risk British people’s lives to go looking for terrorists or former terrorists in a failed state.’

“The International Committee of the Red Cross, which visits prison and civilian camps in northeastern Syria, said in a statement: ‘Countries of origin cannot turn their backs.  People – especially children – cannot be made stateless.  Faced with this complex problem, moral inertia is not an option.’

“What peeves some U.S. officials is that the European nations shunning responsibility for Islamic State prisoners have for years been lecturing the United States about its immoral treatment of prisoners at Guantanamo Bay in Cuba.  Facing a post-conflict dilemma now that’s similar to what the United States encountered with al-Qaeda, the Europeans are ducking the problem....

“President Trump tweeted about the problem on April 30, as the last holdouts of the Islamic State were being routed and sent to the overcrowded, underfunded SDF prisons: ‘European countries are not helping at all, even though this was very much done for their benefit.   They are refusing to take back prisoners from their specific countries.  Not good!’  For once, Trump was right....

“The SDF, which has limited resources and faces a Turkish threat of attack, has kept holding the prisoners but has warned it can’t do so indefinitely....

“European nations talk of some sort of international tribunal for the jihadist prisoners, but there has been no significant movement to make that happen.

“Defeating the Islamic State was a worthy goal.  Ignoring the prisoners who were captured in that war, and leaving the problem to others, is reprehensible.”

Meanwhile, the crisis in the province of Idlib continues.  The area, in the north near the Turkish border, is home to some 3 million people and remains under the control of rebel groups, which President Assad and his Russian allies continue to attack.  According to the United Nations, at least 150,000 have fled north.

Another humanitarian crisis looms...another refugee crisis in Europe, potentially, with tens of thousands of civilians in Idlib already refugees from other parts of Syria.

But the Trump administration has said little, despite assurances from Syria and Russia that Idlib would not be attacked. 

Libya: Eastern commander Khalifa Haftar told French President Emmanuel Macron that conditions for a ceasefire were not in place.  Macron and French officials have for several weeks called for an unconditional ceasefire in the battle for Tripoli after Haftar last month launched an offensive on the Libyan capital.

Macron and Haftar met in Paris and a presidential spokesman said after, “When the question of the ceasefire was put on the table, Haftar’s reaction to this was to ask ‘negotiate with whom for a ceasefire today?’”

Haftar says the GNA (the UN-backed Government of National Unity led by Prime Minister Fayez al-Serraj) is “completely infested by militias and it is not for him to negotiate with representatives of these militias,” according to Macron’s spokesman.

Israel: Evan Gottesman / Haaretz

“ ‘Israel is on the side of God.’  At least, according to U.S. ambassador to Israel David Friedman, who stated as much last week at a function commemorating the first anniversary of the U.S. embassy relocation to Jerusalem.

“That may be Friedman’s sincerely held personal belief, but it was off-base for a U.S. diplomat to say in a public venue, even about an American strategic partner like Israel.  His comment was a stark reminder that the Trump administration has chosen a side too, shedding any pretense of America as an honest broker in the Israeli-Palestinian conflict.

“In this context, a report circulated last weekend on Israel’s Channel 12 from last weekend that the United States would implicitly greenlight Israel’s unilateral annexation of West Bank settlements should be unsurprising. Yet despite all of this, the Trump team is still gearing up to release their perennially-delayed Israeli-Palestinian peace plan next month.

“And the White House’s transparent and excessive one-sidedness begs an important question: when and if the American proposal is released, will it matter?

“After all, it seems obvious that the ‘ultimate deal’ will be dead on arrival.  Over the past two years, the United States has slashed all forms of aid to the Palestinians, including for humanitarian programs not directly tied to the Palestinian Authority, such as USAID programs and funding for East Jerusalem hospitals outside the PA’s purview.  The U.S. also recognized Jerusalem as Israel’s capital and relocated its embassy operations there.

“The president and his advisers once pedaled the idea that Israel would eventually have to pay for these benefits with concessions of its own. But they were always freebies, a fact that is painfully clear today.  The PLO, for its part, cut off contacts with Washington relatively early in the process....

“The administration’s past policies long ago laid bare its intention for Israel and the Palestinians.  All of the land between the Mediterranean and the Jordan, save Gaza, will remain under varying degrees of de facto Israeli control.  The Palestinians will be expected to trade statehood and political independence for a nondescript package of economic improvements (to be coordinated by the same administration that cut off their aid).

“Jared Kushner cast aside any remaining doubts about the United States position a few weeks ago when he publicly disavowed the two-state model.  All that remains to be seen is how exactly this will all be worded in the context of a peace plan....

“Since President Trump took office, the White House has hardly been opaque about its approach to Israel and the Palestinians.  Still, even if the plan for the ‘ultimate deal’ is woefully one-sided (and all indications are that it will be), it is still bound to have a major impact.  But the question isn’t one of the proposal’s substance, or lack thereof – it’s how the parties will react.

“It may be difficult to imagine Israeli-Palestinian relations deteriorating beyond the current low ebb.  Yet the fallout from a prospective Trump plan could actually make a sustainable resolution to the conflict look even more distant than it already does.”

China: Editorial / Washington Post

“China is carrying out genocide of a people’s identity.

“The victims are more than 1 million Turkic Muslim Uighurs in Xinjian province in China’s northwest, who have been herded into barbed-wire centers for assimilation into Han Chinese thinking and way of life. While Beijing claims the camps are vocational schools, eyewitnesses relate a story of coerced indoctrination and mass ethnic cleansing.  People are not being killed as they were under the Nazis, but their way of life and their heritage are being eradicated against their will. These people are being stamped into conformity and obedience to the ruling Communist Party.

“The existence of the camps has been confirmed by satellite photography, and outside investigators have shown that China is using Xinjiang as a laboratory for intrusive surveillance of the Uighurs, from video cameras to genetic fingerprints, creating massive databases that can be used to target the population.

“Caught up in the trade dispute with China, the Trump administration’s response has been late, and negligent. The administration is still debating whether to impose sanctions on companies and people involved in the Uighur repression.  Officials should stop talking and start acting.”

There is a bipartisan effort in the Senate unfolding to address the situation, and senators from both parties also reintroduced legislation on Thursday committing the government to punish Chinese individuals and entities involved in what they call Beijing’s “illegal and dangerous” activities in the South and East China seas.

If it becomes law, the “South China Sea and East China Sea Sanctions Act” would require the government to seize U.S.-based financial assets and revoke or deny U.S. visas of anyone engaged in “actions or policies that threaten the peace, security or stability” of areas in the South China Sea that are contested by one or more members of the Association of Southeast Asian Nations (Asean).

The U.S. sent another destroyer within 12 nautical miles of the disputed Scarborough Shoal on Sunday, the second “freedom of navigation operation” in the region, which upsets China to no end.

And Wednesday, the U.S. sent two Navy ships through the Taiwan Strait, as the island is yet another flashpoint in the rapidly increasing tensions between Washington and Beijing.

Chinese Foreign Ministry spokesman Lu Kang said Beijing lodged “stern representations” with the U.S.

“The Taiwan issue is the most sensitive in China-U.S. relations,” he told a daily news briefing in Beijing.

Lastly, as China looks for ways to retaliate against the United States in the trade war, one potential target looms large, rare earth metals.

The minerals are vital to the production of components that power electric vehicles, anchor the audio and camera systems of Apple’s iPhones and help the U.S. military’s guided missiles reach their targets.

The elements are predominantly mined and refined in China, so as tensions have escalated, some are questioning whether at some point Beijing will use the “nuclear option,” as a check on President Trump’s efforts to place tariffs on nearly all goods exported from China.

President Xi Jinping and his top trade negotiator, Vice Premier Liu He, were photographed at a rare earth mining and processing plant in China’s eastern Jiangxi province this week.

Would they dare ban the export of rare earths to the U.S. directly?  That’s the nuclear option.  More likely, China could restrict exports.

Russia: For the second time in two days, U.S. F-22 stealth jets intercepted Russian bombers and fighter jets off the coast of Alaska, according to the North American Aerospace Defense Command.  The Russian Tu-95 bombers had entered the Alaskan Air Defense Identification Zone, per NORAD, a zone extending approximately 200 miles off Alaska’s western coast.    The second time, the bombers were accompanied by Su-35 fighter jets and subsequently intercepted by U.S. aircraft.

NORAD did say that the Russian aircraft did not actually enter U.S. or Canadian sovereign airspace.

The Russian flights are seen as training missions for its military for a potential crisis.

India: Prime Minister Narendra Modi swept to a huge election victory on Thursday, and while it will take weeks to receive official, final results, all indications are from exit polls and India’s Election Commission that Modi’s Hindu-nationalist Bharatiya Janata Party (BJP) was on target for about 303 of the 542 seats available, up from the 282 it won in 2014 and more than the 272 seats needed for a majority in the lower house of parliament.  With its coalition partners, Modi will control about 350 seats.

The opposition Congress party, which has ruled India most of the years since independence, will have about 52 seats, last I saw.

Ukraine: The speaker of Ukraine’s parliament condemned President Volodymyr Zelensky’s decree to dissolve the legislature and hold snap elections as unconstitutional.

Zelensky signed a decree the day after he was inaugurated this week to immediately disband parliament and hold elections on July 21.

The president has claimed he has the authority to do so because parliament has lacked a ruling coalition since 2016, Zelensky seeking to capitalize on the momentum of his presidential win.

Separately, in his inaugural address, Zelensky vowed to end the five-year conflict with Russia-backed separatists, pledging to win back territories seized.

“We didn’t start this war, but it’s up to us to finish it,” he said on Monday.

For his part, Russian President Putin has said he will only congratulate Zelensky if the new leader makes progress in normalizing relations with Russia, according to spokesman Dmitry Peskov.  Peskov also reiterated Moscow’s position that Crimea is Russian territory while the conflict in the Donbas region is an internal issue for Ukraine.

Austria: Chancellor Sebastian Kurz disbanded his coalition with the Freedom Party (FPO) last weekend after its leader, Heinz-Christian Strache, was caught on video offering to fix government contracts for a woman posing as a Russian oligarch’s niece.

The apparent sting operation followed a series of lesser scandals that strained the governing coalition.  Most were related to anti-Semitism or racism involving the FPO, a party formed in 1956 and first led by a former officer in the SS, the armed wing of the Nazi party, the FPO struggling for years to clean up its image.

So Kurz was forced to distance himself from the far right and while the FPO’s support fell, thus far Kurz’ has held firm as he called for a snap election.

Because of Austria’s political system, an absolute majority is rare for one party, and it was in December 2017 that Kurz made Austria one of the few European countries to have the far right in government when he brought in the FPO.

The crisis came at a critical time for the European Union and the above-noted EU Parliamentary elections, as across the Continent, far-right, populist leaders were campaigning to increase their share in the chamber.

Many of Europe’s populists share Vladimir Putin’s vision to widen political divisions and weaken Western institutions.

The Freedom Party has longstanding ties with Russia.

As for Heinz-Christian Strache, who stepped down after the release of the video, he played down his comments as “typical alcohol-fueled macho behavior” as he tried to impress the “attractive hostess.”

Venezuela: A worsening fuel shortage has forced the military to oversee rationing of gasoline at service stations in several parts of the country.  At some stations, angry residents said they had been waiting days for fuel.

Australia: Prime Minister Scott Morrison vowed to get straight back to work after a shock general election victory, which has delivered Australia three more years of conservative government.

The center-left Labour Party was rated an overwhelming favorite by pollsters and with odds-makers to topple the Liberal-National coalition government after its six years in power.

But, instead, Morrison, who became prime minister in August amid a contentious internal party squabble that resulted in Malcolm Turnbull being dumped as leader, swept the coalition to victory.

“I’ve always believed in miracles,” Morrison told party supporters.

Random Musings

--Presidential tracking polls....

Gallup: 42% approval of President Trump’s performance, 52% disapproval; 90% Republicans, 33% Independents (May 15).
Rasmussen:  46% approval, 52% disapproval (May 24).

In a new national Quinnipiac University Poll released Tuesday, President Trump received a 38% approval rating, 57% disapproval, compared to a 41-55 ratio in a May 2 survey.

But 71% rate the economy “excellent” or “good,” the highest total number for American voter attitudes on the economy in almost 18 years.

Voters say 48-40 the president’s trade policies are bad for the economy.

Among Democrats or those leaning Democratic, Joe Biden is the top pick nationally with 35%, with Bernie Sanders at 16% and Elizabeth Warren 13%.  Kamala Harris is at 8%, while Pete Buttigieg is at 5% (a comedown from 10% in an April 30 Quinnipiac poll).

Among the Democratic candidates, Biden is the only contender with a positive favorability rating, 49-39.  The others are all mixed.

41-48 for Sanders; 32-41 for Warren; 27-30 Harris.

Buttigieg is at 23-19, favorable, but he is still largely an unknown.

Interestingly, New York City Mayor Bill de Blasio has an 8 percent favorability rating, 45 percent unfavorable.  Yup, 8-45.

In a Monmouth University Poll, Trump receives a 40% approval rating, 52% disapproval, similar to a 40-54 standing in April.  [37% say Trump should be reelected, 60% say it is time for someone new in the Oval Office.]

Just 39% say Trump should be impeached, while 56% disagree with this course of action.  [Support for his impeachment in the Monmouth Poll has ranged from 36% to 42% since July 2017.]

What’s disturbing about this survey is that despite the fact Robert Mueller’s report was unambiguous about Russian interference in the 2016 election, only 44% of the public says that Russia definitely tried to interfere. 

This survey, though, focused on the Mueller report, with two-thirds of Americans (67%) saying Don McGahn should appear before Congress to testify.  20% say he should not appear.  [Republicans are split...41% say he should, 38% say he should not.]

Nearly 3-in-4 (73%) of Americans say Robert Mueller should testify before Congress.

A separate Monmouth poll on the Democratic race had Joe Biden receiving the support of 33% of Democrats and Democratic-leaning voters, up from 27% in April.  Sanders is at 15%, a decline from 25% in March and 20% in April. Kamala Harris received 11%, Elizabeth Warren 10%, and Mayor Pete 6%.

--A new CBS News poll finds that two-thirds of Americans want Roe v. Wade left in place, 67%, while 28% believe it should be overturned.

Republicans are 45% (keep as is), 48% (overturn it).

Democrats are 87% (keep as is), 11% (overturn it).

65% of men say keep it as is, 69% of women believe the same.

On the same topic, a Quinnipiac poll has American voters agreeing 65% to 27% with Roe v. Wade.  Republicans disagree 58-34.

Voters by an 82-13 margin say abortion should be legal when pregnancy is caused by rape or incest. Republicans agree 68-25.

Americans oppose 48-41 banning abortion after a fetal heartbeat is detectable.               

--Michigan GOP Rep. Justin Amash said Saturday he had concluded Donald Trump committed “impeachable conduct” and accused Attorney General William Barr of intentionally misleading the public.

Amash’s comments recommending Congress pursue obstruction of justice charges against Trump were the first instance of a sitting Republican in Congress calling for Trump’s impeachment.

The thing is Amash – a libertarian conservative elected during the Tea Party wave of 2010 – was a founding member of the House Freedom Caucus, a key bloc of Republicans who worked to shift the GOP caucus to the right on many issues, but he has found himself breaking with his conservative allies who have embraced the President.

Those in Amash’s district, from what I’ve read and seen, are not happy with his comments, leaving some to wonder if he is beginning to set himself up for being on the top of the Libertarian ticket in 2020.

President Trump tweeted:

“Never a fan of @justinamash, a total lightweight who opposes me and some of our great Republican ideas and policies just for the sake of getting his name out there through controversy.  If he actually read the biased Mueller Report, ‘composed’ by 18 Angry Dems who hated Trump,....

“....he would see that it was nevertheless strong on NO COLLUSION and, ultimately, NO OBSTRUCTION...Justin is a loser who sadly plays right into our opponents’ hands!”

--Bret Stephens / New York Times

“Earlier this month, a video of Joe Biden saying he had ‘no empathy’ for ‘the younger generation’ that ‘tells me how tough things are’ resurfaced on social media.  The video was over a year old, but it elicited predictable howls from members of the dissed demographic.  ‘Nothing says ‘perfect candidate to lead the most powerful nation in the world’ like ‘I have no empathy,’’ wrote someone with the Twitter handle @anarchopriapism.

“My own reactionary reaction was different.  O.K., I thought, I could definitely vote for Joe – provided he has the mettle to stand his ground....

“In this election cycle, no faction on the Democratic side more richly deserves rebuking than the one Biden singled out – which is not, of course, anywhere close to the entire millennial generation (roughly 80 million strong), or their younger siblings in Gen Z.  But it is that part of these younger generations that specializes in histrionic self-pity and moral self-righteousness, usually communicated via social media with maximum snark.

“Gawker spawn and HuffPo twerps: This especially means you.

“It also means all those who recklessly participate in the search-and-destroy missions of the call-out culture. These are the Harvard students who demanded, and last week obtained, the dismissal of law professor Ronald Sullivan and his wife Stephanie Robinson as faculty deans at an undergrad dorm because Sullivan had the temerity to join Harvey Weinstein’s defense team.  They are the Middlebury students who in 2017 violently assaulted professor Allison Stanger for the crime of moderating a talk with Charles Murray. They are the Yale students who in 2015 surrounded and hounded professor Nicholas Christakis because he would not agree to their demands that he denounce his wife for believing in free speech.

“The signature move in each of these instances (and there are so many more) is to allege an invisible harm in order to inflict an actual one.  In place of an eye for an eye, we have professional destruction for emotional upset.  Careers and reputations built over decades come to ruin, or nearly so, on account of a personal mistake or a disfavored opinion.

“All of these struggle sessions play to the sound of chortling twenty-somethings, who have figured out that, in today’s culture, the quickest way to acquire and exercise power is to take offense.  This is easy to do, because the list of sins to which one may take offense grows with each passing year, from the culturally appropriated sombrero to the traditionally gendered pronoun.

“It’s also easy because the grown-ups rarely push back and, in fact, are often happy to go along.  Not one of the students who joined the mob at Middlebury was expelled. And say what you will of the students who demanded the ouster of Sullivan and Robinson, they would have gotten nowhere without the weaselly connivance of Harvard Dean Rakesh Khurana, who discovered unspecified problems with the ‘climate’ of the dorm in order to justify his verdict.

“Which brings me back to Biden.  The rap against the former veep is that he’s old, frequently puts his foot in his mouth, and occasionally says nice things about Republicans.  Another way of putting all that is that he’s mature, unstudied, and not just another partisan hater.

“Also, he refused to beg forgiveness last month for being a tad too touchy-kissy.  Maybe he should keep his hands in his pockets, but at least it means he isn’t prepared to capitulate to the icy codes of personal decorum written by people who don’t know the difference between exuberant human warmth and unwarranted sexual advances.

“To which one can only say: Keep it up, Joe!  He’s already leading all of his Democratic primary rivals in every demographic group save millennials (obviously), where Bernie Sanders has a narrow lead.  He could make a virtue of the defect by emphasizing his distance from everything that defines the worst aspects of millennial culture – the coddled minds and censorious manner and inability to understand the way the world works. Does it ever occur to some of our more militant millennials that the pitiless standards they apply to others will someday be applied pitilessly to them?

“The sensible center of America – that is, the people who choose presidents in this country – wants to see Donald Trump lose next year, but not if it means empowering the junior totalitarians of the left.  Now is Biden’s chance to make it clear he’s just the man to fulfill that hope.”

--Researchers with the Environmental Investigation Agency and other groups say they have pinpointed the major sources of a mysterious spike in a dangerous, ozone-destroying chemical, CFC-11, which is primarily used for home insulation, though global production was to have been phased out in 2010.

But scientists have seen a slowdown in the rate of depletion and a new study says this is mostly being caused by new gas production in eastern provinces of China.  Why I’m shocked!

[Having seen firsthand disgusting duck ponds in eastern Fujian province, I would never trust China to come clean on the environment.  The government hides everything from the people, especially the facts in this realm.]

It was in the mid-1980s that a gaping hole in the ozone layer over Antarctica was discovered, and in one of the truly great examples of international cooperation, the Montreal Protocol of 1987 was agreed to, which banned most of the offending chemicals, CFCs, that break down in the atmosphere, releasing chlorine that rapidly destroys the ozone layer.

So then research suggested the hole in the Northern Hemisphere could be fully fixed by the 2030s and Antarctica by the 2060s, but the rate of decline in CFC-11 was discovered, and it was suspected the new production was coming from East Asia.

And then further investigation showed the CFC-11 was used in the majority of insulation produced by firms they contacted.  But this is only 40-60 percent of the increase in emissions coming from eastern China.

China says it is cracking down on the “rogue manufacturers.” [BBC News]

--The Cocos Keeling Islands are a chain of 26 tiny outcrops that are a territory of Australia, some 1,300 miles northwest, and researchers from the University of Tasmania recently found giant mounds of trash there, some 400 million pieces, or 260 tons, 95% of which was plastic.  According to the study, contained in the trash was an estimated 373,000 toothbrushes and 977,000 shoes.

“25% was classified as disposable plastics, including straws, bags, and toothbrushes.”

According to the Ocean Conservancy, every year, an estimated 8 million to 12 million metric tons of plastics enter our ocean on top of the estimated 150 million metric tons that are already in our marine environments. 

The study was published in the peer-reviewed British journal Scientific Reports.  [Reuters]

--The U.S. Department of Housing and Urban Development requires studies of homelessness in key urban areas every two years, and a count of three San Francisco Bay Area counties showed the number of homeless people increased 17% in San Francisco and 43% in the county that includes Oakland. 

More than 25,000 people were counted as homeless during an overnight tally conducted in San Francisco, Alameda and Silicon Valley’s Santa Clara counties in January.  A count of Los Angeles is expected end of the month.

--Treasury Secretary Steven Mnuchin said Wednesday that Harriet Tubman – former slave, abolitionist, “conductor” on the Underground Railroad – will not become the face of the $20 bill until at least 2026, or after President Trump leaves office.  The Tubman bill was to be unveiled in 2020.

So we get Andrew Jackson until then.

According to the New York Times’ Alan Rappeport, “Mr. Mnuchin, concerned that the president might create an uproar by canceling the new bill altogether, was eager to delay its redesign until Mr. Trump was out of office, some senior Treasury Department officials have said.  As a presidential candidate in 2016, Mr. Trump criticized the Obama administration’s plans for the bill.

“That April, Mr. Trump called the change ‘pure political correctness’ and suggested that Tubman, whom he praised, could be added to a far less common denomination, like the $2 bill.  ‘Andrew Jackson had a great history, and I think it’s very rough when you take somebody off the bill,’ Mr. Trump said at the time.”

No comment.

--A top NASA executive hired in April to guide strategy for returning astronauts to the moon by 2024 has resigned, the space agency said on Thursday, the culmination of internal strife and dwindling congressional support for the lunar initiative.

Just six weeks ago, Mark Sirangelo was named special assistant to NASA chief Jim Bridenstine.   Reuters reported Sirangelo was escorted out of NASA’s headquarters in Washington after his resignation.

There’s a deeper story here.  “60 Minutes” material.

--I can’t help but note the gift billionaire Robert F. Smith gave to the graduating class of Morehouse College in commencement ceremonies on Sunday.  He offered to pay off the college debt of every graduate, valued at about $40 million, though the exact figure is being negotiated, according to a Morehouse spokesperson.

Smith is CEO of Vista Equity Partners, a private-equity firm.  Morehouse is a historically black male college.

---

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

God bless America.

---

Gold $1284
Oil $59.06

Returns for the week 5/20-5/24

Dow Jones  -0.7%  [25585]
S&P 500  -1.2%  [2826]
S&P MidCap  -1.4%
Russell 2000  -1.4%
Nasdaq  -2.3%  [7637]

Returns for the period 1/1/19-5/24/19

Dow Jones  +9.7%
S&P 500  +12.7%
S&P MidCap  +12.0%
Russell 2000  +12.3%
Nasdaq  +15.1%

Bulls 49.5
Bears
17.2

Have a Great Memorial Day.

And remember...think not only of their passing, but remember the glory of their spirit.

Brian Trumbore

 



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Week in Review

05/25/2019

For the week 5/20-5/24

[Posted 11:00 PM ET]

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

Edition 1,050

The trade war between the United States and China is officially on, now that there has been a total breakdown in talks, with none planned, and no guarantee that Presidents Trump and Xi Jinping will meet for any substantive discussions in Osaka, Japan, in late June at a G20 summit.

Today, China accused U.S. officials of lying to the public about the conflict, as tensions rose further.

Chinese Foreign Ministry spokesman Lu Kang said, “Domestically in the United States there are more and more doubts about the trade war the U.S. side has provoked with China, the market turmoil caused by the technology war and blocked industrial cooperation.”

When asked about Secretary of State Mike Pompeo’s recent criticism of Chinese telecom giant Huawei, Kang said U.S. officials “fabricate lies to try to mislead the American people, and now they are trying to incite ideological opposition.”

In an interview with CNBC on Thursday, Pompeo said Huawei was connected to the Chinese government, dismissing Huawei CEO Ren Zhengfei’s assertions that his company would never share user secrets.

“The company is deeply tied not only to China but to the Chinese Communist Party.  And that connectivity, the existence of those connections, puts American information that crosses those networks at risk,” Pompeo said.

Yup, this is the kind of back and forth you didn’t see among top officials from both sides until recently.  There are no attempts at being diplomatic.  It’s war.

China feels humiliated, and finally exposed.  After President Trump blacklisted Huawei, the Chinese ambassador to the European Union, Zhang Ming, said, “This is wrong behavior, so there will be a necessary response.”

“Chinese companies’ legitimate rights and interests are being undermined, so the Chinese government will not sit idly by.”

It now seems just a matter of time before President Trump slaps a 25% tariff on an additional list of Chinese imports worth about $300 billion.

Meanwhile, China’s move to impose higher tariffs on a revised $60 billion list of U.S. goods is set to go into effect on June 1.

Anti-U.S. sentiment in China is growing.  A privately produced Chinese trade-war fight song has gone viral in Beijing.

“We have been holding on for 5,000 years,” Zhang said.  “Why not another 5,000 years?”

The People’s Daily said in an editorial that when it came to the accusation that China forces firms to hand over technology in exchange for market access, China had never forced U.S. firms to do so and the claim was “an old-fashioned argument used by some people in the United States to suppress China’s development.”

“The U.S. argument about the ‘forced transfer of technology’ can be described as being fabricated from thin air,” it said.

President Xi called for the Chinese people to “start again” and begin a modern “long march,” invoking a turning point in Communist Party history, Xi making the remarks at the historic site of the start of Mao Zedong’s Long March of 1934, a 4,000-mile journey that took more than a year and would ultimately lead to the ousting 15 years later of the Nationalists (who then moved to Taiwan).

Chinese state media has racheted up nationalistic rhetoric in recent days, comparing the trade crisis to the Korean War, during which Chinese troops were in direct combat with American forces.  China’s national movie channel has been running films about the war.

The editor of Communist Party mouthpiece the Global Times tweeted that the takeaway from these films is that “there’s no equal negotiation without fighting.”

Yes, what was once a subdued Chinese media when it came to the early days of the trade conflict is now in full throttle.

I’ve been saying for some time that Americans are in no way prepared for where this could go.  No doubt China is fighting the impulse to give the Americans a bloody nose, as in some kind of operation in the South China Sea, perhaps.  You would think this wouldn’t be a very smart move, but it all depends on the kind of pressure Xi Jinping is feeling internally.

In the meantime, Apple shares continue to fall.

Editorial / The Economist

“Fighting over trade is not the half of it.  The United States and China are contesting every domain, from semiconductors to submarines and from blockbuster films to lunar exploration. The two superpowers used to seek a win-win world.  Today winning seems to involve the other lot’s defeat – a collapse that permanently subordinates China to the American order; or a humbled America that retreats from the western Pacific.  It is a new kind of cold war that could leave no winners at all.

“Superpower relations have soured. America complains that China is cheating its way to the top by stealing technology, and that by muscling into the South China Sea and bullying democracies like Canada and Sweden it is becoming a threat to global peace.  China is caught between the dream of regaining its rightful place in Asia and the fear that tired, jealous America will block its rise because it cannot accept its own decline.

“The potential for catastrophe looms.  Under the Kaiser, Germany dragged the world into war; America and the Soviet Union flirted with nuclear Armageddon.  Even if China and America stop short of conflict, the world will bear the cost as growth slows and problems are left to fester for lack of cooperation.

“Both sides need to feel more secure, but also to learn to live together in a low-trust world.  Nobody should think that achieving this will be easy or quick....

“As well as focusing on its strengths, America needs to shore up its defenses.   This involves hard power as China arms itself, including in novel domains such as space and cyberspace.  But it also means striking a balance between protecting intellectual property and sustaining the flow of ideas, people, capital and goods.  When universities and Silicon Valley geeks scoff at national-security restrictions they are being naïve or disingenuous.  But when defense hawks over-zealously call for shutting out Chinese nationals and investment they forget that American innovation depends on a global network....

“Dealing with China also means finding ways to create trust.  Actions that America intends as defensive may appear to Chinese eyes as aggression that is designed to contain it.  If China feels that it must fight back, a naval collision in the South China Sea could escalate.  Or war might follow an invasion of Taiwan by an angry, hypernationalist China....

“China and America do not have to agree for them to conclude it is in their interest to live within norms.  There is no shortage of projects to work on together, including North Korea, rules for space and cyberwar and, if Mr. Trump faced up to it, climate change.

“Such an agenda demands statesmanship and vision. Just now these are in short supply.  Mr. Trump sneers at the global good, and his base is tired of America acting as the world’s policeman.  China, meanwhile, has a president who wants to harness the dream of national greatness as a way to justify the Communist Party’s total control. He sits at the apex of a system that saw engagement by America’s former president, Barack Obama, as something to exploit.  Future leaders may be more open to enlightened collaboration, but there is no guarantee....

“In China, America faces a vast rival that confidently aspires to be number one.  Business ties and profits, which used to cement the relationship, have become one more matter to fight over.   China and America desperately need to create rules to help manage the rapidly evolving era of superpower competition.  Just now, both see rules as things to break.”

Trump World

--The president ordered intelligence agencies to cooperate with an investigation into whether he was spied on during the 2016 election.

The probe, headed by Attorney General William Barr, is examining the origins of the Russia investigation.

On Thursday, Trump announced a directive that gives Barr sweeping new powers, including to declassify documents.

Barr has previously told Congress that he believes Trump’s presidential campaign was “spied” on and assigned a federal prosecutor to the case.

Democrats allege the attorney general mischaracterized the findings of the Mueller report, and he has been held in contempt of Congress for failing to provide them an unredacted version.

Trump tweeted:

“Today, at the request and recommendation of the Attorney General of the United States, President Donald J. Trump directed the intelligence community to quickly and fully cooperate with the Attorney General’s investigation into surveillance activities....

“....during the 2016 Presidential election.  The Attorney General has also been delegated full and complete authority to declassify information pertaining to this investigation, in accordance with the long-established standards for handling classified information....

“....Today’s action will help ensure that all Americans learn the truth about the events that occurred and the actions that were taken, during the last Presidential election and will restore confidence in our public institutions.”

--In a war of words between House Speaker Nancy Pelosi and Trump, the president defended himself as “extremely calm” a day earlier, when he stormed out of a meeting at the White House with Democrats, in what was to be a discussion on an infrastructure agenda; Trump again describing himself as an “extremely stable genius.”

Hours earlier, Speaker Pelosi said the episode made her concerned about the president’s well-being “and the well-being of the United States of America.”

Trump walked into the Cabinet Room and did not shake anyone’s hand or sit in his seat, according to some in attendance.  He said that he wanted to advance legislation on infrastructure, trade and other matters, but that Ms. Pelosi had said something “terrible” by accusing him of a cover-up hours earlier.

From there, the president headed to the Rose Garden, where a lectern had been set up with a sign that said “No Collusion, No Obstruction” and gave statistics intended to show that he had cooperated with the special counsel.

“Instead of walking in happily into a meeting, I walk in to look at people that have just said that I was doing a cover-up,” Trump said.  “I don’t do cover-ups.”

“I walked into the room and I told Senator Schumer, Speaker Pelosi: ‘I want to do infrastructure.  I want to do it more than you want to do it. I’d be really good at that, that’s what I do.  But you know what?  You can’t do it under these circumstances. So get these phony investigations over with,” he said.

At a press conference at the White House for farmer relief, Trump attempted to defend his temperament by asking several members of his staff to vouch for his calmness in the meeting with the Dems.  It was disturbing.

--Trump called himself “strongly Pro-Life” in several tweets late Saturday night while at the same time appearing to challenge key provisions of strict abortion laws recently passed in Republican controlled states.

“As most people know, and for those who would like to know, I am strongly Pro-Life, with the three exceptions – Rape, Incest and protecting the Life of the mother – the same position taken by Ronald Reagan.”

It was the first time the president publicly commented on the recent wave of abortion laws after making the issue of late-term abortion a key part of the State of the Union address.

While not specifically commenting on the Alabama law, Trump appeared to come out against the lack of exceptions that have caused some conservatives, such as televangelist Pat Robertson, to criticize the measure as going “too far.”

--Julian Assange has been indicted on 17 new counts of violating the Espionage Act for his role in publishing classified military and diplomatic documents in 2010, the Justice Department announced on Thursday – a case that raises profound First Amendment issues.

The secret documents that Assange published were provided by the former Army intelligence analyst Chelsea Manning, who was convicted at a court-martial trial in 2013 of leaking the records.

The crack down on leaks of classified information is aimed squarely at First Amendment protections for journalists.  This has yet to be tested in court because the government had never charged a journalist under the Espionage Act.

--The House, Senate and President Trump agreed to a $19.1 billion disaster aid bill, providing relief to the parts of the country that have been beset by devastating floods, wildfires and hurricanes, without funding for the border that Trump sought.

So a lone Texas Republican congressman, Chip Roy, has blocked it because it didn’t have emergency funding for the border.  And boy, he has ticked off a lot of people, especially those fellow representatives whose districts stand to benefit from the aid.  The House should finally get it through next week, despite the recess.

--Other Trump tweets:

“I don’t know why the Radical Left Democrats want Bob Mueller to testify when he just issued a 40 Million Dollar Report that states, loud & clear & for all to hear, No Collusion and No Obstruction (how do you Obstruct a NO crime? Dems are just looking for trouble and a Do-Over!”

“ ‘If they try to Impeach President Trump, who has done nothing wrong (No Collusion), they will end up getting him re-elected’ @LindseyGrahamSC Impeachment is for High Crimes and Misdemeanors. There were no High Crimes and Misdemeanors, except for those committed by the other side!”

“ ‘Intelligence Agencies were used against an American President.’ @DevinNunes @ShannonBream @FoxNews This should NEVER happen to a President again!  Dems are furious at Robert Mueller for his findings – NO COLLUSION, NO OBSTRUCTION.  Now they should go back to work and legislate!”

“So sad that Nancy Pelosi and Chuck Schumer will never be able to see or understand the great promise of our Country.  They can continue the Witch Hunt which has already cost $40M and been a tremendous waste of time and energy for everyone in America, or get back to work.”

“When is Twitter going to allow the very popular Conservative Voices that it has so viciously shut down, back into the OPEN?  IT IS TIME!”

“Wow! CNN Ratings are WAY DOWN, record lows.  People are getting tired of so many Fake Stories and Anti-Trump lies. Chris Cuomo was rewarded for lowest morning ratings with a prime time spot – which is failing badly and not helping the dumbest man on television, Don Lemon!”

“Rex Tillerson, a man who is ‘dumb as a rock’ and totally ill prepared and ill equipped to be Secretary of State, made up a story (he got fired) that I was out-prepared by Vladimir Putin at a meeting in Hamburg, Germany.  I don’t think Putin would agree.  Look how the U.S. is doing!”

[This comes from the president who loves to say he “hires the best people.”]

“Hard to believe that @FoxNews is wasting airtime on Mayor Pete, as Chris Wallace likes to call him.  Fox is moving more and more to the losing (wrong) side in covering the Dems.  They got dumped from the Democrats boring debates, and they just want in. They forgot the people....

“....who got them there.  Chris Wallace said, ‘I actually think, whether you like his opinions or not, that Mayor Pete has a lot of substance...fascinating biography.’  Gee, he never speaks well of me – I like Mike Wallace better...and Alfred E. Newman will never be President!”

“Without the ILLEGL Witch Hunt, my poll numbers, especially because of our historically ‘great’ economy, would be at 65%.  Too bad!  The greatest Hoax in American History.”

[Today, the president said that if the Fake News Media had reported the truth, his poll numbers would be “at least 70%.”]

Wall Street and the Trade War, part II

As alluded to above, this week the Trump administration put Chinese giant Huawei on a blacklist on grounds its telecommunications gear could be used for Chinese espionage. The order bars U.S. companies from supplying Huawei, although the administration later said it plans to grant temporary exemptions.

Delivering a speech in Shenzhen this week, the Chinese ambassador to Britain, Liu Xiaoming, said the U.S. was only using the trade dispute with China to disguise its intention of containing the country’s emergence as a new technological power.

“Therefore the U.S. would not be satisfied with driving Huawei out of the U.S. market, it also wants to force Huawei out from markets around the world,” he said.

“There is a growing view in the U.S. that China is becoming a formidable competitor in all areas such as geopolitics, international influences, resources, population and talent. This is also evident from the fact that the U.S. government has identified China as a strategic competitor in its National Defense Strategy report.”

But with the U.S. restrictions on Huawei, companies around the world began to comply, such as Japan’s Panasonic, and British chip designer ARM, as well as U.S. companies from Google, to Intel, Qualcomm, Xilinx and Broadcom...all of which said they were halting business with them.

The moves deeply hamstring the world’s largest provider of networking gear and No. 2 smartphone vendor.  Intel is the main supplier of server chips to the Chinese company, for example, while Qualcomm provides processors and modems for many of Huawei’s smartphones.  Broadcom is a supplier of switching chips, another key component in some types of networking machinery.

On Thursday, President Trump described Huawei as “very dangerous,” but then in the same breath said it could be included in some kind of trade deal with China, which is quizzical.

At the same time, China’s state-run Xinhua News Agency said today: “All of the Chinese people are ready to embark on a new ‘Long March’ journey with greater courage and resilience and will never yield to foreign bullying and assault.”  The U.S. “continues to attack Chinese companies not because they have done anything wrong, but because they are too outstanding for the United States to accept.”

Foreign Ministry spokesman Lu Kang said in Beijing that accusations Huawei is a risk to U.S. national security are “lies to try to mislead the American people.”

The U.S. is insisting China change its laws to ensure it complies with any trade accord, but Beijing has resisted that demand as a challenge to its sovereignty.

From Bloomberg:

“President Donald Trump’s trade war against China has so far focused on attacking imports. His new front: Weaponizing American exports.

“The Trump administration is seeking to choke off Beijing’s access to key technologies by limiting the sale of vital U.S. components to China’s Huawei Technologies Co.  The U.S. is considering putting at least five Chinese surveillance companies on the same blacklist.

“The moves are part of a bigger effort by the U.S. to expand and toughen the export control regime that for decades has curbed the sale of defense-related technologies to rogue regimes and strategic rivals.  It’s a process that has prompted fears from business that as Trump’s trade war grows into a broader technology-driven conflict with China the U.S. could end up damaging its own economic future....

“Administration hawks are pushing for broad definitions to restrict exports related to technologies such as artificial intelligence, robotics and 3D printing that they call essential to competitiveness.  The new regulations could also limit the ability of companies to hire foreign engineers and scientists to work in affected areas as the knowledge they gain is considered a sensitive ‘deemed’ export.”

Companies such as General Electric, Microsoft and Google are concerned that export controls could bar them from competing in lucrative markets while reducing America’s capacity to innovate.  Microsoft warned the policy risked isolating the U.S. from international research collaborations behind the development of many technologies.

G.E. cautioned, “Artificial intelligence is a very broad concept,” and defined too broadly could confuse efforts on medical imaging where algorithms are used to scan for diseases with toys like talking teddy bears, according to the company.

David Ignatius / Washington Post

“With the Huawei case, as with so many other Trump administration gambits, the puzzling question is whether President Trump is using tough tactics to make a deal – or whether he really means to put China’s most powerful telecommunications company on what’s informally known as the ‘kill list’ by denying it U.S. technology.

“U.S. financial markets have been fairly calm this week, and investors appear to be assuming that Trump is using the Huawei sanctions as a bargaining chip. They seem to be expecting that Trump will ease Huawei sanctions as part of an eventual overall trade deal with China, perhaps brokered at a summit meeting with President Xi Jinping in Osaka, Japan, next month.

“Several Wall Street contacts told me Wednesday that the markets took it as evidence of flexibility that on Monday the Trump administration granted a 90-day reprieve before Huawei is placed on the deadly ‘Entity List,’ which would block Google and other U.S. companies from selling technology to the Chinese telecom giant. Investors apparently see Trump as repeating his maneuver with ZTE Corp. last year, when he imposed harsh sanctions and then withdrew them, at Xi’s request.

“But analysts who carefully follow China warn that this scenario for an eventual megadeal may be overly optimistic.  They note several factors that could get in the way.

“ – Beijing has signaled through various channels this week that it won’t conduct further trade negotiations with Washington until Huawei issues are resolved...This would require Trump to retreat on Huawei before getting the trade deal he wants, something he may resist.

“ – Trump’s actions against Huawei have a detailed framework.  First came a broad executive order on May 15 declaring a ‘national emergency’ to impose controls on the import of products that threatened U.S. communications security. Then came a designation by the Commerce Department that U.S. companies selling technology to Huawei must obtain a special license because Huawei ‘is engaged in activities that are contrary to U.S. national security,’ according to Commerce. These actions will be hard to reverse.

“ – Trump’s decision to grant the 90-day reprieve may reflect U.S. desire to clean up details of the Entity-List process, rather than willingness to compromise.  Officials say the Commerce designation was imposed in haste, without detailed review or briefing of allies, partly because of Trump’s pique at China’s refusal to cut the expected deal on trade.  Trump wanted action quickly and selected the biggest guns in the U.S. trade arsenal.

“Trump’s anger toward Beijing was voiced by Robert E. Lighthizer, the chief U.S. trade negotiator, on May 6, on the eve of the breakdown of negotiations.  ‘We have seen an erosion in commitments by China... [a] retreating from specific commitments that had already been made,’ he told reporters.

“Since then, U.S.-Chinese trade relations have gone downhill fast, with the imposition of the executive order and the Commerce announcement that Huawei was on the entity list....

“What went wrong?  ‘Both sides miscalculated and overplayed their hand,’ (a trade expert argued).  He predicted: ‘Xi will not surrender to U.S. demands even if some of the asks are reasonable and in line with responsibilities of a great economic power which China has become.’”

Greg Ip / Wall Street Journal

“On China, the U.S. and its allies are of one mind: China, they say, discriminates against foreign products, companies and investment and pursues their intellectual property via commerce, coercion and espionage.  The European Union’s executive arm earlier this year labeled China an ‘economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance.’

“Yet the U.S. has regularly spurned opportunities to cooperate.  Mr. Trump pulled the U.S. out of the 12-nation Trans-Pacific Partnership, designed as a rules-based, free-market alternative to China’s state capitalism.  He used a U.S. law, Section 301 of the Trade Act of 1974, to hit China with tariffs over its trade barriers and is pursuing remedies that may come at others’ expense, for example forcing China to shift purchases of energy and agricultural products to American producers.  Should a deal emerge, it will be enforced bilaterally, bypassing the World Trade Organization.

“The U.S. treats Huawei as a national security concern, but in practice, links that risk to the company’s commercial reach given the close ties between Chinese companies and the state. The U.S. has deployed a broad range of domestic laws to punish the company, such as for violating sanctions on Iran. Washington has threatened to withhold intelligence from allies that don’t ban Huawei equipment from fifth-generation mobile networks.  Last week, the Trump administration barred U.S. companies from doing business with Huawei, though on Monday offered a 90-day reprieve.

“Other countries, drawing a sharper line between China’s commercial and security threat, have been less inclined to ostracize Huawei altogether....

“The administration doesn’t need its allies’ buy-in: It just needs to scare foreign companies that do business in the U.S. into observing its sanctions or risk devastating penalties....

“Nor would a more cooperative U.S. necessarily have achieved more.  All countries pursue their own interest no matter who’s in the White House.  Japan, South Korea and Canada are virtually bound by geography and history to follow the U.S. on strategic questions.  Conversely, Germany is forging ahead with a gas pipeline to Russia that both President Barack Obama and Mr. Trump oppose, while Italy’s populist coalition has both welcomed Huawei and China’s Belt and Road Initiative.

“Still, sanctions will be less effective with the U.S. acting alone....

“Instead of making U.S. allies more amenable to U.S. demands, tariffs have done the opposite. Canada and Mexico had ample incentive to appease the U.S. in a renegotiated North American Free Trade Agreement.  When the U.S. hit them with tariffs on steel and aluminum, both retaliated.  U.S. steel companies claim to be adding 12,800 jobs, but Gary Hufbauer and Euijin Jung of the Peterson Institute for International Economics say higher steel prices cost American steel consumers $11.5 billion – or $900,000 to protect one steel job.  Once those costs plus foreign retaliation are factored in, the tariffs have likely been a net negative, and provoked howls of protest at home and abroad.”

Editorial / Wall Street Journal

“China, Cuba, Russia, al Qaeda, Islamic State, the Toyota Motor Corp., North Korea, Hezbollah, the Islamic Revolutionary Guard Corps.  Which one of the above doesn’t belong on a list of national security threats to the United States?

“If you answered Toyota, you must not work for the Trump Administration, which declared last week that autos or auto parts pose a threat to U.S. national security unless they are ‘American-owned.’  Financial markets were relieved Friday when the White House proclamation offered a 180-day tariff reprieve during trade negotiations with Europe and Japan.  But the proclamation’s ‘American-owned’ language is a sour and illogical note that could lead to punishing tariffs or even controls on investment in the U.S....

“Never mind that Toyota, Honda, Volkswagen, Mercedes-Benz, Mazda, BMW, Subaru, Nissan, Kia, and Hyundai all make or assemble cars and parts in the United States.  The nearly 500 facilities are located in multiple American states and directly employ 130,000 Americans.  Volvo has a plant in South Carolina that may employ 4,000.  By the proclamation’s logic, the only car companies that matter to U.S. security are Ford, GM, Tesla and maybe not even Fiat Chrysler, since Italians are significant owners.

“And here we thought Mr. Trump wanted companies to build plants in America.  He certainly boasts about the investment his tax reform and deregulation policies are attracting, and he’s right.  But as Toyota put it Friday, ‘Today’s proclamation sends a message to Toyota that our investments are not welcomed, and the contributions from each of our employees across America are not valued.’

“Toyota has 10 manufacturing plants across eight states, including Alabama, California, Indiana, Kentucky, Mississippi, Missouri, Tennessee and West Virginia. For the political record, Mr. Trump won all those states in 2016 except for California. Do the Governors of those states care to comment on whether all of these jobs and wages are a security threat?”

Then there’s the U.S. Farm Belt, which has experienced the wettest year on record, stalling fieldwork, raising costs for the biggest agricultural companies, and slowing shipments across the region.

“It’s got to be the worst ever that we’ve seen,” said Jim Collins, head of Corteva Agriscience, the agricultural division of seed and pesticide maker DowDuPont Inc.  Corteva’s sales fell 11% for the most recent quarter it reported this month, partly because of Midwestern floods.

According to the National Oceanic and Atmospheric Administration, the past 12 months were the wettest May-to-April period in the contiguous U.S. since record-keeping began in 1895.  And since March, heavy snow and rain have brought record flooding to parts of the Midwest, from Illinois to Nebraska.

Millions of acres could go unplanted, reducing farmers’ need for seed, pesticides and fertilizer, which is hurting the ag businesses big time.

So President Trump rolled out his rescue plan for farmers yesterday.

Editorial / Wall Street Journal

“The Trump Administration said Thursday it will give $16 billion to farmers to offset their lost income due to the trade brawl with China. The subsidies may buy some political time to resume negotiations, but they also underscore the economic harm and political risk of President Trump’s trade showdown.

“America’s heartland is hurting as farm income has fallen due to low commodity prices, bad weather and flooding, and trade disruption, despite a buoyant national economy....

“The Bureau of Economic Analysis (BEA) reports that in 2018 Nebraska ranked 49th among the states in personal income growth per capita, Kansas was 46th, Missouri 33rd, and Iowa 25th.   The contribution to personal income from agriculture last year was negative in other farm export states like Arizona, New Mexico, Oklahoma, California, Michigan and Illinois, according to the BEA.  Wisconsin’s personal farm income gain was zero.

“This means the trade fight has cost U.S. farmers a bundle when they least can afford it.  In 2017 U.S. farmers sent 25% - some $140 billion – of production abroad.  More than 17% went to China.  But then the U.S. imposed tariffs against Chinese products, and Beijing retaliated with sizable tariffs on 90% of U.S. farm exports. American Farm Bureau Federation President Zippy Duvall says that ‘in 2018, U.S. agricultural exports to China declined $10 billion – about a 50 percent loss.’

“China was once the second largest export market for U.S. agriculture but it’s now fourth.  ‘This is a drastic reversal for what had been a growing market,’ wrote Mr. Duvall in a recent letter to the President.  ‘From 2000 through 2017, the value of our agricultural exports to China grew from 2 percent to 16 percent of total U.S. agricultural exports.’

“American soybean farmers sent about 60% of their exports to China in 2017. But their Brazilian competitors pay a 3% Chinese tariff while Americans now pay 28%.  In 2018 U.S. soybean exports to China fell 75%, and U.S. farmers had to cut prices to unload oversupply in other markets. The total value of soy exports fell $4.3 billion – a 20% decline.

“Or consider pork exports, 40% of which has traditionally gone to Mexico and China.  U.S. pork exports by volume to China dropped 58% in September 2018 from a year earlier and 80% since 2016.  Mexico’s 20% tariff on U.S. pork exports, in retaliation for Mr. Trump’s steel tariffs, cost the pork industry an estimated $1.5 billion in 2018.

“None of this comes as a surprise to Mr. Trump, who has been hearing complaints for months from his Farm Belt supporters. That’s why Mr. Trump is responding with the $16 billion in subsidies, most of which will be direct payments to farmers. These are in addition to the subsidies under traditional U.S. farm programs.

“So in order to make up for losses from trade, Mr. Trump is dunning other American taxpayers.  But as Bill Gordon, vice-president of the American Soybean  Association, recently told the South China Morning Post, farmers don’t want welfare.  ‘Here’s a handout to make you happy?  That doesn’t make us happy.  We want our markets back,’ Mr. Gordon said....

“Not long ago Mr. Trump said he wanted a China trade deal but lately he’s been suggesting he’d be as happy running for re-election in 2020 as the trade hawk who was willing to take on China.  We wonder how Iowans will feel about that if farm incomes continue to decline for another 18 months.”

---

The news on the economic front this week wasn’t great by any stretch.  April existing home sales fell 0.4% over March to 5.19 million annualized, worse than expected, with sales down 4.4% year-over-year, a 14th straight month of annualized declines.

April new-home sales fell 6.9% to 673,000 ann., the largest month-on-month decline since December.

And today, a reading on durable goods (big-ticket items) was down 2.1%, in line with estimates, the number unchanged when you strip out volatile transportation.

The Atlanta Fed’s GDPNow barometer for second quarter growth is at 1.3% at week’s end.

Regarding the Federal Reserve, according to the minutes from the Open Market Committee’s meeting earlier this month, members seem unlikely to raise interest rates this year, even if the economy is cranking.

“Members observed that a patient approach to determining future adjustments to the target range for the federal funds rate would likely remain appropriate for some time,” the minutes read.

Inflation has remained elusive, removing the need for the Fed to hike rates to keep the economy from overheating.

Some market watchers are still betting the Fed will cut rates before year end.  I’m on record as saying there will be one hike, and I’m sticking with that, despite all the trade tensions.  Granted, if the Fed did so, the president would blow a gasket, which could be quite humorous.

Separately, Fed Chairman Jerome Powell gave a speech this week at an investment conference and offered a word of caution on the level of corporate debt these days.

Debt has hit new highs due in part to “aggressive underwriting” using financial vehicles that sell different pieces of debt to different investors, often outside the banking sector, he said.

“Business debt has clearly reached a level that should give businesses and investors reason to pause and reflect,” he said.

Should the economy deteriorate, overly indebted companies will face significant strains, resulting in layoffs and cutbacks in investment.

Europe and Asia

IHS Markit released its flash readings on the state of the eurozone (EA19) economy, with the composite reading for May estimated at 51.6 vs. 51.5 in April (50 being the dividing line between growth and contraction).  Manufacturing for the euro area was just 47.7 (47.9 April), with services at 52.5 (52.8).

Germany’s manufacturing PMI was 44.3, services 55.0.

France’s manufacturing figure was 50.6, services 51.7.

Chris Williamson / IHS Markit

“The eurozone economy remained becalmed in the doldrums in May, adding to signs that only modest growth will be achieved in the second quarter.  At current levels the PMI is so far indicating GDP growth of only 0.2% in Q2.

“A renewed deterioration in optimism about the year ahead suggests that the business situation could deteriorate further in coming months.  Worries reflected concerns over lower economic growth forecasts, signs of weaker sales and rising geopolitical uncertainty, with escalating trade wars and auto sector woes commonly cited as specific causes for concern....

“While some encouragement can be gained from the manufacturing sector showing signs of its downturn having bottomed out in March, the concern is that the slowdown is spreading to the service sector, where new business growth has slipped to one of the weakest seen since 2014.

“Germany is on course for a 0.2% expansion of GDP in the second quarter while the survey for data for France points to a meager 0.1% gain.  However, the bigger concern is for the rest of the region, which collectively saw growth falter amid the first fall in orders for almost six years.”

In the UK, retail sales for the three months to April rose a better than expected 1.8% over the previous three months; 5.4% year-over-year, the best pace since December 2016.

So much for Brexit fears....but speaking of which....

Brexit: In a somber, and emotional, statement from 10 Downing Street this morning, Theresa May said she will quit as Conservative leader on June 7, paving the way for a contest to decide a new prime minister.

Mrs. May said it was a matter of “deep regret” that she had been unable to deliver Brexit.

She will continue to serve as prime minister while the party leadership contest takes place, but she will step down as Tory leader on June 7, as the Conservatives then begin to figure out who is best able to lead the party in the weeks after.

The prime minister faced a backlash from her MPs against her latest Brexit plan, which included concessions aimed at attracting cross-party support.

Andrea Leadsom had quit as Commons leader on Wednesday saying she no longer believed the plan would “deliver on the referendum result.”

Thursday, Mrs. May met with her home secretary and foreign secretary, who both expressed their concerns about the bill.

In her statement on Friday, the prime minister said that in order to deliver Brexit, her successor would have to build agreement in Parliament.

“Such a consensus can only be reached if those on all sides of the debate are willing to compromise,” she said.

Mrs. May said she had done “everything I can” to convince MPs to support the withdrawal deal she had negotiated with the European Union but it was now in the “best interests of the country for a new prime minister to lead that effort.”

May’s voice cracked as she ended her speech saying: “I will shortly leave the job that it has been the honor of my life to hold.

“The second female prime minister, but certainly not the last.

“I do so with no ill will, but with enormous and enduring gratitude to have had the opportunity to serve the country I love.”

Labour Leader Jeremy Corbyn said Mrs. May had been “right to resign” and that the Conservative Party was now “disintegrating,” Corbyn calling for a special election.

Nigel Farage, one of the leading faces of the Brexit campaign, said Prime Minister May had misjudged the mood of the country.

“It is difficult not to feel for Mrs. May, but politically she misjudged the mood of the country and her party,” he said in a statement.  “Two Tory leaders [Ed. the other David Cameron] have now gone whose instincts were pro-EU. Either the party learns that lesson or it dies.”

The European Union’s position on the terms of Britain’s exit from the bloc has not changed despite Theresa May’s resignation, a Commission spokesperson said today.

The fact is, in nearly three years since the June 2016 referendum to leave the EU, Prime Minister May failed badly, and then in the end, as part of her final proposal she offered a vote on a referendum – even though she expected MPs to reject another public vote – but this was over-reaching.

Some of those in her own party seeking to replace the prime minister withdrew their consent of the latest plan, which was the end for her.

But as Mrs. May sought to highlight her accomplishments over the past three years, she departs without securing withdrawal from the EU, and that’s her legacy.  She was a miserable, historic failure.

The problem is going forward, parliament is still deeply divided and there is no way, today, a new Conservative leader can succeed where May failed.

So it would seem we are inevitably headed to a new general election, a new referendum, or the UK crashing out of the EU come October 31.  Those are the only choices.

Next week, the leadership battle will begin, with Boris Johnson the current odds-on favorite.  Once the Conservatives have narrowed it down to two candidates, they are then put to a vote by all Conservative Party members, who number approximately 120,000.

It is presumed a new leader will be in place by end of July, leaving just three months before the revised Brexit deadline.

Meanwhile, President Trump is scheduled to arrive in Britain on June 3 for a very awkward state visit and to take part in events to commemorate the 75th anniversary of the D-Day landings.

Euro Elections:  There are minimal results from the European Parliament elections thus far, with voting in some countries tomorrow and Sunday, so I’ll hold off until next time.  Except to say it’s all about the EU-skeptic movements across Europe, such as Nigel Farage’s Brexit Party, which was way ahead in the pre-vote polling.

Matteo Salvini, head of Italy’s far-right League party, told an audience in Milan last weekend, “The extremists are in Brussels and have governed Europe for 20 years.  We want to construct a future without the bureaucrats who only look to the past.”

Marine Le Pen, leader of France’s far-right National Rally, said, “Now we have a chance to change Europe from inside out.”

But the pro-EU establishment is expected to keep a clear majority in the 751-seat European Parliament, but it seems certain it will become far more fragmented, with some projecting EU-skeptic parties will win up to a third of the seats.

Turning to Asia...some data for Japan this week, with first-quarter GDP coming in at a much-stronger than expected 2.1% annualized pace, according to preliminary data, with Q4 revised up to 1.6%.

But a flash reading on manufacturing for May came in at 49.6, vs. 50.2 in April.

Consumer prices in April rose 0.9% ann. on core (ex-food), and up 0.6% for core-core CPI (ex-food and energy), but this is still well below the Bank of Japan’s elusive 2% target, so no change in policy is expected.

Additionally, the above growth figure is not expected to hold going forward, plus Prime Minister Shinzo Abe has vowed to go through with his October sales-tax hike from 8% to 10%.

Separately, President Trump is making a quick trip to Tokyo this weekend for talks with Abe, trade the focus, though North Korea will also be on the agenda.

In South Korea, preliminary data on exports in May was putrid, down 11.7% from a year ago for the first 20 days of the month, speaking of trade tensions, particularly pertaining to South Korea’s critical tech sector.

Semiconductor exports – which rose almost 30 percent in 2018 and make up one-fifth of the country’s exports – were down 33 percent through May 20 compared with a year earlier, after being down 25% in April.

Street Bytes

--Stocks fell again, the fifth straight week for the Dow Jones, -0.7%, the longest losing streak since 2011, and third straight for the S&P 500 (-1.2%) and Nasdaq (-2.3%).  It’s all about trade and the potential impact on the U.S. growth story.

--U.S. Treasury Yields

6-mo. 2.38%  2-yr. 2.16%  10-yr. 2.32%  30-yr. 2.75%

--Oil prices extended their slide after data Wednesday showed stockpiles of U.S. crude unexpectedly rose to their highest level in nearly two years last week, with West Texas Intermediate tumbling to $59.06 by the close today.

Inventories rose by 4.7m barrels from the previous week when a drawdown had been expected.  That took overall U.S. crude stocks to 476.8m barrels – the highest level since July 2017, according to the Energy Information Administration.

Adding to the downbeat sentiment this week is the ongoing trade war and the impact on global growth and softening demand for oil from China.

This all comes as Libya’s civil war has escalated to the point where the oilfields there could soon be under siege.  Plus you have the tension over Iran.

Related to the inventory picture, Saudi Arabia’s energy minister said last weekend that he recommended driving oil inventories down and that global oil supplies were plentiful.

“Overall, the market is in a delicate situation,” Khalid al-Falih told reporters ahead of an OPEC ministerial confab.  The formal OPEC meeting is next month, when the countries have to reach a new agreement on production, or extend the current one that reduced output by 1.2 million barrels per day.

--The Federal Aviation Authority indicated that the Boeing 737 MAX might return to service later than airlines had hoped, with acting director Dan Elwell saying this week that if it took a year for the grounding order to be lifted “so be it.”

International aviation regulators met on Thursday to discuss the 737 MAX’s return to service.  Europe’s Aviation Safety Agency (EASA) has told the FAA and Boeing it has three “pre-requisite conditions,” including demands that design changes for the plane are approved by the European agency, before it will lift the grounding of the MAX.

Indonesia, site of the first accident last October when a Lion Air flight crashed into the sea, has told the FAA it was considering seeking a second assessment of the FAA’s review of Boeing’s software update; Indonesian authorities claiming Boeing was being “arrogant,” with the company still not sharing sufficient information about the plane.

But Ryanair CEO Michael O’Leary said earlier in the week that he expected the 737 MAX to receive approval by late June or early July, though Elwell, when asked by reporters whether it was realistic the MAX could be flying again by the summer, said:

“If you said October I wouldn’t even say that, only because we haven’t finished determining exactly what the training requirements will be.

“If it takes a year to find everything we need to give us the confidence to lift the [grounding] order so be it.”

He said discussions with Boeing over approving the safety update were “a constant give and take until it is exactly right.  It’s taking as long as it takes to be right.  I’m not tied to a timetable.”

The FAA has yet to decide whether or not to require pilots to undergo simulator training for the safety update.

Boeing has yet to formally submit the software fix to the MCAS system in dispute to the FAA.

All of the above aside, Reuters then reported today that the MAX could be flying again in June and BA’s shares rebounded.

But tonight, the Wall Street Journal is reporting, “A review of (the 737 MAX jets) has expanded to include emergency procedures used by pilots on earlier 737 models, further delaying the MAX’s return to service, according to government officials.

“The (FAA) hasn’t questioned the safety of older jets currently in service, these officials said, but the broadened review has become a significant factor in adding months to the time expected to get the grounded fleet of 737 MAX jets back in the air.”

--Tesla shares continued to plummet to multi-year lows amid analyst downgrades, slowing demand, missed production targets and concerns over the debt load.  At least that was the case early in the week.

Analysts had said Tesla would deliver less than 360,000 vehicles in 2019 versus guidance of 360,000 to 400,000, but those expectations have declined.

Tesla shares were also hit after its recent update for its Autopilot software to allow cars to automatically change lanes was criticized by Consumer Reports, which said “it doesn’t work very well” and may “create potential safety risks for drivers.”

Charley Grant / Wall Street Journal

“More alarming than the selloff itself is the absence of a clear catalyst. It was just this month that Tesla was able to raise a net $2.4 billion by selling shares and convertible debt.  That should have softened the blow of dismal first-quarter results.  In the past, fresh infusions of capital have tended to push Tesla stock higher.

“A change in that pattern portends bigger issues than disappointing the investors who just showed faith in the company.  After all, the infusion didn’t eliminate Tesla’s medium-term need for external funding. Those funds are earmarked for bondholders, banks, suppliers and the significant capital spending its business requires this year.

“As a cash-burning operation, Tesla will continue to depend on the generosity of the capital markets to pay bills and attract talent via stock options.  The easier it is to tap the market, the more ambitious it can be in setting its goals.  Amid talk of a ‘Spartan diet’ by CEO Elon Musk, its horizons are now shrinking.  Tesla has laid off employees, closed stores and cut prices this year.

“Even after the recent tumble, there is a lot more sizzle than steak to Tesla’s story.  Its shares stll sell for more than 30 times next year’s earnings estimate of $6.47 a share, according to FactSet. Toyota and General Motors fetch about 10 and 6 times, respectively – assuming, of course, that consensus earnings hold firm.  Analysts had penciled in more than $11 a share in 2020 at the start of this year.

“Ludicrous speed was fun while it lasted.”

*Despite its recent capital raise, Tesla is due to pay $165 million on a loan in June, and roughly $566 million in convertible bonds that mature in November.

Well Thursday, Tesla shares opened lower again, hitting $186 (after $181 in the pre-market), but then they rallied on a leaked internal email from Elon Musk to staff that the company was on course to deliver a record number of cars in the second quarter, beating the 90,700 it sent to customers in the final quarter of last year.

There are some questions on whether the email needed to be reviewed by the SEC, under an agreement it has with Musk after it sued him for fraud over his use of Twitter.  But because it was an internal email, experts believed it is likely outside the SEC settlement.  How convenient.  The shares hit $200 this morning, but closed the week at $190, down $20 since last Friday.

On a totally different topic, Elon Musk-led SpaceX had a rather spectacular Thursday night, launching 60 of its own small satellites, the first of thousands the company plans to put in orbit.

Musk said late Friday that all 60 flat-panel satellites were deployed and were online a few hundred miles above Earth.  Each satellite is 500 pounds.  The orbiting constellation – named Starlink – will grow.

Musk says 12 launches of 60 satellites each will provide high-speed internet coverage throughout the U.S.  Twenty-four launches will serve most of the populated world, and 30 launches the entire world.  That will be 1,800 satellites in total, with more planned after that.

After Thursday’s launch, Space Exploration Technologies Corp. disclosed having raised more than $1 billion in equity offerings during the last few months.

The company’s major projects are building a giant spaceship and rocket booster capable of carrying humans to Mars and building out the Starlink constellation.

The space-based internet service will be an important source of funding for the company, potentially far greater than the revenue generated from launching rockets for customers, according to Musk.

A lot of us like this story far more than Tesla.

--Home Depot reported weaker-than-expected same-store sales growth of 2.5% because of the rainy weather and a drop in lumber prices, sharply missing expectations for a 4.2% rise.

The company’s net earnings rose to $2.5bn in the first quarter of fiscal 2019, beating expectations.

“We were pleased with the underlying performance of the core business despite unfavorable weather in February and significant deflation in the lumber prices compared to a year ago,” said Craig Menear, CEO.

But HD has said its sales growth was set to slow as the slowing U.S. housing market was denting demand for the do-it-yourself market.

--Lowe’s Co. outpaced rival Home Depot in sales growth for the first time since 2016, but the retailer trimmed its profit expectations for the year and the shares plunged 12%.

Lowe’s said comp store sales rose 3.5% in the quarter ended May 3, picking up later in the period after February’s weather curbed demand.

Lowe’s now expects adjusted earnings between $5.45 and $5.65 a share, lower than its previous guidance of $6 to $6.10 a share, as it’s had problems dealing with cost increases by its own admission.

CEO Marvin Ellison said Lowe’s was looking to raise retail prices to help offset higher costs.

--Target Corp. said sales and profit rose at the start of the year, as improvements to its stores, merchandise and digital capabilities bore fruit, the shares rising 8% in response on Wednesday.

Target reported a strong 4.8% rise in comp store sales for the quarter ended May 4, with CEO Brian Cornell saying Target’s sales and traffic are growing more than the broader market, resulting in share gains.

Online sales rose 42% from a year earlier, accounting for nearly half of overall growth in comp sales, as CEO Cornell added, “We’re continuing to see the bifurcation of winners and losers in retail.”

Target, which is a significant importer from China, has expressed concerns over tariffs.  But Cornell told investors that the company is well-positioned to manage the higher costs.

The company has been investing heavily to compete with the likes of Amazon.com and Walmart, while it benefits from store closures by Toys ‘R’ Us and others.

Target’s first-quarter profit rose 11% from a year earlier to $795 million, with total sales climbing 5.1% to $17.4 billion.

The company said it expects a low-to-mid-single-digit percentage increase for comparable sales in the current quarter, and affirmed its comp-sales expectations and earnings for the full fiscal year.

--Kohl’s shares tumbled 12%, after the department store operator reported same-store sales that badly missed forecasts and slashed its full-year profit outlook.

Comp sales fell 3.4% during the quarter ending May 4, when the Street expected a 0.1% dip.

“The year has started off slower than we’d like, with our first-quarter sales coming in below our expectation,” said CEO Michelle Gass.  “We are actively addressing the opportunities that impacted our first-quarter sales and we have strong initiatives that will enhance our sales performance in the second half.”

Kohl’s imports about a fifth of its goods from China, which is part of the equation in the company lowering its forecast for adjusted earnings in the current year to $5.15 to $5.45 per share, down from prior guidance of $5.80 to $6.15.

--Nordstrom reported a 3.5% decline in comp sales, while guiding lower. The shares had their worst day Thursday in eight years.   But the company said it was expanding its presence in New York City.

TJX, the parent of T.J. Maxx and Marshalls, said its comp-store sales rose 5% in the latest quarter.

J.C. Penney said its comp sales fell 5.5%, with the company hurt by its decision in February to stop selling major appliances, and sell furniture only on its website.

--Best Buy Co.’s shares fell 5% after the appliances and electronics retailer reported total overall sales were flat, while comp sales rose 1.1% in the first quarter to May 4, slower than previous periods but nonetheless the ninth consecutive quarter of growth.  Profit was up at $265 million vs. $208 million a year ago.

Online sales accounted for 15% of overall sales, up 14.5% to $1.31 billion.

CEO Hubert Joly reassured investors about Best Buy’s ability to mitigate the impact of the tariffs and said the company was going to press the Trump administration to limit the inclusion of consumer products on the next list of tariffs on Chinese imports.

Joly, who engineered a tremendous turnaround for Best Buy when he took control in 2012, is now turning the reins over to CFO Corie Barry, who at 44 will be one of the youngest CEOs of an S&P 500 company, let alone one of the few women.

--Dressbarn is closing up shop – 650 stores, 6,800 employees.  CEO Steven Taylor said, “This decision was difficult, but necessary, as the Dressbarn chain has not been operating at an acceptable level of profitability in today’s retail environment.”

Dressbarn was under the Ascena Retail Group’s umbrella, Ascena saying it would focus on its more profitable brands, which include Ann Taylor and Lane Bryant.  Critics say Ascena never invested a dime in Dressbarn, the chain losing out to the likes of Target.

Overall, already in 2019, there have been more than 7,000 store closings announced in the U.S.

--A federal judge in San Jose, Calif., ruled Qualcomm abused its position as a giant of the semiconductor industry to harm competition and overcharge cellphone makers, striking at the heart of the company’s business and sending shock waves through the smartphone industry.

“Qualcomm’s licensing practices have strangled competition” in the market for wireless modem chips for years, Judge Koh wrote as part of her ruling, parts of which were redacted to protect trade secrets.

Qualcomm has been on a rollercoaster the past month or so.  The shares rose from $59 to $89, following a highly-favorable settlement of its multi-year dispute with Apple, but now the stock has slid back to $67 after Judge Koh’s ruling.

Qualcomm requires phone makers to pay patent royalties based on the price of each handset whether or not the companies use its chips.  Unlike other semiconductor makers, Qualcomm makes most of its profit from patent fees rather than from its products.

But Judge Koh ordered Qualcomm to renegotiate all of its existing patent-licensing deals.

--T-Mobile U.S. Inc.’s $26 billion acquisition of rival Sprint Corp won the support of the head of the Federal Communications Commission on Monday, in a big step toward the deal’s approval.  FCC Chairman Ajit Pai, a Republican, came out in favor of the combination after the companies offered concessions, such as in agreeing to invest in new wireless home broadband service, especially in rural areas..  Sprint shares surged 23% on the news, while T-Mobile’s rose 5%.

Pai said the commitments made by the two companies would substantially advance two of the FCC’s key objectives: “closing the digital divide in rural America and advancing United States leadership in 5G.”

Pai’s position is a departure from the stance taken by past FCC leaders who didn’t want to see the U.S. wireless market with fewer than four nationwide operators.  The commission, for example, joined the Justice Department in 2011 by opposing AT&T’s plan to buy T-Mobile.

And DOJ’s antitrust division seemed to indicate its disapproval, their clearance needed to get the deal done.  Democrats, including in the FCC and the Senate, predict prices for cell phone service would rise as a result, but the fact is, no way Sprint survives without the merger and how is that good for anyone?

Note to consumers...prices are going up, regardless, as 5G becomes the norm.

Further meetings with the Justice Department and state officials are in the cards.

T-Mobile has about 80 million customers and Sprint around 55 million.                              

--Ford Motor Co. said on Monday it will eliminate about 10% of its global salaried workforce, cutting about 7,000 jobs by the end of August as part of a larger restructuring in a move that will save the No. 2 automaker $600 million annually.

CEO Jim Hackett told employees that the cuts include both voluntary buyouts and layoffs, while open positions are being frozen.  About 2,300 will be impacted in the U.S.

Hackett said in an email to employees: “To succeed in our competitive industry, and position Ford to win in a fast-changing future, we must reduce bureaucracy, empower managers, speed decision making, focus on the most valuable work and cut costs.”

Ford has been restructuring its operations globally to improve profitability and speed product development, announcing previous cuts in Europe, South America and Russia.

Ford also signed a deal with Volkswagen AG to join forces on commercial vans and pickup trucks.  And the two are negotiating a broader alliance for electric and self-driving vehicle development.

--Southwest Airlines Co.’s mechanics union said it had voted to ratify a tentative contract agreement with the company, ending seven years of labor negotiations.

--The aforementioned Ryanair reported a 29% decline in its full year profit to March 31, on the back of declining fares and higher fuel and staff costs.

Profit for the period was $1.13 billion on revenue of $8.39bn for the 12 months, the latter up 6%.

Ancillary sales, from non-ticket items such as baggage fees and sales of on board food and drinks, key to Ryanair’s business model, performed strongly, up 19% to $2.66bn.

--My former employer, PIMCO, is facing a lot of heat these days, as both staff – and clients – have learned that the central figure in the college admissions scam, “Rick” Singer, gave presentations onsite to employees at one of the world’s biggest bond managers.

As reported by the Wall Street Journal, there has been rising anxiety at headquarters in Newport Beach about whether more employees other than former CEO Douglas Hodge will be ensnared.

Hodge, according to the FBI, paid Singer hundreds of thousands of dollars to help his children get into college.  Last month he pleaded not guilty to money-laundering and conspiracy to commit fraud.

Singer has pleaded guilty to four counts, including racketeering and money-laundering and is awaiting sentencing.

But Hodge wasn’t the only PIMCO executive who hired Singer.  Previously unreported, William Powers also recommended him.

Clients, understandably, are asking what the impact would be if other employees are swept up in the case, though none have pulled their money out as yet.

Powers, who retired in 2010, said Singer had helped his daughters with college admissions, “before he went to the dark side.”  What I remember of the man, he is far too smart to have done anything stupid.

But Hodge?  Well, he allowed Singer to pitch his son to USC as a football recruit.  The boy was admitted to USC and never played for the team.

--Famed hedge-fund manager David Tepper announced he plans to turn Appaloosa LP into a family office managing his personal wealth as he spends more time focused on running his football team, the Carolina Panthers.

Appaloosa has $13 billion in assets, with Tepper’s money making up 70% of it.

Tepper has returned money to investors over the years in an attempt to manage the size of the funds he runs and their returns, but the process to return it all could take a year or two.

Tepper is heavily involved in philanthropic causes such as education and food banks.  His outside investors have done exceedingly well vs. the market averages.

In 2016, he moved his offices from a location a minute from yours truly to Florida, much to the consternation of New Jersey lawmakers concerned with the impact on the state’s revenues.

--HBO’s highly anticipated “Game of  Thrones” finale on Sunday was the most watched program in the cable network’s history, with 19.3 million viewers across all platforms, surpassing the previous episode’s 18.4 million on May 12.

The “GoT” finale was higher than the 18 million who tuned in for the final episode of television’s most watched comedy, “The Big Bang Theory,” which aired Thursday on CBS, though that figure is expected to rise when delayed viewing is added in.

But while these two audiences are big by today’s standards, the finale of “Friends” in 2004 was watched by 52.5 million.  NBC’s “Seinfeld” drew 76 million in its 1998 finale.

And the biggest ever final episode was for “MASH,” viewed by 106 million on CBS in 1983.

--The New York Post is reporting there is turmoil inside the “Tonight Show” amid an executive shakeup and plunging ratings.  Jimmy Fallon’s show has been steadily falling behind Stephen Colbert’s “Late Show” and on Wednesday it was revealed that Colbert has topped Fallon for a full season for the first time.  Insiders say NBC kingpin Lorne Michaels, who championed Fallon’s rise from “SNL” to “Late Night” and then “Tonight,” is stuck in the past and that Fallon has to reinvent himself to compete.

Personally, I can’t watch the “Tonight Show” anymore because there is no real opening monologue.  Some of us of a certain age were spoiled with Johnny Carson, and Jay Leno.  Growing up, I learned about the world through Carson, my parents allowing me to stay up to midnight to watch him.

Foreign Affairs

Iran: Sunday, President Trump tweeted: “If Iran wants to fight, that will be the official end of Iran.  Never threaten the United States again!”

Monday, Trump told reporters: “I think Iran would be making a very big mistake if they did anything. If they do something, it will be met with great force but we have no indication that they will.”

Iranian Foreign Minister Mohammad Javad Zarif replied on his Twitter account: “Try respect – it works!”

And, Mr. Trump “hopes to achieve what Alexander [the Great], Genghis [Khan] & other aggressors failed to do.  Iranians have stood tall for millennia while aggressors all gone.  #EconomicTerrorism & genocidal taunts won’t ‘end Iran,’” Zarif added.

Thursday, a senior commander of Iran’s Revolutionary Guards called the stand-off between Iran and the United States a “clash of wills,” suggesting any enemy “adventurism” would meet a crushing response, as reported by Fars news agency.

Iran’s armed forces chief of staff Major General Mohammad Baqeri said, “The confrontation and face-off of the Islamic Republic of Iran and the malicious government of America is the arena for a clash of wills,” pointing to a battle during the 1980-88 Iran-Iraq war where Iran was victorious and said the outcome could be a message that Iran will have a “hard, crushing and obliterating response” for any enemy “adventurism.”

Iran also said it would not hold talks with the U.S. “under any circumstances” while the rights of the Islamic Republic are not respected, according to a spokesman for the Supreme National Security Council.

Keyvan Khosravi said there had been an uptick in official delegations traveling to Tehran from various capitals, although “most of them are coming on behalf of America.”

Iran has quadrupled its production of low-grade uranium enrichment amid increased tensions, but officials have stressed the uranium would be enriched to the 3.67 percent limit set by the 2015 nuclear deal, making it suitable for civilian nuclear power generation but well below the 90 percent purity required to make atomic bombs.  That said, by increasing production, Iran will soon exceed the stockpile limit of 300kg, above which it is supposed to ship the excess out of the country.

The Trump administration is planning to send several thousand additional troops to the Middle East, while rushing billions of dollars in arms to allies in the region, as reported by multiple news outlets Thursday and Friday.  Today, the president announced an initial deployment of 1,500. 

Trump had said earlier he didn’t believe the extra troops were needed.

The U.S. currently has more than 20,000 military personnel in Iraq, Afghanistan and Syria, along with thousands more as part of a recent deployment of an aircraft carrier and support ships and bombers to the Gulf region.

The administration is expected to declare an emergency under U.S. arms-control laws amid the increased tensions, which would allow it to sidestep normal congressional review and rush billions in weapons to key Middle East allies, especially Saudi Arabia and the UAE.

This is all part of the decision to designate the Islamic Revolutionary Guard Corps, or IRGC, as a foreign terrorist organization.

Syria: The State Department is investigating a suspected chlorine gas attack on Sunday by the Syrian government in northwest Syria.  State Department spokeswoman Morgan Ortagus said that the United States “continues to see signs” that Syrian President Bashar al Assad’s government “may be renewing its use of chemical weapons, including an allege chlorine attack in northwest Syria.”

The acting U.S. representative to the United Nations, Jonathan Cohen, said on Friday that “any use of chemical weapons, including chlorine gas, will be met by a strong, swift response.”

On a different topic, one I’ve discussed for months....

David Ignatius / Washington Post

“For sheer hypocrisy, it’s hard to match the European nations that are refusing responsibility for dozens of their nationals who became jihadist ‘foreign fighters’ over the past five years and are now warehoused in makeshift prisons in northeastern Syria.

“U.S. officials say about 2,000 foreign fighters from more than 50 countries are among the roughly 10,000 captured Islamic State fighters held in several dozen ramshackle prisons in Syria.  The detention facilities are run by the Syrian Democratic Forces, or SDF, the Kurdish militia that partnered with a U.S.-led coalition to defeat the Islamic State. The other 8,000 captives are either Syrian or Iraqi fighters.

“The Pentagon and State Department have implored European nations to repatriate their nationals for trial and imprisonment, or at least pay the SDF to hold them temporarily. But so far, most European nations have refused. The SDF warns that it can’t imprison them indefinitely and doesn’t have laws that would allow formal prosecution in the Kurdish-controlled zone.

“ ‘If these prisoners are not going to be taken, what is the endgame?’ complained one frustrated Pentagon official during an interview: ‘What comes next?  People haven’t thought about it.’

“The Europeans protest that they don’t have adequate laws to try their nationals who committed terrorist offenses on foreign soil, and that they don’t have evidence that would stand up in court. They worry, too, that Islamist extremists in European prisons would radicalize other Muslim prisoners and then be released back into society in a few years, perhaps to commit new terrorist acts.

“It’s a political problem for Europe, too, explained one European who has talked extensively with officials there about the repatriation issue.  ‘The European Union is in denial,’ he told me.  ‘The security and interior ministers don’t want to hear about it.  The Europeans feel that a government that takes them back has no chance for reelection.’

“The problem isn’t just the foreign fighters in the prisons but also their wives and children living in camps. Experts estimate that of the 74,000 people at a huge camp known as al-Hol, about 11,000 may be related to fighters who aren’t Syrian or Iraqi.

“The European desire for self-protection was epitomized by Ben Wallace, Britain’s security minister, who told the Guardian: ‘I’m not putting at risk British people’s lives to go looking for terrorists or former terrorists in a failed state.’

“The International Committee of the Red Cross, which visits prison and civilian camps in northeastern Syria, said in a statement: ‘Countries of origin cannot turn their backs.  People – especially children – cannot be made stateless.  Faced with this complex problem, moral inertia is not an option.’

“What peeves some U.S. officials is that the European nations shunning responsibility for Islamic State prisoners have for years been lecturing the United States about its immoral treatment of prisoners at Guantanamo Bay in Cuba.  Facing a post-conflict dilemma now that’s similar to what the United States encountered with al-Qaeda, the Europeans are ducking the problem....

“President Trump tweeted about the problem on April 30, as the last holdouts of the Islamic State were being routed and sent to the overcrowded, underfunded SDF prisons: ‘European countries are not helping at all, even though this was very much done for their benefit.   They are refusing to take back prisoners from their specific countries.  Not good!’  For once, Trump was right....

“The SDF, which has limited resources and faces a Turkish threat of attack, has kept holding the prisoners but has warned it can’t do so indefinitely....

“European nations talk of some sort of international tribunal for the jihadist prisoners, but there has been no significant movement to make that happen.

“Defeating the Islamic State was a worthy goal.  Ignoring the prisoners who were captured in that war, and leaving the problem to others, is reprehensible.”

Meanwhile, the crisis in the province of Idlib continues.  The area, in the north near the Turkish border, is home to some 3 million people and remains under the control of rebel groups, which President Assad and his Russian allies continue to attack.  According to the United Nations, at least 150,000 have fled north.

Another humanitarian crisis looms...another refugee crisis in Europe, potentially, with tens of thousands of civilians in Idlib already refugees from other parts of Syria.

But the Trump administration has said little, despite assurances from Syria and Russia that Idlib would not be attacked. 

Libya: Eastern commander Khalifa Haftar told French President Emmanuel Macron that conditions for a ceasefire were not in place.  Macron and French officials have for several weeks called for an unconditional ceasefire in the battle for Tripoli after Haftar last month launched an offensive on the Libyan capital.

Macron and Haftar met in Paris and a presidential spokesman said after, “When the question of the ceasefire was put on the table, Haftar’s reaction to this was to ask ‘negotiate with whom for a ceasefire today?’”

Haftar says the GNA (the UN-backed Government of National Unity led by Prime Minister Fayez al-Serraj) is “completely infested by militias and it is not for him to negotiate with representatives of these militias,” according to Macron’s spokesman.

Israel: Evan Gottesman / Haaretz

“ ‘Israel is on the side of God.’  At least, according to U.S. ambassador to Israel David Friedman, who stated as much last week at a function commemorating the first anniversary of the U.S. embassy relocation to Jerusalem.

“That may be Friedman’s sincerely held personal belief, but it was off-base for a U.S. diplomat to say in a public venue, even about an American strategic partner like Israel.  His comment was a stark reminder that the Trump administration has chosen a side too, shedding any pretense of America as an honest broker in the Israeli-Palestinian conflict.

“In this context, a report circulated last weekend on Israel’s Channel 12 from last weekend that the United States would implicitly greenlight Israel’s unilateral annexation of West Bank settlements should be unsurprising. Yet despite all of this, the Trump team is still gearing up to release their perennially-delayed Israeli-Palestinian peace plan next month.

“And the White House’s transparent and excessive one-sidedness begs an important question: when and if the American proposal is released, will it matter?

“After all, it seems obvious that the ‘ultimate deal’ will be dead on arrival.  Over the past two years, the United States has slashed all forms of aid to the Palestinians, including for humanitarian programs not directly tied to the Palestinian Authority, such as USAID programs and funding for East Jerusalem hospitals outside the PA’s purview.  The U.S. also recognized Jerusalem as Israel’s capital and relocated its embassy operations there.

“The president and his advisers once pedaled the idea that Israel would eventually have to pay for these benefits with concessions of its own. But they were always freebies, a fact that is painfully clear today.  The PLO, for its part, cut off contacts with Washington relatively early in the process....

“The administration’s past policies long ago laid bare its intention for Israel and the Palestinians.  All of the land between the Mediterranean and the Jordan, save Gaza, will remain under varying degrees of de facto Israeli control.  The Palestinians will be expected to trade statehood and political independence for a nondescript package of economic improvements (to be coordinated by the same administration that cut off their aid).

“Jared Kushner cast aside any remaining doubts about the United States position a few weeks ago when he publicly disavowed the two-state model.  All that remains to be seen is how exactly this will all be worded in the context of a peace plan....

“Since President Trump took office, the White House has hardly been opaque about its approach to Israel and the Palestinians.  Still, even if the plan for the ‘ultimate deal’ is woefully one-sided (and all indications are that it will be), it is still bound to have a major impact.  But the question isn’t one of the proposal’s substance, or lack thereof – it’s how the parties will react.

“It may be difficult to imagine Israeli-Palestinian relations deteriorating beyond the current low ebb.  Yet the fallout from a prospective Trump plan could actually make a sustainable resolution to the conflict look even more distant than it already does.”

China: Editorial / Washington Post

“China is carrying out genocide of a people’s identity.

“The victims are more than 1 million Turkic Muslim Uighurs in Xinjian province in China’s northwest, who have been herded into barbed-wire centers for assimilation into Han Chinese thinking and way of life. While Beijing claims the camps are vocational schools, eyewitnesses relate a story of coerced indoctrination and mass ethnic cleansing.  People are not being killed as they were under the Nazis, but their way of life and their heritage are being eradicated against their will. These people are being stamped into conformity and obedience to the ruling Communist Party.

“The existence of the camps has been confirmed by satellite photography, and outside investigators have shown that China is using Xinjiang as a laboratory for intrusive surveillance of the Uighurs, from video cameras to genetic fingerprints, creating massive databases that can be used to target the population.

“Caught up in the trade dispute with China, the Trump administration’s response has been late, and negligent. The administration is still debating whether to impose sanctions on companies and people involved in the Uighur repression.  Officials should stop talking and start acting.”

There is a bipartisan effort in the Senate unfolding to address the situation, and senators from both parties also reintroduced legislation on Thursday committing the government to punish Chinese individuals and entities involved in what they call Beijing’s “illegal and dangerous” activities in the South and East China seas.

If it becomes law, the “South China Sea and East China Sea Sanctions Act” would require the government to seize U.S.-based financial assets and revoke or deny U.S. visas of anyone engaged in “actions or policies that threaten the peace, security or stability” of areas in the South China Sea that are contested by one or more members of the Association of Southeast Asian Nations (Asean).

The U.S. sent another destroyer within 12 nautical miles of the disputed Scarborough Shoal on Sunday, the second “freedom of navigation operation” in the region, which upsets China to no end.

And Wednesday, the U.S. sent two Navy ships through the Taiwan Strait, as the island is yet another flashpoint in the rapidly increasing tensions between Washington and Beijing.

Chinese Foreign Ministry spokesman Lu Kang said Beijing lodged “stern representations” with the U.S.

“The Taiwan issue is the most sensitive in China-U.S. relations,” he told a daily news briefing in Beijing.

Lastly, as China looks for ways to retaliate against the United States in the trade war, one potential target looms large, rare earth metals.

The minerals are vital to the production of components that power electric vehicles, anchor the audio and camera systems of Apple’s iPhones and help the U.S. military’s guided missiles reach their targets.

The elements are predominantly mined and refined in China, so as tensions have escalated, some are questioning whether at some point Beijing will use the “nuclear option,” as a check on President Trump’s efforts to place tariffs on nearly all goods exported from China.

President Xi Jinping and his top trade negotiator, Vice Premier Liu He, were photographed at a rare earth mining and processing plant in China’s eastern Jiangxi province this week.

Would they dare ban the export of rare earths to the U.S. directly?  That’s the nuclear option.  More likely, China could restrict exports.

Russia: For the second time in two days, U.S. F-22 stealth jets intercepted Russian bombers and fighter jets off the coast of Alaska, according to the North American Aerospace Defense Command.  The Russian Tu-95 bombers had entered the Alaskan Air Defense Identification Zone, per NORAD, a zone extending approximately 200 miles off Alaska’s western coast.    The second time, the bombers were accompanied by Su-35 fighter jets and subsequently intercepted by U.S. aircraft.

NORAD did say that the Russian aircraft did not actually enter U.S. or Canadian sovereign airspace.

The Russian flights are seen as training missions for its military for a potential crisis.

India: Prime Minister Narendra Modi swept to a huge election victory on Thursday, and while it will take weeks to receive official, final results, all indications are from exit polls and India’s Election Commission that Modi’s Hindu-nationalist Bharatiya Janata Party (BJP) was on target for about 303 of the 542 seats available, up from the 282 it won in 2014 and more than the 272 seats needed for a majority in the lower house of parliament.  With its coalition partners, Modi will control about 350 seats.

The opposition Congress party, which has ruled India most of the years since independence, will have about 52 seats, last I saw.

Ukraine: The speaker of Ukraine’s parliament condemned President Volodymyr Zelensky’s decree to dissolve the legislature and hold snap elections as unconstitutional.

Zelensky signed a decree the day after he was inaugurated this week to immediately disband parliament and hold elections on July 21.

The president has claimed he has the authority to do so because parliament has lacked a ruling coalition since 2016, Zelensky seeking to capitalize on the momentum of his presidential win.

Separately, in his inaugural address, Zelensky vowed to end the five-year conflict with Russia-backed separatists, pledging to win back territories seized.

“We didn’t start this war, but it’s up to us to finish it,” he said on Monday.

For his part, Russian President Putin has said he will only congratulate Zelensky if the new leader makes progress in normalizing relations with Russia, according to spokesman Dmitry Peskov.  Peskov also reiterated Moscow’s position that Crimea is Russian territory while the conflict in the Donbas region is an internal issue for Ukraine.

Austria: Chancellor Sebastian Kurz disbanded his coalition with the Freedom Party (FPO) last weekend after its leader, Heinz-Christian Strache, was caught on video offering to fix government contracts for a woman posing as a Russian oligarch’s niece.

The apparent sting operation followed a series of lesser scandals that strained the governing coalition.  Most were related to anti-Semitism or racism involving the FPO, a party formed in 1956 and first led by a former officer in the SS, the armed wing of the Nazi party, the FPO struggling for years to clean up its image.

So Kurz was forced to distance himself from the far right and while the FPO’s support fell, thus far Kurz’ has held firm as he called for a snap election.

Because of Austria’s political system, an absolute majority is rare for one party, and it was in December 2017 that Kurz made Austria one of the few European countries to have the far right in government when he brought in the FPO.

The crisis came at a critical time for the European Union and the above-noted EU Parliamentary elections, as across the Continent, far-right, populist leaders were campaigning to increase their share in the chamber.

Many of Europe’s populists share Vladimir Putin’s vision to widen political divisions and weaken Western institutions.

The Freedom Party has longstanding ties with Russia.

As for Heinz-Christian Strache, who stepped down after the release of the video, he played down his comments as “typical alcohol-fueled macho behavior” as he tried to impress the “attractive hostess.”

Venezuela: A worsening fuel shortage has forced the military to oversee rationing of gasoline at service stations in several parts of the country.  At some stations, angry residents said they had been waiting days for fuel.

Australia: Prime Minister Scott Morrison vowed to get straight back to work after a shock general election victory, which has delivered Australia three more years of conservative government.

The center-left Labour Party was rated an overwhelming favorite by pollsters and with odds-makers to topple the Liberal-National coalition government after its six years in power.

But, instead, Morrison, who became prime minister in August amid a contentious internal party squabble that resulted in Malcolm Turnbull being dumped as leader, swept the coalition to victory.

“I’ve always believed in miracles,” Morrison told party supporters.

Random Musings

--Presidential tracking polls....

Gallup: 42% approval of President Trump’s performance, 52% disapproval; 90% Republicans, 33% Independents (May 15).
Rasmussen:  46% approval, 52% disapproval (May 24).

In a new national Quinnipiac University Poll released Tuesday, President Trump received a 38% approval rating, 57% disapproval, compared to a 41-55 ratio in a May 2 survey.

But 71% rate the economy “excellent” or “good,” the highest total number for American voter attitudes on the economy in almost 18 years.

Voters say 48-40 the president’s trade policies are bad for the economy.

Among Democrats or those leaning Democratic, Joe Biden is the top pick nationally with 35%, with Bernie Sanders at 16% and Elizabeth Warren 13%.  Kamala Harris is at 8%, while Pete Buttigieg is at 5% (a comedown from 10% in an April 30 Quinnipiac poll).

Among the Democratic candidates, Biden is the only contender with a positive favorability rating, 49-39.  The others are all mixed.

41-48 for Sanders; 32-41 for Warren; 27-30 Harris.

Buttigieg is at 23-19, favorable, but he is still largely an unknown.

Interestingly, New York City Mayor Bill de Blasio has an 8 percent favorability rating, 45 percent unfavorable.  Yup, 8-45.

In a Monmouth University Poll, Trump receives a 40% approval rating, 52% disapproval, similar to a 40-54 standing in April.  [37% say Trump should be reelected, 60% say it is time for someone new in the Oval Office.]

Just 39% say Trump should be impeached, while 56% disagree with this course of action.  [Support for his impeachment in the Monmouth Poll has ranged from 36% to 42% since July 2017.]

What’s disturbing about this survey is that despite the fact Robert Mueller’s report was unambiguous about Russian interference in the 2016 election, only 44% of the public says that Russia definitely tried to interfere. 

This survey, though, focused on the Mueller report, with two-thirds of Americans (67%) saying Don McGahn should appear before Congress to testify.  20% say he should not appear.  [Republicans are split...41% say he should, 38% say he should not.]

Nearly 3-in-4 (73%) of Americans say Robert Mueller should testify before Congress.

A separate Monmouth poll on the Democratic race had Joe Biden receiving the support of 33% of Democrats and Democratic-leaning voters, up from 27% in April.  Sanders is at 15%, a decline from 25% in March and 20% in April. Kamala Harris received 11%, Elizabeth Warren 10%, and Mayor Pete 6%.

--A new CBS News poll finds that two-thirds of Americans want Roe v. Wade left in place, 67%, while 28% believe it should be overturned.

Republicans are 45% (keep as is), 48% (overturn it).

Democrats are 87% (keep as is), 11% (overturn it).

65% of men say keep it as is, 69% of women believe the same.

On the same topic, a Quinnipiac poll has American voters agreeing 65% to 27% with Roe v. Wade.  Republicans disagree 58-34.

Voters by an 82-13 margin say abortion should be legal when pregnancy is caused by rape or incest. Republicans agree 68-25.

Americans oppose 48-41 banning abortion after a fetal heartbeat is detectable.               

--Michigan GOP Rep. Justin Amash said Saturday he had concluded Donald Trump committed “impeachable conduct” and accused Attorney General William Barr of intentionally misleading the public.

Amash’s comments recommending Congress pursue obstruction of justice charges against Trump were the first instance of a sitting Republican in Congress calling for Trump’s impeachment.

The thing is Amash – a libertarian conservative elected during the Tea Party wave of 2010 – was a founding member of the House Freedom Caucus, a key bloc of Republicans who worked to shift the GOP caucus to the right on many issues, but he has found himself breaking with his conservative allies who have embraced the President.

Those in Amash’s district, from what I’ve read and seen, are not happy with his comments, leaving some to wonder if he is beginning to set himself up for being on the top of the Libertarian ticket in 2020.

President Trump tweeted:

“Never a fan of @justinamash, a total lightweight who opposes me and some of our great Republican ideas and policies just for the sake of getting his name out there through controversy.  If he actually read the biased Mueller Report, ‘composed’ by 18 Angry Dems who hated Trump,....

“....he would see that it was nevertheless strong on NO COLLUSION and, ultimately, NO OBSTRUCTION...Justin is a loser who sadly plays right into our opponents’ hands!”

--Bret Stephens / New York Times

“Earlier this month, a video of Joe Biden saying he had ‘no empathy’ for ‘the younger generation’ that ‘tells me how tough things are’ resurfaced on social media.  The video was over a year old, but it elicited predictable howls from members of the dissed demographic.  ‘Nothing says ‘perfect candidate to lead the most powerful nation in the world’ like ‘I have no empathy,’’ wrote someone with the Twitter handle @anarchopriapism.

“My own reactionary reaction was different.  O.K., I thought, I could definitely vote for Joe – provided he has the mettle to stand his ground....

“In this election cycle, no faction on the Democratic side more richly deserves rebuking than the one Biden singled out – which is not, of course, anywhere close to the entire millennial generation (roughly 80 million strong), or their younger siblings in Gen Z.  But it is that part of these younger generations that specializes in histrionic self-pity and moral self-righteousness, usually communicated via social media with maximum snark.

“Gawker spawn and HuffPo twerps: This especially means you.

“It also means all those who recklessly participate in the search-and-destroy missions of the call-out culture. These are the Harvard students who demanded, and last week obtained, the dismissal of law professor Ronald Sullivan and his wife Stephanie Robinson as faculty deans at an undergrad dorm because Sullivan had the temerity to join Harvey Weinstein’s defense team.  They are the Middlebury students who in 2017 violently assaulted professor Allison Stanger for the crime of moderating a talk with Charles Murray. They are the Yale students who in 2015 surrounded and hounded professor Nicholas Christakis because he would not agree to their demands that he denounce his wife for believing in free speech.

“The signature move in each of these instances (and there are so many more) is to allege an invisible harm in order to inflict an actual one.  In place of an eye for an eye, we have professional destruction for emotional upset.  Careers and reputations built over decades come to ruin, or nearly so, on account of a personal mistake or a disfavored opinion.

“All of these struggle sessions play to the sound of chortling twenty-somethings, who have figured out that, in today’s culture, the quickest way to acquire and exercise power is to take offense.  This is easy to do, because the list of sins to which one may take offense grows with each passing year, from the culturally appropriated sombrero to the traditionally gendered pronoun.

“It’s also easy because the grown-ups rarely push back and, in fact, are often happy to go along.  Not one of the students who joined the mob at Middlebury was expelled. And say what you will of the students who demanded the ouster of Sullivan and Robinson, they would have gotten nowhere without the weaselly connivance of Harvard Dean Rakesh Khurana, who discovered unspecified problems with the ‘climate’ of the dorm in order to justify his verdict.

“Which brings me back to Biden.  The rap against the former veep is that he’s old, frequently puts his foot in his mouth, and occasionally says nice things about Republicans.  Another way of putting all that is that he’s mature, unstudied, and not just another partisan hater.

“Also, he refused to beg forgiveness last month for being a tad too touchy-kissy.  Maybe he should keep his hands in his pockets, but at least it means he isn’t prepared to capitulate to the icy codes of personal decorum written by people who don’t know the difference between exuberant human warmth and unwarranted sexual advances.

“To which one can only say: Keep it up, Joe!  He’s already leading all of his Democratic primary rivals in every demographic group save millennials (obviously), where Bernie Sanders has a narrow lead.  He could make a virtue of the defect by emphasizing his distance from everything that defines the worst aspects of millennial culture – the coddled minds and censorious manner and inability to understand the way the world works. Does it ever occur to some of our more militant millennials that the pitiless standards they apply to others will someday be applied pitilessly to them?

“The sensible center of America – that is, the people who choose presidents in this country – wants to see Donald Trump lose next year, but not if it means empowering the junior totalitarians of the left.  Now is Biden’s chance to make it clear he’s just the man to fulfill that hope.”

--Researchers with the Environmental Investigation Agency and other groups say they have pinpointed the major sources of a mysterious spike in a dangerous, ozone-destroying chemical, CFC-11, which is primarily used for home insulation, though global production was to have been phased out in 2010.

But scientists have seen a slowdown in the rate of depletion and a new study says this is mostly being caused by new gas production in eastern provinces of China.  Why I’m shocked!

[Having seen firsthand disgusting duck ponds in eastern Fujian province, I would never trust China to come clean on the environment.  The government hides everything from the people, especially the facts in this realm.]

It was in the mid-1980s that a gaping hole in the ozone layer over Antarctica was discovered, and in one of the truly great examples of international cooperation, the Montreal Protocol of 1987 was agreed to, which banned most of the offending chemicals, CFCs, that break down in the atmosphere, releasing chlorine that rapidly destroys the ozone layer.

So then research suggested the hole in the Northern Hemisphere could be fully fixed by the 2030s and Antarctica by the 2060s, but the rate of decline in CFC-11 was discovered, and it was suspected the new production was coming from East Asia.

And then further investigation showed the CFC-11 was used in the majority of insulation produced by firms they contacted.  But this is only 40-60 percent of the increase in emissions coming from eastern China.

China says it is cracking down on the “rogue manufacturers.” [BBC News]

--The Cocos Keeling Islands are a chain of 26 tiny outcrops that are a territory of Australia, some 1,300 miles northwest, and researchers from the University of Tasmania recently found giant mounds of trash there, some 400 million pieces, or 260 tons, 95% of which was plastic.  According to the study, contained in the trash was an estimated 373,000 toothbrushes and 977,000 shoes.

“25% was classified as disposable plastics, including straws, bags, and toothbrushes.”

According to the Ocean Conservancy, every year, an estimated 8 million to 12 million metric tons of plastics enter our ocean on top of the estimated 150 million metric tons that are already in our marine environments. 

The study was published in the peer-reviewed British journal Scientific Reports.  [Reuters]

--The U.S. Department of Housing and Urban Development requires studies of homelessness in key urban areas every two years, and a count of three San Francisco Bay Area counties showed the number of homeless people increased 17% in San Francisco and 43% in the county that includes Oakland. 

More than 25,000 people were counted as homeless during an overnight tally conducted in San Francisco, Alameda and Silicon Valley’s Santa Clara counties in January.  A count of Los Angeles is expected end of the month.

--Treasury Secretary Steven Mnuchin said Wednesday that Harriet Tubman – former slave, abolitionist, “conductor” on the Underground Railroad – will not become the face of the $20 bill until at least 2026, or after President Trump leaves office.  The Tubman bill was to be unveiled in 2020.

So we get Andrew Jackson until then.

According to the New York Times’ Alan Rappeport, “Mr. Mnuchin, concerned that the president might create an uproar by canceling the new bill altogether, was eager to delay its redesign until Mr. Trump was out of office, some senior Treasury Department officials have said.  As a presidential candidate in 2016, Mr. Trump criticized the Obama administration’s plans for the bill.

“That April, Mr. Trump called the change ‘pure political correctness’ and suggested that Tubman, whom he praised, could be added to a far less common denomination, like the $2 bill.  ‘Andrew Jackson had a great history, and I think it’s very rough when you take somebody off the bill,’ Mr. Trump said at the time.”

No comment.

--A top NASA executive hired in April to guide strategy for returning astronauts to the moon by 2024 has resigned, the space agency said on Thursday, the culmination of internal strife and dwindling congressional support for the lunar initiative.

Just six weeks ago, Mark Sirangelo was named special assistant to NASA chief Jim Bridenstine.   Reuters reported Sirangelo was escorted out of NASA’s headquarters in Washington after his resignation.

There’s a deeper story here.  “60 Minutes” material.

--I can’t help but note the gift billionaire Robert F. Smith gave to the graduating class of Morehouse College in commencement ceremonies on Sunday.  He offered to pay off the college debt of every graduate, valued at about $40 million, though the exact figure is being negotiated, according to a Morehouse spokesperson.

Smith is CEO of Vista Equity Partners, a private-equity firm.  Morehouse is a historically black male college.

---

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

God bless America.

---

Gold $1284
Oil $59.06

Returns for the week 5/20-5/24

Dow Jones  -0.7%  [25585]
S&P 500  -1.2%  [2826]
S&P MidCap  -1.4%
Russell 2000  -1.4%
Nasdaq  -2.3%  [7637]

Returns for the period 1/1/19-5/24/19

Dow Jones  +9.7%
S&P 500  +12.7%
S&P MidCap  +12.0%
Russell 2000  +12.3%
Nasdaq  +15.1%

Bulls 49.5
Bears
17.2

Have a Great Memorial Day.

And remember...think not only of their passing, but remember the glory of their spirit.

Brian Trumbore