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Week in Review

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06/25/2016

For the week 6/20-6/24

[Posted 11:15 PM ET, Friday]

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Edition 898

Brexit and Europe

The polls ahead of the June 23 referendum in the U.K. on whether to stay in the European Union or exit, Brexit, were all amazingly consistent.

June 19...YouGov 44% Remain 43% Leave; Opinium 44-44; Survation/Daily Mail 45 Remain 42 Leave
June 20...ORB/Daily Telegraph 53 Remain 46 Leave
June 22...Opinium 45 Leave 44 Remain
June 23...Financial Times poll of polls 48 Remain 46 Leave

Final tally, 51.9% Leave 48.1% Remain.  Turnout was a record 70%.

It was only a surprising result because the bookmakers generally had it 80/20 or 85/15 Remain come Thursday morning.  How did the polls consistently peg the closeness but the vaunted London oddsmakers didn’t?  Who knows.

What we do know is that forget the economic consequences, which will play out over time. The political consequences of Britain’s historic move to bolt the European Union are reverberating immediately and I foresee years of hell with growing domestic violence and terrorism rivaling anything produced by Islamic extremists, though anything from the latter will only further the actions of the former.

British Prime Minister David Cameron, Friday morning:

“The country has just taken part in a giant democratic exercise – perhaps the biggest in our history.  Over 33 million people – from England, Scotland, Wales, Northern Ireland and Gibraltar – have all had their say.

“We should be proud of the fact that in these islands we trust the people with these big decisions.

“We not only have parliamentary democracy, but on questions about the arrangements for how we are governed, there are times when it is right to ask the people themselves, and that is what we have done.

“The British people have voted to leave the European Union, and their will must be respected....

“The will of the British people is an instruction that must be delivered.  It was not a decision that was taken lightly, not least because so many things were said by so many different organizations about the significance of this decision.

“So there can be no doubt about the result.

“Across the world people have been watching the choice that Britain has made. I would reassure those markets and investors that Britain’s economy is fundamentally strong.

“And I would also reassure Brits living in European countries, and European citizens living here, that there will be no immediate changes in your circumstances. There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold.

“We must now prepare for a negotiation with the European Union.  This will need to involve the full engagement of the Scottish, Welsh and Northern Ireland governments to ensure that the interests of all parts of our United Kingdom are protected and advanced.

“But above all this will require strong, determined and committed leadership.  I am very proud and very honored to have been prime minister of this country for six years....

“I will do everything I can as prime minister to steady the ship over the coming weeks and months, but I do not think it would be right for me to try to be the captain that steers our country to its next destination.

“This is not a decision I have taken lightly, but I do believe it is in the national interest to have a period of stability and then the new leadership required.

“There is no need for a precise timetable today, but in my view we should aim to have a new prime minister in place by the start of the Conservative Party conference in October.

“Delivering stability will be important and I will continue in post as prime minister with my cabinet for the next three months. The cabinet will meet on Monday....

“A negotiation with the European Union will need to begin under a new prime minister, and I think it is right that this new prime minister takes the decision about when to trigger Article 50 and start the formal and legal process of leaving the EU.

“I will attend the European Council next week to explain the decision the British people have taken and my own decision....

“I have said before that Britain can survive outside the European Union, and indeed that we could find a way.

“Now the decision has been made to leave, we need to find the best way.”

David Cameron did this to himself, and his country; having made the promise to bring a referendum as part of his last campaign, and then he totally misread the mood of the people and the impact of issues such as immigration on the electorate.

He also failed to gain major concessions ahead of the referendum from the EU, which as I wrote at the time were laughed at by the Leave camp.  Plus Cameron didn’t understand the British people were worried about being responsible for the debts of the likes of Greece, Portugal, Spain and Italy.  And they were tired of the fact that over 50% of the laws and regulations they lived under emanated from Brussels.

But prior to the vote, Jean-Claude Juncker, president of the European Commission, said a British decision to exit the EU would be final and would not trigger any further renegotiation over the U.K.’s place in the bloc.  He said the EU had given the “maximum” concession to Cameron.

So now what?  As Cameron noted, assuming the timetable is roughly as he stated, he remains prime minister until October and the new government (there is no need for a new election) would invoke Article 50 to begin a two-year period of negotiation on everything from trade to immigration and the free movement of EU citizens (including the status of current and future EU workers in Britain, around 3m from other EU nations reside in the U.K., as well as of the more than 1 million Britons living elsewhere in the EU), customs controls, air travel...we’re talking the untangling of 43 years of shared EU laws and regulations...literally everything.  There are a million regulations in the agriculture sector, for example, that would have to be renegotiated.

Negotiations will be bitter, no breaks for Britain.

But it’s also possible, as German Chancellor Angela Merkel strongly hinted, that the EU will attempt to handle Britain in an “association partnership” rather than through Article 50, which would be a milder form of exit.

We will have weeks, months and years to discuss the economic impact of Britain’s move.  Expect the mood to change numerous times, depending largely on outside events (to be stark, terror attacks, assassinations and the like).

But as I said of immediate concern is the political dimension, and here it could be dire.  For starters, picture how only London (which is a massive ‘region’), Scotland and Northern Ireland voted to Remain. Scotland’s first minister has already said a second independence referendum is “highly likely,” Scotland wanting to stay in the EU.  [The vote there Thursday was 62% to 38% Remain.]

I have noted many times in the past that among the issues of a Scotland exit from the U.K. that few mention is Scotland is the home to Britain’s nuclear missiles and talk about a ‘not in my backyard’ debate for England should Scotland leave.

Of more immediate, to me serious, concern, is the issue of Northern Ireland, with Sinn Fein already calling for a united Ireland.  Mark my words...Ireland is headed to renewed violence, sooner than later depending on the level of the political rhetoric in these first critical weeks and months. The Unionists would never stand for unification.

Across the Channel and North Sea, you have the Netherlands and France, both with national elections next spring and with successful far-right movements that are already clamoring for similar referendums, with France’s Marine Le Pen of the National Front Party (FN) promising a referendum on France’s status in the EU six months after she is elected president, should this come to pass. In the Netherlands, Geert Wilders, leader of the anti-immigrant PVV party, has expressed similar sentiments.

France is already a mess with massive labor demonstrations and strikes over minimal economic reforms the government of President Francois Hollande is trying to enact, amid an ongoing severe terror threat.

Spain has a national election on Sunday that promises more instability as for a second time the electorate is split to the point of no party being able to form a government, which has been the case since December’s vote.

Italy has a major referendum in October on constitutional reforms, specifically aimed at ending Italy’s long history of revolving-door governments (63 since World War II), with Prime Minister Matteo Renzi’s party having lost out last weekend in various municipal elections, including in Rome where the Five-Star Movement candidate, 37-year-old Sophia Loren (err, Virginia Raggi, who is rather cute, but I digress) became her party’s first major officeholder.  Five-Star also won in Turin.

Renzi has promised to step down if he loses the referendum, which would curtail the upper house’s power to bring down governments with no-confidence votes.  [Renzi’s party did win the mayor’s race in financial capital Milan.]

Greece is an ongoing mess of the highest order and now there is renewed uncertainty over the funding of its bailout.

And I could go on and on....

All the while Russian President Vladimir Putin has to be sitting in the Kremlin licking his chops.  He loves the chaos created by Brexit.  I mention that the EU is renewing sanctions against Russia over Ukraine down below but the EU will be increasingly split on the matter and there is little doubt sanctions will fall by the wayside.

Meanwhile, Brexit threatens to severely undermine NATO, let alone cooperation between the U.K. and EU members on the security front.

Reaction....

European Council President Donald Tusk: “We are determined to keep our unity as 27 [Ed. remaining nations in the EU]... I will propose that we start a period of wider reflection on the future of our union.”

Boris Johnson, potential successor to David Cameron as prime minister and leading figure in the “Leave” campaign: “We can find our voice in the world again, a voice that is commensurate with the fifth-biggest economy on Earth...I believe we now have a glorious opportunity: we can pass our laws and set our taxes entirely according to the needs of the U.K. economy...There is now no need for haste and...nothing will change over the short term.”

Joint Statement by EU leaders: “We will stand strong and uphold the EU’s core values of promoting peace and the wellbeing of its peoples...together we will address our common challenge to generate growth, increase prosperity and ensure a safe and secure environment for our citizens...We now expect the United Kingdom government to give effect to this decision of the British people as soon as possible, however painful that process may be.  Any delay would necessarily prolong uncertainty...As regards the United Kingdom, we hope to have it as a close partner of the European Union also in the future...Any agreement, which will be concluded with the United Kingdom as a third country, will have to reflect the interests of both sides and be balanced in terms of rights and obligations.”

German Chancellor Angela Merkel: “We have to recognize the decision of the majority of the British people with deep regret today...There is no point beating about the bush: today is a watershed for Europe, it is a watershed for the European unification process.”

French President Francois Hollande: “(Negotiations on Britain’s exit must be swift, adding): The British vote is a tough test for Europe.”

French Prime Minister Manuel Valls: “It’s an explosive shock.  At stake is the breakup pure and simple of the union.  Now is the time to invent another Europe.”

Jeroen Dijsselbloem, Dutch chairman of the Council of Eurozone finance ministers: “The worst thing we could do is allow more instability into the EU...Alas, the British have chosen that, and we must make another choice...Simply deepening or enlarging the European Union is not the way forward.”

Norwegian Prime Minister Erna Solberg: “(The vote) was a signal from both the British voters and many other voters around Europe who feel that the EU is not providing good enough answers to today’s challenges.”

Hungarian Prime Minister Viktor Orban: “Brussels must hear the voice of the people, this is the biggest lesson from this decision...Europe is strong only if it can give answers to major issues such as immigration that would strengthen Europe itself and not weaken it. The EU has failed to give these answers.”

Jaroslaw Kaczynski, head of Poland’s ruling Law and Justice Party: “Brexit is a very bad event.  Poland’s place is in the European Union...The conclusion is obvious: we need a new European treaty.”

Polish President Andrzej Duda: “Everything must be done to prevent other countries leaving.”

Italian Prime Minister Matteo Renzi: “We have to change (the EU) to make it more human and more just, but Europe is our home, it’s our future.”

Italian Five-Star party leader Matteo Salvini: “Thank you Great Britain, next it is our turn.”

Acting Spanish Prime Minister Mariano Rajoy: “In little more than half a century, Europeans have built the greatest space for peace, freedom and prosperity in all of humanity’s history.  And, despite the serious setbacks like the one we face today, nobody should doubt that we are going to continue working to build tomorrow.”

Greek Prime Minister Alexis Tsipras: “We urgently need a new vision and beginning for a united Europe – for a better Europe, more social and democratic.”

U.S. President Barack Obama: “The people of the United Kingdom have spoken, and we respect their decision. The United Kingdom and the European Union will remain indispensable partners of the United States even as they begin negotiating their ongoing relationship.”

Russian President Vladimir Putin: “I think it is understandable why this happened; first, no one wants to feed and subsidize weaker economies...(Second), people are apparently dissatisfied with the resolution of security issues, which has become more acute against the background of powerful migration processes.”

Chinese Foreign Ministry Spokeswoman Hua Chunying: “The impact will be on all levels, not only on relations between China and Britain...China supports the European integration process and would like to see Europe playing a proactive role in international affairs.”

The Global Times, a Chinese Communist Party mouthpiece: “This referendum will probably be a landmark event that proves Britain is heading in the direction of being a small country with few people, writing itself off as hopeless and acting recklessly.”

U.S. Republican presidential candidate Donald Trump: “They took back control of their country.  It’s a great thing...People are angry, all over the world...They’re angry over borders, they’re angry over people coming into the country and taking over.  Nobody even knows who they are.  They’re angry about many, many things.”

Pope Francis: “It was the will expressed by the people and this requires a great responsibility on the part of all of us to guarantee the good of the people of the United Kingdom, as well as the good and co-existence of the European continent.”

Marine Le Pen, head of France’s far-right National Front Party: “Victory for freedom!  We now need to hold the same referendum in France and in (other) EU countries.”

Nigel Farage, leader of the British anti-EU party UKIP: “The EU is failing, the EU is dying.”

Dutch anti-immigration leader Geert Wilders: “We want to be in charge of our own country, our own money, our own borders, and our own immigration policy...As quickly as possible, the Dutch need to get the opportunity to have their say about Dutch membership of the European Union.”

Martin McGuinness, nationalist deputy first minister of Northern Ireland: “The British government now has no democratic mandate to represent the views of the North in any future negotiations with the European Union and I do believe that there is a democratic imperative for a ‘border poll’ to be held.”

Arlene Foster, pro-British first minister of Northern Ireland: “There is no way even, if there was a border poll, that it would be in favor of a united Ireland.”

Acting Spanish Foreign Minister Jose Manuel Garcia-Margallo: “It’s a complete change of outlook that opens up new possibilities on Gibraltar not seen for a very long time.  I hope the formula of co-sovereignty – to be clear, the Spanish flag on the Rock – is much closer than before.”  [This is another sleeper issue.  Really, it could go military.]

Opinion....

Editorial / The Economist

“How quickly the unthinkable became the irreversible.  A year ago few people imagined that the legions of Britons who love to whine about the European Union – silly regulations, bloated budgets and pompous bureaucrats – would actually vote to leave the club of countries that buy nearly half of Britain’s exports.  Yet, voters ignored the warnings of economists, allies and their own government and, after more than four decades in the EU, were about to step boldly into the unknown.

“The tumbling of the pound to 30-year lows offered a taste of what is to come. As confidence plunges, Britain may well dip into recession.  A permanently less vibrant economy means fewer jobs, lower tax receipts and, eventually, extra austerity. The result will also shake a fragile world economy.   Scots, most of whom voted to Remain, may now be keener to break free of the United Kingdom, as they nearly did in 2014.  Across the Channel, Eurosceptics such as the French National Front will see Britain’s flounce-out as encouragement. The EU, an institution that has helped keep the peace in Europe for half a century, has suffered a grievous blow....

“The vote to Leave amounts to an outpouring of fury against the ‘establishment.’  Everyone from Barack Obama to the heads of NATO and the IMF urged Britons to embrace the EU.  Their entreaties were spurned by voters who rejected not just their arguments but the value of ‘experts’ in general.  Large chunks of the British electorate that have borne the brunt of public-spending cuts and have failed to share in Britain’s prosperity are now in thrall to an angry populism.

“Britons offered many reason for rejecting the EU, from the democratic deficit in Brussels to the weakness of the eurozone economies. But the deal-breaking feature of EU membership for Britain seemed to be the free movement of people.  As the number of new arrivals has grown, immigration has risen up the list of voters’ concerns.

“Accordingly, the Leave side promised supporters both a thriving economy and control over immigration. But Britons cannot have that outcome just by voting for it.  If they want access to the EU’s single market and to enjoy the wealth it brings, they will have to accept free movement of people.  If Britain rejects free movement, it will have to pay the price of being excluded from the single market.  The country must pick between curbing migration and maximizing wealth.

“David Cameron is not the man to make that choice.  Having recklessly called the referendum and led a failed campaign, he has shown catastrophic misjudgment and cannot credibly negotiate Britain’s departure.”  [Ed. this last bit was written prior to Cameron’s announcement he was stepping down.]

Katya Adler / BBC Europe editor

“The EU worries Brexit could reverse 70 years of European integration.

“In all my years watching European politics, I have never seen such a widespread sense of Euroscepticism.

“Plenty of Europeans looked on with envy as Britain cast its In/Out vote.  Many of the complaints about the EU raised by the Leave campaign resonated with voters across the continent.

“Across Europe leading Eurosceptic politicians queued up this morning to crow about the UK referendum result.

“But the mood in Brussels is deeply gloomy.  The Brexit vote sends screaming alarm bells, warning that the EU in its current form isn’t working.

“Last Friday, Marine Le Pen told a gathering of far-right parties in Vienna: ‘France has possibly 1,000 more reasons to want to leave the EU than the English.’

“She said the EU was responsible for high unemployment and failing to keep out ‘smugglers, terrorists and economic migrants.’

“Geert Wilders, leader of the Party for Freedom in the Netherlands, said in a statement: ‘We want to be in charge of our own country, our own money, our own borders, and our own immigration policy.

“ ‘As quickly as possible the Dutch need to get the opportunity to have their say about Dutch membership of the European Union.’....

“A recent Dutch survey suggested 54% of the people wanted a referendum.”

Market Reaction

As you would expect reaction was severe, though relatively muted in the U.K. as the London FTSE (like the S&P 500) fell 3.2%.  But Frankfurt’s DAX plunged 6.8%, Paris’ CAC 40 8.0%, Athens 13.4% and Milan and Madrid both down 12.5%...in one day. The Stoxx Europe 600 fell 7%, its worst day since 2008. 

There were also huge moves in the euro government bond markets, with the yield on the 10-year German bund going from 0.09% to -0.05% on Friday in a flight to safety, while yields on the periphery government bonds soared at first, before rallying back some by end of the day.  Nonetheless, Italy’s 10-year saw its yield go from Thursday’s 1.39% to 1.68% before settling at 1.55%, while Spain’s went from 1.46% to 1.70% before closing at 1.62%, still huge relative moves.  Portugal’s 10-year was up 40 basis points on Friday alone to 3.47% before closing at 3.30%, while the yield on the Greek 10-year went from Thursday’s 7.54% to over 9% before ending the week at 8.31%.  Further large-scale volatility in euro bonds is in the cards for the coming months.

Initially, the euro currency suffered its worst fall ever in the wake of the vote to leave the EU before paring its losses.  The British pound hit its lowest level against the dollar since 1985, a day after reaching its high for the year.

And in an example of what is to come in terms of the British economy, Ford Motor said it “will take whatever action is needed” to keep its U.K. operations competitive in a sign it is preparing to cut costs.  Others, such as Jaguar, said it would be “business as usual” until the negotiations over trade barriers were completed, but I don’t believe this.  Cuts will come soon.

Many of the major banks, from Morgan Stanley to Citigroup and Deutsche Bank have already signaled they would be moving jobs out of London to “rebalance” operations.  Dublin, Frankfurt and Paris should be prime beneficiaries.

Banks are going to suffer amid lower interest rates for longer, trading losses (at least initially) and slowing growth.

[As to whether Brexit will work long term, I can’t hazard a guess.]

---

There was some economic news in the eurozone this week.  Markit published its flash readings on manufacturing for June and the EA19 comp was 52.8 vs. 53.1 in May, a 17-month low, with the manufacturing PMI 52.6 vs. 51.5.  [50 being the dividing line between growth and contraction.]

Germany’s flash manufacturing PMI for May was 54.4, the best in 24 months (owing to rising exports to the U.S. and China), while France’s manufacturing figure was just 47.9 (services 49.9) for a comp of 49.4 vs. 50.9.  Separately, a measurement of business confidence in France hit a 9-month low.

The battle between President Hollande’s Socialist government – which is attempting to ease employee protections – and the country’s most strident labor unions has caused major disruptions in various parts of the economy from public transportation to garbage collection. Economists predict growth there will slow to 0.3% in this quarter from 0.6% in the first, according to a Bloomberg survey.

Washington and Wall Street

Wall Street’s decline on Friday in reaction to Brexit was somewhat muted, at least compared to the action in Europe.  That said it was still the worst day since August.

On Tuesday, in her semi-annual testimony to the Senate Banking Committee, Federal Reserve Chair Janet Yellen stuck to the script, saying the Fed would tread carefully as it gauges whether to raise interest rates, adding she saw “considerable uncertainty” about the U.S. economic outlook.  And, days before the referendum, she placed greater emphasis on the risk posed by a “leave” vote that could have “significant economic repercussions.”

So now with that having occurred, the Fed isn’t doing anything until at the earliest December.  No freakin’ way, as I’ve said many times before, would they consider September, right before the election.

The Fed next meets July 26-27, and once again we’ll parse the accompanying statement.  In light of Brexit the June jobs report is not as important as it would have been prior to the vote.

Earlier the International Monetary Fund cut its outlook for U.S. economic expansion this year to 2.2% from 2.4%, while warning that recent data showing weak activity here might indicate the capacity for the economy to expand is much lower than previously thought; economic “headwinds” and “pernicious” trends including a shrinking middle class that could slow growth in the long term, the IMF warned.

The IMF and others are echoing the same themes these days.  Wages are rising, but not productivity, which hurts profits, plus rising income is going more to pay for healthcare and technology and not on consumer spending.

Just a few economic tidbits.  May existing home sales came in at a seasonally adjusted 5.53 million, the best pace since Feb. 2007, up 1.8%, with the median existing home price at $239,700, up 4.7% from May 2015, the 51st consecutive month of year-over-year gains.  May new home sales, 551,000 annualized, were also solid.

But May durable goods (big-ticket items) fell 2.2%, worse than expected.

Meanwhile, there was zero news of note on China’s economy this week, literally, while Markit’s flash manufacturing PMI for Japan was 47.8 in June vs. 47.7 in May, with the Japanese economy still impacted by April’s earthquakes in a heavily industrial region.

Tokyo’s Nikkei stock index fell 7.9% on Friday in response to Brexit, while the Shanghai Composite declined 1.3%.

Street Bytes

--When the bell rang at 4:00 p.m. Friday, the Dow had lost 3.4%, the S&P 500 3.6% and Nasdaq 4.1% for the chaotic day, though the losses for the week were far less; -1.6% for both the Dow and S&P and -1.9% for Nasdaq.

But this was enough to wipe out the Dow and S&P’s gains for the year.

I do have to add, though, that I was miffed by the obligatory talk on the national newscasts of investors’ retirement plans “taking a big hit” when the major indexes are at levels of about 10 days ago.

--U.S. Treasury Yields

6-mo. 0.37%  2-yr. 0.63%  10-yr. 1.56%  30-yr. 2.41%

The yield on the 10-year early Friday was at a low not seen since July 2012, 1.50%.

--Oil, as measured by West Texas Intermediate, had rallied back over $50 prior to the Brexit vote, but collapsed anew on Friday and finished the week at $48.85, which was actually a bounce from below $48.00 before the close. 

U.S. inventories fell a fifth week in a row, but they are still higher than ever for the start of the summer driving season, up 8.7% over June 2015.  That said, U.S. gasoline demand has never been higher.

--Tesla was the biggest single stock story of the week.

Elon Musk built his empire on three pillars: electric cars, solar energy and space travel.  This week he decided that his Tesla Motors would buy his SolarCity (where he is chairman) in an all-stock deal, as Musk argues he could create a renewable-energy giant that would propel his cars.

Musk has taken out loans to buy up shares in both companies, some backed by his personal stock holdings Tesla and SolarCity – which leaves him exposed to margin calls if their share prices fall too far.

Musk owns 22% of SolarCity, while and 21% of Tesla, where he is CEO and chairman. SolarCity’s CEO, Lyndon Rive, is Musk’s cousin.

Musk said: “We need to achieve a tight integration of the products. I think it’s an obvious thing to do.”

Shares in Tesla immediately fell 13% (down 10.5% the first day), finishing down 10.4% for the week, while SolarCity’s stock rose a mere $0.90 from the previous Friday.

Tesla said in a blog post: “It’s now time to complete the picture.  Tesla customers can drive clean cars and they can use our battery packs to help consume energy more efficiently, but they still need access to the most sustainable energy source that’s available: the sun.”

Tesla said it would become the only company offering “end-to-end” clean energy products to customers.

From the Financial Times’ Lex column:

“Elon Musk believes there is an advantage to being a vertically-integrated energy production, storage and transport company.  Yet ExxonMobil does not make cars and General Motors does not go around drilling wells.

“As so often – sometimes for good and sometimes not – Mr. Musk sees things differently....It may be true, as Mr. Musk averred, that owners of electric vehicles are more likely to buy solar panels, though he could only say that ‘probably a fairly small percentage actually have it...maybe 25 percent or something like that...we haven’t actually done a survey or anything.’

“But of course Tesla does not really need to buy a solar company, and if it did, it could have bought a good one.  SolarCity has more than $3bn of debt and in a timely research note on Tuesday, Goldman Sachs noted that it could come close to breaching its covenants.

“Tesla shareholders smelled the deal for what it was – a bailout by Tesla of SolarCity....

“The proposed deal is the most blatant in a series of related party deals which has also seen Mr. Musk’s third company, SpaceX, buy SolarCity bonds.  The only saving grace is that it requires the blessing of both Tesla and SolarCity shareholders and Mr. Musk has agreed not to vote his shares.

“Other than Mr. Musk, no insider has a significant position in Tesla.  Institutional investors hold sway.  Providing those investors can vote the right way...the Musk merger may well fail.”

And as Holman W. Jenkins, Jr. of the Wall Street Journal put it:

“Tesla’s main contribution, let’s remember, has been to substitute electric drive for gasoline drive – which is great.  Electric cars are interesting. But why does this justify government favoritism, to the point where Tesla’s market cap is a modest fraction of the value of its future expected subsidies? The handouts currently amount to at least $20,000 per car.

“If the answer is climate change, the largest source of greenhouse emissions is electric-power generation, twice as much as all forms of transportation combined. So why subsidize a car to run on electricity?  Passenger cars are such a small part of the alleged problem – a single-digit share of emissions – why focus on cars at all?

“But you know the answer.  Tesla has captured the public’s imagination, and politicians latch onto any opportunity to transfer public resources to a grateful recipient, because that’s what politicians do.  The real question isn’t whether Mr. Musk is enterprising and innovative, but whether government’s excessive interest has so distorted his decision-making that it’s leading his company to disaster.”

--On a related issue, according to a new report from energy consulting firm Wood Mackenzie, electric cars are poised to reduce U.S. gasoline demand by 5% over the next two decades – and could cut it by as much as 20%.

To achieve the 20% levels, the firm says electric cars would need to gain more than 35% market share by 2035.  But the more likely scenario, said the report’s author, was a drop of 5% in U.S. gasoline demand as electric cars build to more than 10% of the U.S. vehicle fleet.  [Wall Street Journal]

--FedEx reported adjusted earnings that beat expectations for the three months ending May, but the unadjusted figures were hit by $946m in pension accounting adjustments for the company’s 4.4bn euro takeover of the Netherlands’ TNT Express as well as charges for a legal case.  So this meant the company lost $70m net for the quarter.

The shares tanked (prior to Friday’s further big decline) because the company has other issues concerning the integration of TNT and the value of its pension fund, even though it gave a fairly robust forecast for the rest of the year.

--Bed Bath & Beyond’s quarterly profit and margin declined as the retailer reported flat sales in the May quarter, missing Wall Street’s expectations and sending the shares down 5%.  Same-store sales declined 0.5%, compared with a year-earlier increase of 2.2%.  I’m awaiting my next coupon.

--According to research by the International Federation of Robotics, the accelerating pace of automation on factory floors saw a double-digit rise in worldwide sales of industrial robots to a record level in 2015.

248,000 units were sold last year, an increase of 12 percent, with more than one in every four going to China.  As the IFR put it, once the manual labor “workshop of the world,” China is today the largest buyer of industrial robots.

Per Vegard Nerseth, head of robotics for ABB, the engineering group, one factor behind the proliferation of robots was a lack of willing labor for certain tasks.

“People today don’t want to do dull, dirty, dangerous and delicate jobs anymore, so many companies see when the older generation of factory workers retire they really struggle to get hold of people who want to take up those jobs,” he said.

Sales in China last year increased by 17 percent, as manufacturers turn to technology in response to rising wage demands and competition from lower-cost nations.  [Financial Times]

--On a related topic, the Wall Street Journal’s Andrew Browne had a piece on how Germany is increasingly upset with China, which has been targeting a string of advanced German manufacturers for acquisition – “one company a week so far this year” – while Germany sees a future where China then uses the high-technology expertise “to build state-owned national champions that compete with German firms around the world, including on their own home patch.”

On a recent visit to Beijing, Chancellor Angela Merkel called on Chinese authorities to grant foreign firms the same “rights and privileges” as domestic ones.  “No one wants to see an expanded trade war between the European Union and China,” she added.

But you know what I think of China and trying to do business with it.  Germany is learning a painful lesson.  They shouldn’t have been so willing to let China acquire their best tech companies in the first place.

--Wal-Mart is selling its Chinese ecommerce arm to JD.com in exchange for a minority stake in Alibaba’s smaller rival, as Walmart looks to accelerate its online business there.

Walmart’s stores in China will get preferred retailer status on JD.com’s crowdsourced delivery platform, in an attempt to drive further online traffic.

Now this is a deal that makes perfect sense.  Go WMT!

--As for Alibaba, CEO and founder Jack Ma penned an op-ed for the Wall Street Journal:

“Increased scrutiny is part of becoming a global company. When Alibaba went public in 2014, I told our customers, employees and investors that what we had earned was trust – in myself, my team, and our company’s mission, vision and values.  With that trust comes great responsibility. So when I see reports in the press taking my recent words about counterfeit goods out of context, I feel compelled to set the record straight.  This is my responsibility to all of our stakeholders.

“What I shared with our investors last week was an observation: that the dynamics between some brands and their manufacturing partners, and brands and their customers, are shifting due to economic and technological developments.

“First, Chinese manufacturers face declining exports because demand from Western markets is not what it used to be. Every day, I see small businesses in China suffer because orders from their longtime customers are half of what they once were.  Yet these businesses have made investments in factories, equipment and people.  They must find new ways to adapt to this changing environment.

“Second, the internet has given consumers ever-increasing access to products without the need for complex and costly distribution channels.  Manufacturers in China are increasingly using the internet to tap into the vast domestic market.  Many of these firms have developed their own online-only brands with quality products for Chinese consumers.

“What I said last week was that these trends may challenge the business model of some established brands. That’s reality.

“I want to let you know where I stand on this: Counterfeit goods are absolutely unacceptable, and brands and their intellectual property must be protected.  Alibaba is only interested in supporting those manufacturers who innovate and invest in their own brands.  We have zero tolerance for those who rip off other people’s intellectual property.”

Hardly.

--Volkswagen AG is nearing a $10 billion civil settlement, the largest in the auto industry’s history, to compensate U.S. vehicle owners caught up in the automaker’s emissions-cheating scandal.

Under the proposed deal, VW will offer to buy back cars, and/or offer further compensation for almost 500,000 diesel-powered vehicles with engines containing software capable of evading government emissions tests.

Some consumers could receive up to $10,000, beyond the price of the buyback or repair.  Cars affected include model years from 2009 to 2015, such as VW Jettas, Golfs, Passats and Beetles, and some Audi A3s.

--And now...California Today...an irregular feature of Week in Review...

Home prices in Orange County, Calif., finally surpassed their bubble-era heights last month; the first region in Southern California to hit that mark.

The median price for new and resale houses and condominiums there jumped 5.9% from a year earlier to $651,500 in May, according to real estate data firm CoreLogic.

That’s $6,500 more than the $645,000 peak reached in 2007, non-inflation adjusted.  [Andrew Khouri / Los Angeles Times]

--California’s job growth continued in May, with the state’s unemployment rate now just 5.2%, which while still higher than the national average of 4.7% is really quite remarkable given where it was at the height of the Great Recession.

The state has added jobs almost every month since July 2011 and in the last 12 months, California added jobs at a rate of 2.8%, compared with 1.7% for the U.S. overall.  [L.A. Times]

--California is also now the sixth-largest economy in the world, surpassing France.  California was the world’s eighth-largest economy in 2014, according to the California Department of Finance.

France is now seventh-largest, with India eighth.

--Rong-Gong Lin II / Los Angeles Times

“Southern California’s smaller cities and large businesses must take the threat of a crippling earthquake far more seriously than they have been, a committee of business, public policy and utility leaders said Thursday, saying action is needed to ‘prevent the inevitable disaster from becoming a catastrophe.’

“Despite strides made by the city of Los Angeles to focus on earthquake safety, Southern California still faces significant threats that haven’t been resolved.

“One of the most ominous is the looming threat on the edge of Southern California’s sprawling metropolis – the Cajon Pass.  It’s a narrow mountain pass where the San Andreas fault – California’s longest and one of its most dangerous – intersects with combustible natural gas and petroleum pipelines, electrical transmission lines, train tracks and Interstate 15 north of San Bernardino.

“A huge earthquake on the San Andreas could move one side of the fault as much as 30 feet from the other.  Such an earthquake would rupture flammable pipelines and lead to a catastrophic explosion so powerful it leaves behind a crater.

“And if utilities aren’t able to shut off the flow of petroleum or natural gas, firefighters could be helpless to keep a raging wildfire from spreading across the San Gabriel and San Bernardino mountains, just as the rest of Southern California staggers from the worst earthquake it has seen in more than 150 years.”

There are some at least partial solutions but little has been done “precisely because many people don’t know the extent of the problems, and, if they do, fixing them seems so daunting.”

It’s interesting, though hardly surprising, that among those pushing for fixes is the Walt Disney Company.  Yeah, I think they would stand to lose a few $bn in revenue in the Big One.

For example, as the L.A. Times’ Lin writes, “One way to reduce the risk of catastrophe at the Cajun Pass would be to put shutoff valves on both sides of the San Andreas fault on petroleum and natural gas pipelines.  If the pipelines are automatically turned off during the earthquake, it could prevent huge amounts of fuel from being ignited if the pipelines break.”

Burst water pipes, another potential disaster, could leave parts of Southern California without water for six months, but the report says that just targeting key lengths of pipe in the system for earthquake proofing, could be enough to address the firefighting needs of the region.

Oh, there’s far, far more in the report in terms of the dangers.  Now who wants a beer?

--We all heard the warning from forecasters that El Nino was going to be massive and that California would have an extremely wet stretch last winter that would put a real dent in the drought, but a study from the Geophysical Research Letters offered support for the argument that state hydrologists have been making: It will take several years to recover from the four-year water shortage.

So while the snowpack in the Sierras was 87% of normal (water held in the snowpack) vs. the previous year’s 5% (as measured in April), the state with normal snowfalls going forward would not recoup its water deficit until 2019, and the snowpack, when it melts, supplies roughly a third of California’s water supply.

--MetLife, the giant U.S. insurer, is looking to phase out mascot Snoopy from its marketing campaigns.

MetLife’s licensing deal with United Media, which owns the rights to Charles Schulz’ Peanuts gang, runs through 2020, but MetLife is leaning against continuing the deal that costs $12 million a year.

The company said it has no current plans to replace the characters with other cartoons (so I guess my idea of Homer Simpson is out of the question), but it is pretty amazing MetLife has been using Snoopy for brand identification since 1985, or about 200 dog years.

--Lastly, for you “Game of Thrones” fans, of which I am an avid one, Brexit could have a major impact on future production of the fantasy epic because, for example, Northern Ireland is a main shooting location and it leaves the EU with the U.K.

Which means that the U.K. and HBO are likely to lose significant funding from the European Union’s Regional Development Fund; created to spur economic growth across the European Union, as noted by AdWeek. 

Ergo, cash used to bring big budget projects to Northern Ireland, for example, could dry up and it is a very real possibility HBO would not be able to produce there.  [“Battle of the Bastards” was filmed in No. IRL, boys and girls.  I continue to mourn the death of Wun Wun.]

--One more, Brexit could impact Premier League rosters, because the freedom of movement principle allowed male and female sportsmen and sportswomen to ply their trade, such as in the PL, without needing a work permit that the majority of non-EU citizens require.  But it is expected the Home Office will work out a solution.  The impact would be too great otherwise, including for South American footballers such as Diego Costa who were able to bypass the work permit process by gaining European citizenship before coming to England.

Foreign Affairs

Iraq/Syria/ISIS/Russia: U.S.-backed forces in Syria, as well as those largely-backed by the U.S. in Iraq, have been making gains against ISIS.  [Iran also has influence over some of the forces battling ISIS in both countries as well.]

ISIS’ control over the city of Manbij in Syria, on the Turkish border, is essentially over after rebel forces with U.S. help (particularly airstrikes) moved in on Thursday, dealing a big blow to the terror group’s access to the critical border.

But Russian airstrikes have been killing civilians in Syria, at least 32 in Raqqa this week, according to a Syrian observer group, while Russia has been accused of dropping phosphorus bonds on residential neighborhoods in the Syrian city of Aleppo, prelude to a ground assault to retake the city from rebel forces

In Iraq, a week earlier, Iraqi forces entered Islamic State-held Fallujah and now control major sectors of it.  The issue here is that more than 85,000 fleeing the city and its surroundings have been forced to sleep in the open desert for over a week, with many at risk of dying as supplies of tents and water run dangerously low.  More than 4.4 million Iraqis, overall, are now internally displaced.*

*The UN issued a separate report this week estimating that around the world there are 65.3m people who are either refugees, asylum seekers or internally displaced, an increase of 5m in a year; one in every 113 people on the planet.  Nice job, President Obama.  [Donald Trump is too stupid to use this.]

Meanwhile as ISIS loses ground in Falluja and elsewhere, some U.S. officials say the group will turn increasingly to less conventional military tactics and to directing and inspiring more attacks against “soft” targets in Europe, the United States and elsewhere.

One intelligence official told the Jerusalem Post: “We can expect ISIL to harass local forces that are holding cities it previously controlled, thereby drawing out battles into protracted campaigns.”

Benny Avni / New York Post

“If Hillary Clinton is the next U.S. president, prepare for a deeper American military involvement in Syria’s civil war – one that won’t seek to maintain a status quo but to crush ISIS where it’s strongest, perhaps with American boots on the ground.

“That, after all, is the only way we’ll weaken the Islamic State enough to prevent the terror group from committing and inspiring attacks on our soil – like Omar Mateen’s Orlando massacre.

“In an interview with Defense One, former top Pentagon official Michele Flournoy indicated that she’d advise the next president to ‘direct U.S. troops to push President Bashar al-Assad’s forces out of southern Syria and...send more American boots to fight the Islamic State in the region.’

“Flournoy, widely presumed to be Clinton’s top candidate for secretary of defense, later clarified that she’s calling for ‘doing more to support our partners on the ground to make them more effective’ in Syria, but denied that she’s advocated ‘putting U.S. combat troops on the ground to take territory from Assad’s forces or remove Assad from power.’

“That hedge – that she’s not calling for troops to be used against Assad – is revealing.

“And hers is but one voice in a growing Washington chorus of veteran Obama officials who seem to nudge Clinton (or Donald Trump for that matter) away from our current approach to Syria and the rest of the region.

“Why?  As we speak, ISIS metastasizes around the globe like malignant cancer in the body of a lifelong smoker.

“Groups in Libya, Egypt’s Sinai, Nigeria, Indonesia and countless other Muslim countries have pledged allegiance to Abu Bakr al-Baghdadi and ISIS.  His admirers in Europe are increasingly deadly and, as Mateen indicates, America isn’t immune either.

“What’s behind the growing allure of al-Baghdadi and ISIS to Muslims around the world?  It’s the aura of invincibility.  ISIS is like Charlie Sheen endlessly declaring ‘winning.’  Reversing that false impression must start in Raqqa, Syria, where al-Baghdadi has his headquarters, and in Iraq, where ISIS initially scored its most impressive victories.

“No one believes Obama’s policies have helped all that much in addressing the horrors of the 21st century’s deadliest war, with half a million dead and half of the country displaced, threatening to change Europe forever....

“Which means there’s a new consensus in Washington: America can’t just continue to essentially sit out the most consequential war of our time.  Voices who’ve long warned that that war would sooner or later come back to harm us have been ignored for too long.”

Jordan: A car bomb outside a Syrian refugee camp in Jordan killed six soldiers Tuesday in a remote area where hundreds have been held for screening for suspected links to ISIS.  On June 6, gunmen killed five Jordanian intelligence officers in a Palestinian refugee camp north of Amman.

Tens of thousands of Syrian refugees have sought shelter at two remote desert camps in the northeast.

Jordan says it is hosting nearly 1.4 million Syrian refugees, placing a massive strain on the Jordanian government and its resources.

At the same time an estimated 4,000 Jordanians have joined extremist groups in Iraq and Syria.

Iran: Carol E. Lee and Jay Solomon / Wall Street Journal

“The White House is pushing to ease the way for companies to complete deals with Iran, aiming to cement the landmark nuclear agreement reached last year and make it difficult for future administrations to undo it, senior U.S. officials said.

“The effort, which borrows from President Barack Obama’s playbook for solidifying U.S. relations with Cuba, got a boost this week when Boeing Co. reached a $17.6-billion deal with Iran to sell commercial jets to the country’s main airline....

“Administration officials are also studying whether to publicly back Iran’s bid to join the World Trade Organization, a move opposed by America’s Persian Gulf allies, such as Saudi Arabia....

“Administration officials have said they are seeking in Mr. Obama’s final months in office to make his policies toward Cuba and Iran, which have been controversial, difficult for his successors to unravel....

“(Secretary of State John) Kerry and other U.S. officials are hoping an economic windfall in Iran will empower Iranian President Hassan Rouhani, seen as a pragmatist and a relative moderate in Iran’s revolutionary government.

“Administration officials say a longer-term goal is that business engagement with Iran will facilitate political change there, as Mr. Obama hopes is the case in Cuba....

“Iran, however, hasn’t agreed to a broader thaw in relations, despite Mr. Obama’s willingness to pursue one.”

This whole topic is a dangerous farce.

Bahrain: This place bears watching because the head of Iran’s Revolutionary Guards has suggested there could be armed resistance in Bahrain after the Sunni Muslim-ruled kingdom’s top Shia cleric was stripped of his citizenship.

Gen. Qassem Soleimani, who has been directing much of the action in Iraq for Tehran, said Bahrain’s action against Sheikh Isa Qassim could “set the region on fire.”

Bahrain accused the cleric of using his position to “serve foreign interests,” promoting “sectarianism and violence.”

The U.S. Fifth Fleet is still based here.

Israel: With the second anniversary of the Israel-Gaza war drawing near, Israel recently announced plans to build an underground wall along its 37-mile border with Gaza to thwart Hamas’ sophisticated tunnel network through which it smuggles weapons, supplies and fighters.

Normally, Israel’s Ministry of Defense wouldn’t publicly announce such a project but it is hoping the move will deter Hamas.

Experts are worried Israel’s project will have limited impact.

Afghanistan: A Taliban suicide attack on a minibus in Kabul killed at least 14 Nepali nationals on their way to the Canadian embassy where they worked as security guards.  Those poor guys.

North Korea: Kim Jong Un and his band of Orcs took a potentially giant step this week with a successful mid-range ballistic missile test, with the rocket achieving high altitude (space) before falling into the Sea of Japan, a major achievement for Pyongyang’s program.

North Korea test-fired two powerful Musudan mid-range missiles, the fifth and sixth such attempts since April.  Five of the launches failed, but while the sixth, flying 250 miles, was well short of its 2,180-mile potential range, this was real progress.

Pathetically, as the North continues to defy international warnings and a series of U.N. Security Council resolutions and sanctions, White House spokesman Josh Ernest said: “The United States strongly condemns the provocative actions by the North Korean government.  I do think the impact of these provocations will be to strengthen the resolve of the international community that has such serious concerns with North Korea’s behavior.”

I’m sure you could go back and see the exact same language being used during Obama’s entire two terms.

The threat to Japan and South Korea is intensifying, and then the U.S. territory of Guam. Soon the U.S. mainland as well if Pyongyang continues making incremental progress.

Jeffrey Lewis, of the California-based Middlebury Institute of International Studies, said missiles were usually fired at a certain angle to maximize range, so the high altitude of the second launch, “suggests the missile worked perfectly.  Had it been fired at its normal angle, it would have flown to its full range.”  [New York Times]

China: As noted in a story in the South China Morning Post, “Several experts said China’s assertiveness on the South China Sea disputes had laid bare the leadership’s growing ambition to become a world power on par with the United States.”

Separately, there are growing fears over Hong Kong’s independence, with residents increasingly uneasy that HK may lose its identity and become just another major Chinese city; the recent abductions of booksellers largely responsible for the unease.  One, Lam Wing Kee, who has returned to Hong Kong, has been outspoken in his claims he was kidnapped by the mainland’s secretive central investigation team while crossing the border last October.

The disappearances have sparked fears that they were kidnapped by mainland agents because  their companies specialized in books critical of the Chinese Communist Party.

On a totally different topic, a particularly vicious tornado in the city of Yancheng (Jiangsu Province), which overlooks the Yellow Sea, killed at least 98 people and injured 800 others.

Russia: European Union nations have agreed in principle to extend sanctions against Russia for six more months to keep pressure on Moscow to respect the peace agreement in Ukraine.

Venezuela: From the Financial Times: “Has the crisis in Venezuela hit a point of no return?  A growing number of analysts seem to think so.

“The country’s dire economic situation – marked by rampant inflation, chronic shortages of basic goods and rolling power blackouts – has deteriorated in recent weeks, with violent food riots erupting across the country.

“ ‘Venezuela is on the brink of economic and social collapse,’ Capital Economics said in a note earlier this month.  ‘There is a high chance of a sovereign default and a removal of the president over the next eighteen months.’”

I said over a year ago that I’ve been shocked Venezuela’s military leadership didn’t put President Nicolas Maduro on a helicopter and dump him into the ocean.  Show some guts, boys!  Just take him out.  

Brazil: The state government of Rio de Janeiro has declared a “state of public calamity in financial administration” and warned that the situation is so dire it impedes its ability to meet its Olympic Games commitments.

So you still want to go to Rio?

In an official decree last weekend by the acting governor, the state government said the crisis could cause a “total collapse in public security, health, education, transport and environmental management.”

For those who stupidly do proceed with their Rio plans, it’s public security that should be of most concern, not Zika.  Consider this, police officers have been receiving salaries months in arrears.

Foreign tourists are sitting ducks.

Colombia: Yippee!  This was the only place in the world with good news this week.  The government and the Farc rebel movement signed a ceasefire, ending 50 years of civil war. In the capital, Bogota, people took to the streets, hugging each other and singing the national anthem.  That would have been a cool scene to be part of, except I don’t speak Spanish.

A staggering 220,000 people died in the longest-running insurgency in the Western hemisphere, with millions more displaced.

A final accord is to be signed by the end of July, according to President Juan Manuel Santos.  [He’s a good man.]

The rebels are to lay down arms within 180 days of a final peace deal, with the creation of temporary transition zones and camps for an estimated 7,000 rebels, where no civilians will be allowed to guarantee their security.  The UN will monitor the handover of weapons.

South Africa: Keep your eye on this place. There is a real crisis in government, with the hopelessly corrupt ANC trying to stave off a referendum on President Jacob Zuma’s leadership.  The economy is in a shambles and elections on Aug. 3 are likely to be a first step in Zuma’s removal.  In rioting in Pretoria this week, at least two protesters were shot dead by police as looters ransacked shops.  I would avoid South Africa at all costs for the next few months.

Random Musings

--Polls

CNN/ORC national poll of registered voters:

Clinton 47%, Trump 42%.  When a third party is included it’s Clinton 42%, Trump 38%, Libertarian Party’s Gary Johnson 9%, Green Party’s Jill Stein 7%.

[In this one, 55% support tighter gun control laws, the highest since the month after Newtown, Conn., Jan. 2013.  92% want expanded background checks.  Trump leads Clinton on the economy, 51-43.]

Monmouth University national poll:

Clinton 47%, Trump 40%.  When a third party is included it’s Clinton 42%, Trump 36%, Johnson 9%, Stein 4%.

[Women favor Clinton over Trump 57-30.]

Quinnipiac battleground state surveys:

Florida...Clinton 47%, Trump 39%
Ohio...Clinton 40%, Trump 40%
Pennsylvania...Clinton 42%, Trump 41%

When third party is included:

Florida...Clinton 42%, Trump 36%, Johnson 7%, Stein 3%
Ohio...Clinton 38%, Trump 36%, Johnson 8%, Stein 3%
Pennsylvania...Clinton 39%, Trump 36%, Johnson 9%, Stein 4%

--Editorial / New York Post

“Donald Trump marked the real start of his general-election campaign Wednesday with a full-bore attack on Hillary Clinton and a clear appeal to Americans across the spectrum.

“He slammed her, accurately, as a ‘world-class liar’ who’s part of the ‘rigged system’ that boosts ‘insiders’ like her at the expense of the common good.

“And he vowed to end the inside game while reaching out even to Bernie Sanders supporters.

“He talked issues Americans of all political persuasions really care about, starting with, as he put it, ‘jobs, jobs, jobs.’

“Trump laid out how the ‘special-interest monopoly’ has ruled Washington at the expense of everyday citizens.  He vowed to end that culture and make government work for the people.

“ ‘We will never be able to fix a rigged system by counting on the same people who rigged it in the first place,’ Trump said.

“And he bashed ‘insiders’ – like Clinton – who ‘wrote the rules of the game to keep themselves in power and in the money.’

“That describes her record to a T.  And it explains why Trump is appealing to Sanders voters – in fact to working-class voters of all races....

“And his devastating smackdown of Clinton’s record gave his speech added oomph.

“Trump recounted her role as secretary of state in paving the way for ISIS’ rise and  a resurgence in violence in Iraq and beyond.

“When she took office, he also noted, ‘Iran was being choked by sanctions’; now it’s ‘the dominant Islamic power in the Middle East, and on the road to nuclear weapons.’”

Anthony Zurcher / BBC News

“If Mr. Trump will be a more polished candidate with the change of campaign leadership announced this week, it seems clear he will be no less the brash, braggadocious candidate that stormed through the Republican primary season.

“He emerged from that campaign victorious – but is now struggling to find his footing in a one-on-one battle with his Democratic foe. Wednesday’s speech was his most significant effort to date to regain his equilibrium and shift focus to his opponent’s record.”

But Trump largely relied on the book “Clinton Cash,” by conservative commentator Peter Schweizer, and as much as the allegations expose conflicts of interest, there has yet to be any evidence of quid-pro-quo that Trump states as fact.

For example, as Anthony Zurcher notes: “Trump charged that Mrs. Clinton’s accepting $56,000 in jewelry from the Sultan of Brunei was wrong, (but), he didn’t mention that the items were turned over to the U.S. government upon receipt – an omission that makes a standard diplomatic practice of ‘accepting’ gifts appear to be clear-cut bribery.”

That said, “Possible inappropriate relations with wealthy foreign officials and businesses – even if they don’t amount to criminality – could prove fertile ground for Mr. Trump in the general election.”

--Through May, the Clinton campaign had raised more than $240 million, while Trump had raised $14 million, on top of $45 million he loaned to his campaign, and since has forgiven.

In May, Clinton’s largest expense, for $2.4 million, was on payroll.  Trump’s biggest single expense was on campaign merchandise, including hats, mugs and stickers - $900,000.  [Rebecca Ballhaus / Wall Street Journal]

Trump began June with just $1.3 million in cash on hand, with Hillary having $42 million, according to reports filed with the Federal Election Commission.  Trump has a staff of around 70, compared with nearly 700 for Mrs. Clinton.

Trump fired his campaign manager, Corey Lewandowski, as the Trump children were largely responsible for the move.  Good!  Ivanka was said to be trying to get rid of Corey for months.

According to reports, Ivanka caught dirtball Lewandowski trying to plant a negative story about Ivanka’s husband, Jared Kushner, who has himself become a key Trump adviser.

This makes perfect sense, Lewandowski being jealous of Kushner’s growing influence.

But back to cash on hand, according to Trump’s campaign, his call this week for his backers to contribute to his presidential bid generated more than $3 million since Tuesday.

Donald J. Trump Jr., in an email to supporters sent Wednesday, further proof of the children’s influence, said, “Yesterday my father sent his first ever fundraising email for the campaign and predicted it would shatter fundraising records....My father offered to match up to $2 million personally, $1 for every $1 donated, and in less than 12 hours we surpassed that goal.  All because of supporters like you.”

--Florida Sen. Marco Rubio is going to seek reelection, after insisting he would retire from the Senate after one term.  He has been urged by top senate Republicans to run for a seat that could be pivotal to Republican efforts to retain the senate.

Rep. Patrick Murphy, a Democratic candidate for Rubio’s seat, slammed him as reports surfaced Wednesday that Rubio would run.

“Marco Rubio abandoned his constituents, and now he’s treating them like a consolation prize,” Murphy said in a statement.

But in a Quinnipiac poll of senate races, in Florida, Rubio leads Murphy 47-40 and another potential challenger, Rep. Alan Grayson, 48-40.

[Quinnipiac also had incumbent Rep. Sen. Pat Toomey leading Democratic opponent Katie McGinity in Pennsylvania 49-40, while in Ohio, the race is tied at 42% between Republican Sen. Rob Portman and former Democratic Gov. Ted Strickland.  Your editor is a fan of both Toomey and Portman.]

--Virginia Dem. Sen. Tim Kaine has long been thought of to be a top vice presidential selection for Hillary Clinton.  I have no problem with Kaine myself, a former DNC chairman.

But, as The Hill noted, there’s one big problem: abortion.

“While Kaine does not back overturning the Roe v. Wade decision legalizing abortion, he is personally opposed to the practice and has backed controversial restrictions, such as parental–notification laws and a ban on late-term abortions.”

As for Trump’s running mate?  Who would want that job at this point?  There is a little talk that Arkansas Sen. Tom Cotton could be interested, and he is certainly an interesting guy with conservative bona fides. 

--The House adjourned early Thursday following a 239-171 vote to approve $1.1 billion to combat the Zika virus shortly after 3 a.m., despite an extraordinary 16-hour protest for gun control legislation orchestrated by Democratic lawmakers, bringing legislative business to a halt and triggering a rather chaotic late-night showdown.

House Speaker Paul Ryan said earlier that he would not schedule a vote on gun bills that have already been defeated in the Senate.  “This is a publicity stunt,” Ryan said.  “This isn’t trying to come up with a solution to a problem. This is trying to get attention.”

Regarding “civil rights hero” Rep. John Lewis (D-Ga.), who played a key role in the Democrats’ sit-in, I have long admired the man like most Americans, but it was truly despicable how in the heat of the South Carolina Democratic primary, Lewis flat-out lied about his relationship with the Clintons during the civil rights era, while demeaning Bernie Sanders’ efforts in the cause, even though Lewis didn’t meet the Clintons until over 10 years after the time in question and Hillary wasn’t involved in civil rights (in her case ‘children’s rights’ campaigns) until 1973!  Sanders, on the other hand, was legitimately intimately involved in the civil rights movement going back to his University of Chicago days in 1962.

Lewis, when feebly confronted by the facts, said, ‘Well, I never met (Sanders).’  What an ass.

But ‘icon’ John Lewis got away with it. [I hinted at my disgust back in a March column.]  It was a key moment in the presidential campaign and it was disgraceful behavior.

And, yes, it has everything to do with Wednesday’s spectacle on the House floor because the revered John Lewis was part of it.

Sorry if this ticks some of you off.  But the truth is hard sometimes.

For his part, Sanders finally returned to the Senate this week and his appearance was met with a less than rousing reception from his fellow Democrats, who note that Sanders enjoys the full privileges of membership in the Democratic caucus even though he is technically an independent.

A senior Democratic aide also told Alexander Bolton of The Hill that Sanders “annoyed” some colleagues by proclaiming in a speech his desire to “transform the Democratic Party so that it becomes a party of working people and young people, and not just wealthy campaign contributors.”

Sanders did finally say he would vote for Clinton.  I’m guessing he doesn’t when he’s in the booth.

--Back to Zika and the bill the House passed for $1.1 billion, this is well below the $1.9bn the administration is seeking.  Senate Democrats have also balked at the $1.1bn plan because it would be paid for with $750 million in cuts to other programs, including Ebola and the Affordable Care Act.  President Obama said he would veto the Republican-backed measure if it reached his desk, but it may not even clear the Senate, which means further delay at a time when Zika will undoubtedly lead to birth defects in the United States, not that the extra $millions would be spent in the right way.

--Meanwhile, a deadlocked Supreme Court killed President Obama’s plan to defer deportation for about four million illegal immigrants; the 4-4 vote leaving in place a ruling by a federal judge in Texas that ordered the policy be placed on hold after Texas and 25 other Republican-leaning states sued the administration.

This doesn’t mean the administration is required to begin deportations of those affected (and I don’t want them to be), but it effectively ends Obama’s efforts to extend his executive authority over immigration and that’s a good thing.

--A federal jury in Philadelphia convicted Rep. Chaka Fattah (D-Pa.) of racketeering conspiracy charges after a trial that centered on allegations that he and associates misused hundreds of thousands of dollars in taxpayers’ charity and campaign funds.

This was part of a long-running FBI investigation into Fattah, who represented Philadelphia, with many of the charges stemming from his failed mayoral bid in 2007.  He was defeated in April’s Democratic primary election and at first said he would serve out his term.  Then this week he said he was leaving Oct. 3.  Then it became ‘immediately.’  Bye bye, Chaka.  [Chaka Khan...Chaka Khan Chaka Khan...]

--The ongoing corruption investigation into the New York City Police Department claimed three commanders this week, along with a Brooklyn businessman...all part of a continuing probe into Mayor Bill de Blasio’s campaign fund-raising, which warms the cockles of some of us.  The mayor himself should be nailed shortly.  #PreetBharara

--According to figures released by the Census Bureau, in 370 counties across 36 states and the District of Columbia, non-Hispanic whites accounted for less than half the population as of July 2015, up 31 counties since 2010.

As reported by the Wall Street Journal: “Of the nation’s 3,142 counties, the so-called minority majority ones – 12% of the total – represent an outsize chunk of the U.S. population since they are home to almost one-third of Americans.

“The new figures point to a widening racial generation gap.  While three-quarters of Americans age 55 and older are white, just 56% of those 18 to 34 are white, and only slightly more than half of minors are white, according to William Frey, a Brookings Institution demographer.”

Gee, can you say Democrats benefit?

But “Republicans are helped by the fact that whites and older Americans have higher voter turnout rates.”  Not for long, kids.

As former NBA all-star Derrick Coleman would say of this last point, “Whoopty-damn-do.”  Us Republicans are so screwed on so many different fronts.

--It was a hot week in Southern California and the southwest, with Palm Springs hitting an all-time record high of 121 on Monday, breaking the former record for the date of 118 degrees in 1929.

On a related topic, I saw a piece in the L.A. Times that notes the U.S. Forest Service estimates the drought, heat and an infestation of ravenous bark beetles has killed 26 million trees in the Sierra Nevada since October, an “unprecedented” die-off that obviously heightens the wildfire risk.

An estimated 66 million trees have been lost since 2010.

--So in light of the above, think cooler thoughts.  Iceland tops the Global Peace Index for the sixth year in a row, followed by Denmark and Austria, while Syria is ranked as the world’s least peaceful place.

Vision of Humanity is a project of the Institute for Economics and Peace (IEP), an independent international think tank.  Its annual peace index takes into account factors such as political stability, militarization, domestic conflict and crime.

Among the others in the top ten are 8 Canada and 9 Japan.

The U.S. ranks 103rd, between Uganda and Cambodia.

“The world became less peaceful in 2016,” the IEP notes.

“While the majority of terrorist activity is highly concentrated in five countries – Syria, Iraq, Nigeria, Afghanistan and Pakistan – the breadth of terrorism is spreading, with only 23 percent of countries in the Index not experiencing a terrorist incident,” it added.  [Irish Independent]

And Iceland made the knockout round of the Euro 2016 tournament, which is one of the better sports stories of the year.  [Leicester City winning the Premier League title is No. 1 for the century.]

---

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

God bless America.  And prayers to our friends in West Virginia suffering from historic flash floods that have claimed at least 20 lives. 

---

Gold $1322
Oil $48.85

Returns for the week 6/20-6/24

Dow Jones  -1.6%  [17400]
S&P 500  -1.6%  [2037]
S&P MidCap  -1.5%
Russell 2000  -1.5%
Nasdaq  -1.9%  [4707]

Returns for the period 1/1/16-6/24/16

Dow Jones  -0.1%
S&P 500  -0.3%
S&P MidCap  +4.2%
Russell 2000  -0.7%
Nasdaq   -6.0%

Bulls 47.5
Bears 23.2  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore



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Week in Review

06/25/2016

For the week 6/20-6/24

[Posted 11:15 PM ET, Friday]

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

Edition 898

Brexit and Europe

The polls ahead of the June 23 referendum in the U.K. on whether to stay in the European Union or exit, Brexit, were all amazingly consistent.

June 19...YouGov 44% Remain 43% Leave; Opinium 44-44; Survation/Daily Mail 45 Remain 42 Leave
June 20...ORB/Daily Telegraph 53 Remain 46 Leave
June 22...Opinium 45 Leave 44 Remain
June 23...Financial Times poll of polls 48 Remain 46 Leave

Final tally, 51.9% Leave 48.1% Remain.  Turnout was a record 70%.

It was only a surprising result because the bookmakers generally had it 80/20 or 85/15 Remain come Thursday morning.  How did the polls consistently peg the closeness but the vaunted London oddsmakers didn’t?  Who knows.

What we do know is that forget the economic consequences, which will play out over time. The political consequences of Britain’s historic move to bolt the European Union are reverberating immediately and I foresee years of hell with growing domestic violence and terrorism rivaling anything produced by Islamic extremists, though anything from the latter will only further the actions of the former.

British Prime Minister David Cameron, Friday morning:

“The country has just taken part in a giant democratic exercise – perhaps the biggest in our history.  Over 33 million people – from England, Scotland, Wales, Northern Ireland and Gibraltar – have all had their say.

“We should be proud of the fact that in these islands we trust the people with these big decisions.

“We not only have parliamentary democracy, but on questions about the arrangements for how we are governed, there are times when it is right to ask the people themselves, and that is what we have done.

“The British people have voted to leave the European Union, and their will must be respected....

“The will of the British people is an instruction that must be delivered.  It was not a decision that was taken lightly, not least because so many things were said by so many different organizations about the significance of this decision.

“So there can be no doubt about the result.

“Across the world people have been watching the choice that Britain has made. I would reassure those markets and investors that Britain’s economy is fundamentally strong.

“And I would also reassure Brits living in European countries, and European citizens living here, that there will be no immediate changes in your circumstances. There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold.

“We must now prepare for a negotiation with the European Union.  This will need to involve the full engagement of the Scottish, Welsh and Northern Ireland governments to ensure that the interests of all parts of our United Kingdom are protected and advanced.

“But above all this will require strong, determined and committed leadership.  I am very proud and very honored to have been prime minister of this country for six years....

“I will do everything I can as prime minister to steady the ship over the coming weeks and months, but I do not think it would be right for me to try to be the captain that steers our country to its next destination.

“This is not a decision I have taken lightly, but I do believe it is in the national interest to have a period of stability and then the new leadership required.

“There is no need for a precise timetable today, but in my view we should aim to have a new prime minister in place by the start of the Conservative Party conference in October.

“Delivering stability will be important and I will continue in post as prime minister with my cabinet for the next three months. The cabinet will meet on Monday....

“A negotiation with the European Union will need to begin under a new prime minister, and I think it is right that this new prime minister takes the decision about when to trigger Article 50 and start the formal and legal process of leaving the EU.

“I will attend the European Council next week to explain the decision the British people have taken and my own decision....

“I have said before that Britain can survive outside the European Union, and indeed that we could find a way.

“Now the decision has been made to leave, we need to find the best way.”

David Cameron did this to himself, and his country; having made the promise to bring a referendum as part of his last campaign, and then he totally misread the mood of the people and the impact of issues such as immigration on the electorate.

He also failed to gain major concessions ahead of the referendum from the EU, which as I wrote at the time were laughed at by the Leave camp.  Plus Cameron didn’t understand the British people were worried about being responsible for the debts of the likes of Greece, Portugal, Spain and Italy.  And they were tired of the fact that over 50% of the laws and regulations they lived under emanated from Brussels.

But prior to the vote, Jean-Claude Juncker, president of the European Commission, said a British decision to exit the EU would be final and would not trigger any further renegotiation over the U.K.’s place in the bloc.  He said the EU had given the “maximum” concession to Cameron.

So now what?  As Cameron noted, assuming the timetable is roughly as he stated, he remains prime minister until October and the new government (there is no need for a new election) would invoke Article 50 to begin a two-year period of negotiation on everything from trade to immigration and the free movement of EU citizens (including the status of current and future EU workers in Britain, around 3m from other EU nations reside in the U.K., as well as of the more than 1 million Britons living elsewhere in the EU), customs controls, air travel...we’re talking the untangling of 43 years of shared EU laws and regulations...literally everything.  There are a million regulations in the agriculture sector, for example, that would have to be renegotiated.

Negotiations will be bitter, no breaks for Britain.

But it’s also possible, as German Chancellor Angela Merkel strongly hinted, that the EU will attempt to handle Britain in an “association partnership” rather than through Article 50, which would be a milder form of exit.

We will have weeks, months and years to discuss the economic impact of Britain’s move.  Expect the mood to change numerous times, depending largely on outside events (to be stark, terror attacks, assassinations and the like).

But as I said of immediate concern is the political dimension, and here it could be dire.  For starters, picture how only London (which is a massive ‘region’), Scotland and Northern Ireland voted to Remain. Scotland’s first minister has already said a second independence referendum is “highly likely,” Scotland wanting to stay in the EU.  [The vote there Thursday was 62% to 38% Remain.]

I have noted many times in the past that among the issues of a Scotland exit from the U.K. that few mention is Scotland is the home to Britain’s nuclear missiles and talk about a ‘not in my backyard’ debate for England should Scotland leave.

Of more immediate, to me serious, concern, is the issue of Northern Ireland, with Sinn Fein already calling for a united Ireland.  Mark my words...Ireland is headed to renewed violence, sooner than later depending on the level of the political rhetoric in these first critical weeks and months. The Unionists would never stand for unification.

Across the Channel and North Sea, you have the Netherlands and France, both with national elections next spring and with successful far-right movements that are already clamoring for similar referendums, with France’s Marine Le Pen of the National Front Party (FN) promising a referendum on France’s status in the EU six months after she is elected president, should this come to pass. In the Netherlands, Geert Wilders, leader of the anti-immigrant PVV party, has expressed similar sentiments.

France is already a mess with massive labor demonstrations and strikes over minimal economic reforms the government of President Francois Hollande is trying to enact, amid an ongoing severe terror threat.

Spain has a national election on Sunday that promises more instability as for a second time the electorate is split to the point of no party being able to form a government, which has been the case since December’s vote.

Italy has a major referendum in October on constitutional reforms, specifically aimed at ending Italy’s long history of revolving-door governments (63 since World War II), with Prime Minister Matteo Renzi’s party having lost out last weekend in various municipal elections, including in Rome where the Five-Star Movement candidate, 37-year-old Sophia Loren (err, Virginia Raggi, who is rather cute, but I digress) became her party’s first major officeholder.  Five-Star also won in Turin.

Renzi has promised to step down if he loses the referendum, which would curtail the upper house’s power to bring down governments with no-confidence votes.  [Renzi’s party did win the mayor’s race in financial capital Milan.]

Greece is an ongoing mess of the highest order and now there is renewed uncertainty over the funding of its bailout.

And I could go on and on....

All the while Russian President Vladimir Putin has to be sitting in the Kremlin licking his chops.  He loves the chaos created by Brexit.  I mention that the EU is renewing sanctions against Russia over Ukraine down below but the EU will be increasingly split on the matter and there is little doubt sanctions will fall by the wayside.

Meanwhile, Brexit threatens to severely undermine NATO, let alone cooperation between the U.K. and EU members on the security front.

Reaction....

European Council President Donald Tusk: “We are determined to keep our unity as 27 [Ed. remaining nations in the EU]... I will propose that we start a period of wider reflection on the future of our union.”

Boris Johnson, potential successor to David Cameron as prime minister and leading figure in the “Leave” campaign: “We can find our voice in the world again, a voice that is commensurate with the fifth-biggest economy on Earth...I believe we now have a glorious opportunity: we can pass our laws and set our taxes entirely according to the needs of the U.K. economy...There is now no need for haste and...nothing will change over the short term.”

Joint Statement by EU leaders: “We will stand strong and uphold the EU’s core values of promoting peace and the wellbeing of its peoples...together we will address our common challenge to generate growth, increase prosperity and ensure a safe and secure environment for our citizens...We now expect the United Kingdom government to give effect to this decision of the British people as soon as possible, however painful that process may be.  Any delay would necessarily prolong uncertainty...As regards the United Kingdom, we hope to have it as a close partner of the European Union also in the future...Any agreement, which will be concluded with the United Kingdom as a third country, will have to reflect the interests of both sides and be balanced in terms of rights and obligations.”

German Chancellor Angela Merkel: “We have to recognize the decision of the majority of the British people with deep regret today...There is no point beating about the bush: today is a watershed for Europe, it is a watershed for the European unification process.”

French President Francois Hollande: “(Negotiations on Britain’s exit must be swift, adding): The British vote is a tough test for Europe.”

French Prime Minister Manuel Valls: “It’s an explosive shock.  At stake is the breakup pure and simple of the union.  Now is the time to invent another Europe.”

Jeroen Dijsselbloem, Dutch chairman of the Council of Eurozone finance ministers: “The worst thing we could do is allow more instability into the EU...Alas, the British have chosen that, and we must make another choice...Simply deepening or enlarging the European Union is not the way forward.”

Norwegian Prime Minister Erna Solberg: “(The vote) was a signal from both the British voters and many other voters around Europe who feel that the EU is not providing good enough answers to today’s challenges.”

Hungarian Prime Minister Viktor Orban: “Brussels must hear the voice of the people, this is the biggest lesson from this decision...Europe is strong only if it can give answers to major issues such as immigration that would strengthen Europe itself and not weaken it. The EU has failed to give these answers.”

Jaroslaw Kaczynski, head of Poland’s ruling Law and Justice Party: “Brexit is a very bad event.  Poland’s place is in the European Union...The conclusion is obvious: we need a new European treaty.”

Polish President Andrzej Duda: “Everything must be done to prevent other countries leaving.”

Italian Prime Minister Matteo Renzi: “We have to change (the EU) to make it more human and more just, but Europe is our home, it’s our future.”

Italian Five-Star party leader Matteo Salvini: “Thank you Great Britain, next it is our turn.”

Acting Spanish Prime Minister Mariano Rajoy: “In little more than half a century, Europeans have built the greatest space for peace, freedom and prosperity in all of humanity’s history.  And, despite the serious setbacks like the one we face today, nobody should doubt that we are going to continue working to build tomorrow.”

Greek Prime Minister Alexis Tsipras: “We urgently need a new vision and beginning for a united Europe – for a better Europe, more social and democratic.”

U.S. President Barack Obama: “The people of the United Kingdom have spoken, and we respect their decision. The United Kingdom and the European Union will remain indispensable partners of the United States even as they begin negotiating their ongoing relationship.”

Russian President Vladimir Putin: “I think it is understandable why this happened; first, no one wants to feed and subsidize weaker economies...(Second), people are apparently dissatisfied with the resolution of security issues, which has become more acute against the background of powerful migration processes.”

Chinese Foreign Ministry Spokeswoman Hua Chunying: “The impact will be on all levels, not only on relations between China and Britain...China supports the European integration process and would like to see Europe playing a proactive role in international affairs.”

The Global Times, a Chinese Communist Party mouthpiece: “This referendum will probably be a landmark event that proves Britain is heading in the direction of being a small country with few people, writing itself off as hopeless and acting recklessly.”

U.S. Republican presidential candidate Donald Trump: “They took back control of their country.  It’s a great thing...People are angry, all over the world...They’re angry over borders, they’re angry over people coming into the country and taking over.  Nobody even knows who they are.  They’re angry about many, many things.”

Pope Francis: “It was the will expressed by the people and this requires a great responsibility on the part of all of us to guarantee the good of the people of the United Kingdom, as well as the good and co-existence of the European continent.”

Marine Le Pen, head of France’s far-right National Front Party: “Victory for freedom!  We now need to hold the same referendum in France and in (other) EU countries.”

Nigel Farage, leader of the British anti-EU party UKIP: “The EU is failing, the EU is dying.”

Dutch anti-immigration leader Geert Wilders: “We want to be in charge of our own country, our own money, our own borders, and our own immigration policy...As quickly as possible, the Dutch need to get the opportunity to have their say about Dutch membership of the European Union.”

Martin McGuinness, nationalist deputy first minister of Northern Ireland: “The British government now has no democratic mandate to represent the views of the North in any future negotiations with the European Union and I do believe that there is a democratic imperative for a ‘border poll’ to be held.”

Arlene Foster, pro-British first minister of Northern Ireland: “There is no way even, if there was a border poll, that it would be in favor of a united Ireland.”

Acting Spanish Foreign Minister Jose Manuel Garcia-Margallo: “It’s a complete change of outlook that opens up new possibilities on Gibraltar not seen for a very long time.  I hope the formula of co-sovereignty – to be clear, the Spanish flag on the Rock – is much closer than before.”  [This is another sleeper issue.  Really, it could go military.]

Opinion....

Editorial / The Economist

“How quickly the unthinkable became the irreversible.  A year ago few people imagined that the legions of Britons who love to whine about the European Union – silly regulations, bloated budgets and pompous bureaucrats – would actually vote to leave the club of countries that buy nearly half of Britain’s exports.  Yet, voters ignored the warnings of economists, allies and their own government and, after more than four decades in the EU, were about to step boldly into the unknown.

“The tumbling of the pound to 30-year lows offered a taste of what is to come. As confidence plunges, Britain may well dip into recession.  A permanently less vibrant economy means fewer jobs, lower tax receipts and, eventually, extra austerity. The result will also shake a fragile world economy.   Scots, most of whom voted to Remain, may now be keener to break free of the United Kingdom, as they nearly did in 2014.  Across the Channel, Eurosceptics such as the French National Front will see Britain’s flounce-out as encouragement. The EU, an institution that has helped keep the peace in Europe for half a century, has suffered a grievous blow....

“The vote to Leave amounts to an outpouring of fury against the ‘establishment.’  Everyone from Barack Obama to the heads of NATO and the IMF urged Britons to embrace the EU.  Their entreaties were spurned by voters who rejected not just their arguments but the value of ‘experts’ in general.  Large chunks of the British electorate that have borne the brunt of public-spending cuts and have failed to share in Britain’s prosperity are now in thrall to an angry populism.

“Britons offered many reason for rejecting the EU, from the democratic deficit in Brussels to the weakness of the eurozone economies. But the deal-breaking feature of EU membership for Britain seemed to be the free movement of people.  As the number of new arrivals has grown, immigration has risen up the list of voters’ concerns.

“Accordingly, the Leave side promised supporters both a thriving economy and control over immigration. But Britons cannot have that outcome just by voting for it.  If they want access to the EU’s single market and to enjoy the wealth it brings, they will have to accept free movement of people.  If Britain rejects free movement, it will have to pay the price of being excluded from the single market.  The country must pick between curbing migration and maximizing wealth.

“David Cameron is not the man to make that choice.  Having recklessly called the referendum and led a failed campaign, he has shown catastrophic misjudgment and cannot credibly negotiate Britain’s departure.”  [Ed. this last bit was written prior to Cameron’s announcement he was stepping down.]

Katya Adler / BBC Europe editor

“The EU worries Brexit could reverse 70 years of European integration.

“In all my years watching European politics, I have never seen such a widespread sense of Euroscepticism.

“Plenty of Europeans looked on with envy as Britain cast its In/Out vote.  Many of the complaints about the EU raised by the Leave campaign resonated with voters across the continent.

“Across Europe leading Eurosceptic politicians queued up this morning to crow about the UK referendum result.

“But the mood in Brussels is deeply gloomy.  The Brexit vote sends screaming alarm bells, warning that the EU in its current form isn’t working.

“Last Friday, Marine Le Pen told a gathering of far-right parties in Vienna: ‘France has possibly 1,000 more reasons to want to leave the EU than the English.’

“She said the EU was responsible for high unemployment and failing to keep out ‘smugglers, terrorists and economic migrants.’

“Geert Wilders, leader of the Party for Freedom in the Netherlands, said in a statement: ‘We want to be in charge of our own country, our own money, our own borders, and our own immigration policy.

“ ‘As quickly as possible the Dutch need to get the opportunity to have their say about Dutch membership of the European Union.’....

“A recent Dutch survey suggested 54% of the people wanted a referendum.”

Market Reaction

As you would expect reaction was severe, though relatively muted in the U.K. as the London FTSE (like the S&P 500) fell 3.2%.  But Frankfurt’s DAX plunged 6.8%, Paris’ CAC 40 8.0%, Athens 13.4% and Milan and Madrid both down 12.5%...in one day. The Stoxx Europe 600 fell 7%, its worst day since 2008. 

There were also huge moves in the euro government bond markets, with the yield on the 10-year German bund going from 0.09% to -0.05% on Friday in a flight to safety, while yields on the periphery government bonds soared at first, before rallying back some by end of the day.  Nonetheless, Italy’s 10-year saw its yield go from Thursday’s 1.39% to 1.68% before settling at 1.55%, while Spain’s went from 1.46% to 1.70% before closing at 1.62%, still huge relative moves.  Portugal’s 10-year was up 40 basis points on Friday alone to 3.47% before closing at 3.30%, while the yield on the Greek 10-year went from Thursday’s 7.54% to over 9% before ending the week at 8.31%.  Further large-scale volatility in euro bonds is in the cards for the coming months.

Initially, the euro currency suffered its worst fall ever in the wake of the vote to leave the EU before paring its losses.  The British pound hit its lowest level against the dollar since 1985, a day after reaching its high for the year.

And in an example of what is to come in terms of the British economy, Ford Motor said it “will take whatever action is needed” to keep its U.K. operations competitive in a sign it is preparing to cut costs.  Others, such as Jaguar, said it would be “business as usual” until the negotiations over trade barriers were completed, but I don’t believe this.  Cuts will come soon.

Many of the major banks, from Morgan Stanley to Citigroup and Deutsche Bank have already signaled they would be moving jobs out of London to “rebalance” operations.  Dublin, Frankfurt and Paris should be prime beneficiaries.

Banks are going to suffer amid lower interest rates for longer, trading losses (at least initially) and slowing growth.

[As to whether Brexit will work long term, I can’t hazard a guess.]

---

There was some economic news in the eurozone this week.  Markit published its flash readings on manufacturing for June and the EA19 comp was 52.8 vs. 53.1 in May, a 17-month low, with the manufacturing PMI 52.6 vs. 51.5.  [50 being the dividing line between growth and contraction.]

Germany’s flash manufacturing PMI for May was 54.4, the best in 24 months (owing to rising exports to the U.S. and China), while France’s manufacturing figure was just 47.9 (services 49.9) for a comp of 49.4 vs. 50.9.  Separately, a measurement of business confidence in France hit a 9-month low.

The battle between President Hollande’s Socialist government – which is attempting to ease employee protections – and the country’s most strident labor unions has caused major disruptions in various parts of the economy from public transportation to garbage collection. Economists predict growth there will slow to 0.3% in this quarter from 0.6% in the first, according to a Bloomberg survey.

Washington and Wall Street

Wall Street’s decline on Friday in reaction to Brexit was somewhat muted, at least compared to the action in Europe.  That said it was still the worst day since August.

On Tuesday, in her semi-annual testimony to the Senate Banking Committee, Federal Reserve Chair Janet Yellen stuck to the script, saying the Fed would tread carefully as it gauges whether to raise interest rates, adding she saw “considerable uncertainty” about the U.S. economic outlook.  And, days before the referendum, she placed greater emphasis on the risk posed by a “leave” vote that could have “significant economic repercussions.”

So now with that having occurred, the Fed isn’t doing anything until at the earliest December.  No freakin’ way, as I’ve said many times before, would they consider September, right before the election.

The Fed next meets July 26-27, and once again we’ll parse the accompanying statement.  In light of Brexit the June jobs report is not as important as it would have been prior to the vote.

Earlier the International Monetary Fund cut its outlook for U.S. economic expansion this year to 2.2% from 2.4%, while warning that recent data showing weak activity here might indicate the capacity for the economy to expand is much lower than previously thought; economic “headwinds” and “pernicious” trends including a shrinking middle class that could slow growth in the long term, the IMF warned.

The IMF and others are echoing the same themes these days.  Wages are rising, but not productivity, which hurts profits, plus rising income is going more to pay for healthcare and technology and not on consumer spending.

Just a few economic tidbits.  May existing home sales came in at a seasonally adjusted 5.53 million, the best pace since Feb. 2007, up 1.8%, with the median existing home price at $239,700, up 4.7% from May 2015, the 51st consecutive month of year-over-year gains.  May new home sales, 551,000 annualized, were also solid.

But May durable goods (big-ticket items) fell 2.2%, worse than expected.

Meanwhile, there was zero news of note on China’s economy this week, literally, while Markit’s flash manufacturing PMI for Japan was 47.8 in June vs. 47.7 in May, with the Japanese economy still impacted by April’s earthquakes in a heavily industrial region.

Tokyo’s Nikkei stock index fell 7.9% on Friday in response to Brexit, while the Shanghai Composite declined 1.3%.

Street Bytes

--When the bell rang at 4:00 p.m. Friday, the Dow had lost 3.4%, the S&P 500 3.6% and Nasdaq 4.1% for the chaotic day, though the losses for the week were far less; -1.6% for both the Dow and S&P and -1.9% for Nasdaq.

But this was enough to wipe out the Dow and S&P’s gains for the year.

I do have to add, though, that I was miffed by the obligatory talk on the national newscasts of investors’ retirement plans “taking a big hit” when the major indexes are at levels of about 10 days ago.

--U.S. Treasury Yields

6-mo. 0.37%  2-yr. 0.63%  10-yr. 1.56%  30-yr. 2.41%

The yield on the 10-year early Friday was at a low not seen since July 2012, 1.50%.

--Oil, as measured by West Texas Intermediate, had rallied back over $50 prior to the Brexit vote, but collapsed anew on Friday and finished the week at $48.85, which was actually a bounce from below $48.00 before the close. 

U.S. inventories fell a fifth week in a row, but they are still higher than ever for the start of the summer driving season, up 8.7% over June 2015.  That said, U.S. gasoline demand has never been higher.

--Tesla was the biggest single stock story of the week.

Elon Musk built his empire on three pillars: electric cars, solar energy and space travel.  This week he decided that his Tesla Motors would buy his SolarCity (where he is chairman) in an all-stock deal, as Musk argues he could create a renewable-energy giant that would propel his cars.

Musk has taken out loans to buy up shares in both companies, some backed by his personal stock holdings Tesla and SolarCity – which leaves him exposed to margin calls if their share prices fall too far.

Musk owns 22% of SolarCity, while and 21% of Tesla, where he is CEO and chairman. SolarCity’s CEO, Lyndon Rive, is Musk’s cousin.

Musk said: “We need to achieve a tight integration of the products. I think it’s an obvious thing to do.”

Shares in Tesla immediately fell 13% (down 10.5% the first day), finishing down 10.4% for the week, while SolarCity’s stock rose a mere $0.90 from the previous Friday.

Tesla said in a blog post: “It’s now time to complete the picture.  Tesla customers can drive clean cars and they can use our battery packs to help consume energy more efficiently, but they still need access to the most sustainable energy source that’s available: the sun.”

Tesla said it would become the only company offering “end-to-end” clean energy products to customers.

From the Financial Times’ Lex column:

“Elon Musk believes there is an advantage to being a vertically-integrated energy production, storage and transport company.  Yet ExxonMobil does not make cars and General Motors does not go around drilling wells.

“As so often – sometimes for good and sometimes not – Mr. Musk sees things differently....It may be true, as Mr. Musk averred, that owners of electric vehicles are more likely to buy solar panels, though he could only say that ‘probably a fairly small percentage actually have it...maybe 25 percent or something like that...we haven’t actually done a survey or anything.’

“But of course Tesla does not really need to buy a solar company, and if it did, it could have bought a good one.  SolarCity has more than $3bn of debt and in a timely research note on Tuesday, Goldman Sachs noted that it could come close to breaching its covenants.

“Tesla shareholders smelled the deal for what it was – a bailout by Tesla of SolarCity....

“The proposed deal is the most blatant in a series of related party deals which has also seen Mr. Musk’s third company, SpaceX, buy SolarCity bonds.  The only saving grace is that it requires the blessing of both Tesla and SolarCity shareholders and Mr. Musk has agreed not to vote his shares.

“Other than Mr. Musk, no insider has a significant position in Tesla.  Institutional investors hold sway.  Providing those investors can vote the right way...the Musk merger may well fail.”

And as Holman W. Jenkins, Jr. of the Wall Street Journal put it:

“Tesla’s main contribution, let’s remember, has been to substitute electric drive for gasoline drive – which is great.  Electric cars are interesting. But why does this justify government favoritism, to the point where Tesla’s market cap is a modest fraction of the value of its future expected subsidies? The handouts currently amount to at least $20,000 per car.

“If the answer is climate change, the largest source of greenhouse emissions is electric-power generation, twice as much as all forms of transportation combined. So why subsidize a car to run on electricity?  Passenger cars are such a small part of the alleged problem – a single-digit share of emissions – why focus on cars at all?

“But you know the answer.  Tesla has captured the public’s imagination, and politicians latch onto any opportunity to transfer public resources to a grateful recipient, because that’s what politicians do.  The real question isn’t whether Mr. Musk is enterprising and innovative, but whether government’s excessive interest has so distorted his decision-making that it’s leading his company to disaster.”

--On a related issue, according to a new report from energy consulting firm Wood Mackenzie, electric cars are poised to reduce U.S. gasoline demand by 5% over the next two decades – and could cut it by as much as 20%.

To achieve the 20% levels, the firm says electric cars would need to gain more than 35% market share by 2035.  But the more likely scenario, said the report’s author, was a drop of 5% in U.S. gasoline demand as electric cars build to more than 10% of the U.S. vehicle fleet.  [Wall Street Journal]

--FedEx reported adjusted earnings that beat expectations for the three months ending May, but the unadjusted figures were hit by $946m in pension accounting adjustments for the company’s 4.4bn euro takeover of the Netherlands’ TNT Express as well as charges for a legal case.  So this meant the company lost $70m net for the quarter.

The shares tanked (prior to Friday’s further big decline) because the company has other issues concerning the integration of TNT and the value of its pension fund, even though it gave a fairly robust forecast for the rest of the year.

--Bed Bath & Beyond’s quarterly profit and margin declined as the retailer reported flat sales in the May quarter, missing Wall Street’s expectations and sending the shares down 5%.  Same-store sales declined 0.5%, compared with a year-earlier increase of 2.2%.  I’m awaiting my next coupon.

--According to research by the International Federation of Robotics, the accelerating pace of automation on factory floors saw a double-digit rise in worldwide sales of industrial robots to a record level in 2015.

248,000 units were sold last year, an increase of 12 percent, with more than one in every four going to China.  As the IFR put it, once the manual labor “workshop of the world,” China is today the largest buyer of industrial robots.

Per Vegard Nerseth, head of robotics for ABB, the engineering group, one factor behind the proliferation of robots was a lack of willing labor for certain tasks.

“People today don’t want to do dull, dirty, dangerous and delicate jobs anymore, so many companies see when the older generation of factory workers retire they really struggle to get hold of people who want to take up those jobs,” he said.

Sales in China last year increased by 17 percent, as manufacturers turn to technology in response to rising wage demands and competition from lower-cost nations.  [Financial Times]

--On a related topic, the Wall Street Journal’s Andrew Browne had a piece on how Germany is increasingly upset with China, which has been targeting a string of advanced German manufacturers for acquisition – “one company a week so far this year” – while Germany sees a future where China then uses the high-technology expertise “to build state-owned national champions that compete with German firms around the world, including on their own home patch.”

On a recent visit to Beijing, Chancellor Angela Merkel called on Chinese authorities to grant foreign firms the same “rights and privileges” as domestic ones.  “No one wants to see an expanded trade war between the European Union and China,” she added.

But you know what I think of China and trying to do business with it.  Germany is learning a painful lesson.  They shouldn’t have been so willing to let China acquire their best tech companies in the first place.

--Wal-Mart is selling its Chinese ecommerce arm to JD.com in exchange for a minority stake in Alibaba’s smaller rival, as Walmart looks to accelerate its online business there.

Walmart’s stores in China will get preferred retailer status on JD.com’s crowdsourced delivery platform, in an attempt to drive further online traffic.

Now this is a deal that makes perfect sense.  Go WMT!

--As for Alibaba, CEO and founder Jack Ma penned an op-ed for the Wall Street Journal:

“Increased scrutiny is part of becoming a global company. When Alibaba went public in 2014, I told our customers, employees and investors that what we had earned was trust – in myself, my team, and our company’s mission, vision and values.  With that trust comes great responsibility. So when I see reports in the press taking my recent words about counterfeit goods out of context, I feel compelled to set the record straight.  This is my responsibility to all of our stakeholders.

“What I shared with our investors last week was an observation: that the dynamics between some brands and their manufacturing partners, and brands and their customers, are shifting due to economic and technological developments.

“First, Chinese manufacturers face declining exports because demand from Western markets is not what it used to be. Every day, I see small businesses in China suffer because orders from their longtime customers are half of what they once were.  Yet these businesses have made investments in factories, equipment and people.  They must find new ways to adapt to this changing environment.

“Second, the internet has given consumers ever-increasing access to products without the need for complex and costly distribution channels.  Manufacturers in China are increasingly using the internet to tap into the vast domestic market.  Many of these firms have developed their own online-only brands with quality products for Chinese consumers.

“What I said last week was that these trends may challenge the business model of some established brands. That’s reality.

“I want to let you know where I stand on this: Counterfeit goods are absolutely unacceptable, and brands and their intellectual property must be protected.  Alibaba is only interested in supporting those manufacturers who innovate and invest in their own brands.  We have zero tolerance for those who rip off other people’s intellectual property.”

Hardly.

--Volkswagen AG is nearing a $10 billion civil settlement, the largest in the auto industry’s history, to compensate U.S. vehicle owners caught up in the automaker’s emissions-cheating scandal.

Under the proposed deal, VW will offer to buy back cars, and/or offer further compensation for almost 500,000 diesel-powered vehicles with engines containing software capable of evading government emissions tests.

Some consumers could receive up to $10,000, beyond the price of the buyback or repair.  Cars affected include model years from 2009 to 2015, such as VW Jettas, Golfs, Passats and Beetles, and some Audi A3s.

--And now...California Today...an irregular feature of Week in Review...

Home prices in Orange County, Calif., finally surpassed their bubble-era heights last month; the first region in Southern California to hit that mark.

The median price for new and resale houses and condominiums there jumped 5.9% from a year earlier to $651,500 in May, according to real estate data firm CoreLogic.

That’s $6,500 more than the $645,000 peak reached in 2007, non-inflation adjusted.  [Andrew Khouri / Los Angeles Times]

--California’s job growth continued in May, with the state’s unemployment rate now just 5.2%, which while still higher than the national average of 4.7% is really quite remarkable given where it was at the height of the Great Recession.

The state has added jobs almost every month since July 2011 and in the last 12 months, California added jobs at a rate of 2.8%, compared with 1.7% for the U.S. overall.  [L.A. Times]

--California is also now the sixth-largest economy in the world, surpassing France.  California was the world’s eighth-largest economy in 2014, according to the California Department of Finance.

France is now seventh-largest, with India eighth.

--Rong-Gong Lin II / Los Angeles Times

“Southern California’s smaller cities and large businesses must take the threat of a crippling earthquake far more seriously than they have been, a committee of business, public policy and utility leaders said Thursday, saying action is needed to ‘prevent the inevitable disaster from becoming a catastrophe.’

“Despite strides made by the city of Los Angeles to focus on earthquake safety, Southern California still faces significant threats that haven’t been resolved.

“One of the most ominous is the looming threat on the edge of Southern California’s sprawling metropolis – the Cajon Pass.  It’s a narrow mountain pass where the San Andreas fault – California’s longest and one of its most dangerous – intersects with combustible natural gas and petroleum pipelines, electrical transmission lines, train tracks and Interstate 15 north of San Bernardino.

“A huge earthquake on the San Andreas could move one side of the fault as much as 30 feet from the other.  Such an earthquake would rupture flammable pipelines and lead to a catastrophic explosion so powerful it leaves behind a crater.

“And if utilities aren’t able to shut off the flow of petroleum or natural gas, firefighters could be helpless to keep a raging wildfire from spreading across the San Gabriel and San Bernardino mountains, just as the rest of Southern California staggers from the worst earthquake it has seen in more than 150 years.”

There are some at least partial solutions but little has been done “precisely because many people don’t know the extent of the problems, and, if they do, fixing them seems so daunting.”

It’s interesting, though hardly surprising, that among those pushing for fixes is the Walt Disney Company.  Yeah, I think they would stand to lose a few $bn in revenue in the Big One.

For example, as the L.A. Times’ Lin writes, “One way to reduce the risk of catastrophe at the Cajun Pass would be to put shutoff valves on both sides of the San Andreas fault on petroleum and natural gas pipelines.  If the pipelines are automatically turned off during the earthquake, it could prevent huge amounts of fuel from being ignited if the pipelines break.”

Burst water pipes, another potential disaster, could leave parts of Southern California without water for six months, but the report says that just targeting key lengths of pipe in the system for earthquake proofing, could be enough to address the firefighting needs of the region.

Oh, there’s far, far more in the report in terms of the dangers.  Now who wants a beer?

--We all heard the warning from forecasters that El Nino was going to be massive and that California would have an extremely wet stretch last winter that would put a real dent in the drought, but a study from the Geophysical Research Letters offered support for the argument that state hydrologists have been making: It will take several years to recover from the four-year water shortage.

So while the snowpack in the Sierras was 87% of normal (water held in the snowpack) vs. the previous year’s 5% (as measured in April), the state with normal snowfalls going forward would not recoup its water deficit until 2019, and the snowpack, when it melts, supplies roughly a third of California’s water supply.

--MetLife, the giant U.S. insurer, is looking to phase out mascot Snoopy from its marketing campaigns.

MetLife’s licensing deal with United Media, which owns the rights to Charles Schulz’ Peanuts gang, runs through 2020, but MetLife is leaning against continuing the deal that costs $12 million a year.

The company said it has no current plans to replace the characters with other cartoons (so I guess my idea of Homer Simpson is out of the question), but it is pretty amazing MetLife has been using Snoopy for brand identification since 1985, or about 200 dog years.

--Lastly, for you “Game of Thrones” fans, of which I am an avid one, Brexit could have a major impact on future production of the fantasy epic because, for example, Northern Ireland is a main shooting location and it leaves the EU with the U.K.

Which means that the U.K. and HBO are likely to lose significant funding from the European Union’s Regional Development Fund; created to spur economic growth across the European Union, as noted by AdWeek. 

Ergo, cash used to bring big budget projects to Northern Ireland, for example, could dry up and it is a very real possibility HBO would not be able to produce there.  [“Battle of the Bastards” was filmed in No. IRL, boys and girls.  I continue to mourn the death of Wun Wun.]

--One more, Brexit could impact Premier League rosters, because the freedom of movement principle allowed male and female sportsmen and sportswomen to ply their trade, such as in the PL, without needing a work permit that the majority of non-EU citizens require.  But it is expected the Home Office will work out a solution.  The impact would be too great otherwise, including for South American footballers such as Diego Costa who were able to bypass the work permit process by gaining European citizenship before coming to England.

Foreign Affairs

Iraq/Syria/ISIS/Russia: U.S.-backed forces in Syria, as well as those largely-backed by the U.S. in Iraq, have been making gains against ISIS.  [Iran also has influence over some of the forces battling ISIS in both countries as well.]

ISIS’ control over the city of Manbij in Syria, on the Turkish border, is essentially over after rebel forces with U.S. help (particularly airstrikes) moved in on Thursday, dealing a big blow to the terror group’s access to the critical border.

But Russian airstrikes have been killing civilians in Syria, at least 32 in Raqqa this week, according to a Syrian observer group, while Russia has been accused of dropping phosphorus bonds on residential neighborhoods in the Syrian city of Aleppo, prelude to a ground assault to retake the city from rebel forces

In Iraq, a week earlier, Iraqi forces entered Islamic State-held Fallujah and now control major sectors of it.  The issue here is that more than 85,000 fleeing the city and its surroundings have been forced to sleep in the open desert for over a week, with many at risk of dying as supplies of tents and water run dangerously low.  More than 4.4 million Iraqis, overall, are now internally displaced.*

*The UN issued a separate report this week estimating that around the world there are 65.3m people who are either refugees, asylum seekers or internally displaced, an increase of 5m in a year; one in every 113 people on the planet.  Nice job, President Obama.  [Donald Trump is too stupid to use this.]

Meanwhile as ISIS loses ground in Falluja and elsewhere, some U.S. officials say the group will turn increasingly to less conventional military tactics and to directing and inspiring more attacks against “soft” targets in Europe, the United States and elsewhere.

One intelligence official told the Jerusalem Post: “We can expect ISIL to harass local forces that are holding cities it previously controlled, thereby drawing out battles into protracted campaigns.”

Benny Avni / New York Post

“If Hillary Clinton is the next U.S. president, prepare for a deeper American military involvement in Syria’s civil war – one that won’t seek to maintain a status quo but to crush ISIS where it’s strongest, perhaps with American boots on the ground.

“That, after all, is the only way we’ll weaken the Islamic State enough to prevent the terror group from committing and inspiring attacks on our soil – like Omar Mateen’s Orlando massacre.

“In an interview with Defense One, former top Pentagon official Michele Flournoy indicated that she’d advise the next president to ‘direct U.S. troops to push President Bashar al-Assad’s forces out of southern Syria and...send more American boots to fight the Islamic State in the region.’

“Flournoy, widely presumed to be Clinton’s top candidate for secretary of defense, later clarified that she’s calling for ‘doing more to support our partners on the ground to make them more effective’ in Syria, but denied that she’s advocated ‘putting U.S. combat troops on the ground to take territory from Assad’s forces or remove Assad from power.’

“That hedge – that she’s not calling for troops to be used against Assad – is revealing.

“And hers is but one voice in a growing Washington chorus of veteran Obama officials who seem to nudge Clinton (or Donald Trump for that matter) away from our current approach to Syria and the rest of the region.

“Why?  As we speak, ISIS metastasizes around the globe like malignant cancer in the body of a lifelong smoker.

“Groups in Libya, Egypt’s Sinai, Nigeria, Indonesia and countless other Muslim countries have pledged allegiance to Abu Bakr al-Baghdadi and ISIS.  His admirers in Europe are increasingly deadly and, as Mateen indicates, America isn’t immune either.

“What’s behind the growing allure of al-Baghdadi and ISIS to Muslims around the world?  It’s the aura of invincibility.  ISIS is like Charlie Sheen endlessly declaring ‘winning.’  Reversing that false impression must start in Raqqa, Syria, where al-Baghdadi has his headquarters, and in Iraq, where ISIS initially scored its most impressive victories.

“No one believes Obama’s policies have helped all that much in addressing the horrors of the 21st century’s deadliest war, with half a million dead and half of the country displaced, threatening to change Europe forever....

“Which means there’s a new consensus in Washington: America can’t just continue to essentially sit out the most consequential war of our time.  Voices who’ve long warned that that war would sooner or later come back to harm us have been ignored for too long.”

Jordan: A car bomb outside a Syrian refugee camp in Jordan killed six soldiers Tuesday in a remote area where hundreds have been held for screening for suspected links to ISIS.  On June 6, gunmen killed five Jordanian intelligence officers in a Palestinian refugee camp north of Amman.

Tens of thousands of Syrian refugees have sought shelter at two remote desert camps in the northeast.

Jordan says it is hosting nearly 1.4 million Syrian refugees, placing a massive strain on the Jordanian government and its resources.

At the same time an estimated 4,000 Jordanians have joined extremist groups in Iraq and Syria.

Iran: Carol E. Lee and Jay Solomon / Wall Street Journal

“The White House is pushing to ease the way for companies to complete deals with Iran, aiming to cement the landmark nuclear agreement reached last year and make it difficult for future administrations to undo it, senior U.S. officials said.

“The effort, which borrows from President Barack Obama’s playbook for solidifying U.S. relations with Cuba, got a boost this week when Boeing Co. reached a $17.6-billion deal with Iran to sell commercial jets to the country’s main airline....

“Administration officials are also studying whether to publicly back Iran’s bid to join the World Trade Organization, a move opposed by America’s Persian Gulf allies, such as Saudi Arabia....

“Administration officials have said they are seeking in Mr. Obama’s final months in office to make his policies toward Cuba and Iran, which have been controversial, difficult for his successors to unravel....

“(Secretary of State John) Kerry and other U.S. officials are hoping an economic windfall in Iran will empower Iranian President Hassan Rouhani, seen as a pragmatist and a relative moderate in Iran’s revolutionary government.

“Administration officials say a longer-term goal is that business engagement with Iran will facilitate political change there, as Mr. Obama hopes is the case in Cuba....

“Iran, however, hasn’t agreed to a broader thaw in relations, despite Mr. Obama’s willingness to pursue one.”

This whole topic is a dangerous farce.

Bahrain: This place bears watching because the head of Iran’s Revolutionary Guards has suggested there could be armed resistance in Bahrain after the Sunni Muslim-ruled kingdom’s top Shia cleric was stripped of his citizenship.

Gen. Qassem Soleimani, who has been directing much of the action in Iraq for Tehran, said Bahrain’s action against Sheikh Isa Qassim could “set the region on fire.”

Bahrain accused the cleric of using his position to “serve foreign interests,” promoting “sectarianism and violence.”

The U.S. Fifth Fleet is still based here.

Israel: With the second anniversary of the Israel-Gaza war drawing near, Israel recently announced plans to build an underground wall along its 37-mile border with Gaza to thwart Hamas’ sophisticated tunnel network through which it smuggles weapons, supplies and fighters.

Normally, Israel’s Ministry of Defense wouldn’t publicly announce such a project but it is hoping the move will deter Hamas.

Experts are worried Israel’s project will have limited impact.

Afghanistan: A Taliban suicide attack on a minibus in Kabul killed at least 14 Nepali nationals on their way to the Canadian embassy where they worked as security guards.  Those poor guys.

North Korea: Kim Jong Un and his band of Orcs took a potentially giant step this week with a successful mid-range ballistic missile test, with the rocket achieving high altitude (space) before falling into the Sea of Japan, a major achievement for Pyongyang’s program.

North Korea test-fired two powerful Musudan mid-range missiles, the fifth and sixth such attempts since April.  Five of the launches failed, but while the sixth, flying 250 miles, was well short of its 2,180-mile potential range, this was real progress.

Pathetically, as the North continues to defy international warnings and a series of U.N. Security Council resolutions and sanctions, White House spokesman Josh Ernest said: “The United States strongly condemns the provocative actions by the North Korean government.  I do think the impact of these provocations will be to strengthen the resolve of the international community that has such serious concerns with North Korea’s behavior.”

I’m sure you could go back and see the exact same language being used during Obama’s entire two terms.

The threat to Japan and South Korea is intensifying, and then the U.S. territory of Guam. Soon the U.S. mainland as well if Pyongyang continues making incremental progress.

Jeffrey Lewis, of the California-based Middlebury Institute of International Studies, said missiles were usually fired at a certain angle to maximize range, so the high altitude of the second launch, “suggests the missile worked perfectly.  Had it been fired at its normal angle, it would have flown to its full range.”  [New York Times]

China: As noted in a story in the South China Morning Post, “Several experts said China’s assertiveness on the South China Sea disputes had laid bare the leadership’s growing ambition to become a world power on par with the United States.”

Separately, there are growing fears over Hong Kong’s independence, with residents increasingly uneasy that HK may lose its identity and become just another major Chinese city; the recent abductions of booksellers largely responsible for the unease.  One, Lam Wing Kee, who has returned to Hong Kong, has been outspoken in his claims he was kidnapped by the mainland’s secretive central investigation team while crossing the border last October.

The disappearances have sparked fears that they were kidnapped by mainland agents because  their companies specialized in books critical of the Chinese Communist Party.

On a totally different topic, a particularly vicious tornado in the city of Yancheng (Jiangsu Province), which overlooks the Yellow Sea, killed at least 98 people and injured 800 others.

Russia: European Union nations have agreed in principle to extend sanctions against Russia for six more months to keep pressure on Moscow to respect the peace agreement in Ukraine.

Venezuela: From the Financial Times: “Has the crisis in Venezuela hit a point of no return?  A growing number of analysts seem to think so.

“The country’s dire economic situation – marked by rampant inflation, chronic shortages of basic goods and rolling power blackouts – has deteriorated in recent weeks, with violent food riots erupting across the country.

“ ‘Venezuela is on the brink of economic and social collapse,’ Capital Economics said in a note earlier this month.  ‘There is a high chance of a sovereign default and a removal of the president over the next eighteen months.’”

I said over a year ago that I’ve been shocked Venezuela’s military leadership didn’t put President Nicolas Maduro on a helicopter and dump him into the ocean.  Show some guts, boys!  Just take him out.  

Brazil: The state government of Rio de Janeiro has declared a “state of public calamity in financial administration” and warned that the situation is so dire it impedes its ability to meet its Olympic Games commitments.

So you still want to go to Rio?

In an official decree last weekend by the acting governor, the state government said the crisis could cause a “total collapse in public security, health, education, transport and environmental management.”

For those who stupidly do proceed with their Rio plans, it’s public security that should be of most concern, not Zika.  Consider this, police officers have been receiving salaries months in arrears.

Foreign tourists are sitting ducks.

Colombia: Yippee!  This was the only place in the world with good news this week.  The government and the Farc rebel movement signed a ceasefire, ending 50 years of civil war. In the capital, Bogota, people took to the streets, hugging each other and singing the national anthem.  That would have been a cool scene to be part of, except I don’t speak Spanish.

A staggering 220,000 people died in the longest-running insurgency in the Western hemisphere, with millions more displaced.

A final accord is to be signed by the end of July, according to President Juan Manuel Santos.  [He’s a good man.]

The rebels are to lay down arms within 180 days of a final peace deal, with the creation of temporary transition zones and camps for an estimated 7,000 rebels, where no civilians will be allowed to guarantee their security.  The UN will monitor the handover of weapons.

South Africa: Keep your eye on this place. There is a real crisis in government, with the hopelessly corrupt ANC trying to stave off a referendum on President Jacob Zuma’s leadership.  The economy is in a shambles and elections on Aug. 3 are likely to be a first step in Zuma’s removal.  In rioting in Pretoria this week, at least two protesters were shot dead by police as looters ransacked shops.  I would avoid South Africa at all costs for the next few months.

Random Musings

--Polls

CNN/ORC national poll of registered voters:

Clinton 47%, Trump 42%.  When a third party is included it’s Clinton 42%, Trump 38%, Libertarian Party’s Gary Johnson 9%, Green Party’s Jill Stein 7%.

[In this one, 55% support tighter gun control laws, the highest since the month after Newtown, Conn., Jan. 2013.  92% want expanded background checks.  Trump leads Clinton on the economy, 51-43.]

Monmouth University national poll:

Clinton 47%, Trump 40%.  When a third party is included it’s Clinton 42%, Trump 36%, Johnson 9%, Stein 4%.

[Women favor Clinton over Trump 57-30.]

Quinnipiac battleground state surveys:

Florida...Clinton 47%, Trump 39%
Ohio...Clinton 40%, Trump 40%
Pennsylvania...Clinton 42%, Trump 41%

When third party is included:

Florida...Clinton 42%, Trump 36%, Johnson 7%, Stein 3%
Ohio...Clinton 38%, Trump 36%, Johnson 8%, Stein 3%
Pennsylvania...Clinton 39%, Trump 36%, Johnson 9%, Stein 4%

--Editorial / New York Post

“Donald Trump marked the real start of his general-election campaign Wednesday with a full-bore attack on Hillary Clinton and a clear appeal to Americans across the spectrum.

“He slammed her, accurately, as a ‘world-class liar’ who’s part of the ‘rigged system’ that boosts ‘insiders’ like her at the expense of the common good.

“And he vowed to end the inside game while reaching out even to Bernie Sanders supporters.

“He talked issues Americans of all political persuasions really care about, starting with, as he put it, ‘jobs, jobs, jobs.’

“Trump laid out how the ‘special-interest monopoly’ has ruled Washington at the expense of everyday citizens.  He vowed to end that culture and make government work for the people.

“ ‘We will never be able to fix a rigged system by counting on the same people who rigged it in the first place,’ Trump said.

“And he bashed ‘insiders’ – like Clinton – who ‘wrote the rules of the game to keep themselves in power and in the money.’

“That describes her record to a T.  And it explains why Trump is appealing to Sanders voters – in fact to working-class voters of all races....

“And his devastating smackdown of Clinton’s record gave his speech added oomph.

“Trump recounted her role as secretary of state in paving the way for ISIS’ rise and  a resurgence in violence in Iraq and beyond.

“When she took office, he also noted, ‘Iran was being choked by sanctions’; now it’s ‘the dominant Islamic power in the Middle East, and on the road to nuclear weapons.’”

Anthony Zurcher / BBC News

“If Mr. Trump will be a more polished candidate with the change of campaign leadership announced this week, it seems clear he will be no less the brash, braggadocious candidate that stormed through the Republican primary season.

“He emerged from that campaign victorious – but is now struggling to find his footing in a one-on-one battle with his Democratic foe. Wednesday’s speech was his most significant effort to date to regain his equilibrium and shift focus to his opponent’s record.”

But Trump largely relied on the book “Clinton Cash,” by conservative commentator Peter Schweizer, and as much as the allegations expose conflicts of interest, there has yet to be any evidence of quid-pro-quo that Trump states as fact.

For example, as Anthony Zurcher notes: “Trump charged that Mrs. Clinton’s accepting $56,000 in jewelry from the Sultan of Brunei was wrong, (but), he didn’t mention that the items were turned over to the U.S. government upon receipt – an omission that makes a standard diplomatic practice of ‘accepting’ gifts appear to be clear-cut bribery.”

That said, “Possible inappropriate relations with wealthy foreign officials and businesses – even if they don’t amount to criminality – could prove fertile ground for Mr. Trump in the general election.”

--Through May, the Clinton campaign had raised more than $240 million, while Trump had raised $14 million, on top of $45 million he loaned to his campaign, and since has forgiven.

In May, Clinton’s largest expense, for $2.4 million, was on payroll.  Trump’s biggest single expense was on campaign merchandise, including hats, mugs and stickers - $900,000.  [Rebecca Ballhaus / Wall Street Journal]

Trump began June with just $1.3 million in cash on hand, with Hillary having $42 million, according to reports filed with the Federal Election Commission.  Trump has a staff of around 70, compared with nearly 700 for Mrs. Clinton.

Trump fired his campaign manager, Corey Lewandowski, as the Trump children were largely responsible for the move.  Good!  Ivanka was said to be trying to get rid of Corey for months.

According to reports, Ivanka caught dirtball Lewandowski trying to plant a negative story about Ivanka’s husband, Jared Kushner, who has himself become a key Trump adviser.

This makes perfect sense, Lewandowski being jealous of Kushner’s growing influence.

But back to cash on hand, according to Trump’s campaign, his call this week for his backers to contribute to his presidential bid generated more than $3 million since Tuesday.

Donald J. Trump Jr., in an email to supporters sent Wednesday, further proof of the children’s influence, said, “Yesterday my father sent his first ever fundraising email for the campaign and predicted it would shatter fundraising records....My father offered to match up to $2 million personally, $1 for every $1 donated, and in less than 12 hours we surpassed that goal.  All because of supporters like you.”

--Florida Sen. Marco Rubio is going to seek reelection, after insisting he would retire from the Senate after one term.  He has been urged by top senate Republicans to run for a seat that could be pivotal to Republican efforts to retain the senate.

Rep. Patrick Murphy, a Democratic candidate for Rubio’s seat, slammed him as reports surfaced Wednesday that Rubio would run.

“Marco Rubio abandoned his constituents, and now he’s treating them like a consolation prize,” Murphy said in a statement.

But in a Quinnipiac poll of senate races, in Florida, Rubio leads Murphy 47-40 and another potential challenger, Rep. Alan Grayson, 48-40.

[Quinnipiac also had incumbent Rep. Sen. Pat Toomey leading Democratic opponent Katie McGinity in Pennsylvania 49-40, while in Ohio, the race is tied at 42% between Republican Sen. Rob Portman and former Democratic Gov. Ted Strickland.  Your editor is a fan of both Toomey and Portman.]

--Virginia Dem. Sen. Tim Kaine has long been thought of to be a top vice presidential selection for Hillary Clinton.  I have no problem with Kaine myself, a former DNC chairman.

But, as The Hill noted, there’s one big problem: abortion.

“While Kaine does not back overturning the Roe v. Wade decision legalizing abortion, he is personally opposed to the practice and has backed controversial restrictions, such as parental–notification laws and a ban on late-term abortions.”

As for Trump’s running mate?  Who would want that job at this point?  There is a little talk that Arkansas Sen. Tom Cotton could be interested, and he is certainly an interesting guy with conservative bona fides. 

--The House adjourned early Thursday following a 239-171 vote to approve $1.1 billion to combat the Zika virus shortly after 3 a.m., despite an extraordinary 16-hour protest for gun control legislation orchestrated by Democratic lawmakers, bringing legislative business to a halt and triggering a rather chaotic late-night showdown.

House Speaker Paul Ryan said earlier that he would not schedule a vote on gun bills that have already been defeated in the Senate.  “This is a publicity stunt,” Ryan said.  “This isn’t trying to come up with a solution to a problem. This is trying to get attention.”

Regarding “civil rights hero” Rep. John Lewis (D-Ga.), who played a key role in the Democrats’ sit-in, I have long admired the man like most Americans, but it was truly despicable how in the heat of the South Carolina Democratic primary, Lewis flat-out lied about his relationship with the Clintons during the civil rights era, while demeaning Bernie Sanders’ efforts in the cause, even though Lewis didn’t meet the Clintons until over 10 years after the time in question and Hillary wasn’t involved in civil rights (in her case ‘children’s rights’ campaigns) until 1973!  Sanders, on the other hand, was legitimately intimately involved in the civil rights movement going back to his University of Chicago days in 1962.

Lewis, when feebly confronted by the facts, said, ‘Well, I never met (Sanders).’  What an ass.

But ‘icon’ John Lewis got away with it. [I hinted at my disgust back in a March column.]  It was a key moment in the presidential campaign and it was disgraceful behavior.

And, yes, it has everything to do with Wednesday’s spectacle on the House floor because the revered John Lewis was part of it.

Sorry if this ticks some of you off.  But the truth is hard sometimes.

For his part, Sanders finally returned to the Senate this week and his appearance was met with a less than rousing reception from his fellow Democrats, who note that Sanders enjoys the full privileges of membership in the Democratic caucus even though he is technically an independent.

A senior Democratic aide also told Alexander Bolton of The Hill that Sanders “annoyed” some colleagues by proclaiming in a speech his desire to “transform the Democratic Party so that it becomes a party of working people and young people, and not just wealthy campaign contributors.”

Sanders did finally say he would vote for Clinton.  I’m guessing he doesn’t when he’s in the booth.

--Back to Zika and the bill the House passed for $1.1 billion, this is well below the $1.9bn the administration is seeking.  Senate Democrats have also balked at the $1.1bn plan because it would be paid for with $750 million in cuts to other programs, including Ebola and the Affordable Care Act.  President Obama said he would veto the Republican-backed measure if it reached his desk, but it may not even clear the Senate, which means further delay at a time when Zika will undoubtedly lead to birth defects in the United States, not that the extra $millions would be spent in the right way.

--Meanwhile, a deadlocked Supreme Court killed President Obama’s plan to defer deportation for about four million illegal immigrants; the 4-4 vote leaving in place a ruling by a federal judge in Texas that ordered the policy be placed on hold after Texas and 25 other Republican-leaning states sued the administration.

This doesn’t mean the administration is required to begin deportations of those affected (and I don’t want them to be), but it effectively ends Obama’s efforts to extend his executive authority over immigration and that’s a good thing.

--A federal jury in Philadelphia convicted Rep. Chaka Fattah (D-Pa.) of racketeering conspiracy charges after a trial that centered on allegations that he and associates misused hundreds of thousands of dollars in taxpayers’ charity and campaign funds.

This was part of a long-running FBI investigation into Fattah, who represented Philadelphia, with many of the charges stemming from his failed mayoral bid in 2007.  He was defeated in April’s Democratic primary election and at first said he would serve out his term.  Then this week he said he was leaving Oct. 3.  Then it became ‘immediately.’  Bye bye, Chaka.  [Chaka Khan...Chaka Khan Chaka Khan...]

--The ongoing corruption investigation into the New York City Police Department claimed three commanders this week, along with a Brooklyn businessman...all part of a continuing probe into Mayor Bill de Blasio’s campaign fund-raising, which warms the cockles of some of us.  The mayor himself should be nailed shortly.  #PreetBharara

--According to figures released by the Census Bureau, in 370 counties across 36 states and the District of Columbia, non-Hispanic whites accounted for less than half the population as of July 2015, up 31 counties since 2010.

As reported by the Wall Street Journal: “Of the nation’s 3,142 counties, the so-called minority majority ones – 12% of the total – represent an outsize chunk of the U.S. population since they are home to almost one-third of Americans.

“The new figures point to a widening racial generation gap.  While three-quarters of Americans age 55 and older are white, just 56% of those 18 to 34 are white, and only slightly more than half of minors are white, according to William Frey, a Brookings Institution demographer.”

Gee, can you say Democrats benefit?

But “Republicans are helped by the fact that whites and older Americans have higher voter turnout rates.”  Not for long, kids.

As former NBA all-star Derrick Coleman would say of this last point, “Whoopty-damn-do.”  Us Republicans are so screwed on so many different fronts.

--It was a hot week in Southern California and the southwest, with Palm Springs hitting an all-time record high of 121 on Monday, breaking the former record for the date of 118 degrees in 1929.

On a related topic, I saw a piece in the L.A. Times that notes the U.S. Forest Service estimates the drought, heat and an infestation of ravenous bark beetles has killed 26 million trees in the Sierra Nevada since October, an “unprecedented” die-off that obviously heightens the wildfire risk.

An estimated 66 million trees have been lost since 2010.

--So in light of the above, think cooler thoughts.  Iceland tops the Global Peace Index for the sixth year in a row, followed by Denmark and Austria, while Syria is ranked as the world’s least peaceful place.

Vision of Humanity is a project of the Institute for Economics and Peace (IEP), an independent international think tank.  Its annual peace index takes into account factors such as political stability, militarization, domestic conflict and crime.

Among the others in the top ten are 8 Canada and 9 Japan.

The U.S. ranks 103rd, between Uganda and Cambodia.

“The world became less peaceful in 2016,” the IEP notes.

“While the majority of terrorist activity is highly concentrated in five countries – Syria, Iraq, Nigeria, Afghanistan and Pakistan – the breadth of terrorism is spreading, with only 23 percent of countries in the Index not experiencing a terrorist incident,” it added.  [Irish Independent]

And Iceland made the knockout round of the Euro 2016 tournament, which is one of the better sports stories of the year.  [Leicester City winning the Premier League title is No. 1 for the century.]

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

God bless America.  And prayers to our friends in West Virginia suffering from historic flash floods that have claimed at least 20 lives. 

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Gold $1322
Oil $48.85

Returns for the week 6/20-6/24

Dow Jones  -1.6%  [17400]
S&P 500  -1.6%  [2037]
S&P MidCap  -1.5%
Russell 2000  -1.5%
Nasdaq  -1.9%  [4707]

Returns for the period 1/1/16-6/24/16

Dow Jones  -0.1%
S&P 500  -0.3%
S&P MidCap  +4.2%
Russell 2000  -0.7%
Nasdaq   -6.0%

Bulls 47.5
Bears 23.2  [Source: Investors Intelligence]

Have a great week.

Brian Trumbore