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Week in Review

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08/17/2019

For the week 8/12-8/16

[Posted 10:30 PM ET, Friday]

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

Edition 1,062

Last Friday night I wrote of my experiences at Hong Kong International Airport, and how much I loved staying at the hotel connected to it the last two times I was there.  I couldn’t imagine thousands of protesters in the place and then on Monday, the world watched as the airport was literally shut down, all flights out of Hong Kong canceled, in an unprecedented disruption as the protesters occupied the terminal.  [The airport is the world’s busiest air cargo port and 8th busiest by passenger traffic.]

Watching it all play out live, I have to admit for the first time I had a pit in my stomach as to how this would all end in the coming weeks.  The kids are heroic, demonstrating to protect their future and rights.  And at the same time, the Chinese Communist Party leadership was at its annual summer retreat, stewing.  Timetables for these gatherings are never released but it is assumed it is wrapping up this weekend and we should get something out of President Xi Jinping directly soon.

Thousands of Chinese paramilitary police are across the border from Hong Kong, ready to restore order.  Forget the prospects for bloodshed, hundreds could be arrested and just disappear.

Hong Kong’s chief executive, Carrie Lam, appeared before the press on Tuesday calling on residents to put aside their differences.

“Take a minute to think, look at our city, our home – do you all really want to see it pushed into an abyss?” AFP quoted her as saying.  Her comments echoed similar remarks by an official from the Chinese Liaison Office in Hong Kong, who said the city would slide “into a bottomless abyss if the terror atrocities are allowed to continue.”

But Hong Kong still being free, local journalists went after Lam like a pack of wolves, I write admiringly, many condemning Lam’s response to the unrest.

One journalist, according to AFP, said: “You blame your own political misjudgment on others, and refuse to acknowledge your mistakes.”

Another asked: “When will you accept political responsibility to end citizens’ fear?...When will you be willing to step down?  When will you tell the police to stop?”

Imagine...all of this is being catalogued by Chinese authorities, images of the reporters being kept for future use, when one day in the dead of night, no doubt some of the offenders who refuse to tow the party line are snatched and ferreted out for ‘safe keeping.’

But while Ms. Lam was near tears at times, she evaded questions on whether she had the autonomy to completely withdraw the extradition bill, a critical demand of the protesters, saying she had answered it in the past...which she hadn’t.

Meanwhile, the students, who have been waving American flags and playing the Star-Spangled Banner, in the vain hope that the United States will at least show some verbal support, got this tweet from President Trump:

“I know President Xi of China very well.  He is a great leader who very much has the respect of his people.  He is also a good man in a ‘tough business.’  I have ZERO doubt that if President Xi wants to quickly and humanely solve the Hong Kong problem, he can do it.  Personal meeting?”

I am forced to say again that this sounds moronic.  Xi is not a great leader.  He is not a good man.  Far from it.

At least Senate Majority Leader Mitch McConnell said Monday that the students were “bravely standing up to the Chinese Communist Party,” and that a violent crackdown would be completely unacceptable.

Chinese foreign ministry spokeswoman Hua Chunying later repeated Beijing’s line that Hong Kong was an internal matter, and referred to earlier comments by Trump in which he said: “That’s between Hong Kong and China, because Hong Kong is part of China.”

“I hope the U.S. can really do what it has said,” Hua said in a statement.

China saw through Trump’s feeble attempt to bundle trade talks and the situation in Hong Kong.  Tuesday, Vice-Premier Liu He, who has been heading up China’s trade negotiating team, had a call with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, and Liu made it clear how Beijing felt about the latest proposed tariffs.

As the market collapsed Wednesday, bond yields plummeting worldwide along with stock prices, President Trump blamed the Fake News Media.

“The problem they have is that the economy is way too strong and we will soon be winning big on Trade, and everyone knows that, including China!”

Pathetic.  At the same time the president was showing signs of panic, getting a bunch of leading bankers on the phone so they could reassure him the economy would not tip into recession just as he was launching the stretch drive of his campaign next summer and fall.  It’s believed that they told him his trade policy was an impediment.

For Donald Trump it’s all about the economy.  He has nothing else.

And there is no reason for China to bail him out, especially after the Trump administration decided today to approve an $8 billion arms package, including the sale of 66 F-16 fighter jets to Taiwan, a move I fully support.

There will be no trade deal between Washington and Beijing.  China will continue to buy increasing amounts of soybeans from Brazil.  American farmers will suffer.  And Xi Jinping will prove he’s not a “good man.”

Trump World

--In 2016, Trump won 61% of the vote nationally in rural areas, exit polls show.  In many counties he outperformed 2012 Republican nominee Mitt Romney and it helped Trump win states such as Wisconsin with large rural populations.

This has been at the forefront all week with the focus on Iowa and the State Fair, as farmers there and throughout the Midwest have been telling reporters they still back the president, with various surveys from the likes of Purdue and Iowa State University showing Trump’s support at around 75%.

But I’m guessing as the trade war drags on, despite all the federal aid they are eligible for, more and more will hold an opinion similar to that of Roger Johnson, President of the National Farmers’ Union (a grassroots organization representing 200,000 farmers, ranchers and fishermen), who said in an interview on CNN this week:

“Yes, hold China accountable, but get the rest of the world with us to go after them.” 

Johnson didn’t state it, but as you have become tired of me saying since day one of the Trump presidency, that was what the Trans Pacific Partnership (TPP) was all about!!!

You don’t regain the markets you lose right away, despite the president’s lies on the topic, which he continued in his New Hampshire rally last night. TPP opened up markets.

Separately, Aaron Lehman, president of the Iowa Farmers Union, told the Wall Street Journal:

“Farmers have had lower prices, and they have so much market uncertainty, and all these markets that we’ve built – worked and worked and worked to build up over the years – now those relations are, are at, you know, all-time lows.  It’s going to take years for us to recover from how it was carried out.”

--Economist Robert Samuelson / Washington Post

“Trump seems acutely aware of the threats to his reelection. He’s repeatedly assailed the Federal Reserve for not lowering short-term interest rates sooner; he’s also accepted a federal budget with huge deficits. These constitute traditional ‘stimulus’ designed to keep the economy advancing.

“If they don’t work, it’s a safe bet that Trump won’t blame himself.  The Fed and China are being set up as the fall guys for the next recession.”

--Ken Cuccinelli, the Trump administration’s acting head of Citizenship and Immigration Services, announced on Monday a new “public charge” requirement that limits legal migrants from seeking certain public benefits such as public housing or food aid, or are considered likely to do so in the future.

The rule change is intended to reinforce “ideals of self-sufficiency,” officials said.  Critics argue that it will prevent low-income U.S. residents from seeking help.

Then Tuesday, Cuccinelli was asked by NPR whether the 1883 poem titled The New Colossus at the Statue of Liberty still applied.

“Would you also agree that Emma Lazarus’ words etched on the Statue of Liberty, ‘Give me your tired, give me your poor,’ are also a part of the American ethos?” asked NPR’s Rachel Martin.

“They certainly are,” Cuccinelli responded.  “Give me your tired and your poor – who can stand on their own two feet and who will not become a public charge.”

The actual passage reads in part: “Give me your tired, your poor, Your huddled masses yearning to breathe free. The wretched refuse of your teeming shore.  Send these, the homeless, tempest-tost to me, I lift my lamp beside the golden door!”

In the interview, he added that immigrants are welcome “who can stand on their own two feet, be self-sufficient, pull themselves up by their bootstraps, again, as in the American tradition.”

After the host asked if the policy “appears to change the definition of the American dream,” he said: “We invite people to come here and join us as a privilege.

“No one has a right to become an American who isn’t born here as an American.”

I can’t begin to tell you how much these comments infuriated me.  But I’ll bite my tongue.

--As we all should have expected, President Trump is already pivoting in the gun control debate from enhanced background checks, post-El Paso and Dayton, to blaming it all on mental health issues, per his comments at his New Hampshire campaign rally.

--At one of his fundraisers in the Hamptons last Friday, President Trump reportedly told one of the gatherings about his remarkable friendship with North Korean leader Kim Jong Un.  “I just got a beautiful letter from him this week.  We are friends.  People say he only smiles when he sees me.

“If I hadn’t been elected president we would be in a big fat juicy war with North Korea.”

Since this comment, Kim has fired off two rounds of missiles, last weekend and today, because of his love for the president.  And as the official North Korean photos show, Kim smiled while he did so.

--Trump tweets:

“Through massive devaluation of their currency and pumping vast sums of money into their system, the tens of billions of dollars that the U.S. is receiving is a gift from China.  Prices not up, no inflation.  Farmers getting more than China would be spending.  Fake News won’t report!”

[Not true...and taxpayers are taking it up the ass.]

“Many are blaming me, and the United States, for the problems going on in Hong Kong.  I can’t imagine why?”

[No one is blaming the U.S. for the issues in Hong Kong except China.]

“The Great Charles Payne @cvpayne correctly stated that Fed Chair Jay Powell made TWO enormous mistakes. 1. When he said ‘mid cycle adjustment.’ 2. We’re data dependent.  ‘He did not do the right things.’  I agree (to put it mildly!).”

[As I noted last week, Mr. Payne is illiterate.]

“BREAKING: Documents were unsealed yesterday revealing that top Democrats, including Bill Clinton, took private trips to Jeffrey Epstein’s ‘pedophilia island.’”

“Think how wonderful it is to be able to fight back and show, to so many, how totally dishonest the Fake News Media really is. It may be the most corrupt and disgusting business (almost) there is!  MAKE AMERICA GREAT AGAIN!”

“Got to see, by accident, wacko comedian Bill Maher’s show – so many lies.  He said patients in El Paso hospital didn’t want to meet with me.  Wrong!  Had really great meetings with numerous patients.  Said I was on vacation.  Wrong!  Long planned fix up of W.H., stay here rather than...

“...cause big disruption by going to Manhattan. Working almost all of the time, including evenings.  Don’t have to be in W.H. to do that...And sooo many other false statements.  He is right about one thing, though.  I will win again in 2020.  Otherwise, he pays 95% in taxes!”

“Maggie Haberman of the Failing @nytimes reported that I was annoyed by the lack of cameras inside the hospitals in Dayton & El Paso, when in fact I was the one who stated, very strongly, that I didn’t want the Fake News inside & told my people NOT to let them in.  Fake reporting!”

Wall Street and the Trade War

The markets fell a third consecutive week, including the worst single day of the year, Wednesday, when the Dow Jones plunged 800 points, 3%, ditto the S&P and Nasdaq, on trade fears, tensions in Hong Kong, and a brief inversion of the yield curve*, normally a harbinger of recession (though at least 12 months down the road).

*The yield between the 2-year and 10-year.  There has been a weekslong inversion of the curve between the 3-month and the 10-year, which some say is an even better barometer in predicting recession.

On the data front, consumer prices in July were as expected, 0.3% on both headline and core, 1.8% the last 12 months on the former, and 2.2% year-on-year ex-food and energy.

So it was the 17th straight month the core CPI was over 2%, which mirrored the producer price data the week before.  As in inflation is hitting the Fed’s desired 2% target, so why the rush to continue to lower interest rates?

Well, the Fed would say, aside from all the global uncertainty it now feels compelled to address, let alone $16 trillion in sovereign debt with a negative yield*, it’s preferred inflation barometer, the personal consumption expenditures index (PCE) remains below 2% on core.

Separately, we had a strong reading on July retail sales, 0.7%, and 1.0% ex-autos, far better than forecast.   But industrial production in the month was worse than expected, down 0.2%.

That said, again, the retail sales figure is big because the consumer, as every first-grader knows by now, is 70% of the economy.

So we ask again, why is the Fed going to keep cutting rates?    

Lastly, July housing starts were shy of forecasts, 1.19 million annualized, continuing that sector’s run of disappointing data despite plunging mortgage rates.

Owing to the strong retail sales number, the Atlanta Fed’s GDPNow barometer for the second quarter is up to 2.2%, though this only reflects July data, and the global economy continues to slow.  The data from Germany and China, to cite two high-profile examples, is decidedly downbeat these days.

*The yields in the eurozone continue to defy logic.  Incredibly, the German bund (10-year) finished the week with a yield of -0.69%; France -0.42%; Spain 0.07%; Portugal 0.09%; Netherlands -0.57%.  Even Italy, with all its issues, and debt, saw its 10-year rally from 1.80% to 1.39% this week.  And Greece’s 10-year is down below 2.00% (1.93%).

But global markets, and the U.S., rallied in part on Friday owing to stories that Germany was ready to suspend its balanced budget rule to stimulate its economy, while China was gearing up to do the same (again).

The European Central Bank is strongly hinting it will back up the truck in stimuli come its next meeting in September.

Back to the U.S., on the budget deficit front, the gap widened further in July as federal spending outpaced revenue collection, bringing the deficit to $867 billion so far this fiscal year, a 27% increase from the same period a year earlier.

The Treasury Department said Monday federal receipts rose 3% from October through July, totaling $2.9 trillion, while outlays climbed 8%, to $3.7 trillion.  Federal revenue collection has picked up since April compared with a year earlier, but rising enrollment in Medicare and higher interest rates (until recently) have led to higher government costs on benefits and interest payments, pushing the deficit even higher despite robust economic growth that usually shrinks budget shortfalls.

Over the 12 months that ended in July, the deficit totaled $961.8 billion, or 4.5% as a share of gross domestic product.  Revenues over the previous 12 months rose 2.4%, while federal spending was up 6.3%.

Net individual taxes are up 7% since April, or $42 billion, and net corporate taxes have grown 30% since then.

Revenue from tariffs, or customs duties, also increased 75% through July, a significant boost from the same period a year earlier but just 2% of total receipts collected during that time.

The Treasury said last month it expects to borrow more than $1 trillion this calendar year for the second year in a row, as the annual budget gap is on track to exceed $1 trillion for fiscal year 2019, which ends Sept. 30.

But the deficits are going to continue rising over the coming decades as a wave of retiring baby boomers pushes up government outlays on Social Security and Medicare.

Granted, with plunging interest rates, for now, the impact of rising deficits on the ‘interest expense’ side will be somewhat ameliorated.

Turning to trade, part deux....

President Trump said on Thursday that U.S. and Chinese negotiators were holding “productive” trade talks and expected them to meet in September despite U.S. tariffs on over $125 billion worth of Chinese imports taking effect Sept. 1.

“September, the meeting is still on as I understand it, but I think more importantly than September, we’re talking by phone, and we’re having very productive talks,” Trump told reporters in New Jersey.

The president said U.S. and Chinese officials had “a very good conversation” earlier this week, before his administration delayed until Dec. 15 tariffs on over $150 billion in Chinese imports, including toys, cell phones, and laptop and tablet computers.

Of course Trump’s happy talk is all bulls---, as he desperately tries to prop up the stock market.  Instead, on Thursday, China vowed to counter the latest U.S. tariffs but called on the U.S. to meet it halfway on a potential deal, which is meaningless.

The Chinese finance ministry said in a statement that Washington’s tariffs violated a consensus reached between Trump and President Xi Jinping at their June summit in Japan to resolve their disputes via negotiation.

But it’s the same old, same old.  China wants mutually acceptable solutions, in its words, through dialogue and on the basis of equality and mutual respect...code for we’ll cut some deals on trade flows, but we aren’t reforming our system to suit you, Washington.

And wasn’t it a hoot that President Trump, who has said U.S. consumers are not paying any price whatsoever with his tariff policy, then turns around and issues a partial delay to Dec. 15 on consumer products because he wanted to spare retailers and consumers pain during the Christmas selling season.

Commerce Secretary Wilbur Ross told CNBC that there were no concessions from China in return for Trump backing off his Sept. 1 deadline for the 10% tariffs on the selected imports.

Sometimes we need to listen to those outside our country for a different perspective and on Thursday, the Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said the Sino-U.S. trade dispute is causing businesses worldwide to put off investment decisions, crimping economic activity and risking a self-fulfilling global downturn.

Debelle cautioned that the dispute over technology could prove even more damaging in the long run, forcing firms to choose between East or West rather than selling into a global market.

“On the tariff side, the prospect of a 25 percent tariff is a first-order consideration in determining whether to invest in a new factory or new machinery and where to locate that investment,” Debelle told a conference on risk.  “Businesses are waiting to see how the uncertainty resolves rather than invest.  The longer businesses hold off, the weaker demand will be, which will further confirm the decision to wait. That runs the risk of a self-fulfilling downturn.”  [Wayne Cole / Reuters]

[Australia has been largely shielded from the U.S.-China dispute because some of Beijing’s stimulus measures benefit Australian commodities, notably iron ore.]

So that’s an outside view.

Trump tweet: “We are winning, big time, against China.  Companies & jobs are fleeing.  Prices to us have not gone up, and in some cases, have come down. China is not our problem, though Hong Kong is not helping.  Our problem is with the Fed. Raised too much & too fast.  Now too slow to cut....

“....Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game!  CRAZY INVERTED YIELD CURVE!  We should easily be reaping big Rewards & Gains, but the Fed is holding us back.  We will win!”

“Good things were stated on the call with China the other day.  They are eating the Tariffs with the devaluation of their currency and ‘pouring’ money into their system.  The American consumer is fine with or without the September date, but much good will come from the short....

“...deferral to December.  It actually helps China more than us, but will be reciprocated.  Millions of jobs are being lost in China to other non-Tariffed countries.  Thousands of companies are leaving.  Of course China wants to make a deal.  Let them work humanely with Hong Kong first!”

Editorial / Wall Street Journal

“After we warned last week that U.S. trade policy was courting recession. White House aide Peter Navarro took to Fox Business to denounce us for sounding like The People’s Daily, the Chinese Communist propaganda arm.  That was novel as criticisms of these columns go, but perhaps Mr. Navarro would care to comment again after Wednesday’s recession warning from the bond and equity markets?  Are they Commies too?

“Stocks fell about 3% on the day on bad economic news out of Germany, China and the bond markets.  Europe’s largest economy shrank by 0.1% in the second quarter as exports fell amid trade and Brexit uncertainty. Chinese readings on factory production, consumption and employment also revealed an economy that is slowing sharply.  China’s industrial production increase of 4.8% was a 17-year low.

“Investors saw all that and headed for the tall grass of U.S. Treasurys.  The yield on the 10-year note hit 1.58%, dipping for a time below the two-year bond yield. The 30-year Treasury hit a record low of 2.018% and closed at 2.02%.  Yields this low show investors are moving out of risk assets and they signal slower growth ahead – and perhaps even a recession unless events and better policies spur more optimism.

“Some Trumpians are cheering the Chinese economy’s pain, but they should be careful what they wish for.  They could drive China, the world’s second largest economy, into its first recession since Deng Xiaoping began the era of pro-market economic reform.

“A Chinese recession would mean a European recession, which would send U.S. growth down too.  The impact would be worse if slower growth triggers capital flight from China and there’s a disorderly fall in the yuan.

“Mr. Navarro and President Trump spent Wednesday blaming the Federal Reserve for the market meltdown, and we suppose any scapegoat will do in a storm.  The Fed isn’t blameless, and we argued it shouldn’t have raised rates last December.  But it has since countered that rate increase with a 25-basis-point cut in July, and even another 50 basis points won’t be enough to counter a downward spiral of trade and currency mayhem.

“We’ve been warning for two years that trade wars have economic consequences, but the wizards of protectionism told Mr. Trump not to worry. The economy was fine and the trade worrywarts were wrong.

“But we never said tariffs would produce immediate recession.  We said they – and the climate of uncertainty they were creating for business – would chill global trade and undermine the surge in capital investment spurred by tax reform and deregulation.  The growth momentum from tax cuts and a strong labor market were able to mask the impact of helter-skelter trade policy for a time.  But that old economic disciplinarian, Adam Smith, sooner or later exacts a price for policy blunders....

“Call a tariff truce with China, Europe and the rest of the world while negotiations resume with a goal of reaching a deal by the meeting of Pacific nations in November.  Someone should tell Mr. Trump that incumbent Presidents who preside over recessions within two years of an election rarely get a second term.”

Europe and Asia

Eurostat issued its flash estimate on second-quarter growth for the eurozone (EA19) and it came in at just 0.2% over Q1, 1.1% year-over-year vs. Q2 2018 (Q1 was 1.2% annualized).  So the slide continues, and the news was particularly bad in Germany, where the flash estimate showed a second-quarter contraction of 0.1% [+0.4% ann.].

France was 0.2% [1.3% ann.], Italy unchanged [0.0% ann.], Spain 0.5% [2.3% ann.], and Netherlands 0.5% [1.8% ann.]

Eurostat also issued figures on industrial production in June for the EA19, down 1.6% over May; -2.6% year-over-year.

Separately, a sentiment reading in Germany was at its lowest level since 2011.

Britain reported solid wage growth of 3.7%, an 11-year high, for the three months to June, as the economy added 115,000 jobs in the second quarter, despite the Brexit uncertainty.  Speaking of which....

Brexit: Soon, Parliament returns from its recess and then all hell is going to break loose.  Prime Minister Boris Johnson has vowed that while he wants a new deal with the European Union, he insists he is taking the U.K. out of the EU by Oct. 31 “do or die.”

Johnson has accused MPs “who think they can block Brexit” of a “terrible collaboration” with the EU, increasing the likelihood of the U.K. being “forced to leave with a no-deal.”

To beat a dead horse, and I hate to keep repeating myself but the facts are what they are, the EU maintains the agreement struck by Theresa May is the only deal possible, but that’s the deal rejected on three occasions by Parliament.

Johnson said this week “we need our European friends to compromise.”  But they don’t have to compromise at all.

Former Chancellor Philip Hammond said Johnson’s negotiating stance increased the chance of a no-deal exit which would be “just as much a betrayal of the referendum result as not leaving at all.”

No. 10 Downing Street accused Hammond of undermining the U.K.’s negotiating stance, and said he “did everything he could” to block preparations for leaving while he was in office.  Hammond countered he wanted to deliver Brexit “and voted to do so three times.”

Johnson also wants the EU to ditch the critical Irish border backstop plan from the deal struck between Mrs. May and the bloc, but the EU insists on it – the guarantee there will be no hard Irish border after the divorce.

Many of those who previously voted against the deal had reservations over the backstop, afraid that it would align Northern Ireland with the EU, essentially, forever, in tying it to rules of the EU.  The backstop also keeps the U.K. in a single customs territory with the EU until both the EU and U.K. agreed they were no longer necessary.

But you can’t just remove the backstop as Boris Johnson is arguing for.

A no-confidence vote is likely to be held when Parliament returns in September.

Meanwhile, Labour leader Jeremy Corbyn has urged the leaders of the opposition parties and Tory rebels to install him as caretaker PM in order to stop a no-deal Brexit.  Corbyn has vowed if he wins a no-confidence vote, he’ll delay Brexit, call a snap election and campaign for another referendum.

But Liberal Democrat leader Jo Swinson said she would not support making Corbyn prime minister.  Swinson said Corbyn is too divisive and doesn’t command respect on both sides of the House, while saying her party would work with others to stop a no-deal exit, preferably through legislation.

But Boris Johnson has refused to rule out suspending Parliament until after Britain leaves the EU and aides have reportedly said he could delay any election until November if he lost a vote of no confidence.

Gee, do you think this last point would create a bit of chaos?  I do.

Italy: Right-wing League leader Matteo Salvini’s drive for early elections is likely to be held up in the Senate with parliamentary party leaders failing to decide when the Senate should debate his no-confidence motion in the government, which, today, would likely trigger the downfall of Prime Minister Giuseppe Conte.

Salvini, now interior minister in his year-old coalition with the anti-establishment 5-Star Movement, wants to capitalize on his rising poll numbers and hold a new election that could see him emerge as prime minister.

But the 5-Star and many opposition lawmakers are furious with Salvini’s maneuvering and want to slow his charge to the ballot box.

5-Star leader Luigi Di Maio said on Facebook, “You will see that Italians will make the League pay for the stab in the back it has dealt Italy.”

Salvini may yet forge a pact with former center-right prime minister Silvio Berlusconi, who leads Forza Italia (Go Italy).  But Salvini is anti-EU and Berlusconi is pro-European.

Salvini’s proposal to run bigger budget deficits, through increased spending to juice the economy, runs afoul of EU rules on fiscal discipline.

Turning to Asia....

As alluded to above, China’s July data on industrial production showed an increase of only 4.8% from a year earlier, the slowest pace in 17 years.  Fixed-asset investment for the first seven months of the year was 5.7%.  Retail sales rose 7.6% last month, year-over-year.  All three figures were down over June and less than expected.

Meanwhile, Hong Kong’s government released figures today that showed GDP growth fell 0.5% in the second quarter year-on-year.  Worse could be yet to come.

In Japan, June machinery orders showed their biggest rise since data became available in 2005, as cap-ex remains resilient amid the trade frictions, including with South Korea.  Spending on the 2020 Tokyo Olympics helps.

But we still have the October sales tax looming on the consumption side.

Street Bytes

--Stocks fell a third straight week, with the Dow Jones down 1.5% to 25886, off 5.5% from its high, while the S&P 500 lost 1% (4.6% from its record close), and Nasdaq declined 0.8% (off 5.2% from its high-water mark).

Earnings estimates for the balance of 2019 have been coming down, with FactSet showing S&P eps will rise only 1.5% for the year, down from January’s 6% forecast.  A slew of companies have been issuing downbeat guidance, such as Cisco Systems and Deere below, largely because of the trade issue.  For the second quarter, earnings will end up having risen 2.5% to 3%.

--U.S. Treasury Yields

6-mo. 1.84%  2-yr. 1.48%  10-yr. 1.55%  30-yr. 2.04%

The yield on the 30-year bond fell to a record low on Wednesday, down to 1.97% at one point before closing at 2.038%, a record low, compared with Tuesday’s 2.13%.  Back in November, it was at 3.454%, a multiyear high.  It finished the week at 2.04%.

The yield on the 10-year closed at 1.596% Wednesday, its lowest since September 2016, and then finished the week at 1.55%.

Next week, Fed Chairman Jay Powell gives a speech at the annual Jackson Hole, Wyoming, policy symposium.

--Oil prices fell on Wednesday after the downbeat economic news from China and Germany fueled fresh worries about a slowdown in global growth.  Also, the Energy Information Administration figures showed a second consecutive weekly increase in stockpiles, with inventories now 3% above their five-year average for this time of year, indicating there is plenty of crude available.

By Friday, though, West Texas Intermediate had inched up to $54.93, a slight gain on the week, though well off the $62.71 close of three months ago.

--Shares in General Electric cratered Thursday after Harry Markopolos, whistleblower in the Bernard Madoff Ponzi scheme case, alleged that company financial filings masked the depths of its problems.

Markopolos, in a lengthy research report, accused GE of hiding $38.1 billion in potential losses and claimed that the company’s cash situation was far worse than disclosed in its latest annual regulatory filing.

“GE’s true debt to equity ratio is 17:1, not 3:1, which will undermine its credit status,” said Markopolos, adding that the company’s liquidity situation was “more serious than either the Enron or WorldCom accounting frauds.”

In response to the report, GE said it “stands behind its financials” and operates to the “highest-level of integrity” in its financial reporting.  GE said in a statement that Markopolos is known to work for unnamed hedge funds that typically benefit from short selling a company’s stock.  “We remain focused on running our business every day and...will not be distracted by this type of meritless, misguided and self-serving speculation.”

Markopolos wrote the report on behalf of an undisclosed hedge fund that is indeed shorting the stock and he stands to profit off the hedge fund’s gains, per disclosure forms that came attached to the report.  He submitted his findings to the SEC and said he could also profit if a financial penalty is levied on the company.

Markopolos’ fraud allegations center on GE’s long-term health care reinsurance units, a part of GE Capital, which he says the company failed to fund adequate reserves to offset future long-term care liabilities, despite booking decades of premiums as “earnings” when its policy holders were young and not filing claims.

“GE’s LTC losses will continue rising at an exponential rate until it either files for bankruptcy protection or finds some way to out-earn its LTC liabilities,” Markopolos wrote.

Later Thursday, GE blasted the report as “market manipulation.”

“GE will always take any allegation of financial misconduct seriously. But this is market manipulation – pure and simple,” CEO Lawrence Culp added.

But the stock experienced its biggest percentage drop since 2008.  It then recovered much of this Friday as CEO Culp purchased nearly $2 million in shares.

--Boeing Co. pushed back the entry into service of an ultra-long-range version of its forthcoming 777X widebody, as it grapples with fallout from the 737 MAX crisis and engine issues with the 777X.

These delays have pushed the first flight of the 777-9 into 2020, which impacts Boeing’s ability to provide a plane in line with the schedule for Qantas Airways’ plan for 21-hour non-stop Sydney-London flights, which the Australian airline has been targeting for 2023.

The 350-seat 777-8 model revised for ultra-long-range flights had originally been scheduled to enter service in 2022 after the arrival of the 777-9 in 2020.

To date, Emirates and Qatar Airways are Boeing’s only customers for the 777-8, having ordered 35 and 10 respectively.

Separately, owing to the grounding of the 737 MAX, Boeing delivered fewer planes in July than in any month for the past decade.

Boeing’s deliveries for the year through July totaled 258 planes, down from 417 in the same period a year earlier and the smallest number for that time frame since 2007.  Just 19 planes were delivered in July, the lowest monthly delivery count since Nov. 2008, during the financial crisis.

By comparison, Airbus SE shipped 458 planes in the first seven months of 2019, meaning it will surpass rival Boeing as the world’s biggest aircraft manufacturer on the year.

While Boeing is still trying to convince everyone the MAX will be back in the air by the end of the year, most airlines and regulators have said it will take longer for the plane to be cleared pending fixes to its software.

More than 150 undelivered MAX jets are parked at sites around the U.S., along with the 380 in airlines’ hands that were grounded by regulators in March.

--Cathay Pacific shares were slammed on Monday after Beijing told the airline to bar staff who had taken part in “illegal” protests in Hong Kong from flying on routes into mainland China.

China’s aviation authority ordered the carrier to take crew off flights into China if they had participated in or supported protests against the Hong Kong government’s extradition bill, citing safety concerns.  Cathay Pacific, the flag carrier of Hong Kong, said it would comply with the directive.

But understand, Cathay flights passing through Chinese airspace, such as those to Europe, must submit a list of crew for approval with the Civil Aviation Administration of China.

Protests have hit inbound traffic and future bookings for Cathay.  The airline’s shares hit a 10-year low.

Last week, after the Chinese government learned some Cathay staff took part in demonstrations, the Chinese Communist Party mouthpiece Global Times warned that the company would “pay a painful price.”

Today, the CEO of the airline, Rupert Hogg, resigned, saying he was taking responsibility for these “challenging weeks.”

The bullying of Cathay is telling.  And a warning to all commerce in Hong Kong.

--Walmart Inc. posted higher second-quarter sales and raised its profit outlook, extending a multiyear streak of growth as the company continued to take market share from its struggling competitors and expands online.

Comp store sales grew a solid 2.8%, with e-commerce revenue rising 37% from a year earlier.

CEO Doug McMillon said in a statement: “We’re gaining market share. We’re on track to exceed our original earnings expectations for the year.”

The retail giant now expects growth in U.S. same-store sales for the full year to be in the 2.5% to 3% range.  Walmart’s shares rose 6% in response.

Other leading retailers, including Target Corp., Home Depot and Lowe’s report next week.

--Meanwhile, Macy’s Inc. slashed its full-year earnings forecast on Wednesday after missing estimates for quarterly profit for the first time in at least two years, as it discounted merchandise heavily to clear spring inventory, sending its shares down 17% to nearly 10-year lows.

The largest U.S. department store operator, whose flagship building in Manhattan is a major tourist attraction, blamed a bigger-than-expected decline in tourist spending for the shortfall along with weak demand for its own-brand women’s sportswear and for warm weather apparel.

Tourist arrivals to the U.S. have taken a hit in the past year, hurt by a stronger dollar and the trade tensions between Washington and Beijing, which has had an impact in the number of Chinese visiting the country; down nearly 3%* in the first six months of the year, according to the National Travel and Tourism Office.

*Estimates of the decline of Chinese tourism to New York, however, are far greater.

Macy’s has struggled mightily in today’s fiercely competitive retail landscape where shoppers are buying more goods online.  But the 160-year-old company is pumping money into projects such as remodeling its stores and building up its off-price and online businesses. 

The trade war, though, is impacting business in terms of Macy’s having to work with vendors and suppliers to mitigate tariffs and minimize the customer impact in 2019 as much as possible.

As analysts have pointed out, while the Trump administration delayed the 10% tariffs on some Chinese goods until Dec. 15, this impacts less than 20% of the categories on the original latest list of tariffs.

So Macy’s lowered its 2019 adjusted profit guidance, with margins falling due to steep markdowns.  Net sales of $5.55 billion were largely in line with estimates, while same-store sales rose 0.3%, which is actually OK.

But Macy’s shares have now declined about 35% this year.

--Cisco Systems issued a disappointing outlook as fiscal fourth quarter results (ending July 27) were basically in line with expectations, revenue of $13.43 billion, up 5% from a year earlier, and profits a penny above forecast, with full-year revenue up 7% at $51.7 billion.

But Cisco sees revenue for the current quarter as flat to up 2% compared with a year earlier, which implies revenue below the Street consensus.  The networking giant also sees profit below current estimates.

Cisco reported revenue was down 4% in Asia Pacific, Japan and China*, but up 9% in the Americas and 7% in Europe, the Middle East and Africa.

*Cisco said its China business plunged 25%, as state-owned enterprises favored local companies.  This should be no surprise to you all.

But in a statement, CEO Chuck Robbins said the overall results “marked a strong end to a great year.”  He said the company is “executing well in a dynamic environment, delivering tremendous innovation across our portfolio and extending our market leadership.”

Late today, we learned Cisco is cutting close to 500 jobs in San Jose and Milpitas, California, according to data the company provided to the state’s Employment Development Department.  397 of the jobs are at the San Jose headquarters.

--Deere & Company reported fiscal third-quarter adjusted earnings of $2.71 per share, up from $2.59 in the same period a year ago but missing the Street’s forecast of $2.84.

Total revenue for the quarter ending July 28 was $10.04 billion, down from $10.31 billion last year though topping estimates.

The company expects equipment sales to increase by about 4% for fiscal 2019 compared with 2018, revised from a prior expectation of a 5% increase, citing the U.S.-China trade war.

CEO Samuel Allen said: “Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases.”

In response to weak equipment demand, in May, Deere had announced a 20% production cut at its factories in Illinois and Iowa.  On Friday, the company said it was reviewing its cost structure and initiating a series of measures to remain profitable.  Because of this last announcement, the stock rose 4%, as is Wall Street’s wont. 

--After splitting in 2005, CBS and Viacom are getting back together again to form a new company, ViacomCBS Inc., the deal subject to regulatory approvals.

Viacom owns Paramount Pictures and pay TV channels such as Comedy Central, MTV and BET, while CBS has a broadcast network, television stations, Showtime and a stake in The CW over-the-air network.

CBS was one of the first media companies to launch its own streaming service, CBS All Access.  The $6-a-month service now has a new “Star Trek” series, a revival of “The Twilight Zone” and archives of old and current broadcast shows.  CBS says All Access and its Showtime streaming services have 8 million subscribers combined.

Analysts are bullish the reunion will help both companies navigate the ever-competitive streaming landscape.

Viacom CEO Bob Bakish will become CEO of the combined company.  CBS shareholders will own about 61% of the combined company and Viacom shareholders will own 39%.

But the combined company, with a market value of about $30 billion, pales next to Disney’s nearly $245 billion and Netflix at $136 billion (as of early this week).

--Global investment banks have been shedding tens of thousands of jobs, almost 30,000 since April, as a result of falling interest rates, weak trading volumes and the march of automation.

HSBC, Barclays, Societe Generale, Citigroup and Deutsche Bank have been particularly hard hit.

In New York City, according to the state Department of Labor, some 2,800 positions in commodity and securities trading have been lopped off.

It doesn’t help when, globally, you have the above-noted $16 trillion in sovereign debt with negative interest rates. Tough to make money in such an environment.

Ed Firth of Keefe, Bruyette & Woods, said investment banks “are facing a structural change in their revenue profile. The [banks] that will win have the volumes, systems and computer power.  How many people do you need?”

Banks are also bracing for the so-called “Basil IV” rules, which will increase banks’ capital requirements, to take effect in 2022. The increased capital will impact trading, and the potential for profits, as well.  [Robert Armstrong / Financial Times]

--Indian vehicle sales fell more than 30 percent in July vs. a year ago as the economic slowdown in the country intensifies.  Passenger vehicle sales fell 31 percent, the largest decline since the turn of the millennium, according to the Society of Indian Automobile Manufacturers.  This is highly disappointing considering that India was viewed as the most promising car market in the world.

As I reported earlier, China vehicle sales fell 14 percent in the first half of this year.  So two big hurting markets.

But the India numbers actually play into geopolitics, as I’ll note down below.

--Argentina’s stock market was rocked by its steepest fall in decades amid investor concerns following a primary election that saw pro-business President Mauricio Macri dealt a resounding defeat against Alberto Fernandez, a leftist whose vice-presidential running mate is former President Cristina Kirchner, a firebrand nationalist;

Macri received just 32% versus 48% for Fernandez, part of the country’s populist Peronist movement, which advocates greater state control of the economy and opposes a landmark trade deal with the European Union.

So now it appears Fernandez could win a first-round victory in October’s general election.  The massive losses suffered in the both the peso and the stock market (down 38%! on Monday...and 31% for the week), make it harder for Macri to build his case for holding on to power.

Every time Argentinians appear to be on the verge of breaking out, they do something stupid.

--Despite the record flooding in the Midwest and Corn Belt this spring, the U.S. Agriculture Department has been upping its estimate of agricultural plantings and production, especially for corn production, now forecast at 13.901 billion bushels in the 2019-2020 year, up from prior forecasts, while soybean production was projected to be 3.68 billion bushels, down from 3.845 billion last month.

Corn and wheat prices fell on the news.

The USDA confirmed in late July that it would nonetheless deploy $16 billion in government funds to aid farmers hurt by the trade conflict; the payments ranging between $15 and $150 an acre.  [I forgot to register my master bedroom as a soybean farm...once again missing out on extra income.]

Wheat was less affected by weather, but, globally, the USDA expects a smaller wheat crop than prior forecasts.

--Over 3,800 workers at Tyson Foods’ meat-processing plant in Kansas were out of work after a fire last weekend caused significant damage. The company said on Sunday it will provide them “some guaranteed pay.”  There were no details on the cause of the fire or the extent of the damage.

As for the cattle designated for slaughter, well, not sure what happens to them.  Just a lot of milling around, I assume.  [If they have to be moved to another facility, that’s a big cost for Tyson.] 

--New York’s Department of Financial Services said it would allow insurers selling health plans to individuals to raise their rates by 6.8% on average for 2020, a reduction of about one-quarter from the 9.2% insurers requested from the state in May.  Last year the state granted an average increase of 8.6% in the individual insurance market.

--Bayer AG is proposing to pay as much as $8 billion to settle more than 18,000 U.S. lawsuits alleging its Roundup herbicide causes cancer, according to people familiar with the negotiations.

Any agreement will take months to work out, but it would ease investor pressure over massive litigation exposure the German drug and chemical giant took on with its purchase of the weedkiller’s maker, Monsanto Co.

Bayer has lost more than $30 billion in market value in the fallout.  Plaintiffs’ lawyers are seeking more than $10 billion to drop their claims.  At least there does appear to be progress in the talks.

Foreign Affairs

China and Hong Kong, cont’d: China’s ambassador to London said on Thursday, China will use its power to quell Hong Kong protests if the situation deteriorates further after some protesters have shown signs of terrorism.

“Should the situation in Hong Kong deteriorate further...the central government will not sit on its hands and watch,” ambassador Liu Xiaoming told reporters.  “We have enough solutions and enough power within the limits of (the) Basic Law to quell any unrest swiftly,” Liu said.  “Their moves  are severe and violent offenses, and already show signs of terrorism.”  Liu added: “The central government of China will never allow a few violent offenders to drag Hong Kong down a dangerous road, down a dangerous abyss.”

The Basic Law refers to the 1997 changeover from British to Chinese rule after Hong Kong had been government by Britain since 1842.

Liu Xiaoming is a key spokesman of the Chinese government in this crisis and he accused unidentified foreign forces of fomenting violent protest.  “Foreign forces must stop interfering in Hong Kong affairs,” he said, adding, “evidence shows the situation would not have deteriorated so much had it not been for the interference and incitement of foreign forces.  Hong Kong is part of China.  No foreign country should interfere in Hong Kong’s internal affairs.”

Liu also accused Western media of being unbalanced in their reporting.

As alluded to above, thousands of paramilitary police have moved into a sports stadium in a residential district of the southern Chinese border city of Shenzhen, a show of force to Hong Kong, five miles away.

Some analysts are pointing to October 1 – the 70th anniversary of the founding of the People’s Republic – as a key date in terms of setting a narrative, at least from the standpoint of Beijing.

Daniel Henninger / Wall Street Journal

“Walking across the White House lawn a few weeks ago on his way to an event in Ohio, President Trump was asked by a reporter about the protests in Hong Kong. They have been constant since June, when authorities were about to pass a law that would have allowed Hong Kong residents and even foreign nationals to be extradited to the mainland for prosecution under China’s legal system.

“ ‘Hong Kong is a part of China,’ Mr. Trump said.  ‘They’ll have to deal with that themselves.’

“This off-the-cuff remark by the president reflects the idea that the U.S. can’t be expected to solve all the world’s problems, a view sometimes summarized as America First. As well, Mr. Trump has been trying to negotiate a trade deal with Chinese President Xi Jinping.

“Mr. Trump no doubt thinks the Hong Kong protesters matter in some sense, but supporting them would put his one-to-one relationship with Mr. Xi and the trade deal at risk, and so ‘they’ll have to deal with that themselves.’

“Be that as it may, one cannot help but wonder why these Hong Kong protests simply won’t stop. The protesters aren’t stupid.  None of them want to be beaten bloody by the police or thrown for years into a Chinese prison.  They know that if Xi Jinping merely nods his head, they’re going to be crushed.  Yet day after day they keep showing up.

“By coincidence, a similar protest took place Saturday in Moscow for the fifth straight weekend.  Some 50,000 Russians took to the streets, as they have recurrently during the presidency of Vladimir Putin.

“The weekend’s images from Hong Kong and Moscow were also eerily similar: Police in helmets and often thick, black jackets beat protesters with batons and dragged them to police wagons.

“As in Hong Kong, the Russian protesters know the stakes are high. Some of their opposition leaders, such as Boris Nemtsov, have ended up dead....

“(It is hard) to see these massive, daily protests in Hong Kong and not recognize that they really are about one word: freedom....

“Does Hong Kong matter?  Ultimately and unhappily, the Hong Kong protesters may get not much more than admiration from the rest of the world.  But we would do well to stare hard into those faces filling screens and think about the implications of their all-or-nothing fight for freedom.

“Hardly any of them look older than 25.  In Moscow last weekend, a young woman said, ‘I am 20 years old, and in my entire life there has not been a single day of freedom.’  Virtually no one living in the hyperpoliticized U.S. has to think that on any day of their lives.

“Freedom is normally discussed in the contest of mass movements or revolutions such as ours in America long ago.  Let freedom ring.  Yet a better understanding of the impulse for freedom is not primarily as the force behind mass movements but as a basic human instinct, like breathing.  Let me first be free, and then, yes, we can deal with the rest ourselves....

“The individual impulse toward freedom was the reason many voted for the improbable Trump candidacy in 2016.  People were feeling increasingly hemmed in by their government and the prevailing culture – told too often what they should do and how they should think about the most personal matters.

“Others thought voting for Mr. Trump was irrational. But like the Hong Kong protesters, choosing a seemingly irrational course looked to many in the U.S. like the best available bust-out option. That’s what Brexit is, too – an arguably irrational lunge for freedom.

“Mr. Trump and his supporters, however, should recognize that it isn’t going to be possible to put a fence around freedom....

“Yes, we ‘don’t do nation-building anymore.’  But when nations start to collapse – as in Central America, Africa or the Middle East – or when governments in places like China or Russia try to impose smothering systems on people, eruptions and flows of individuals seeking freedom will be inevitable.

“It’s complicated, there are practical limits, and national self-interest matters.  But will they really ‘have to deal with that themselves’?  The United States, of all places, can do better than that.  Hong Kong matters.”

North Korea: Today, Pyongyang launched at least two more short-range ballistic missiles off their east coast, after the North described South Korea’s president as “impudent” and vowed that inter-Korean talks are over.

So the North’s protestations against joint U.S.-South Korea military drills, largely computer-simulated, which kicked off last week, continue, as Pyongyang labels them a rehearsal for war.

This was the sixth round of missile launches in just weeks.  The denuclearization talks between Kim Jong Un and President Trump have been stalled despite a commitment to revive them made at the June 30 Trump-Kim meeting at the DMZ.

But what was a bit worrisome Friday was the language used by the North against South Korean President Moon Jae-in, who has been pursuing talks with Pyongyang.  Instead, an unidentified spokesman repeated criticism of the joint drills as a sign of Seoul’s hostility toward the North.

“We have nothing to talk any more with the South Korean authorities nor have any idea to sit with them again,” a statement said, carried by the official KCNA news agency.

Moon and Kim have met three times since April last year, pledging peace and cooperation, but little progress has been made to improve dialogue and strengthen exchanges.

In a Liberation Day address on Thursday, Moon said in a speech marking Korea’s independence from Japan’s 1910-45 colonial rule: “In spite of a series of worrying actions taken by North Korea recently, the momentum for dialogue remains unshaken.”

But the North’s spokesman described Moon as an “impudent guy” who is “overcome with fright.”

Separately, North Korea reacted to U.S. Defense Secretary Mark Esper’s statement that he was in favor of placing ground-launched, intermediate-range missiles in Asia, a day after the U.S. withdrew from the Intermediate Nuclear Forces (INF) Treaty with Russia.

The North’s KCNA news agency put out a statement: “The U.S. pointed out that it is now examining a plan for deploying ground-to-ground medium-range missiles in the Asian region and South Korea has been singled out as a place for the deployment. It is a reckless act of escalating regional tension, an act that may spark off a new Cold War and arms race in the Far Eastern region to deploy a new offensive weapon in South Korea.”

U.S. officials have said such a deployment is years away.

Russia: The Kremlin on Tuesday shrugged off five weeks of street protests in support of free elections in Moscow, saying the situation had not warranted comment from President Putin and voicing strong support for the tough police response. 

The demonstrations over a planned election for the Moscow city legislature in September have turned into the biggest sustained protest movement in Russia since 2011-2013, when protesters took to the streets against perceived electoral fraud.

Kremlin spokesman Dmitry Peskov told reporters, “We do not agree with those many people who call what is happening a political crisis,” while adding cases of police excess as well as alleged violence by protesters against police were being looked into.

“We believe firm action by law enforcement to curb public unrest was absolutely justified,” Peskov said.

The ruling United Russia party’s popularity rating is at its lowest since 2011 and Putin’s own personal rating has also declined due to discontent over falling living standards.  However, at well over 60%, it is still high compared to other world leaders.

Reminder, Putin’s current term doesn’t end until 2024.

Separately, the Kremlin also boasted on Tuesday that it was winning the race to develop new cutting edge nuclear weapons despite a mysterious rocket accident last week in northern Russia that caused a temporary spike in radiation levels.

Rosatom, Russia’s state nuclear agency, admitted that the Aug. 8 accident occurred during a rocket test on a sea platform in the White Sea, killing at least five.

But it seems this was a test of a nuclear-powered cruise missile that President Putin first touted last year.

The thing is, as we are learning through this failed test, it’s one thing to fire a ballistic missile with a nuclear warhead on top.  It’s quite another to have a nuclear reactor on a cruise missile, traveling hundreds and thousands of miles over ground.  And it’s not like you can guarantee this flying reactor will be accurate....as has already been proven.  I mean think about it.  This is nuts!

And as for this latest accident, the response from the Kremlin has been ripped out of the Chernobyl playbook.  There is a growing body of thought that it was far more serious than we were first led to believe in terms of the radiation risk.

Iran: U.S. Secretary of State Mike Pompeo warned in a Twitter post on Monday that the duration of UN sanctions on Iran is about to end.

“The clock is ticking.  Time remaining before the UN arms embargo on Iran expires and Qasem Soleimani’s travel ban ends,” Pompeo tweeted, sharing a clock that counts down the time until the UN sanctions expire, a little over a year and 3 months.

Pompeo urged “our allies and partners to increase the pressure on the Iranian regime until it stops its destabilizing behavior.”

Syria: Editorial / Washington Post

“Among President Trump’s many fanciful thoughts, consider his declaration last month of victory over the Islamic State.  ‘We did a great job,’ he said.  ‘We have 100 percent of the caliphate, and we’re rapidly pulling out of Syria. We’ll be out of there pretty soon. And let them handle their own problems. Syria can handle their own problems – along with Iran, along with Russia, along with Iraq, along with Turkey. We’re 7,000 miles away.’

“Consider, too, the chaos caused by Mr. Trump’s abrupt announcement in December of a pullout of troops from Syria, which led to the resignation of Defense Secretary Jim Mattis.  ‘We have won against ISIS,’ Mr. Trump said in a video on Twitter, adding, ‘Our boys, our young women, our men – they’re all coming back, and they’re coming back now.’  He added, ‘We won, and that’s the way we want it, and that’s the way they want it,’ he said, pointing a finger upward, referring to U.S. troops who had been killed in battle.

“Now consider the conclusions of the recently released inspector general’s report to Congress on Operation Inherent Resolve, the U.S. military campaign against the Islamic State. The lead inspector general, Glenn A. Fine of the Defense Department, reports that although the group lost territory, from April through June it was ‘resurging in Syria,’ and ‘solidified its insurgent capabilities in Iraq.’  The report draws on information from U.S. military commanders who say the Islamic State is coming back in part because ‘the Iraqi Security Forces (ISF) and U.S.-backed Syrian Democratic Forces (SDF) remain unable to sustain long-term operations against ISIS militants.’

“The report says the Islamic State has moved underground; retains 14,000 to 18,000 members; ‘is likely reestablishing financial networks’ in both Iraq and Syria; ‘maintains an extensive worldwide social media effort to recruit fighters’; and has carried out asymmetric attacks using a ‘more stable’ network for command-and-control and logistics.  The report quotes military leaders as saying that the United States has been drawing down just when allies needed more help with training, equipment and developing better intelligence. The drawdown hurt the United States’ ability to secure and monitor the sprawling al-Hol displacement camp in northeastern Syria, where thousands of Islamic State families reside, military leaders told the inspector general.  The camp is a major source of recruits for the group, which, U.S. commanders said, is taking advantage of the drawdown to recruit new members.

“In the recent presidential debates, some Democratic candidates also vowed to pull back from the ‘endless wars.’  It is true that voters are fatigued from the Iraq and Afghanistan conflicts. But withdrawal must be careful, not hasty.... Threats still exist in the burning embers of the Syrian war and the Islamic State caliphate, and it would be far better for the president and his challengers to address the world as it is, rather than to engage in wishful thinking.”

Israel: President Trump tweeted Thursday: “It would show great weakness if Israel allowed Rep. Omar and Rep. Tlaib to visit. They hate Israel & all Jewish people, & there is nothing that can be said or done to change their minds.  Minnesota and Michigan will have a hard time putting them back in office. They are a disgrace!”

It was an extraordinary call for an American president to make, and equally extraordinary that Israeli Prime Minister Benjamin Netanyahu, after a contentious Cabinet meeting, decided to bar Omar and Tlaib from entering the country today.

The reason cited for their ban was “suspected provocations and promotion of BDS,” a reference to the anti-Israel boycott movement. 

The freshman lawmakers – the first two Muslim women elected to Congress and two of Israel’s sharpest critics – have voiced support for the pro-Palestinian Boycott, Divestment, Sanctions movement against the Jewish state.

But then Friday, Israel backed down some, allowing Tlaib, who is of Palestinian heritage, to make a special humanitarian visit to her family in the occupied West Bank; only Tlaib then rejected the offer.  Tlaib said she could not comply with the “oppressive conditions” being imposed.

The Israeli government had said she could go ahead with a private visit after she agreed “not to promote the boycott of Israel during her stay.”

Israel media published Tlaib’s letter, which said: “I would like to request admittance to Israel in order to visit my relatives, and specifically my grandmother, who is in her 90s.

“I will respect any restrictions and will not promote boycotts against Israel during my visit.”

But then she issued a series of tweets today, saying in one, “Silencing me & treating me like a criminal is not what she (the grandmother) wants for me....I have decided that visiting my grandmother under these oppressive conditions stands against everything I believe in.”

In response, Israeli Interior Minister Aryeh Deri said: “Last night, she sent me a letter asking her to allow her to visit her 90-year-old grandmother ‘because this could be my last chance to meet her.’

“I approved it on humanitarian grounds, but it turns out that it was a provocation to embarrass Israel.  Her hatred for Israel overcomes her love for her grandmother.”

To which we all just throw up our arms and say, “WTF?!”

But I have to complete the narrative that led up to this moment.

Under Israeli law, backers of the BDS movement can be denied entry to the country, but Israeli Ambassador to the U.S., Ron Dermer, last month said the two congresswomen would be allowed in out of respect for the U.S.-Israeli relationship.

So President Trump was unhappy over the original decision not to bar them.

Critics said Israel’s first move was counterproductive and could damage the country’s international image.  The Israel Policy Forum, a group focused on building support in the U.S. for a two-state solution, said it was an “insult” to Congress and would create a “dangerous precedent.”

“Any sitting member of Congress should be welcome to visit Israel as official representatives of Israel’s closest ally and most critical source of international support,” the forum said in a statement Thursday.

The group said it disagrees with Omar and Tlaib on many issues but “the best way to demonstrate to them that they should reconsider their stances is for them to see Israel and the challenges it faces firsthand.  Denying them entry can only serve to harden their current views, along with delivering an insult to the U.S. Congress, exacerbating partisan divides on Israel, and creating a dangerous precedent.”

Pro-Israel group AIPAC said it has differences with Omar and Tlaib, but Israel should nonetheless allow sitting members of Congress to enter the country and see it for themselves.

House Speaker Nancy Pelosi said Israel’s decision to bar Omar and Tlaib was “deeply disappointing” and called on it to reverse the move.  “Israel’s denial of entry...is a sign of weakness, and beneath the dignity of the great state of Israel.”

Republican Sen. Marco Rubio tweeted that while he disagrees with Tlaib and Omar, “denying them entry into #Israel is a mistake.  Being blocked is what they really hoped for all along in order to bolster their attacks against the Jewish state.”

Trump later tweeted: “Representatives Omar and Tlaib are the face of the Democrat Party, and they HATE Israel!”

Editorial / Los Angeles times

“Last we checked, both the United States and Israel were democracies – and allies.  Yet on Thursday the leaders of both countries sounded more like crazy autocrats with a penchant for silencing their critics.  Israeli Prime Minister Benjamin Netanyahu’s decision to prohibit U.S. Reps. Ilham Omar (D-Minn.) and Rashida Tlaib (D-Mich.) from entering Israel on an official congressional visit not only smacks of tin-pot authoritarianism, it elevates his critics.

“Netanyahu justified his shameful decision by citing a recent bit of daft legislating, an Israeli law prohibiting foreign nationals who back boycotts against Israel or its West Bank settlements from entering the country. That’s bad enough.  Even more outrageous is that President Trump appears to have goaded Netanyahu into making this decision.

“Not content to call for Omar and Tlaib...to leave the United States, Trump has been pressing Israel publicly not to let them into that country.... ‘They are a disgrace!’

“The only disgrace here is Trump’s behavior.

“In his statement, Netanyahu said: ‘As a vibrant and free democracy, Israel is open to all its critics and  criticism, with one exception: Israeli law prohibits the entry of people who call and operate to boycott Israel.’  A real, vibrant democracy, however, isn’t afraid to engage its critics.  Unable to form a government and facing an election next month, Netanyahu is under pressure to shore up his profile among his right wing supporters. But playing to his base with strong-arm tactics is an affront to democracy.”

Well in the end, any advantage Tlaib gained for her party vs. Republicans, and Trump, she just threw away, it seems. 

India / Pakistan: Indian Prime Minister Narendra Modi trumpeted his abolition of Kashmir’s special status in an Independence Day speech on Thursday, but there was little sign that he had won over people in the region’s biggest city – and a deadly border clash with Pakistan added to tensions.  Modi said the constitutional status of Jammu and Kashmir had encouraged corruption and nepotism, while creating injustice for women, children and minority communities.  Indian-controlled Kashmir, India’s only majority-Muslim region, is also claimed by Pakistan.

Critics say Modi’s policy will trigger a backlash from Kashmiris aggrieved by losing their exclusive right to buy property in the state and to fill state government jobs.  In a clampdown in the region over the past two weeks, authorities have cut internet and phone links, set up numerous roadblocks and detained more than 500 local leaders and activists.

In Kashmir’s biggest city, Srinagar, India tightened security for an Independence Day parade that few locals attended.

Modi has claimed the change of status for Kashmir would bring prosperity and development and help to make the region a hub for tourism and industry.

But as I noted above, India’s economy is struggling, and by playing the popular “nationalism” card  in Kashmir, Prime Minister Modi is no doubt trying to deflect attention from the fact his economic miracle is showing signs of flaming out.

Afghanistan: President Ashraf Ghani said last Sunday that peace would come to Afghanistan, but he appeared to question an expected deal between the United States and the Taliban, saying his nation would decide its future, not outsiders.  Remember, Ghani and his U.S.-backed government hasn’t been involved in the negotiations, which I have found startling.

Any pact will probably include a Taliban commitment to open power-sharing talks with the Afghans, but is not expected to include a Taliban ceasefire with the government.  Not that a ceasefire would hold anyway.

Canada: Prime Minister Justin Trudeau and officials in his government improperly tried to influence a corporate legal case, Canada’s top ethics watchdog said on Wednesday in a politically damaging assessment that will hurt Trudeau and his chances for winning October’s general election.

This goes back to the case of construction giant SNC-Lavalin Group Inc., and the Trudeau team’s attempt to circumvent, undermine and discredit a decision by federal prosecutors that the company should face trial on corruption charges.

While the watchdog’s decision is politically damning, it carries no legal implications.  It’s just that Trudeau’s image has been battered.  He is the first Canadian prime minister found to have broken ethics rules.

Random Musings:

--Presidential tracking polls....

Gallup: 41% approval of President Trump, 54% disapproval; 88% Republicans, 37% independents (Aug. 1-14).
Rasmussen: 46% approval, 52% disapproval.

--A national poll conducted by YouGov for The Economist shows Elizabeth Warren surging into a statistical tie with former Vice President Joe Biden; Biden at 21%, Warren 20%.

Bernie Sanders 16%, Kamala Harris 8%, and Beto O’Rourke and Pete Buttigieg both at 5%.  Kind of surprised Beto is that high.

--Joe Biden had an awful few days while in Iowa in terms of gaffes.  In one slipup last Saturday at a forum in Des Moines organized by gun-control advocates, he said he had met as vice president with students after the deaths of 17 people at a high school in Parkland, Fla..  But the massacre happened after he had left office.  He did meet with Parkland students in Washington, D.C., shortly after the shooting and had met as a vice president with survivors of the Sandy Hook school massacre in Connecticut.

But the Parkland error followed his gaffe days earlier when he said “poor kids are just as bright and just as talented as white kids,” though he quickly tried to repair the damage.

The thing is we all know Biden is 76 years old, and he’s showing it.  How could you possibly vote for the guy?  He might be declared mentally unfit by his second or third year in office.  It’s just the truth.

Supporters still say things like ‘slip-ups happen at every age’ and that he’s a good person.  That’s not going to be enough, in my humble opinion.

And of course President Trump is having a field day, telling reporters, “Joe Biden is not playing with a full deck.  This is not somebody you can have as your president. But if he got the nomination, I’d be thrilled.”

And this tweet:

“Does anybody really believe he is mentally fit to be president?  We are ‘playing’ in a very big and complicated world.  Joe doesn’t have a clue!”

--Former Colorado Gov. John Hickenlooper has decided to drop out of the Democratic presidential field and consider a Senate run instead in 2020 against incumbent Republican Sen. Cory Gardner.  But three other state Democrats have already announced they are running as well.

--David Ignatius / Washington Post

“One of the weirdest aspects of this year’s Democratic presidential campaign is that foreign policy, potentially one of President Trump’s most vulnerable issues, has been nearly absent from the debate.

“Trump is steering the country into a foolish trade war with China that has spooked the stock market, frightened farmers and fueled uncertainty among investors at home and abroad.  Without any significant pushback from Democrats, his tariff-driven ‘America First’ agenda is pushing us toward what could be a decades-long cycle of global retreat and economic decline.

“Even Trump seems worried about his tariff zealotry, moving Tuesday to delay the latest round from September to December.

“China appears to be a strategy-free zone for Trump, but so is most of the rest of the world: His North Korea policy, at bottom, is an often fawning pursuit of a nuclear-armed dictator; his Iran policy is an undeclared economic war that he hopes won’t have kinetic consequences; his key Middle East alliance is the no-questions-asked embrace of a Saudi crown prince who has been jilted even by the neighboring United Arab Emirates; he treats traditional allies such as Germany and France as disposable tissue paper.

“Do these issues get discussed in the Democrats’ campaign stumps and televised debates?  Not so much.  Many Democrats seem scared of sounding like supporters of trade agreements, foreign military commitments or the dreaded evil of ‘globalization.’  Inexplicably, they cede this international ground to Trump.  For Democratic presidential rivals, domestic issues take up all the oxygen.

“So here’s a modest proposal for Democratic candidates who want to distinguish themselves in what has too often been a lackluster and dispiriting campaign: Make foreign policy an issue.  Summon the public not to more senseless wars in the Middle East but to the real global challenge that will define this century – the competition, hopefully peaceful, with a rising China....

“Today’s Democrats need a little more of President John F. Kennedy’s call to arms, not on foreign battlefields but at home.  We should ‘pay any price, bear any burden,’ as JFK put it during his inaugural address, to make the country stronger internally.  The heroes in this version of the new frontier are teachers, farmers, factory workers, tech innovators and even Wall Street bankers.

“Trump’s reelection strategy is to inflame identity politics.  A successful Democrat will figure out a way to bank those flames by uniting the country to meet a foreign challenge.  This should be a ‘Sputnik moment.’ China’s strengths should help us to see our own weaknesses....

“If Democrats stopped running scared on foreign policy, they would see that this is an issue that can unite the country and summon disaffected Americans to a test on which their future livelihoods depend, quite literally.  The China challenge could be the best issue the Democrats have, if they would just start talking about it.”

--And now, the Jeffrey Epstein case.

Early Saturday morning we learned the 66-year-old convicted pedophile hung himself, apparently with a bedsheet wrapped around his neck and secured to the top of a bunk bed.  According to various reports, quoting law enforcement sources, he would have killed himself by kneeling toward the floor and strangling himself with the makeshift noose.

Epstein was being held in the Special Housing Unit of the Metropolitan Correctional Center (MCC) in Manhattan.

The FBI and the Justice Department both immediately entered the investigation of the incident, which Attorney General William Barr on Monday blamed on “serious irregularities at this facility.”  Barr vowed there would still be justice for the victims and that none of the high-profile names that have leaked thus far should rest easy.

Sen. Ben Sasse (R-Neb.) wrote in a letter to Barr: “Every single person in the Justice Department – from your Main Justice headquarters staff all the way to the night-shift jailer – knew that this man was a suicide risk, and that his dark secrets couldn’t be allowed to die with him.  Given Epstein’s previous attempted suicide, he should have been locked in a padded room under unbroken, 24/7, constant surveillance.  Obviously, heads must roll.”

Epstein’s death cut short a criminal prosecution which could have pulled back the inner workings of a high-flying financier with connections to celebrities and presidents, though prosecutors have vowed to continue investigating.

Epstein could have faced up to 45 years behind bars on federal sex trafficking and conspiracy charges unsealed last month.  He had pleaded not guilty and was awaiting trial.

Epstein had been placed on suicide watch after he was found about three weeks ago with bruising on his neck, but he was somehow taken off the watch at the end of July and wasn’t on it at the time of his death.  Removal from the watch list would have been approved by both the warden of the jail and the facility’s chief psychologist.

The two Manhattan jail guards tasked with monitoring Epstein before he died fell asleep on the job and fudged the log entries to show they checked on him and other inmates when they actually didn’t, according to various reports.

Sources told the New York Post that surveillance video showed the guards at the MCC never made some of the inspections noted in the log.

A prison and law enforcement official told the New York Times that the guards were asleep when they failed to check on Epstein for about three hours before his death.  They were required to check on Epstein every 30 minutes.

Earlier Tuesday, the Justice Department said the two MCC staffers were placed on administrative leave, while the warden was reassigned.

Thursday, the story broke that Epstein’s autopsy determined he had suffered multiple broken neck bones, one to the hyoid bone, an injury that experts told the Washington Post is more common in homicide victims.

The autopsy was completed on Sunday, but the Medical Examiner’s Office said more information was needed before they make a final cause of death ruling.  A private pathologist, the well-known Dr. Michael Baden, was allowed to observe the autopsy examination, according to the ME, which is routine practice.

But just because the hyoid bone was broken, doesn’t mean someone entered Epstein’s cell and strangled him.  The bone, we are told, can also be broken in a suicidal hanging, but all seem to be in agreement it is more common in strangulation murders than the former.

Then, hours ago, the Medical Examiner declared it was suicide.

The Washington Post spoke to Jonathan Arden, president of the National Association of Medical Examiners, who said, “If, hypothetically, the hyoid bone (which is near the Adam’s apple) is broken, that would generally raise questions about strangulation, but it is not definitive and does  not exclude suicidal hanging.”  Arden is not involved in the Epstein case.

Needless to say, the finding will only enhance the conspiracy theories.  On Saturday afternoon, President Trump was already retweeting one blaming the Clintons for Epstein’s death.

--According to the New York Post, while CNN brass stood by Chris Cuomo after he was caught on camera threatening a man who called him “Fredo” – the newsroom rank and file was “embarrassed” by the blowup.

Cuomo, host of “Cuomo Prime Time,” told the guy in the Shelter Island confrontation that the “Godfather” reference was a racial slur “like the ‘N-word’” for Italian Americans, while calling him “a punk-ass bitch,” adding, “I’ll f—king ruin your [shirt].  I’ll f—king throw you down these stairs.”

Among the newsroom chatter was that “everyone thinks it’s fine to stand up to trolls, but it escalated way past where it needed to.”  But, one added, “It was an unforced error, and he gave the right – and the president – ammunition to use against him and CNN.”

Yes, that Fredo did.

--Speaking of jerks, U.S. Rep. Steve King (R-IA) defended his call for a ban on all abortions by questioning whether there would be “any population of the world left” if not for births due to rape and incest.

Speaking before a conservative group in the Des Moines suburb of Urbandale, King reviewed legislation he has sought that would outlaw abortions without exceptions for rape and incest.  King justified the lack of exceptions by questioning how many people would be alive if not for those conceived through rapes and incest.

“What if we went back through all the family trees and just pulled those people out that were products of rape and incest?  Would there be any population of the world left if we did that?” King asked, according to video of the event.  He went on.  He must be removed from Congress because he is embarrassing the entire Party.

Previously, Rep. King was rebuked in a House vote, 424-1, for prior comments he made that were deemed to be racist.  Republican leaders stripped him of his committee assignments at the time.

King usually wins his conservative district handily, but in 2020, he faces a primary challenge from several Republicans.

--It took a while, but Anthony Scaramucci finally figured it out.  The Mooch tweeted Sunday that President Trump only accepts 100% blind loyalty after Trump lashed out at him as unqualified.

Scaramucci tweet: “For the last 3 years I have fully supported this President.  Recently he has said things that divide the country in a way that is unacceptable. So I didn’t pass the 100% litmus test.  Eventually he turns on everyone and soon it will be you and then the entire country.”

Trump tweeted a response: “Anthony Scaramucci, who was quickly terminated (11 days) from a position that he was totally incapable of handling, now seems to do nothing but television as the all time expert on ‘President Trump.’  Like many other so-called television experts, he knows very little about me...”

Scaramucci called Trump’s trip to El Paso a “catastrophe” and opined on MSNBC that the coverage showed him lacking “compassion” and “empathy.”

So the president didn’t like this.

During an interview on CNN Monday morning, Scaramucci said: “I think what will end up happening is sound and reasonably minded men and women in the Republican Party will say, ‘Wait minute, we can’t do this.’  He is giving people license to hate, to provide a source of anger to go after each other, and he does it on his Twitter account.”

--Mike Mullen, retired U.S. Navy admiral, former chairman of the Joint Chiefs of Staff, in an op-ed for Defense One.

“Since the massacre at Sandy Hook Elementary School in which 20 of our first graders were slaughtered with an AR-15-style rifle, I have pondered despairingly how long it would take for America to put an end to the killing generated by these weapons of war.  I very briefly had hope that the massacre of our little ones would bring us to our senses, spurring Congress to pass commonsense legislation, including universal background checks and a ban on assault weapons – those massively lethal weapons of mass destruction.

“I spent my entire professional life taking up arms in defense of our country, serving in wars from Vietnam to Afghanistan, and ending my service as chairman of the Joint Chiefs of Staff.  During the wars in Iraq and Afghanistan I saw how our ground forces and special forces sought to improve the precision and lethality of their weapons, which took enemy lives and saved their own. Such is the nature of war.

“But these weapons are for war; they are not for sport.  Assault weapons are designed to kill as many people as possible in the shortest time possible.  As the tragic events last week in El Paso and Dayton attest, these weapons make it virtually impossible for law-enforcement agencies to stop those bent on taking lives.  In Dayton, heroic officers responded within 30 seconds, and yet the shooter still killed nine people.

“I had hoped that our political leaders would put saving innocent lives ahead of their careers, if necessary sacrificing their own political ambitions to get this done.  But our politicians have proved unwilling to take up the cause or to take risks for the sake of the many citizens, young and old, murdered both before and after Sandy Hook. Would you gather the courage if it were your son or daughter whose life had been taken?

“In the years I served as chairman of the Joint Chiefs of Staff, I sat with far too many mothers and fathers, brothers and sisters, sons and daughters of loved ones killed in combat, the best of us, who had made the ultimate sacrifice while serving our country.  I hoped – hopelessly – that I could somehow ease their unimaginable pain and suffering. The haunting, empty, tragic stares of these grieving families will live with me forever.

“After Sandy Hook, I watched in abject disgust while our Congress did nothing, despite the fact that some 90 percent of Americans supported universal background checks.  That inaction typified the paralysis and division consistently displayed by elected officials from both parties.  Each party could display the same motto: ‘Party before country.’

“Since Sandy Hook, the politics have gotten worse and the weapons have become more deadly.  And we are led by an administration without a moral compass, which seeks to divide us and destroy our values: equality, freedom, democracy, human rights, integrity, responsibility, accountability. These attacks threaten the very underpinnings of our civilization.

“Now is the time for courage. We must take steps to make our country and its citizens safe from this growing national-security threat by banning these assault weapons with their large magazines, and by putting in place comprehensive and universal background checks without loopholes. The United States accounts for some 4 percent of the global population but holds about 45 percent of the civilian firearms in the world.  We are way out of balance.

“I have been involved in the use of arms for my entire adult life. I understand what they can do.  It is time to act.  If we do nothing, many more innocent lives will be needlessly sacrificed – and the blood of those innocents will continue to flow upon our hands.”

--The WWF (formerly World Wildlife Fund, now World Wide Fund for Nature) revealed that the number of animals living in the world’s forests has more than halved in the last 50 years.

A global assessment by WWF and the Zoological Society of London of 455 populations of 268 species that live only in forests reveals they declined by 53 percent on average since 1970.

The biggest threat is loss and damage to habitat, mostly caused by humans clearing land, shifting agriculture and wildfires.

--July 2019 was the Earth’s hottest month on record, scientists for the National Oceanic and Atmospheric Administration said Thursday.  The global temperature was some 1.71 degrees above average.  This follows on the heels of what was the hottest June on record.

Year-to-date, 2019 is tied with 2017 as the second-warmest year on record.

July was most notable for Europe’s record-shattering heat wave, with France, Belgium, Germany, Netherlands and the U.K. all setting new all-time high temperature records, including 108.7 in Paris.

And Alaska baked under extreme heat, with Anchorage hitting the 90-degree mark (July 4) for the first time in the city’s history.

--This week we have the 50th anniversary of Woodstock and the local newscasts have had some reports from Bethel Woods on those making a return pilgrimage.  I loved what one gentleman, who was there in 1969, said about the festival.

“I was 11 when I got here; and 35 when I left.”

--Finally, congratulations to the two Russian pilots who safely landed their Ural Airlines Airbus 321 in a cornfield outside Moscow after striking a flock of birds, the pilots immediately opting to land with the landing gear up.  No serious injuries were suffered among 233 passengers and crew.  The Kremlin rightfully is going to honor them with top state awards.

And the world of sports is thankful that Dale Earnhardt Jr. and his family escaped serious injury in a private plane crash in eastern Tennessee Thursday.

---

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

God bless America.

---

Gold $1523
Oil $54.93

Returns for the week 8/12-8/16

Dow Jones  -1.5%  [25886]
S&P 500  -1.0%  [2888]
S&P MidCap  -1.5%
Russell 2000  -1.3%
Nasdaq  -0.8%  [7895]

Returns for the period 1/1/19-8/16/19

Dow Jones  +11.0%
S&P 500  +15.2%
S&P MidCap  +12.6%
Russell 2000  +10.8%
Nasdaq  +19.0%

Bulls 49.5
Bears 
18.1

Have a great week. At least try to.

Brian Trumbore



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Week in Review

08/17/2019

For the week 8/12-8/16

[Posted 10:30 PM ET, Friday]

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

Edition 1,062

Last Friday night I wrote of my experiences at Hong Kong International Airport, and how much I loved staying at the hotel connected to it the last two times I was there.  I couldn’t imagine thousands of protesters in the place and then on Monday, the world watched as the airport was literally shut down, all flights out of Hong Kong canceled, in an unprecedented disruption as the protesters occupied the terminal.  [The airport is the world’s busiest air cargo port and 8th busiest by passenger traffic.]

Watching it all play out live, I have to admit for the first time I had a pit in my stomach as to how this would all end in the coming weeks.  The kids are heroic, demonstrating to protect their future and rights.  And at the same time, the Chinese Communist Party leadership was at its annual summer retreat, stewing.  Timetables for these gatherings are never released but it is assumed it is wrapping up this weekend and we should get something out of President Xi Jinping directly soon.

Thousands of Chinese paramilitary police are across the border from Hong Kong, ready to restore order.  Forget the prospects for bloodshed, hundreds could be arrested and just disappear.

Hong Kong’s chief executive, Carrie Lam, appeared before the press on Tuesday calling on residents to put aside their differences.

“Take a minute to think, look at our city, our home – do you all really want to see it pushed into an abyss?” AFP quoted her as saying.  Her comments echoed similar remarks by an official from the Chinese Liaison Office in Hong Kong, who said the city would slide “into a bottomless abyss if the terror atrocities are allowed to continue.”

But Hong Kong still being free, local journalists went after Lam like a pack of wolves, I write admiringly, many condemning Lam’s response to the unrest.

One journalist, according to AFP, said: “You blame your own political misjudgment on others, and refuse to acknowledge your mistakes.”

Another asked: “When will you accept political responsibility to end citizens’ fear?...When will you be willing to step down?  When will you tell the police to stop?”

Imagine...all of this is being catalogued by Chinese authorities, images of the reporters being kept for future use, when one day in the dead of night, no doubt some of the offenders who refuse to tow the party line are snatched and ferreted out for ‘safe keeping.’

But while Ms. Lam was near tears at times, she evaded questions on whether she had the autonomy to completely withdraw the extradition bill, a critical demand of the protesters, saying she had answered it in the past...which she hadn’t.

Meanwhile, the students, who have been waving American flags and playing the Star-Spangled Banner, in the vain hope that the United States will at least show some verbal support, got this tweet from President Trump:

“I know President Xi of China very well.  He is a great leader who very much has the respect of his people.  He is also a good man in a ‘tough business.’  I have ZERO doubt that if President Xi wants to quickly and humanely solve the Hong Kong problem, he can do it.  Personal meeting?”

I am forced to say again that this sounds moronic.  Xi is not a great leader.  He is not a good man.  Far from it.

At least Senate Majority Leader Mitch McConnell said Monday that the students were “bravely standing up to the Chinese Communist Party,” and that a violent crackdown would be completely unacceptable.

Chinese foreign ministry spokeswoman Hua Chunying later repeated Beijing’s line that Hong Kong was an internal matter, and referred to earlier comments by Trump in which he said: “That’s between Hong Kong and China, because Hong Kong is part of China.”

“I hope the U.S. can really do what it has said,” Hua said in a statement.

China saw through Trump’s feeble attempt to bundle trade talks and the situation in Hong Kong.  Tuesday, Vice-Premier Liu He, who has been heading up China’s trade negotiating team, had a call with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, and Liu made it clear how Beijing felt about the latest proposed tariffs.

As the market collapsed Wednesday, bond yields plummeting worldwide along with stock prices, President Trump blamed the Fake News Media.

“The problem they have is that the economy is way too strong and we will soon be winning big on Trade, and everyone knows that, including China!”

Pathetic.  At the same time the president was showing signs of panic, getting a bunch of leading bankers on the phone so they could reassure him the economy would not tip into recession just as he was launching the stretch drive of his campaign next summer and fall.  It’s believed that they told him his trade policy was an impediment.

For Donald Trump it’s all about the economy.  He has nothing else.

And there is no reason for China to bail him out, especially after the Trump administration decided today to approve an $8 billion arms package, including the sale of 66 F-16 fighter jets to Taiwan, a move I fully support.

There will be no trade deal between Washington and Beijing.  China will continue to buy increasing amounts of soybeans from Brazil.  American farmers will suffer.  And Xi Jinping will prove he’s not a “good man.”

Trump World

--In 2016, Trump won 61% of the vote nationally in rural areas, exit polls show.  In many counties he outperformed 2012 Republican nominee Mitt Romney and it helped Trump win states such as Wisconsin with large rural populations.

This has been at the forefront all week with the focus on Iowa and the State Fair, as farmers there and throughout the Midwest have been telling reporters they still back the president, with various surveys from the likes of Purdue and Iowa State University showing Trump’s support at around 75%.

But I’m guessing as the trade war drags on, despite all the federal aid they are eligible for, more and more will hold an opinion similar to that of Roger Johnson, President of the National Farmers’ Union (a grassroots organization representing 200,000 farmers, ranchers and fishermen), who said in an interview on CNN this week:

“Yes, hold China accountable, but get the rest of the world with us to go after them.” 

Johnson didn’t state it, but as you have become tired of me saying since day one of the Trump presidency, that was what the Trans Pacific Partnership (TPP) was all about!!!

You don’t regain the markets you lose right away, despite the president’s lies on the topic, which he continued in his New Hampshire rally last night. TPP opened up markets.

Separately, Aaron Lehman, president of the Iowa Farmers Union, told the Wall Street Journal:

“Farmers have had lower prices, and they have so much market uncertainty, and all these markets that we’ve built – worked and worked and worked to build up over the years – now those relations are, are at, you know, all-time lows.  It’s going to take years for us to recover from how it was carried out.”

--Economist Robert Samuelson / Washington Post

“Trump seems acutely aware of the threats to his reelection. He’s repeatedly assailed the Federal Reserve for not lowering short-term interest rates sooner; he’s also accepted a federal budget with huge deficits. These constitute traditional ‘stimulus’ designed to keep the economy advancing.

“If they don’t work, it’s a safe bet that Trump won’t blame himself.  The Fed and China are being set up as the fall guys for the next recession.”

--Ken Cuccinelli, the Trump administration’s acting head of Citizenship and Immigration Services, announced on Monday a new “public charge” requirement that limits legal migrants from seeking certain public benefits such as public housing or food aid, or are considered likely to do so in the future.

The rule change is intended to reinforce “ideals of self-sufficiency,” officials said.  Critics argue that it will prevent low-income U.S. residents from seeking help.

Then Tuesday, Cuccinelli was asked by NPR whether the 1883 poem titled The New Colossus at the Statue of Liberty still applied.

“Would you also agree that Emma Lazarus’ words etched on the Statue of Liberty, ‘Give me your tired, give me your poor,’ are also a part of the American ethos?” asked NPR’s Rachel Martin.

“They certainly are,” Cuccinelli responded.  “Give me your tired and your poor – who can stand on their own two feet and who will not become a public charge.”

The actual passage reads in part: “Give me your tired, your poor, Your huddled masses yearning to breathe free. The wretched refuse of your teeming shore.  Send these, the homeless, tempest-tost to me, I lift my lamp beside the golden door!”

In the interview, he added that immigrants are welcome “who can stand on their own two feet, be self-sufficient, pull themselves up by their bootstraps, again, as in the American tradition.”

After the host asked if the policy “appears to change the definition of the American dream,” he said: “We invite people to come here and join us as a privilege.

“No one has a right to become an American who isn’t born here as an American.”

I can’t begin to tell you how much these comments infuriated me.  But I’ll bite my tongue.

--As we all should have expected, President Trump is already pivoting in the gun control debate from enhanced background checks, post-El Paso and Dayton, to blaming it all on mental health issues, per his comments at his New Hampshire campaign rally.

--At one of his fundraisers in the Hamptons last Friday, President Trump reportedly told one of the gatherings about his remarkable friendship with North Korean leader Kim Jong Un.  “I just got a beautiful letter from him this week.  We are friends.  People say he only smiles when he sees me.

“If I hadn’t been elected president we would be in a big fat juicy war with North Korea.”

Since this comment, Kim has fired off two rounds of missiles, last weekend and today, because of his love for the president.  And as the official North Korean photos show, Kim smiled while he did so.

--Trump tweets:

“Through massive devaluation of their currency and pumping vast sums of money into their system, the tens of billions of dollars that the U.S. is receiving is a gift from China.  Prices not up, no inflation.  Farmers getting more than China would be spending.  Fake News won’t report!”

[Not true...and taxpayers are taking it up the ass.]

“Many are blaming me, and the United States, for the problems going on in Hong Kong.  I can’t imagine why?”

[No one is blaming the U.S. for the issues in Hong Kong except China.]

“The Great Charles Payne @cvpayne correctly stated that Fed Chair Jay Powell made TWO enormous mistakes. 1. When he said ‘mid cycle adjustment.’ 2. We’re data dependent.  ‘He did not do the right things.’  I agree (to put it mildly!).”

[As I noted last week, Mr. Payne is illiterate.]

“BREAKING: Documents were unsealed yesterday revealing that top Democrats, including Bill Clinton, took private trips to Jeffrey Epstein’s ‘pedophilia island.’”

“Think how wonderful it is to be able to fight back and show, to so many, how totally dishonest the Fake News Media really is. It may be the most corrupt and disgusting business (almost) there is!  MAKE AMERICA GREAT AGAIN!”

“Got to see, by accident, wacko comedian Bill Maher’s show – so many lies.  He said patients in El Paso hospital didn’t want to meet with me.  Wrong!  Had really great meetings with numerous patients.  Said I was on vacation.  Wrong!  Long planned fix up of W.H., stay here rather than...

“...cause big disruption by going to Manhattan. Working almost all of the time, including evenings.  Don’t have to be in W.H. to do that...And sooo many other false statements.  He is right about one thing, though.  I will win again in 2020.  Otherwise, he pays 95% in taxes!”

“Maggie Haberman of the Failing @nytimes reported that I was annoyed by the lack of cameras inside the hospitals in Dayton & El Paso, when in fact I was the one who stated, very strongly, that I didn’t want the Fake News inside & told my people NOT to let them in.  Fake reporting!”

Wall Street and the Trade War

The markets fell a third consecutive week, including the worst single day of the year, Wednesday, when the Dow Jones plunged 800 points, 3%, ditto the S&P and Nasdaq, on trade fears, tensions in Hong Kong, and a brief inversion of the yield curve*, normally a harbinger of recession (though at least 12 months down the road).

*The yield between the 2-year and 10-year.  There has been a weekslong inversion of the curve between the 3-month and the 10-year, which some say is an even better barometer in predicting recession.

On the data front, consumer prices in July were as expected, 0.3% on both headline and core, 1.8% the last 12 months on the former, and 2.2% year-on-year ex-food and energy.

So it was the 17th straight month the core CPI was over 2%, which mirrored the producer price data the week before.  As in inflation is hitting the Fed’s desired 2% target, so why the rush to continue to lower interest rates?

Well, the Fed would say, aside from all the global uncertainty it now feels compelled to address, let alone $16 trillion in sovereign debt with a negative yield*, it’s preferred inflation barometer, the personal consumption expenditures index (PCE) remains below 2% on core.

Separately, we had a strong reading on July retail sales, 0.7%, and 1.0% ex-autos, far better than forecast.   But industrial production in the month was worse than expected, down 0.2%.

That said, again, the retail sales figure is big because the consumer, as every first-grader knows by now, is 70% of the economy.

So we ask again, why is the Fed going to keep cutting rates?    

Lastly, July housing starts were shy of forecasts, 1.19 million annualized, continuing that sector’s run of disappointing data despite plunging mortgage rates.

Owing to the strong retail sales number, the Atlanta Fed’s GDPNow barometer for the second quarter is up to 2.2%, though this only reflects July data, and the global economy continues to slow.  The data from Germany and China, to cite two high-profile examples, is decidedly downbeat these days.

*The yields in the eurozone continue to defy logic.  Incredibly, the German bund (10-year) finished the week with a yield of -0.69%; France -0.42%; Spain 0.07%; Portugal 0.09%; Netherlands -0.57%.  Even Italy, with all its issues, and debt, saw its 10-year rally from 1.80% to 1.39% this week.  And Greece’s 10-year is down below 2.00% (1.93%).

But global markets, and the U.S., rallied in part on Friday owing to stories that Germany was ready to suspend its balanced budget rule to stimulate its economy, while China was gearing up to do the same (again).

The European Central Bank is strongly hinting it will back up the truck in stimuli come its next meeting in September.

Back to the U.S., on the budget deficit front, the gap widened further in July as federal spending outpaced revenue collection, bringing the deficit to $867 billion so far this fiscal year, a 27% increase from the same period a year earlier.

The Treasury Department said Monday federal receipts rose 3% from October through July, totaling $2.9 trillion, while outlays climbed 8%, to $3.7 trillion.  Federal revenue collection has picked up since April compared with a year earlier, but rising enrollment in Medicare and higher interest rates (until recently) have led to higher government costs on benefits and interest payments, pushing the deficit even higher despite robust economic growth that usually shrinks budget shortfalls.

Over the 12 months that ended in July, the deficit totaled $961.8 billion, or 4.5% as a share of gross domestic product.  Revenues over the previous 12 months rose 2.4%, while federal spending was up 6.3%.

Net individual taxes are up 7% since April, or $42 billion, and net corporate taxes have grown 30% since then.

Revenue from tariffs, or customs duties, also increased 75% through July, a significant boost from the same period a year earlier but just 2% of total receipts collected during that time.

The Treasury said last month it expects to borrow more than $1 trillion this calendar year for the second year in a row, as the annual budget gap is on track to exceed $1 trillion for fiscal year 2019, which ends Sept. 30.

But the deficits are going to continue rising over the coming decades as a wave of retiring baby boomers pushes up government outlays on Social Security and Medicare.

Granted, with plunging interest rates, for now, the impact of rising deficits on the ‘interest expense’ side will be somewhat ameliorated.

Turning to trade, part deux....

President Trump said on Thursday that U.S. and Chinese negotiators were holding “productive” trade talks and expected them to meet in September despite U.S. tariffs on over $125 billion worth of Chinese imports taking effect Sept. 1.

“September, the meeting is still on as I understand it, but I think more importantly than September, we’re talking by phone, and we’re having very productive talks,” Trump told reporters in New Jersey.

The president said U.S. and Chinese officials had “a very good conversation” earlier this week, before his administration delayed until Dec. 15 tariffs on over $150 billion in Chinese imports, including toys, cell phones, and laptop and tablet computers.

Of course Trump’s happy talk is all bulls---, as he desperately tries to prop up the stock market.  Instead, on Thursday, China vowed to counter the latest U.S. tariffs but called on the U.S. to meet it halfway on a potential deal, which is meaningless.

The Chinese finance ministry said in a statement that Washington’s tariffs violated a consensus reached between Trump and President Xi Jinping at their June summit in Japan to resolve their disputes via negotiation.

But it’s the same old, same old.  China wants mutually acceptable solutions, in its words, through dialogue and on the basis of equality and mutual respect...code for we’ll cut some deals on trade flows, but we aren’t reforming our system to suit you, Washington.

And wasn’t it a hoot that President Trump, who has said U.S. consumers are not paying any price whatsoever with his tariff policy, then turns around and issues a partial delay to Dec. 15 on consumer products because he wanted to spare retailers and consumers pain during the Christmas selling season.

Commerce Secretary Wilbur Ross told CNBC that there were no concessions from China in return for Trump backing off his Sept. 1 deadline for the 10% tariffs on the selected imports.

Sometimes we need to listen to those outside our country for a different perspective and on Thursday, the Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said the Sino-U.S. trade dispute is causing businesses worldwide to put off investment decisions, crimping economic activity and risking a self-fulfilling global downturn.

Debelle cautioned that the dispute over technology could prove even more damaging in the long run, forcing firms to choose between East or West rather than selling into a global market.

“On the tariff side, the prospect of a 25 percent tariff is a first-order consideration in determining whether to invest in a new factory or new machinery and where to locate that investment,” Debelle told a conference on risk.  “Businesses are waiting to see how the uncertainty resolves rather than invest.  The longer businesses hold off, the weaker demand will be, which will further confirm the decision to wait. That runs the risk of a self-fulfilling downturn.”  [Wayne Cole / Reuters]

[Australia has been largely shielded from the U.S.-China dispute because some of Beijing’s stimulus measures benefit Australian commodities, notably iron ore.]

So that’s an outside view.

Trump tweet: “We are winning, big time, against China.  Companies & jobs are fleeing.  Prices to us have not gone up, and in some cases, have come down. China is not our problem, though Hong Kong is not helping.  Our problem is with the Fed. Raised too much & too fast.  Now too slow to cut....

“....Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game!  CRAZY INVERTED YIELD CURVE!  We should easily be reaping big Rewards & Gains, but the Fed is holding us back.  We will win!”

“Good things were stated on the call with China the other day.  They are eating the Tariffs with the devaluation of their currency and ‘pouring’ money into their system.  The American consumer is fine with or without the September date, but much good will come from the short....

“...deferral to December.  It actually helps China more than us, but will be reciprocated.  Millions of jobs are being lost in China to other non-Tariffed countries.  Thousands of companies are leaving.  Of course China wants to make a deal.  Let them work humanely with Hong Kong first!”

Editorial / Wall Street Journal

“After we warned last week that U.S. trade policy was courting recession. White House aide Peter Navarro took to Fox Business to denounce us for sounding like The People’s Daily, the Chinese Communist propaganda arm.  That was novel as criticisms of these columns go, but perhaps Mr. Navarro would care to comment again after Wednesday’s recession warning from the bond and equity markets?  Are they Commies too?

“Stocks fell about 3% on the day on bad economic news out of Germany, China and the bond markets.  Europe’s largest economy shrank by 0.1% in the second quarter as exports fell amid trade and Brexit uncertainty. Chinese readings on factory production, consumption and employment also revealed an economy that is slowing sharply.  China’s industrial production increase of 4.8% was a 17-year low.

“Investors saw all that and headed for the tall grass of U.S. Treasurys.  The yield on the 10-year note hit 1.58%, dipping for a time below the two-year bond yield. The 30-year Treasury hit a record low of 2.018% and closed at 2.02%.  Yields this low show investors are moving out of risk assets and they signal slower growth ahead – and perhaps even a recession unless events and better policies spur more optimism.

“Some Trumpians are cheering the Chinese economy’s pain, but they should be careful what they wish for.  They could drive China, the world’s second largest economy, into its first recession since Deng Xiaoping began the era of pro-market economic reform.

“A Chinese recession would mean a European recession, which would send U.S. growth down too.  The impact would be worse if slower growth triggers capital flight from China and there’s a disorderly fall in the yuan.

“Mr. Navarro and President Trump spent Wednesday blaming the Federal Reserve for the market meltdown, and we suppose any scapegoat will do in a storm.  The Fed isn’t blameless, and we argued it shouldn’t have raised rates last December.  But it has since countered that rate increase with a 25-basis-point cut in July, and even another 50 basis points won’t be enough to counter a downward spiral of trade and currency mayhem.

“We’ve been warning for two years that trade wars have economic consequences, but the wizards of protectionism told Mr. Trump not to worry. The economy was fine and the trade worrywarts were wrong.

“But we never said tariffs would produce immediate recession.  We said they – and the climate of uncertainty they were creating for business – would chill global trade and undermine the surge in capital investment spurred by tax reform and deregulation.  The growth momentum from tax cuts and a strong labor market were able to mask the impact of helter-skelter trade policy for a time.  But that old economic disciplinarian, Adam Smith, sooner or later exacts a price for policy blunders....

“Call a tariff truce with China, Europe and the rest of the world while negotiations resume with a goal of reaching a deal by the meeting of Pacific nations in November.  Someone should tell Mr. Trump that incumbent Presidents who preside over recessions within two years of an election rarely get a second term.”

Europe and Asia

Eurostat issued its flash estimate on second-quarter growth for the eurozone (EA19) and it came in at just 0.2% over Q1, 1.1% year-over-year vs. Q2 2018 (Q1 was 1.2% annualized).  So the slide continues, and the news was particularly bad in Germany, where the flash estimate showed a second-quarter contraction of 0.1% [+0.4% ann.].

France was 0.2% [1.3% ann.], Italy unchanged [0.0% ann.], Spain 0.5% [2.3% ann.], and Netherlands 0.5% [1.8% ann.]

Eurostat also issued figures on industrial production in June for the EA19, down 1.6% over May; -2.6% year-over-year.

Separately, a sentiment reading in Germany was at its lowest level since 2011.

Britain reported solid wage growth of 3.7%, an 11-year high, for the three months to June, as the economy added 115,000 jobs in the second quarter, despite the Brexit uncertainty.  Speaking of which....

Brexit: Soon, Parliament returns from its recess and then all hell is going to break loose.  Prime Minister Boris Johnson has vowed that while he wants a new deal with the European Union, he insists he is taking the U.K. out of the EU by Oct. 31 “do or die.”

Johnson has accused MPs “who think they can block Brexit” of a “terrible collaboration” with the EU, increasing the likelihood of the U.K. being “forced to leave with a no-deal.”

To beat a dead horse, and I hate to keep repeating myself but the facts are what they are, the EU maintains the agreement struck by Theresa May is the only deal possible, but that’s the deal rejected on three occasions by Parliament.

Johnson said this week “we need our European friends to compromise.”  But they don’t have to compromise at all.

Former Chancellor Philip Hammond said Johnson’s negotiating stance increased the chance of a no-deal exit which would be “just as much a betrayal of the referendum result as not leaving at all.”

No. 10 Downing Street accused Hammond of undermining the U.K.’s negotiating stance, and said he “did everything he could” to block preparations for leaving while he was in office.  Hammond countered he wanted to deliver Brexit “and voted to do so three times.”

Johnson also wants the EU to ditch the critical Irish border backstop plan from the deal struck between Mrs. May and the bloc, but the EU insists on it – the guarantee there will be no hard Irish border after the divorce.

Many of those who previously voted against the deal had reservations over the backstop, afraid that it would align Northern Ireland with the EU, essentially, forever, in tying it to rules of the EU.  The backstop also keeps the U.K. in a single customs territory with the EU until both the EU and U.K. agreed they were no longer necessary.

But you can’t just remove the backstop as Boris Johnson is arguing for.

A no-confidence vote is likely to be held when Parliament returns in September.

Meanwhile, Labour leader Jeremy Corbyn has urged the leaders of the opposition parties and Tory rebels to install him as caretaker PM in order to stop a no-deal Brexit.  Corbyn has vowed if he wins a no-confidence vote, he’ll delay Brexit, call a snap election and campaign for another referendum.

But Liberal Democrat leader Jo Swinson said she would not support making Corbyn prime minister.  Swinson said Corbyn is too divisive and doesn’t command respect on both sides of the House, while saying her party would work with others to stop a no-deal exit, preferably through legislation.

But Boris Johnson has refused to rule out suspending Parliament until after Britain leaves the EU and aides have reportedly said he could delay any election until November if he lost a vote of no confidence.

Gee, do you think this last point would create a bit of chaos?  I do.

Italy: Right-wing League leader Matteo Salvini’s drive for early elections is likely to be held up in the Senate with parliamentary party leaders failing to decide when the Senate should debate his no-confidence motion in the government, which, today, would likely trigger the downfall of Prime Minister Giuseppe Conte.

Salvini, now interior minister in his year-old coalition with the anti-establishment 5-Star Movement, wants to capitalize on his rising poll numbers and hold a new election that could see him emerge as prime minister.

But the 5-Star and many opposition lawmakers are furious with Salvini’s maneuvering and want to slow his charge to the ballot box.

5-Star leader Luigi Di Maio said on Facebook, “You will see that Italians will make the League pay for the stab in the back it has dealt Italy.”

Salvini may yet forge a pact with former center-right prime minister Silvio Berlusconi, who leads Forza Italia (Go Italy).  But Salvini is anti-EU and Berlusconi is pro-European.

Salvini’s proposal to run bigger budget deficits, through increased spending to juice the economy, runs afoul of EU rules on fiscal discipline.

Turning to Asia....

As alluded to above, China’s July data on industrial production showed an increase of only 4.8% from a year earlier, the slowest pace in 17 years.  Fixed-asset investment for the first seven months of the year was 5.7%.  Retail sales rose 7.6% last month, year-over-year.  All three figures were down over June and less than expected.

Meanwhile, Hong Kong’s government released figures today that showed GDP growth fell 0.5% in the second quarter year-on-year.  Worse could be yet to come.

In Japan, June machinery orders showed their biggest rise since data became available in 2005, as cap-ex remains resilient amid the trade frictions, including with South Korea.  Spending on the 2020 Tokyo Olympics helps.

But we still have the October sales tax looming on the consumption side.

Street Bytes

--Stocks fell a third straight week, with the Dow Jones down 1.5% to 25886, off 5.5% from its high, while the S&P 500 lost 1% (4.6% from its record close), and Nasdaq declined 0.8% (off 5.2% from its high-water mark).

Earnings estimates for the balance of 2019 have been coming down, with FactSet showing S&P eps will rise only 1.5% for the year, down from January’s 6% forecast.  A slew of companies have been issuing downbeat guidance, such as Cisco Systems and Deere below, largely because of the trade issue.  For the second quarter, earnings will end up having risen 2.5% to 3%.

--U.S. Treasury Yields

6-mo. 1.84%  2-yr. 1.48%  10-yr. 1.55%  30-yr. 2.04%

The yield on the 30-year bond fell to a record low on Wednesday, down to 1.97% at one point before closing at 2.038%, a record low, compared with Tuesday’s 2.13%.  Back in November, it was at 3.454%, a multiyear high.  It finished the week at 2.04%.

The yield on the 10-year closed at 1.596% Wednesday, its lowest since September 2016, and then finished the week at 1.55%.

Next week, Fed Chairman Jay Powell gives a speech at the annual Jackson Hole, Wyoming, policy symposium.

--Oil prices fell on Wednesday after the downbeat economic news from China and Germany fueled fresh worries about a slowdown in global growth.  Also, the Energy Information Administration figures showed a second consecutive weekly increase in stockpiles, with inventories now 3% above their five-year average for this time of year, indicating there is plenty of crude available.

By Friday, though, West Texas Intermediate had inched up to $54.93, a slight gain on the week, though well off the $62.71 close of three months ago.

--Shares in General Electric cratered Thursday after Harry Markopolos, whistleblower in the Bernard Madoff Ponzi scheme case, alleged that company financial filings masked the depths of its problems.

Markopolos, in a lengthy research report, accused GE of hiding $38.1 billion in potential losses and claimed that the company’s cash situation was far worse than disclosed in its latest annual regulatory filing.

“GE’s true debt to equity ratio is 17:1, not 3:1, which will undermine its credit status,” said Markopolos, adding that the company’s liquidity situation was “more serious than either the Enron or WorldCom accounting frauds.”

In response to the report, GE said it “stands behind its financials” and operates to the “highest-level of integrity” in its financial reporting.  GE said in a statement that Markopolos is known to work for unnamed hedge funds that typically benefit from short selling a company’s stock.  “We remain focused on running our business every day and...will not be distracted by this type of meritless, misguided and self-serving speculation.”

Markopolos wrote the report on behalf of an undisclosed hedge fund that is indeed shorting the stock and he stands to profit off the hedge fund’s gains, per disclosure forms that came attached to the report.  He submitted his findings to the SEC and said he could also profit if a financial penalty is levied on the company.

Markopolos’ fraud allegations center on GE’s long-term health care reinsurance units, a part of GE Capital, which he says the company failed to fund adequate reserves to offset future long-term care liabilities, despite booking decades of premiums as “earnings” when its policy holders were young and not filing claims.

“GE’s LTC losses will continue rising at an exponential rate until it either files for bankruptcy protection or finds some way to out-earn its LTC liabilities,” Markopolos wrote.

Later Thursday, GE blasted the report as “market manipulation.”

“GE will always take any allegation of financial misconduct seriously. But this is market manipulation – pure and simple,” CEO Lawrence Culp added.

But the stock experienced its biggest percentage drop since 2008.  It then recovered much of this Friday as CEO Culp purchased nearly $2 million in shares.

--Boeing Co. pushed back the entry into service of an ultra-long-range version of its forthcoming 777X widebody, as it grapples with fallout from the 737 MAX crisis and engine issues with the 777X.

These delays have pushed the first flight of the 777-9 into 2020, which impacts Boeing’s ability to provide a plane in line with the schedule for Qantas Airways’ plan for 21-hour non-stop Sydney-London flights, which the Australian airline has been targeting for 2023.

The 350-seat 777-8 model revised for ultra-long-range flights had originally been scheduled to enter service in 2022 after the arrival of the 777-9 in 2020.

To date, Emirates and Qatar Airways are Boeing’s only customers for the 777-8, having ordered 35 and 10 respectively.

Separately, owing to the grounding of the 737 MAX, Boeing delivered fewer planes in July than in any month for the past decade.

Boeing’s deliveries for the year through July totaled 258 planes, down from 417 in the same period a year earlier and the smallest number for that time frame since 2007.  Just 19 planes were delivered in July, the lowest monthly delivery count since Nov. 2008, during the financial crisis.

By comparison, Airbus SE shipped 458 planes in the first seven months of 2019, meaning it will surpass rival Boeing as the world’s biggest aircraft manufacturer on the year.

While Boeing is still trying to convince everyone the MAX will be back in the air by the end of the year, most airlines and regulators have said it will take longer for the plane to be cleared pending fixes to its software.

More than 150 undelivered MAX jets are parked at sites around the U.S., along with the 380 in airlines’ hands that were grounded by regulators in March.

--Cathay Pacific shares were slammed on Monday after Beijing told the airline to bar staff who had taken part in “illegal” protests in Hong Kong from flying on routes into mainland China.

China’s aviation authority ordered the carrier to take crew off flights into China if they had participated in or supported protests against the Hong Kong government’s extradition bill, citing safety concerns.  Cathay Pacific, the flag carrier of Hong Kong, said it would comply with the directive.

But understand, Cathay flights passing through Chinese airspace, such as those to Europe, must submit a list of crew for approval with the Civil Aviation Administration of China.

Protests have hit inbound traffic and future bookings for Cathay.  The airline’s shares hit a 10-year low.

Last week, after the Chinese government learned some Cathay staff took part in demonstrations, the Chinese Communist Party mouthpiece Global Times warned that the company would “pay a painful price.”

Today, the CEO of the airline, Rupert Hogg, resigned, saying he was taking responsibility for these “challenging weeks.”

The bullying of Cathay is telling.  And a warning to all commerce in Hong Kong.

--Walmart Inc. posted higher second-quarter sales and raised its profit outlook, extending a multiyear streak of growth as the company continued to take market share from its struggling competitors and expands online.

Comp store sales grew a solid 2.8%, with e-commerce revenue rising 37% from a year earlier.

CEO Doug McMillon said in a statement: “We’re gaining market share. We’re on track to exceed our original earnings expectations for the year.”

The retail giant now expects growth in U.S. same-store sales for the full year to be in the 2.5% to 3% range.  Walmart’s shares rose 6% in response.

Other leading retailers, including Target Corp., Home Depot and Lowe’s report next week.

--Meanwhile, Macy’s Inc. slashed its full-year earnings forecast on Wednesday after missing estimates for quarterly profit for the first time in at least two years, as it discounted merchandise heavily to clear spring inventory, sending its shares down 17% to nearly 10-year lows.

The largest U.S. department store operator, whose flagship building in Manhattan is a major tourist attraction, blamed a bigger-than-expected decline in tourist spending for the shortfall along with weak demand for its own-brand women’s sportswear and for warm weather apparel.

Tourist arrivals to the U.S. have taken a hit in the past year, hurt by a stronger dollar and the trade tensions between Washington and Beijing, which has had an impact in the number of Chinese visiting the country; down nearly 3%* in the first six months of the year, according to the National Travel and Tourism Office.

*Estimates of the decline of Chinese tourism to New York, however, are far greater.

Macy’s has struggled mightily in today’s fiercely competitive retail landscape where shoppers are buying more goods online.  But the 160-year-old company is pumping money into projects such as remodeling its stores and building up its off-price and online businesses. 

The trade war, though, is impacting business in terms of Macy’s having to work with vendors and suppliers to mitigate tariffs and minimize the customer impact in 2019 as much as possible.

As analysts have pointed out, while the Trump administration delayed the 10% tariffs on some Chinese goods until Dec. 15, this impacts less than 20% of the categories on the original latest list of tariffs.

So Macy’s lowered its 2019 adjusted profit guidance, with margins falling due to steep markdowns.  Net sales of $5.55 billion were largely in line with estimates, while same-store sales rose 0.3%, which is actually OK.

But Macy’s shares have now declined about 35% this year.

--Cisco Systems issued a disappointing outlook as fiscal fourth quarter results (ending July 27) were basically in line with expectations, revenue of $13.43 billion, up 5% from a year earlier, and profits a penny above forecast, with full-year revenue up 7% at $51.7 billion.

But Cisco sees revenue for the current quarter as flat to up 2% compared with a year earlier, which implies revenue below the Street consensus.  The networking giant also sees profit below current estimates.

Cisco reported revenue was down 4% in Asia Pacific, Japan and China*, but up 9% in the Americas and 7% in Europe, the Middle East and Africa.

*Cisco said its China business plunged 25%, as state-owned enterprises favored local companies.  This should be no surprise to you all.

But in a statement, CEO Chuck Robbins said the overall results “marked a strong end to a great year.”  He said the company is “executing well in a dynamic environment, delivering tremendous innovation across our portfolio and extending our market leadership.”

Late today, we learned Cisco is cutting close to 500 jobs in San Jose and Milpitas, California, according to data the company provided to the state’s Employment Development Department.  397 of the jobs are at the San Jose headquarters.

--Deere & Company reported fiscal third-quarter adjusted earnings of $2.71 per share, up from $2.59 in the same period a year ago but missing the Street’s forecast of $2.84.

Total revenue for the quarter ending July 28 was $10.04 billion, down from $10.31 billion last year though topping estimates.

The company expects equipment sales to increase by about 4% for fiscal 2019 compared with 2018, revised from a prior expectation of a 5% increase, citing the U.S.-China trade war.

CEO Samuel Allen said: “Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases.”

In response to weak equipment demand, in May, Deere had announced a 20% production cut at its factories in Illinois and Iowa.  On Friday, the company said it was reviewing its cost structure and initiating a series of measures to remain profitable.  Because of this last announcement, the stock rose 4%, as is Wall Street’s wont. 

--After splitting in 2005, CBS and Viacom are getting back together again to form a new company, ViacomCBS Inc., the deal subject to regulatory approvals.

Viacom owns Paramount Pictures and pay TV channels such as Comedy Central, MTV and BET, while CBS has a broadcast network, television stations, Showtime and a stake in The CW over-the-air network.

CBS was one of the first media companies to launch its own streaming service, CBS All Access.  The $6-a-month service now has a new “Star Trek” series, a revival of “The Twilight Zone” and archives of old and current broadcast shows.  CBS says All Access and its Showtime streaming services have 8 million subscribers combined.

Analysts are bullish the reunion will help both companies navigate the ever-competitive streaming landscape.

Viacom CEO Bob Bakish will become CEO of the combined company.  CBS shareholders will own about 61% of the combined company and Viacom shareholders will own 39%.

But the combined company, with a market value of about $30 billion, pales next to Disney’s nearly $245 billion and Netflix at $136 billion (as of early this week).

--Global investment banks have been shedding tens of thousands of jobs, almost 30,000 since April, as a result of falling interest rates, weak trading volumes and the march of automation.

HSBC, Barclays, Societe Generale, Citigroup and Deutsche Bank have been particularly hard hit.

In New York City, according to the state Department of Labor, some 2,800 positions in commodity and securities trading have been lopped off.

It doesn’t help when, globally, you have the above-noted $16 trillion in sovereign debt with negative interest rates. Tough to make money in such an environment.

Ed Firth of Keefe, Bruyette & Woods, said investment banks “are facing a structural change in their revenue profile. The [banks] that will win have the volumes, systems and computer power.  How many people do you need?”

Banks are also bracing for the so-called “Basil IV” rules, which will increase banks’ capital requirements, to take effect in 2022. The increased capital will impact trading, and the potential for profits, as well.  [Robert Armstrong / Financial Times]

--Indian vehicle sales fell more than 30 percent in July vs. a year ago as the economic slowdown in the country intensifies.  Passenger vehicle sales fell 31 percent, the largest decline since the turn of the millennium, according to the Society of Indian Automobile Manufacturers.  This is highly disappointing considering that India was viewed as the most promising car market in the world.

As I reported earlier, China vehicle sales fell 14 percent in the first half of this year.  So two big hurting markets.

But the India numbers actually play into geopolitics, as I’ll note down below.

--Argentina’s stock market was rocked by its steepest fall in decades amid investor concerns following a primary election that saw pro-business President Mauricio Macri dealt a resounding defeat against Alberto Fernandez, a leftist whose vice-presidential running mate is former President Cristina Kirchner, a firebrand nationalist;

Macri received just 32% versus 48% for Fernandez, part of the country’s populist Peronist movement, which advocates greater state control of the economy and opposes a landmark trade deal with the European Union.

So now it appears Fernandez could win a first-round victory in October’s general election.  The massive losses suffered in the both the peso and the stock market (down 38%! on Monday...and 31% for the week), make it harder for Macri to build his case for holding on to power.

Every time Argentinians appear to be on the verge of breaking out, they do something stupid.

--Despite the record flooding in the Midwest and Corn Belt this spring, the U.S. Agriculture Department has been upping its estimate of agricultural plantings and production, especially for corn production, now forecast at 13.901 billion bushels in the 2019-2020 year, up from prior forecasts, while soybean production was projected to be 3.68 billion bushels, down from 3.845 billion last month.

Corn and wheat prices fell on the news.

The USDA confirmed in late July that it would nonetheless deploy $16 billion in government funds to aid farmers hurt by the trade conflict; the payments ranging between $15 and $150 an acre.  [I forgot to register my master bedroom as a soybean farm...once again missing out on extra income.]

Wheat was less affected by weather, but, globally, the USDA expects a smaller wheat crop than prior forecasts.

--Over 3,800 workers at Tyson Foods’ meat-processing plant in Kansas were out of work after a fire last weekend caused significant damage. The company said on Sunday it will provide them “some guaranteed pay.”  There were no details on the cause of the fire or the extent of the damage.

As for the cattle designated for slaughter, well, not sure what happens to them.  Just a lot of milling around, I assume.  [If they have to be moved to another facility, that’s a big cost for Tyson.] 

--New York’s Department of Financial Services said it would allow insurers selling health plans to individuals to raise their rates by 6.8% on average for 2020, a reduction of about one-quarter from the 9.2% insurers requested from the state in May.  Last year the state granted an average increase of 8.6% in the individual insurance market.

--Bayer AG is proposing to pay as much as $8 billion to settle more than 18,000 U.S. lawsuits alleging its Roundup herbicide causes cancer, according to people familiar with the negotiations.

Any agreement will take months to work out, but it would ease investor pressure over massive litigation exposure the German drug and chemical giant took on with its purchase of the weedkiller’s maker, Monsanto Co.

Bayer has lost more than $30 billion in market value in the fallout.  Plaintiffs’ lawyers are seeking more than $10 billion to drop their claims.  At least there does appear to be progress in the talks.

Foreign Affairs

China and Hong Kong, cont’d: China’s ambassador to London said on Thursday, China will use its power to quell Hong Kong protests if the situation deteriorates further after some protesters have shown signs of terrorism.

“Should the situation in Hong Kong deteriorate further...the central government will not sit on its hands and watch,” ambassador Liu Xiaoming told reporters.  “We have enough solutions and enough power within the limits of (the) Basic Law to quell any unrest swiftly,” Liu said.  “Their moves  are severe and violent offenses, and already show signs of terrorism.”  Liu added: “The central government of China will never allow a few violent offenders to drag Hong Kong down a dangerous road, down a dangerous abyss.”

The Basic Law refers to the 1997 changeover from British to Chinese rule after Hong Kong had been government by Britain since 1842.

Liu Xiaoming is a key spokesman of the Chinese government in this crisis and he accused unidentified foreign forces of fomenting violent protest.  “Foreign forces must stop interfering in Hong Kong affairs,” he said, adding, “evidence shows the situation would not have deteriorated so much had it not been for the interference and incitement of foreign forces.  Hong Kong is part of China.  No foreign country should interfere in Hong Kong’s internal affairs.”

Liu also accused Western media of being unbalanced in their reporting.

As alluded to above, thousands of paramilitary police have moved into a sports stadium in a residential district of the southern Chinese border city of Shenzhen, a show of force to Hong Kong, five miles away.

Some analysts are pointing to October 1 – the 70th anniversary of the founding of the People’s Republic – as a key date in terms of setting a narrative, at least from the standpoint of Beijing.

Daniel Henninger / Wall Street Journal

“Walking across the White House lawn a few weeks ago on his way to an event in Ohio, President Trump was asked by a reporter about the protests in Hong Kong. They have been constant since June, when authorities were about to pass a law that would have allowed Hong Kong residents and even foreign nationals to be extradited to the mainland for prosecution under China’s legal system.

“ ‘Hong Kong is a part of China,’ Mr. Trump said.  ‘They’ll have to deal with that themselves.’

“This off-the-cuff remark by the president reflects the idea that the U.S. can’t be expected to solve all the world’s problems, a view sometimes summarized as America First. As well, Mr. Trump has been trying to negotiate a trade deal with Chinese President Xi Jinping.

“Mr. Trump no doubt thinks the Hong Kong protesters matter in some sense, but supporting them would put his one-to-one relationship with Mr. Xi and the trade deal at risk, and so ‘they’ll have to deal with that themselves.’

“Be that as it may, one cannot help but wonder why these Hong Kong protests simply won’t stop. The protesters aren’t stupid.  None of them want to be beaten bloody by the police or thrown for years into a Chinese prison.  They know that if Xi Jinping merely nods his head, they’re going to be crushed.  Yet day after day they keep showing up.

“By coincidence, a similar protest took place Saturday in Moscow for the fifth straight weekend.  Some 50,000 Russians took to the streets, as they have recurrently during the presidency of Vladimir Putin.

“The weekend’s images from Hong Kong and Moscow were also eerily similar: Police in helmets and often thick, black jackets beat protesters with batons and dragged them to police wagons.

“As in Hong Kong, the Russian protesters know the stakes are high. Some of their opposition leaders, such as Boris Nemtsov, have ended up dead....

“(It is hard) to see these massive, daily protests in Hong Kong and not recognize that they really are about one word: freedom....

“Does Hong Kong matter?  Ultimately and unhappily, the Hong Kong protesters may get not much more than admiration from the rest of the world.  But we would do well to stare hard into those faces filling screens and think about the implications of their all-or-nothing fight for freedom.

“Hardly any of them look older than 25.  In Moscow last weekend, a young woman said, ‘I am 20 years old, and in my entire life there has not been a single day of freedom.’  Virtually no one living in the hyperpoliticized U.S. has to think that on any day of their lives.

“Freedom is normally discussed in the contest of mass movements or revolutions such as ours in America long ago.  Let freedom ring.  Yet a better understanding of the impulse for freedom is not primarily as the force behind mass movements but as a basic human instinct, like breathing.  Let me first be free, and then, yes, we can deal with the rest ourselves....

“The individual impulse toward freedom was the reason many voted for the improbable Trump candidacy in 2016.  People were feeling increasingly hemmed in by their government and the prevailing culture – told too often what they should do and how they should think about the most personal matters.

“Others thought voting for Mr. Trump was irrational. But like the Hong Kong protesters, choosing a seemingly irrational course looked to many in the U.S. like the best available bust-out option. That’s what Brexit is, too – an arguably irrational lunge for freedom.

“Mr. Trump and his supporters, however, should recognize that it isn’t going to be possible to put a fence around freedom....

“Yes, we ‘don’t do nation-building anymore.’  But when nations start to collapse – as in Central America, Africa or the Middle East – or when governments in places like China or Russia try to impose smothering systems on people, eruptions and flows of individuals seeking freedom will be inevitable.

“It’s complicated, there are practical limits, and national self-interest matters.  But will they really ‘have to deal with that themselves’?  The United States, of all places, can do better than that.  Hong Kong matters.”

North Korea: Today, Pyongyang launched at least two more short-range ballistic missiles off their east coast, after the North described South Korea’s president as “impudent” and vowed that inter-Korean talks are over.

So the North’s protestations against joint U.S.-South Korea military drills, largely computer-simulated, which kicked off last week, continue, as Pyongyang labels them a rehearsal for war.

This was the sixth round of missile launches in just weeks.  The denuclearization talks between Kim Jong Un and President Trump have been stalled despite a commitment to revive them made at the June 30 Trump-Kim meeting at the DMZ.

But what was a bit worrisome Friday was the language used by the North against South Korean President Moon Jae-in, who has been pursuing talks with Pyongyang.  Instead, an unidentified spokesman repeated criticism of the joint drills as a sign of Seoul’s hostility toward the North.

“We have nothing to talk any more with the South Korean authorities nor have any idea to sit with them again,” a statement said, carried by the official KCNA news agency.

Moon and Kim have met three times since April last year, pledging peace and cooperation, but little progress has been made to improve dialogue and strengthen exchanges.

In a Liberation Day address on Thursday, Moon said in a speech marking Korea’s independence from Japan’s 1910-45 colonial rule: “In spite of a series of worrying actions taken by North Korea recently, the momentum for dialogue remains unshaken.”

But the North’s spokesman described Moon as an “impudent guy” who is “overcome with fright.”

Separately, North Korea reacted to U.S. Defense Secretary Mark Esper’s statement that he was in favor of placing ground-launched, intermediate-range missiles in Asia, a day after the U.S. withdrew from the Intermediate Nuclear Forces (INF) Treaty with Russia.

The North’s KCNA news agency put out a statement: “The U.S. pointed out that it is now examining a plan for deploying ground-to-ground medium-range missiles in the Asian region and South Korea has been singled out as a place for the deployment. It is a reckless act of escalating regional tension, an act that may spark off a new Cold War and arms race in the Far Eastern region to deploy a new offensive weapon in South Korea.”

U.S. officials have said such a deployment is years away.

Russia: The Kremlin on Tuesday shrugged off five weeks of street protests in support of free elections in Moscow, saying the situation had not warranted comment from President Putin and voicing strong support for the tough police response. 

The demonstrations over a planned election for the Moscow city legislature in September have turned into the biggest sustained protest movement in Russia since 2011-2013, when protesters took to the streets against perceived electoral fraud.

Kremlin spokesman Dmitry Peskov told reporters, “We do not agree with those many people who call what is happening a political crisis,” while adding cases of police excess as well as alleged violence by protesters against police were being looked into.

“We believe firm action by law enforcement to curb public unrest was absolutely justified,” Peskov said.

The ruling United Russia party’s popularity rating is at its lowest since 2011 and Putin’s own personal rating has also declined due to discontent over falling living standards.  However, at well over 60%, it is still high compared to other world leaders.

Reminder, Putin’s current term doesn’t end until 2024.

Separately, the Kremlin also boasted on Tuesday that it was winning the race to develop new cutting edge nuclear weapons despite a mysterious rocket accident last week in northern Russia that caused a temporary spike in radiation levels.

Rosatom, Russia’s state nuclear agency, admitted that the Aug. 8 accident occurred during a rocket test on a sea platform in the White Sea, killing at least five.

But it seems this was a test of a nuclear-powered cruise missile that President Putin first touted last year.

The thing is, as we are learning through this failed test, it’s one thing to fire a ballistic missile with a nuclear warhead on top.  It’s quite another to have a nuclear reactor on a cruise missile, traveling hundreds and thousands of miles over ground.  And it’s not like you can guarantee this flying reactor will be accurate....as has already been proven.  I mean think about it.  This is nuts!

And as for this latest accident, the response from the Kremlin has been ripped out of the Chernobyl playbook.  There is a growing body of thought that it was far more serious than we were first led to believe in terms of the radiation risk.

Iran: U.S. Secretary of State Mike Pompeo warned in a Twitter post on Monday that the duration of UN sanctions on Iran is about to end.

“The clock is ticking.  Time remaining before the UN arms embargo on Iran expires and Qasem Soleimani’s travel ban ends,” Pompeo tweeted, sharing a clock that counts down the time until the UN sanctions expire, a little over a year and 3 months.

Pompeo urged “our allies and partners to increase the pressure on the Iranian regime until it stops its destabilizing behavior.”

Syria: Editorial / Washington Post

“Among President Trump’s many fanciful thoughts, consider his declaration last month of victory over the Islamic State.  ‘We did a great job,’ he said.  ‘We have 100 percent of the caliphate, and we’re rapidly pulling out of Syria. We’ll be out of there pretty soon. And let them handle their own problems. Syria can handle their own problems – along with Iran, along with Russia, along with Iraq, along with Turkey. We’re 7,000 miles away.’

“Consider, too, the chaos caused by Mr. Trump’s abrupt announcement in December of a pullout of troops from Syria, which led to the resignation of Defense Secretary Jim Mattis.  ‘We have won against ISIS,’ Mr. Trump said in a video on Twitter, adding, ‘Our boys, our young women, our men – they’re all coming back, and they’re coming back now.’  He added, ‘We won, and that’s the way we want it, and that’s the way they want it,’ he said, pointing a finger upward, referring to U.S. troops who had been killed in battle.

“Now consider the conclusions of the recently released inspector general’s report to Congress on Operation Inherent Resolve, the U.S. military campaign against the Islamic State. The lead inspector general, Glenn A. Fine of the Defense Department, reports that although the group lost territory, from April through June it was ‘resurging in Syria,’ and ‘solidified its insurgent capabilities in Iraq.’  The report draws on information from U.S. military commanders who say the Islamic State is coming back in part because ‘the Iraqi Security Forces (ISF) and U.S.-backed Syrian Democratic Forces (SDF) remain unable to sustain long-term operations against ISIS militants.’

“The report says the Islamic State has moved underground; retains 14,000 to 18,000 members; ‘is likely reestablishing financial networks’ in both Iraq and Syria; ‘maintains an extensive worldwide social media effort to recruit fighters’; and has carried out asymmetric attacks using a ‘more stable’ network for command-and-control and logistics.  The report quotes military leaders as saying that the United States has been drawing down just when allies needed more help with training, equipment and developing better intelligence. The drawdown hurt the United States’ ability to secure and monitor the sprawling al-Hol displacement camp in northeastern Syria, where thousands of Islamic State families reside, military leaders told the inspector general.  The camp is a major source of recruits for the group, which, U.S. commanders said, is taking advantage of the drawdown to recruit new members.

“In the recent presidential debates, some Democratic candidates also vowed to pull back from the ‘endless wars.’  It is true that voters are fatigued from the Iraq and Afghanistan conflicts. But withdrawal must be careful, not hasty.... Threats still exist in the burning embers of the Syrian war and the Islamic State caliphate, and it would be far better for the president and his challengers to address the world as it is, rather than to engage in wishful thinking.”

Israel: President Trump tweeted Thursday: “It would show great weakness if Israel allowed Rep. Omar and Rep. Tlaib to visit. They hate Israel & all Jewish people, & there is nothing that can be said or done to change their minds.  Minnesota and Michigan will have a hard time putting them back in office. They are a disgrace!”

It was an extraordinary call for an American president to make, and equally extraordinary that Israeli Prime Minister Benjamin Netanyahu, after a contentious Cabinet meeting, decided to bar Omar and Tlaib from entering the country today.

The reason cited for their ban was “suspected provocations and promotion of BDS,” a reference to the anti-Israel boycott movement. 

The freshman lawmakers – the first two Muslim women elected to Congress and two of Israel’s sharpest critics – have voiced support for the pro-Palestinian Boycott, Divestment, Sanctions movement against the Jewish state.

But then Friday, Israel backed down some, allowing Tlaib, who is of Palestinian heritage, to make a special humanitarian visit to her family in the occupied West Bank; only Tlaib then rejected the offer.  Tlaib said she could not comply with the “oppressive conditions” being imposed.

The Israeli government had said she could go ahead with a private visit after she agreed “not to promote the boycott of Israel during her stay.”

Israel media published Tlaib’s letter, which said: “I would like to request admittance to Israel in order to visit my relatives, and specifically my grandmother, who is in her 90s.

“I will respect any restrictions and will not promote boycotts against Israel during my visit.”

But then she issued a series of tweets today, saying in one, “Silencing me & treating me like a criminal is not what she (the grandmother) wants for me....I have decided that visiting my grandmother under these oppressive conditions stands against everything I believe in.”

In response, Israeli Interior Minister Aryeh Deri said: “Last night, she sent me a letter asking her to allow her to visit her 90-year-old grandmother ‘because this could be my last chance to meet her.’

“I approved it on humanitarian grounds, but it turns out that it was a provocation to embarrass Israel.  Her hatred for Israel overcomes her love for her grandmother.”

To which we all just throw up our arms and say, “WTF?!”

But I have to complete the narrative that led up to this moment.

Under Israeli law, backers of the BDS movement can be denied entry to the country, but Israeli Ambassador to the U.S., Ron Dermer, last month said the two congresswomen would be allowed in out of respect for the U.S.-Israeli relationship.

So President Trump was unhappy over the original decision not to bar them.

Critics said Israel’s first move was counterproductive and could damage the country’s international image.  The Israel Policy Forum, a group focused on building support in the U.S. for a two-state solution, said it was an “insult” to Congress and would create a “dangerous precedent.”

“Any sitting member of Congress should be welcome to visit Israel as official representatives of Israel’s closest ally and most critical source of international support,” the forum said in a statement Thursday.

The group said it disagrees with Omar and Tlaib on many issues but “the best way to demonstrate to them that they should reconsider their stances is for them to see Israel and the challenges it faces firsthand.  Denying them entry can only serve to harden their current views, along with delivering an insult to the U.S. Congress, exacerbating partisan divides on Israel, and creating a dangerous precedent.”

Pro-Israel group AIPAC said it has differences with Omar and Tlaib, but Israel should nonetheless allow sitting members of Congress to enter the country and see it for themselves.

House Speaker Nancy Pelosi said Israel’s decision to bar Omar and Tlaib was “deeply disappointing” and called on it to reverse the move.  “Israel’s denial of entry...is a sign of weakness, and beneath the dignity of the great state of Israel.”

Republican Sen. Marco Rubio tweeted that while he disagrees with Tlaib and Omar, “denying them entry into #Israel is a mistake.  Being blocked is what they really hoped for all along in order to bolster their attacks against the Jewish state.”

Trump later tweeted: “Representatives Omar and Tlaib are the face of the Democrat Party, and they HATE Israel!”

Editorial / Los Angeles times

“Last we checked, both the United States and Israel were democracies – and allies.  Yet on Thursday the leaders of both countries sounded more like crazy autocrats with a penchant for silencing their critics.  Israeli Prime Minister Benjamin Netanyahu’s decision to prohibit U.S. Reps. Ilham Omar (D-Minn.) and Rashida Tlaib (D-Mich.) from entering Israel on an official congressional visit not only smacks of tin-pot authoritarianism, it elevates his critics.

“Netanyahu justified his shameful decision by citing a recent bit of daft legislating, an Israeli law prohibiting foreign nationals who back boycotts against Israel or its West Bank settlements from entering the country. That’s bad enough.  Even more outrageous is that President Trump appears to have goaded Netanyahu into making this decision.

“Not content to call for Omar and Tlaib...to leave the United States, Trump has been pressing Israel publicly not to let them into that country.... ‘They are a disgrace!’

“The only disgrace here is Trump’s behavior.

“In his statement, Netanyahu said: ‘As a vibrant and free democracy, Israel is open to all its critics and  criticism, with one exception: Israeli law prohibits the entry of people who call and operate to boycott Israel.’  A real, vibrant democracy, however, isn’t afraid to engage its critics.  Unable to form a government and facing an election next month, Netanyahu is under pressure to shore up his profile among his right wing supporters. But playing to his base with strong-arm tactics is an affront to democracy.”

Well in the end, any advantage Tlaib gained for her party vs. Republicans, and Trump, she just threw away, it seems. 

India / Pakistan: Indian Prime Minister Narendra Modi trumpeted his abolition of Kashmir’s special status in an Independence Day speech on Thursday, but there was little sign that he had won over people in the region’s biggest city – and a deadly border clash with Pakistan added to tensions.  Modi said the constitutional status of Jammu and Kashmir had encouraged corruption and nepotism, while creating injustice for women, children and minority communities.  Indian-controlled Kashmir, India’s only majority-Muslim region, is also claimed by Pakistan.

Critics say Modi’s policy will trigger a backlash from Kashmiris aggrieved by losing their exclusive right to buy property in the state and to fill state government jobs.  In a clampdown in the region over the past two weeks, authorities have cut internet and phone links, set up numerous roadblocks and detained more than 500 local leaders and activists.

In Kashmir’s biggest city, Srinagar, India tightened security for an Independence Day parade that few locals attended.

Modi has claimed the change of status for Kashmir would bring prosperity and development and help to make the region a hub for tourism and industry.

But as I noted above, India’s economy is struggling, and by playing the popular “nationalism” card  in Kashmir, Prime Minister Modi is no doubt trying to deflect attention from the fact his economic miracle is showing signs of flaming out.

Afghanistan: President Ashraf Ghani said last Sunday that peace would come to Afghanistan, but he appeared to question an expected deal between the United States and the Taliban, saying his nation would decide its future, not outsiders.  Remember, Ghani and his U.S.-backed government hasn’t been involved in the negotiations, which I have found startling.

Any pact will probably include a Taliban commitment to open power-sharing talks with the Afghans, but is not expected to include a Taliban ceasefire with the government.  Not that a ceasefire would hold anyway.

Canada: Prime Minister Justin Trudeau and officials in his government improperly tried to influence a corporate legal case, Canada’s top ethics watchdog said on Wednesday in a politically damaging assessment that will hurt Trudeau and his chances for winning October’s general election.

This goes back to the case of construction giant SNC-Lavalin Group Inc., and the Trudeau team’s attempt to circumvent, undermine and discredit a decision by federal prosecutors that the company should face trial on corruption charges.

While the watchdog’s decision is politically damning, it carries no legal implications.  It’s just that Trudeau’s image has been battered.  He is the first Canadian prime minister found to have broken ethics rules.

Random Musings:

--Presidential tracking polls....

Gallup: 41% approval of President Trump, 54% disapproval; 88% Republicans, 37% independents (Aug. 1-14).
Rasmussen: 46% approval, 52% disapproval.

--A national poll conducted by YouGov for The Economist shows Elizabeth Warren surging into a statistical tie with former Vice President Joe Biden; Biden at 21%, Warren 20%.

Bernie Sanders 16%, Kamala Harris 8%, and Beto O’Rourke and Pete Buttigieg both at 5%.  Kind of surprised Beto is that high.

--Joe Biden had an awful few days while in Iowa in terms of gaffes.  In one slipup last Saturday at a forum in Des Moines organized by gun-control advocates, he said he had met as vice president with students after the deaths of 17 people at a high school in Parkland, Fla..  But the massacre happened after he had left office.  He did meet with Parkland students in Washington, D.C., shortly after the shooting and had met as a vice president with survivors of the Sandy Hook school massacre in Connecticut.

But the Parkland error followed his gaffe days earlier when he said “poor kids are just as bright and just as talented as white kids,” though he quickly tried to repair the damage.

The thing is we all know Biden is 76 years old, and he’s showing it.  How could you possibly vote for the guy?  He might be declared mentally unfit by his second or third year in office.  It’s just the truth.

Supporters still say things like ‘slip-ups happen at every age’ and that he’s a good person.  That’s not going to be enough, in my humble opinion.

And of course President Trump is having a field day, telling reporters, “Joe Biden is not playing with a full deck.  This is not somebody you can have as your president. But if he got the nomination, I’d be thrilled.”

And this tweet:

“Does anybody really believe he is mentally fit to be president?  We are ‘playing’ in a very big and complicated world.  Joe doesn’t have a clue!”

--Former Colorado Gov. John Hickenlooper has decided to drop out of the Democratic presidential field and consider a Senate run instead in 2020 against incumbent Republican Sen. Cory Gardner.  But three other state Democrats have already announced they are running as well.

--David Ignatius / Washington Post

“One of the weirdest aspects of this year’s Democratic presidential campaign is that foreign policy, potentially one of President Trump’s most vulnerable issues, has been nearly absent from the debate.

“Trump is steering the country into a foolish trade war with China that has spooked the stock market, frightened farmers and fueled uncertainty among investors at home and abroad.  Without any significant pushback from Democrats, his tariff-driven ‘America First’ agenda is pushing us toward what could be a decades-long cycle of global retreat and economic decline.

“Even Trump seems worried about his tariff zealotry, moving Tuesday to delay the latest round from September to December.

“China appears to be a strategy-free zone for Trump, but so is most of the rest of the world: His North Korea policy, at bottom, is an often fawning pursuit of a nuclear-armed dictator; his Iran policy is an undeclared economic war that he hopes won’t have kinetic consequences; his key Middle East alliance is the no-questions-asked embrace of a Saudi crown prince who has been jilted even by the neighboring United Arab Emirates; he treats traditional allies such as Germany and France as disposable tissue paper.

“Do these issues get discussed in the Democrats’ campaign stumps and televised debates?  Not so much.  Many Democrats seem scared of sounding like supporters of trade agreements, foreign military commitments or the dreaded evil of ‘globalization.’  Inexplicably, they cede this international ground to Trump.  For Democratic presidential rivals, domestic issues take up all the oxygen.

“So here’s a modest proposal for Democratic candidates who want to distinguish themselves in what has too often been a lackluster and dispiriting campaign: Make foreign policy an issue.  Summon the public not to more senseless wars in the Middle East but to the real global challenge that will define this century – the competition, hopefully peaceful, with a rising China....

“Today’s Democrats need a little more of President John F. Kennedy’s call to arms, not on foreign battlefields but at home.  We should ‘pay any price, bear any burden,’ as JFK put it during his inaugural address, to make the country stronger internally.  The heroes in this version of the new frontier are teachers, farmers, factory workers, tech innovators and even Wall Street bankers.

“Trump’s reelection strategy is to inflame identity politics.  A successful Democrat will figure out a way to bank those flames by uniting the country to meet a foreign challenge.  This should be a ‘Sputnik moment.’ China’s strengths should help us to see our own weaknesses....

“If Democrats stopped running scared on foreign policy, they would see that this is an issue that can unite the country and summon disaffected Americans to a test on which their future livelihoods depend, quite literally.  The China challenge could be the best issue the Democrats have, if they would just start talking about it.”

--And now, the Jeffrey Epstein case.

Early Saturday morning we learned the 66-year-old convicted pedophile hung himself, apparently with a bedsheet wrapped around his neck and secured to the top of a bunk bed.  According to various reports, quoting law enforcement sources, he would have killed himself by kneeling toward the floor and strangling himself with the makeshift noose.

Epstein was being held in the Special Housing Unit of the Metropolitan Correctional Center (MCC) in Manhattan.

The FBI and the Justice Department both immediately entered the investigation of the incident, which Attorney General William Barr on Monday blamed on “serious irregularities at this facility.”  Barr vowed there would still be justice for the victims and that none of the high-profile names that have leaked thus far should rest easy.

Sen. Ben Sasse (R-Neb.) wrote in a letter to Barr: “Every single person in the Justice Department – from your Main Justice headquarters staff all the way to the night-shift jailer – knew that this man was a suicide risk, and that his dark secrets couldn’t be allowed to die with him.  Given Epstein’s previous attempted suicide, he should have been locked in a padded room under unbroken, 24/7, constant surveillance.  Obviously, heads must roll.”

Epstein’s death cut short a criminal prosecution which could have pulled back the inner workings of a high-flying financier with connections to celebrities and presidents, though prosecutors have vowed to continue investigating.

Epstein could have faced up to 45 years behind bars on federal sex trafficking and conspiracy charges unsealed last month.  He had pleaded not guilty and was awaiting trial.

Epstein had been placed on suicide watch after he was found about three weeks ago with bruising on his neck, but he was somehow taken off the watch at the end of July and wasn’t on it at the time of his death.  Removal from the watch list would have been approved by both the warden of the jail and the facility’s chief psychologist.

The two Manhattan jail guards tasked with monitoring Epstein before he died fell asleep on the job and fudged the log entries to show they checked on him and other inmates when they actually didn’t, according to various reports.

Sources told the New York Post that surveillance video showed the guards at the MCC never made some of the inspections noted in the log.

A prison and law enforcement official told the New York Times that the guards were asleep when they failed to check on Epstein for about three hours before his death.  They were required to check on Epstein every 30 minutes.

Earlier Tuesday, the Justice Department said the two MCC staffers were placed on administrative leave, while the warden was reassigned.

Thursday, the story broke that Epstein’s autopsy determined he had suffered multiple broken neck bones, one to the hyoid bone, an injury that experts told the Washington Post is more common in homicide victims.

The autopsy was completed on Sunday, but the Medical Examiner’s Office said more information was needed before they make a final cause of death ruling.  A private pathologist, the well-known Dr. Michael Baden, was allowed to observe the autopsy examination, according to the ME, which is routine practice.

But just because the hyoid bone was broken, doesn’t mean someone entered Epstein’s cell and strangled him.  The bone, we are told, can also be broken in a suicidal hanging, but all seem to be in agreement it is more common in strangulation murders than the former.

Then, hours ago, the Medical Examiner declared it was suicide.

The Washington Post spoke to Jonathan Arden, president of the National Association of Medical Examiners, who said, “If, hypothetically, the hyoid bone (which is near the Adam’s apple) is broken, that would generally raise questions about strangulation, but it is not definitive and does  not exclude suicidal hanging.”  Arden is not involved in the Epstein case.

Needless to say, the finding will only enhance the conspiracy theories.  On Saturday afternoon, President Trump was already retweeting one blaming the Clintons for Epstein’s death.

--According to the New York Post, while CNN brass stood by Chris Cuomo after he was caught on camera threatening a man who called him “Fredo” – the newsroom rank and file was “embarrassed” by the blowup.

Cuomo, host of “Cuomo Prime Time,” told the guy in the Shelter Island confrontation that the “Godfather” reference was a racial slur “like the ‘N-word’” for Italian Americans, while calling him “a punk-ass bitch,” adding, “I’ll f—king ruin your [shirt].  I’ll f—king throw you down these stairs.”

Among the newsroom chatter was that “everyone thinks it’s fine to stand up to trolls, but it escalated way past where it needed to.”  But, one added, “It was an unforced error, and he gave the right – and the president – ammunition to use against him and CNN.”

Yes, that Fredo did.

--Speaking of jerks, U.S. Rep. Steve King (R-IA) defended his call for a ban on all abortions by questioning whether there would be “any population of the world left” if not for births due to rape and incest.

Speaking before a conservative group in the Des Moines suburb of Urbandale, King reviewed legislation he has sought that would outlaw abortions without exceptions for rape and incest.  King justified the lack of exceptions by questioning how many people would be alive if not for those conceived through rapes and incest.

“What if we went back through all the family trees and just pulled those people out that were products of rape and incest?  Would there be any population of the world left if we did that?” King asked, according to video of the event.  He went on.  He must be removed from Congress because he is embarrassing the entire Party.

Previously, Rep. King was rebuked in a House vote, 424-1, for prior comments he made that were deemed to be racist.  Republican leaders stripped him of his committee assignments at the time.

King usually wins his conservative district handily, but in 2020, he faces a primary challenge from several Republicans.

--It took a while, but Anthony Scaramucci finally figured it out.  The Mooch tweeted Sunday that President Trump only accepts 100% blind loyalty after Trump lashed out at him as unqualified.

Scaramucci tweet: “For the last 3 years I have fully supported this President.  Recently he has said things that divide the country in a way that is unacceptable. So I didn’t pass the 100% litmus test.  Eventually he turns on everyone and soon it will be you and then the entire country.”

Trump tweeted a response: “Anthony Scaramucci, who was quickly terminated (11 days) from a position that he was totally incapable of handling, now seems to do nothing but television as the all time expert on ‘President Trump.’  Like many other so-called television experts, he knows very little about me...”

Scaramucci called Trump’s trip to El Paso a “catastrophe” and opined on MSNBC that the coverage showed him lacking “compassion” and “empathy.”

So the president didn’t like this.

During an interview on CNN Monday morning, Scaramucci said: “I think what will end up happening is sound and reasonably minded men and women in the Republican Party will say, ‘Wait minute, we can’t do this.’  He is giving people license to hate, to provide a source of anger to go after each other, and he does it on his Twitter account.”

--Mike Mullen, retired U.S. Navy admiral, former chairman of the Joint Chiefs of Staff, in an op-ed for Defense One.

“Since the massacre at Sandy Hook Elementary School in which 20 of our first graders were slaughtered with an AR-15-style rifle, I have pondered despairingly how long it would take for America to put an end to the killing generated by these weapons of war.  I very briefly had hope that the massacre of our little ones would bring us to our senses, spurring Congress to pass commonsense legislation, including universal background checks and a ban on assault weapons – those massively lethal weapons of mass destruction.

“I spent my entire professional life taking up arms in defense of our country, serving in wars from Vietnam to Afghanistan, and ending my service as chairman of the Joint Chiefs of Staff.  During the wars in Iraq and Afghanistan I saw how our ground forces and special forces sought to improve the precision and lethality of their weapons, which took enemy lives and saved their own. Such is the nature of war.

“But these weapons are for war; they are not for sport.  Assault weapons are designed to kill as many people as possible in the shortest time possible.  As the tragic events last week in El Paso and Dayton attest, these weapons make it virtually impossible for law-enforcement agencies to stop those bent on taking lives.  In Dayton, heroic officers responded within 30 seconds, and yet the shooter still killed nine people.

“I had hoped that our political leaders would put saving innocent lives ahead of their careers, if necessary sacrificing their own political ambitions to get this done.  But our politicians have proved unwilling to take up the cause or to take risks for the sake of the many citizens, young and old, murdered both before and after Sandy Hook. Would you gather the courage if it were your son or daughter whose life had been taken?

“In the years I served as chairman of the Joint Chiefs of Staff, I sat with far too many mothers and fathers, brothers and sisters, sons and daughters of loved ones killed in combat, the best of us, who had made the ultimate sacrifice while serving our country.  I hoped – hopelessly – that I could somehow ease their unimaginable pain and suffering. The haunting, empty, tragic stares of these grieving families will live with me forever.

“After Sandy Hook, I watched in abject disgust while our Congress did nothing, despite the fact that some 90 percent of Americans supported universal background checks.  That inaction typified the paralysis and division consistently displayed by elected officials from both parties.  Each party could display the same motto: ‘Party before country.’

“Since Sandy Hook, the politics have gotten worse and the weapons have become more deadly.  And we are led by an administration without a moral compass, which seeks to divide us and destroy our values: equality, freedom, democracy, human rights, integrity, responsibility, accountability. These attacks threaten the very underpinnings of our civilization.

“Now is the time for courage. We must take steps to make our country and its citizens safe from this growing national-security threat by banning these assault weapons with their large magazines, and by putting in place comprehensive and universal background checks without loopholes. The United States accounts for some 4 percent of the global population but holds about 45 percent of the civilian firearms in the world.  We are way out of balance.

“I have been involved in the use of arms for my entire adult life. I understand what they can do.  It is time to act.  If we do nothing, many more innocent lives will be needlessly sacrificed – and the blood of those innocents will continue to flow upon our hands.”

--The WWF (formerly World Wildlife Fund, now World Wide Fund for Nature) revealed that the number of animals living in the world’s forests has more than halved in the last 50 years.

A global assessment by WWF and the Zoological Society of London of 455 populations of 268 species that live only in forests reveals they declined by 53 percent on average since 1970.

The biggest threat is loss and damage to habitat, mostly caused by humans clearing land, shifting agriculture and wildfires.

--July 2019 was the Earth’s hottest month on record, scientists for the National Oceanic and Atmospheric Administration said Thursday.  The global temperature was some 1.71 degrees above average.  This follows on the heels of what was the hottest June on record.

Year-to-date, 2019 is tied with 2017 as the second-warmest year on record.

July was most notable for Europe’s record-shattering heat wave, with France, Belgium, Germany, Netherlands and the U.K. all setting new all-time high temperature records, including 108.7 in Paris.

And Alaska baked under extreme heat, with Anchorage hitting the 90-degree mark (July 4) for the first time in the city’s history.

--This week we have the 50th anniversary of Woodstock and the local newscasts have had some reports from Bethel Woods on those making a return pilgrimage.  I loved what one gentleman, who was there in 1969, said about the festival.

“I was 11 when I got here; and 35 when I left.”

--Finally, congratulations to the two Russian pilots who safely landed their Ural Airlines Airbus 321 in a cornfield outside Moscow after striking a flock of birds, the pilots immediately opting to land with the landing gear up.  No serious injuries were suffered among 233 passengers and crew.  The Kremlin rightfully is going to honor them with top state awards.

And the world of sports is thankful that Dale Earnhardt Jr. and his family escaped serious injury in a private plane crash in eastern Tennessee Thursday.

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

God bless America.

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Gold $1523
Oil $54.93

Returns for the week 8/12-8/16

Dow Jones  -1.5%  [25886]
S&P 500  -1.0%  [2888]
S&P MidCap  -1.5%
Russell 2000  -1.3%
Nasdaq  -0.8%  [7895]

Returns for the period 1/1/19-8/16/19

Dow Jones  +11.0%
S&P 500  +15.2%
S&P MidCap  +12.6%
Russell 2000  +10.8%
Nasdaq  +19.0%

Bulls 49.5
Bears 
18.1

Have a great week. At least try to.

Brian Trumbore