Week in Review

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Week in Review

01/27/2018

For the week 1/22-1/26

[Posted 11:30 PM ET, Friday]

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Edition 981

Trump World...State of the Union edition

As I went to post last Friday night, the government was on the verge of shutting down.  It lasted only until Tuesday, a big nonevent that virtually everyone will forget, even the “Schumer Shutdown” folks...but only if another shutdown is avoided Feb. 8, the next deadline, as the Senate, 81-18, and the House, 266-150, approved yet another continuing resolution (CR), funding the government until about two weeks from now.

President Trump was able to declare victory, which wasn’t the situation as the shutdown loomed: “I am pleased that Democrats in Congress have come to their senses,” Trump said, in a statement read by press secretary Sarah Sanders.

“Once the government is funded, my administration will work toward solving the problem of very unfair illegal immigration. We will make a long term deal on immigration if and only if it’s good for our country.”

Senate Democrats reluctantly voted in favor of the CR amid assurances from Majority Leader Mitch McConnell (R-Ky.) that the Senate would take up the plight of the “Dreamers” and other contentious issues. Democrats from states won by Trump in 2016 broke with progressives looking to satisfy liberals’ and immigrants’ demands; some of the latter 2020 presidential candidates: Cory Booker (N.J.), Bernie Sanders (I-Vt.), Elizabeth Warren (Mass.), Kirsten Gillibrand (N.Y.) and Kamala Harris (Calif.).

Senate Democratic Leader Chuck Schumer (N.Y.) bore the brunt of anger from party members for caving to Republicans’ demands, caving to reality, while emboldened Republicans in the House, the Freedom Caucus, led by Mark Meadows (R-N.C.), raised the pressure on Speaker Paul Ryan to bring a tough border enforcement bill to the floor.

But this is a discussion for the next two weeks.  In this fast-moving era, other events assumed the lead....

On Wednesday, in a scrum with reporters that Trump allowed, and his staff clearly didn’t expect, the president said he is “looking forward” to testifying under oath to special counsel Robert S. Mueller III as part of the probe of Russian interference in the 2016 election, while also mounting a preemptive defense of potential obstruction accusations.

“I would love to do it, and I would like to do it as soon as possible,” Trump told the reporters at the White House.  “I would do it under oath, absolutely.”

Trump reiterated there was “no collusion” between his campaign and Russia.

At the same time, Trump called for a path to citizenship for the Dreamers, telling reporters he wanted a law that would give the mostly young immigrants a way to achieve full citizenship in 10 to 12 years. But the change would be part of a package, including new limits on legal immigration and money for his proposed border wall.

But many Republicans, especially in the House, oppose any legalization proposals as “amnesty,” while Democrats oppose any restriction on legal immigration programs.

So then, according to a report in the New York Times Thursday night, President Trump reportedly ordered that special counsel Robert Mueller be fired in June but backed off when White House chief counsel Don McGahn threatened to resign in refusing to ask the Justice Department to dismiss Mueller.

Not only did McGahn disagree with the reasoning behind firing Mueller, he also felt the results would be devastating to Trump’s presidency and further contribute to an appearance of obstruction, the Times said.

The Times report added that President Trump began to argue Mueller had three conflicts of interest that disqualified him from overseeing the investigation, according to two of the paper’s sources.

“First, he claimed that a dispute years ago over fees at Trump National Golf Club in Sterling, Va., had prompted Mueller, the FBI director at the time, to resign his membership. The president also said Mr. Mueller could not be impartial because he had most recently worked for the law firm that previously represented the president’s son-in-law, Jared Kushner. Finally, the president said, Mr. Mueller had been interviewed to return as the FBI director the day before he was appointed special counsel in May.”

Separately, we learned that Attorney General Jeff Sessions was questioned for several hours last week by Mueller, one of 20 White House employees who have given interviews to the special counsel, according to Trump’s attorney John Dowd. An additional 28 people affiliated with the Trump campaign have also been interviewed.

Friday, Trump in Davos called the Times report “fake news...Typical New York Times fake stories,” he told reporters.

As for Mueller interviewing Trump, the president’s proclamation he wanted to be interviewed is a smokescreen.  “I said I had no problem answering Mueller’s questions,” he’ll say later in different circumstances.

Meanwhile, on the immigration front, President Trump later formally proposed a pathway to citizenship for 1.8 million young immigrants who came to the U.S. illegally as children, but he is demanding Democrats support $25 billion for border security, including his wall, and strict new limits on legal immigration.

The 1.8 million figure goes beyond the 700,000-800,000 immigrants currently covered by the Obama administration’s Deferred Action for Childhood Arrivals program, expanding the protections to cover those who were eligible for DACA but didn’t register. This last bit was the White House’s attempt to entice Democrats.

But there was little support among Democrats initially, and many conservatives, as I said, call the president’s proposal amnesty.

“Amnesty comes in many forms, but it seems they all eventually grow in size and scope. Any proposal that expands the amnesty-eligible population risks opening Pandora’s box,” said Michael A. Needham, the head of Heritage Action for America, an influential conservative group.  “That should be a nonstarter.”

A headline on conservative/nationalist website Breitbart blared: “Immigration Shock: Amnesty Don Suggests Citizenship for Illegal Aliens.”

But immigrant rights activists warned Democrats not to take the bait and accept restrictive changes to the immigration system in exchange for legalizing the Dreamers.

So between the Times story and the latest immigration proposal, let alone the past year, you have plenty of drama for Tuesday’s State of the Union address.

But the focus should be on the economy, and no doubt the president will trumpet his successes.

We had our first look at fourth-quarter GDP today and it came in at 2.6%.  Yes, below the 3% level the president would love to tout, but the underlying factors were strong and the figure could easily be revised upwards in succeeding reports (of which there will be two).

Bottom line, the economy grew at a 2.5% clip in Trump’s first year, though he can say the first quarter’s 1.2% pace was Obama’s.  That’s OK.  That’s fair.

But here’s the deal. This coming week is going to be an explosive one. The Mueller story will dominate, and I don’t see the president handling it well.  He’ll continue to lie. His tweets will be vicious as ever.

It didn’t have to be this way.  Trump had an opportunity from day one to be a uniter, not a divider.  He never wanted to be so.  That’s not his gig.

If he had just kept his mouth shut and fingers on Melania, rather than his keyboard or phone, we’d all be much better off. 

But I urge everyone to continue to follow to the best of your ability my mantra since day one of StocksandNews. Wait 24 hours.  Trump’s incapable of doing so, but we need to. 

We’re atop ever-shifting sands, including in Syria and a worrisome new situation there.  I’ve said before that when it comes to policy, our president is in way over his head and never was it more so than this theater today.

Buckle your seatbelts.  Stormy seas ahead....cough cough....

Trumpets....

--Republicans are floating the idea that FBI and Department of Justice officials formed a “secret society” that held meetings in which they plotted to undermine the Trump administration and the president.

One of the text messages between two FBI agents/lovers, Peter Strzok and Lisa Page, was sent the day after Trump was elected president.

“Are you even going to give out your calendars?,” Page asks Strzok.  “Seems kind of depressing. Maybe it should just be the first meeting of the secret society.”

Previously released text messages between the two found them disparaging Trump, as well as contradicting former FBI director James Comey’s claims about his handling of the Clinton investigation; and appearing to discuss ways they could hinder Trump once he took office.

Democrats say Republicans are selectively leaking the messages which makes them misleading. Plus they note Mueller removed Strzok and Page from his team when he learned of Strzok’s anti-Trump messages.

Republicans say the text messages reveal a deep political bias at the FBI that might explain the decision not to charge Hillary Clinton for carelessly handling classified material. And that the text messages are evidence that allegations the Trump campaign had ties to Moscow was politically motivated from the start.

“The Russian investigation is being exposed as a sham!” exclaims Fox News’ Sean Hannity.

And you have the issue of the ’50,000’ missing texts between Strzok and Page sent between Dec. 14, 2016, to May 17 – the day Mueller was tapped to lead the special counsel investigation into Russia’s election meddling.

The FBI insists there was nothing nefarious and now the messages are being recovered. The Hill reported Wednesday “that a large number of FBI employees lost messages around the same time due to a glitch.”

--Massachusetts Rep. Joe Kennedy III will deliver the Democratic Party’s response to Trump’s State of the Union address.

Kennedy is the great-nephew of former President John F. Kennedy, and is seen as a 37-year-old rising star, currently serving his third term in Congress.

--Melania Trump blew off Davos, letting her husband travel there alone. She had been planning to go, with her office saying she would be there to “support the president,” but the first lady suddenly opted to stay in Washington due to “scheduling and logistical reasons.”  Huh?

Well, we know what happened.  Stormy happened...Stormy Daniels.  The revelation of a $130,000 payment to a porn star, a year after you married the guy, and after the birth of your son, might force one to reconsider.

I’m anxious to see what the president says about her during the State of the Union address. If he boasts she is the greatest first lady ever, that will be but another lie.    She hasn’t done squat...which is OK, I hasten to add.  She shouldn’t have to do much of anything in a public fashion.

But the thing is, no one knows anything about her because her inner circle seems to go no further than her parents and Barron.

And wasn’t it delicious that on the first anniversary of The Donald taking office, the photo Melania chose to tweet was not one of the two of them during Inauguration events, but rather of Melania with her military escort who accompanied her to her seat.

Maureen Callahan / New York Post

“Yes, she canceled her trip to Davos at the last minute, citing immovable conflicts in her famously light schedule. But as she has since the campaign, Melania Trump remains a cipher. She hasn’t done a one-on-one profile with a major news outlet. She picked an admittedly curious platform, cyberbullying, but hasn’t really done much for the cause. She doesn’t give soundbites.

On Thursday, (with her husband in Davos), Melania made an unannounced visit to the Holocaust Museum in DC, then flew south to the couple’s Mar-a-Lago estate.

“While her default position has always been obvious – Melania doesn’t have much interest in being first lady – she’s also made it clear she’ll do what she wants when she wants, and her husband can answer for himself.

“Could anyone imagine, say, Hillary Clinton sending such messages to Bill – and us? Indeed, one of Hillary’s greatest liabilities wasn’t just the unflagging defense of her husband’s womanizing but her own role in publicly sullying his accusers’ reputations.

“It’s part of why she lost to Trump: Our potential first female president, running on her feminist bona fides, couldn’t call out Trump’s disgusting ‘grab them by the p---y’ remark lest it boomerang on her and Bill.  Same when Trump brought three of Bill’s accusers to the second presidential debate – an expert bit of shadowboxing that left Hillary unable to call out Trump’s misogyny....

“(But as for Melania), as first lady, she’s unprecedented in many ways – first nude model, first immigrant, first third wife – but none more so than her refusal to play along. She’s more interested in being a mom than holding a ceremonial office. Save the occasional White House statement, rumors about her marriage, her moods, her state of mind go unacknowledged. She refuses to answer for her husband. Whatever thoughts she has in her head are not for public consumption....

“(As) she has made abundantly clear: Melania Trump doesn’t owe us anything.... A wife shouldn’t have to give up her life in service to her husband’s ambitions.

“Politics aside, all women should appreciate that.”

Back to Stormy Daniels, she appeared topless at a South Carolina strip joint last Saturday night, part of her so-called “Making America Horny Again Tour” at Greenville’s The Trophy Club.

Daniels, according to the New York Post, “doffed the corset and allowed several very happy men to take turns....”

Err, I need to stop about here.  One fellow in the audience, who called himself “Shawn,” said, “I’m proud of our pimp-ass president.”

Last night, according to Inside Edition, which had an interview with Stormy, Ms. Daniels was just booked at a Vegas club for $75,000 per night.

In Greenville she kept her mouth shut on the reported $130,000 nondisclosure pact with the Trump campaign.

--Trump tweets:

“In one of the biggest stories in a long time, the FBI now says it is missing five months’ worth of lovers Strzok-Page texts, perhaps 50,000, and all in prime time. Wow!”

“Cryin’ Chuck Schumer fully understands, especially after his humiliating defeat, that if there is no Wall, there is no DACA. We must have safety and security, together with a strong Military, for our great people!”

“Beautiful weather all over our great country, a perfect day for all Women to March.  Get out there now to celebrate the historic milestones and unprecedented economic success and wealth creation that has taken place over the last 12 months. Lowest female unemployment in 18 years!”

“Thank you to Brad Blakeman on @FoxNews for grading year one of my presidency with an “A”- and likewise to Doug Schoen for the very good grade and statements. Working hard!”

--According to White House schedules and pooled press reports, Donald Trump spent time at a golf club on 91 of the past 364 days (as of Saturday), vs. 26 rounds by the end of President Obama’s first year.  Obama went on to play 333 rounds in eight years.  So he picked up his game.

Wall Street

With the World Economic Forum taking place, the International Monetary Fund and World Bank issued their latest growth forecasts. The IMF hailed the “broadest synchronized global growth upsurge since 2010.” Managing Director Christine Lagarde said: “All signs point to a further strengthening [in global growth] both this year and next. This is very welcome news.”

The IMF upgraded its forecasts for world economic growth for 2017, 2018 and 2019, saying the world economy was likely to grow 3.9% this year and next, up 0.2% from previous forecasts owing to a better outlook in the U.S. and eurozone.

The IMF raised its U.S. growth forecast for 2018 from 2.3% to 2.7%, and lifted 2019 to 2.5%.

The IMF also revised European growth predictions higher to 2.2% in 2018 and 2% in 2019.

Only the U.K. received a growth downgrade for 2019,  to 1.5%.

As for corporate confidence, a PwC survey of 1,300 chief executives showed 57% thought the global economy would improve in the coming year, up from 24% last year.  87% thought their organizations would grow.

The World Bank is forecasting global growth this year of 3.1%, up from its 3.0% estimate for 2017, with emerging economies gaining speed, 4.5% this year compared with an estimated 4.3% last year. The WB forecasts U.S. growth at 2.5% this year, from 2.3% last year.  [This came out before Friday’s GDP report.]

Separately, a Wall Street Journal/ NBC News poll found that 69% of Americans are satisfied with the economy, the highest level since 2001, with the share of Americans who thought the tax law was a good idea growing to 30%, from 24% last month. Strangely, though, a larger share, 38%, this month called the bill a bad idea.

And finally, I literally have nothing to say on Trump’s speech in Davos today; especially when you know 24 hours later he could easily be saying something else. It was also highly misleading in parts, such as in his comments about Apple’s $350 billion investment, which we’ve already picked apart as not being anywhere near this amount. 

But there are other topics to discuss.

The Dollar: Speaking in Davos on Wednesday, Treasury Secretary Steven Mnuchin said, “A weaker dollar is good for trade,” which immediately sent the currency markets into turmoil of sorts, with the greenback plummeting to a three-year low against a basket of other currencies.  Gold also rallied to its highest level since August 2016 with the one-two punch of protectionism and devaluation. President Trump had previously said he favors a weak currency, good for exports, and the dollar has fallen 8% in his first year. A weak dollar, while good for trade, is bad for inflation. [Mnuchin did add, “In the longer term, a stronger dollar is a reflection of the strength of the U.S. economy.”]

Think about what I’ve been writing regarding the U.K. since its 2016 Brexit vote. The British pound collapsed and inflation rose, stronger than wage growth.

Editorial / Wall Street Journal

“As if on cue, Mario Draghi on Thursday demonstrated one consequence of the weak-dollar philosophy espoused by Steven Mnuchin on Wednesday. Mr. Draghi indicated that the European Central Bank he leads may delay normalizing monetary policy thanks to the weak greenback favored by the U.S. Treasury Secretary.

“ ‘The recent volatility in exchange rates represents a source of uncertainty which requires monitoring with regard to its possible implications for the outlook for price stability,’ Mr. Draghi told the press after the ECB’s January meeting.

“As a result, the ECB will continue buying bonds worth 30bn euro ($38bn) a month through September ‘or beyond if necessary,’ and interest rates won’t rise ‘for an extended period of time.’ That’s central-bank-speak for Mr. Draghi getting nervous about earlier plans to dial back his unconventional monetary policies because he’s afraid of triggering an excessive rise in the euro.

“Mr. Draghi is right to worry, up to a point. Over the past year the euro has appreciated against the dollar to above $1.25 from $1.07 when Donald Trump took office. That’s well short of the nearly $1.40 in 2014 before Mr. Draghi began quantitative-easing bond purchases, but it’s still a blow to the ECB since competitive devaluation has been one of its main, though unacknowledged, goals.

“Without mentioning the Treasury Secretary by name, Mr. Draghi also complained about ‘use of language in discussing exchange-rate developments that doesn’t reflect the terms of reference that have been agreed.’  He meant an IMF communique last year in which governments including Washington promised to eschew competitive devaluation.

“Now Mr. Draghi is in a pickle.  Having started down the QE road, he finds it as difficult as other central bankers to return to normal policy without spooking markets. So he keeps delaying announcing a formal end to QE despite strong eurozone economic growth – 2.6% year-on-year as of the third quarter last year – and healthy business confidence. That should be a sign it’s time to wean the eurozone off QE, but inflation is falling, to 1.4% year-on-year in December from 1.5% in November, in part thanks to the stronger euro....

“Mr. Draghi is largely responsible for his own fate whatever Messrs. Trump and Mnuchin say about the dollar. Mr. Draghi has always said that the eurozone needs policy reforms from elected leaders more than it needs monetary pyrotechnics. Sure enough, economic growth has finally picked up as reviving optimism in the U.S. and the election of a reformer to France’s presidency stirred animal spirits.

“Still, Mr. Mnuchin – and his boss – could help Mr. Draghi now by aiming for stability in the world’s most important exchange rate rather than pursuing a weak-dollar gambit.  Mercantilists in the White House might think eurozone monetary policy isn’t their problem. But it will be if their greenback gimmicks goad Mr. Draghi into diverging too far from the Federal Reserve’s modest attempts at normalization, with unpredictable consequences for exchange rates and the world economy.”

Well, on Thursday, President Trump said he ultimately wants the dollar to be strong, contradicting Mnuchin, adding the treasury secretary had been misinterpreted, as Mnuchin walked back his comments as well.

Trump said in an interview with CNBC that nobody should be talking about the dollar. “It should be what it is, it should also be based on the strength of the country – we are doing so well.”

Trade: Eleven countries aiming to forge a new Asia-Pacific trade pact after the United States pulled out of an earlier version will hold a signing ceremony in Chile in March, as announced by Japan’s economy minister on Tuesday from Tokyo.

Trade officials from the 11 largely resolved rifts including Canada’s insistence on protection of its cultural industries. 

This is a big win for Japanese Prime Minister Shinzo Abe’s government, which lobbied hard to save the pact, originally called the Trans-Pacific Partnership, but when Donald Trump pulled out of it in his first day in office, the TPP became the TPP-11

Australian Prime Minister Malcolm Turnbull said the new agreement would leave a door open for eventual U.S. participation.

Unrelated to the above, the U.S. approved controversial tariffs on imported washing machines and solar panels this week,  a move in line with President Trump’s “America First” trade policy, which aims to protect local manufacturers from foreign competition.

China and South Korea, whose manufacturers are most heavily affected, criticized the move, as U.S. officials said more such actions are to follow.

Since taking office, Trump has talked about action against those who “make our products, steal our companies and destroy our jobs,” while promising to protect U.S. borders.

In the case of the washing machines and solar panels, the International Trade Commission found local manufacturers were being hurt by cheaper imports. Whirlpool, for one, has been seeking protection against cheaper imports from South Korea and Mexico for years.

But when it comes to solar panels, largely made in China these days, environmentalists argue that making them more expensive risks holding back the development of renewable energy in the country.

Both South Korea and China vowed to appeal to the World Trade Organization, calling the tariffs “excessive” and “regrettable.”

Editorial / Wall Street Journal

“The U.S. economy is starting to grow at a faster pace, and deregulation and tax reform are pointing to an investment boost in 2018. But the big economic policy question now is whether President Trump is going to dampen this new growth enthusiasm by imposing tariffs and kicking off a global trade war.

“That issue was in high relief (Ed. a week ago) Monday in Nashville, where Mr. Trump delivered a speech touting his policies for the rural U.S. economy that benefits from free trade.  Mr. Trump can rightly point to White House progress on reducing government barriers to growth in American agriculture....

“But farmers are scared stiff that Mr. Trump might take a protectionist turn that would impose more government barriers. Highly efficient and productive, U.S. farmers thrive in a competitive global market. But tariffs are border taxes that raise costs for U.S. producers and consumers.  Managed trade via quotas also shelters producers from competition and raises costs for consumers.

“Mr. Trump already walloped U.S. farm exporters when he dropped out of the Trans-Pacific Partnership, which has given Europe, Australia and Canada an edge to meet growing Asian demand for high-value farm products. After Japan imposed 50% ‘safeguard’ tariffs on frozen beef last July, U.S. imports dropped by a quarter.  Imports from Australia, which has a trade deal with Japan and supplies about half of its frozen beef, increased by 30%.

“Foreign leaders are working fast to lock in trade deals that are leaving the U.S. behind....Canada last year reached an agreement with the EU that will make 99% of their exports duty-free.

“Mr. Trump is also contemplating tariffs against China for stealing U.S. intellectual property. This should be addressed, but the danger is that U.S. agriculture is sure to be a top target for reprisal if the President gets into a trade war with Beijing. China is one of America’s top farm markets, with agricultural exports tripling over the past decade to $21.4 billion, including $14.2 billion in soybeans.  Australia and Brazil can replace many U.S. exports in a trade pact.

“The greatest danger to the Farm Belt is that Mr. Trump might withdraw from the North American Free Trade Agreement. The U.S. sends about $18 billion a year in farm products to Mexico and $23 billion to Canada, which together account for a third of American farm exports. Since NAFTA came into force in 1994, farm exports to Mexico and Canada have more than quadrupled. Soybean exports to Mexico have quintupled....

“Trashing NAFTA would be among one of the great self-inflicted wounds in history. It would also tell other countries that the U.S. can’t be trusted to keep its word on trade, which would make it impossible to cut the bilateral trade deals the President says he wants. This is a strategy for making America weaker.”

And a separate Journal editorial:

“Can Donald Trump stand prosperity? Fresh from a government shutdown victory and with the U.S. economy on a roll, the President decided on Tuesday to kick off his long-promised war on imports – and American consumers. This isn’t likely to go the way Mr. Trump imagines.

“ ‘Our action today helps to create jobs in America for Americans,’ Mr. Trump declared as he imposed tariffs on solar cells and washing machines.  ‘You’re going to have a lot of plants built in the United States that were thinking of coming, but they would never have come unless we did this.’

“The scary part is he really seems to believe this. And toward that end he imposed a new 30% tariff on crystalline silicon photovoltaic cells and solar modules to benefit two bankrupt companies, and a new 20%-50% tariff on washing machines to benefit Whirlpool Corp. The tariffs will hurt many more companies and people, and that’s before other countries retaliate.”

The Journal contends both moves, against the solar and washing machine industries will be both costly to consumers and it will cost, not add, American jobs.

“Manufacturers will also lose flexibility in sourcing parts, which is critical to competitiveness.  In South Carolina, where Samsung has a new $380 million appliance plant, the Trump tariffs aren’t welcome. Republican Gov. Henry McMaster is worried they’ll hurt the investment climate and invite retaliation.

“Mr. Trump conducts trade policy as if U.S. trading partners have no recourse. With exports of $30.9 billion in 2016 and among the country’s highest level of exports per capita, South Carolina knows better. By justifying tariffs solely on the failure to compete, Mr. Trump is inviting other countries to do the same for their struggling companies. Their case at the World Trade Organization will also be a layup, allowing legal retaliation against U.S. exports.

“By the way, if Mr. Trump thinks these new border taxes will hurt China, he’s mistaken again. China ran a distant fourth as a producer of solar cell and modules for the U.S. in 2017, after Malaysia, South Korea and Vietnam. Korea and Mexico are the two largest exporters of washing machines to the U.S.  Mr. Trump’s tariffs are an economic blunderbuss that will hit America’s friends abroad and Mr. Trump’s forgotten men and women at home.”

Lashing out against South Korea at this very time, when we want their support on North Korea, is pure idiocy. This could have waited.  It could have been negotiated.

There was some economic news of note this week. December existing home sales came in at 5.57 million annualized, less than expected, but 5.51 million for 2017, the highest level since 2006. 

December new home sales were well below expectations at 625,000 ann., and November’s record level was revised way down, but for all of 2017, new home sales of 608,000 represented the best year since 2007.

December durable goods orders, big ticket items, were up a strong 2.9%.

Back to the GDP report for the fourth quarter, consumption came in at 3.8%, the best since late 2014, while the Fed’s key personal-consumption expenditures index hit 2.8%, 1.9% on core, or just below the Fed’s 2% target.  We need to see follow up in succeeding numbers, but as I’ve said this single metric is critically important when it comes to the issue of how many times the Fed hikes rates this year.  It would be nice if the Fed would give some guidance on the PCE following next week’s Open Market Committee meeting.

Europe and Asia

A flash reading on eurozone economic activity for January, as put out by Markit, showed the EA19 with a composite reading of 58.6 (50 being the dividing line between growth and contraction), a 139-month high, with manufacturing at 59.6 vs. 60.6 in December, and services at 57.6 vs. 56.6, a 125-month high.

Germany had a flash manufacturing reading for this month of 61.1 vs. 63.3 last month, while France’s was at 58.1 vs. 58.8.

Chris Williamson, Chief Economist at IHS Markit:

“The eurozone has got off to a flying start in 2018, with business activity expanding at a rate not seen for almost 12 years. The acceleration of growth pushes the survey data into territory consistent with the economy expanding at a super-strong quarterly rate approaching 1%.

“With employment growing at the fastest pace for 17 years, an improving labor market should feed through to higher consumer spending, which should help further drive the economic upturn as 2018 proceeds, as well as higher wages.

“Price pressures are meanwhile running at their highest for almost seven years, accelerating further at the start of 2018....

“With such a strong start to the year, expect to see forecasters mark up their expectations of eurozone growth and inflation in 2018, and for policymakers to sound more hawkish.”

Eurostat released third quarter debt figures for the EA19, with general government debt to GDP at 88.1% vs. 89.7% for Q3 2016 in the region as a whole.

Germany is at 65.1%, France 98.4%, Spain 98.7%, Italy 134.1%, Greece 177.4%, Portugal 130.8% and non-euro U.K. at 86.5%.

Ergo, you can see why I harp on euro bond yields, and how the real carnage is going to be in this market.  [Like an Italian 10-year yield at just 1.99%, with that debt to GDP ratio, and an unpredictable national election coming up, let alone a still less-than-exuberant economy?]

As for the aforementioned European Central Bank meeting and chief Mario Draghi’s musings, Draghi disappointed hawks who thought he would change the central bank’s policy guidance on Thursday, but his apparent calm about euro strength sent the currency to its highest level in more than three years.

Some are now expecting Draghi and the ECB to finally make real news in March, on the heels of what should be upgraded economic forecasts. For now, he gave little hint the bond-buying would run past September. Currently, the bank says the purchases will continue at least through then and longer if necessary, leaving the exact end open.

But back to the weaker dollar issue that helps U.S. exporters, a strong euro hurting European ones, Draghi said the recent swings in the exchange rate with the dollar were “a potential source of instability” that required “monitoring,” especially as it pertains to inflation.  Draghi was in essence warning that foreign countries could follow the U.S. in a race to the bottom if the U.S. tries to devalue the dollar.

Germany: Chancellor Angela Merkel moved forward in her bid to remain in power and serve a fourth-term, after her prospective coalition partner, the Social Democratic Party (SPD), voted to enter negotiations on a common policy platform for Germany.  Talks have now begun between the SPD and Merkel’s Christian Democrats and their Bavarian allies.

The SPD held a contentious special party convention, with leadership favoring coalition talks, while the party’s youth and leftist grass-roots members wanted to go into opposition and regroup after suffering their worst loss in September’s election. They also argue that allying with Merkel’s bloc as they have for eight of her 12 years in power has robbed the party of a clear identity, sapping voter support.

Party Chairman Martin Schulz called another tie-up “the more courageous path.”

But the SPD’s leaders were forced to give their members a final say over any coalition pact that emerges.

Brexit: No news on this front, but economically, U.K. unemployment for the three months to November (they do rolling three-month reporting periods here) was 4.3%.

Wage growth in November was 2.5%, but inflation was 3.1%.

And GDP for the fourth quarter was 0.5%, 1.8% for 2017, vs. 1.9% in 2016, the slowest since 2012. But, given the uncertainty over Brexit, GDP came in better than expected.

Catalonia: The new speaker of the Catalan parliament has proposed fugitive ex-leader Carles Puigdemont as candidate to form a government later this month, the house voting on Jan. 31.

If Puigdemont regains the job as leader of the restive region, it will lead to further confrontation between Spain and Catalonia.

If he returns to Spain, Puigdemont faces charges of sedition and rebellion for his role in the region’s push for independence in October. He says he can rule from Brussels.  But parliament’s rules demand the leader has to present government programs “in front of the house.”  The government in Madrid says this means he has to be there physically.

Eurobits....

--Speaking on Britain’s ITV Good Morning Britain Show, President Trump sort of apologized for sharing anti-Muslim videos originally posted by a leader of a far-right fringe group, adding he had not intended to cause offense.

Trump said he knew nothing about the group but that he was the “least racist person that anybody’s going to meet” and that his retweet was not an endorsement.

When pressed on whether he would apologize for his retweet, though, Trump said that if the group was made up of racists then he would.

“Here’s what’s fair, if you’re telling me they’re horrible people, horrible racist people I would certainly apologize if you would like me to do that,” Trump said.  Oh brother.

--France’s private sector saw record hiring in the fourth quarter of 2017, welcome news for President Macron who pushed through an unpopular labor reform aimed at lowering unemployment. Companies registered 2.07 million new hires on contracts of longer than one month in the quarter, up 3.4 percent from the previous one and the highest level since figures were first collected in 2000.

--IG Metall, Germany’s largest labor union representing 3.9 million workers, has threatened to intensify pressure on employers by calling day-long walkouts that would have a much more disruptive impact than the current largely hour-long protests. The union is still pushing employers to raise pay 6 percent, and reduce the work week.

Related to the above, German business confidence is at a record level.

Turning to Asia....most of the news was on the Japanese economy. A flash reading on manufacturing in January came  in at a solid 54.4 vs. 54.0 in December.

Exports in December rose 9.3% from a year earlier, below expectations but it’s now 13 straight months of expansion. Exports to Asia rose 9.9% year-on-year, and 15.8% to China. Imports increased 14.9%.

Meanwhile, core consumer prices, which in Japan is ex-fresh food, rose 0.9% in December, annualized, but up just 0.3% ex-fresh food and energy.  Prime Minister Abe continues to urge companies to raise wages 3% to spur consumption...and inflation.

So the Bank of Japan took it all in and kept interest rates on hold, as expected, the central bank maintaining the overnight interest rate at minus 0.1% and 10-year bond yields at about zero. The BoJ still hopes to see core inflation of 2% sometime in 2019.

As for China, in Davos, a reclusive and senior adviser to President Xi Jinping, Liu He, said that Chinese government planned to bring its debt under control within three years.

“We have full confidence and a clear plan to get the job done,” he said, while offering no details, or a specific standard by which China could be judged on whether it had achieved its goal. Then again, this is the land of make-believe numbers to begin with.

Liu was named in October to the powerful Communist Party Politburo and is seen taking charge of a financial stability commission created last summer that will have broad powers to oversee domestic economic policy. At Davos, Liu also repeated a pledge made by other Chinese officials to open up markets to foreign competition in everything from financial services to cars, at which point attendees muffled ‘bulls---.’

Street Bytes

--With just three trading days to go in January, here’s what we know.  The Dow Jones, S&P 500 and Nasdaq are all up 7.5%-8.7% in the month, a stupendous start.  We also know the market rose during the seven-day “Santa Claus Rally” that straddles December and January; it rose in the first five trading days of the new year; and it will end January with gains.

Since 1950, of the 29 times in which the S&P 500 stock index rose in all three of those periods, it finished the year higher 27 times, or 93% of the time, according to The Stock Trader’s Almanac.  Following those trifectas, the large-company index posted average full-year gains of 18%.  To paraphrase Lloyd Bridges in “Airplane!,” looks like I picked the wrong year to say the market would finish down

For the past week, the Dow gained 2.1% to 26616, the S&P rose 2.2% to 2872, and Nasdaq was up another 2.3% to 7505, all-time highs for each.

As for earnings season, of the roughly quarter of companies in the S&P 500 that have reported thus far, 77% have beat estimates, according to FactSet.

--U.S. Treasury Yields

6-mo. 1.63%   2-yr. 2.12%  10-yr. 2.66%  30-yr. 2.91%

--The Senate confirmed Jerome Powell to become the 16th chairman of the Federal Reserve, the vote being 84-13.  Powell will take over when Chair Janet Yellen’s four-year term ends Feb. 3.

On the Democratic side, some potential candidates for the 2020 presidential nomination voted against, including Sens. Elizabeth Warren (Mass.), Kamala Harris (Calif.), and Cory Booker (N.J.).  Independent Sen. Bernie Sanders (Vt.) also opposed the nomination.

Powell is expected to stick with Yellen’s cautious and gradual approach in raising interest rates.

--Oil found support this week and finished at a new multi-year high of $66.24 after global crude producers reaffirmed their commitment to supply curbs for all of 2018, with OPEC kingpin Saudi Arabia saying “cooperation” should continue beyond this year.

Saudi Arabia’s energy minister blasted the International Energy Agency in Davos for overhyping the impact of U.S. shale growth.

Khalid Al Falih said at an energy panel in Davos that the agency failed to put U.S. production into context.

But Falih was appearing alongside his Russian counterpart and U.S. Energy Secretary Rick Perry, the three representing nations that today account for more than a third of total global crude production. The appearance of Perry tells you all you need to know about the growth of shale, too.

The IEA said last week that U.S. crude production was on course to overtake Saudi Arabia and Russia, as I wrote, hiking their U.S. growth forecast to more than 10m b/d.

Separately, five workers were killed in a well explosion in Oklahoma on Tuesday, the deadliest shale-drilling accident since the boom in U.S. oil and gas production began a decade ago.

The accident occurred in Pittsburg County, Okla., 150 miles east of Oklahoma City.  The well was being drilled by Patterson-UTI Energy Inc., a Houston-based drilling company, for operator Red Mountain Energy, a small, Oklahoma-based producer. Three of the victims were Patterson employees.

--JPMorgan Chase is taking advantage of the benefits of the tax law changes and overall growth by unrolling a $20 billion, five-year investment across its businesses, with the largest U.S. bank by assets planning on opening 400 branches in new markets across the country, while growing its home lending business to lower-income consumers and boosting wages for some retail-banking employees.

Finance chief Marianne Lake said earlier this month that the bank’s effective tax rate would be about 19% this year and 20% over the near term, down from 35% previously.

The move to open branches is a strange one, given the industry has been closing them.  And Chase has been slimming down itself in certain areas.  JPMorgan currently has about 5,130 branches in 23 states.  But now it is looking to expand in markets such as Washington, D.C., Boston and Philadelphia.

As part of its plan, about 1,600 bank tellers and customer-service representatives in the New York area will see their pay jump to $18 an hour from the current range of $12 to $16.50 per hour.

--Regarding the above-noted trade issue, LG Electronics has told retailers it planned on raising the price on its laundry appliances in the wake of President Trump’s approval this week of steep tariffs on imported washing machines.

LG, a South Korean manufacturer, is expected to raise the retail price on its washer and dryer models by approximately $50.

In the fourth quarter, LG accounted for 18% of U.S. retail sales.  The pricing move is but an example of the downstream impact of protectionist measures.

The Trump administration is imposing 20% tariffs on the first 1.2 million units annually, then 50% on those imported after that.

Whirlpool Corp., the Michigan-based appliance manufacturer, had sought the protections under a long-dormant 1970s-era provision known as the “safeguard law.”  The company has argued Samsung Electronics Co. and LG imports have severely harmed its washer business, endangering U.S. jobs.  LG and Samsung have said they gained traction through innovation and by giving consumers products they wanted.

Plus Samsung has hired 600 workers for a factory in South Carolina, and LG is completing a plant in Tennessee this year.

--As part of its earnings statement on Wednesday, General Electric said it is under investigation by U.S. regulators after taking a larger-than-expected charge in its finance division.

The SEC is looking at the accounting practices in GE’s insurance business as well as “revenue recognition and controls for long-term service agreements” in the power-equipment unit, GE’s CFO said.  CEO John Flannery previously disclosed the $6.2 billion fourth-quarter charge, which is tied to old insurance policies for long-term care.

The shares fell back on this news after rallying when Flannery, who took the reins in August, said GE is in talks for more than 20 asset dispositions in 2018.

Meanwhile, adjusted earnings fell short of the Street’s expectations, ditto revenue, though GE said strength in its jet-engine and health-care businesses give it confidence it will meet its 2018 eps forecast.

That said, that puts the stock at about a 16 p/e on this year’s earnings and it’s tough to see much upside from here, even at Friday’s closing price of $16.10.

--Ford Motor Co. reported disappointing fourth-quarter results and reiterated a bleak outlook for 2018, including a low profit margin on its core auto business vs. the competition.  Q4 operating income fell 19% to $1.7 billion, hurt by higher commodity prices, as well as unfavorable foreign-exchange rates. Revenue rose 7% to $41.3 billion, surpassing expectations.

Fourth-quarter operating profit in North America fell 16% to $1.6 billion, as higher warranty costs offset strong sales and pricing on Ford’s flagship pickup-truck business.

At least Ford’s roughly 57,000 unionized U.S. workers will get profit-sharing bonuses of about $7,500, based on 2017 North American profit.

But the performance gap between Ford and GM continues to widen.

--The National Transportation Safety Board is investigating an accident involving a Tesla Model S sedan that rear-ended a firetruck on a Southern California freeway Monday, the agency said. The probe is the second by the agency into a crash involving Tesla’s Autopilot feature. The system combines advanced cruise control and automatic steering systems that allow for hands-free driving in limited scenarios but Tesla says the human driver should pay attention to the road at all times.

The Tesla driver said he had the vehicle’s Autopilot driver-assist system engaged when it struck a firetruck while traveling at about 65 mph, according to the Culver City firefighters.  [The good thing was no one was hurt.]

--Separately, Elon Musk’s new compensation plan at Tesla is one of the most radical in corporate history, as reported by the New York Times’ Andrew Ross Sorkin.

Tesla has set a dozen targets, based on market value and operations, with Musk receiving 1.68 million shares, or about 1 percent of the company, only after reaching various milestones.  Otherwise he is paid nothing.

If Musk were somehow to increase the value of Tesla to $650 billion, from about $58 billion today, his stock award could be worth as much as $55 billion.  He would receive billions for reaching several of the milestones along the way.

Some are just calling this latest compensation plan a P.R. stunt, with the company continuing to lose money.  Short-seller Jim Chanos contends the company is worthless.

--United Airlines shook the sector up in a big way when in its fourth-quarter earnings report, it signaled that average fares would inch higher early this year, but that executives were mapping out aggressive growth plans...namely, more capacity...ergo, potential fare wars.

United beat analysts’ expectations for  earnings and issued optimistic guidance, but it was the plan to increase capacity by between 4 and 6 percent each year through 2020 that shook up competitors, and UAL, as its shares fell 16% following the announcement.

Separately, CEO Oscar Munoz bragged that after being known as a laggard in on-time rankings, United is now above-average in each of the last nine months for which figures are available, as put out by the Department of Transportation.

--Shares in Netflix soared more than 20% on news its fourth-quarter revenue blew by expectations amid much-higher-than-expected subscriber additions, the company adding 6.36 million subscribers in international markets in the fourth quarter*, beating expectations of 5.1 million, according to FaceSet.  It now has 117.58 million streaming subscribers globally.

*Total subscriber growth, including domestically, came in at 8.33 million, almost 2 million over forecast.

Netflix said that with the rapid subscriber growth, it was committed to spend $7.5-$8.0bn on content in 2018 to support the content slate and ever-growing library.

Netflix’ rivals Hulu and Amazon.com’s Prime Video are doing the same thing on the spending side.

But once again, cash burn is a major item of concern for some, as the company projected its negative free cash flow this year would be more than double what the Street has been forecasting.  The loss for 2017 was $2 billion, and Netflix said it expects negative free cash flow of $3 billion to $4 billion this year, well above the Street’s estimates, but for now, much like with Amazon’s first major earnings reports, it’s about growth and building market share over the balance sheet.

--Editorial / The Economist...part II of a conversation from last week....

“Not long ago, being the boss of a big Western tech firm was a dream job. As the billions rolled in, so did the plaudits: Google, Facebook, Amazon and others were making the world a better place. Today, these companies are accused of being BAADD – big, anti-competitive, addictive and destructive to democracy.  Regulators fine them, politicians grill them and one-time backers warn of their power to cause harm.

“Much of this techlash is misguided. The presumption that big businesses must necessarily be wicked is plain wrong.  Apple is to be admired as the world’s most valuable listed company for the simple reason that it makes things people want to buy, even while facing fierce competition.  Many online services would be worse if their providers were smaller. Evidence for the link between smartphones and unhappiness is weak. Fake news is not only an online phenomenon.

“But big tech platforms, particularly Facebook, Google and Amazon, do indeed raise a worry about fair competition. That is partly because they often benefit from legal exemptions.... Many of their services appear to be free, but users ‘pay’ for them by giving away their data.  Powerful though they already are, their huge stockmarket valuations suggest that investors are counting on them to double or even triple in size in the next decade.

“There is thus a justified fear that the tech titans will use their power to protect and extend their dominance, to the detriment of consumers.  The tricky task for policymakers is to restrain them without unduly stifling innovation.

“The platforms have become so dominant because they benefit from ‘network effects’. Size begets size: the more sellers Amazon, say, can attract, the more buyers will shop there, which attracts more sellers, and so on. By some estimates, Amazon captures over 40% of online shopping in America. With more than 2bn monthly users, Facebook holds sway over the media industry. Firms cannot do without Google, which in some countries processes more than 90% of web searches. Facebook and Google control two-thirds of America’s online ad revenues.

“America’s trustbusters have given tech giants the benefit of the doubt. They look for consumer harm, which is hard to establish when prices are falling and services are ‘free.’ The firms themselves stress that a giant-killing startup is just a click away and that they could be toppled by a new technology, such as the blockchain....

“However, the barriers to entry are rising. Facebook not only owns the world’s largest pool of personal data, but also its biggest ‘social graph’ – the list of its members and how they are connected. Amazon has more pricing information than any other firm. Voice assistants, such as Amazon’s Alexa and Google’s Assistant, will give them even more control over how people experience the internet. China’s tech firms have the heft to compete, but are not about to get unfettered access to Western consumers.

“If this trend runs its course, consumers will suffer as the tech industry becomes less vibrant....

“Two broad changes of thinking would go a long way towards sensibly taming the titans. The first is to make better use of existing competition law. Trustbusters should scrutinize mergers to gauge whether a deal is likely to neutralize a potential long-term threat, even if the target is small at the time. Such scrutiny might have prevented Facebook’s acquisition of Instagram and Google’s of Waze, which makes navigation software.

“Second, trustbusters need to think afresh about how tech markets work. A central insight, one increasingly discussed among economists and regulators, is that personal data are the currency in which customers actually buy services. Through that prism, the tech titans receive valuable information – on their users’ behavior, friends and purchasing habits – in return for their products. Just as America drew up sophisticated rules about intellectual property in the 19th century, so it needs a new set of laws to govern the ownership and exchange of data, with the aim of giving solid rights to individuals.

“In essence this means giving people more control over their information.  If a user so desires, key data should be made available in real time to other firms – as banks in Europe are now required to do with customers’ account information.... These mechanisms would turn data from something titans hoard, to suppress competition, into something users share, to foster innovation.

“None of this will be simple, but it would tame the titans without wrecking the gains they have brought....Upstart competitors would have access to some of the data that larger firms hold and thus be better equipped to grow to maturity without being gobbled up.”

--Shares in Wynn Resorts plunged 10% Friday afternoon on a report from the Wall Street Journal of allegations of sexual misconduct by founder Steve Wynn. He immediately called the accusations “preposterous,” though it does not look good for him; the Journal describing a pattern of bad behavior stretching over decades.

The 75-year-old Wynn is co-founder, chairman, and CEO, and doesn’t have a succession plan.  Of the 10 board members, only one, Patricia Mulroy, is a woman.

Mr. Wynn is blaming his ex-wife, Elaine, for the story, saying she is seeking better divorce terms, including an attempt to regain control of her 9% stake in the company that as part of an agreement with Steve, gave him the right to vote her shares (he has 12% himself), according to Bloomberg in a story from a month ago.

Ergo, this tale has legs.

--A U.S. tribunal unexpectedly dismissed a complaint by Boeing Co. against alleged dumping by Canadian airplane maker Bombardier Inc. in the case of 75 jets it sold to Delta. The ruling allows the firm to pursue other orders in the U.S. market.

Canadian Foreign Minister Chrystia Freeland said in a statement: “Canada-United States trade is important to the prosperity of both our countries. This decision will support well-paying middle-class jobs on both sides of the border.”

This was a hugely important ruling amid the discussions on modernizing NAFTA, as talks between the U.S., Canada and Mexico are being held in Montreal for the sixth of seven planned rounds.

--Starbucks Corp.’s domestic business suffered in the recently completed quarter and the shares took a hit on Friday. The U.S. coffee market is crowded and Starbucks has experienced slowing sales.

The company posted a 2% rise in same-store sales in its home market and globally in its first fiscal quarter, below expectations of 3%, though sales rose 6% in China on a comp-store basis.

Starbucks did have a profit of $2.2 billion vs. $751.8 million in the year-ago period.  Overall revenue rose 6% to $6.1 billion.

--Honeywell International beat the Street on both earnings and revenues, though barely on each. The company raised guidance for 2018 to reflect the expected lower tax rate.

--Verizon Communications reported quarterly revenue that exceeded expectations as it added 431,000 phone subscribers, with total revenue rising to $34.0 billion from $32.34 billion a year earlier.

CEO Lowell McAdam said that despite rival AT&T’s attempt to close an acquisition of Time Warner, Verizon is not considering a large media play, adding “being independent is a very good place to play for us right now.”

Verizon added 47,000 Fios internet connections in the quarter and lost 29,000 Fios video connections as consumers shifted to cheaper streaming services.

--The Walt Disney Co. is giving more than 125,000 eligible employees a one-time $1,000 cash bonus and investing $50 million in an education funding program as a result of tax reform.

--Johnson & Johnson reported earnings and revenue that topped analysts’ expectations, with revenue at $20.2 billion, up 11.5% from the same quarter last year. The company also boosted guidance for 2018.

But the shares fell hard as investors were confused over the outlook, following the company’s announcement that sales of its blockbuster arthritis drug Remicade continued to fall in the fourth quarter, worse than expected.

--Intel beat earnings and revenue expectations for the recently completed quarter and the stock rose sharply. Revenue rose 4%, year over year, to $17.1 billion, as the company announced it was raising its dividend 10%, owing largely to the tax cut act. 

Intel has been working to overcome continued decline in its largest market, PCs and laptops.  But sales in the division responsible for server chips and other data-center gear climbed to $5.6 billion, pushing full-year growth to 11%, above Intel’s goal. The company is seeing strong sales to corporate data centers, which had been sluggish.

Intel raised its guidance for 2018, but at a slower growth rate.

The company also said it doesn’t expect its recently disclosed security holes in virtually all its processors to affect its finances, though questions linger as to what redress customers may have seeing as none of us really know the full impact yet.  CEO Brian Krzanich said the company is working around the clock to fix the flaws, but he added, “I am acutely aware that we have more to do.”

--Twitter is losing Chief Operating Officer Anthony Noto to financial technology company Social Finance Inc. (SoFi), with Noto accepting the role of CEO there.

Noto became Twitter’s CFO in 2014 after a career in banking at Goldman Sachs, and he’s been credited with helping Twitter’s turnaround efforts, while being an important balance to CEO Jack Dorsey, who is not exactly a dynamic presence when it comes to leadership style.   Noto became COO in 2016.

But on Friday the shares rose nearly 10% on word an activist investor had taken a sizable position.

--UBS Group AG Chairman Axel Weber said the Swiss bank won’t trade Bitcoin or offer it to retail clients as increased regulation could lead to a “massive” drop in value, Weber told Bloomberg at the World Economic Forum.

“We fear that in the future if these investments implode and the market corrects, then investors will be looking at who sold us this.”

Weber is calling for greater oversight, which we’ve already been seeing in South Korea and China, while the European Commission is preparing to ramp up its own form of regulation.

--Caterpillar blew away earnings estimates, with revenue of $12.9 billion in the fourth quarter that also beat, as equipment sales surged 35% on strong global demand for construction, mining and energy machines. Caterpillar is the world’s largest heavy-duty equipment maker, so it serves as a bellwether for the global economy, and synchronized growth benefits it as much as anyone.

For 2018, CAT’s CEO Jim Umpleby told analysts the company expects a strong start to the year, with further improvement in North American residential and non-residential markets, as well as from an infrastructure spend. And rising gold, iron ore and copper prices bold well for mining equipment...and parts.

Caterpillar had witnessed a 40 percent fall in sales between 2012 and 2016 during the commodities downturn and it was forced to reduce total workforce by 16,000, so there are some concerns they may not have a large enough workforce to meet growing demand. And after the earnings were  released, in the pre-market Thursday, the stock then traded all over the place, with bulls and bears tussling over potential execution issues.  That said, the stock is up about 80 percent in the past year so you had some profit taking as well.

--3M also reported healthy earnings for Q4 on Thursday, with sales of $8 billion, up 9% year-on-year.  For the year sales rose 5.1% to a record $31.7 billion. The company raised guidance for 2018.

--Toys R Us filed court documents outlining plans to close up to 182 stores as part of its bankruptcy reorganization plans.

In addition the company intends to convert a number of locations into combined Toys R Us and Babies R Us stores.

--At the height of an especially bad flu season, Kimberly-Clark, the maker of Kleenex, plans to close factories because it says facial-tissue sales are falling.  5,500 jobs and 10 plants are impacted, with some of the latter to be sold.

The company blamed not just sluggish sales, but a bloated production base.

Competitors have been slashing prices on tissues, damaging Kleenex sales in North America.  Your editor buys most of his tissues at Dollar Tree, Scottie’s, and I just checked the box. Lo and behold, they are manufactured by Kimberly-Clark.  [As they were saying...]

Meanwhile, KMB reported a slight uptick in 2017 sales to $18.3 billion, while net income rose 22% to $617 million. The company has 43,000 employees in 56 countries.

--California’s unemployment rate fell to 4.3% in December, according to the state Employment Development Department, a new record low for a survey that started in 1976.

The biggest job gains were in government. Wage growth has also been stronger in the state than it has been nationwide (3.1% in November vs. 2.4%).

--But speaking of California, about three times a year I get together for a few beers with Marine / commercial airline pilot Bobby C., who hails from San Diego, when his travels find him in his old hometown (mine), and we talk about the world scene mostly, but also about topics such as California’s bullet train.

For example, two years ago, the California rail authority unveiled an ambitious plan to begin operating a segment of bullet train service between San Jose and the Central Valley by 2025.  As Ralph Vartabedian of the Los Angeles Times wrote the other day, “It would take nearly every penny in its checkbook, but the rail authority assured the public it would work.”

“But that plan has been crushed by the acknowledgement Tuesday that the cost of building just 119 miles of rail between the farm towns of Madera and Wasco has soared from about $6 billion to $10.6 billion, siphoning off money that the authority had planned to allocate to the ultimate goal of connecting Los Angeles and San Francisco.

“It has left the broader high-speed rail project, a lofty objective that Gov. Jerry Brown has pursued since the 1980s, in an existential crisis.”

So it seems the next governor, and legislature, will have to dramatically delay or scale back the complete 550-mile system. It just seems inevitable.

Bobby C. has described to me more of the logistics, and what would be required to add ridership to make it even remotely economically feasible once the system is completed, if ever, and for one, you potentially slow down the time it takes from various destinations, which kind of defeats the purpose of having a high-speed rail line, versus flying from San Fran to L.A., for example.

Plus if the state is having problems building the line at original cost in the Central Valley, where farmland is cheap and there are no mountains to cross, imagine the cost of the other segments.

But there are 1,500 construction workers on the job in the Central Valley today, and you can just imagine how this nightmare is going to grow and grow and grow.

Get this, the entire price tag for the entire L.A. to San Francisco system is $64 billion, and even with state bonds, federal grants and special fees that are earmarked for the project through 2025, there is a current funding gap of roughly $45 billion, according to Ralph Vartabedian of the Times.

--Budweiser is no longer among the top three best-selling beers in the U.S., according to Beer Marketer’s Insights, as people drink less beer or switch to craft brews, wine or spirits.

Miller Lite has supplanted Bud as the No. 3 favorite beer, behind No. 1 Bud Light and No. 2 Coors Light, according to 2017 estimates from the trade publication. [Corona rounds out the top 5.]

Bud gave up the top spot to Bud Light in 2001, and holds a 6.2% market share of beer shipped from U.S. breweries to wholesalers for distribution in the U.S., down from 6.6% in 2016.

Coor’s Light took over the No. 2 spot in 2011, its market share dipping to 7.6% from 7.9%.

Craft beer sales continue to rise, more than 1 million barrels to 25 million barrels total, compared with 10.7 million barrels in 2010, BMI estimates.

But some of the big craft beer brands, including No. 1 Boston Beer Co. (Samuel Adams), and No. 2 Sierra Nevada Brewing Co., have seen sales decline.

The two brands with the biggest increases in shipments in 2017: Michelob Ultra, also made by Anheuser-Busch, increased shipments 21% to make it the No. 6 major beer, and No. 8 craft brewery Founders Brewing Co., which increased shipments 34%.

--Travel to the U.S. is falling with the number of international visitors declining by 4% in the first seven months of 2017, according to the U.S. National Travel & Tourism Office.

Some have dubbed the fall the “Trump slump,” pointing to some of his rhetoric and anti-immigrant comments, as well as tighter visa rules for some countries.

In the important UK market, a weaker pound is likely dissuading visitors.  But broadly speaking, the dollar’s value has fallen sharply, making it cheaper for most foreigners to travel to the U.S. than it was in 2016.

--British tourists are being warned they should stay inside their resorts in Montego Bay, Jamaica.

The Jamaican government declared a state of emergency in the St. James parish after a number of “shooting incidents.”

The Foreign Office told British tourists to stay in the confines of their hotels as a “major military operation” takes place.

I didn’t see if the U.S. State Department issued a similar warning.

Just in this one area of the country, according to the Independent newspaper, “Last year there were an average of six killings a week – and since the start of the year it has gotten even worse.”

A Jamaican newspaper, the Gleaner, reported there were 335 murders in the St. James parish in 2017, and that there had been 38 killings across the country in the first six days of 2018, compared with 23 over the same period last year.  [BBC News]

Yikes.

--According to flight attendants who have checked out the new 737 Max planes, such as on American Airlines, the lavatories are extra small...so small that fliers can only wash one hand at a time, while the water from the faucet splashes onto anyone attempting to wash them.

The manufacturer of the plane, Boeing, designed the compact bathrooms that way to squeeze in about a dozen extra seats in the cabin than in older versions of the 737.  [Hugo Martin / L.A. Times]

--The aforementioned Mr. Martin also had a piece on United Airlines, which recently began printing their inflight magazine on “lighter paper,” cutting 1 ounce from each magazine. So it now weighs 6.85 ounces.

So for a typical 737 plane carrying 179 passengers, the reduction would mean about 11 pounds per flight.

“The airline said that slight weight reduction is saving 170,000 gallons of fuel a year, or $290,000 in annual fuel costs.”

--The New York Post’s Emily Smith reports that “The atmosphere is so bad around Megyn Kelly at ‘Today’ that producers of the 7-to-9 a.m. slot, hosted by Savannah Guthrie and Hoda Kotb, are openly sniping at her.

“Kelly, who takes over ‘Today’ at 9 a.m., had ‘congratulated’ Kotb, ‘Mean Girls’-style, when the latter landed Matt Lauer’s job.  On Jan. 2, Kelly said to Kotb, live on air, ‘We talked recently about how, 10 years ago, your life was very different.  You were going through a dark period.’

“But Kelly didn’t explain that she was referring to when Kotb was diagnosed with breast cancer and underwent surgery. She merely added, ‘Do you take a moment on a day like this to stop and think, ‘Holy moly’?’

“An NBC News insider told Page Six, ‘Everybody in the control room gasped when Megyn brought up Hoda’s ‘dark period,’ because many viewers likely won’t know exactly what she was referring to. That comment was awkward, mean-spirited. It really stung.’”

I told you at the time that NBC made a massive mistake in hiring Megyn, especially at the price. She’s just not that good, for starters.  And now we’ve learned what a, you know, jerk, she is.

Foreign Affairs

Syria/Turkey: Last week I told you Turkey was preparing for an offensive in Syria against  a Kurdish militia, the YPG.  So Saturday, Turkish launched an air attack in northern Syria’s Afrin province, pounding YPG positions. Sunday, Turkish ground forces pushed into Afrin in what Ankara is calling “Operation Olive Branch.”  Turkey is seeking to sweep U.S.-backed Kurdish militia from its border.

Saturday, the Pentagon said: “We encourage all parties to avoid escalation and to focus on the most important task of defeating ISIS.”

The Syrian-Kurdish YPG militia, supported by the United States but seen as a terrorist organization by Turkey, said it had repulsed the Turkish forces and their allies after fierce clashes.  Tuesday, U.S. Defense Secretary Jim Mattis said Turkey’s offensive distracted from efforts to defeat Islamic State. Turkish Foreign Minister Mevlut Cavusoglu reiterated Ankara’s demand that Washington stop supporting the YPG. The Kurdish-led administration of northeastern Syria appealed for a mass mobilization in defense of Afrin.

Erdogan told President Trump in a phone call on Wednesday that U.S. troops should withdraw from northern Syria’s Manbij region. President Trump urged Erdogan to curtail the military operations. But Turkey disputed that characterization of the conversation. [More later.]

Erdogan, prior to the call, had said Turkey would extend its military operation in Syria to the town of Manbij, a move that could potentially bring Turkish forces into confrontation with those of their NATO ally the United States.

Then Thursday, Turkey urged the United States directly to halt its support of the YPG or risk confronting Turkish forces.

The Kurdish-led autonomous administration that runs Afrin on Thursday called on the Syrian government to defend its border with Turkey in Afrin despite Damascus’ stance against Kurdish autonomy.  “We call on the Syrian state to carry out its sovereign obligations towards Afrin and protect its borders with Turkey from attacks of the Turkish occupier,” per a statement on its website.

The Syrian government has said it is ready to target Turkish jets in its airspace, but has not intervened so far. It suspects the Kurds of wanting independence in the long run and does not recognize autonomous districts they have set up in northern Syria.

U.S. forces are deployed in and around Manbij to deter Turkish and U.S.-backed rebels from attacking each other.

According to the Syrian Observatory for Human Rights, a Britain-based monitoring group. Dozens of combatants and more than two dozen civilians have been killed thus far since the start of Turkey’s operation.  The Turkish military said in a statement it had killed 303 militants in northern Syria since the operation started.

Tonight, the U.S.-backed Syrian Democratic Forces (SDF) said Turkey would face “the appropriate response” if it follows through on a threat to widen its assault on the YPG.

A new front in Syria’s multi-sided civil war has been opened.

Separately, the operation has also triggered some concern in Germany, another NATO ally, where the caretaker government said it would put on hold any decision on upgrading Turkey’s German-made tanks.  Turkey’s use of the Leopard 2 tanks in Afrin has fueled a debate about Berlin’s approval of arms exports.

Editorial / Wall Street Journal

“The U.S. and its allies have all but defeated Islamic State in Syria, but the Trump Administration is in danger of squandering the strategic gains. Witness the unfolding fiasco there, with invading Turkish forces battering America’s Kurdish allies and threatening an area close to US. Troops. This is what comes of muscular talk without the will or strategy to enforce it.

“President Trump spoke by phone to Turkish President Recep Tayyip Erdogan on Wednesday, and it must have been tense. Mr. Erdogan’s troops are pounding Kurdish positions in northern Syria, and on Wednesday he threatened to attack the city of Manbij, where U.S. forces are based.  Mr. Erdogan is vowing to clear the Kurds out of those enclaves, and the danger is that U.S. and Turkish soldiers, two NATO allies, could soon clash.

“Mr. Erdogan claims to be furious at U.S media reports that the Pentagon plans to train a 30,000-troop Kurdish-led force in northeast Syria that he claims is aligned with the terrorist Kurdish PKK. The U.S. has tried to soothe Mr. Erdogan that the Kurdish border force would pose no threat.

“But Secretary of State Rex Tillerson confirmed in a speech last week that the U.S. does plan to keep some military force in Syria for the foreseeable future. The goal is to support for Kurds and Sunni Arabs who fought with us against ISIS, block Iran from dominating post-ISIS Syria, and retain some leverage in talks to end the Syrian civil war.  U.S. forces would turn the Syrian Democratic Forces (SDF), including Kurds and Arabs, into a ‘stabilizing’ force.

“The idea has merit. The U.S.-backed Kurdish People’s Protection Units in Syria, known as the YPG, fought valiantly to defeat the Islamic State and deserve training and protection until they can protect themselves.  So do local Arab groups who fought alongside the SDF.

“Turkey would also benefit from a stable border zone supervised by U.S.-backed forces.  Ankara has accepted millions of refugees during the Syrian civil war and doesn’t need more. A Kurdish safe zone, rich with energy resources, could also create goodwill between Ankara and the Kurds.

“The question is whether the Trump Administration is prepared to do what it takes to execute such a policy. That would mean explaining to Mr. Erdogan, at the highest military and diplomatic level, how this can serve Turkey’s interests in a more stable Syria. This seems to have been a diplomatic afterthought for team Trump.

“It would also mean dropping illusions about Russia’s malign influence. Messrs. Trump and Tillerson seem to believe that Russia wants to broker an end to the war – and it does, but only on its terms. If America’s Kurdish and Sunni allies control no territory in Syria, the U.S. might as well be Guatemala in the peace talks.

“Speaking of malign, Russia continues to provide political cover for chemical-weapons use in Syria, almost certainly by Bashar Assad’s forces. Another chlorine gas attack occurred Monday in the rebel stronghold of East Ghouta. Russia dismissed the reports, which is convenient because late last year it blocked an extension for the UN group investigating such claims. Russia is also supporting Mr. Erdogan’s military campaign against the Kurds, the better to embarrass the U.S. for not being able to defend its allies.

“All of this is setting up Mr. Trump for an Obama-sized strategic embarrassment. The President showed resolve in punishing Assad for his chemical attack last year and by stepping up the military campaign against Islamic State. That signaled to the region’s bad actors that the days of American retreat might be over.

“But now that the U.S. and Kurds have done the dirty work, Russia, Syria, Turkey and al Qaeda want to push the U.S. out. If they succeed, Mr. Trump will pay a price in lost credibility on par with Mr. Obama’s failure to enforce his famous red line on chemical weapons. The White House has to show the diplomatic and military will to sustain a safe zone in Syria, or tell our allies they’re on their own so they can make their our accommodations with the bullies of Ankara, Tehran and Moscow.”

Editorial / The Economist

“Seventy-two Turkish fighter jets cut through the skies above north-west Syria on January 20th, dropping bombs on the Kurdish enclave of Afrin, while thousands of Turkish troops massed at the border. They were joined by busloads of Syrian rebels, Turkey’s proxies in the fight against Bashar al-Assad’s blood-soaked regime in Damascus. So it was that Turkey opened a new front in the Syrian war, and in its unending conflict with Kurdish insurgents, with reverberations rippling to Washington, Moscow and Istanbul.

“The offensive pits NATO’s second-biggest army against a Kurdish militia called the People’s Protection Units (YPG), which Turkey says is a branch of its domestic foe, the Kurdistan Workers’ Party (PKK). The separatist PKK has fought an on-off insurgency against Turkish security forces for over three decades. But the YPG is best known for fighting Islamic State (IS) in Syria. American support, in the form of weapons and air strikes, helped the Kurds repel the jihadists and, to Turkey’s dismay, take control of vast stretches of land in the north. When America said it would create a 30,000-strong ‘border-security force’ in north-east Syria consisting largely of YPG fighters, Recep Tayyip Erdogan, Turkey’s president, vowed to ‘strangle it before it is born.’

“The incursion, which is inexplicably called Operation Olive Branch, appears to enjoy wide support across Turkey. The media have whipped themselves into a nationalist frenzy almost as big as the one that followed an abortive coup in 2016.  Of the four main parties in parliament, only one, a pro-Kurdish outfit whose leaders have been locked up for over a year, refused to support the offensive.  Mr. Erdogan argues that an emboldened YPG plans to use the Syrian borderlands in the same way as the PKK  has used the mountains of northern Iraq: as a launching pad for attacks against Turkey.  Most Turks seem to agree with him.

“Mr. Erdogan has ways of dealing with those who do not. Having caught wind of possible protests, he pledged to ‘crush anyone who opposes our national struggle’ and warned that police would be ‘breathing down the necks’ of those who took to the streets. Dozens of people, including at least five journalists, have been detained for social-media posts criticizing the offensive. In Northern Cyprus crowds of Turkish nationalists attacked the office of a local newspaper that likened Operation Olive Branch to Turkey’s invasion of the island in 1974 – i.e., an illegal occupation....

“America is caught in the middle – and sending out mixed messages. The Pentagon hopes to continue using the Kurds as a bulwark against Islamic militancy in Syria. The White House, though, has disavowed plans to create a new Kurdish-led force and downplayed America’s relationship with the Kurds.  In general, American officials have been loath to criticize Turkey, but in a phone call with Mr. Erdogan on January 25th, President Donald Trump expressed concern about the violence in Afrin. So says the White House, at least. A Turkish source said no such concerns were shared.

“While America loses leverage in Syria, Russia is filling the vacuum. It has mended its relationship with Turkey, which reached a low point in 2015, when the Turks shot down a Russian fighter jet over Syria.  Happy to stoke tension between America and its allies, Russia almost certainly gave the operation in Afrin a green light. It may be that in return Turkey looks the other way as Russian and Syrian forces pound rebels in Idlib, who are ostensibly allied with Turkey against the Assad regime.  But some think the Russians will eventually turn on Turkey and cut a deal with the Kurds that hands Mr. Assad control of Afrin.

“A more immediate concern is whether the Turks plan to push into other YPG strongholds. America has some 2,000 troops stationed in Syria, many in the Kurdish-held north-east.  If Turkish troops start shooting at YPG fighters in those areas, American soldiers could end up in the crossfire. The result could be a direct clash between NATO allies.”

David Ignatius / Washington Post

“Talking with Gen. Joseph Votel, the commander of American troops in the Middle East, is a paradoxical reminder of the limits of U.S. military power to determine political outcomes. American bombs helped destroy the Islamic State in Syria, but they can’t stitch the rag doll of the Syrian nation back together.

“Syria’s plight actually got a bit worse this week, as Turkey invaded the border region known as Afrin. Turkey says it’s protecting itself against the Syrian Kurdish organization known as the PKK, which dominates Afrin and which Turkey regards as a terrorist group. The problem is that related Syrian Kurdish forces (under a different name) have been the United States’ most important ally in defeating the Islamic State. The flashpoint is a town in northern Syria called Manbij, occupied by the Syrian Kurds and their U.S. military advisers. Turkish President Recep Tayyip Erdogan threatened last week to attack Manbij. A senior Trump administration official told me bluntly Tuesday: ‘Threats to our forces are not something we can accept.’ That’s what the unraveling U.S. relationship with ‘NATO partner’ Turkey has come to: military brinkmanship.

“What’s happening now in Syria is that history is resuming, after the bloody distraction of the Islamic State.  Long-standing grievances that were postponed while a U.S.-led coalition defeated the caliphate have returned with a vengeance. Turkey, Iran, Israel, Jordan, Russia and the United States are all pursuing their self-interests. The space separating these forces has collapsed – putting U.S. troops perilously close to collision with Russia, Turkey and Iran....

“U.S. officials speak as if America isn’t taking sides in Syria, now that the Islamic State is shattered. And certainly, the United States should move now to embrace all the pieces of Syria’s ethnic mosaic. But America shouldn’t forget its friends, either, or these haunting casualty numbers: In the final decisive battle to take the Islamic State capital of Raqqa, the Kurdish-led Syrian Democratic Forces (SDF) suffered 650 deaths, Votel says. American deaths in Raqqa were zero.

“The United States needs to bolster Sunni Arabs in Syria, lest the Islamic State return. But American commanders know that it’s the Kurds (whom the Turks now say they want to destroy) who have done the bulk of the fighting and dying. The civilian death toll in the Islamic State conflict hasn’t been well-calculated, but it was horrific....

“As the Islamic State campaign ends, old regional feuds resume. America can’t stop Turkey, Russia and Iran from making mistakes. But this isn’t the time to be pulling out America’s 1,500 advisers from northeast Syria and creating an even bigger vacuum.”

Yaroslav Trofimov / Wall Street Journal

“In Kurdish history, there’s a betrayal that looms large. In the 1970s, the U.S. armed Kurdish fighters to rise up against Saddam Hussein in Iraq, as part of an effort to help the pro-American Shah of Iran. Then, once the Shah suddenly struck his own deal with Saddam and no longer needed the Kurds, Washington simply walked away, ignoring Kurdish pleas to help avert an imminent bloodbath....

“Today, as four decades ago, the Kurds in both Syria and Iraq are realizing just how disposable they are to the regional – and global – powers. That’s especially so now that Kurdish help is no longer needed in the campaign to topple Islamic State, and as geopolitical alliances shift in the contest over the future of Syria and the entire region.  In northern Syria, the American- (and until recently Russian-) backed Kurdish forces this week came under a military onslaught by NATO ally Turkey, which is seeking to capture the Kurdish area of Afrin on its border, and threatens to invade other Kurdish-held regions of Syria further east.

“In Iraq, a different military operation by the U.S.-backed federal government of Iraq seized key territories, including the oil-rich area of Kirkuk, from Kurdish forces in October. Baghdad continues economic sanctions against northern Iraq’s self-ruled Kurdistan region, holding out the prospect of further military action.

“In both cases, the U.S. didn’t condemn these military operations, limiting itself to calls for restraint and for avoiding civilian casualties. Russia, meanwhile, appears to have allowed the Turkish air force to operate in Syrian airspace, and facilitated the Turkish incursion by withdrawing Russian forces that had been deployed in Afrin for two years.”

Yes, friends...to beat a dead horse it all still goes back to 2012, and Obama’s failure to work with President Erdogan on a no-fly zone for this very area (and points west).  From this single failure, a bloody river flowed.

Iran: Tehran’s secret service chief Mahmud Alawi said Sunday that a recent wave of civil unrest in Iran was led by government critics, not foreign powers, a significant admission.

Iranian President Hassan Rouhani and his vice president have also assigned blame to the country’s religious hardliners and critics of Rouhani’s reformist policies.

The demonstrations were driven by public opposition to economic policy and high inflation, resulting in anger being directed at the entire regime, according to the vice president, Eshaq Jahangiri.

Ultra-conservative critics, however, cling to conspiracy theories and foreign meddling as stoking the riots, according to the Interior Ministry’s report that was handed to Rouhani, per a story from Deutsche Presse.

Israel: In a trip to the Middle East, a long-delayed one, Vice President Mike Pence defended President Trump’s move to declare Jerusalem the capital of Israel, which touched off uneasiness among Arab nations in the region.

Pence met with Jordan’s King Abdullah II prior to going to Israel, and as he had earlier with Egypt’s President Fatah Abdel el-Sissi, Pence emphasized the U.S. commitment to the peace process between the Israelis and the Palestinian Authority, while adding the U.S. was committed to “preserving the status quo with regard to holy sites in Jerusalem,” while boundaries and other issues would be negotiated between the parties.

King Abdullah told Pence Jerusalem’s status “is key to peace in the region” and is as important to “Muslims and Christians as it is to Jews.”

Palestinian Authority President Mahmoud Abbas said he wouldn’t see Pence after President Trump recognized Jerusalem as Israel’s capital and pledged to relocate the U.S. embassy from Tel Aviv. But later in the week, Abbas said the PA will not abandon the 1993 Oslo Accords, which seek a peace deal in which Palestinians have an independent state alongside Israel.

Then in Jerusalem on Monday, Pence vowed the U.S. will open its embassy there next year, while signaling support for the resumption of talks toward an Israeli-Palestinian peace deal.

In a speech to Israel’s Knesset, Pence drew cheers when he formally announced the quick timetable for establishing an embassy in Jerusalem, declaring: “Jerusalem is Israel’s capital.”

And he urged Palestinian leaders to return to talks, the Palestinians wanting East Jerusalem as the capital of a future state.

The Palestinian Ambassador to Washington Husam Zomlot, responding to Trump’s statement about “taking Jerusalem off the table,” said the Trump administration was “backstabbing” the Palestinians and “reneging on their own promises” on the Israeli-Palestinian peace process.  Zomlot said: “You didn’t take Jerusalem off the table – you took away the whole table. No Palestinian will sit at it.”

Zomlot denied the administration ever presented the Palestinians with a peace plan.  “There wasn’t anything substantial,” he said.

No formal, high-level Middle East talks have taken place since 2014. The Trump administration has promised to propose a solution, with the president’s son-in-law, Jared Kushner, taking a lead role in the effort.

Meanwhile, the administration has slashed aid to the Palestinians, with Trump saying the funds will be cut off unless they negotiate.

Lastly, tonight, Israeli Television News Company, formerly Channel Two News, is reporting the Prime Minister Netanyahu is being summoned to testify in the submarine affair, as well as Energy Minister Yuval Steinitz.  It has been reported that five of Netanyahu’s associates are close to being indicted.

The investigation is focused on suspected corruption in a multimillion dollar submarine deal with German shipbuilder ThyssenKrupp. The $2.3 billion deal to purchase three submarines and four patrol boats to protect Israel’s offshore natural gas platforms has been postponed.

Afghanistan: Gunmen stormed an office of the Save the Children aid agency in Afghanistan’s eastern city of Jalalabad on Wednesday, killing at least five and wounding 25. ISIS claimed responsibility for the assault, which began with a suicide car bomb outside the office.  Luckily, 45 people were able to take refuge in a fortified “safe room” in the compound. At least three of those killed were Save the Children employees. 

The attack had its intended effect.  Save the Children immediately closed its operations in all of the country.

Earlier, a Taliban attack last Saturday on the Hotel Intercontinental in Kabul killed 22, including 13 foreigners, among which were four Americans and six Ukrainians (employees of Afghan carrier Kam Air), along with two Venezuelans.

An eyewitness told the BBC that two of the gunmen had asked him to serve them food first.

“They were wearing very stylish clothes,” he said. “They came to me and asked for food. I served them the food and they thanked me and took their seats. Then they took out their weapons and started shooting the people.”

Other attacks in the country Saturday killed at least another 28 people.

Libya: At least 33 were killed in a twin car bombing near a mosque in Benghazi. No one claimed responsibility. ISIS had established a foothold in the area but has been mostly driven out.  The city, though, remains a trouble spot, where bombings and attacks still occur. The city has seen fighting between forces loyal to local strongman Khalifa Hifter, a former U.S.-backed Libyan opposition member who leads remnants of Libya’s National Army in the east, and Islamist militia opponents.

Yemen: Saudi Arabia announced that it would donate $1.5 billion in new humanitarian aid to Yemen, where almost three years of war has devastated the country’s infrastructure, tanked the economy and caused widespread hunger and disease.  Really a startling gesture as it’s the Saudis and their coalition who have been bombing the country to bits.

Nonetheless, Saudi Arabia said it would give the money to the United Nations and let them disperse it as part of the UN’s nearly $3 billion humanitarian appeal. The war has killed over 10,000 and displaced 2 million. The UN estimates more than 22 million are in need of humanitarian assistance, with 8 million near starvation. Cholera is rampant.

North Korea: A year ago, President-Elect Trump tweeted in response to news North Korea was close to completing a nuclear weapon that could reach the United States, “It won’t happen!” But a year later, speaking at the American Enterprise Institute, CIA Director Mike Pompeo said the president’s long-term mission is to remove nuclear weapons from the Korean peninsula.  But in the near- to medium-term, Pompeo suggested, the administration would consider it a victory if Pyongyang merely stopped its program from progressing farther, as opposed to rolling it back.

Pompeo said the North is “a handful of months” away from “being able to hold America at risk” with a long-range, nuclear-tipped missile, noting that he had made the same estimate several months ago.  “We are working diligently to make sure that, a year from now, I can still tell you they are several months away from having that capacity.”  [Defense News]

Pompeo added that the CIA believes Kim’s aim was more than just deterrence against the United States to preserve his rule and that he would use his weapons for his ultimate goal of reunification of Korea under his control.

But the next few weeks it’s about the Pyeongchang Winter Olympics in South Korea, and North Korea’s participation.  All you need to know is Pyongyang is preparing to stage a major military parade just one day before the opening ceremony of the Games to mark the 70th anniversary of the founding of the North’s military.

A major show of military power could create anger in South Korea, which is hoping the Games are a symbol of peace and stability.

South Korea’s presidential Blue House rejected criticism in the country that the Games had been hijacked by North Korea, saying the event will help defuse tensions over Pyongyang’s nuclear and missile programs. Critics have taken to dubbing the Games the “Pyongyang Olympics.”  A presidential spokesman said at a news conference: “We’re confident that the Olympics will be a stepping stone to bring peace to the Korean peninsula, to Northeast Asia and the world.”

President Moon Jae-in’s approval rating has fallen, albeit to a still solid 66%, due to the fielding of a joint women’s ice hockey team and marching under a united flag.  Joint training started this week in the South.

Meanwhile, Japan said it spotted a North Korean oil tanker appearing to take on cargo in international waters in the East China Sea in a probable violation of United Nations sanctions, a rare case of Tokyo making public information about its monitoring of North Korean trade.

Last week I told you how the U.S. was tracking as many as six Chinese ships that may have been transporting oil to North Korean tankers out at sea.

Separately, Chinese Ambassador to the United States, Cui Tiankai, told USA TODAY’s editorial board that a reunified Korean Peninsula – even if it is aligned with the West – would not be a problem for China as long as it is peaceful and does not threaten national security.

Really? China would have no problem with a Western-aligned Korean Peninsula?

“I think it’s up to the Korean people, whether they are divided or unified, to adopt an independent foreign policy of their own,” Cui replied to USA TODAY. “They know where their best interests lie.”

China: I have predicted China will make a move on Taiwan this year, when experts say such a play wouldn’t come before 2020 at the earliest. Well, this week Taiwan’s government took a significant action against pressure from China by freezing applications from two major Chinese airlines, setting a stage for retaliation.

Last weekend, Taiwan’s Civil Aeronautics Administration put on hold applications from China Eastern and Xiamen Air to add a combined 176 flights during the Lunar New Year holiday next month. The government in Taipei cited safety concerns over China’s unilateral launch Jan. 4 of four new civilian aviation routes in the Taiwan Strait less than five miles from a median line dividing their air zones.

Since President Tsai took office in May 2016, this is the most significant retaliatory action she has taken against Beijing. China of course doesn’t like it.

Yet it’s China that has been exerting pressure at multiple levels, such as passing military aircraft near the island, urging Taiwan’s diplomatic allies to switch sides, and scaling back tourism.

Just about ten days ago, China passed an aircraft carrier through the Taiwan Strait, putting the island’s Defense Ministry on alert.

Separately, China has banned references to hip-hop culture and actors with tattoos from appearing in the media as part of a crackdown on “low taste content.”

The State Administration of Press, Publication, Radio, Film and Television of the People’s Republic of China issued four “don’ts” that the media must abide by.

“Absolutely do not use actors whose heart and morality are not aligned with the party and whose morality is not noble,” said the director of the agency.

“Absolutely do not use actors who are tasteless, vulgar and obscene. Absolutely do not use actors whose ideological level is low and have no class. Absolutely do not use actors with stains, scandal and problematic moral integrity.”

Citizens reacted with anger to the ban, flooding Chinese social media with negative comments.  [Irish Independent]

On a different topic, last weekend, Defense Secretary Jim Mattis said the United States must build up its military to prepare for the possibility of conflict with Russia and China, per a new Pentagon strategy.

In a speech at Johns Hopkins, Mattis said: “We will continue to prosecute the campaign against terrorists, but great-power competition – not terrorism – is now the primary focus of U.S. national security.  This strategy is fit for our time, providing the American people the military required to protect our way of life, stand with our allies and live up to our responsibility to pass intact to the next generation those freedoms we enjoy today.”

But Mattis reserved some of his toughest language for Congress, the speech being given as the shutdown loomed.

“For too long we have asked our military to stoically carry a ‘success at any cost’ attitude, as they worked tirelessly to accomplish the mission with inadequate and misaligned resources simply because the Congress could not maintain regular order. 

“Loyalty must be a two-way street. We expect the magnificent men and women of our military to be faithful in their service, even when going in harm’s way. We must remain faithful to those who voluntarily sign a blank check to the American people, payable with their life.”

Back to Russia and China, recently the Wall Street Journal’s Michael R. Gordon reported on how “the Pentagon is planning to develop two new sea-based nuclear weapons to respond to Russia and China’s growing military capabilities, according to a sweeping Defense Department review of nuclear strategy.”

Editorial / The Economist

“Neither China nor Russia wants a direct military confrontation with America that they would surely lose. But they are using their growing hard power in other ways, in particular by exploiting a ‘grey zone’ where aggression and coercion work just below the level that would risk military confrontation with the West.  In Ukraine Russia has blended force, misinformation, infiltration, cyberwar and economic blackmail in ways that democratic societies cannot copy and find hard to rebuff. China is more cautious, but it has claimed, occupied and garrisoned reefs and shoals in disputed waters.

“China and Russia have harnessed military technologies invented by America, such as long-range precision-strike and electromagnetic-spectrum warfare, to raise the cost of intervention against them dramatically. Both have used asymmetric-warfare strategies to create ‘anti-access/area denial’ networks. China aims to push American naval forces far out into the Pacific where they can no longer safely project power into the East and South China Seas.  Russia wants the world to know that, from the Arctic to the Black Sea, it can call on greater firepower than its foes – and that it will not hesitate to do so.

“If America allows China and Russia to establish regional hegemonies, either consciously or because its politics are too dysfunctional to muster a response, it will have given them a green light to pursue their interests by brute force. When that was last tried, the result was the first world war.

“Nuclear weapons, largely a source of stability since 1945, may add to the danger.  Their command-and-control systems are becoming vulnerable to hacking by new cyber-weapons or ‘blinding’ of the satellites they depend on. A country under such an attack could find itself under pressure to choose between losing control of its nuclear weapons or using them.

“What should America do?  Almost 20 years of strategic drift has played into the hands of Russia and China. George W. Bush’s unsuccessful wars were a distraction and sapped support at home for America’s global role.  Barack Obama pursued a foreign policy of retrenchment, and was openly skeptical about the value of hard power. Today, Mr. Trump says he wants to make America great again, but is going about it in exactly the wrong way.  He shuns multilateral organizations, treats alliances as unwanted baggage and openly admires the authoritarian leaders of America’s adversaries. It is as if Mr. Trump wants America to give up defending the system it created and to join Russia and China as just another truculent revisionist power instead.

“America needs to accept that it is a prime beneficiary of the international system and that it is the only power with the ability and the resources to protect it from sustained attack....

“The best guarantor of world peace is a strong America. Fortunately, it still enjoys advantages.  It has rich and capable allies, still by far the world’s most powerful armed forces, unrivalled war-fighting experience, the best systems engineers and the world’s leading tech firms.  Yet those advantages could all too easily be squandered. Without America’s commitment to the international order and the hard power to defend it against determined and able challengers, the dangers will grow.  If they do, the future of war could be closer than you think.”

Venezuela: The pro-government Constituent Assembly has ordered fresh elections before the end of April, for the purpose of further consolidating President Nicolas Maduro’s power; Maduro announcing he is ready to seek a new six-year term.

“It’s the right decision,” he told supporters at a rally. “Imperialism and the right were plotting to take over the economy.”

Most of the president’s main potential challengers are in self-imposed exile or in jail.

Former presidential candidate Henrique Capriles, though, said the government is so unpopular it could lose the vote.

Capriles cannot stand in the election as he was banned from public office for 15 years in April for mismanaging funds as governor of Miranda state.

Random Musings

--Presidential tracking polls....

Gallup: 36% approve of President Trump’s job performance, 59% disapprove [Jan. 21]
Rasmussen:  44% approve, 55% disapprove

--In a good sign for Republicans, the aforementioned WSJ/NBC News poll that found satisfaction with the economy having reached a 17-year high, also showed that in a generic poll for the mid-term elections, when voters are asked if they prefer a Democrat-led Congress over a Republican one, the margin for the Democrats is now just six points, down from an 11-point lead last month.  No doubt, if the economy continues apace, this will narrow further, perhaps all the way.  As long as Trump behaves.

--In a CNN poll, asking the question if you approve of Robert Mueller’s handling of the Russia probe, 26% of Republicans said they did, 43% of Independents, and 68% of Democrats.

--According to the annual Edelman Trust Barometer, a survey of 33,000 people across 28 countries, trust in the four institutions it measures – the government, media, business and non-governmental organizations – fell more steeply in the United States than in any of the other 27 countries polled.

President Trump repeatedly denouncing the media and judiciary has undermined public confidence in those institutions.

By contrast, the country that saw the biggest trust gains among its own citizens was China, after a year in which Xi Jinping cemented his hold on power at a triumphal party congress.

84% have faith in the Chinese government.  33% have faith in Washington, down 14 points from last year. And this drop isn’t linked to a specific event, such as an economic crisis or catastrophe, like the 2011 Fukushima nuclear disaster.

Richard Edelman, head of the communications marketing firm that commissioned the research, notes, “Normally when things are going well, trust is pretty good. Increasingly there is a disconnect between trust and economic outcomes.”

--I watched Judge Rosemarie Aquilina and the sentencing of former USA Gymnastics coach Larry Nasser and what a performance by her.

I also agreed with her praise for the journalists at the Indianapolis Star newspaper (IndyStar)...Marisa Kwiatkowski, Mark Alesia, and Tim Evans. A job well done, guys. And a lesson for those who fall for President Trump’s attacks on a free press and the importance of same.

Michigan Assistant Attorney General Angela Povilaitis said: “It shouldn’t take investigative journalists to expose predators... But thank God we have these journalists, and that they exposed this truth and that they continue to cover this story. Thank God Rachel Denhollander made that first contact with the reporter and decided to allow them to publish her name.”

As part of the sentencing hearing, the CEO of the U.S. Olympic Committee, Scott Blackmun, apologized to athletes and announced that the organization will launch an independent investigation of how Nassar’s abuse could have happened.

Blackmun also called for the resignation of the entire board of directors of USA Gymnastics. At least three members did initially; then the rest followed today.

The NCAA also opened an investigation into how Michigan State University, who employed Nassar, handled the allegations against him.  The president of the school resigned Wednesday. The athletic director followed today.

The seven-day sentencing hearing featured emotional statements from more than 150 girls and women who asserted abuse by Nassar, including Olympians Aly Raisman and Jordyn Wieber.

USA Gymnastics has said it first learned of concerns about Nassar in the summer of 2015 and, after investigating on its own for five weeks, decided to report him to the FBI.

So then Thursday, Judge Aquilina sentenced Nassar to up to 175 years on sex assault charges – on top of a 60-year federal sentence for child pornography charges.

“I just signed your death warrant,” she said.

Nassar issued a brief apology. Aquilina countered: “Sir, I hope you are shaken to your core.  Your victims are clearly shaken to the core.”

Addressing the victims later, the judge said: “You are no longer victims. You are survivors. You’re very strong.”

Assistant Attorney General Povilaitis described the sentencing as a cultural moment.

“At this particular moment in history, this sentencing hearing will be viewed as a turning point in how our community, our state, our nation, our culture looks at sexual abuse.” 

Povilaitis called it “poetic justice” that the investigation lead, prosecution team and three judges are all women.

--George F. Will / Washington Post

“It cannot be a sign of social health that the number of tweets per day worldwide exploded from 5,000 in 2007 to 500 million six years later.  And this might be related, by a few degrees of separation, to the fact that whereas in the 1992 presidential election more than one-third of America’s 3,113 counties or their equivalents had a single-digit margin of victory, in the 2016 presidential election, fewer than 10 percent did. And to the fact that in 2016, 1,196 counties – about 2.5 times the average over the preceding 20 years – were decided by margins larger than 50 percent.  All of which are perhaps related to rising skepticism, without scientific warrant, about the safety of vaccinations and genetically modified foods.  And to the fact that newspaper subscriptions have declined about 38 percent in the past 20 years. And that between 1974 and 2016, the percentage of Americans who said they spent significant time with a neighbor declined from 30 percent to 19 percent.

“These developments and others worry two of the virtuoso worriers at the Rand Corp., the research institution now celebrating its 70th birthday. Michael D. Rich, Rand’s president, and his colleague Jennifer Kavanagh, are not feeling celebratory in their 255-page report ‘Truth Decay: An Initial Exploration of the Diminishing Role of Facts and Analysis in American Public Life.’ They suggest that the public’s mental bandwidth is being stressed by today’s torrent of information pouring from the Internet, social media, cable television and talk radio, all of which might be producing – partly because the media’s audience has difficulty sorting fact from opinions – a net subtraction from the public’s stock of truth and trust....

“Kavanagh and Rich say that not only do new media technologies exacerbate cognitive biases, but also they promote ‘the permeation of partisanship throughout the media landscape.’ They dryly say, ‘When the length of news broadcasts increased from two to 24 hours per day, there was not a 12-fold increase in the amount of reported facts.’....

“We should regret only unjust distrust; distrust of the untrustworthy is healthy.  Considering the preceding 50 years, from the Pentagon Papers and Watergate, through Iraq’s missing weapons of mass destruction, and ‘if you like your health care plan you can keep it,’ a default position of suspicion is defensible. And consumers of media products should remember Jerry Seinfeld’s oblique skepticism: ‘It’s amazing that the amount of news that happens in the world every day always just exactly fits the newspaper.’”

--I saw a piece in Defense News on Air Force One and its need for new refrigerators.  Not exactly the kind described above by Whirlpool or LG, but try $24 million.

“The new refrigerators aren’t your kitchen Frigidaires, or even a typical jetliner’s cabin-feeding coolboxes. The requirement for Air Force Once is the ability to feed passengers and crew for weeks without resupplying. That means storing about 3,000 meals in massive refrigerators and freezers below the passenger cabin. Five ‘chillers’ cool a total of 26 climate-controlled compartments, according to Air Force One.”

--As you saw at the World Economic Forum at Davos, Switzerland, snow depths reached six feet on Monday, the most for the Jan. 15 to Jan. 25 period since 1951 and the second-highest since records began in 1931, according to the Federal Office for Meteorology and Climatology.

Many of the region’s ski resorts such as Zermatt in Switzerland and St. Anton in Austria have been cut off due to the avalanche danger; though this lessened considerably by week’s end.

--Back to the brutal, historic cold spell that began around Christmas Day in the Midwest and Northeast, I’ve heard from a number of folks concerning their ‘record’ heating bills.  I sure hit a record with my last statement for this place I’ve been in 8 years, though I shudder to think what I would have paid in my old home, which was four levels.

One of my utility bills that compares temperatures for the period vs. a year ago showed my temp at 9 degrees on average below last year, which is a massive difference as these things go

Thankfully, winter has resumed at a normal pace.

--But, Friday, the Centers for Disease Control and Prevention reported that this year’s flu season is more intense than any since the 2009 swine flu pandemic and is still getting worse.

In that year, the CDC estimates 34 million Americans got the flu, and about 56,000 people died.

This week, the deaths of seven children were reported by the CDC, bringing this season’s total to 37.

--I just have to get down for the record what most of you saw early in the week; that the governor of Hawaii wanted to inform the public that they would not die in a ballistic missile attack far earlier than it ended up being, except he forgot his Twitter password.

So Gov. David Ige goes into the December file for “Idiot of the Year” consideration.

By the way, according to one expert, and Nukemap, a tool from Alex Wellerstein for approximating the devastation of nuclear events, a North Korean nuclear strike on Honolulu, which nuclear arms expert Jeffrey Lewis says would likely be an order of magnitude bigger than the bombs dropped on Hiroshima and Nagasaki, given North Korea’s perceived progress thus far, would kill nearly 158,000 people and injure 173,000 more.

From a piece in Defense News:

“These calculations assume a Hiroshima-style blast that occurs some 2,000 feet above the surface, which would increase the amount of pressure and immediate explosive destruction but would also limit fallout.  Other factors could intensify the effects.  ‘The mountains will reflect the blast back onto the target.  Most homes in Honolulu are wood-frame construction, so there is a significant chance of a firestorm following the blast which was what really devastated Hiroshima, much more so than the blast,’ said Lewis.”

Well, perhaps we should move on to food, shall we?

--And so we note the passing of master chef Paul Bocuse, 91.  The man who defined French cuisine presided over L’Auberge du Pont de Collonges, the temple to French gastronomy outside the city of Lyon, which has held three stars, uninterrupted, since 1965 in the Michelin guide, the bible of gastronomes.

Bocuse was named Cook of the Century by numerous authorities, including in 2011 by the Culinary Institute of America.

For fans of Anthony Bourdain and his CNN show, we got a final look at Bocuse this past season.

Bocuse was born in a room above the dining rooms, as he once pointed out in an AP interview.

From an AP obituary:

“Emblematic (of his traditional French cuisine) was a crock of truffle soup topped with a golden bubble of pastry he created in 1975 for then-French President Valery Giscard d’Estaing, which is served to this day. Another classic is fricassee of Bresse chicken – from France’s Bresse region, which is famed for its poultry – served in cream with morilles, a spring mushroom.

“And his favorite ingredient? Butter.

“ ‘[It’s a] magical product,’ he said during a visit to the Culinary Institute of America. ‘Nothing replaces butter.’”

I’m drooling.

One last bit. Bocuse served in World War II and was wounded and cared for at a U.S. field hospital.

“I always say I have American blood in my veins because...I had transfusions of American blood,” he told the AP. An American flag still flies outside his restaurant.

--Finally, back to nukes and such, the Bulletin of the Atomic Scientists advanced the symbolic Doomsday Clock to two minutes to midnight, which is as close to midnight as it was in 1953, at a time the U.S. had just tested its first thermonuclear device and the Soviet Union had tested a hydrogen bomb.

So it’s time to stock up on Chex Mix and beer, sports fans.

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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 $1353
Oil $66.24

Returns for the week 1/22-1/26

Dow Jones  +2.1%  [26616]
S&P 500  +2.2%  [2872]
S&P MidCap  +0.8%
Russell 20000  +0.7%
Nasdaq  +2.3%  [7505]

Returns for the period 1/1/18-1/26/18

Dow Jones  +7.7%
S&P 500  +7.5%
S&P MidCap  +5.0%
Russell 2000  +4.7%
Nasdaq  +8.7%

Bulls  64.7
Bears   12.8  [Source: Investors Intelligence...it turns out last week’s bull reading of 66.7 was the highest since April 1986, and the 66.7 / 12.7 spread was the widest since then too.]

Have a great week.

Brian Trumbore

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