Week in Review

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Week in Review

01/19/2019

For the week 1/14-1/18

[Posted 11:30 PM ET, Friday]

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Edition 1,032

Trump World

What a stupid week, a rather disgraceful one in many respects for the United States of America.

To wit:

President Trump, in a tit-for-tat move on Thursday said he was postponing House Speaker Nancy Pelosi’s unannounced trip to Belgium and Afghanistan, citing the government shutdown.

“Due to the Shutdown, I am sorry to inform you that your trip to Brussels, Egypt and Afghanistan has been postponed. We will reschedule this seven-day excursion when the Shutdown is over,” Trump wrote, a day after Pelosi urged him to postpone his State of the Union, or submit it in writing, because of the shutdown and the alleged inability to secure the Capitol for such a huge gathering.

But such trips as Pelosi’s are supposed to be unannounced for clear security reasons.  Trump wrote:

“In light of the 800,000 great American workers not receiving pay, I am sure you would agree that postponing this public relations event is totally appropriate.  I also feel that, during this period, it would be better if you were in Washington negotiating with me and joining the Strong Border Security Movement to end the Shutdown.

“Obviously, if you would like to make your journey by flying commercial, that would certainly be your prerogative,” wrote the president.

Sen. Lindsey Graham: “One sophomoric response does not deserve another.  Speaker Pelosi’s threat to cancel the State of the Union is very irresponsible and blatantly political. 

“President Trump denying Speaker Pelosi military travel to visit our troops in Afghanistan, our allies in Egypt and NATO is also inappropriate.”

Amen.

This week, the White House and congressional Democrats halted even the pretense of negotiations.  The acrimony between the two sides reached new levels.

However...Trump tweeted this afternoon he was going to make an important announcement on the shutdown tomorrow at 3:00 p.m. ET, fueling speculation he could declare a “national emergency,” build the wall under his executive powers, and reopen the government, but this is perhaps too cute by half.  We’ll see.

Some polls on responsibility for the shutdown:

Quinnipiac: 56% blame Trump and the Republicans; 36% blame the Democrats
CNN: 55% blame Trump and Republicans, 32% blame Dems
Washington Post/ABC: 53% blame Trump and the Republicans, 29% Democrats
PBS/Marist: 54% blame Trump and the Republicans, 31% blame Dems
Reuters/Ipsos: 58% blame Trump and Republicans, 32% Democrats
Politico/Morning Consult: 52% Trump and Republicans, 33% Democrats

The State Department ordered its employees to return to work next week, saying it has found money to cover a half-month in salary.

But senior White House officials are reportedly receiving frequent updates on how many Transportation Security Administration staffers are calling in sick to work, aware that major delays at airports could prompt a huge backlash, predominantly against the administration.  It seems like only such a fiasco will get the two sides together.

More on the economic impact below.

--Two leading Democrats in the House promised to investigate Michael Cohen after a BuzzFeed report that alleged President Trump directed Cohen to lie to Congress about the Trump Tower project in Moscow, BuzzFeed citing two law enforcement officials involved in an investigation of the matter.

Cohen, who has pleaded guilty to lying to Congress and has been cooperating with investigators, reportedly hatched a plan to continue efforts to build a Trump Tower in Russia during the 2016 presidential campaign, long after Trump had secured the nomination.

But in a classic example of my adage “wait 24 hours,” Special Counsel Robert Mueller’s office Friday afternoon disputed the BuzzFeed report, with a spokesman for Mueller saying:

“BuzzFeed’s description of specific statements to the Special Counsel’s Office, and characterization of documents and testimony obtained by this office, regarding Michael Cohen’s Congressional testimony are not accurate.”

For its part, tonight, BuzzFeed’s editor-in-chief, Ben Smith, stands by his reporters’ story.

I noted last time that I didn’t think it was a sure thing that Cohen would appear before a congressional panel on Feb. 7 as he has committed to, and this week, an attorney advising him, Lanny Davis, said, “There is genuine fear and it has caused Michael Cohen to consider whether he should go forward or not, and he has not made a final decision, Davis noting that some remarks made by President Trump amounted to witness tampering and deserved to be criminally investigated.

In a Fox News interview on Saturday, Trump suggested he had damaging information on Cohen’s father-in-law.  “That’s the one that people want to look at,” Trump said in the interview.

Davis said: “There is no question that his threatening, and calling out his father-in-law, who – quote – has all the money, is not only improper and unseemly for a bully using the bully pulpit of the presidency, but the very definition of intimidation and witness tampering.” Davis said Trump’s remarks “could be obstruction of justice.” [At week’s end, Cohen said he was still appearing Feb. 7.]

Meanwhile, Cohen also said on Thursday he paid a firm to manipulate online polling data “at the direction of and for the sole benefit of” Trump.  The Wall Street Journal first reported Cohen had paid the data firm RedFinch Solutions (between $12,000 and $13,000) to manipulate two public opinion polls (for CNBC and Drudge) in favor of Trump before the 2016 presidential campaign.

Cohen admitted the Journal story was accurate and tweeted in part, “I truly regret my blind loyalty to a man who doesn’t deserve it.”

The attempts to influence the polls ultimately proved largely unsuccessful. 

Trump lawyer Rudy Giuliani said in an interview with Reuters, “The president has no knowledge of the polls being rigged.”

--Speaking of “America’s Mayor,” Giuliani said in a stunning interview on CNN Wednesday with Chris Cuomo that there may have been “collusion” between members of the Trump campaign and Russia – but the president wasn’t involved.

“I never said there was no collusion between the campaign.  Or between people in the campaign,” Giuliani told Cuomo while live on air.  “I have no idea.”

Cuomo challenged the claim from Giuliani, who has frequently argued there was no collusion with the Russians, period.

Giuliani said that he was sure the president never colluded with the Russians.  He added that Trump has also never claimed that no one in his campaign was guilty of colluding with the Kremlin.

“He said he didn’t.  He didn’t say nobody,” Giuliani said of Trump’s past remarks.  “How would you know that nobody in your campaign [did]?”

Giuliani added that if “the collusion happened, it happened a long time ago.”

--William Barr, President Trump’s pick for attorney general, affirmed Tuesday that Mueller’s investigation is not a witch hunt and charged it would be an “abuse of power” for the President to interfere in any way with the special counsel probe.

“I don’t believe Mr. Mueller would be involved in a witch hunt,” Barr replied when asked of Trump’s favorite insult against the special counsel.

The 68-year-old longtime lawman, who has known Mueller for three decades and considers him a friend, continued it would be a “breach” of “constitutional duty” for Trump to meddle or intervene in an investigation he “has a personal stake in” – including the special counsel inquiry.

“It would be an abuse of power,” Barr said when asked pointedly of the possibility of Trump shutting down Mueller’s operation.

Barr also said: ‘I will not be bullied into doing anything I think is wrong by anybody whether it be editorial boards or Congress or the President.  I’m going to do what I think is right.”

--With the shutdown, President Trump canceled his delegation’s trip to next week’s World Economic Forum in Davos, Switzerland. The U.S. was to be represented by Treasury Secretary Steven Mnuchin and Secretary of State Mike Pompeo, among others, including until recently the president himself.

--The Trump administration likely separated thousands more children from their parents at the Southern border than was previously reported, according to a report by government inspectors released on Thursday.

The U.S. Dept. of Health and Human Services’ Office of Inspector General said that as of December, the department had identified 2,737 children who were separated from their parents under the policy and required to be reunified by a federal court order in June 2018.

But thousands of children may have been separated during an influx that began in 2017, before the accounting required by the court, the report said.

Thus, the total number of children separated from a parent or guardian by immigration authorities is “unknown,” because of the lack of a coordinated formal tracking system.  [Miriam Jordan / New York Times]

--Trump tweets:

“For decades politicians promised to secure the border, fix our trade deals, bring back our factories, get tough on China, move the Embassy to Jerusalem, make NATO pay their fair share, and so much else – only to do NOTHING (or worse)....

“...I am doing exactly what I pledged to do, and what I was elected to do by the citizens of our great Country.  Just as I promised, I am fighting for YOU!”

“Kevin Corke, @FoxNews ‘Don’t forget, Michael Cohen has already been convicted of perjury and fraud, and as recently as this week, the Wall Street Journal has suggested that he may have stolen tens of thousands of dollars....’ Lying to reduce his jail time!  Watch father-in-law!”

“Another big Caravan heading our way. Very hard to stop without a Wall!”

“Border rancher: ‘We’ve found prayer rugs out here.  It’s unreal.’  Washington Examiner People coming across the Southern Border from many countries, some of which would be a big surprise.”

“There are now 77 major or significant Walls built around the world, with 45 countries planning or building Walls.  Over 800 miles of Walls have been built in Europe since only 2015. They have all been recognized as close to 100% successful. Stop the crime at our Southern Border!”

“Wow, just learned in the Failing New York Times that the corrupt former leaders of the FBI, almost all fired or forced to leave the agency for some very bad reasons, opened up an investigation on me, for no reason & with no proof, after I fired Lyin’ James Comey, a total sleaze!”

“...Funny thing about James Comey. Everybody wanted him fired, Republican and Democrat alike. After the rigged & botched Crooked Hillary investigation, where she was interviewed on July 4th Weekend, not recorded or sworn in, and where she said she didn’t know anything (a lie)...

“....the FBI was in complete turmoil (see N.Y. Post) because of Comey’s poor leadership and the way he handled the Clinton mess (not to mention his usurpation of powers from the Justice Department). My firing of James Comey was a great day for America.  He was a Crooked Cop....

“....who is being totally protected by his best friend, Bob Mueller, & the 13 Angry Democrats – leaking machines who have NO interest in going after the Real Collusion (and much more) by Crooked Hillary Clinton, her Campaign, and the Democratic National Committee.  Just Watch!”

Wall Street

Stocks continued to rally off their Christmas Eve lows, the S&P 500 now up a whopping 13.6% in the four weeks since then.  Earnings, a major concern in terms of what companies might say in their accompanying statements, have been solid thus far, though it’s a small sample size and mostly involving the financial sector, which is benefiting from higher interest rates, and now renewed talk of a potential trade agreement with China has helped market sentiment.

But the government shutdown is impacting the overall economy, according to the White House itself, by 0.13 percent each week in terms of GDP.  So the first-quarter numbers will be interesting, even if the shutdown ends this coming week.  It’s not just the 800,000 federal workers, most of whom aren’t being paid (though they will eventually receive back pay), but also the estimated 1.2 million contractors, who won’t be receiving it.

In terms of economic data, the shutdown also restricted reporting of same, with figures on retail sales and housing starts unavailable.

But we did receive producer price data for December, -0.2% (biggest drop since Feb. 2017), -0.1% ex-food and energy, with the year-over-year figure 2.5%, 2.8% on core.  The PPI had peaked at 3.4% in July.

Separately, December industrial production was a solid 0.3%.

And mortgage-applications have rebounded to an 11-month high amid the pullback in rates, the average 30-year fixed rate 4.74% vs. the peak of 5.17% in November.  But as I note below, this will be short-lived.

The Atlanta Fed’s GDPNow barometer for the fourth quarter remains at 2.8%.

Trade Talks: So at week’s end there was a story that Treasury Secretary Mnuchin had proposed the idea of lifting some or all tariffs on Chinese imports as a way to calm markets and give Beijing an incentive to make deeper concessions. 

Then Friday morning, China offered to go on a six-year buying spree to ramp up imports from the United States in order to reconfigure the relation between the two countries.  By raising annual goods imports from the U.S. by a combined value of more than $1 trillion, China would seek to reduce its trade surplus, which last year stood at $323 billion, to zero by 2024.

Jan. 30, top Chinese trade envoy Liu He is scheduled to arrive in Washington for two days of talks.  The two countries face a March deadline, after which tariffs on $200 billion of Chinese goods are scheduled to jump to 25% from the current 10%.

But there was no talk this week of an agreement on intellectual property, China’s market-access barriers, or structural economic reform, so I’ll remain highly skeptical.

That said, I told you in my 2019 outlook this is exactly how I thought the year would play out, at least the beginning of it.  It’s about market sentiment over facts, sports fans.  More next time.

Europe and Asia

In the eurozone, annual inflation for the EA19 dropped to 1.6% in December, down from November’s 1.9%.  [Eurostat]

Germany 1.7%, France 1.9%, Italy 1.2%, Spain 1.2%.

Ex-food and energy, the core rate is just 1.1%.  So once again, no reason for the European Central Bank to contemplate raising interest rates for quite some time to come, especially given the slowing economy throughout the region.  [The ECB’s key policy rate remains at minus 0.4%. The last time it hiked rates was 2011.]

Industrial production in November for the EA19 fell 1.7% compared with October, as reported by Eurostat, a further sign of weakness.

And Germany reported its economy grew just 1.5% in 2018, according to the Federal Statistics Office, the lowest in five years and compared with 2.2% in 2017.

Brexit: As expected, Tuesday, the British Parliament rejected Prime Minister Theresa May’s Brexit deal worked out with the European Union, but by a far wider margin than forecast, 432-202, the worst defeat for a ruling British government in history, literally.

The next day, the prime minister survived a no-confidence vote 325 to 306, the reason being the party members who went against her on Brexit, had to back her on the attempt to take down the government, because in any new election that was called the Tories would go down in flames in the current environment and become a minority party.  [The key was the ten members of Northern Ireland’s DUP, who are the difference in Mrs. May staying in power. They don’t like the “Irish backstop” currently in the Brexit deal, so they voted against May, Tuesday, but they also want to remain part of the majority.]

Should the UK exit the union on March 29 without a deal, the EU itself would have an increasingly fragile economy, a large EU budget to fund, and nightmarish choices such as on what to do with Ireland, the need to avoid a border between Northern Ireland and the Republic paramount.

The EU has said it could possibly be flexible with Mrs. May, except on one issue, Ireland.

There is no Plan B, though May must somehow come up with one this weekend, Parliament giving her a Monday deadline.  The EU has said the deal approved in November is the best and only deal possible.  After the vote in parliament, European Commission President Jean-Claude Juncker said the November deal was the “only way to ensure an orderly” Brexit.

German Chancellor Angela Merkel said Wednesday, “We still have time to negotiate but we are now waiting to see what the British prime minister will propose.”

By Friday, Prime Minister May was being warned by Cabinet ministers she will face mass resignations unless she allows MPs to try to stop a no-deal Brexit.  May said on Thursday it was “impossible” to rule out a no-deal Brexit under the terms of Article 50 and said it was “not in the Government’s power” to do so.

Labour leader Corbyn has refused to take part in cross-party talks.  The prime minister said in a letter to Corbyn:

“I note that you have said ‘ruling out’ no deal is a precondition before we can meet, but that is an impossible condition because it is not within the Government’s power to rule out no deal.  Let me explain why.

“Under Article 50 of the Treaty on European Union and the Withdrawal Act 2018, we will leave the EU without a deal on March 29 unless Parliament either agrees to a deal with the EU or the UK revokes Article 50 and chooses to stay in the EU permanently.

“So there are two ways to avoid a no deal: either vote for a deal, in particular a withdrawal agreement, that has been agreed with the EU, or to revoke Article 50 and overturn the referendum result.”

Some in Mrs. May’s party have proposed a bill that would force the Government to extend Article 50 if a Brexit deal could not be reached by February 26.

The prime minister has repeatedly refused to countenance another election and has warned that another referendum would be corrosive as it would undermine faith in democracy among the 17.4 million people who voted to leave the EU in the 2016 referendum.

“I believe it is my duty to deliver on the British people’s instruction to leave the European Union.  And I intend to do so,” May said outside Downing Street in an attempt to address voters directly.

“I am inviting MPs from all parties to come together to find a way forward,” May said.  “This is now the time to put self-interest aside.”

Hardline Brexiteers in May’s own party think the threat of a no-deal Brexit is a crucial bargaining chip.

Without a deal, trade with the EU would then default to basic World Trade Organization rules.

Meanwhile, Britain’s business leaders are apoplectic, knowing the chaos has already damaged Britain’s reputation as Europe’s preeminent destination for foreign investment.  More than 170, in a letter published in The Times, called  for both Mrs. May and Jeremy Corbyn to back a second referendum on withdrawal from the EU.

“The priority now is to stop us crashing out of the EU with no deal at all.

“The only feasible way to do this is by asking the people whether they still want to leave the EU...politicians must not waste any more time on fantasies. We urge the political leadership of both the main parties to support a People’s Vote,” it said.

For starters, think about food supply, which in the UK has been dependent on a free flowing border.

Corbyn’s Labour party wants a permanent customs union with the EU and a close relationship with the single market.

Former British prime minister Tony Blair said on Thursday a delay to Brexit was now inevitable, adding that leaving the EU without a deal would inflict profound economic damage on the UK.

German Foreign Minister Heiko Maas noted Thursday: “The likelihood that there will be a disorderly Brexit has risen significantly,” using a speech to the Bundestag to appeal to other EU member countries to stick together, highlighting how a no-deal Brexit would harm all members, Britain worst of all.  He didn’t rule out giving Britain past March 29 to work out a deal, but he said an extension could only be given if Britain made a clear offer.

Today, Dutch Prime Minister Mark Rutte said he told Theresa May he does not see how the current deal on Britain’s exit from the EU can be “tweaked.” 

Rutte said that he believed Mrs. May is convinced Brexit will go ahead on March 29, Rutte adding that any form of Brexit, with or without a deal, will damage the Netherlands, a major British trading partner and one of the world’s top five export countries.  “It will cause disruptions and we are trying to minimize those,” he said.  “Hope for the best and prepare for the worst.”

Among the measures taken by the Rutte government is the hiring of roughly 1,000 customs officials to deal with changes in border checks.

Editorial / The Economist

“No plan by any modern British government has been so soundly thrashed as the Brexit deal thrown out by Parliament on January 15.  The withdrawal agreement, the centerpiece of Theresa May’s premiership, which she has spent nearly two years hammering out with the European Union, was rejected after five days’ debate by 432 votes to 202.  Her own Conservative backbenchers voted against her by three to one

“The mother of parliaments is suffering the mother of all constitutional crises.  Three years ago, in the biggest poll in the country’s history, Britons voted in a referendum to leave the EU.  Yet Parliament, freshly elected a year later by those same voters, has judged the terms of exit unacceptable. The EU shows little willingness to renegotiate. The prime minister ploughs obdurately on. And if this puzzle cannot be solved by March 29th, Britain will fall out with no deal at all.

“To avoid that catastrophe, the priority must be to ask the EU for more time. But even with the clock on their side, MPs seem unlikely to agree on a solution to Brexit’s great riddle: what exit terms, if any, truly satisfy the will of the people?  With every week in which MPs fail to answer this question, it becomes clearer that the people themselves must decide, in a second referendum.

“The rout this week was the result of two years of political misjudgment. The referendum of 2016 was won by just 52% to 48%. Yet rather than consult the defeated side, Mrs. May pursued a hardline Brexit, hurriedly drawn up with a handful of advisers and calibrated to please her Conservative Party. After she lost her majority in 2017 the need to build a consensus became clearer still, but she doubled down. Even after Parliament established its right to vote on the final deal, she didn’t budge, instead trying (and failing) to frustrate Parliament’s vote by running down the clock.  The doggedness that has won her many admirers now looks like pig-headedness. The prime minister’s promise after this week’s crushing defeat to work with opposition MPs comes two years too late.

“But the crisis is not just about poor leadership. Brexit has exposed two deeper problems.  One concerns the difficulties that will face any country that tries to ‘take back control,’ as the Leave campaign put it, in a globalized, interconnected world.  If you take back the right to set your own rules and standards, it will by definition become harder to do business with countries that use different ones.  If you want to trade, you will probably end up following the rules of a more powerful partner – which for Britain means the EU or America – only without a say in setting them. Brexit thus amounts to taking back control in a literal sense, but losing control in a meaningful one.  Leavers are right that the EU is an increasingly unappealing place, with its Italian populists, French gilets jaunes, stuttering German economy and doddery, claret-swilling uber-bureaucrats in Brussels. But they could not be more wrong in their judgement that the EU’s ominous direction of travel makes it wise for Britain to abandon its seat there....

“The first step to getting out of this mess is to stop the clock.  Because Mrs. May’s deal is dead and a new one cannot be arranged in the ten remaining weeks, the priority should be to avoid falling out on March 29th with no deal, which would be bad for all of Europe and potentially disastrous for Britain.  If Mrs. May will not ask for an extension, Parliament should vote to give itself the power to do so.  This desperate measure would up-end a long convention in which government business takes precedence over backbenchers’.  But if the prime minister stays on the road to no deal, MPs have a duty to seize the wheel.

“With more time, perhaps a deal might be found that both Parliament and the EU can agree on. Either a permanent customs union or a Norwegian-style model might squeak through.  But both would demand compromises, such as Britain relinquishing the right to sign its own trade deals or maintaining free movement, that contradict some Leave campaign promises.

“That is why the path to any deal, whether Mrs. May’s or a revamped one, must involve the voters. The give and take that Brexit requires means that no form of exit will resemble the prospectus the public were recklessly sold in 2016.  It may be that voters will accept one of these trade-offs; it may be they will not.  But the will of the people is too important to be merely guessed at by squabbling MPs.  Parliament’s inability to define and agree on what the rest of the country really wants makes it clearer than ever that the only practical and principled way out of the mess is go back to the people, and ask.”

Greece: Prime Minister Alexis Tsipras survived a confidence vote on Wednesday after two days of acrimonious debate ended with Tsipras scraping by 151-148, with the support of defecting lawmakers from the former coalition party – the right-wing Independent Greeks – and independent legislators.  Mr. Tsipras’ Syriza party has 145 seats in the 300-member parliament and the support of an independent lawmaker.

After his victory, Tsipras said “the Greek Parliament gave a vote of confidence in stability.”

The conservative New Democracy party, and its leader, Kyriakos Mitsotakis, had accused Tsipras of forcing austerity measures on Greeks, and said voting to support the prime minister would be tantamount to approving the “shipwrecked state of the country over the past four years.”

Tsipras insisted his government would remain in power until its four-year term ends in October.  But now he is expected to call elections earlier, given he has a minority government and the Independent Greeks defected.

The big problem is the political instability comes at a time EU creditors and markets are assessing the government’s willingness to stick to the mandated reform program, now that it is no longer under the constraints of a formal bailout.

Foreign auditors arrive in Greece next week for a post-bailout review, with the focus on the enduring challenges faced by Greek banks, many still loaded with nonperforming loans.

This really all started with a proposal to rename the neighboring nation of Macedonia. Greece had long blocked Macedonia from joining NATO, insisting that the country’s name implied territorial claims to the Greek region called Macedonia.

Last year, the two nations agreed on a name change for Macedonia to North Macedonia.  The Macedonian Parliament approved the name change last week, and the Greek Parliament is taking it up soon.

But the Independent Greeks weren’t satisfied and quit the government.  Some Greek supporters of the name change have been threatened.

Turning to Asia....

There is little doubt Chinese authorities are concerned about a rapidly slowing economy, the central bank at week’s end injecting a record $84 billion into the country’s banking system in an effort to boost liquidity and promote increased lending, which has remained sluggish.

China has also approved $125 billion in new railway projects, mostly for subways.  And the government has initiated new tax cuts designed to support small business, manufacturers and exporters.

Speaking of this last item, China’s exports rose 9.9 percent in 2018, its strongest trade performance in seven years, despite growing disruptions from the trade war with the United States, according to customs data released Monday.  Imports increased 15.8 percent, resulting in a trade surplus of $351.76 billion, the country’s lowest since 2013.

BUT, this was the full year. Then the Customs office released December data, and exports unexpectedly fell 4.4 percent from a year earlier, when a gain of 3 percent was projected by analysts.  For the month, imports also unexpectedly contracted, falling 7.6 percent, the biggest decline since July 2016.

Exports to the United States in December fell 1.4 percent from December, and also 4.4 percent from the same month in 2017.

Soybean imports from the U.S. plunged to zero due to China’s retaliatory tariffs.

Exports in previous months were supported by “front loading” of orders by Chinese producers to beat the planned rise in U.S. tariffs to 25 percent, scheduled to go into effect on January, before Chinese President Xi Jinping and President Trump agreed to a 90-day tariff ceasefire at their Dec. 1 meeting.

China’s trade surplus with the United States rose to $323.32 billion last year, the highest on record going back to 2006.  The surplus was $275.81 billion in 2017. China’s exports to the U.S. rose 11.3 percent, while imports from the U.S. increased only 0.7 percent.

Separately, new-home prices for China’s 70-city index rose 0.8 percent in December over November, and a strong 9.7 percent year-over-year.

China is reportedly going to set a growth target this year of 6 to 6.5 percent, down from the “about 6.5 percent” target for last year, this formally done in March, if I recall.

In Japan, the Bank of Japan sure doesn’t have an excuse to finally raise interest rates, as core consumer prices (in Japan, ex-fresh foods) rose only 0.7% annualized in December, slowing from November’s 0.9% pace when the BoJ wants 2%.  ‘Core-core,’ ex-food and energy like in the U.S., rose only 0.3% last year.

Street Bytes

--Stocks are on a four-week winning streak, longest since July-August, with the Dow Jones +3.0% to 24706, the S&P 500 +2.9%, and Nasdaq +2.7%.

In just three weeks, the Russell 2000 small-cap index is already up 9.9% for 2019.

But the next few weeks we’ll begin to get earnings for the industrial and technology sectors, that are most impacted by the trade situation and the slowing global economy, so we’ll see if we can keep up the momentum.

--U.S. Treasury Yields

6-mo. 2.49%  2-yr. 2.61%  10-yr. 2.78%  30-yr. 3.10%

As alluded to above, the yield on the 10-year is up 11 basis points in the past two weeks.

--The U.S. government’s Energy Information Administration said in a monthly energy outlook issued Tuesday that by late next year, the U.S. will become a consistent net petroleum exporter, an amazing shift reflecting surging domestic crude oil production.

So the country will ship out more crude oil and liquid fuels than it imports and the net export total will surpass 1m barrels a day by December 2020, the EIA said.

U.S. shale remains the difference in the global oil markets, with the industry having the ability to accelerate production rapidly when prices rise.

Shale producers can still profit at the $50-ish level of today, but there are issues at $40 and below for this heavily leveraged sector.

This week oil closed at $53.76, extending the three-week rally to $8.64, nearly 20%, partly on optimism Chinese officials will be successful with their latest stimulus efforts, which would lift demand for crude and other beaten-down commodities.

--Shares in Goldman Sachs surged 9.5% on Wednesday as the investment bank reported blowout earnings and eased fears, perhaps unfounded, about penalties it could face for its role in the widening IMDB Malaysian corruption case.

Goldman reported a surprisingly strong quarterly profit of $2.54 billion, fueled by stock trading and fees on big merger deals it brokered, which helped offset continued drops in bond trading.

Goldman speculated the bank could lose $2 billion over the 1MDB scandal, when previously, some analysts talked about a tab as high as $5 billion.

But Goldman also said it has set aside $516 million to pay for litigation, and some wonder if that’s enough, the bank not tying the $516m to the number on the scandal.

In a conference call with analysts, Goldman CEO David Solomon doubled down on the bank’s defense that a “rogue banker” was responsible for the mess, claiming upper management, which included then-CEO Lloyd Blankfein, were duped by one of their own into arranging a dirty deal that helped fugitive financier Jho Low siphon billions from the Malaysian government.

But Solomon himself was reportedly involved in some of the approvals.

“It’s very clear that the people of Malaysia were defrauded by many individuals, including the highest members of the prior government,” Solomon said during the earnings call.  “(Goldman banker) Tim Leissner, who was a partner at our firm, by his own admission, was one of those people.”

“For Leissner’s role in that fraud, we apologize to the Malaysian people,” he added.

Low, who is believed to be hiding in China, was indicted by the Justice Department for money-laundering.

But Goldman is far from off the hook, with several worldwide investigations just heating up.

--JPMorgan Chase reported strong full-year and fourth-quarter financial results, with net interest income (the gap between what it earns on loans and what it pays on deposits) rising 10% in the quarter to $14.4 billion, while net income improved by two-thirds to $7.07 billion vs. year ago levels.

At JPM, the average interest rate on its loan book in the fourth quarter was 5.26%, while the average rate on its interest-bearing deposits increased to 0.72%.

JPMorgan’s loan book expanded by more than $50 billion last year, while the amount set aside to cover credit losses shrank by $400 million – a sign management thinks the good times will keep rolling.

But JPMorgan also saw a 16% decline from a year earlier in fixed-income trading revenue.

JPM, as is the case with all the other banks, benefited from the new 21% corporate tax rate, which drove down its tax bill by $3.2 billion.  [Bloomberg estimates S&P 500 companies saved a combined $144 billion.]

--Wells Fargo saw its profit fall 1.4% to $6.06 billion in the quarter due to weak consumer results, especially in its key mortgage business, with mortgage originations falling by 28% from a year earlier, the latest sign of weakness in the housing sector, though with the recent fall in the 10-year Treasury (key to mortgage rates), mortgage originations have been rising the past few weeks. [Though now the yield on the 10-year is back up to 2.78% from 2.67% two weeks ago.]

Wells did see a 5% jump in commercial and industrial loans.

--Earlier Citigroup Inc. bounced back from a year-earlier loss (a one-time charge related to the 2017 corporate tax cut), reporting net income of $4.3 billion, but its vital trading business struggled under tough market conditions in the fourth quarter, down 14%, with overall revenue at $17.1 billion, down 2% from a year ago.

--Morgan Stanley’s fourth-quarter net income fell short of the Street’s expectations amid a big trading stumble in a volatile market.  The investment bank earned $1.53 billion on revenue of $8.55 billion, both lower than a year ago.

So in an otherwise strong year, it was a disappointing end.  Morgan Stanley’s revenue for all of 2018 was nonetheless a record $40.11 billion.

Fixed-income trading revenue of $564 million was down 30% from a year ago, its worst quarter in three years.

In stock trading, MS didn’t have the double-digit gains of its peers, but it remained the biggest player in this category for the full year.

--BlackRock Inc.’s assets fell below the $6 trillion mark in the fourth quarter, a sign of how volatile markets are posing new challenges for the largest U.S. money managers.

The roughly $468 billion drop in Q4 was the largest such decline between quarters since September 2011; BlackRock ending 2018 with $5.98 trillion in assets under management, as noted in its latest quarterly report.

The fourth quarter market rout helped push BlackRock’s revenues down by about 9%, to $3.43 billion.  Earnings fell 60% to $927 million.

--State Street Corp. said it was initiating a $350 million expense savings program that will result in the loss of approximately 1,500 jobs.

--Sears Holdings has escaped its brush with annihilation after chairman Eddie Lampert, the largest investor, through his ESL Investments vehicle, prevailed in an auction for a shrunken version of the company, assuming a judge signs off on the results.

The deal, for a reported $5.2 billion, would prevent Sears from liquidating the rest of its stores, with Lampert initially offering to keep about 425 stores open* and somewhere between 45,000 and 50,000 workers employed.

Some of Sears creditors are objecting to the deal, and a federal judge must still decide whether it’s the best outcome of the company’s Chapter 11 bankruptcy, a hearing on the sale set for Feb. 1.

No one is optimistic Sears can turn things around.  If the exit from bankruptcy is approved, Sears still has mammoth problems, including tired stores, its failure to deal with both digital and physical competition, and pension costs.

*At its peak in 2006, a year after Lampert took control by merging Kmart and Sears, the company operated more than 2,300 stores.  Today, annual sales have tumbled from $49 billion in 2005 to $16.7 billion.

--Netflix suddenly raised its U.S. prices by 13 to 18 percent, with the shares rising 6% on the news. 

Netflix’s most popular plan will see the largest hike, to $12.99 a month from $10.99, which is still lower than rival HBO, which charges $15 a month.

Netflix’s top-tier plan, which allows streaming on four screens in high definition, will increase to $15.99 from $13.99 a month, while the cost of its basic plan will rise to $8.99 from $7.99.

The hike, according to analysts, could add $2.4bn in quarterly revenue, which is needed as Netflix faces increasing costs for content as well as likely competition from Disney, AT&T’s Warner Media, Amazon and Apple.

Netflix spent $10 billion on content last year, and it expects to spend $13.5 billion this year.

The company also understands that users love the platform for its streaming of older shows such as “The Office” and “Friends.”  Just last month, Netflix paid $100 million to retain “Friends” through 2019.

So days after the announcement of the price hike, Netflix released its fourth-quarter earnings report, the company earning $133.9 million, or 30 cents a share, on revenue of nearly $4.2 billion, up 27% from a year ago

For all of 2018, Netflix earned $1.2 billion, or $2.68 a share, on revenue of nearly $15.8 billion.

The earnings exceeded Wall Street’s expectations, while revenue was in line with estimates.

The company added 8.8 million paid subscribers in 2018’s final period, up 34% from a year earlier, with the growth largely coming from overseas; 7.3 million new international users in the fourth quarter, a 42% increase over a year earlier.  Domestic subscriber growth rose 2%.

The company ended the year with 139 million paying subscribers around the world.

Netflix also said over 80 million member households watched “Bird Box” in its first four weeks on the site.

But despite the strong results, the company still faces the above-noted head winds in increased content costs and new competition, and the shares fell back 4% today on a forecast of decelerating growth in subscribers, plus no one really knows the potential impact of the price hikes. 

--Shares in Tesla Inc. cratered 13% on Friday after the company announced it will cut its full-time workforce by about 7 percent (an estimated 3,000 to 3,500 jobs) while it ramps up production of its Model 3 sedan.

“Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company,” Tesla said.

Tesla is scrambling to maintain profitability while lowering the price of the Model 3, and CEO Elon Musk, apparently told employees preliminary results show Tesla made a second-straight quarterly profit in the fourth quarter, albeit “a tiny profit,” Musk says in the memo reviewed by the Wall Street Journal today.

Musk’s problem is he has to deal with the phasing-out of the U.S. federal tax credit for buyers of its electric vehicles, which is forcing Tesla to lower prices.  The credit was worth $7,500 last year, then cut in half to $3,750 on Jan. 1, and July 1, it goes down to $1,875.  By year end it disappears entirely.  [This is because Tesla has reached the 200,000 vehicles sold threshold for the credit, which is cut in half every six months thereafter.]

Plus there are lots of emerging competitors in the electric-vehicle (EV) market.

But currently, the least-expensive version of the Model 3 starts at $44,000, after Tesla lowered prices on all its vehicles by $2,000 in early January, while the average price paid for a new vehicle in the U.S. last year was $32,500, according to J.D. Power.

The bottom line, as Musk put it, is “the road ahead is very difficult.”

“Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture” the base $35,000 Model 3 “and still be a viable company,” he said.  “There isn’t any other way.”

As a shareholder in Tesla, would all the above give you great confidence?  No wonder it fell $45 to $304.70 today.

--Apple Inc. is rumored to be cutting back on hiring for some divisions after selling fewer iPhones than expected and missing its revenue forecast for the holiday quarter.

Apple CEO Tim Cook reportedly made the disclosure to employees this month in a meeting the day after he penned his letter to investors about the company’s recent struggles, particularly in China.

Cook was asked if the company would impose a hiring freeze and he responded that, instead, some divisions would reduce hiring.

The pullback wouldn’t affect plans to open new offices in Austin, Texas, or to expand in the Los Angeles area, where Apple is building out its original video content team.

--A bipartisan group of U.S. lawmakers introduced bills on Wednesday that would ban the sale of U.S. chips or other components to Huawei Technologies Co. Ltd., ZTE Corp. or other Chinese telecommunications companies that violate U.S. sanctions or export control laws.

The proposed law drew sharp criticism from China where Foreign Ministry spokeswoman Hua Chunying called the legislation “hysteria,” intensifying the trade war between Beijing and Washington.

But the bills were introduced shortly before the Wall Street Journal reported federal prosecutors were investigating allegations that Huawei stole trade secrets from T-Mobile U.S. Inc. and other U.S. companies.

Specifically, the Journal reports that an indictment could be coming soon on allegations that Huawei stole T-Mobile’s “Tappy,” which mimicked human fingers and was used to test smartphones.

Huawei said in a statement the company and T-Mobile settled their disputes in 2017 following a U.S. jury verdict that found “neither damage, unjust enrichment or willful and malicious conduct by Huawei in T-Mobile’s trade secret claim.”

The Foreign Ministry spokesman, Hua, said: “I believe the action of these few representatives are an expression of extreme arrogance and an extreme lack of self-confidence.

“Actually the whole world can see very clearly that the real intent of the United States is to employ its state apparatus in every conceivable way to suppress and block out China’s high-tech companies,” she added.

But on Capitol Hill, Republican Senator Tom Cotton (Ark.) wrote in a statement:

“Huawei is effectively an intelligence-gathering arm of the Chinese Communist Party whose founder and CEO was an engineer for the People’s Liberation Army.  If Chinese telecom companies like Huawei violate our sanctions or export control laws, they should receive nothing less than the death penalty – which this denial order would provide.”

This week, Huawei’s reclusive founder, Ren Zhengfei, denied his company was used by the Chinese government to spy.

“I love my country, I support the Communist Party. But I will not do anything to harm the world,” the 74-year-old told a select round table briefing, only his third formal chat with foreign reporters.  “I don’t see a close connection between my personal political beliefs and the businesses of Huawei.”

Ren also called Donald Trump “a great president.  He dares to massively cut tax, which will benefit the business. But you have to treat well the companies and countries so that they will be willing to invest in the U.S. and the government will be able to collect enough tax.”

Canada detained Ren’s daughter, Meng Wanzhou, who is Huawei’s chief financial officer, in December at the request of U.S. authorities investigating an alleged scheme to use the global banking system to evade U.S. sanctions against Iran.

Not only has the U.S. banned government use of Huawei’s technology products and service on security concerns, but Japan has excluded the company from public procurement and Australia and New Zealand have also effectively blocked Huawei from their roll-out of 5G network infrastructure.

You also have a number of European nations looking to do the same, and the arrest in Poland last week of a Huawei sales executive accused of spying may have helped prompt Ren to personally marshal his company’s global response.  The employee in Poland was fired by Huawei over the weekend, which said the individual had brought the company into disrepute.

Huawei has nearly 50% of the Polish telecommunications infrastructure market, selling everything from routers to cellphone towers and network security services to Poland’s four telecommunications operators.

Poland security officials are now scrambling to examine how widely government agencies and officials rely on Huawei gear.  The importance to the West is that Poland is a member of NATO and there are all kinds of espionage possibilities with Huawei equipment.  Huawei has seen Poland as a base of operations for its business across central and Eastern Europe.

So at week’s end, Huawei was dealt another blow, as Germany joined its U.S. and British allies in moving to prevent the company from supplying its next-generation mobile phone network.

The decision to take a much tougher approach to security in the 5G network rollout marks a major U-turn for Germany, which had been more skeptical than the UK of White House claims that the Shenzhen-based company has ties to the Chinese state.

China’s ambassador to Canada warned on Thursday that there would “certainly be repercussions” if Huawei was blocked from participating in building the country’s 5G network.

Ren expressed hope that Huawei can find a way forward with the U.S.

“Huawei is not a public company, we don’t need a beautiful earnings report,” Ren said. “If they don’t want Huawei to be in some markets, we can scale down a bit. As long as we can survive and feed our employees, there’s a future for us.”

Meanwhile, for its part, ZTE agreed last year to pay a $1 billion fine to the United States that had been imposed because the company breached a U.S. embargo on trade with Iran.

--In the annual Middle Seat scorecard ranking of the eight major U.S. airlines, Delta remains on top, and has been in the top three every year since 2010, when it finished last.

Delta canceled less than 1% of its flights in 2018, while American Airlines, ranked 7 of 8, had a cancellation rate nearly three times as high. Delta’s rate of lost or delayed baggage was also half as bad as American’s.  About 7% of Delta flights were late by 45 minutes or more. At Frontier, 15% of all flights suffered what are considered extreme delays.

Overall Rank

1. Delta
2. Alaska
3. Southwest
4. Spirit
T-5. JetBlue
T-5. United
7. American
8. Frontier

Delta led in on-time arrivals, canceled flights, and involuntary bumping.

Spirit led in fewest mishandled bags.

For its part, Frontier blamed its ranking on “operational disruption” resulting from contract negotiations with its pilots union.

The eight major carriers posted an on-time arrivals rate of 78.9%, down slightly from 79.6% in 2017, according to masFlight.

Weather also played a role in some of the numbers.  American’s largest hub at Dallas-Fort Worth had the second-wettest year on record, with record rainfall in February, September and October.

--Meanwhile, United Continental bucked the recent gloom surrounding the airline sector and a rough December for the likes of Delta and American, with United topping expectations for its fourth-quarter results and issuing an upbeat outlook for earning in 2019; the company’s shares rising nearly 6.5% in response on Wednesday.

CEO Oscar Munoz said, “United delivered proof, not just promises in 2018 – even in the face of significant headwinds from higher than expected fuel costs.

Nonetheless, concerns about fare weakness and the effects of slowing global economic growth, as well as the U.S. government shutdown have weighed on the airline sector in January. Delta warned the shutdown would hold back revenue growth in its current quarter.

Delta and American this month have slashed their full-year guidance.

--Shares in PG&E Corp., $24.40 on Jan. 4, finished the week at $6.90 as California’s largest utility announced it was facing a bankruptcy filing in weeks, these things not normally telegraphed in such a fashion, with PG&E facing billions of dollars in legal claims as a result of its culpability in California’s wildfires.  The company said it was in discussions with investment banks about a multibillion-dollar financing package to help navigate bankruptcy proceedings.  California law does require providing notice at least 15 days before a Chapter 11, or similar, filing.

PG&E equipment reportedly started more than one fire a day in California on average in recent years amid the historic drought that turned the region into a tinderbox.

As reported in the Wall Street Journal:

“The fires included one on Oct. 8, 2017, when nearly 50-mile-an-hour winds snapped an alder tree in California’s Sonoma County wine country. The tree’s top hit a half-century-old PG&E power line and knocked it into a dry grass field, a state investigation found. The line set the grass ablaze, sparking what became known as the Nuns Fire.

“It was among at least 17 major wildfires that year that California investigators have tied to PG&E.  Data from the state firefighting agency, Cal Fire, show the fires together scorched 193,743 acres in eight counties, destroyed 3,256 structures and killed 22 people.”

PG&E did make efforts to manage vegetation around its lines, but the drought overtook heavily wooded areas north of San Francisco and outside Sacramento far quicker than the company planned on.

That said, the utility removed 451,000 more trees from 2016 through 2018 than it had originally forecast, a company official said, in an “amped up” effort to deal with massive tree mortality.  But it wasn’t enough.

Last November’s Camp Fire, that swept through the mountain community of Paradise, killing at least 86 people, is also blamed on PG&E.

--I had various pieces of information last week on Chinese auto sales and the official 2018 number, as issued by the government-backed China Association of Automobile Manufacturers this week was 28.08 million, down 2.8% from 2017, with passenger-car sales falling to 23.71 million, a 4.1% decline, while commercial-vehicle sales rose to 4.37 million, a 5.1% increase.

In a real tell, auto sales were up 6% the first half of the year, but down 11% in the second half.

Electric-car sales surged ahead, increasing 62% to 1.26 million, or 4% of the 2018 total, with the government’s target being 20% in 2025.

As for some of the foreign auto makers, GM’s China sales fell 10% for 2018, including a 25% drop in the fourth quarter; Ford’s plummeted 37% to 752,243 – the lowest since 2012, with December sales down 59%, the company having a huge problem with overcapacity as well; while VW, the best seller in China, was down just 2%.

--Ford and Volkswagen announced a plan to work together to develop medium-sized pickup trucks and light commercial vans that they expect to sell as soon as 2022, the first step in what the automakers foresee as a broad global alliance under which they will share costs in areas including autonomous and electric vehicles.

--Former Nissan Motor Co. Chairman Carlos Ghosn is now slated to remain in jail at least until March after the Tokyo District Court upheld its earlier decision to deny his release on bail, rejecting an appeal on behalf of Ghosn.

When defendants are denied bail, they must stay in jail for at least another two months after charges are filed – in Ghosn’s case that ends March 10.

Ghosn has been held since his arrest Nov. 19.  He maintains he’s innocent.

--Newmont Mining Corp. agreed to buy rival Canadian gold producer Goldcorp Inc. in a $10 billion, all-stock deal, creating the world’s largest gold miner.

If Newmont consummates the Goldcorp deal, the new company, set to be based in Denver, would surpass Toronto-headquartered Barrick Gold Corp., which in September reached agreement to buy Randgold Resources for $6 billion.

A rise in extraction costs, at the same time high-grade global gold reserves are being depleted, has led to miners seeking cost efficiencies and to buy other companies’ to land their reserves.

--Legendary bond investor Bill Gross, 74, has seen assets in his Janus Henderson Global Unconstrained Bond Fund fall below $1 billion, to $950 million from February’s all-time high of $2.24 billion, as investors have pulled money out for 10 consecutive months, with Gross’ performance underperforming more than 80 percent of his peers, according to data compiled by Bloomberg.

Gross took over the unconstrained fund in October 2014 after famously being ousted from PIMCO, where he managed the world’s onetime largest mutual fund, PIMCO Total Return.

--President Trump mocked Amazon CEO Jeff Bezos over his recently-revealed affair while praising the National Enquirer and slamming the newspaper owned by Bezos’ company.

“So sorry to hear the news about Jeff Bozo,” Trump tweeted, “being taken down by a competitor whose reporting, I understand, is far more accurate than the reporting in his lobbyist newspaper, the Amazon Washington Post.”

The “competitor” referring to the Enquirer, which published a story exposing damning text messages between Bezos and former TV anchor Lauren Sanchez.

Bezos announced shortly before the story ran that he was separating from his wife, and  then he announced they were divorcing.

For his part, Trump didn’t note in his tweet that the Enquirer’s parent company admitted to paying a woman who alleged an affair with Trump.

--Back when I was in the mutual fund industry, needless to say I wasn’t a fan of John Bogle, the legendary founder of Vanguard Group Inc. who took a direct chunk out of just about every other fund company’s bottom line when he popularized the low-cost index-based mutual fund, insisting that active (stock-picking) money managers weren’t worth the fees they charged.  And he was right.

Bogle died the other day at the age of 89, from cancer, which was kind of amazing in that he had suffered six heart attacks in his lifetime, and since 1996 had been living with a transplanted heart.

Bogle proselytized on behalf of patient, long-term investing, with diversification, as he advocated index funds that buy and hold a broad mix of stocks.

In his “The Little Book of Common Sense Investing,” Bogle wrote: “The way to wealth for those in the business is to persuade their clients, ‘Don’t just stand there. Do something.  But the way to wealth for their clients in the aggregate is to follow the opposite maxim: ‘Don’t do something. Just stand there.”

He also once said, “My ideas are very simple.  In investing, you get what you don’t pay for.”

Bogle founded Valley Forge, Pennsylvania-based Vanguard in 1974. By 2008, investors attracted to its low fees helped the firm overtake American Funds (Capital Group Inc.) as the biggest U.S. stock and bond fund manager, and by late 2018, Vanguard had about $5.3 trillion in assets under management.

Under Bogle, the company introduced the first retail index mutual fund in 1976.  The Vanguard 500 Index Fund has approximately $440 billion in assets at last count. 

Bogle’s thesis rested on the idea that the Vanguard 500 would outperform most actively managed funds because it had lower management fees and trading costs.

Vanguard board member, and Princeton University economics professor, Burton Malkiel, said in an interview, “Everybody really thought he was crazy, but he was tough enough not to care what everybody thought.”

Bogle, because of both the fee and corporate structure of Vanguard (a cooperative owned by the funds it ran) gave up the opportunity to amass a much larger personal fortune, with an estimated net worth of $80 million, according to Forbes, vs. Fidelity Investments’ chairman Edward C. Johnson III’s $7.4 billion.

Bogle retired in 1999, but was an active spokesperson for the company and his theory of investing up until last year.

In a 2006 speech, Bogle said: “The mutual-fund industry is now dominated by giant, publicly held financial conglomerates run by businessmen hell bent on earning a return on the firm’s capital, not the return on the capital invested by the fund shareholders.”

Bogle, because of his constant hammering away on the topic of fees, had few friends in the fund industry, and at a Morningstar conference in 2009, criticized asset managers for paying themselves too much.

“Compensation is totally, ridiculously out of control,” he said.  “Money managers should return to stewardship and trusteeship.”

A lot of us didn’t want to hear this, but, again, of course he was right.

Fortune Magazine named Bogle one of four “Giants of the Investment Industry of the 20th Century” in 1999.

Editorial / Wall Street Journal

“Most of our readers are too young to remember, but investing used to be expensive. Fund managers and brokers charged significant fees that reduced long-term returns. That millions of Americans no longer pay such costs is due in significant part to John C. Bogle Jr., who died Wednesday at age 89.

“Jack Bogle created the first index mutual fund for so-called passive investing in 1976. He argued that it is foolish to pay high fees to fund managers trying to outperform the equity market since few managers actually do.  Investors could do better in the long run by investing in index funds whose returns would mimic those of the market....

“Index funds have become so popular that in recent years Bogle had to defend them against critics who claimed they could swallow the entire market and distort prices.  He acknowledged that some active investors are necessary for price setting, though not for nearly all other investors who will never beat the market. Jack Bogle was a capitalist for the common man.”

--Finally, growing up in Summit, New Jersey, I long admired a giant of American banking, and fellow resident, Walter Shipley, who died this week at the age of 83.

Laura Noonan / Financial Times

“Some 25 years ago, a group of Chase Manhattan’s security staff were summoned for a meeting where they were told they were being replaced by contractors. On a wing and a prayer, a few of them reached out to the bank’s chief executive Walter Shipley, a 6’ 8” giant of American banking. Mr. Shipley saved the security jobs then got back to doing his own in his customary no-fuss style.

“It’s a simple story; barely a footnote in a 43-year-career defined by the mighty mergers that Mr. Shipley presided over as he created America’s biggest bank and laid the foundations for one of the biggest financial institutions in the world, JPMorgan Chase.  But former colleagues say what the New Jersey native did for those security workers epitomized his spirit, the kinship he felt with all of his colleagues, no matter rank or division.

“Certainly, the banker spoke often on business culture and the importance of employee well-being long before those topics were in vogue.  In 1999, the year he retired, he was celebrated as the ‘Family Champion’ of the year by Working Mother magazine.  ‘My ideal is to create a company where no one feels self-conscious about who they are,’ he told the magazine.

“ ‘If you’re a woman, or if you’re black or Buddhist – why should you feel uncomfortable? If you do, it holds you back.’  When his own executive assistant came back from maternity leave in 1983 and wanted a more flexible schedule, he agreed to the bank’s first ever job-share. From 1996, Mr. Shipley required all of Chase’s business unit’s to submit plans on diversity, including women’s advancement.

“Mr. Shipley’s deep sense of collegiality is cited as one of the main reasons he was able to spearhead a string of successful mergers, including the 1987 Chemical/Texas Commerce Bank deal; the 1991 Chemical/Manufacturers Hanover deal; and the 1995 $10bn deal with Chase, which included the sacrifice of Chemical’s name, even though it was the bigger entity, and named Mr. Shipley and Chase president Thomas Labrecque as ‘totally equal partners.’

“ ‘Some people’s philosophy is I win, you lose,’ Mr. Shipley said in a 1999 interview.  ‘Our philosophy is that the best is when both sides feel they’ve come out winners.’....

“In a note to JPMorgan Chase staff announcing Mr. Shipley’s death, current JPMorgan chief executive Jamie Dimon described the ‘open entrepreneurial meritocracy’ he installed at the firm ‘which carries through to this day.’

“ ‘Widely respected for being a straight-shooter, Walter believed there was no substitute for talent, drive and hard work,’ Mr. Dimon added.

Bill Harrison, a former chief executive and chairman of JPMorgan Chase, who worked with Mr. Shipley closely, described him as a ‘man of the highest values, a man of humility, compassion and courage.’

“ ‘Walter had a vision of where the banking industry was going, and he had the courage and ability to act,’ Mr. Harrison added.  ‘Walter played a critical role in making JPMorgan Chase what it is today.’”

My condolences to Mr. Shipley’s daughter, Barb, and the entire family, Barb being a high school classmate of mine.

Foreign Affairs

Syria: Four Americans – two U.S. service members, a Defense Department contractor and a civilian Defense worker – were killed in a suicide bombing in the northern Syria city of Manbij on Wednesday.

The attack, which the militant group Islamic State said had been carried out by one of its followers, also killed more than 12 civilians and Kurdish militia members. Three U.S. service members were among those wounded, according to the Pentagon.

The attack came after President Trump announced he would withdraw troops from the nation based on his assertion that Islamic State had been all but vanquished, a claim repeated by Vice President Mike Pence.

Sen. Lindsey Graham (R-S.C.) said Wednesday that the Manbij attack indicated Trump’s decision to withdraw had emboldened ISIS.

“My concern, by the statements made by President Trump, is that you set in motion enthusiasm by the enemy we’re fighting. You make people we’re trying to help wonder about us,” Graham said at the confirmation hearings for attorney general nominee William Barr.  “And as they get bolder, the people we’re trying to help are going to get more uncertain.  I saw this in Iraq. And I’m now seeing it in Syria.”

Manbij is controlled by a Syrian Kurdish militia known as the People’s Protection Units, or YPG, which is backed by the U.S. and has been conducting joint patrols with American troops in the city.  The suicide attacker – who ISIS identified by name in a statement – approached a group of U.S.-led coalition personnel and Kurdish militants gathered near a popular restaurant about 1 p.m. and detonated a suicide belt.

While the attack seemed to belie Trump’s claims about the militants’ defeat, those who have supported the U.S. withdrawal said it proved the president is right to claim a win on his own terms and get out.

Sen. Rand Paul (R-Ky.), who some say is virtually living at the White House these days, advising the president, tweeted as he headed back to see Trump: “I stand with the president in putting #AmericaFirst, bringing our troops home and declaring victory.”

Then, after the two spoke, Paul issued a statement saying he had “never been prouder” of the president, who “stood up for a strong America and steadfastly opposed foreign wars.”

Thus far, President Trump has made only a single brief mention as part of a speech at the Pentagon, offering his condolences.

Russia announced that President Vladimir Putin and Turkish President Recep Tayyip Erdogan will meet in Moscow next week to discuss the situation, “in light of Washington’s announced plans to withdraw its troops from Syria.”

David Ignatius / Washington Post

“If you wonder what the four Americans who were killed Wednesday in Manbij, Syria, were doing there, let me describe a few images from a visit to that city last February that illustrate their mission of helping to stabilize this area after the Islamic State was expelled.

“Think of a covered market thronged with shoppers: Until the Americans and their allies liberated Manbij in mid-2016, the only color most women dared wear in public was black; now, a rainbow of dresses is displayed on makeshift racks. While the jihadists ruled, people hid their valuable possessions; now, gold sparkles in the jewelers’ stalls.

“The market is near the restaurant where the four Americans had stopped to have lunch when an explosion took their lives. If you ask what their sacrifice achieved, think of the vibrant street where they died, which was once a monotone of misery.

“Or take a walk to a girls’ school nearby and talk to the young women who couldn’t attend classes until the Islamic State’s power was destroyed by a Kurdish-led Syrian militia, backed by U.S. forces.  The girls are wearing makeup and once-forbidden hints of color; one displays a pink hijab; another speaks of someday attending university in France.

“As you consider these bright snapshots of a city that, with U.S. help, emerged from darkness, you may understand why U.S. soldiers and civilians serving there have been so passionate about their jobs. They could see every day, in nearly every face, the difference they were making.  It has been troubling that President Trump never seemed to appreciate how much the United States was accomplishing in northeastern Syria, with so few resources, but maybe he’ll understand better now.

“Secretary of State Mike Pompeo put it well in his recent speech in Cairo.  ‘America is a force for good in the Middle East....When America retreats, chaos often follows.  When we neglect our friends, resentment builds.’  I hope Pompeo will have an honest talk with his boss about those truths and what they mean for Syria policy.

“The four American deaths this week shouldn’t be used as a political club, one way or the other. The reality is that a ghastly attack like this could happen anytime. It has been a miracle that only two Americans had died in combat in Syria since 2015; that number has now trebled. The mission made sense before; it still does.

“Americans will remain targets for as long as they’re in Syria. But they’ll be even more vulnerable in a pell-mell retreat. The most dangerous military operation can be a withdrawal of forces like what Trump has ordered.  Terrorists will be emboldened, now that they have taken American blood, and hoping to foster a panicked departure....

“As the United States should have learned, the Islamic State is like a cancer that hides in bones and tissues, not quite extinguished. The moment you think it’s gone, it pounces back, hungry as ever, devouring the healthy organs.

“American troops shouldn’t stay in Syria forever; Trump is certainly right about that. But he needs to be as careful about how the United States leaves Syria, or any other Middle East battlefield, as his predecessors were sometimes reckless about getting in.

“For now, Trump should give U.S. commanders what they need in Syria: a small military force to sustain a clear, consistent U.S. policy of destroying what’s left of the Islamic State – and protecting our partners.

“If a resurgent Islamic State were able to drag the newly thriving markets and schools of Manbij back into darkness, that truly would abandon the sacrifices Americans have made there.”

Editorial / Wall Street Journal

“The Trump Administration says Islamic State has been defeated, and it is moving ahead with its withdrawal of U.S. forces from Syria and reducing America’s antiterror commitments in Africa.  Meantime, House Foreign Affairs Chairman Eliot Engel is replacing a terrorism subcommittee with one focused on investigating what he apparently thinks is a bigger threat: Donald Trump.

“The world’s terrorists don’t seem to have received this news that they’ve been defeated, as a spate of recent attacks around the globe shows.

“ –On Wednesday a suicide bomber killed two American soldiers, one civilian Pentagon employee and a Defense Department contractor, as well as 15 allied fighters and civilians, in Manbij, Syria.  Islamic State took responsibility for the attack and claimed it specifically targeted Americans. Republican Senator Lindsey Graham says the incident shows that Mr. Trump’s retreat and declarations of victory in Syria are emboldening jihadists – and he’s probably right....

“ –On Tuesday militants from al-Shabaab, an al-Qaeda-linked group based in Somalia, attacked a hotel and office complex in Nairobi, Kenya. The 18-hour rampage killed at least 21people, including American businessman and 9/11 survivor Jason Spindler.

“ –A Taliban suicide bomber hit a foreign compound in Kabul, Afghanistan, on Monday.  Four people were killed and more than 100 wounded.  Since word leaked that Mr. Trump may withdraw some or all U.S. forces in Afghanistan, ISIS and the Taliban have ramped up attacks and peace talks with the Taliban have faltered....

“ –The decapitated bodies of two young Scandinavian women were found in Morocco’s Atlas Mountains on Dec. 17. Several terrorists loyal to ISIS shared video of the killings on social media.  Moroccan authorities have arrested some 20 people in connection with the attack, which Danish intelligence calls ‘an act of terror.’....

“Americans at home are fortunate to have been spared successful recent attacks, thanks to programs put in place by George W. Bush and sustained since. But the lack of such a moment also can breed the complacency that Mr. Engel is showing.  He knows the way to make news now is to investigate Mr. Trump, not jihad.

“Alas, the terrorists still want to kill Mr. Engel’s fellow Americans any chance they get. The best way to keep the homeland safe is to keep the pressure on terrorists abroad. If Islamic State revives, or if there is another major attack, Mr. Trump’s claims of victory will run as an endless cable-TV loop.”

Israel: From the Jerusalem Post:

“Yet another Trump administration official expressed alarm this week over China’s creeping influence over Israeli infrastructure.

“Following statements of concern from the White House and Pentagon, a top official at the Treasury Department has now told Israeli cabinet members during a visit to the country that Chinese technology companies working in Israel pose a threat to intelligence cooperation between the longstanding allies....

“Interest in Huawei and ZTE in Israel has worried its U.S. ally, as has the green light it granted China’s Shanghai International Port Group in 2013 to build a private port near Haifa, a berth for the U.S. Mediterranean fleet....

“A spokesman for the Sixth Fleet said that its use of the port might be in doubt once the Chinese arrive in 2021.

“Foreign and defense ministry officials have internally lamented that the SIPG agreement was not vetted through an inter-agency process.  Transportation Minister Israel Katz has told the Post that the security cabinet is now reviewing Washington’s concerns.”

This is nuts!

Back in December 2016, Huawei acquired Israel’s HexaTier, whose technology secures databases in the cloud, for $42 million.  This followed a visit to Israel by Huawei’s CEO. That same month, it also acquired IT research firm Toga Networks for an undisclosed amount.

ZTE has similar interests in Israel’s tech sector.

Saudi Arabia: Secretary of State Pompeo met with Saudi Crown Prince Mohammed bin Salman in Riyadh on Monday, with the secretary pressing MBS to hold accountable “every single person” involved in the killing of U.S.-based Saudi journalist Jamal Khashoggi, but there has been no progress in the case, Pompeo saying after the two met that the kingdom still has to “work through a fact process.”

Well the facts are, more than 100 days since Khashoggi was murdered inside the Saudi consulate in Istanbul, Turkey, Riyadh has accused a handful of scapegoats for the killing, but there has been no action taken against whoever masterminded the plan.  U.S. intelligence has concluded MBS likely ordered it.

I’m guessing the five or six that have been accused of carrying out the murder will not be executed as we’ve been told. 

China: The Pentagon has said China is using its expanding military, trading and infrastructure network to pursue global leadership in a report that warned that its global ambitions could undermine the security of the U.S. and its allies and threatened international economic corridors.

Monday’s report, which assessed China’s military and non-military expansion efforts, such as the Belt and Road Initiative and the “Made in China 2025” industrial strategy, coincided with another detailed assessment on Tuesday from the Defense Intelligence Agency, which said China’s drive to acquire cutting-edge weaponry – including nuclear bombers and a space-based early warning system – was intended to establish itself as a global military power.

The Pentagon report read in part: “China’s most substantial expansion of its military access in recent years has occurred in its near-abroad, where territorial disputes in the East and South China Seas persist, but China has also expanded its military operations further from the Chinese mainland.

“China’s pursuit of expanded global military access is thus driven both by new PLA missions to protect overseas interests and by a shifting approach to potential contingencies along its maritime periphery,” it said.  [South China Morning Post]

Jackson Diehl / Washington Post...in looking at 2019

“(China’s) step-by-step bid for hegemony over East Asia will continue.  Xi will quietly encourage North Korea’s Kim Jong Un to continue resisting any denuclearization deal with Trump that doesn’t include a withdrawal of U.S. forces and assets from the region. After all, he would have heard Trump say that Patrick Shanahan, the inexperienced former Boeing executive he appointed to fill in for departed defense secretary Jim Mattis, agrees with him that ‘we’re giving military protection to countries that are very wealthy, and they’re not doing anything for us.’  In Trump’s mind, that means South Korea.”

On a totally different issue, China denounced Canada on Tuesday for “irresponsible” remarks after Canadian Prime Minister Justin Trudeau accused it of “arbitrarily” sentencing a Canadian to death for drug smuggling, aggravating already icy relations.

The countries have been at odds since early December, when Canadian police arrested Meng Wanzhou of Huawei, as noted before at the behest of the United States. Days later, China then detained two Canadians on suspicion of endangering state security.  And then the third man was arrested for smuggling methamphetamines.

China has not linked any of the three Canadians’ cases to Meng’s arrest, but has warned of severe consequences if she was not immediately released.  Trudeau said it should be of “extreme concern” to Canada’s allies, as it was to his government, that China had chosen to “arbitrarily apply” the death penalty.

Both China and Canada this week issued travel warnings to their citizens on the risk of traveling to the two countries.

North Korea: A Pentagon report released Thursday described North Korea’s missile and nuclear program as an “extraordinary threat” to the United States, warning that the U.S. must “remain vigilant” despite ongoing diplomatic engagement with the North.

The Missile Defense Review report, introduced by President Trump during a speech at the Pentagon, was released just hours ahead of a top North Korean envoy’s arrival in Washington to discuss a second summit between Trump and Kim Jong Un.  Kim Yong Chol, the North’s top nuclear negotiator, was to meet with Secretary Pompeo today, and KYC ended up also meeting with the president, after which it was announced Trump and Kim Jong Un will hold their second summit at the end of February, site to be determined.

Much more next time on this.

Trump barely mentioned North Korea in his speech at the Pentagon this week, the defense review emphasizing that Pyongyang has invested considerable resources and undertaken extensive nuclear and missile testing “in order to realize the capability to threaten the U.S. homeland with missile attack.”

“As a result, North Korea has neared the time when it could credibly do so,” the report concluded.

Trump continues to downplay the threat posed by North Korea in his tweets and statements dating back to his summit in June with Kim.  After his return from Singapore, the president tweeted that “everybody can now feel much safer” and that “There is no longer a Nuclear Threat from North Korea.”

And Trump’s recent tone remains upbeat, characterizing his relationship with Pyongyang in glowing terms.

“Now I say this, North Korea, we’re doing very well,” he said earlier this year.  “And again, no rockets.  There’s no rockets. There’s no anything. We’re doing very well.”

But on Wednesday, Vice President Pence said North Korea had taken no “concrete steps” to denuclearize.

“While the president has started a promising dialogue with Chairman Kim, we still await concrete steps by North Korea to dismantle the nuclear weapons that threaten our people and our allies in the region,” Pence said in a speech at the State Department.

Separately, Jeffrey Lewis, an expert on North Korea at the Middlebury Institute of International Studies in Monterey, Calif., said in a report published Thursday, that North Korea has hidden six factories linked to Pyongyang’s missile program, which have been identified through painstaking digital examination of open-source data.  North Korea’s state media has withhold the locations and any visits to them by officials, to thwart Washington’s intelligence-gathering or cyberattacks.

Russia: Foreign Minister Sergey Lavrov told a news conference that U.S. media reports claiming President Trump might have been a Russian agent reflected a dramatic plunge in standards of journalism.

Asked whether Russia could release the minutes of Trump’s one-on-one negotiations with Vladimir Putin, Lavrov dismissed the idea, saying it defied the basic culture of diplomacy.

Putin’s foreign affairs adviser, Yuri Ushakov, similarly derided claims that Trump was working for Russian interests.

“What kind of nonsense are you asking about?” Ushakov snapped at a reporter when asked if Trump was a Russian agent.  “How can one comment on such a stupid thing? It has reached such a scale that it’s awkward to even talk about it.

“How can a president of the United States be an agent of another country?”

Venezuela: Opposition leader Juan Guaido on Sunday said that President Nicolas Maduro’s adversaries were “not afraid” even though he was briefly detained by intelligence agents, days after saying he would be willing to replace the increasingly isolated president.

Opposition leaders have failed numerous times over the past 20 years to remove the ruling socialists.  Today, they are once again calling for a transition to a new government, but no plans had previously been drawn up to accomplish this.

This week, though, the National Assembly, the opposition-controlled legislative body that has zero real power, declared Maduro illegitimate, hoping to trigger a Constitutional mechanism that would allow the head of the National Assembly to take over the leadership.

This most recent move against Maduro comes amid a collapsing economy and a growing humanitarian crisis.

Some say that the fact Guaido was released shortly after he was detained maybe points to cracks in the security apparatus that props up Maduro.

Colombia: A car bomb exploded in front of a Bogota police academy Thursday morning, killing at least 21 people, while wounding 68 and spreading fear about a revival of Colombia’s violent past, when drug traffickers and leftist guerrillas terrorized the city and other parts of the country.

It had been years, however, since there had been an attack of this kind in Bogota.

Friday, the government blamed the left-wing National Liberation Army (ELN) rebel group.  President Ivan Duque put peace talks with the ELN on hold when he took power in 2018. 

The driver of the car, who was also killed, is known.  He was the ELN’s top explosives expert, and the government is saying this was an operation planned for the past 10 months.

Recall, Colombia reached a peace agreement with the larger rebel group, FARC, but never did with smaller ELN.  And now many of the FARC rebels have tired of civilian life and picked up arms again as well.

Random Musings

--Presidential tracking polls....

Gallup: 37% approval, 59% disapproval of Trump’s job performance.* 88% of Republicans approve, 31% of Independents, a big decrease from the last reading of 39%.
Rasmussen: 44% approval, 55% disapproval (Jan. 18).

*Reminder: Gallup has now gone to monthly releases, the above for the polling period Jan. 2-10, released Jan. 15.  The prior split of 39 / 55 was for Dec. 22.

--A Quinnipiac University National Poll, released Jan. 15, gives Trump a 41% approval rating, 55% disapproval, compared to a 39-52 split Dec. 19, before the shutdown.  86% of Republicans approve, 38% of Independents.

Trump’s split among men is 49-47, and 35-62 among women.  Among blacks it’s 8-90; with Hispanics, 35-64.

Separately, American voters disapprove 56-37 percent of the way Democrats in Congress are doing their job.  Senate Minority Leader Charles Schumer has a measly 26% approval rating.  House Speaker Nancy Pelosi garners 35% approval, though this is ticking up.

Is Donald Trump honest?  Only 34% think so, but this has been in a range of 34-38 percent the last 15 months.

In a PBS NewsHour/NPR/Marist Poll, President Trump’s job approval stood at 39%, down from 42% in December.  53% disapprove.  Trump’s approval among Republicans in this survey was at 83%, down from 90%.

29% of voters approve of how the congressional GOP is doing its job, while 34% approve of the job performance of congressional Democrats, both figures actually up from a July 2018 survey.

--New York Sen. Kirsten Gillibrand jumped into the 2020 presidential race Tuesday by announcing on “The Late Show with Stephen Colbert,” which has become the go-to venue for Democratic politicians, Gillibrand joining a number of ‘formal’ early entrants, including Sen. Elizabeth Warren, Rep. Tulsi Gabbard and Julian Castro, though the field is expected to explode to between 25 and 30 candidates.

Gillibrand said: “I’m going to run for president of the United States because as a young mom, I’m going to fight for other people’s kids as hard as I would fight for my own, which is why I believe that health care should be a right and not a privilege.”

--Former Sen. Joe Lieberman doubled down on his suggestion Rep. Alexandria Ocasio-Cortez is not the future of the Democratic Party.

“She just takes us back to the big-spending, big-taxing Democratic Party, and the Democratic Party is not going to succeed that way,” Lieberman told Fox News Channel’s Maria Bartiromo.

Days before, Lieberman told Fox Business, “With all respect, I certainly hope she’s not the future and I don’t believe she is.”

Reacting to Lieberman’s comments, the 29-year-old nudnick lawmaker tweeted: “New party, who dis?”

Lieberman pointed to the many moderate Democrats who beat Republicans in purple districts in 2018.

“The more typical Democrat elected to the House for the first time this year didn’t share her point of view,” he said.  “They were center-left.”

--Iowa Republican Rep. Steve King, who was rebuked by the House for recent comments in which he questioned why phrases like “white supremacist” are offensive, said he agreed with Dem. Rep. James Clyburn’s resolution, titled “Rejecting White nationalism and White supremacy.”  The resolution invoked King’s comments and condemned such words as “hateful expressions of intolerance that are contradictory to the values that define the people of the United States.”

“I regret that we are in this place,” King said, adding that he rejects such ideologies.  “I agree with every word that you have put in this.  It’s an honest and a direct resolution put together to address a subject that has been too long before the public dialogue in this country.”

“I want to ask my colleagues on both sides of the aisle, let’s vote for this resolution. I’m putting up a yes on the board here,” King said.

Prior to the “vote of disapproval,” House Republican leaders voted not to assign King any committees in the new Congress.

GOP Minority Leader Kevin McCarthy said it was up to King whether he should resign.

But Rep. Liz Cheney (R-Wyo.), the No. 3 House Republican went further, echoing Senate Majority Leader Mitch McConnell, “I think that he should find another line of work,” she said.  GOP Sen. Mitt Romney also called on King to resign.

--Former New Jersey Gov. Chris Christie has a new tell-all book titled “Let Me Finish,” in which he skewers Jared Kushner, accusing the president’s son-in-law of a “hit job” on him in revenge for Christie’s prosecution of Jared’s dad, Charles Kushner, which resulted in him doing time in a federal pen.

“Steve Bannon...made clear to me that one person and one person only was responsible for the faceless execution that Steve was now attempting to carry out.  Jared Kushner, still apparently seething over events that had occurred a decade ago,” Christie writes in the book, a copy of which was obtained by The Guardian.

Christie wanted the attorney general job, but he was blackballed by Kushner and Trump’s daughter, Ivanka, according to the book.

Christie mocked former national security adviser Mike Flynn as “a train wreck from beginning to end...a slow-motion car crash.”

But most of the venom, it seems, is directed at Kushner, who also talked Trump out of naming Christie the head of his transition team.

It was Bannon who canned Christie at Trump Tower not long after the 2016 election. Christie then demanded to know who was behind it, threatening he would finger Bannon if he did spill the beans.

Bannon blamed Kushner, saying he was furious over Christie’s prosecution of Charles Kushner in 2005.

“The kid’s been taking an ax to your head with the boss ever since I got here,” Bannon told him, according to the book. 

Charles Kushner pleaded guilty to 18 charges and served 14 months in a federal pen in Alabama.

He also hired a hooker to seduce his brother-in-law, recorded them and sent a tape of the encounter to his sister – an effort to force his brother-in-law’s silence about Kushner’s crimes.

Christie reveals how Kushner bad-mouthed him to Trump in 2016.

“He implied I had acted unethically and inappropriately but didn’t state one fact to back that up. Just a lot of feelings – very raw feelings that had been simmering for a dozen years,” he writes.

Kushner insisted the sex tape and blackmailing were a family matter and that his father should not have been prosecuted for it.

Christie writes of several episodes where Kushner ill-serves the president by his poor advice.

But Christie appears to take it easy on Donald Trump.

The book is slated for publication on Jan. 29.

Personally, having been in New Jersey for a long time, and being well aware of Charles Kushner’s deeds, I never understood the fascination with Jared, of whom I’ve written numerous times, ‘the apple doesn’t fall far from the trees.’ 

--Stephen F. Hayes / Washington Post

“If ever there were a time for a serious intraparty challenge (to Donald Trump) it’s now. He has strong support from elements of the Republican base, but he has alienated virtually everyone else, especially those segments of the electorate that are growing the fastest. The ideal challenger would be a committed, articulate conservative – maybe a governor, such as Maryland’s Larry Hogan, or a senator, such as Nebraska’s Ben Sasse – who would make a case for limited government that will otherwise go unmade, and who show voters that conservatism and Trumpism are not one and the same.

“The 2018 midterm elections were a clear and unmistakable rebuke of the chaos of his first two years as president. And it’s getting worse. The final few weeks of this second year of his presidency are proving even more chaotic than the first hundred weeks.

“Trump’s steady stream of lies has picked up over the past six months. His Twitter feed is more unhinged. His sudden Syria withdrawal announcement on Dec. 19 surprised everyone from allies to the military leaders who would be tasked with carrying out his order.  His recent unprompted defense of the 1979 Soviet invasion of Afghanistan was enough to make even paid Putin apologists blush. As special counsel Robert S. Mueller III’s investigation draws closer to the Oval Office, it is clearer every day why Trump fired Attorney General Jeff Sessions for failing to protect him from the inquiry.  Now, Trump is threatening to declare a ‘national emergency’ and use ‘the military version of eminent domain’ to secure the southern border – a stark admission that he has failed on his central campaign promise: to build a wall and make Mexico pay for it.

“There’s reason to believe this will all get worse over the next year.  The Mueller investigation is testing whatever sanity Trump still possesses. Democrats controlling the House will use their newfound power to investigate every corner of the Trump administration – an administration already marked by malfeasance and corruption.  Two of the men credited with constraining Trump’s most destructive impulses over the first two years – Defense Secretary Jim Mattis and White House Chief of Staff John F. Kelly – have left the administration.  Perhaps most ominous for Trump’s political fortunes, a growing number of economists are predicting a slowdown of the U.S. economy – threatening the one issue where wins Trump positive numbers.

“The ‘Trump Tracker’ from Morning Consult found that Trump’s net approval rating fell in 43 states in December. Nationally, his approval rating is stuck in the high 30s or low 40s, depending on the poll.  By a margin of about 20 points, more Americans believe the country is headed in the wrong direction than on the right track.  An NBC poll from December found that 38 percent of registered voters say they will definitely (23) or probably (15) vote for Trump if he runs for reelection, while 52 percent say they will probably (13) or definitely (39) vote for the Democrats in the general election.

“Trump’s conservative supporters point to his accomplishments – tax reform, progress in the fight against the Islamic State, two Supreme Court justices, deregulation – and claim that they make the chaos and crazy worth it.  A primary challenge could badly damage Trump’s general-election prospects and help elect a Democrat, they argue, and, in any case, everyone knows primary challenges never succeed.

“Would a primary challenge really do more damage to Trump’s reelection effort than Trump has done himself?  It’s hard to see how.  And as Trump supporters should understand better than most, the volatility of the current political moment means that things ‘everyone knows’ cannot happen sometimes do. For the good of the country, sometimes it’s vital that they do.”

--According to a New York Times investigation of the Trump inaugural, donors shelled out $107 million for the affair and it seems all of it was put to use.

$5 million went to charity, which organizers told the Times was a new record.
$30,000 per diem payments to dozens of staff members.
$1.5 million to Trump International Hotel for use of a ballroom and other spaces.
$6.5 million to book hotel room blocks, only half of which were used.

And this one, that really irks the hell out of me...$1.6 million to Stephanie Winston Wolkoff, a friend of Melania Trump’s, for a supervisory fee.

As reported by the Times, Wolkoff joined Jonathan Reynaga, another friend of the Trumps, to form WIS Media Partners, which handled the inaugural broadcast rights and the production of a documentary about the inaugural that was never completed.

But $1.6 million?!  I can kind of see $250,000.  WIS Media Partners was actually paid a total of $26 million, but let’s assume, as reported, most of this went to subcontractors and other vendors.

Federal prosecutors are reportedly looking into the money raised by the inaugural committee. While the spending does not appear to be at issue, and it’s not illegal to grossly overpay someone, the issue is the source of the donations, particularly any foreign contributions, which would be illegal under U.S. law.

Trump’s former attorney Michael Cohen taped a conversation between himself and Wolkoff in which she expressed concerns about the money.

The inaugural committee has said it acted in “full compliance with all applicable laws” and that all the donors were vetted.

--Finally, I had a lousy week.  I’ve told you on numerous occasions over the years how “home” is the Pittsburgh (Greensburg/Latrobe) area, my mother being part of a very large family and she being the only one to leave over time, Mom and Dad both having graduated from Pitt.

I loved my trips there as a kid, normally about three times a year, including a couple weeks in the summer.  My relatives weren’t wealthy, but as I’ve always said Western Pennsylvanians are the best people in the country, the salt of the earth. 

So I learned last weekend a favorite cousin had died suddenly, and not having been out that way in years, Monday I drove out for the wake, and to see an aunt and uncle, one soon-to-be 98, the other 95, who were so good to me throughout my life but were now on their last legs.

My uncle occasionally reads this column, he told me, and after seeing him I’m thinking he might be around for another season of Steelers football, but Aunt Rose probably won’t.  It was tough for me.  I love them both a lot.  Kind of tearing up writing about my aunt in particular because she doesn’t have long.  All you can do is say you love them, and how much you appreciated their support and kindness. 

Then I went to the wake.  Cousin Mike was a great guy, more my brother’s age, and a real car nut.  So over the years I sent him a lot of stuff and his wife reminded me Monday of just how much I had.  Think Don Garlits, motorheads.  I saw Cousin Dave there, Mike’s brother, who has had one interesting life, wrestling professionally in South Africa for years, and by the end of this whirlwind two+ hours, each stop close to the next one, I was ready for a beer.

I know, I shouldn’t admit this.  The desk at my hotel near the Donegal exit of the Pennsylvania Turnpike directed me to a place out of the “Deer Hunter” and that probably didn’t help.

I then drove home the next morning and tried to explain to Mom, who is in home hospice care, how my aunt and uncle were doing, and the messages they sent to their sister, and it really didn’t register.  Mom has her good days, relatively speaking, and not so good ones. 

My only message to you is if you are in a similar situation, and you’re in a position to say goodbye, do it.

As Aunt Rose used to always tell me, there’s nothing more important than family.

---

Gold $1281
Oil $53.76

Returns for the week 1/14-1/18

Dow Jones  +3.0%  [24706]
S&P 500  +2.9%  [2670]
S&P MidCap  +3.0%
Russell 2000  +2.4%
Nasdaq  +2.7%  [7157]

Returns for the period 1/1/19-1/18/19

Dow Jones  +5.9%
S&P 500  +6.5%
S&P MidCap  +9.3%
Russell 2000  +9.9%
Nasdaq  +7.9%

Bulls 42.1
Bears 25.2...two weeks earlier the ratio was 29.9 / 34.6.

Have a good week.

Brian Trumbore

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