Week in Review

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Week in Review

06/08/2019

For the week 6/3-6/7

[Posted 11:30 PM ET]

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Edition 1,052

To be totally honest, doing this column in Trump World can be a royal pain in the [butt].  Of course I’m being selfish, referring to the Friday deadline and the president’s requirement that he’s in the headlines every 24-hour news cycle.

To wit...tonight the president just announced the U.S. had reached a new agreement with Mexico to reduce the flow of migrants to the southwestern border, thus averting the imposition of tariffs on all Mexican goods.

Trump tweeted:

“I am pleased to inform you that The United States of America has reached a signed agreement with Mexico.  The Tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely suspended.  Mexico, in turn, has agreed to take strong measures to....

“....stem the tide of Migration through Mexico, and to our Southern Border.  This is being done to greatly reduce, or eliminate, Illegal Immigration coming from Mexico and into the United States.  Details of the agreement will be released shortly by the State Department. Thank you!”

As I go to post, a few details are trickling out and Mexico has agreed to take more migrants seeking asylum in the United States.

In a joint statement:

“The United States will immediately expand the implementation of the existing Migrant Protection Protocols across its entire Southern Border.  This means that those crossing the U.S. Southern Border to seek asylum will be rapidly returned to Mexico where they may await the adjudication of their asylum claims.

“In response, Mexico will authorize the entrance of all of those individuals for humanitarian reasons, in compliance with its international obligations, while they await the adjudication of their asylum claims.”

Mexico has also agreed to deploy its National Guard throughout the country with a focus on its southern border, and cracking down on human smuggling organizations, according to the declaration.  The two sides will continue discussions on illegal immigration and if the measures “do not have the expected results, they will take further actions” and announce them within 90 days.

So we’ll see how this goes. 

But was the tariff threat necessary to get this particular agreement?  Of course not!

Meanwhile, the United States averted a catastrophe on the high seas today when a Russian destroyer came within 100 feet of an American-guided missile cruiser in the Philippine Sea; another incredibly idiotic provocation from the Russians and Vladimir Putin.

According to the United States, which released a video of the incident, the USS Chancellorsville (Stonewall Jackson* was mortally wounded at this Civil War battle, Robert E. Lee’s best win) was navigating on what the Navy called a steady course and speed, when the Russian ship came from behind and to the right of the U.S. ship, speeding up and closing to a distance of 50-to-100 feet.

The Chancellorsville had to take emergency action to avoid collision, the Navy said.  “We consider Russia’s actions during this interaction as unsafe and unprofessional.”

Russia blamed the U.S.

*Jackson died eight days later, having had his arm amputated after being hit by friendly fire.  But as legend has it, his last words are about the best of any American hero (to some) ever.

“Let us cross over the river, and rest under the shade of the trees.”

But I digress.

This was another action filled week, with Trump in the UK for a state visit, his second major photo op in two weeks, the prior week involving a state visit to Japan (zero was accomplished on either trip...but he loves the pictures), though he did do a good job with his speech commemorating D-Day, only to keep the 170 veterans of the landings, all in their 90s, waiting while he did a Fox News interview beforehand.

Here’s what we know.  Despite the agreement with Mexico tonight, we still have a tense trade war with China that continues to escalate.  The war of words heated up in a big way this past week, led by the two nations’ respective defense secretaries.  Taiwan has become a major flash point.

And when it comes to U.S. credibility and our historic role of being an honest broker; that has been shattered through multiple actions such as signing the USMCA trade pact with Mexico and Canada, and then immediately turning around and threatening Mexico over a political issue.

And then there are the lies.

HBO’s sterling mini-series on Chernobyl finished up this week.  I’ve told you it was phenomenal stuff, and as close to the truth as you’ll get, within the restrictions of television and creating drama.  The Economist had an article this week talking about the ratings for the series and they were the highest-rated ever!  Not Nielsen ratings, but viewer ratings, as in like a 9.5 grade out of 10; and for each one of the five episodes.

The story of Chernobyl wasn’t just about the world’s worst nuclear accident, but it’s about the cover-up, the lies, as told by the Kremlin back in the day.

One of the heroes of the tale, Valery Legasov, a nuclear physicist who had been a Communist Party lackey in some respects, who nonetheless knew from the moment the accident occurred of the seriousness of it, and the need to get the truth out, says in the end in his testimony at a trial for those responsible, “Every lie we tell incurs a debt that can’t be repaid.”

We know today that the Russian and Chinese people, for one, are lied to by their leaders as much as they ever have been.  Americans are also lied to at a level like never before.

But few care, mainly because few know the truth, such as with Chernobyl.

So I’m watching NBC “Nightly News” tonight and it seems the Kremlin is super pissed off at HBO’s portrayal of Chernobyl...the story of the massive cover-up.

So the Kremlin is producing its own docudrama and guess what the story line is?  That Chernobyl was disabled by the CIA.

That’s the world we live in today.

No wonder some of us gravitate towards sports for a diversion.  I can’t wait for the U.S. Open this coming week at Pebble Beach.

Trump World

--Editorial / Wall Street Journal

“Hell froze over Thursday, as Donald Trump delivered a speech in Europe that even his critics applauded.  His remarks on the 75th anniversary of the D-Day landing at Normandy were stirring, and the occasion offers a lesson about the values that unite the Western alliance despite the personal and political feuds of the moment.

“In his ode to the soldiers who stormed the beaches and parachuted behind Nazi lines, Mr. Trump pointed to their larger motivation.  ‘These men ran through the fires of hell moved by a force no weapon could destroy: the fierce patriotism of a free, proud, and sovereign people,’ he said to applause.  ‘They battled not for control and domination, but for liberty, democracy, and self-rule.’

“In these words and others in the speech, one can see a concept of nationalism that unites more than divides.  Much has been made of resurgent nationalism in the West as a threat to universal Western values such as democracy, and many in the chattering classes have taken sides as if they are incompatible poles.

“Trump, Farage and Salvini versus Macron, Merkel and Obama.  Nationalists versus ‘globalists’ or incipient fascists versus self-driving denizens of Davos, depending on which side of the divide you fall.

“The more complex reality is that there are differences in the philosophies among the political leaders in both camps.  And while the difference between the camps can be severe on this or that issue – trade or Iran, say – as children of the West they share more in common.

“Perhaps this becomes clearer when the stakes are as large as they were at D-Day.  The men who landed at Omaha, Utah and Juno beaches were motivated to liberate Europe from the ideology of fascism.  But they were also motivated to defend their own national sovereignty from Nazi tyranny.

“They were defending Britain, France, Canada, Norway, Poland, Australia and America, as Mr. Trump pointed out in identifying by name the nationalities of the D-Day liberation force.  They were national patriots who served a global cause of freedom.  Nationalism need not be the enemy of liberal values.

“The words of an anniversary speech won’t hide today’s disputes for long, nor should they.  Alliances require candor to prevent complacency.  But it is worth nothing that two years into Mr. Trump’s Presidency, the Western alliance has proved to be more resilient than many feared.  With some exceptions (Hungary), nationalism has also not been a stalking horse for controls on the press or intimidating the judiciary.  British democracy will survive Brexit, we even dare to predict.

“As for the American President, he might notice how well his D-Day remarks and for that matter his entire week in Europe have been received.  Europe still wants American leadership from a leader who shows the proper respect for America’s allies.”

David Ignatius / Washington Post

“President Trump spoke the right words in commemorating the 75th anniversary of D-Day, but did he mean them?  So far, his presidency has been about defying the postwar order that was based on shared values and global leadership, rather than cementing its legacy. 

“Trump spoke here Thursday at what he rightly described as ‘freedom’s altar,’ the burial site for nearly 10,000 Americans who died during the 1944 invasion of Normandy and in subsequent battles that ultimately led to Nazi Germany’s destruction.  His speech rang the traditional chimes of D-Day remembrances of heroism, shared sacrifice and Allied victory.

“Listening to Trump’s well-written and emotionally resonant speech, this listener applauded the sentiments but couldn’t help wondering: Does Trump fully embrace this message and the transatlantic alliance that made victory against Germany possible?  His actions (and usual rhetoric) have instead embodied an ‘America First’ agenda that disdains much of the postwar architecture.

“ ‘To all of our friends and partners: Our cherished alliance was forged in the heat of battle, tested in the trials of war and proven in the blessings of peace,’ Trump proclaimed.  ‘Our bond is unbreakable.’  Was that reassuring to European allies who have been rattled so often by the president’s disruptive statements?  I doubt it.

“Trump’s endorsement of transatlantic cooperation came after a week in which he attacked the mayor of London as a ‘stone cold loser,’ called for a no-deal Brexit that could weaken both Britain and the European Union, and said he favors a wall – or at least a hard border – between the Irish Republic and Northern Ireland, which could undermine peace there.

“The strength of Trump’s speech here was that, in the style of Ronald Reagan, he evoked the personal lives of the D-Day veterans assembled behind him on the podium.  For once, he wasn’t telling his own story, but that of the United States and its allies.  ‘More powerful than the strength of American arms was the strength of American hearts,’ he said.  It was a great line, but one that many would find dissonant with Trump’s saber-rattling nationalism.

“Trump seemed to understand that this site, with its forest of white crosses assembled like a silent army at perpetual rest, may be the most important stage on which a U.S. president can play.  Arrayed atop the escarpment above Omaha Beach, the cemetery makes viscerally real the hellfire through which American soldiers had to pass to win the day of battle.  The first waves of soldiers moved forward because they had no other choice: They went up the hill or they died....

“The convocation above Omaha Beach also allowed reflection on the qualities of leadership that made possible D-Day and the eventual triumph over Nazi Germany. These traits have been best captured by historian Rick Atkinson in his trilogy about World War II in Europe, culminating in the D-Day narrative that opens the last volume, ‘The Guns at Last Light.’

“What defines these heroic leaders is their fortitude under stress but also their recognition of the ambiguity and chaos of war.  On the eve of the invasion, British Prime Minister Winston Churchill, drinking heavily as usual, told his colleagues: ‘Let us not expect all to go according to plan.  Flexibility of mind will be one of the decisive factors.  Risks must be taken.’

“Gen. Dwight D. Eisenhower, the seemingly calm architect of victory, was so frazzled in the days before D-Day that he was smoking 80 cigarettes a day, Atkinson writes.  Ike liked to quote Napoleon’s description of a brilliant general as ‘the man who can do the average thing when all those around him are going crazy.’

“The supreme commander of the global war machine was President Franklin D. Roosevelt.  He let his generals and admirals direct the combat operations, but he set the fundamental strategy that was decisive.  Perhaps most important, Roosevelt insisted on the goal of ‘unconditional surrender’ at the Casablanca Conference with Churchill in Morocco in January 1943, which mandated the destruction of German and Japanese militarism and opened the way for  a new world order.

“Trump stood in the shadow of these leaders, voicing the convictions that helped them gain final victory.  Rarely did a speech and the speaker seem so much in conflict.”

--Central American migrants surged across the United States border with Mexico in record numbers in May, officials announced Wednesday.  More than 144,278 migrants were arrested and taken into custody by Customs and Border Protection along the southwest border during May, a 32 increase from April and the highest monthly total in seven years.  Most crossed the border illegally, while about 10 percent arrived without the proper documentation at ports of entry along the border.

--The Trump administration banned cruises to Cuba under new restrictions on U.S. travel to the island imposed on Tuesday to pressure its Communist government to reform and stop supporting Venezuelan President Nicolas Maduro.  The tightening of the decades-old U.S. embargo on Cuba will further wound its crippled economy, as well as hurt U.S. travel companies that had built up Cuban business during the brief 2014-16 détente between the old Cold War foes.

Needless to say, the cruise line operators were forced to scramble.

According to the Cuban government, 257,500 U.S. citizens visited Cuba from January through March, with 55% arriving on cruise ships.

--Tweets:

“Nervous Nancy Pelosi is a disgrace to herself and her family for having made such a disgusting statement, especially since I was with foreign leaders overseas.  There is no evidence for such thing to have been said.  Nervous Nancy & Dems are getting Zero work done in Congress...

“...and have no intention of doing anything other than going on a fishing expedition to see if they can find anything on me – both illegal & unprecedented in U.S. history.  There was no Collusion – Investigate the Investigators!  Go to work on Drug Price Reductions & Infrastructure!”

“Can you imagine Cryin’ Chuck Schumer saying out loud, for all to hear, that I am bluffing with respect to putting Tariffs on Mexico.  What a Creep.  He would rather have our Country fail with drugs & Immigration than give Republicans a win.  But he gave Mexico bad advice, no bluff!”

“China is subsidizing its product in order that it can continue to be sold in the USA.  Many firms are leaving China for other countries, including the United States, in order to avoid paying the Tariffs.  No visible increase in costs or inflation, but U.S. is taking in Billions!”

“Just signed another Disaster Aid Bill to help Americans who have been hit by recent catastrophic storms.   So important for our GREAT American farmers and ranchers.  Help for GA, FL, IA, NE, NC, and CA.  Puerto Rico should love President Trump.  Without me, they would have been shut out!”

“For all of the money we are spending, NASA should NOT be talking about going to the Moon – We did that 50 years ago.  They should be focused on the much bigger things we are doing, including Mars (of which the Moon is a part), Defense and Science!”

[NASA announced today that for the first time it is allowing private citizens to visit the International Space Station...if you have $10s of millions of dollars to spend.  NASA is allowing commercial companies to arrange such trips.  The cost per night is ‘only’ $35,000, but it’s the cost to get there that is going to be rather pricey.]

“Washed up psycho @BetteMidler was forced to apologize for a statement she attributed to me that turned out to be totally fabricated by her in order to make ‘your great president’ look really bad.  She got caught, just like the Fake News Media gets caught.  A sick scammer!”

“I never called Meghan Markle ‘nasty.’  Made up by the Fake News Media, and they got caught cold!  Will @CNN, @nytimes and others apologize?  Doubt it!”

Ah, Mr. President?  You did call her nasty.

Wall Street and the Trade War(s)

On the U.S. economic data front, the ISM manufacturing PMI for May was 52.1 (50 the dividing line between growth and contraction), the lowest reading since Oct. 2016, or lowest of the Trump presidency, though still in growth mode.  Non-manufacturing (services) was better than forecast at 56.9

April construction spending was unchanged, while April factory orders were -0.8%.

So that brought us to today’s all-important employment report for May and only 75,000 jobs were created vs. expectations for 180,000.  The unemployment rate remained unchanged at 3.6%, a near 50-year low.

The jobs number, while disappointing, was nonetheless the 104th straight month of gains, though a pullback from two months of stronger hiring.  April was revised down from 263,000 to 224,000, with March also marked down from 189,000 to 153,000.

The three-month average has thus fallen to 151,000, with the year-to-date average 164,000.

Average hourly earnings rose 0.2% in May and are running at a 3.1% annualized clip, disappointing given the tight labor market, but better than recent history.

U6, the underemployment rate, is down to 7.1%, a cycle low.

Put it all together and the Atlanta Fed’s GDPNow barometer for second-quarter growth is at just 1.4%, a major comedown from the first quarter’s 3.1%.

But the story on Wall Street was primarily about the Federal Reserve and the growing sentiment it is close to cutting interest rates, if not at their meeting on June 18-19, then in July or later.

Fed Chairman Jerome Powell, who a month ago played down speculation of a rate cut this summer, said on Tuesday: “We do not know how or when these trade issues will be resolved.  We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion.”

Powell didn’t say a rate cut was needed, but the implication was there.  St. Louis Fed chief James Bullard said the same day, though, that a rate cut may be warranted soon.

With the increase in trade-related risks, we move on to...

...Trade War....

The rhetoric escalated further this week between Washington and Beijing.  China issued a travel advisory to the United States on Tuesday, one day after warning about visa issues for students seeking to study in America.

China’s foreign ministry and its embassy in the U.S. cautioned travelers to raise their safety awareness and respond “actively and appropriately” in light of U.S. law enforcement agencies using methods, such as immigration checks and home interviews, to “harass” Chinese travelers.

The message was paired with an advisory by the Ministry of Culture and Tourism urging Chinese tourists to pay attention to safety when travelling to the U.S., citing frequent shootings, robberies and theft.

And China vowed to fight to the end if the United States escalated tensions.  The Commerce Ministry said the United States’ use of “ultimate pressure” has caused serious setbacks to negotiations, and China will have to adopt the necessary countermeasures if the United States decides to unilaterally escalate tensions.

Christine Lagarde, head of the International Monetary Fud, warned that rising tariffs between the U.S. and China were “self-inflicted wounds” that would hit the already precarious global recovery, calling on both Washington and Beijing to immediately remove the levies.

The World Bank lowered its global growth forecast to 2.6% from 2.9% in January for 2019, and cut its forecast for growth in trade to 2.6% from 3.6%.

“There’s been a tumble in business confidence, a deepening slowdown in global trade, and sluggish investment in emerging and developing economies,” World Bank President David Malpass told reporters.  “This is worrisome because subdued investment weakens the foundations for sustained growth.”

But the forecast doesn’t incorporate the effects of the U.S. threat to apply 25% tariffs to an additional $300 billion of Chinese goods, which could begin later this month – nor its threat to apply tariffs on Mexican imports.

Speaking of the latter....

The president said last week he would impose a 5% tariff on Mexican goods effective June 10, this coming Monday, to pressure the government of Andres Manual Lopez Obrador to block Central American migrants from crossing the border into the U.S.  Trump said the import tax would increase by 5% every month through October, topping out at 25%.

Last weekend, White House chief of staff Mick Mulvaney said the president is “deadly serious” about slapping tariffs on imports from Mexico but acknowledged there are no concrete benchmarks being set to assess whether the U.S. ally was stemming the flow of migrants enough to satisfy the administration.

Appearing on “Fox News Sunday,” Mulvaney said, “We intentionally left the declaration sort of ad hoc.  So there’s no specific target, there’s no specific percent, but things have to get better.  They have to get dramatically better and they have to get better quickly.”

GOP Sen. John Kennedy of Louisiana, on Sunday called the tariffs a “mistake.” He said it’s unlikely Trump will actually impose them.

The president “has been known to play with fire, but not live hand grenades,” Kennedy said on CBS’ “Face the Nation.”

“It’s going to tank the American economy,” he said.  “I don’t think the president’s going to impose these tariffs.”

Tuesday, Texas Republican Sen. Ted Cruz told reporters: “I will yield to nobody in passion and seriousness and commitment for securing the border.   But there’s no reason for Texas farmers and ranchers and manufacturers and small businesses to pay the price of massive new taxes.”

Fellow Texas Republican Sen. John Cornyn said, “We’re holding a gun to our own heads.”

Senator Ron Johnson (R-Wis.) said he warned officials from the White House Tuesday that the Senate could muster an overwhelming majority to beat back the tariffs, even if Trump were to veto a resolution disapproving them.  Republicans may be broadly supportive of Mr. Trump’s push to build a wall and secure the border, he said, but they oppose tying immigration policy to the imposition of tariffs on Mexico.

“The White House should be concerned about what that vote would result in, because Republicans really don’t like taxing American consumers and businesses,” Johnson said.

Editorial / The Economist

“When Donald Trump arrived in the Oval Office he promised to restore America’s might.  His method has turned out to be a wholesale weaponization of economic tools. The world can now see the awesome force that a superpower can project when it is unconstrained by rules or allies.  On May 30^th the president threatened crippling tariffs on Mexico after a row over migration.  Markets reeled, and a Mexican delegation rushed to Washington to sue for peace. A day later preferential trading rules for India were cancelled.  Its usually macho government did not put up a fight and promised to preserve ‘strong ties.’  China faces a ratcheting up of tariffs soon, and its tech giant, Huawei, has been severed from its American suppliers.  The country’s autocratic leaders are enraged, but on June 2nd they insisted they still seek ‘dialogue and consultation.’  A tighter embargo on Iran, imposed over European objections, is strangling its economy.

“President Trump must view this scene with satisfaction.  Nobody takes America for granted any more.  Enemies and friends know that it is prepared to unleash an economic arsenal to protect its national interest.  America is deploying new tactics – poker-style brinkmanship – and new weapons that exploit its role as the nerve center of the global economy to block the free flow of goods, data, ideas and money across borders.   This pumped-up vision of a 21st-century superpower may be seductive for some.  But it could spark a crisis, and it is eroding America’s most valuable asset – its legitimacy.

“You might think that America’s clout comes from its 11 aircraft-carriers, 6,500 nuclear warheads or its anchor role in the IMF.  But it is also the central node in the network that underpins globalization.  This mesh of firms, ideas and standards reflects and magnifies American prowess. Though it includes good traded through supply chains, it is mainly intangible.  America controls or hosts over 50% of the world’s cross-border bandwidth, venture capital, phone-operating systems, top universities and fund-management assets.  Some 88% of currency trades use greenbacks.  Across the planet it is normal to use a Visa card, invoice exports in dollars, sleep beside a device with a Qualcomm chip, watch Netflix and work for a firm that BlackRock invests in.

“Foreigners accept all this because, on balance, it makes them better off.  They may not set the rules of the game, but they get access to American markets and fair treatment alongside American firms.  Globalization and technology have made the network more powerful although America’s share of world GDP has fallen, from 38% in 1969 to 24% now.  China cannot yet compete, even though its economy is approaching America’s in size.

“Despite this, Mr. Trump and his advisers are convinced that the world order is rigged against America, pointing to its rust-belt and its trade deficit. And rather than mimic the relatively restrained tactics of the last trade conflict, with Japan in the 1980s, they have redefined how economic nationalism works.

“First, instead of using tariffs as a tool to extract specific economic concessions, they are being continuously deployed to create a climate of instability with America’s trading partners. The objective of the new Mexican tariffs – fewer migrants crossing the Rio Grande – has nothing to do with trade.  And they breach the spirit of USMCA, a free-trade deal signed by the White House only six months ago, which will replace NAFTA (Congress has yet to ratify it).  Alongside these big fights is a constant barrage of petty activity.  Officials have skirmished over foreign washing machines and Canadian softwood lumber imports.

“Second, the scope of activity has been extended beyond physical goods by weaponizing America’s network.  Outright enemies such as Iran and Venezuela face tighter sanctions – last year 1,500 people, firms and vessels were added to the list, a record figure. The rest of the world faces a new regime for tech and finance.  An executive order prohibits transactions in semiconductors and software made by foreign adversaries, and a law passed last year known as FIRRMA polices foreign investment into Silicon Valley.  If a firm is blacklisted, banks usually refuse to deal with it, cutting it off from the dollar payments system.  That is crippling – as two firms, ZTE and Rusal, discovered, briefly, last year.

“Such tools used to be reserved for times of war: the legal techniques used for surveillance of the payments system were developed to hunt al-Qaeda.  Now a ‘national emergency’ has been declared in tech.  Officials have discretion to define what is a threat. Though they often clobber specific firms, such as Huawei, others are running scared. If you run a global company, are you sure your Chinese clients are not about to be blacklisted?

“The damage to America’s economy so far has been deceptively small.  Tariffs cause agony in export hubs such as northern Mexico, but even if Mr. Trump imposes all his threatened tariffs, the tax on imports would be worth only about 1% of America’s GDP.  His poll ratings at home have held up, even as they have slumped abroad.  His officials believe the experiment in weaponizing America’s economic network has only just begun.

“In fact, the bill is mounting.  America could have built a global coalition to press China to reform its economy, but it has now squandered precious goodwill.  Allies looking for new trade deals with America, including post-Brexit Britain, will worry that a presidential tweet could scupper it after it has been signed.  Retaliation in kind has begun.  China has begun its own blacklist of foreign firms.  And the risk of a clumsy mistake that triggers a financial panic is high.  Imagine if America banned the $1trillion of Chinese shares trading in New York, or cut off foreign banks.

“In the long run the American-led network is under threat. There are hints of mutiny – of America’s 35 European and Asian military allies, only three have so far agreed to ban Huawei.  Efforts to build a rival global infrastructure will accelerate. China is creating its own courts to adjudicate commercial disputes with foreigners.  Europe is experimenting with building a new payments system to get round the Iran sanctions, which could in time be used elsewhere.  China, and eventually India, will be keen to end their dependence on semiconductors from Silicon Valley.  Mr. Trump is right that America’s network gives it vast power.  It will take decades, and cost a fortune, to replace it.  But if you abuse it, ultimately you will lose it.”

Editorial / Wall Street Journal

“The biggest economic risk of a Donald Trump Presidency has always been that his trade obsessions would swamp the benefits of tax reform and deregulation. For two years he has kept his worst protectionist impulses mostly in check, but as he seeks a second term we are now seeing Tariff Man unchained.  Where he stops nobody knows, which is bad for the economoy and perhaps his own re-election.

“Mr. Trump’s trade talks with China have broken down and both countries are escalating their rhetoric. The U.S. is blocking Huawei from buying U.S. products, while China is threatening to block the export of rare-earth minerals that are crucial to many U.S. industries.  A trade deal that looked imminent weeks ago now looks months away, if it happens at all.  Mr. Trump’s threat of 25% tariffs on foreign autos also hangs over Europe and Japan.

“Then out of the blue late Thursday (May 30) Mr. Trump announced escalating tariffs up to 25% on U.S. imports from Mexico for alleged sins on immigration.  The first 5% levy would hit June 10, with 5% increments through Oct. 1.  ‘Mexico must step up and help solve this problem,’ Mr. Trump declared in a statement charged with political rhetoric.  ‘For years Mexico has not treated us fairly – but we are now asserting our rights as a sovereign Nation.’

“The first problem here is that Mr. Trump is blaming Mexico for a mess it can’t solve.  The real cause of the recent border chaos is the lure of U.S. asylum policy.  Migrants from Central America know that if they cross the border illegally with children they can’t be detained for more than 20 days.  They are released into the U.S. where they can work for years until their asylum hearing date, and most never show up.

“Mr. Trump is right that Democrats refuse to help, but then why change the subject to Mexico?  Our southern neighbor is already helping by agreeing to hold asylum seekers inside Mexico.  Perhaps it could better control its border with Guatemala, but the caravans north are often led by gangs that know how to bribe or avoid police.  Blaming Mexico is a distraction that lets Democrats off the hook.

“The Mexico tariffs also heighten economic uncertainty because they aren’t even about trade.  The risk is that Mr. Trump has come to view tariffs as a blunt-force tool to achieve any diplomatic goal.  They are Mr. Trump’s magic elixir that will solve any political ailment.  Like Barack Obama’s willy-nilly regulation, tariffs can thus pop up at any time for any reason.  No supply chain is safe from Tariff Man.

“There’s also the matter of this President’s credibility around the world.  Only months ago Mr. Trump signed a new trade pact with Mexico and Canada to replace NAFTA.  The deal reassured financial markets.  But now he whacks Mexico with unilateral tariffs that violate NAFTA and World Trade Organization (WTO) rules.  Other national leaders can be forgiven for concluding that any trade deal with Mr. Trump is subject to revision on his personal political whim....

“If the tariffs are imposed, the economic damage could be considerable.  Mexico exported $371 billion to the U.S. in 2018, and it is now our largest trading partner.  A 25% tariff would impose costs of some $90 billion a year.  Mexico may suffer the most, which could perversely drive more illegal migrants to the U.S., but America would also be a loser.

“Mr. Trump, in his Fortress America mind, says businesses could merely move to the U.S. to avoid the tariffs.  But that would impose enormous transition costs and take years to execute.  Many exporters would move out of North America.  Meantime, Texas imported $107 billion in goods from Mexico in 2018, and a 5% tariff would impose a $5.4 billion tax.  A 25% tariff would mean $27 billion in border taxes.

“All of this arrives at a moment when global trade has been growing more slowly amid rising trade tension....

“The best scenario is that this tariff threat is Mr. Trump’s familiar bluster in which he threatens chaos to get attention and then backs down. The Mexican reaction has been conciliatory, a good sign....

“But then Tariff Man is impulsive and often his own worst enemy.  Equities have fallen for six straight weeks and corporate profits are down.  The job market is strong, but that isn’t guaranteed if investment starts to lag.  Senate Republicans need to get off their sedan chairs and send this President a message on trade, or they may be the minority in 2021.”

Europe and Asia

It was PMI week for the eurozone (EA19), courtesy of IHS Markit.  The final composite reading for the region for May was 51.8 vs. 51.5 in April; 47.7 manufacturing (down from 47.9) and 52.9 on services (vs. 52.8)

Germany was 44.3 manufacturing, 55.4 service sector for May.
France 50.6 mfg., 51.5 services
Spain 50.2 mfg., 52.8 services
Italy 49.5 mfg. (8th month in a row in contraction mode), 50.0 services

Ireland’s manufacturing figure, 50.4, was its weakest performance since the June 2016 Brexit referendum.

The UK’s mfg. PMI fell into contraction territory, 49.4, vs. 53.1 in April, the first contraction in 3 years, as businesses faced difficulty in convincing clients to commit to new contracts in May, especially with already high levels of inventories in advance of the original Brexit deadline.

Separately, GDP rose 0.4% in the euro area in the first quarter, 1.2% year-over-year.

Germany’s year-over-year GDP is just 0.7% after Q1; France 1.2%; Spain 2.4%; Italy -0.1% (though its first-quarter rise of 0.1% over the prior quarter meant it was officially out of recession after two straight down quarters).

The Netherlands is running at a 1.9% growth rate, Austria 1.6%, Greece 1.3%.

The UK is 1.8%.

April retail sales in the EA19 rose 0.4% over March, up 1.5% yoy.

A flash reading on inflation for the eurozone was 1.2%, down from April’s 1.7%.  The May core reading (ex-food and energy) is estimated to be 1.0% vs. 1.4% the prior month.

The EA19 unemployment rate for April was 7.6%, down from March’s 7.7% and the lowest since the start of EU monthly employment statistics in Jan. 2000.

Germany’s jobless rate was 3.2%; France 8.7%; Spain 13.8% (vs. 15.6% a year earlier); Italy 10.2%.

[All the above non-PMI data courtesy of Eurostat]

Chris Williamson / IHS Markit

“Euro area manufacturing remained in contraction during May, suggesting the sector will act as a drag on the wider economy in the second quarter.

“A fourth successive monthly drop in output and further steep decline in new orders underscored how the sector remains in its toughest spell since 2013.  Companies are tightening their belts, cutting back on spending and hiring. Input buying, inventories and employment are all now in decline as manufacturers worry about being exposed to a further downturn in demand.

“That said, although the headline PMI fell in May, the decline masked slower rates of decline for both output and new orders.  The forward-looking orders-to-inventory ratio also picked up for a second month running to reach a six-month high, the improvement of which augurs well for the downturn to moderate in June.

“However, trade wars, slumping demand in the auto sector, Brexit and wider geopolitical uncertainty all remained commonly cited risks to the outlook, and all have the potential to derail any stabilization of the manufacturing sector.”

With the above in mind, European Central Bank President Mario Draghi opened the door to interest-rate cuts for the eurozone economy on Thursday, a significant policy shift that amplifies a global trend toward easier monetary policy, witness the Federal Reserve’s comments this week as well...all parties seeking to combat weaker growth.

Draghi leaves office in less than five months and while the ECB was restrained in its formal statement following a meeting of policy makers, pledging to extend the time frame before any rate increase to the middle of 2020 from the end of this year, and announcing a generous new package of long-term loans for banks, in a question-and-answer session, Draghi raised the possibility of rate cuts.

Asked whether the ECB’s next move on interest rates was more likely to be a rise than a cut, Draghi said “No.”

For months the ECB has been slowly preparing the markets for a shift to higher rates and a phasing out of its extraordinary policy tools.  The central bank phased out its 2.6 trillion euro bond-buying program, known as quantitative easing, in December.

Other central banks have been cutting their key lending rates recently, including India, Australia, New Zealand, Malaysia, and the Philippines, while China’s central bank has taken steps to encourage more bank lending to small businesses.

But there is a major question when it comes to the ECB, which already has its key policy rate in negative territory.  Just how much ammunition does it have left?

As for the euro bond market, the yield on Germany’s 10-year bund, in response to Draghi, fell to -0.26% today, an all-time low.  France is at 0.08!  The Netherlands is -0.10% on their 10-year bond.  Portugal?  Try 0.61%.  Italy, with its massive fiscal problems, 2.35%, nearly the same as our 10-year yield.

This is nuts, but the moves this week were not only about Draghi’s words but also the new long-term loans for banks, which benefited Italy’s banks in particular, for now, though they have serious restrictions on them.

Brexit: President Trump courted controversy prior to arriving in the UK for his state visit, saying Boris Johnson “would do a very good job” as prime minister.

“I like him,” Trump said in an interview with the Sun, a London newspaper owned by Rupert Murdoch’s News Corp.  “I have always liked him.  I don’t know that he is going to be chosen, but I think he is a very good guy, a very talented person,” Trump said.  It’s just another of Trump’s breaks with custom, not to offer commentary on allies’ internal political contests.  [Trump also drew headlines for saying of Meghan Markle, who had been critical of Trump prior to the 2016 election, “What can I say?  I didn’t know that she was nasty,” Trump said.]

Today, judges at London’s High Court on Friday threw out an attempt to prosecute Boris Johnson, the frontrunner to succeed Theresa May as prime minister, for allegedly lying about the financial benefits of Brexit during the 2016 EU referendum campaign.  The judges said they would give their reasons for quashing the summonses of a week ago at a later date.

The flamboyant Johnson, the former foreign secretary, is the favorite among Conservative lawmakers hoping to replace May, whose last day as party leader was today, though she remains prime minister until a successor is selected, most likely late July.

Johnson has vowed to lead Britain out of the European Union on October 31, with or without an exit deal.

Meanwhile, President Trump, whilst in the UK, kicked off a furious battle over the terms of a post-Brexit trade deal, insisting that the National Health Services (NHS) must “absolutely” be included in any negotiations.

The comments were met with defiance from British doctors, healthcare unions and politicians.  The British Medical Association called on all those in the race to commit to excluding the healthcare system from negotiations, declaring: “Profit should never take priority over the protection of the health service and the healthcare of citizens.”

The access to lucrative UK health markets and breaking the NHS’s tight control on drug prices are key priorities in any U.S. trade deal, alongside public health protections which block the import of chlorine-washed chicken and GM crops.

The U.S. seeks “full market access” for its pharmaceutical companies, among other key items.

When Trump arrived in Ireland for a brief sitdown with Ireland’s Prime Minister (Taoiseach) Leo Varadkar at Shannon Airport, Trump seemed unprepared to answer a question about Brexit and the key sticking point, how to keep Ireland’s 350-mile border with Northern Ireland open after Brexit to ensure it does not jeopardize two decades of peace in the British province, having earlier talked of a wall, nonsensically.

“The way it (the border) works now is good, you want to try and keep it that way and I know that’s a big point of contention with respect to Brexit.  I’m sure it’s going to work out well,” Trump told reporters.

But it’s about far more than a simplistic statement.  It’s about avoiding chaos following any transition period after the UK leaves the EU.

Separately, in another sign of falling business confidence amidst all the Brexit uncertainty, Ford announced it was closing an engine plant in Bridgend, Wales, that employs 1,500 workers; the latest blow to Britain’s staggering auto industry, following Honda’s decision to shut its Swindon plant and falling investment across the sector, down 80 percent in three years, according to trade group SMMT.

Turning to Asia...China’s private Caixin PMIs were released for the month of May.  The manufacturing figure was 50.2, unchanged from April.  The services reading was 52.7, down from April’s 54.5.

All manner of important data for May coming next week.

Japan’s manufacturing PMI was 49.8 in May vs. 50.2 in April, with non-manufacturing at 51.7.

Wages in April fell a fourth consecutive month, 0.1%, while household spending grew at a 1.3% year-over-year rate, far worse than expected, as reported by Japan’s Statistics Bureau.

Taiwan’s manufacturing PMI was 48.4; ditto South Korea.

Street Bytes

--Stocks staged their best rally of the year, with the Dow Jones surging 4.7% to 25983, snapping its six-week losing streak, the worst since 2011.  But four of those weeks saw losses of less than 1.0%, so this week made up for much of the swoon.  The S&P 500 rose 4.4% and Nasdaq 3.9%, again, mostly on the Fed’s comments and hopes of a rate cut, which were reinforced with today’s poor employment data.

Needless to say it’s going to be interesting to see what the market reaction is to tonight’s news on Mexico.

--U.S. Treasury Yields

6-mo. 2.14%  2-yr. 1.85%  10-yr. 2.08%  30-yr. 2.57%

About $11 trillion of bonds around the world, mostly in Europe and Japan, carry negative yields.  Aside from the aforementioned Germany and Netherlands having negative 10-year yields, Japan’s is at -0.13%.

--Crude oil continued to tumble through midweek, settling into bear market territory (20% off the recent peak) on Wednesday after the Energy Information Administration announced that U.S. inventories unexpectedly jumped by the most in five weeks to a fresh 22-month high, while the escalating trade war between the U.S. and China hasn’t helped sentiment, given the potential knock-on effect on the global economy and demand for oil.

But crude rallied at week’s end, largely on news the Saudi energy minister said OPEC was close to an agreement on extending its pact to keep production at current levels, which represented a cut in output of 1.2 million barrels per day from 2018’s levels.  So oil finished at $54.04, up slightly on the week.

--Last week I wrote of the proposed merger between Fiat Chrysler and Renault:

“But how is FCA going to wring out $billions in annual costs without shutting down factories in France and Europe?” ...knowing how much this will impact the French government, 15% stakeholders in Renault and beholden to the labor unions.

Well Thursday, Fiat Chrysler abruptly withdrew its offer to combine with Renault after the Renault board postponed a decision for a second time, making a request for deliberations to be scuttled.

Fiat said in a statement: “It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully.”

But Fiat left open the door for reopening discussions by using the word “currently.”

French Budget Minister Gerald Darmanin said the government would be open to a new approach from Fiat for Renault in the future.

So....guess who was so skittish?  Why of course the French labor unions.  Renault partner Nissan was also miffed, feeling betrayed by a partner with which it was trying to smooth rocky relations.  Renault then told Fiat that, in essence, it needed more time to placate Nissan and convince them the deal was in everyone’s best interests.

--The New York Times first reported that 17 of the world’s automakers, including Ford, General Motors, Toyota and Volvo, joined together to tell President Trump that one of his major deregulatory efforts – his plan to weaken pollution standards for automobiles – threatens their profitability and would produce “untenable” instability.

In a letter, the automakers asked the president to go back to the negotiating table on the planned rollback and Trump’s effort to weaken the tailpipe pollution rules, one of President Obama’s signature policies to fight climate change.

Trump’s new rule, which is to be unveiled in the coming weeks, would all but eliminate the Obama-era auto pollution regulations, essentially freezing mileage standards at about 37 miles per gallon for cars, down from a target of 54.5 miles per gallon in 2025.

The major issue is Trump’s plan would put it at odds with California and 13 other states which would then sue the administration while continuing to enforce their own, stricter rules – splitting the U.S. auto market in two.  And that’s the nightmare scenario.

There is a fear that Trump could retaliate against the auto industry by imposing tariffs on imports, as Trump is being asked to make a deal with a state that he relishes antagonizing.

--More Huawei-related news.  China on Thursday granted commercial 5G licenses to the country’s three telecommunications network operators and the nation’s cable network giant, signaling major new investments in the world’s largest mobile market amid the tech war with the U.S.

The awarding of licenses is important in the effort by China to move ahead in the global race to deploy the infrastructure that will help power the industrial internet, autonomous driving and smart cities, among other advanced applications.

“This marks China’s official entry to the 5G era,” Huawei Technologies, which has up to a 50 percent share of the country’s telecom equipment market, said in a statement.  “Huawei will fully support Chinese operators to build 5G [networks] with comprehensive end-to-end 5G capabilities.  We believe that in the near future, China’s 5G will lead the world.”

But if the U.S. ban on Huawei remains, it will be difficult for China to build out 5G.  This is, however, a signal by the Chinese government that it is not going to allow 5G to be delayed just because of the U.S. action, given the state is going to support the effort.

Separately, Google warned the Trump administration it risks compromising U.S. national security if it pushes ahead with sweeping export restrictions on Huawei, as Google seeks to continue doing business with the blacklisted company.

Google is concerned it would not be allowed to update its Android operating system on Huawei’s smartphones, which it argues would prompt the Chinese company to develop its own version of the software.

Google argues a Huawei-modified version of Android would be more susceptible to being hacked.  Huawei has said it would be able to develop its own operating system “very quickly.”

--Related somewhat to the above, China announced it was investigating whether FedEx Corp. damaged the legal rights and interests of its clients after Huawei said parcels intended for it were diverted.

Amid worsening tensions between China and the United States, the Chinese commerce ministry said it would draft a hit-list of “unreliable” foreign firms and individuals that harm the interests of Chinese companies.

FedEx admitted the packages were “misrouted in error,” adding there was no “external pressure” to divert packages.  The company said two packages from Japan contained documents for visa applications for Huawei employees to attend an event but the packages were redirected to the FedEx global hub in Memphis instead of being delivered to China.

And then there was an issue with packages from Vietnam, and, oh, let’s just say FedEx may have screwed up...which they’ve been wont to do.  Like they screwed up my passport once that had to be sent from the Pakistani consulate in Washington back to me when I was trying to go to Iran....and ended up in Morocco...but some of you already heard that story.

--I wrote last time of the percentage of corn crop that had been planted vs. the norm, according to the Department of Agriculture, and the updated figure this week is about 67% vs. the 96% average of the past five years*, which given how late it is in the year for the crop, it will force many farmers to turn to crop insurance that pays out when farmers are unable to plant by a preset deadline (for example, it’s May 31 in Iowa, after which it declines by 1% a day).  Plus there are the prospects of the bailout.

*About 39% of soybeans were in the ground compared to 79% on average.

But the delayed planting has also pushed up crop prices, corn climbing 24% off its mid-May bottom, while soybean prices have gained 11% in the same time period.

Taking an extended view, as the Department of Agriculture’s Midwest Climate Hub reported this week, the heavier rainfall between April and June has been the “most impactful climate trend” in Midwest agriculture over the past three decades, and the trend will increase until at least mid-century, leading farmers to “further reduce planting-season workdays due to waterlogged soil.”

Dennis Todey, director of the climate hub in Iowa, told the Financial Times that what we are seeing is part of the “trend of expected bigger rainfall events.”

Thunderstorms will become more intense, more frequent and longer-lasting as springtime warms over the central U.S., according to research out of the Pacific Northwest National Laboratory.

And in Iowa, the top corn producer in 2018, average precipitation from April to June was 24 percent above the 20th century average in the past decade, per research from Iowa State University.

Research backed by the World Bank and other institutions also concludes that poor growing conditions in the Midwest have global consequences.  The Agricultural Market Information System slashed its world corn production estimate by 38 million tons due to U.S. planting issues.  [Gregory Meyer / Financial Times]

--The International Air Transport Association (IATA), which represents about 290 carriers or more than 80 percent of global air traffic, said industry profits will decline 21% as an expanding trade war and oil prices compound worries, except oil has been largely falling, so not sure about this part of the forecast.

IATA’s point is substantial profits are still out there, “but the easy money has been made.”  “Creeping protectionist or isolationist political agendas are on the rise,” said IATA Director General Alexandre de Juniac last Sunday at the group’s annual meeting in Seoul.

“You see that international trade is now at a zero growth rate, so there is an immediate impact on our cargo business,” Juniac added.

Passenger capacity growth, which reached 6.9 percent in 2019, is forecast to slow to 4.7 percent this year, with average fares flat.

--Meanwhile, airlines are calling on aviation regulators worldwide to work together to get Boeing’s grounded 737 MAX back in the skies and to prevent the regulatory response from splintering and slowing the jet’s return.

Ed Bastian, CEO of Delta Air Lines, told reporters at the same conference in Seoul, “It’s very important that the regulators around the world unite and make a unified determination regarding the safety of the MAX.  Keeping politics out of safety matters is important.”

The Assn. of Asia Pacific Airlines, whose members include MAX customers Singapore Airlines and Malaysia Airlines, echoed the theme, warning a fractured set of assessments of the MAX’s airworthiness by individual bodies risks prolonging the process.

Even if the U.S. FAA signs off on Boeing’s safety fix, the plane’s international reach would be limited if it isn’t cleared to fly by other nations and their regulators.  Months of delays in Europe and China would be hugely damaging.

--Salesforce.com raised its full-year earnings outlook after the business-software company delivered record revenue in the latest quarter.

Salesforce reported a profit for the first quarter of $392 million, or 49 cents a share, up from $344 million and 46 cents a year earlier.

Revenue for the quarter rose 24% to $3.74 billion, above estimates, while the company maintained its full-year forecast of between $16.1 billion and $16.25 billion.

--YouTube, which is owned by Google, announced plans on Wednesday to remove thousands of videos and channels that advocate for neo-Nazism, white supremacy and other bigoted ideologies in an attempt to clean up extremism and hate speech.

The company said in a blog post that the new policy will ban “videos alleging that a group is superior in order to justify discrimination, segregation or exclusion,” the prohibition including videos that deny that violent incidents, like the mass shooting at Sandy Hook Elementary School, took place.

--The shares of Google and other tech giants cratered Monday following reports that the Justice Department may investigate the search giant for hampering competition.  It doesn’t help the likes of Google that they have been accused by the Trump administration, especially the president himself, of suppressing conservative voices on their platforms online.

Amazon.com also saw its shares under pressure amid heightened antitrust scrutiny that put the e-commerce behemoth under the Federal Trade Commission’s watch.

And lawmakers in the House said on Monday that they were looking into anti-competitive behavior in the sector, which could lead to an overhaul of antitrust rules.  It’s not like the industry existed when the antitrust laws were written.

Now in terms of any potential action in Congress, we’re talking months and months, and most likely years, but from time to time there will be a headline that the market is undoubtedly going to take poorly.

Specifically, for now, the House Judiciary Committee said it will be focused on Google, Apple, Facebook and Amazon.

--Tech giant Roger McNamee, in an op-ed for the New York Times, on the privacy concerns generated by the likes of Facebook and Google.

“Platforms are under no obligation to protect user privacy. They are free to directly monetize the information they gather by selling it to the highest bidder.  For example, platforms that track user mouse movements over time could be the first to notice symptoms of a neurological disorder like Parkinson’s disease – and this information could be sold to an insurance company.  (And that company might then raise rates or deny coverage to a customer before he is even aware of his symptoms.)

“For Consumers, the time has come to say ‘no more.’  We need to reclaim our privacy, our freedom to make choices without fear: Our data is out there, but we have the political power to prevent inappropriate uses.

“Why it is legal for service providers to comb our messages and documents for economically valuable data?  Why is it legal for third parties to trade in our most private information, including credit card transactions, location and health data, and browsing history?  Why is it legal to gather any data at all about minors?  Why is it legal to trade predictions of our behavior?

“Corporate claims to our data are not legitimate and we must fight back.

“To my friends in the tech industry: Please explain why we should allow the status quo to continue, given the increasing evidence of harm.

“To my friends in government: The time has come to ban third-party exploitation of consumer data and to use antitrust law to promote competing business models.  This is not a matter of right or left; it is a matter of right and wrong.”

--IBM Corp. is cutting about 2,000 jobs in a round of layoffs effective immediately, as the tech giant works to reshape its business. A company representative said in a statement today:

“We are continuing to reposition our team to align with our focus on the high-value segments of the IT market, and we also continue to hire aggressively in critical new areas that deliver value for our clients and IBM.”

Like Watson?  Heh heh.

IBM had 350,600 employees as of Dec. 31, the fewest number of employees reported since 2005, according to securities fillings.

--Tiffany & Co. reported a drop in sales for a second straight quarter and warned of further weakness ahead, citing lower demand from Chinese travelers and other tourists in the U.S.  Regarding China, you saw above in the trade war discussion how the Chinese government is warning its citizens on travel to the U.S.

The jewelry company’s U.S. sales to foreign tourists – which accounts for about 12% of sales in the home market – fell 25% from the year-earlier quarter, with sales to Chinese tourists off even more.  [The number of visitors from China to the United States fell in 2018 for the first time since 2003.]

Tiffany’s net sales fell 3% to $1 billion for the three months ending April 30.  Same-store sales declined 5% (including impact of currency fluctuations).  Profit fell 12% to $125 million in the period.

--Beyond Meat Inc. shares soared 35% after the maker of plant-based burgers beat the Street’s expectations in its first earnings report since its initial public offering in May, while issuing a rosy sales forecast.

The company reported revenue of $40.2 million, more than triple the prior year, while forecasting sales would exceed $210 million this year.

Beyond Meat burgers and sausages are made from pea protein, potato starch and other plant-based ingredients.  It sells to 30,000 grocery stores, restaurants and schools in the United States, Canada, Italy, the UK and Israel.

Foreign Affairs

Iran: Prior to his summit with Vladimir Putin in Moscow, Chinese President Xi Jinping told Russian media that tensions between Iran and the United States have escalated in the past month, a year after the United States pulled out of the nuclear accord between Iran and global powers, with Xi saying that because of the U.S. actions tensions have continued to rise in the Middle East overall.

“The development of the situation is worrying,” Xi said.  The Iran nuclear deal should be fully implemented and respected, as it is of crucial importance for peace and stability in the region and non-proliferation, Xi added.

“China and Russia’s views and positions on the Iran nuclear issue are highly aligned, and both hope that all relevant parties remain rational and exercise restraint, step up dialogue and consultations and lower the temperature on the present tense situation,” he said.

China has been angered by U.S. threats against countries and companies that violate U.S. sanctions by importing Iranian oil.  China and Iran have close energy ties.

Iranian President Hassan Rouhani had said last weekend that Iran may be willing to hold talks if the United States showed it respect, but that Tehran would not be pressured into negotiations, according to the Fars news agency.

Supreme Leader Ayatollah Ali Khamenei said Iran would not negotiate with Washington.

President Trump said on Monday: “It (Iran) has a chance to be a great country with the same leadership... We aren’t looking for regime change – I just want to make that clear.”

Secretary of State Mike Pompeo said Sunday that the Trump administration is ready for unconditional discussions with Iran in an effort to ease rising tensions that have sparked fears of conflict.  But the United States would not relent in trying to pressure the Islamic Republic to change its behavior in the Middle East.

“We’re ready to sit down with them, but the American effort to fundamentally reverse the malign activity of this Islamic Republic, this revolutionary force, is going to continue.”

In response to Pompeo’s statements, Rouhani said: “The party that has left the negotiating table, the party that has trampled the pact must return to a normal behavior,” he said in a televised speech.

“If the enemy truly realizes that the path it took was wrong, that will be the day to sit at the negotiating table and fix any issue,” the president added.

Japanese Prime Minister Shinzo Abe is embarking on an effort to mediate the dispute between the U.S. and Iran, Japan having good relations with both.  Abe is making a trip to Iran June 12, where he is expected to meet Supreme Leader Khamenei and President Rouhani.

“We would like to take a proactive role toward a peaceful resolution,” an Abe spokesman said on Thursday.  It would be the first visit by a Japanese prime minister to Iran since 1978.

It is expected Abe will urge Iran to talk to the U.S. and possibly extend an invitation to Rouhani to attend the Group of 20 summit in Osaka end of this month.

Since May 1, Japan hasn’t imported any oil from Iran, in line with the ban imposed by the U.S.  Last year, Japan imported 4% of its total oil imports from the country.  Back in 2003, it was 15%.

In 1983, Abe’s father, Shintaro Abe, visited Tehran as foreign minister in an effort to broker an end to the war between Iran and Iraq, but the initiative failed.

Syria: Editorial / Washington Post

“When Russia joined the Syrian regime of Bashar al-Assad in launching an offensive against the rebel-held province of Idlib in late April, UN officials warned that a humanitarian nightmare was in the offing: Three million civilians are squeezed into the territory along the Turkish border, many of them refugees from other parts of the country.  As barrel bombs and artillery rounds rained down on hospitals, schools and food stores, the Trump administration reacted laconically.  As late as last week, its Syrian envoy was repeating assurances offered by Moscow that ‘this is only a limited set of military operations against specific terrorists.’

“Limited? Villages in southern Idlib have been hit by hundreds of airstrikes, according to reports from the region.  Some two dozen hospitals have been attacked since April 30; according to the United Nations, 270,000 people have been driven toward the border with Turkey.  Many are living in the open, ‘with some living under trees or plastic sheeting on bare patches of land,’ according to UN official Ursula Mueller, who appeared last month before the Security Council.  On May 19, a village was reportedly attacked with the chemical weapon chlorine; though the State Department promised to investigate, there was no response.  By Tuesday, according to the Syrian Observatory for Human Rights, at least 1,095 people had been killed in the offensive, including 338 civilians and 80 children.

“The Assad regime does not regard the operation as ‘limited.’  Its UN ambassador told the Security Council last week that it intended to retake the entire province, which is currently controlled by a mix of rebel groups backed by Turkey and extremists linked to al-Qaeda. The results could be catastrophic: UN and humanitarian officials predict a wave of up to 1 million refugees could push toward Turkey, which has sealed the border.

“According to Turkish media, the government of Recep Tayyip Erdogan has responded to the offensive by mobilizing and arming its Syrian allies, who reportedly have been attacking the government’s forces with antitank missiles.  But appeals by Mr. Erdogan to Russian President Vladimir Putin to stop the fighting and restore a cease-fire they negotiated last year have fallen on deaf ears.

“The Russians and Syrians have paid no diplomatic price for their actions, even though the bombing of hospitals – by now a familiar part of their tactics – is a war crime.  On Monday, Moscow’s ambassador squelched a proposed Security Council statement that would have expressed concern about ‘intensifying attacks on civilians and civilian objects, such as medical facilities and schools.’

“So it was encouraging to see a tweet posted Sunday evening by President Trump: ‘Hearing word that Russia, Syria and to a lesser extent, Iran are bombing the hell out of Idlib Province in Syria, and indiscriminately killing many innocent civilians.  The World is watching this butchery. What is the purpose, what will it get you?  STOP!’

“Unfortunately, since then the bombing has only intensified. If Mr. Trump wants to stop the latest Syrian butchery, he will have to do more than tweet.”

Separately, related to all the ISIS prisoners the Kurds and the U.S.-backed rebels are holding in Syria, the Kurdish administration said it plans to hand 800 local women and children, including relatives of militants, to their families tomorrow in the first such transfer from an overcrowded camp.

Israel: A Saudi Arabia-hosted Islamic summit on Saturday threw its support behind Palestinians ahead of a U.S.-led peace plan suspected to be skewed in favor of Israel, as Muslim states rallied around Saudi Arabia over tensions with Iran.

The Organization of Islamic Cooperation meeting, the third and final Iran-focused summit in the holy city of Mecca this week, denounced controversial U.S. moves to transfer its embassy to Jerusalem and recognize Israel’s sovereignty over the Golan Heights.

The summit, marked by the notable absence of Iranian and Turkish leaders, called for a “boycott” of countries that have opened diplomatic missions in the city.

President Trump broke with decades of bipartisan policy to recognize Jerusalem as the capital of Israel in December 2017.

The OIC’s statement comes as Trump’s son-in-law Jared Kushner prepares to roll out economic aspects of his long-awaited Middle East peace plan at a conference in Bahrain later this month.

The plan, dubbed by Trump as his “deal of the century,” has already been rejected by the Palestinians, who say the president has been shown to be overwhelmingly biased in favor of Israel.

Kushner had looked to an alliance with Saudi Arabia against Iran as a way to gain Arab support, but Saudi King Salman told leaders at the summit: “The Palestinian cause is the cornerstone of the works of the Organization of Islamic Cooperation, and is the focus of our attention until the brotherly Palestinian people get all their legitimate rights.

“We reaffirm our unequivocal rejection of any measures that would prejudice the historical and legal status of Quds (Jerusalem).”

Kushner gave an interview to Axios for HBO last weekend and his replies to questions were beyond moronic.  It’s an abomination he has such a senior role in the administration.

China: The Trump administration’s move to include Taiwan on a list of “countries” in a defense department report, is the latest in a series of moves viewed as provocative by Beijing.

The wording is a break with longstanding U.S. adherence to the one-China principle and is contained in a 55-page Indo-Pacific Strategy Report released the other day.  The language is part of a section detailing U.S. efforts to strengthen partnerships with democracies in the region; the section citing Singapore, Taiwan, New Zealand and Mongolia.

“All four countries contribute to U.S. missions around the world and are actively taking steps to uphold a free and open international order,” the report says, citing the four “countries” as “reliable, capable and natural partners.”

So this only ratchets up the tension further.  Thursday, in a presentation in Washington, the assistant secretary of defense for Indo-Pacific security affairs, Randall Schriver, did not address the report’s “countries” language or a Reuters report that the defense department was pursuing $2 billion in weapons sales to Taiwan.

But more generally, he said: “What we see is a growing threat to Taiwan,” adding, “We take our obligations under the Taiwan Relations Act very seriously.”

Washington has maintained “strategic ambiguity” in U.S.-Taiwan-China relations since it normalized ties with Beijing in 1979.

China’s top defense official, Wei Fenghe, issued a stern warning to “external forces” that foster the idea of independence for Taiwan, saying at the Shangri-La Dialogue, Asia’s chief security summit in Singapore, that Beijing will not cede a “single inch” of its territory.

“The People’s Liberation Army vows not to yield a single inch of the country’s sacred land,” Wei said.

“Nor will it seize anything from others.  The PLA has no intention to cause anybody trouble, but it is  not afraid to face troubles.  Should anyone risk crossing the bottom line, the PLA will resolutely take action and defeat all invading enemies.”

Wei did not make any specific references to the United States, but did name Taiwan’s ruling Democratic Progressive Party (DPP) in his warning to those hoping for independence for the self-ruled island.

“I have a message for the DPP authorities and external forces.  First, no attempt to split China shall succeed.  Second, foreign intervention in the Taiwan question is doomed to fail.”

“Any underestimation of the PLA’s resolve and will is extremely dangerous,” Wei said.  “We will strive for the prospects of peaceful reunification with the utmost sincerity and greatest efforts, but we make no promise to renounce the use of force.

“If anyone dares to split Taiwan from China, the Chinese military has no choice but to fight at all costs for national unity.

“Safeguarding national unity is a sacred duty of the PLA.  If the PLA cannot safeguard the unity of our motherland, what do we need it for?”

Wei had never attended the Shangri-La Dialogue, so his appearance and comments are highly significant given today’s climate.

Wei added: “As for the recent trade friction started by the U.S., if the U.S. wants to talk, we will keep the door open.  If they want a fight, we will fight until the end.”

And Wei defended the construction of man-made islands and deployment of military equipment in the South China Sea, describing the action as “self-defense” and the “legitimate right” of a sovereign state in its own territory.

Earlier, at the same security forum, acting U.S. Defense Secretary Patrick Shanahan said the United States will no longer “tiptoe” around Chinese behavior in Asia, with stability in the region at threat on issues ranging from the South China Sea to Taiwan.

Shanahan did not directly name China when making accusations of “actors” destabilizing the region, but went on to say the United States would not ignore Chinese behavior, in a further example of the harsh rhetoric between the two nations these days.

Shanahan said it was in Beijing’s interests to have a constructive relationship with the United States. But he added: “Behavior that erodes other nations’ sovereignty and sows distrust of China’s intentions must end.  Until it does, we stand against a myopic, narrow, and parochial vision of the future, and we stand for the free and open order that has benefited us all – including China.”

Shanahan said he did not see the trade dispute as a trade war, but rather just part of trade negotiations.

Meanwhile, President Xi and Russian President Vladimir Putin held a summit in Moscow on Wednesday, as the two strengthened their already close partnership, seeking to offset pressure from the U.S.

After the meeting at the Kremlin, Putin told reporters he and Xi had discussed a wide range of global topics.

“We confirmed that Russia’s and China’s stances on key global issues are similar or coincide, as diplomats say,” Putin was quoted by Tass as saying.  “We stated that they had reached a very high – and without any exaggeration – an unprecedentedly high level,” he said.

Xi said Beijing and Moscow shared common ground on a wide range of issues, including trade, Iran and the Arctic Sea, adding that Putin had been a good friend through the years.

Xi’s three-day visit to Russia marked the 70th anniversary of diplomatic relations between the two countries.  Xi also visited St. Petersburg for an international economic forum.

Finally, Tuesday marked 30 years since six weeks of demonstrations ended with the Beijing massacre of June 3-4.  Public discussions of the 1989 Tiananmen Square protests were strictly forbidden in China.

Defense Minister Wei, when asked by an audience member in Singapore about Tiananmen, questioned why people still said China had not handled the events properly.

“That incident was a political turbulence and the central government took measures to stop the turbulence, which is a correct policy,” he said.

U.S. Secretary of State Mike Pompeo said Monday that he urged China to “make a full, public accounting of those killed or missing to give comfort to the many victims of this dark chapter of history.”

Pompeo also accused China of “[abusing] human rights whenever it serves its interests,” using the example of China’s current crackdown on its minority Uighur people in the Xinjiang region.

He added U.S. “hopes have been dashed” of China becoming “a more open, tolerant society” through greater global integration.

North Korea: Senior official and former top nuclear envoy Kim Yong Chol accompanied Kim Jong Un to a Sunday art performance, state media KCNA said on Monday, signaling that the former spymaster is alive and remains a force in North Korea’s power structure.  South Korean newspaper Chosen Ilbo had reported last Friday that Kim Yong Chol had been sent to a labor and re-education camp, citing an unidentified North Korea source.

The Chosun Ilbo story also said North Korea executed its working-level nuclear envoy to the United States, Kim Hyok Chol, as part of a purge of officials who steered negotiations for the collapsed Hanoi summit in February.  I cautioned last week that the South Korean media often gets their reports wrong when it comes to North Korea’s leadership.

Separately, a new look at data from North Korea’s 2017 nuclear test reveals an explosion 16 times as powerful as the one that leveled Hiroshima.

As reported in Defense News: “Scientists looking anew (at the test) discovered that the explosion was likely about two-thirds more powerful than U.S. officials previously thought.”

The findings were published in the Journal of Geophysical Research: Solid Earth.  The team combined sound-wave data recorded during the blast with information about North Korean nuclear tests since 2006 and plugged it all into models.

The 2017 North Korean test (Sept. 3) produced an earthquake of 6.3 magnitude.

Congo: According to the World Health Organization, the world is entering “a new phase” where large outbreaks of deadly diseases like Ebola are a “new normal.”

Previous outbreaks affected relatively small numbers of people, but the Democratic Republic of Congo is dealing with the second largest outbreak yet, just three years after the world’s largest outbreak ended.

In the current outbreak there have been 2,025 cases of Ebola and 1,357 deaths from the virus, according to the health ministry.  The outbreak in West Africa in 2014-16 killed 11,310.

Dr. Michael Ryan, executive director of the WHO’s health emergencies program, told the BBC that the world is “seeing a very worrying convergence of risks” that are increasing the dangers of disease including Ebola, cholera and yellow fever.

Sudan: Over 60 have been killed (Amnesty International says over 100) in protests against the military regime, with the African Union saying it had suspended Sudan until a civilian government was formed.  The bloodshed started when security forces sought to clear protesters from a sit-in camp in central Khartoum on Monday, killing dozens of people in the worst violence since President Omar al-Bashir was removed by the military in April.  The opposition had been in talks with an interim military council over a civilian-led transition to democracy, but the negotiations faltered and this week’s crackdown marked a turning point in the power struggle.

Random Musings

--Presidential tracking polls....

Gallup: New data...40% approval of President Trump’s performance, 55% disapproval (May 15-30, released June 5).  87% of Republicans approve, 33% Independents.
Rasmussen:  48% approval, 50% disapproval.

--In the latest CNN/SSRS poll, President Trump’s approval rating is exactly where it was in late April – 43% approve and 52% disapprove, while support for impeachment rose slightly from 37% last month to 41% now.  54% today are against impeachment.

--A separate CNN/SSRS survey of Democrats and Democratic-leaning registered voters has support for Joe Biden slipping to 32% from the 39% that supported him in an April CNN poll.  It’s only a snapshot, but you can say Biden’s attempt to just sit back and protect his lead isn’t working.

At the same time, none of the other candidates have surged.  Bernie Sanders is at 18%, followed by Kamala Harris with 8%, 7% for Elizabeth Warren and 5% each for Mayor Pete and Beto O’Rourke.

But in assessing the qualifications for the upcoming debates, hitting 1% in some of the various polls being used by the Democratic National Committee, Congressman Seth Moulton, who got in late, has yet to hit 1%, which is kind of a shocker to me.  The guy is a very talented candidate in the purest sense.  And he’s a helluva lot more qualified than many of the others.

In other words, I kind of like Moulton.  At least I respect the war vet.

--Biden had a serious break with his party this week when he restated his opposition to using federal money to pay for most abortions, drawing fire from his 2020 rivals.

Amid confusion over Biden’s stance, his campaign issued a statement confirming that he still backs the so-called Hyde Amendment, a longstanding measure that prohibits the use of Medicaid or other federal funds for abortions, with exceptions of rape, incest and life-threatening conditions.

The confusion came about when in a conversation in South Carolina a month ago, he told a voter he had dropped his past support for the policy, but the campaign now says he “misheard the woman on the rope line.”

Well then Thursday, Biden flip-flopped and said he now opposes the ban on the use of federal funds for most abortions.  Actually, if Biden was diving off the high platform, it would be a flip-flop into a belly-flop.....splat!

Biden said he could no longer support the ban, blaming Republican efforts to limit access to abortions and overturn the 1973 Roe v. Wade decision.

“It was not under attack...as it is now.  But circumstances have changed,” he said during a speech in Atlanta.  “I’ve been struggling with the problems that Hyde now presents.”

“It’s clear that these folks are going to stop at nothing to get rid of Roe, and it’s clear to me that we have to be just as strong in defending it,” Biden said.  He added, “Times have changed.”

So the former vice president caved to pressure from groups such as Planned Parenthood and it’s another example of how he has to deal with his 40-year record in the Senate, loaded with votes and positions that are contrary to today’s liberal orthodoxy, i.e., he’s a man from another era, out of step with today’s progressives.

The shift now puts him in line with most Democrats, but a position of preserving the Hyde Amendment may have appealed to conservative Democrats and centrist Republicans in battleground states in 2020.  Of course that assumes he had won the nomination.

--In the college admissions scandal, a new name has surfaced.  Former University of Southern California athletic director, USC Trojan and NFL quarterback Pat Haden, who investigators believe had a relationship with William “Rick” Singer.  According to the Wall Street Journal, Haden connected Singer to Donna Heinel, who at the time was an athletic-department official at SUC and has since been charged in the cheating case.

--Speaking of Los Angeles, two weeks ago I wrote of the homelessness situation in the San Francisco Bay Area, per a new survey, and one on Los Angeles was just released, with the number of homeless put at 59,000; 36,000 within the city of Los Angeles, a 16% increase in the past year.

With 75% of these living outside, you can imagine the growing crisis in public health, between the trash and rats in the homeless encampments.

Geezuz, just realized the next plague could start in L.A., not in some duck pond in China, or in India or Bangladesh, as I think most of us would have assumed.

--The NYPD was rocked this week with the suicide of two detectives on consecutive days, one of whom was weeks from his mandatory retirement.

--The U.S. Navy acknowledged Saturday it had received a request to shield a U.S. warship bearing the name of former political rival John McCain from President Trump’s view during his trip to Japan the prior week – but did not comply.

“A request was made to the U.S. Navy to minimize the visibility of USS John S. McCain, however, all ships remained in their normal configuration during the President’s visit,’ according to a statement from Rear Adm. Charlie Brown, Chief of Navy Information, that the Pentagon released.

No further information was available, as in who made the request. 

--Finally, Mark R. and I were exchanging notes this week and the topic of Vera Lynn’s classic World War II song “We’ll Meet Again” came up.  I have her greatest hits and used to play it a lot, and I forget what war anniversary in the last ten or fifteen years in the UK it was, but Dame Vera Margaret Lynn herself sang it and watching on TV, I was choked up all over again.

It’s a British folk song first published in 1939 and if you’re on the younger side and never heard it before, YouTube it.  You have to picture the times, Britain, having been bombed to bits, nonetheless fighting back, with Allied help, and how so many of the youth in that era, as we are reminded of every June 6, went off to war never to return again.

So Mark reminded me Vera Lynn is still alive today...102!

We’ll meet again
Don’t know where
Don’t know when
But I know we’ll meet again some sunny day
Keep smiling through
Just like you always do
‘Till the blue skies drive the dark clouds far away

So will you please say hello
To the folks that I know
Tell them I won’t be long
They’ll be happy to know
That as you saw me go
I was singing this song

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Pray for the men and women of the armed forces...and all the fallen.  A special prayer for Chris Morgan of nearby West Orange, New Jersey...the West Point cadet who died in a tragic accident Thursday during summer military training exercises at the academy.

And we remember June 6, 1944.

God bless America.

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Gold $1345...highest weekly close since April 2018
Oil $54.04

Returns for the week 6/3-6/7

Dow Jones  +4.7%  [25983]
S&P 500  +4.4%  [2873]
S&P MidCap  +4.5%
Russell 2000  +3.3%
Nasdaq  +3.9%  [7742]

Returns for the period 1/1/19-6/7/19

Dow Jones  +11.4%
S&P 500  +14.6%
S&P MidCap  +13.8%
Russell 2000  +12.3%
Nasdaq  +16.7%

Bulls 42.7...a big drop from the week before, a perfect ‘buy’ signal for this contrarian indicator.
Bears 18.5

Have a great week.

Dr. Bortrum posted a new column!

Brian Trumbore

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