Week in Review

---

Week in Review

06/22/2019

For the week 6/17-6/21

[Posted 10:30 PM ET, Friday]

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

Edition 1,054

I’ve been saying that June would be a critical month for the Trump presidency and it certainly is panning out that way.  This past week and now looking ahead to the coming one are also prime examples of my adage “wait 24 hours.”  You just can’t jump to immediate conclusions these days, as much as everyone, especially talk-show pundits and network news outlets, feels compelled to.

First off, global equity markets rose on optimism over accommodative central bank policies, spelled out below, and misplaced optimism over the U.S.-China trade war, with presidents Trump and Xi agreeing to meet this coming weekend in Osaka, Japan for the G20 summit.

Just understand it is impossible for the two sides to reach any agreement there, and the most one can hope for is an agreement to restart formal talks and a delay on enacting any new tariffs by either side.

The problem is, as I also spell out below, that one moment the markets responded positively to word Vice President Mike Pence was deferring a hardline speech this week on China and its human-rights policies, but in the next moment, the Trump administration is blacklisting five more Chinese tech companies, which will further piss off China to no end.

It’s chaos and I haven’t even brought up Iran.

There are so many moving parts these days.  President Xi’s first-ever visit to Pyongyang for talks with Kim Jong Un is critically important in terms of the messaging between North Korea and the United States.  What will Xi tell President Trump?    How much is China going to relax the sanctions on the North when it comes to trade between the two?

What will Kim take away from President Trump’s stand-down over Iran Thursday night?  Will Kim now feel emboldened to conduct a long-range ballistic missile test...or another nuclear one?

What topics aside from trade will Xi pound the table on when he sees Trump?  Certainly China isn’t happy about talk of significant arms sales to Taiwan.  Does Trump give in on the issue for the sake of harmony on trade?  That’s abandoning an ally we are sworn to defend.

Does Hong Kong become a bigger issue for Xi while he’s in Japan?  This is the last kind of distraction the Chinese leader needs at this moment.

What will European leaders tell Trump in Osaka regarding Iran?  While some of them may be glad the president backed down from taking retaliatory action, Trump’s credibility with Europe is nil.  And remember, Iran’s ballistic missile threat is most feared in Europe (as well as obviously Israel), not the U.S. 

So there will be a lot on the table this coming week. 

But two final thoughts.  If you read nothing else, check out the disturbing piece from Patrick Tucker of Defense One on the takedown of the Global Hawk drone by Iran.  I can guarantee you this is what has many in the Pentagon, and Europe, sleeping with one eye open.  It’s pathetic that our drone program is clearly a mess; ill-conceived for the current threat matrix.  They are designed to spy on the likes of al-Qaeda, ISIS and the Taliban, who can’t shoot our drones down, when we now know Iran, and many others, do have the capability to do so, especially because the United States is failing to develop the technology to evade the missiles when it comes to the drone program.  That was $130 million (minimum...up to $220 million depending on how it was outfitted) in hardware that was shot down with seeming ease, and with not even Iran’s best air-defense weaponry!  When you really think about it...this is scary as hell.  [As in think of the threat to commercial aircraft.]

Lastly, I was reading a piece in Army Times on what war with Iran would be like and let’s just say the Pentagon understands how ugly it could get.  It’s not just the missile threat on Saudi oil fields, or Israel, it’s the sleeper cells all over the world that would be activated, including as I first long-warned, literally over 15 years ago, in South America, hitting an endless array of soft targets, “killing thousands,” including in America.

So what do we do, now that the Trump White House ratcheted up the tension in the Gulf region? 

It doesn’t help that in terms of the three major European powers, Germany, France and the UK, there are no Churchills to rally the forces of “Good” against the likes of Xi, Putin, Ayatollah Khamenei and Kim Jong Un.

But with the exception of the Ayatollah in this last grouping, Donald Trump calls the other three “friends.”

This is nuts...totally nuts.

Trump World

--President Trump kicked off his reelection campaign on Tuesday in Orlando, Florida, in a speech thick with grievance and warnings of a dark future should a Democrat win the White House, coupled with a Democratic Congress in 2020.

“They would shut down your free speech.  Use the power of the law to punish their opponents, which they’re trying to do now anyway,” Trump said.  “They would strip Americans of their constitutional rights while flooding the country with illegal immigrants in the hope it will expand their political base.”

And:  “This election is a verdict on whether we want to live in a country where the people who lose an election refuse to concede and spend the next two years trying to shred our constitution and rip your country apart,” Trump said.

The crowd of about 20,000 dutifully recited the old battle cries: “Lock her up,” “Build the wall,” and “CNN sucks.”

John Podhoretz / New York Post

“There were two President Trumps on display at the Orlando rally where he announced his intention to seek a second term.  The first Trump spoke for the first 40 minutes; the second for the final 35.  Trump I spent his time mostly complaining about how cruelly he has been treated. Trump II talked about what his administration had accomplished and what he’s sought to do for voters.

“Trump I would likely lose the 2020 election.  Trump II would probably win it.

“What’s wrong with Trump I?  You’ve perhaps heard that Hollywood is in a panic at the moment because wildly expensive sequels (‘Dark Phoenix,’ ‘Godzilla: King of the Monsters,’ ‘Men in Black: International’) have been tanking at the box office due to the exhaustion of audiences who see them as the same-old-same-old – a problem they’re calling ‘sequelitis.’

“Watching Trump at the opening of the rally was eerily like experiencing sequelitis.  You’ve heard it all before, only before it was fresher and more interesting.

“There is another term relating to sequels called ‘fan service,’ in which the movie tries hard to provide moments of intimacy between the characters and their superfans.  Trump I is all about ‘fan service.’  He provides minutes of retroactive pleasure reminding his listeners about the grand old ‘lock-her-up’ days before providing an opportunity to boo the media in attendance.

“He revels in his 2016 victory and says he ‘won’ over special counsel Robert Mueller.  But while the words are fine, the music is off.  The overwhelming tone is one of injury and grievance.  He is mostly aggrieved at the Mueller probe, but there are many other things that he believes have victimized him over the past couple of years.

“There are a few problems with these approaches when it comes to his reelection.  First, there is an odd effect when he rages against his enemies. He makes it sound as though they defeated him when, in fact, he defeated them.

“He beat Hillary and consigned her to political oblivion. And Mueller didn’t find the collusion or conspiracy with Russia – the desperate desideratum of the Trump-hater hoping against hope that he would somehow be excised from the White House and from history itself.

“For a victim, he isn’t much of a victim.  We should all be such victims.

“And that gets to a larger point. Trump is one of the most sheerly fortunate people on earth.  He was born into wealth.  He has never known a day of want.  He became locally famous in the 1970s, nationally famous in the ‘80s and world famous by the turn of the millennium.  To hear him tell it, he is a billionaire many times over.

“Then he ran for president – and won.

“So stop your whining, man!  Yes, there are people who already love you who are willing to feel sorry for you, but you’ve already got their support.  For everyone else, listening to Trump talk like he’s Jean Valjean isn’t a way to win friends and influence people.

“Politicians who complain they’re being unfairly treated to voters are among the least sympathetic people on earth – second only to rich people who complain and celebrities who complain.  Trump is a rich celebrity politician.  He needs to knock it off...for his own sake.

“That’s where Trump II comes in.

“When Trump pivoted in Orlando to providing the reasons why people should vote for him in 2020 – and why they shouldn’t vote for his Democratic rival, whoever that should be – the evening was transformed.

“He provided a list of accomplishments – cutting taxes, slashing regulations, appointing judges, reforming health care for veterans, ending the individual mandate requiring the purchase of private health insurance and shifting American policy in Israel’s favor – with brio and enthusiasm.

“Given that these are the very policy subjects Democrats want to attack him over – tax cuts for the rich, making it easier for big businesses, harming health care and being radical in foreign policy – he is getting ready to fight them for primacy on these claims.

“Too often over the past few years, he has neglected to make these arguments and left the ideological field wide open to the media or the Democrats.  Or he has neutralized his case by going on Twitter and picking fights or complaining about something or other.

“Trump II is the winning Trump.  The problem is that he is sorely tempted, every day, to be Trump I instead.  If he can summon the discipline to stop seeming like a whining complainy-head and start acting more like the historic figure he wants to be, he will enhance his chances of reelection rather than tripping himself up on the way to Nov. 3, 2020.”

Editorial / Wall Street Journal

“President Trump announced his campaign for a second term at a rally in Orlando on Tuesday evening that recounted his first-term record and 2016 victory before thousands of rapturous supporters.  The only thing missing was an agenda for 2020.

“The most striking fact of his speech was how backward looking it was. Every incumbent needs to remind voters of his record, Mr. Trump more than most because the media are so hostile.

“The President is also right that his opponents have refused to recognize the legitimacy of his election.  House Democrats may still try to impeach him for not obstructing an investigation into what wasn’t a conspiracy with Russia.  His sense of ‘grievance,’ to quote the media meme about his speech, on that point is entirely justified.

“Yet Mr. Trump is asking for four more years, and his preoccupation with vindicating 2016 won’t resonate much beyond his core supporters.  Most voters have moved on from 2016, which is why a majority opposes impeachment in every poll.  They don’t much care about Mr. Trump’s greatest hits about Hillary Clinton, who alas for the President will not be on the ballot in 2020.  They want to know why they should take a risk on Mr. Trump and his volatile character for another term.

“This is all the more important given the way his first term has evolved on policy.  One paradox is that his main policy successes have come from pursuing a conventional conservative agenda. The failures have been on the issues like trade and immigration that are the most identified with Trumpian disruption....

“The other paradox of the Trump Presidency is his low approval rating despite a stronger economy.  The polls show his approval rating on the economy is above 50% but his overall approval is 44.3% in the Real Clear Politics average.  The difference is best explained by Mr. Trump’s polarizing behavior, which has alienated in particular college-educated voters and Republican women.  In the latest Wall Street Journal-NBC poll, Mr. Trump is underwater with white college-educated women by a remarkable 20 percentage points....

“Mr. Trump won’t win by relitigating the 2016 election or playing only to his political base.  He needs more than he offered voters on Tuesday night.”

--President Trump’s reelection effort raised $24.8 million in under 24 hours, the Republican National Committee said Wednesday morning, announcing new numbers tied to the kickoff rally. The Trump campaign and the RNC together raised more than $75 million in the first quarter and had more than $80 million in the bank at the end of March.

--Acting Defense Secretary Patrick Shanahan’s nomination for a permanent position was pulled by President Trump after it became clear there were serious family issues in his background  that would have torpedoed his chances.  But why this wasn’t picked up before should be the real issue.  And great timing.

--Trump tweets:

“Since Election Day 2016, Stocks up almost 50%, Stocks gained 9.2 Trillion Dollars in value, and more than 5,000,000 new jobs added to the Economy. @LouDobbs If our opponent had won, there would have been a market crash, plain and simple! @TuckerCarlson @seanhannity @IngrahamAngle”

“So sad that the Democrats are putting wonderful Hope Hicks through hell, for 3 years now, after total exoneration by Robert Mueller & the Mueller Report.  They were unhappy with result so they want a Do Over.  Very unfair & costly to her.  Will it ever end?  Why aren’t they....

“....asking Hillary Clinton why she deleted and acid washed her Email AFTER getting a subpoena from Congress.  Anybody else would be in jail for that, yet the Dems refuse to even bring it up.  Rigged House Committee.”

“If I didn’t have the Phony Witch Hunt going on for 3 years, and if the Fake News Media and their partner in Crime, the Democrats, would have played it straight, I would be way up in the Polls right now – with our Economy, winning by 20 points.  But I’m winning anyway!”

“The story in the @nytimes about the U.S. escalating attacks on Russia’s power grid is Fake News, and the Failing New York Times knows it. They should immediately release their sources which, if they exist at all, which I doubt, are phony.  Times must be held fully accountable!”

“Next week ICE will begin the process of removing the millions of illegal aliens who have illicitly found their way into the United States. They will be removed as fast as they come in.  Mexico, using their strong immigration laws, is doing a very good job of stopping people....

“....long before they get to our Southern Border.  Guatemala is getting ready to sign a Safe-Third Agreement. The only ones who won’t do anything are the Democrats in Congress. They must vote to get rid of the loopholes, and fix asylum!  If so, Border Crisis will end quickly!”

[Such a round-up, which does seem to be in the works at some level, is never to be telegraphed!]

“Happy Father’s Day to all, including my worst and most vicious critics, of which there are fewer and fewer. This is a FANTASTIC time to be an American!  KEEP AMERICA GREAT!”

The above was preceded by:

“A poll should be done on which is the more dishonest and deceitful newspaper, the Failing New York Times or the Amazon (lobbyist) Washington Post!  They are both a disgrace to our Country, the Enemy of the People, but I just can’t seem to figure out which is worse?  The good....

“....news is that at the end of 6 years, after America has been made GREAT again and I leave the beautiful White House (do you think the people would demand that I stay longer?  KEEP AMERICA GREAT), both of these horrible papers will quickly go out of business & be forever gone!”

--President Trump’s reelection campaign is dumping some of its pollsters after leaked internal surveys showed former Vice President Biden leading the president in several battleground states.

Wall Street and Trade

There are about five or six weeks a year where the market is just kind of goofy and this was one of them.  There is going to be no trade agreement between the United States and China at the G20 in Osaka, and the positives of a rate cut by the Federal Reserve are minimal at this point.  At least that is my opinion.

But the Fed’s Open Market Committee did meet this week and clearly telegraphed that a rate cut is on the table for the July 30-31 meeting, with 8 of the 17 policymakers predicting at least one cut the rest of the year (7 of the 8 calling for two), 8 saying the Fed should hold policy at current levels, and one Fed governor calling for a hike in rates.

The Fed raised concerns the economy is slowing and sent its strongest signal to date it could act soon.

Business investment is slowing, uncertainty has increased and the U.S. economy is growing at a “moderate” pace, the Fed said in its official policy statement, a downgrade from last month, when the central bank characterized the economy as “solid.”

“The committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” the statement said.

“The case for somewhat more accommodative policy has strengthened,” Fed Chair Jerome Powell said at  his press conference.  “It’s really trade developments and concerns about global growth that are on our minds...Risks seem to have grown.”

Minneapolis Fed President Neel Kashkari said today that the Fed should cut interest rates by half a percentage point, adding that aggressive action is needed now to re-anchor inflation expectations that have dropped below the Fed’s 2% target. But Kashkari does not vote on monetary policy this year.

Importantly, the Fed will see the June employment report and an initial look at second-quarter GDP by the time it meets next to decide whether to cut rates.

On the issue of whether the president can fire him, Powell reiterated that he does not believe he can be fired and does not intend to step down.

“I think the law is clear that I have a four-year term, and I fully intend to serve it,” Powell said.  “My colleagues and I have one overarching goal, to sustain the economic expansion with a strong market and stable prices for the benefit of the American people.”

On the economic data front, there were two positive readings on housing, with housing starts in May coming in at a better than expected 1.269 million units, April revised upward.

Existing-home sales in May also came in better than expected at 5.34 million annualized, up 2.5% on the month before, though still 1.1% below that of year ago.

The median price for all existing homes for the month, $277,700, is up 4.8% from May 2018, the best pace in months, which is encouraging and clearly a result of falling mortgage rates, stirring up activity.

The Atlanta Fed’s GDP barometer for the second quarter is at 2.0%, down from the first-quarter’s 3.1% pace.

But back to the Federal Reserve and interest rates, the further decline in bond  yields caught everyone by surprise, with the yield on the 10-year, 2.00%, at its lowest level since 2016, with yields in Europe hitting all-time lows as well, and, yes, that is spurring global equity markets.

On the trade war front, Tuesday, President Trump announced he had “a very good phone call” with President Xi and that the two would meet next week on the sidelines of the G20.  Trump told reporters that China wanted a deal.

“The meeting might very well go well and, frankly, our teams are starting to deal, as of tomorrow,” he said.  “China wants to make a deal.”

But, again, there will be no breakthroughs. There is simply too little time for major progress between the negotiating teams before the two leaders sit down.  However, Trump’s mention of a meeting helped spur the markets.

It’s also true that the trade war with the U.S. has reinforced China’s determination to develop its own high-tech products, including semiconductors, to break free of dependence on the United States in those fields and emerge as a global leader.

And in recent weeks, Chinese officials have toughened their stance, raising the prospect of banning rare-earth exports – used in smart phones, military equipment and other high-tech products – to U.S. companies; China controlling the bulk of global supply in rare-earths.

And state media has previously reported that officials are putting together a list of “unreliable” U.S. companies that could be targets for retaliation after Washington’s recent action to ban U.S. companies from supplying Chinese tech giant Huawei with components and software.  There seems little doubt that Xi will bring up Huawei in any discussions and how this is handled will be quite telling.

But the fact is China, through its various Communist Party mouthpieces, has continued to take a hard line on trade, with an editorial in the influential Chinese Communist Party journal saying in part last Sunday that the nation was prepared for a long economic battle.

An editorial for the state-run Global Times noted there was “a further mobilization of Chinese society” in the struggle against U.S. trade pressure.

“China will not be afraid of any threats or pressure the United States is making that may escalate economic and trade frictions.  China has no choice, nor escape route, and will just to fight it out till the end,” the commentary said.

“No one, no force should underestimate and belittle the steel will of the Chinese people and its strength and tenacity to fight a war.”

The commentary in the Chinese Communist Party journal accused the United States of trying to hamper Chinese technological innovation.

“We must keep the initiative of innovation and development firmly in our hands, increase investment and research in key, core technology areas, pool together more high-value talents, enhance innovation and get rid of the core technology plight,” it said.

“As a result of the trade frictions, only a very few Americans will benefit, but the majority of Americans will suffer,” the journal added.

White House economic adviser Larry Kudlow said on Tuesday: “The United States wants to continue the conversations about structural changes regarding intellectual property theft and forced technology transfer and market openings and tariffs,” he said in an interview with Fox News.  “We’re looking for an enforceable agreement as we always have – that’s absolutely vital. So all of those general topics will be on the table.”

The two sides are going nowhere....certainly not this coming week.

Lastly, India imposed higher customs duties on a raft of U.S. goods effective Sunday in response to similar measures taken by Washington, after the Trump administration withdrew India’s preferential trade status.

Europe and Asia

We had the flash readings on the eurozone economy for June, courtesy of IHS Markit, with the flash composite PMI for the EA19 hitting 52.1, a 7-month high (50 being the dividing line between growth and contraction).  Manufacturing was 48.8, however, while services activity was 53.4, a 7-month high.

Germany’s flash manufacturing reading for June was 45.4, with services at 55.6.

Frances’s comparable numbers 52.0 for manufacturing, a 10-mo. high; 53.1 services.

Chris Williamson / IHS Markit

“The eurozone economy picked up further momentum in June, with the headline PMI rising from the lows seen earlier in the year to hint that the worst of the current slowdown may be behind us.  However, the overall rate of expansion remains weak, with the survey data indicative of eurozone growth of just over 0.2% in the second quarter.

“But growth trends between the core and the periphery have widened.  Germany and France are both showing improved performances compared to earlier in the year as one-off factors (such as political unrest in France) continue to drop out of the picture, but the data highlight a growing concern that the rest of the region is sliding closer towards stagnation.

“Growth also remains very much dependent on the service sector, which in turn largely reflects the relative strength of domestic consumer demand and improving labor markets.  Manufacturing, in contrast, remains in a steep downturn which is only showing tentative signs of moderating.”

Separately, Eurostat released its inflation data for May, 1.2% annualized, vs. 1.7% in April and 2.0% a year ago.

Germany 1.3% ann., France 1.1%, Italy 0.9%, Spain 0.9%.

But the big story on the week for the eurozone economically came from European Central Bank President Mario Draghi, who signaled the ECB could start introducing new stimulus measures, including a reduction in already negative interest rates, an unexpectedly dovish stance at this stage.

Editorial / Wall Street Journal

“The ECB is...in a bind amid signals the Fed could cut rates this week [Ed. it didn’t] or later this year.  All modern central bankers find themselves trying to manage unconventional monetary policies with no road map and no international coordination.  Pardon Mr. Draghi for hinting at a desire not to fall any further out of sync with the Fed than he already is.

“But it’s also true that euro depreciation has been a clear if unstated goal of Mr. Draghi’s policies for years. Starting at around $1.40 in 2014, the euro fell to around $1.05 by the end of 2015 as Mr. Draghi introduced his version of quantitative easing (QE), and has settled around $1.12 recently.

“The hope seems to have been that a weaker euro might stimulate some import-price inflation while giving European exporters a boost that would make domestic economic reforms politically easier.  Neither has happened.  Import prices never rose enough to produce the almost-2% inflation the ECB targets, while any export boost flowed mainly to economies such as Germany’s that needed the help the least. Substantive reforms never materialized, except belatedly and still inadequately in France....

“Mr. Draghi so far has played coy over what additional accommodations the ECB could offer, in part because the menu is short.  He could reduce the ECB’s policy rates further, although the rate on bank reserves already is a profit-killing negative 0.4%.  Outright lending subsidies via various TLTRO (don’t ask what it stands for) programs have failed to yield the desired economic stimulus.

“Investors are clamoring for a resumption of the ECB’s asset purchases, or quantitative easing, which stopped in December.  But doing so will drag the ECB into a new political minefield since it’s already approaching its self-imposed limit of owning no more than 33% of debt issued by any country.  Lifting that cap will trigger new objections from long-time QE critics especially in Germany, and potentially push the ECB into messy political and legal fights as a significant minority owner of various debt securities.

“That leaves Mr. Draghi for now to do what he did on Tuesday – to try to talk up the markets, talk down the euro, and talk past the practical limitations facing the ECB....

“Mr. Trump is right that the eurozone has attempted a competitive devaluation as a substitute for hard reforms, but he’s wrong to think it’s working for Europe.  He’s also wrong to think it would work for the United States.”

Brexit:  The race to replace Prime Minister Theresa May in the Conservative Party is down to two finalists after further balloting this week – Boris Johnson and Jeremy Hunt.  A runoff will now be conducted by mail ballot, 160,000 party members across the country making the call.

In the final ballot of the 313 Conservative lawmakers to winnow the field down to two, Johnson came up with 160 votes, more than half the total, while Hunt, Britain’s current foreign secretary, came in a distant second with 77 votes, edging out Environmental Secretary Michael Gove, who received 75 votes, after Home Secretary Sajid Javid was eliminated earlier in the day.

The winner of the runoff will be announced the week of July 22, becoming Conservative leader and prime minister.

Few believe Johnson will lose, he having an ability to connect with voters, though he is mistrusted for his erratic performance in high office and his long record of inaccurate, misleading and sometimes offensive comments.

“Boris will say absolutely anything in order to please an audience,” historian Max Hastings told the BBC on Thursday.  “Boris would have told the passengers on the Titanic that rescue was imminent.”

Hunt is viewed as an experienced, “serious” candidate, in contrast to Johnson, but it will be difficult to halt Johnson’s momentum.

Both Johnson and Hunt vow they will lead Britain out of the European Union, a challenge that forced Mrs. May out of office.

Brexit was delayed from the original date of March 29 to October 31, with Johnson, a leading figure in the 2016 campaign to leave the European Union (lying endlessly to the people in the process), having the backing of the party’s hardline Brexiteers by insisting Britain must leave the bloc on Oct. 31, with or without a divorce deal to the smooth way.

Hunt backed the losing “remain” side in the referendum, but now says he is determined to go through with Brexit.  He has said he would seek another postponement if needed to secure a deal, but only for a short time.

But neither has a realistic plan as yet.  And today, Donald Tusk, the European Council president, told reporters after a summit of EU leaders in Brussels that the Brexit process could become “even more exciting” under a new British prime minister while warning that the EU remains staunchly opposed to reopening the UK’s exit treaty.

Tusk restated the EU’s long held position that it will not renegotiate the terms of Britain’s departure with a new PM, including sensitive arrangements to prevent a hard border in Ireland.  It is a stance that effectively rejects most of Boris Johnson’s Brexit strategy.

Irish Prime Minister Leo Varadkar, a key figure in the process because of the border conundrum, said Thursday that “the withdrawal agreement is not going to be reopened.”

Varadkar added there was “enormous hostility to any further extension” of the Brexit deadline among the other 27 EU leaders.

But most economists and business leaders warn that leaving the EU without a deal on terms and future relations would cause economic turmoil.  Philip Hammond, Britain’s treasury chief, warned that a no-deal Brexit would put Britain’s prosperity at risk and leave the economy “permanently smaller.”

Meanwhile, the Bank of England cut its growth forecast for Britain’s economy to zero in the second quarter and highlighted risks from global trade tensions and growing fears of a no-deal Brexit.

Italy: Deputy Prime Minister Matteo Salvini raised the stakes in a budget battle with Brussels on Friday by threatening to resign and bring down the government unless he can push through at least $11 billion of tax cuts.  Italy is negotiating a budget revision with Brussels to try to prevent an EU disciplinary procedure. 

The European Commission expects Rome’s debt to rise further above the EU’s ceiling of 60% of economic output from about 132% at present.

But emboldened by his League party’s strong showing in European parliamentary and local elections, Salvini has made reducing a high tax burden a priority for the government.

Italy’s ruling coalition is made up of the League and the anti-establishment 5-Star Movement, which holds a majority of parliamentary and cabinet ministers.  But with recent poll results, the League has doubled its vote share and Salvini is in essence de facto prime minister.  He has said tax cuts were the only way to revive feeble economic growth.

Germany: Not for nothing, but there is a very real chance Chancellor Angela Merkel will not survive until her planned exit in 2021, as her coalition has collapsed, with the losses suffered by the Social Democrat (SPD) party, Merkel’s junior partner.  The SPD is under growing pressure to quit the government and rebuild in opposition.  In the latest Forsa public opinion poll, the Greens actually remain the most popular party, with 27%, with Merkel’s conservatives at 24%, a record low.  The far-right Alternative for Germany (AfD) is third at 13%, followed by the SPD at 11%, a record low for it, or at least since 1949.

Turning to Asia...nothing of note on the Chinese economy this week after the prior week’s crush of data, but in Japan, we had a flash reading on manufacturing for June, 49.5, with the fastest drop in new orders since June 2016.

Befitting this last bit, exports in May fell 7.8% vs. a year ago (and versus -2.4% in April), the sixth consecutive month of contraction.  Shipments to Asia fell 12.1% amid trade tensions.  For example, China-bound shipments of semiconductor manufacturing equipment was down substantially.  Imports fell 1.5% yoy.

On the inflation front, consumer prices in Japan grew in line with forecasts in May, with core inflation, ex-food, increasing 0.8% year on year, down from 0.9% in April, according to Statistics Japan.

Core-core inflation, stripping out both food and energy, was up just 0.5% in May.

The Bank of Japan kept its policy guidance unchanged on Thursday, even as inflation remains well short of its long elusive 2% target, saying it expected the economy to “continue on a moderate expanding trend.”

Street Bytes

--Stocks had their third straight weekly gain, with June off to its best start in quite a while for the major averages.  All about the Fed, ECB and optimism over trade, warranted or not, which trumped tensions in the Middle East, though oil rose over $5, nearly 9% as a result.

The Dow Jones was up 2.4% to 26719, just over 100 points from its record high, while the S&P 500 hit its new high of 2954, Thursday, before falling a few points today, up 2.2% on the week.  Nasdaq rose 3% to 8061, a little over 130 points from hitting a new high-water mark.

--U.S. Treasury Yields

6-mo. 2.04%  2-yr. 1.77%  10-yr. 2.05%  30-yr. 2.58%

The yield on the 10-year traded below 2.00% briefly on Thursday, the lowest level since late 2016, before finishing today at 2.05%

--Crude oil’s advance of over $5 to $57.60 represented its best week since Dec. 2016, thanks to the risks of full-scale conflict in the Persian Gulf.

But the national average at the gas pump is $2.68 these days, 20 cents less than the same last year, with the latest Energy Information Administration report revealing total domestic gasoline inventories jumped a million barrels last week, helping to push pump prices lower. Normally prices rise during the summer months due to increased demand.

However, gasoline futures rose 4% today on word of the fire at the largest refinery in the New York area, down in Philadelphia, with the impact on supply unknown as yet, though its propane and butane that were burning.  The facility, the 10th largest in the U.S., does refine 335,000 barrels of oil a day.

Meanwhile, sticking to the commodities sector, gold rose 3.6% on Thursday to $1,392, its biggest one-day advance since June 2016 and its highest settle since 2013.  The Fed’s suggestion it was going to lower interest rates in the coming months was the catalyst, which would weaken the dollar and boost commodities priced in the U.S. currency.

--Chesley “Sully” Sullenberger, who in 2009 landed a US Airways flight safely on the Hudson River in New York, told a congressional panel on Wednesday that pilots of the Boeing 737 MAX should receive new simulator training before the plane returns to service.  Sullenberger said the FAA’s system of certifying new aircraft is not working after two deadly crashes since October killed 346 people.  “Our currently system of aircraft design and certification has failed us,” he said.

As to Boeing’s software update for MCAS, which would stop erroneous data from triggering an anti-stall system that automatically turned down the noses of the two planes that crashed, despite pilot efforts to stop it, Sullenberger told the House Transportation and Infrastructure Committee on Wednesday that “it is clear that the original version of MCAS  was fatally flawed and should never have been approved.”

But Allied Pilots Association President Daniel Carey told the committee that getting all pilots in simulators before the 737 MAX returns to service poses logistical issues, with 4,200 737 MAX pilots at American Airlines and 9,000 737 MAX pilots at Southwest Airlines.

Boeing has said that simulator training is not necessary, and is recommending a mandatory computer-based course that explains MCAS and could be completed at a pilot’s home in about an hour, according to pilot unions.

Separately, Boeing shares had a strong week (and were a major contributor to the Dow Jones’ gains as a result), as it began to receive orders again for the 737 MAX, including an order for 200, valued at more than $24 billion, from British Airways-owner IAG.  Korean Air committed to buying 20 787 Dreamliners worth $6.3 billion as well at the Paris Air Show.  And there were other smaller orders.

But competitor Airbus picked up at least two sizable orders, including one from American Airlines, for its new long-range A321XLR, which is slated to be ready for customers in 2023, the aircraft posing a new challenge for Boeing.  The single-aisle plane is aimed at replacing Boeing’s out-of-production 757, with Boeing saying it will be developing a new midsize jetliner, though plans are tentative. Airbus’ A321XLR is designed to connect cities such as Barcelona and Chicago, for example, 4,700 nautical miles, or 5,400 miles. It is designed to be used on routes where demand typically isn’t strong enough to warrant the larger, wide-body planes traditionally used on flights between the U.S. and Europe. 

Clearly, Airbus has beaten Boeing to this midsize market, with Boeing not having a competing aircraft until 2025 at the earliest should it proceed with development.  Delta Air Lines has said it has to replace 200 planes in its midsize lineup in the coming years, and the airline has said it is considering the A321XLR.

Separately, at the Air Show, Boeing was visibly contrite about the two crashes.

“We are very sorry for the loss of lives” in the Lion Air crash in October and Ethiopian Airlines crash in March, Kevin McAllister, chief executive of Boeing’s commercial aircraft division, told reporters.  McAllister also said, “I’m sorry for the disruption” to airlines from the subsequent grounding of all MAX planes worldwide and to their passengers facing summer travel disruptions.

Meanwhile, there are questions about the victims’ families and the compensation process, as Boeing faces scores of lawsuits.

--Huawei’s American chip suppliers, including Qualcomm and Intel, have been quietly pressing the U.S. government to ease its ban on sales to the Chinese tech giant, after Huawei was placed on the black list, banning U.S. suppliers from selling to Huawei, the world’s largest telecommunications equipment maker, without special approval, because of what the government says are national security issues.

Chip makers argue that Huawei units selling products such as smartphones and computer servers use commonly available parts and are unlikely to present the same security concerns as the Chinese tech firm’s 5G networking gear. 

Out of $70 billion that Huawei spent buying components in 2018, some $11 billion went to U.S. firms including Qualcomm, Intel and Micron Technology.  So the main issue, as the chip makers argue, is that they believe they should be able to sell technologies that don’t fall within the scope of the ban.

Meanwhile, Huawei’s founder, Ren Zhengfei, said this week revenues will be $30 billion less than forecast over the next two years, but U.S. moves to restrict its business “will not stop us.”

Ren said it had never occurred to Huawei that the American government would be so determined to take such a wide range of what he called extreme measures against the company.

“I think both sides will suffer,” he said at a forum held at company headquarters.  “No one will win.”

Huawei in March reported a 19.5 percent jump in annual revenue to $107 billion in 2018.  Ren added overseas smartphone sales had dropped 40 percent, without specifying a time period.

--By volume, 2019 has already outpaced the comparable year-ago period for big retail bankruptcies with companies like footwear retailer Payless and children’s clothing chain Gymboree filing for bankruptcy.

The number of retailers that filed for bankruptcy protection stood at 19 as of June 13, according to S&P Global Market Intelligence.  That compares with 14 in the same period last year.

--The Labor Department released data Tuesday that showed private-sector companies’ spending on nonproduction bonuses fell 24% in the first quarter of 2019 from a year earlier, the largest decrease for the category of benefit costs on record back to 2005.

Those bonus payments jumped in late 2017 and early 2018 owing to Congress approving the package of Trump tax cuts, with the likes of Walmart and AT&T announcing bonuses in the wake of the new law. 

But the gains appear largely to have been a one-time windfall.  Bonuses were just 2.1% of overall compensation in the private-sector, down from 2.8% a year earlier.

We’ve also seen business orders for plant and equipment cool since a jump in late 2017 and early 2018.  Hiring in 2018 well exceeded estimates, but has also cooled this year to the lowest pace since 2010.

--Apple Inc. is asking suppliers to study shifting some of their production out of China, specifically up to about a third of the production for some devices, though such a major change would be difficult and could take months to years to implement.

The key is being able to find a relatively skilled labor force, a must for the tech industry vs. manufacturers of apparel, footwear and other low-margin consumer items that have been moving out of China due to rising costs, with tariffs accelerating the trend.

In the case of Apple, there is also the concern that if the U.S. put tariffs on an additional $300 billion of Chinese imports, the company could be hit with levies of up to 25% - including on smartphones and notebook PCs.

--Facebook released details behind its global cryptocurrency project, Libra.  Analysts believe this is a potential game-changer not just for Facebook but for financial services as we know them, but you still need broad adoption of an unproven concept.  And do you trust Facebook?

One analyst, however, Barclays Ross Sandler, estimated cryptocurrency could bring in as much as $19 billion in revenue for Facebook by 2021.

Libra will be governed independently via a consortium of companies, perhaps deflecting the question of trust; the participants including MasterCard, Visa, PayPal, Uber and eBay.  According to a Facebook white paper released Tuesday, Facebook hopes to have 100 members join by Libra’s expected launch in the first half of 2020.

What Libra is attempting to do is target the 1.7 billion adults around the world who don’t have full access to the global financial system; one billion of whom have a mobile phone and another half a billion have internet access.

But there are huge risks, and questions, such as regulatory oversight and the potential for hackers and leaks to bring further reputational risk to Facebook.

Anyway, we’re still at least a year from Libra being rolled out.

--Oracle reported stronger-than-expected sales and beat profit targets for its latest quarter as the business-software giant’s fast-growing new businesses offset declining old ones.

Oracle said Wednesday that fiscal-fourth-quarter revenue increased about 1% from the year earlier to $11.14 billion, surpassing estimates.

But the 1% growth followed two consecutive quarters of declines and came from product offerings like a database that performs updates and plugs security holes automatically, Co-CEO Safra Catz told analysts.

Oracle’s business of licensing software grew by 12% year-over-year, while cloud services and license support, the company’s largest unit, was up 0.5%.  Hardware revenue fell 11%.

Oracle founder and chief technology officer Larry Ellison said: “Some of our businesses are not, if you will, hot, but the good news is the hot businesses are now bigger than the not-so-hot businesses, and that’s determining our future.”

Ms. Catz said revenue for the current quarter was expected to be flat to up 2%.

At least the adjusted profit margin of 47% in the quarter that ended May 31, was the highest in five years, Catz said.

Since the profit of $1.16 a share was better than forecast, the shares rose 6% despite the  middling revenues.

--Slack, which makes software for workers to chat and collaborate on projects, directly listed its shares on the New York Stock Exchange, bypassing the usual fundraising process of an IPO and allowing shareholders to sell right away without a lockup period.

The shares ended their first day Thursday at $38.62, well above the reference price – a guide for initial trading – of $26, closing today at $36.75.

This year is on track to be the busiest for public listings in more than a decade, with Pinterest Inc. and Zoom Video Communication having risen significantly.  But the two biggest, Uber and Lyft, are trading below their IPO prices.

--Siemens plans to cut 2,700 jobs at its gas and power company, in addition to 10,400 it is already shedding in its core units, the German engineering firm said on Tuesday.  Siemens said last month it was spinning off its gas and power business, which has acted as a drag on the firm’s performance as the rise of renewable power hits demand for gas turbines.  Of the 2,700 new cuts, 1,400 will be in Germany.

--Workers at a Volkswagen plant in Tennessee rejected an effort to form a union the other day.  The United Automobile Workers has been trying to organize the factory in Chattanooga for years and this latest effort was defeated narrowly, with 833 of 1,600 workers in opposition.

Wages for Volkswagen production workers in Chattanooga start at $15.50 per hour, which will increase to $16.00 in July.  The plant’s top wage of $23.50 is well above the median in Chattanooga, but roughly 20 percent below what experienced workers can make at unionized plants of automakers like General Motors and Ford.

--Carnival Corp. cut its full-year profit forecast on Thursday, anticipating a hit from the Trump administration’s sudden ban on cruises to Cuba and weakening demand in Europe, sending its shares down nearly 13%. Carnival is the latest cruise operator to warn of the financial impact of the restrictions on recreational travel to the island, which forced companies to reroute their cruises, usually booked far in advance.

“Cuba has gone for the foreseeable future and not in the plans for next year,” said CEO Arnold Donald on a conference call.

The company has also seen soft demand for its European cruise brands due to the weakening economic environment there and France’s “yellow vest” protests, which have finally ended, more or less.

--Restaurant chains Red Robin and White Castle have reported shortages of Impossible Foods Inc.’s popular meat-free patties, as the plant-based food company faces pressure to manufacture for the mass market, needing to get a head start on rivals such as Beyond Meat Inc., whose stock continued to gyrate wildly this week.

Impossible Foods patties are being launched in various Burger King markets and supposedly inside all of them by year end, which you can imagine might not be that easy.

Beyond Meat announced this week that its plant-based sausage breakfast sandwiches are available at almost 4,000 Tim Hortons locations across Canada.

Foreign Affairs

Iran: Monday, Tehran said it would breach uranium enrichment limits in 10 days, but added that European signatories to the 2015 nuclear accord still had time to save the deal.  Iran has rejected President Trump’s call to enter talks covering nuclear, missile and other security disputes unless Washington returns to the nuke deal that lifted global sanctions on Tehran.

The same day, the U.S. announced it would deploy an additional 1,000 troops to the Middle East in a response to the attack days earlier on two oil tankers in the Gulf of Oman that the U.S. blames on Iran.

At the same time, Saudi Arabia has accused Iran of supplying Yemen’s Iran-aligned Houthi movement with missiles and drones used in attacks on Saudi oil pumping stations in May and on a civilian Saudi airport and other facilities earlier this month.

Iran then shot down an unarmed U.S. Global Hawk surveillance drone while it was in international airspace above the Strait of Hormuz, but Iran said it was spying over part of its coastal territory, with state television on Friday showing what it said were retrieved sections of the aircraft.  There has been no immediate confirmation of the drone’s location when it was brought down.  Iran has denied it was behind earlier tanker attacks and accused Washington of “warmongering.”

Thursday morning, Iran’s Islamic Revolutionary Guard Corps (IRGC) announced the shoot-down, with Commander-in-Chief Maj.-Gen. Hossein Salami saying the drone’s downing was a “clear message” to the U.S. that Iran’s borders were “our red line.”

“Our air space is our red line and Iran has always responded and will continue to respond strongly to any country that violates our air space.”

Iranian Foreign Minister Javad Zarif tweeted, “We’ve retrieved sections of the U.S. military drone in our territorial waters where it was shot down.”

President Trump said the unmanned drone may have been shot down in error by someone who was acting “loose and stupid,” though added: “This country will not stand for it.”

Trump’s national security advisers split about whether to respond militarily.  Secretary of State Mike Pompeo, National Security Adviser John Bolton, and CIA Director Gina Haspel had favored a military response.  But top Pentagon officials have cautioned that such an action could result in a spiraling escalation with risks for American forces in the region.

Congressional leaders were briefed Thursday afternoon in the Situation Room, with Democrats emerging to urge President Trump to de-escalate the situation and to seek congressional authorization before taking any military action.

Then Thursday night, the New York Times first reported that U.S. warplanes took to the air and ships were put in position for a retaliatory attack on Iran, only for the order to be rescinded, troops standing down without any weapons being fired.  Targets had included Iranian radar and missile batteries, the Times said, citing a number of senior administration officials involved in, or briefed on, the deliberations.  The strikes were set for early in the day to minimize risk to the Iranian military or to civilians, according to the paper.

Iranian officials told Reuters on Friday that Tehran had received a message from President Trump warning that a U.S. attack on Iran was imminent but saying he was against war and wanted talks on a range of issues.

The message was apparently delivered through Oman and came shortly after Trump had approved military strikes against Iran on Friday, before calling them off.

Trump gave Iran a short period of time for a response, according to the Iranian official who spoke to Reuters, but any response is up to Supreme Leader Ayatollah Khamenei.  A second Iranian official said: “We made it clear that the leader is against any talks, but the message will be conveyed to him to make a decision.  However, we told the Omani official that any attack against Iran will have regional and international consequences.”

Russia accused the United States of deliberately stoking dangerous tensions around Iran and pushing the situation to the brink of war, and urged all sides to show restraint.

Most airlines are now re-routing flights to avoid Iran-controlled airspace over the Strait of Hormuz and Gulf of Oman after the Federal Aviation Administration barred U.S. carriers from the area until further notice.

It is clear the sanctions imposed on Iran following the U.S. withdrawal from the 2015 nuclear accord have done a number on Iran’s economy.

Meanwhile, some Defense Department officials were surprised at Iran’s ability to target and destroy the high-altitude American drone.

The Pentagon offered few details on the drone’s location.

The danger now is that Iran receives mixed messages that convey uncertainty and lack of resolve, which might encourage some in Tehran to push back at the Americans even harder.

Well this morning, President Trump tweeted the following, later echoing it in an interview with NBC News from the White House:

“President Obama made a desperate and terrible deal with Iran – Gave them 150 Billion Dollars plus 1.8 Billion Dollars in CASH!  Iran was in big trouble and he bailed them out. Gave them a free path to Nuclear Weapons, and SOON.  Instead of saying thank you, Iran yelled....

“....Death to America.  I terminated deal, which was not even ratified by Congress, and imposed strong sanctions.  They are a much weakened nation today than at the beginning of my Presidency, when they were causing major problems throughout the Middle East.  Now they are Bust!....

“....On Monday they shot down an unmanned drone flying in International Waters.  We were cocked & loaded to retaliate last night on 3 different sights when I asked, how many will die.  150 people, sir, was the answer from a General.  10 minutes before the strike I stopped it, not....

“....proportionate to shooting down an unmanned drone.  I am in no hurry, our Military is rebuilt, new, and ready to go, by far the best in the world.  Sanctions are biting & more added last night.  Iran can NEVER have Nuclear Weapons, not against the USA, and not against the WORLD!”

Every single expert says that the president is apprised of the potential casualties in any strike of this kind on the first slide of the power-point presentation.  Something doesn’t add up.

David Ignatius / Washington Post

“The most important variable in the current Persian Gulf confrontation is time.  The Trump administration wants to play a long game, to draw the sanctions tourniquet ever tighter.  Iran needs to play a short game, to escape the U.S. chokehold before it becomes fatal.

“This inner dynamic helps explain the past month’s events in the gulf – Iran’s steady escalation of deniable strikes and President Trump’s relatively restrained military response.  Each side has a different playbook, dictated by its interests, resources and ability to sustain operations.

“Both nations tiptoed closer to the edge Thursday, as Iran shot down an RQ-4 Global Hawk drone near the Strait of Hormuz.  Trump tweeted, ‘Iran made a very big mistake!’ but the United States didn’t initially take any overt military action.

“Here’s the danger ahead: Iran probably can’t break out of this squeeze play without creating a larger crisis that forces international intervention – perhaps an Iranian attack that kills Americans and triggers a harsh U.S. retaliation. The Trump administration doesn’t want such a war – at least, not yet – because officials know that with every day of sanctions, Iran becomes weaker.

“But how does this end, if not in conflict? That’s the troubling question for strategists in Washington and abroad. The United States has offered negotiations (but not yet sanctions relief) through Japanese Prime Minister Shinzo Abe; Iran’s supreme leader, Ayatollah Ali Khamenei, spurned the offer.  In accepting international mediation to end the Iraq-Iran War in 1988, Khamenei’s predecessor, Ayatollah Ruhollah Khomeini, may have drunk what he called ‘the cup of poison.’  But Khamenei refuses, so far.

“When we examine the inner logic of the confrontation, the surrounding events become more comprehensible.  Each side appears to be behaving rationally, hoping to obtain its goals without the broad military conflict that neither wants. That’s mildly reassuring, but the danger of miscalculation remains huge....

“When you recognize that Trump is seeking to play a long game, some of the zigzag oddities of his policy come into focus.  In the run-up to Abe’s failed mediation mission to Tehran, Trump spoke ceaselessly of Iran’s supposed enthusiasm for talks; he was chumming the water.  After last week’s attacks on two tankers, Trump called the incidents ‘very minor.’  Similarly, his one-sentence tweet after the drone shoot-down was relatively restrained, and he later said it made a ‘big, big difference’ that the plane wasn’t piloted.

“We’ll see, but for now Trump doesn’t seem to want a shooting war; he’s already waging a quite successful economic one, probably supplemented by covert actions in cyber and other domains.

“Every time Secretary of State Mike Pompeo is asked publicly about an exit ramp in this crisis, he repeats that Iran should accept his 12-point list of demands, which amount to halting all nuclear development and proxy actions in Yemen, Syria, Iraq, Lebanon and Afghanistan.  Basically, it’s a call for capitulation.  Pompeo might settle for a smaller slice of Iranian humiliation, but why should he, when time is working in his favor?

“Trump says he isn’t seeking regime change in Iran. But frankly, it’s hard to see another way that this confrontation will end – unless Khamenei decides to take a gulp from that cup of poison.

“This is a war that would be entirely unnecessary and would have very damaging consequences for Iran, the United States and the region. But there’s an ironclad illogic at work here, and the internal dynamics of U.S. and Iranian policy are pushing us closer to the brink.”

Patrick Tucker / Defense One

“Wednesday’s downing of a U.S. drone by Iran’s Revolutionary Guard exposes a weakness in U.S. operations. The United States has some of the world’s most sophisticated drones for intelligence, surveillance, and reconnaissance.  But they were designed for past wars, for  use against insurgent forces such as ISIS or the Taliban that cannot track and destroy high-flying aircraft.  Iran and other potential adversaries, by contrast, have radar and missiles that can turn some of the U.S. military’s most important drones into expensive, conspicuous targets.

“Officials with U.S. Central Command confirmed Thursday morning that the Iranian military had shot down a BAMS-D RQ-4A Global Hawk, an incredibly sophisticated drone that can carry a suite of sensitive and powerful sensors up to 55,000 feet on missions that can last 24 hours.  At $130 million apiece (or $220 million, including research and development costs), it’s more expensive than the F-35 Joint Strike Fighter, which costs around $90 million apiece these days.  Its single turbofan pushes it to speeds around 400 miles per hour on a 131-foot wingspan that affords long dwell times – and is easily spotted on radar....

“A representative from U.S. Central Command declined to confirm the missile type, but did say that Iran did not use its most sophisticated air-defense system, the Russian-made S-300, in the engagement.

“In other words, the U.S. military lost one of its most advanced intelligence drones to a mediocre radar and missile.  That reflects a lack of suitable next-generation drones to carry out important intelligence and reconnaissance missions against adversaries with actual air defenses....

“The capability gap visible in Wednesday’s engagement over Iran will be even more obvious when the U.S. military has to conduct intelligence operations that aggravate China.

“ ‘If the U.S. eventually loses conventional military superiority to China, and capabilities surrounding AI are the reason, we may look back at the Navy’s decision to shelve the X-47B and replace it with the MQ-25 (drone tanker) as the canary in the coal mine,” (political-science professor at the University of Pennsylvania Michael C.) Horowitz said.  ‘The Navy chose not to invest in a next generation, faster, stealthier drone, instead spending their resources on an air to air refueling drone to extend the range of the F-35.’

“The United States is now beginning to see the real costs from those decisions, and they are rising.”

Saudi Arabia: The Senate voted to block the sale of billions of dollars of munitions to Saudi Arabia on Thursday, in a sharp rebuke of the Trump administration’s attempt to circumvent Congress to allow the exports by declaring an emergency over Iran.

Republicans joined Democrats to register their growing anger with the administration’s use of emergency power to cut lawmakers out of national security decisions, as well as the White House’s unflagging support for a Saudi regime that the UN announced this week could be directly involved in the killing last October of journalist Jamal Khashoggi.

The UN report published on Wednesday notes that moments before Khashoggi was killed and dismembered, two of his suspected murderers waiting at the kingdom’s Istanbul consulate fretted about the task at hand.

Will it “be possible to put the trunk in a bag?” asked Maher Mutreb, a Saudi intelligence officer who worked for a senior adviser to the crown prince, Mohammed bin Salman.  “No.  Too heavy,” responded Salah al-Tubaigy, an Interior Ministry forensics doctor who would dismember and dispose of the body, according to the report.

The UN is calling for MBS and other senior Saudi officials to be investigated over their culpability, the report relying on recordings and forensic work conducted by Turkish investigators and information from the trials in Saudi Arabia of Mutreb and 10 others.

Egypt: Mohamed Mursi, a leader of Egypt’s Muslim Brotherhood who became president after Hosni Mubarak was toppled, and then three years later was deposed himself and placed under arrest, accused of various crimes including inciting violence, bringing him a life sentence, collapsed in court and died on Monday.

China: As noted above, one of the issues President Xi Jinping could bring up in a meeting with President Trump at the G20 summit is Taiwan, with Beijing upset over potential arms sales to Taipei, though the administration is split over the potential repercussions the deal may have on efforts to reignite trade talks with China.

Vivian Salama had the following anecdote in the Wall Street Journal this week.

“Beijing was already furious over a law signed by Mr. Trump that encourages the U.S. to send senior officials to Taiwan to meet Taiwanese counterparts and vice versa.  Mr. Trump got word that a State Department diplomat, Alex Wong, had traveled to Taipei, Taiwan’s capital, to communicate the Trump administration’s commitment to closer ties with the island.

“Trump sounded off to his aides.

“ ‘Who the f--- is this guy?’ he lashed out, referring to Mr. Wong, and questioned what U.S. diplomats were doing in Taiwan, according  to a person with direct knowledge of the discussion.  The president requested that no American diplomats travel to Taiwan while he is working on a deal with China.

“Mr. Wong serves as deputy assistant secretary for North Korea in the Bureau of East Asian and Pacific Affairs.  He is also the deputy special representative for North Korea.  While in Taipei in March last year, Mr. Wong communicated America’s strong U.S. commitment to Taiwan and described the island as an inspiration to the rest of the Indo-Pacific region.”

Oh brother.

Regarding Hong Kong, the protest movement shifted focus Friday to the territory’s embattled police force after thousands of demonstrators surrounded the department’s headquarters, signaling no end to the conflict that last Sunday drove two million to the streets.

The latest standoff, which will now carry over through the weekend, comes a day after student groups demanded Hong Kong’s Chief Executive Carrie Lam fully retract an extradition bill that many view as a direct threat to the city’s autonomy and for her to open an independent investigation into police conduct during a violent protest June 12 against the proposed legislation.

Lam pulled the bill, which would have allowed Hong Kong to send people to China for trial, on Saturday.  Then at a news conference on Tuesday, she issued a public apology that was widely panned by critics because she didn’t come out and say the legislation was being pulled permanently.

“I personally have to shoulder much of the responsibility (for the protests that have rocked the territory).  This has led to controversies, disputes and anxieties in society,” she said.

“For this I offer my most sincere apology to all people of Hong Kong.”

Asked by a reporter why she had neither resigned nor withdrawn the bill, as demanded by protesters, she said the fact that the bill was suspended last week showed she was listening.

Lam responded that unless the government was able to address concerns about the proposed laws “we will not proceed with the legislative exercise again.”

Which is hardly an actual withdrawal.  And so the protests continue.                                

Editorial / Washington Post

“Mr. Xi ought to realize that the Hong Kong protests are tangible evidence that Chinese people can and do understand democracy, and do not have to live in an authoritarian straitjacket.  Just look at Taiwan. He should see that China would reap greater rewards from an open and prosperous Hong Kong than if the city-state were transformed into a sulking, embittered prisoner of Beijing.  However, this would require Mr. Xi to finally shake off the ghosts of Tiananmen and the party’s dread of freedom of expression, assembly, press, conscience and movement.  His record unfortunately suggests that he is more likely to wait until things calm down and then try again, gradually suffocating Hong Kong in the bosom of China’s unfreedom. Already, Beijing has tried to wave away the protests with the old canard that it is foreign meddling.

“Hong Kong enjoys special economic status with the United States under a 1992 law that recognizes that it is different from China. This offers leverage for the Trump administration and Congress to urge China to let Hong Kong breathe, or risk losing the benefits.  But the next move is up to China’s leaders.  They should listen to the footfalls on the streets of Hong Kong.”

North Korea: President Xi Jinping wrapped up his first state visit to North Korea on Friday, holding talks with Kim Jong Un.

“The supreme leaders have exchanged wide-ranging opinions on important international and regional issues under the serious and complex changes in the international and regional situation,” the state-run Korean Central News Agency said.

“[The two leaders said] strengthening the bilateral relationship would come in line with realizing the common interests of the two countries, as well as ensuring regional peace, stability and development,” KCNA said.

According to Chinese state broadcaster CCTV, Xi pledged to help North Korea meet its “security and development needs” and play a constructive role in denuclearizing the Korean peninsula.

What seems readily apparent is that Xi pledged to offer economic aid and re-engagement with North Korea.  Tourism, which is exempted from UN sanctions and is North Korea’s only cash cow under the international sanctions regime, is one area in which Beijing can promote stability, with Kim repeatedly emphasizing the development of various “tourist zones” as part of his plan to rebuild the country.

Russia: The New York Times reported that the United States is stepping up digital incursions into Russia’s electric power grid in a warning to President Vladimir Putin and a demonstration of how the Trump administration is using new authorities to deploy cybertools more aggressively, according to officials responsible.

“Advocates of the more aggressive strategy said it was long overdue, after years of public warnings from the Department of Homeland Security and the FBI that Russia has inserted malware that could sabotage American power plants, oil and gas pipelines, or water supplies in any future conflict with the United States....

“The administration declined to describe specific actions it was taking under the new authorities, which were granted separately by the White House and Congress last year to United States Cyber Command, the arm of the Pentagon that runs the military’s offensive and defensive operations in the online world.”  [David Sanger and Nicole Perlroth / New York Times]

In response to the report, Russia said it was blocking the attempted intrusions.

Meanwhile, President Putin’s ratings have been falling, from a record high of almost 90 percent in 2015 to 64 percent today, due in no small part to a highly-controversial decision to raise the retirement age to 65 from 60 for men and to 60 from 55 for women, a deeply unpopular move that has further upset the people after six years of falling real incomes.

In his annual televised question and answer session, Putin said low living standards, low wages, poor healthcare and worries about how rubbish was being disposed of were now the most acute problems for Russians.

Putin’s term doesn’t end until 2024.

Finally, international prosecutors on Wednesday said that four men, including three with close ties to the Russian military and intelligence, would face murder charges in the downing of Malaysia Airlines Flight 17 over Ukraine five years ago, killing 298 people.

Fred Westerbeke, the chief prosecutor of the Netherlands (which had 193 of the victims), said that the trial would begin in the country in March 2020, though the accused are unlikely to be present, since three are in Russia and the fourth is believed to be in the breakaway region in Ukraine.

The charges were based on a lengthy investigation conducted by officials of five countries affected by the disaster – the Netherlands, Malaysia, Ukraine, Belgium and Australia – which expands on earlier reports about the Russian hand in the separatist faction in eastern Ukraine that has been fighting a civil war against government forces.

Georgia:  Dozens of people were hurt in clashes as protesters tried to storm Georgia’s parliament after a Russian MP took the speaker’s seat in parliament.

Riot police stopped them from entering the building, the anger erupting when Sergei Gavrilov addressed an assembly of MPs from Orthodox Christian countries.

Tensions with Russia have remained high, 11 years after the two fought a war over the breakaway region of South Ossetia. 

Georgian President Salome Zourabichvili condemned Gavrilov’s action as a “major crime” and appealed for calm.

Gavrilov blamed the clashes on “fake news” in which he had been wrongly accused of fighting against Georgia in the early 1990s.

But opposition MPs in Georgia’s pro-Western parliament called for the protests in response to Gavrilov’s decision to deliver a speech from the speaker’s seat.  Further, he addressed delegates in Russian.

So the protesters are calling on the Speaker and other officials to resign.  Many of the estimated 10,000 were carrying EU flags and placards reading “Russia is an occupier.”

Which they are.  Go Georgia!

Argentina: Nearly the entire country, as well as parts of Uruguay and Paraguay, were hit by a massive power failure on Sunday that lasted for hours, the cause unknown, though authorities in Argentina said it was unlikely that  a cyberattack was responsible.

We’re talking trains, traffic signals, elevators...everything.  Thankfully in the case of something like an elevator, the outage wasn’t much longer than it was.

The blackout occurred as people in the country were preparing to go to the polls for local elections.

Random Musings

--Presidential tracking polls....

Gallup: 43% approval for President Trump, 55% disapproval (June 3-16), 89% Republicans, 37% independents.
Rasmussen: 49% approval, 49% disapproval (June 21).

--In a national NBC News/Wall Street Journal poll, overall, 27 percent of Americans say there’s enough evidence to begin impeachment hearings now – up 10 points from last month.

Another 24 percent think Congress should continue investigating to see if there’s enough evidence to hold impeachment hearings in the future, which is down eight points.

And 48 percent believe that Congress should not hold impeachment hearings and that Trump should finish out his term – unchanged from a month ago.

48 percent of Democrats want impeachment hearings now, versus 30 percent who said this a month ago.

Just 6 percent of Republicans support beginning impeachment hearings now, while a whopping 86 percent say Trump should finish his term.

The NBC/WSJ survey also found that 44 percent of Americans approve of the president’s job performance – down from 46 percent last month.  53 percent disapprove.

Only 37 percent of independents approve of the president’s performance, 36 percent of women, and 17 percent of African Americans.

Separately, on an important issue for 2020, in this survey a combined 56 percent say abortion should either be always legal or legal most of the time – essentially unchanged from March 2018.  41 percent think it should be illegal with or without exceptions.

--In a new Fox News poll, President Trump’s approval rating stands at 45 percent vs. 53 percent disapproval.  It was 46-53 last month and 45-51 a year ago (June 2018).

Among Republicans, 89 percent approve of Trump’s performance, matching a previous high.

One interesting side note to this Fox survey (aside from what follows in Daniel Henninger’s column), is 50 percent say the administration has gone too far on immigration enforcement, while only 24 percent say it has not gone far enough.

--In an early look at the 2020 presidential race in Florida, former Vice President Joseph Biden leads Donald Trump 50-41, according to a Quinnipiac University poll released Wednesday.

Bernie Sanders leads Trump 48-42.

Biden leads 58-34 among women, while men go 49 percent for Trump and 42 percent for Biden.

Trump leads among white voters (again, this is just Florida) 52-42, while Biden leads 79-9 percent among black voters and 57-32 among Hispanics.

Republicans back Trump 90-7 percent.  Biden leads 91-3 percent among Democrats and 54-32 percent among independents.

Florida voters say by a 62-32 margin that Congress should not begin the process to impeach Trump, though Democrats support impeachment 64-28 percent.

Among Florida registered Democrats, Biden leads the pack with 41 percent, Sanders 14 percent, Elizabeth Warren 12 percent and 8 percent for Pete Buttigieg.

--In a CBS News Battleground Tracker poll of Democrats in states expected to hold early nominating contests, they want their party’s candidates to talk about defeating President Trump in 2020 (69%) – not trying to impeach him now (31%).

What Democrats want to hear the candidates talk about is health care, which helped Democrats win the House in 2018.  More specifically, 77% of Democrats in these early states* say they must hear a candidate’s proposal on lowering health care costs in order to vote for them.  More than six in 10 voters say they also must hear a candidate’s plans for reducing global warming, protecting abortion rights and enacting more gun control

*Alabama, Arkansas, California, Colorado, Georgia, Iowa, Massachusetts, Minnesota, Nevada, New Hampshire, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Utah, Vermont and Virginia.

In specific early states, Biden leads in Iowa with 30%, Sanders 22%, Warren 12% and Buttigieg 11%.

In New Hampshire, Biden 33%, Sanders 20%, Warren 17%, Buttigieg 10%.

In South Carolina, Biden 45%, Sanders 18%, Warren 8%, Harris 7%, Bittigieg 6%.

In all of the above early states, Biden leads with 31%, followed by Warren 17%, Sanders 16% and Harris 10%.

--Daniel Henninger / Wall Street Journal

“At President Trump’s Orlando, Fla., ‘megarally’ announcing his re-election campaign, some of the attendees, who came from all over the U.S., said they had been to more than four dozen such rallies.  Mr. Trump’s rallies are beginning to resemble Phish concerts.  Phish is the cult rock band whose fans will go anywhere, anytime to hear them play.

“Mr. Trump in concert makes a lot of claims for himself – I especially enjoyed Tuesday evening’s self-comparison to George Washington – but no one can dispute that the intensity of his presidential fan base is unmatched in our lifetime.

“So why is he 10 points or more behind ‘Sleepy Joe Biden’ in most head-to-head polls?  The observable intensity of Mr. Biden’s support is nowhere near the scale of Mr. Trump’s....

“On Monday, the president bashed the just-released Fox News poll, which put Mr. Biden in front nationwide by 10 points.  ‘Fox News Polls are always bad for me,’ Mr. Trump tweeted.  ‘Something weird going on at Fox.’  I thought something quite interesting was going on inside that Fox poll, down in the details that don’t get much attention.

“Among Democratic primary voters, Mr. Biden holds his familiar double-digit lead over Bernie Sanders, Elizabeth Warren, Pete Buttigieg and Kamala Harris.

“A little further down, Fox asked these Democratic voters whether they wanted ‘steady, reliable leadership’ or a ‘bold, new agenda.’  Steady and reliable crushed bold and new by 72% to 255.

“Anyone consuming the media every day the past year would have concluded that the Democratic left’s ‘bold, new agenda’ has taken over the Democratic Party lock, stock and barrel.  Most of their presidential candidates obviously thought so.

“How else to explain why Sens. Warren, Harris and Cory Booker instantly saluted Bernie Sanders’ socialized medicine or, even more incredibly, the antic Alexandria Ocasio-Cortez’ multitrillion-dollar Green New Deal?  Recall how Nancy Pelosi, whose 70-something sense of political smell is still more acute than her juniors’, called it ‘the green dream, or whatever.’

“In fact, when Fox asked these Democrats what they most wanted from their candidate, 74% chose ‘unite Americans’ against just 23% who want to ‘fight against extreme right-wing beliefs.’  Looks like there’s a silent majority inside the Democratic Party, unmoved by the propaganda of social media.

“These are the parts of the Fox poll, surfacing a nostalgia for steadiness and unity, that should upset the Trump campaign, not Mr. Biden’s 10-point lead 16 months before the election....

“Donald Trump rocked a political boat that needed rocking, in the U.S. and overseas. The question now is whether the up-for-grabs voters who will decide this election – independents and suburban Republicans – are exhausted from the nonstop rocking of public life today.  Joe Biden is promising people a timeout, if little else....

“Mr. Trump should win... Still, he spent the first 20 minutes of his Orlando rally attacking enemies, followed by nearly an hour of bellowing.  It’s a rich mixture, and may have become just too much for enough voters to give Mr. Biden an opening.

“Joe Biden is offering a return to normalcy...

“The Democratic left abhors Mr. Biden’s steady-Eddie candidacy.  Progressives want big change of the sort Sens. Warren and Sanders are promising.  ‘Together,’ says Mr. Sanders, ‘we can transform society.’  But if these polls are right, after four years of Donald Trump the prospect of being force-fed daily doses of Elizabeth Warren or Bernie Sanders is unthinkable for a lot of people.

“Which suggests a footnote: If Mr. Biden self-destructs, the likely beneficiary could be bright, inoffensive Pete Buttigieg, the mayor from ‘Our town,’ whose improbable but steady rise is perhaps not so mysterious after all.”

--Joe Biden ignited a fire around his presidential campaign on Tuesday when, speaking wistfully of a time in Washington when he could work civilly with conservatives, including arch-segregationist Sens. James Eastland of Mississippi and Herman Talmadge of Georgia.

“He never called me boy, he always called me son,” Biden said at a fundraiser, referring to Eastland.

And while Talmadge was “mean,” he said, “Well guess what?  At least there was some civility.  We got things done.  We didn’t agree on much of anything. We got things done.  We got it finished.  But today, you look at the other side and you’re the enemy.  Not the opposition, the enemy.  We don’t talk to each other anymore.”

The response from some of Biden’s fellow Democrats was swift. Sen. Cory Booker and others, such as Sen. Kamala Harris, both accused Biden of racial insensitivity.

“Vice President Biden’s relationships with proud segregationists are not the model for how we make America a safer and more inclusive place for black people, and for everyone,” said Booker.  “I’m disappointed that he hasn’t issued an immediate apology for the pain his words are dredging up for many Americans.  He should.”

When Biden was told of Bookers comments and asked whether he should apologize, Biden said, “Why should I?  Cory should apologize.  He knows better.  There’s not a racist bone in my body.  I’ve been involved in civil rights my whole career.”

Kamala Harris said, “If those men (the segregationists) had their way, I wouldn’t be in the United States Senate and on this elevator right now,” she said.

But black lawmaker House Majority Whip James Clyburn (D-S.C.) came to Biden’s defense, nothing that he worked with Sen. Strom Thurmond of South Carolina, a staunch segregationist for much of his career, “all my life.”

“You don’t have to agree with people to work with them,” Clyburn said.

So is Biden plain tone deaf, or is this just part of his argument that he is uniquely qualified to be president – having the skill to strike deals and work on a bipartisan basis, which is something that a large segment of the American population would desire these days.

Others say it’s admirable that Biden wants to work with those on the other side of the aisle, but that such bipartisanship these days is impossible.

An NPR/PBS/Marist poll earlier this year found that 63% of Americans, including 70% of Democrats, said they liked elected officials with whom they disagree.  Less than a third said they liked officials who only stick to their positions.

Biden acknowledged the skepticism that he could be a deal maker in today’s environment.

“I know the press is, wants to say, ‘There’s nothing can be done, that Biden’s thinking in the past...it can’t happen again,” he said at the New York fundraiser.  “Well, folks, if that’s true, we’re finished. We’re in deep, deep trouble.”

--This is too much.  After a year-and-a-half in office, a third of New Jerseyans couldn’t tell you that Phil Murphy is their governor, according to a Fairleigh Dickinson University Poll of 802 residents.  But 67 percent of people who told FDU they knew their governor might actually be overstating it.  FDU let people off the hook if they said William Murphy or Bill Murphy.

Of course Murphy followed high-profile Chris Christie, who served two terms and certainly was well known, if deeply disliked by the end.

--Dominican Republic health officials lashed out Wednesday at the recent reports exposing the deaths of American tourists visiting their country, calling them “fake news” with the intent to derail the country’s tourism industry.

“It’s all a hysteria against the Dominican Republic, to hurt our tourism, this is a very competitive industry and we get millions of tourists, we are a popular destination,” Carlos Suero, a spokesman for the Ministry of Public Health told Fox News.  “People are taking aim at us.”

Suero acknowledged the FBI is testing alcoholic beverages from the resorts where the deaths have originated but that the government’s tests have come back negative.

The number of tourists reportedly dying under mysterious circumstances is now nine, some after consuming booze from their hotel room minibars.

--I watched an interview on Fox News, conducted by Ed Henry, with a Parkland, Fla., student who survived the 2018 mass shooting and went on to become an advocate for gun rights, Kyle Kashuv, and, boy, I’m sorry, but I agree with Harvard University’s decision to rescind his admission earlier this month after his past racist remarks came to light.

Kashuv posted on Twitter that the school made the decision “over texts and comments made nearly two years ago.”

When Harvard found out through several media reports about the racist social media posts and requested a full accounting of any such statements, Kashuv said that he was part of a group that used “abhorrent racial slurs.”

“We did so out of a misplaced sense of humor: We treated the words themselves as though they bore little weight and used them only for their shock value,” he wrote.  “I make absolutely no excuse for those comments.  I said them and I regret them deeply.”

I was unconvinced by Kashuv’s interview with Ed Henry that he was worthy of a second chance in this instance.

--According to mortality statistics from the Centers for Disease Control and Prevention, the death rate for cardiovascular disease – which includes heart disease and stroke – has fallen just 4% since 2011 after dropping more than 70% over six decades.  And the death rate is actually rising for middle-aged Americans.

As the Wall Street Journal’s Betsy McKay points out, this is an under-recognized contributor to the recent decline in U.S. life expectancy.  Improvements in cardiovascular health are no longer providing a counterbalance to the increase in deaths from drug overdoses and suicides.

So despite anti-smoking campaigns, and medications to control blood pressure and cholesterol, improvements in cardio health are being swamped by an epidemic in obesity and related rise in the prevalence of Type 2 diabetes.

--A United Nations analysis found that the world’s population could surpass 10.9 billion by 2100, which is actually down from a 2017 analysis meaning declining fertility rates are likely to continue.  Experts do believe the population will hit 9.7 billion by the middle of the century, up two billion from where we are today.

The biggest population booms are expected to occur in sub-Saharan Africa, where resources are already limited.

The report also predicts India will surpass China in population in ten years.

But there are differing opinions on whether the earth can even sustain the current 7.7 billion figure.  We can’t if we don’t stop polluting our oceans...that should be a given to everyone.

--A study published in the journal Science found that in 38 out of 40 countries, people on average returned 40% of ‘lost wallets’ with no money in them but 51% of wallets with some money (up to $94).  Researchers were pleasantly surprised.

Kurt Gray, an associate professor of psychology at the University of North Carolina, Chapel Hill, who wasn’t involved in the study, said, “There’s this emphasis that money is what drives human behavior, and this paper is a beautiful, large-scale demonstration that people’s self-interest is really broader than just money.”  [Brianna Abbott / Wall Street Journal]

--Watch CNN’s film on Apollo 11 this Sunday evening.

---

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

God bless America.

---

Gold $1403
Oil $57.60

Returns for the week 6/17-6/21

Dow Jones  +2.4%  [26719]
S&P 500  +2.2%  [2950]
S&P MidCap  +1.5%
Russell 2000  +1.8%
Nasdaq  +3.0%  [8031]

Returns for the period 1/1/19-6/21/19

Dow Jones  +14.5%
S&P 500  +17.7%
S&P MidCap  +15.9%
Russell 2000  +14.9%
Nasdaq  +21.1%

Bulls 50.5
Bears  18.4

Have a great week.

Brian Trumbore

---