Week in Review

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Week in Review

05/18/2019

For the week 5/13-5/17

[Posted 11:00 PM ET]

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Edition 1,049

Last Friday, as he was leaving Washington following the latest round of trade talks, China’s chief negotiator, Vice Premier Liu He, said both sides agreed to keep talking despite what he called some “some temporary resistance and distractions,” and to hold future meetings in Beijing. 

But then Liu struck a note of defiance: “For the interest of the people of China, the people of U.S. and the people of the whole world, we will deal with this rationally.  But China is not afraid, nor are the Chinese people,” adding that “China needs a cooperative agreement with equality and dignity.”

The Global Times, a mouthpiece of the Communist Party, editorialized:

“The reason (for the escalation in tensions between the two sides) is that the U.S. has made a fundamental misjudgment, that is, believing China is unilaterally benefitting from China-U.S. economic and trade relations. They believe that as a trade war will lead to a one-sided loss by China or disproportionate losses between China and the U.S., they would easily force China to fully concede.  The U.S. has misunderstood the interests of both sides, and seriously underestimated China’s endurance.

“The misconception the U.S. has should be corrected with China’s consistent insistence on protecting its core interests.  We believe in the basic law of economics and understand the determination and strong will of Chinese society to defend our legitimate rights and interests.  We also firmly believe that because of the political system and social structure, China is in a much stronger position than other countries to weather the storm of a trade war.”

Today, China suggested a resumption of talks between the two sides was meaningless unless Washington changed course.

I have backed President Trump on his tough stance on China.  But I have learned, personally, what supreme bastards the Chinese can be.

I also have studied them for decades, and while the likes of Secretary of State Pompeo and National Security Advisor John Bolton understand how China could take the trade war in a whole different direction, such as a manufactured conflict in the South China Sea, Taiwan, or a cyberattack against U.S. interests...or, most worrisome for now, support for North Korea, I just doubt President Trump understands the blowback that it seems clear is coming.

One thing is virtually certain.  With the ban on Huawei Technologies, which I detail extensively below, China is already beginning to do what I have long argued Apple shareholders, for one, should be aware of.  At any moment President Xi Jinping and the Communist Party will play the nationalism card.  Apple is screwed.  And Boeing will be another victim, though here it will take years to play out because China isn’t ready to unveil its own in-house commercial airliner, which will of course be essentially a Boeing aircraft, the technology stolen through corporate espionage, just as Huawei has stolen its technology from companies like Apple, especially when it comes to its smartphones.

This is the way of the world.  It’s only going to get worse.  The Trump administration does understand this part, but over the long haul there is little we can do.  China will continue to steal every corporate secret it can get its hands on, not just in the U.S., but in Canada, Germany, France, Italy, the UK, Japan and South Korea...all the major industrial nations. 

In the meantime, President Trump’s overall foreign policy is a mess.  There is no strategy.  And both the president, and the nation, have the attention span of a gnat.

President Trump is fond of saying these days, with regards to the trade war with his “good friend” Xi and Co., “I love the position we’re in.”

I don’t.

Trade War, cont’d....

So the trade talks between Washington and Beijing collapsed after both sides had agreed on a time frame to gradually implement changes as they worked towards a final settlement, but then the Americans wanted to set benchmarks on specific issues so they could be certain progress was being made towards reaching the finished deal.

And then after the U.S. side had given the Chinese the text, spelling out what its obligations would have been in certain areas, China sent it back with all the details taken out.

No doubt Chinese President Xi realized that the Communist Party would look weak if it appeared they were bowing to pressure.  Changes to Chinese laws demanded by the United States would be an affront to national honor.

And/or Xi may have misread Trump and assumed he was so eager for an agreement, American negotiators would swallow the last-minute changes.

Former state department official Susan Thornton told the South China Morning Post that this had happened before in similar negotiations with China, because Beijing was particularly sensitive about details being made public which could affect perceptions of the agreement among its domestic audience.

Thornton said: “A lot of the time it has to do with sensitivity of having the document in the public domain. They do not want it to look like someone is dictating terms (to China).”

But the U.S. “certainly wants the public to see what they have got. That’s the whole point of it.”

At the same time, Thornton notes, another sticking point between the two sides related to future tariffs, with the U.S. wanting to reserve the right to impose penalties as a “motivation” to ensure the deal was being implemented.

“The Chinese said they cannot agree to any kind of deal that will let us impose tariffs and use them as an enforcement mechanism,” she said. 

Thornton added she was surprised negotiations fell apart immediately after both nations had raised expectations that an agreement would be reached, adding it was now unlikely that trade tensions between the two countries would be resolved in the foreseeable future.

Ms. Thornton is spot on with all the above.

Chinese foreign ministry spokesman Lu Kang, when asked today about state media reports suggesting there would be no more U.S.-China trade talks, said China always encouraged resolving disputes between the two countries with dialogue and consultations.

“But because of certain things the U.S. side has done during the previous China-U.S. trade consultations, we believe if there is meaning for these talks, there must be a show of sincerity,” he told a daily news briefing.

The United States should observe the principles of mutual respect, equality and mutual benefit, and they must also keep their word, Lu said, without elaborating.

President Trump tweeted:

“I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries.  Too expensive to buy in China.  You had a great deal, almost completed, & you backed out!”

On Thursday, Washington put telecom equipment giant Huawei Technologies Co. Ltd., one of China’s biggest and most successful companies, on a blacklist that could make it extremely difficult for the company to do business with U.S. companies.

President Trump declared a national emergency to protect U.S. computer networks from “foreign adversaries.”  The executive order effectively bars U.S. companies from using foreign telecoms believed to pose national security risks.

Huawei said restricting its business in the U.S. would only hurt American consumers and companies.  At the same time, the U.S. has been pressuring allies to shun Huawei in their next generation 5G mobile networks, with limited success.

The Huawei move only worsened tensions between Washington and Beijing.  Chinese Commerce Ministry spokesman Gao Feng said: “China has emphasized many times that the concept of national security should not be abused, and that it should not be used as a tool for trade protectionism.  China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms.”

For its part, Huawei, which denies its products pose a security threat, said it was “ready and willing to engage with the U.S. government and come up with effective measures to ensure product security.”  [More on Huawei below.]

This move followed President Trump’s decision on May 5 to increase tariffs on $200 billion worth of Chinese imports, from 10 percent to 25 percent, in a major escalation after the two sides were supposedly close to reaching a deal.

China retaliated with higher tariffs on a revised list of $60 billion worth of U.S. products.

Trump has threatened to launch 25% tariffs on another $300 billion worth of Chinese goods.

China has said it would not bow to pressure, and that the United States should not underestimate its resolve to safeguard its interests. Beijing also said that in the case of companies like Huawei, the U.S. has moved beyond caution to paranoia.

A commentary in the Communist Party’s People’s Daily today described China’s determination to protect its national interests and dignity as being as “firm as a boulder.”

“The trade war can’t bring China down.  It will only harden us to grow stronger,” it said.

“What kind of storms have not been seen, what bumps have not been experienced by China, with its more than 5,000 years of civilization? In the face of hurricanes, the nearly 1.4 billion Chinese people have confidence and stamina.”

There is zero incentive for talks to resume at this point.  China’s stance has become more hard-line and it’s clearly in no rush for a deal.

Robert J. Samuelson / Washington Post

“The Trump administration is going about its trade war with China all wrong.  Its strategy and tactics are muddled.  If President Trump were a general watching the battle unfold, what he’d see is his troops getting slaughtered, while the enemy, though suffering casualties, was holding most of its positions.

“Trump has two goals, says Williams Reinsch, a trade expert at the Center for Strategic and International Studies (CSIS), a nonpartisan think tank.  The first is to reduce the United States’ huge goods trade deficit with China, which was $419 billion in 2018. As Reinsch notes, most economists discount the importance of this.  If the deficit declines through temporary purchases from the United States, the effect may fade with time.

“Trump’s second goal is more significant.  It is to suppress the most anti-competitive aspects of China’s state capitalism, which aims to make Chinese firms the world leaders in most high-technology industries.  These include robotics, pharmaceuticals, autonomous vehicles, biomedicine, semiconductors and others.  Here, the talks have failed.

“The United States has claimed that Beijing has rigged the competition in favor of its firms through government subsidies, the theft or coerced transfers of new technologies and outright discrimination against foreign firms doing business in China.

“Consider semiconductors as a case in point.  These are the tiny computer chips that govern virtually all digital services.

“At present, U.S. firms are the world leaders in semiconductor design and technology, accounting for roughly half of all world revenue in chip sales (46 percent in 2017), according to data from the Semiconductor Industry Association (SIA), an industry trade group.

“Other countries lag, the SIA reports.  South Korean firms are second with 22 percent of world sales, followed by companies from Japan at 10 percent, the European Union at 9 percent, Taiwan at 6 percent and China at 5 percent. The United States also has a trade surplus in semiconductors, which is the fourth largest U.S. export, behind aircraft, refined oil products and crude oil.  In 2018, the U.S. trade surplus in semiconductors was $4.5 billion, says SIA.

“But China has vowed to expand its global market share by constructing new semiconductor plants (called ‘fabs’) and embracing the latest chip-making technologies.  It’s unclear how much, if at all, China plans rely on technologies stolen or coerced from U.S. firms.  Late last year, the Justice Department indicted a Chinese firm, Fujian Jinhua, for allegedly stealing trade secrets from a major U.S. chipmaker, Micron.

“The U.S. industry fears that a surge in subsidized Chinese chip-making plants will create surplus capacity that will drive down prices and profits, putting unsubsidized foreign firms at a huge disadvantage.  That has been the pattern in older technologies such as steel, says the CSIS’s Reinsch.

“The trade negotiations have apparently made little headway in resolving these issues....

“What the United States should have done is create a global coalition of major trading countries – itself, the European Union, Japan and other advanced societies – that would negotiate limits on subsidies, coerced technology transfers and a level playing field for competition between domestic and foreign firms.  If China violated the rules and refused to join, the other countries could take action against its exports.

“But this sensible approach was virtually eliminated when Trump decided to pull out of the Trans-Pacific Partnership, a trade agreement that could have done just that.  Instead, we have a system that, through high tariffs, imposes the equivalent of a tax on American citizens to implement a trade policy that favors China.”

Gee, where have you seen that Trump / TPP decision before?  I’ve railed about it since the day he pulled out, the worst move of Trump’s presidency thus far.

Two more items on the trade front....

The United States is close to resolving a dispute over steel and aluminum tariffs with Canada and Mexico, according to Treasury Secretary Mnuchin.  Without removal of the tariffs, there is zero reason for the Mexican and Canadian parliaments to pass the U.S.-Mexico Canada Agreement (USMCA), while passage in the U.S. congress is still uncertain at this point.

Tonight, it was reported the U.S. had reached a deal with Canada to lift the tariffs in 48 hours, while it is expected the U.S. and Mexico will make a similar announcement soon.

And today, President Trump delayed an imposition of auto tariffs on foreign cars and auto parts for six months, a temporary reprieve to global automakers and their suppliers, which will primarily benefit car exporters like Germany and Japan.

But the move does not necessarily signal a final cease-fire, as Trump is likely to hold out the possibility of tariffs as he pushes for trade pacts with the European Union, Japan and potentially other countries.

The delay gives the administration until November to determine whether to impose the tariffs, which could be as high as 25 percent.

A tariff on cars and car parts would be an economically damaging escalation that provoked outcry from both industry and foreign governments.

But such opposition didn’t seem to be the reason behind the administration’s move; rather it was believed that with the trade negotiations with China, it was not the right time to pick another fight.

That said the president told a gathering of realtors at the NAR conference this afternoon that the European Union is less fair to the United States on trade than even China.

“The European Union treats us, I would say, worse than China, they’re just smaller.”

Trump World

--Editorial / Washington Post

“President Trump’s proposal to overhaul the legal immigration system by favoring educated, skilled English speakers with strong earnings prospects over relatives of current residents represents an improvement over the administration’s previous bar-the-door approach.  It also is an act of political positioning, with no pretense of bipartisan appeal.  Advocates describe it as an essential preliminary step before searching for compromise. Skeptics might see it as a cynical effort at posturing ahead of the 2020 elections, a view bolstered by typically poisonous partisanship Mr. Trump sprinkled through his introduction of the plan Thursday.

“It’s sensible of Mr. Trump to embrace a major redo of immigration policy that is not mainly about a wall – although the wall remains in his plan – nor about reducing immigration, positions he previously pushed to the delight of nativists in his base.  The blueprint attempts to forge a consensus in the Republican Party to continue the flow of legal immigration at current levels. That would be welcome, because immigrants are wellsprings of energy, ambition and pluck who have enriched this country and remain essential to its prosperity.

“But the initiative omits even passing reference to the reality of 10 million or 11 million undocumented immigrants, many of whom have lived and worked in this country for 15 years or more.  They include some 2 million ‘dreamers’ in their teens, 20s and 30s, raised in this country and as thoroughly American in values, outlook and upbringing as any of their native-born neighbors.

“The White House insists its plan is what Americans want and expect from their government and leaders; in fact, most Americans would hope for a genuine effort at bipartisan compromise.  This approach ignores Democratic priorities – and those of a clear majority of Americans who want a legal way forward for dreamers.  Senior officials insist it’s an opening bid; Democrats, ignored in the plan’s formulation, understandably have a different view.

“The plan, developed by the president’s son-in-law and senior adviser, Jared Kushner, would maintain current levels of legal immigration at about 1 million green cards, issued annually for lawful permanent residents.  That’s an improvement on Mr. Trump’s embrace two years ago of a plan to slash legal immigration by half over a decade....

“If Mr. Trump can unite his party behind the new plan, that would represent a welcome rebuff of the restrictionists.  But he also would have to shift his rhetoric from describing the United States as ‘full’ and immigrants as dangerous schemers.  He would have to stop slandering Democrats as proponents of ‘open borders.’  He would have to embrace and advocate the benefits of immigration....

“The real test is whether the Trump plan is the basis of dealmaking or just a talking point designed to win over suburban voters in swing districts.  As the president likes to say: We’ll see.”

--Turns out there was real cause for concern for President Trump when it came to his former national security adviser, Michael Flynn, and the probe into Russian interference.

Court records released Thursday night revealed previously unknown details of Flynn’s cooperation with the special counsel, Robert Mueller, that had been blacked out before last month’s release of the report on his probe.

The Flynn court record revealed Thursday shows that the fired first national security adviser helped Mueller’s investigation on at least three prongs: as the special counsel looked into interaction between the Trump transition team and Russia, WikiLeaks’ release of emails during the presidential campaign and the President’s efforts to interfere with the investigation.  Flynn also assisted the Eastern District of Virginia and prosecutors from the Justice Department’s National Security Division with a now-open case against his former lobbying partner, who allegedly worked illegally for Turkey.

According to Mueller, among the things Flynn and his lawyers provided the special counsel was a voicemail from a Trump associate to a Flynn lawyer asking for “some kind of heads up” if Flynn was planning to cooperate with the government and what he might be telling them.  That call came the same day that Flynn’s lawyers broke off their cooperation agreement with White House lawyers and just days before he took a plea deal from Mueller.

Trump responded Friday with a tweet: “It now seems (that) General Flynn was under investigation long before was common knowledge.  It would have been impossible for me to know this but, if that was the case, and with me being one of two people who would become president, why was I not told so that I could make a change?”

It was in February 2017 when Trump, in a sitdown with James Comey, asked the FBI director to “let this go” in reference to the investigation of Flynn and his inaccurate statements about his contacts with Russia.  [According to a contemporaneous memo Comey wrote of the meeting.]

By March 2017, Trump had taken to Twitter to make clear he was still behind Flynn.

“Mike Flynn should ask for immunity in that this is a witch hunt (excuse for big election loss), by media & Dems, of historic proportion!”

It went on...with Trump’s personal attorney reaching out to Flynn’s attorneys to ensure them that Flynn knew Trump has always had “warm feelings” toward his former adviser, and the attorney for Trump requested that Flynn let Trump know if he was aware of any “information that implicates the President.”  Flynn’s lawyers refused that offer, noting that they no longer were working under a joint defense agreement.

But in the end, Mueller recommended no charges on the collusion front, or obstruction.  The special counsel has also asked for the judge in the Eastern District not to sentence Flynn to prison given his substantial cooperation.

--Attorney General William Barr appointed a top Connecticut prosecutor to look into the origins of the Russia probe.

U.S. Attorney John Durham was tapped to determine if the government’s methods of collecting intelligence involving the 2016 campaign were “lawful and appropriate.”

Another investigation by the Justice Department’s inspector general into the Russia probe’s origin is expected to be done later this month or in June, Barr has said.

--Donald Trump Jr. reached an agreement with the Senate Intelligence Committee to testify in mid-June, though the time and scope are likely to be limited, and it’s a closed-door appearance.

--According to President Trump’s new financial disclosure form, revenue from several of his most high-profile properties fell last year, including a nearly $2.5 million drop at Mar-a-Lago Club, and a $1 million decline at one of his Florida golf resorts, Trump National in Jupiter.

Revenue at other golf clubs and hotels fell, according to a Wall Street Journal analysis.

But revenue at some properties climbed.  At his Turnberry golf course in Scotland, where Trump golfed last summer after visiting London, his revenue rose more than $3 million to $23.4 million in 2018. Revenue from the Trump National Doral course in Miami also rose.

And revenue from his hotel in Washington rose by about $400,000 to $40.8 million.

--Trump tweets:

“We can make a deal with China tomorrow, before their companies start leaving so as not to lose USA business, but the last time we were close they wanted to renegotiate the deal.  No way!  We are in a much better position now than any deal we could have made. Will be taking in....

“....billions of Dollars, and moving jobs back to the USA where they belong.  Other countries are already negotiating with us because they don’t want this to happen to them.  They must be a part of USA action. This should have been done by our leaders many years ago.  Enjoy!”

“Our great Patriot Farmers will be one of the biggest beneficiaries of what is happening now.  Hopefully China will do us the honor of continuing to buy our great farm product, the best, but if not your Country will be making up the difference based on a very high China buy....

“....This money will come from the massive Tariffs being paid to the United States for allowing China, and others, to do business with us.  The Farmers have been ‘forgotten’ for many years. Their time is now!”

So far, the vast majority of farmers continue to buy into this narrative, but the facts are, Chinese purchases of U.S. agricultural goods reached $19.6 billion in 2017, 14% of total U.S. ag exports, and last year fell to less than half that amount due to the introduction of the tariffs, and will fall farther still in 2019, as agriculture is among the products targeted in China’s retaliatory measures.  This week we also learned China cancelled a large order of pork from the U.S. 

Some Republican senators in the Farm Belt are also growing unhappy with the White House, such as Iowa’s Chuck Grassley.

And it’s not just soybean and pork producers who need help.  There is a widening range of farmers...and fishermen...who are being impacted.  Cherry producers, corn growers, lobstermen are getting killed, and others.

Other tweets....

“My Campaign for President was conclusively spied on.  Nothing like this has ever happened in American Politics.  A really bad situation.  TREASON means long jail sentences, and this was TREASON!”

“New Fox Poll: 58% of people say that the FBI broke the law in investigating Donald J. Trump. @foxandfriends”

On Immigration:

“The Democrats now realize that there is a National Emergency at the Border and that, if we work together, it can be immediately fixed. We need Democrat votes and all will be well!”

“Border Patrol is apprehending record numbers of people at the Southern Border. The bad ‘hombres,’ of which there are many, are being detained & will be sent home. Those which we release under the ridiculous Catch & Release loophole, are being registered and will be removed later!”

“All people that are illegally coming into the United States now will be removed from our Country at a later date as we build up our removal forces and as the laws are changed.  Please do not make yourselves too comfortable, you will be leaving soon!”

“Will the Democrats give our Country a badly needed immigration win before the election?  Good chance!”

Wall Street

The news on the economy this week was decidedly mixed, with a report on April retail sales showing a decline of 0.2% for the month, when an increase had been expected; this after March was revised up from 1.6% to 1.7%.  Ex-autos retail sales were 0.1%, also far below forecast.

And April industrial production was worse than expected, -0.5%.

But April housing starts beat estimates, 1.235 million annualized, helped by a 4.12% 30-year fixed mortgage rate these days.

The Atlanta Fed’s GDPNow barometer for second-quarter growth is just 1.2% as of this date.

Europe and Asia        

Some economic news for the eurozone (EA19).  A flash reading on first-quarter GDP came in at 0.4% vs. 0.2% in the fourth quarter, 1.2% annualized.

Germany 0.4%, 0.7% ann.
France 0.3%, 1.1% ann.
Italy 0.2%, 0.1% ann.
Spain 0.7%, 2.4% ann.
UK 0.5%, 1.8% ann.

[Separately, business sentiment in Germany unexpectedly dropped in May, which doesn’t bode well for that key economy in Q2.]

March industrial production for the EA19 was down 0.3% over February.

Inflation in the euro area for April came in at 1.7%, up from 1.4% in March.

Germany 2.1%, France 1.5%, Italy 1.1%, Spain 1.6%.

All the above courtesy of Eurostat.

In the UK, the unemployment rate hit its lowest level since 1974 in the first quarter, 3.8%, showing amazing resilience despite all the Brexit uncertainty.

Speaking of which....

Brexit: British Prime Minister Theresa May said she was confident lawmakers would want to deliver Brexit when legislation to secure Britain’s departure from the European Union comes before parliament, again, next month.

“I’m sure that when MPs come to look at that and they come to vote for that, they will recognize that we have a duty in parliament to deliver on the result of the referendum and deliver Brexit,” she told reporters in Paris on Wednesday.

But then talks between the Conservatives and Labour broke off at week’s end, while ex-Foreign Secretary Boris Johnson is the latest MP to say he will run in the Tory leadership election that follows the presumed resignation of Mrs. May at some point this summer.

Labour Party leader Jeremy Corbyn blamed what he called the government’s “increasing weakness and instability” for the breakdown in talks.

The prime minister said she would now consider putting options to MPs on Brexit that may “command a majority,” which is rather laughable, as options have been put out there before only to fail spectacularly.

Corbyn said “very little” discussion had taken place between the parties over potential options for MPs to break the deadlock.

Labour’s favored plan includes a permanent customs union with the EU, meaning no internal tariffs on goods sold between the UK and the rest of the bloc.

It also keeps the option of a further referendum on the table, giving the public a say on the deal agreed by Parliament.

But both of those scenarios are met with anger among Brexit-backing Conservatives, who claim a customs union would prevent the UK from negotiating its own trade deals around the world after leaving the EU, and who believe another public vote is undemocratic.

Next week we have the European Parliament elections, May 23-26.

In the UK, an Opinium poll for the Observer newspaper has Nigel Farage’s new Brexit Party in the top spot at 34 percent, with Labour in second at 21 percent and the Tories in fourth at 11 percent.

In a YouGov survey, the Tories were at just 10 percent, in fifth, with the Brexit Party at 34, and trailing Labour, the Liberal Democrats and the Green Party.

Meanwhile, a poll in the Daily Telegraph found the Brexit Party has overtaken the Conservatives in national polling for the first time, with Farage predicted to win 49 seats in a general election.

The ComRes survey found that if a general election campaign led by Mrs. May took place now, Labour would become the largest party by a margin of 137 seats, allowing Jeremy Corbyn to lead a minority government as the Tories fell to third place in terms of vote share.

This would be the worst result in history for the Tories, confirming the fears of Conservatives who decry Mrs. May’s handling of Brexit.

You look at the above and you can understand the calls for her dismissal...yesterday!

--German Chancellor Angela Merkel reaffirmed on Thursday that she would leave politics after serving out her fourth term, dismissing speculation that she could take a big European Union job in Brussels.

“I am not available for any further political office, regardless of where it is – including Europe,” she said at a news conference this week.

Turning to Asia...

In China: The National Bureau of Statistics released all sorts of data for April.

Industrial production was up 5.4% vs. year ago levels, less than forecast.

Fixed-asset investment (big infrastructure projects; roads, rail, airports) was up 6.1% for the period Jan.-April.

Retail sales last month rose 7.2%, the slowest pace since May 2003, and down from 8.7% in March.

Motor vehicle production fell 16% in April, with auto sales for the month down 14.6%, the tenth consecutive month of declines.

None of the above is good.

But there is one sector doing well...housing...with new-home prices in April up 0.6% over March, while the 70-city index was up 10.7% year-over-year.

Beijing has been calling on banks to ramp up lending and lower interest rates, while some local governments have been loosening restrictions on home purchases to boost economic activity.

Street Bytes

--The Dow Jones fell for a fourth consecutive week, 0.7%, which represents the longest losing streak for the blue chip average in three years!  The S&P, -0.8%, and Nasdaq, -1.3%, fell for a second straight week amid the trade uncertainties, though strong earnings from the likes of Walmart and Cisco Systems helped blunt the decline.

--U.S. Treasury Yields

6-mo. 2.41%  2-yr. 2.20%  10-yr. 2.39%  30-yr. 2.83%

The yield on the 10-year is the lowest weekly close since Dec. 2017.

The Fed made it into a Trump trade tweet this week.

“China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing.  If the Federal Reserve ever did a ‘match,’ it would be game over, we win!  In any event, China wants a deal!”

--The International Energy Agency warned on Wednesday the surplus of supply over demand that the oil market saw in the first quarter could “flip” into a deficit in the second.

In its monthly report, the IEA said “considerable uncertainty” about global supplies looms – from Iran and Venezuela, both under U.S. sanctions, to Libya, in the midst of a civil war. Attacks on shipping vessels off the coast of UAE and on two pumping stations in Saudi Arabia in recent days doesn’t help.

The IEA said that while there is no disruption to oil supplies and prices are little changed today, the IEA said the supply outlook is “confusing.”

OPEC, Russia and other allied producers have been cutting output by 1.2m barrels a day since January and these countries will gather in June to decide whether to extend their pact.

A report this afternoon from Reuters said Iranian crude oil exports have fallen to 500,000 barrels per day or lower, according to tanker data and industry sources, with the U.S. tightening the screws.  So this plays into the global supply concerns.

Where the oil is going, though, is a mystery, as the U.S. is trying to cut the total to zero, but it’s assumed the end-users are India and China.

It’s also assumed Iran will find users, despite the sanctions, for about 500,000 barrels a month for the foreseeable future.

--Walmart Inc. reported sales rose again in the first quarter, adding to over four years of sales increases as the retail giant continues to grab market share from struggling competitors, while growing online.

U.S. comp sales for stores and websites operating at least 12 months grew a solid 3.4% during the quarter ended in April, boosted by online purchases, including grocery, and a strong Easter buying season, the company announced yesterday.

Walmart said it had raised some prices as a result of tariff increases and the trade spat with China, and that merchants are working to mitigate cost increases.

The company has been shifting its strategy, significantly reducing its physical expansion plans in favor of growing online, while lowering prices where possible and adding services in physical stores such as online grocery pickup.

Walmart’s e-commerce revenue is still a small percentage of the retail giant’s overall sales and of total U.S. e-commerce sales.  But its e-commerce revenue did grow by 40% to $15.7 billion in the fiscal year ended Jan. 31 (37% in the U.S.), the company expecting it to grow 35% in the U.S. for the year.

Total revenue was up 1% to $123.9 billion, but this was dragged down by currency impact and lower international sales.  Ex-currency, revenue was up 2.5% to $125.8bn.

That said Walmart remains far behind Amazon.com in online sales, with Amazon working to build its own grocery business and shortening delivery windows.  But the company’s efforts to add more high-margin fashion and home brands to walmart.com are bearing fruit.

And Walmart announced earlier this week it was launching free next-day delivery – without a membership fee – in select markets.

Weeks after Amazon officials said they planned to offer free one-day shipping to Prime members, Walmart announced Tuesday it is adding free “NextDay” delivery in Phoenix and Las Vegas before expanding the service to Southern California “in the coming days.”

“It will roll out gradually over the coming months, with a plan to reach approximately 75% of the U.S. population this year, which includes 40 of the top 50 major U.S. metro areas,” said Marc Lore, Walmart eCommerce U.S. president and CEO, in a blog post.

The free NextDay delivery is available on eligible orders over $35 and up to 220,000 frequently-purchased items including diapers, laundry detergent, electronics and toys.  Prime costs $119 a year.

--Macy’s topped Wall Street estimates for quarterly same-store sales and profit on Wednesday, but after the shares rose a bit in early trading they fell back to nearly 52-week lows, and 50% off their high of $42.

Macy’s has struggled like its peers to adjust to a fiercely competitive retail landscape where shoppers buy more goods online at places like Amazon.

In response Macy’s has closed more than 100 stores since 2015 and cut thousands of jobs as mall traffic plummeted.

Macy’s recently said it would invest in categories where it has a strong market position such as dresses, jewelry, women’s shoes and beauty products.  Ergo, just change the name to “Marcy’s.” 

Same-store sales rose 0.7 percent for the 12 months, slightly ahead of estimates, with earnings of $136 million, compared to $139 million a year ago.

Net sales fell to $5.50 billion, in line with expectations, while the company maintained its guidance for the full year, including flat revenue.

CEO Jeff Gennette said: “Macy’s Inc. is off to a solid start this year, delivering our sixth-consecutive quarter of comparable sales growth.  We are focused on growing our customer base by providing a great experience across all channels and taking market share category by category.”

Gennette said brick and mortar sales “improved sequentially” in the quarter and the digital business grew by double digits.

--The above-noted crackdown on exports to Huawei Technologies Co. threatens to disrupt its access to critical suppliers across its businesses, from smartphones to 5G equipment, and that means pain for Silicon Valley.

Huawei has said it spent about $11 billion on U.S. components last year out of a procurement budget of $70 billion.  The company deals with the likes of Qualcomm and Broadcom for smartphone chips, Intel for cellular-tower components, and Oracle for software.  And it’s buying from smaller tech companies across the country.

The Commerce Department move to put Huawei and its affiliates on its “Entity List” on the grounds the Chinese company was acting contrary to U.S. national security and foreign policy interest, will force Huawei suppliers to apply for licenses in order to keep selling to it.  Details on the actual publication of the listing, and the extent of the export licenses are still lacking.  On the latter, they can take weeks or months for approval, according to the Wall Street Journal.

Huawei has said it has been building up inventories in the past year as insurance against a U.S. supply disruption, and it’s been working to reduce its reliance on U.S. suppliers, including the direct manufacturing of its own advanced chips and an operating system for its smartphones.

In a recent regulatory filing, Qualcomm said 2/3s of its revenue came from China, but Huawei wasn’t among a small list of companies accounting for more than 10% of its overall sales.

*Late today, there was a story the Commerce Department may scale back restrictions on Huawei, because it needs to allow time for companies and people who have Huawei equipment to maintain reliability of their communications networks, which only makes sense.

--Alibaba Group, China’s largest e-commerce company, said on Wednesday that revenue increased by 51 percent in the March quarter from the same period last year, which topped expectations, but it was still the company’s second-slowest pace of revenue expansion since early 2016.

For the full year that ended March 31, revenue also grew by more than half, though this was due in part to some recent acquisitions, which added to the sales computations.  Taking them out and sales grew about 40 percent year-over-year.

Alibaba’s enormous size makes the company vulnerable to the tariff fight with the United States, so BABA is a closely watched bellwether for consumer and business sentiment in China.

But with services ranging from commerce and food delivery to payments and travel bookings, Alibaba’s ecosystem of interconnected products and platforms has strengthened its hold on Chinese consumers and merchants across the board.

During a conference call with analysts Wednesday, Executive Vice Chairman Joe Tsai urged people to look beyond what he called “the elephant in the room;” China’s economic confrontation with the U.S.

More important, Tsai said, is the long-term increase in consumer spending by China’s middle class.

But China’s tech sector is feeling the heat.  As the New York Times’ Raymond Zhong writes:

“Leading companies have laid off workers.  Start-ups, including some that Alibaba has invested in, are struggling.  Coders are protesting long hours and unpaid overtime – a sign, industry observers say, that the years of breakneck growth and boundless optimism for Chinese tech companies are past.”

--Deere & Co. on Friday missed its quarterly profit estimates for a fifth-straight quarter and cut its full-year outlook, as the escalating trade war with China threatened to further hit farm incomes and demand for Deere’s equipment.  Shares in the company tanked 7% on the news.

Earlier this week, soybean futures fell to their lowest level in more than 10 years, which is squeezing U.S. farmers whose incomes have already been under pressure from a global grain glut.

China has been shifting its soybean purchases to Brazil because of the trade fight with the U.S.

Deere’s overall sales did total $10.27 billion for the quarter ended April 29, up over the $9.74bn posted for the same period last year.

--David Gelles and Natalie Kitroeff / New York Times:

“Weeks after the first fatal crash of the 737 MAX, pilots from American Airlines pressed Boeing executives to work urgently on a fix. In a closed-door meeting, they even argued that Boeing should push authorities to take an emergency measure that would likely result in the grounding of the MAX.

“The Boeing executives resisted.  They didn’t want to rush out a fix, and said they expected pilots to be able to handle problems.

“Mike Sinnett, a vice president at Boeing, acknowledged that the manufacturer was assessing potential design flaws with the plane, including new anti-stall software. But he balked at taking a more aggressive approach, saying it was not yet clear that the new system was to blame for the Lion Air crash, which killed 189 people.

“ ‘No one has yet to conclude that the sole cause of this was this function on the airplane,’ Mr. Sinnett said, according to a recording of the Nov. 27 meeting reviewed by The New York Times.

“Less than four months later, an Ethiopian Airlines flight crashed, killing all 157 people on board. The flawed anti-stall system played a role in both disasters.”

Aside from Boeing, the Federal Aviation Administration is also under fire for its role in approving the MAX, and its decision to wait for days after the second crash to ground the plane.

Boeing declined to comment on the November meeting. 

Separately, Boeing has said that the MAX was certified in accordance with the same FAA requirements and processes as all its previous new models, as the company attempts to shore up support across the industry.

But Southwest Airlines, American, and United Continental and other carries say they will fly the plane again only once they are sure it is safe and pilots are trained.  Some airline execs are questioning whether the flying public will trust Boeing, recognizing they will need to launch their own ad campaigns that won’t rely solely on Boeing’s outreach.

According to a Barclays PLC analysis, 44% of 1,756 people surveyed said they would wait at least a year to board a MAX.  Personally, if I had to make a decision today (after re-certification), I’d only fly a MAX if it was a U.S. carrier.

--Cisco Systems Inc. results for the most recent quarter beat the Street’s expectations, and the networking giant said it sees little impact from higher tariffs in the trade war.  Cisco is closely watched for how it has navigated the trade dispute between China and the U.S., with CEO Chuck Robbins saying the company has largely offset financial damage from tariffs by raising prices and moving contract manufacturing away from China.

Cisco said its profit in the quarter ended April 27 rose 13% to $3.04 billion, or 69 cents a share, with revenue rising 4% to $12.96 billion.  Profits were in line, while revenue was slightly ahead of forecast.

At Cisco’s core business selling switches, routers and other networking equipment to businesses, revenue rose 5% to $7.55 billion, ahead of analysts’ projected $7.46 billion.

The company guided a little higher on revenue for the current quarter, and the shares rose about 3% on the report.

--Tesla shares plunged 7.5% today to a two-year low on word it would need to upgrade its autopilot function to meet the European Union’s norms on steering of driver assistance systems, while the National Transportation Safety Board confirmed Tesla’s autopilot was engaged during a fatal March 1 crash of a 2018 Model 3 in Delray Beach, Florida.  The National Highway Traffic Safety Administration is also investigating the incident, which could have severe ramifications if it is found the autopilot requires a recall until the system is modified and validated.

--The Supreme Court on Monday allowed an enormous antitrust class action against Apple to move forward, saying that the plaintiffs should be allowed to try to prove that the tech giant had used monopoly power to raise the prices of iPhone apps.

The lawsuit is in its early stages, but successful antitrust plaintiffs are entitled to triple damages, so Apple’s exposure could be substantial.

The vote was 5 to 4, with Justice Brett Kavanaugh writing the majority opinion, which was also signed by the court’s four more liberal justices, and Justice Gorsuch writing the dissent.

Apple charges up to a 30 percent commission to software developers who sell their products through its App Store, bars developers from selling their apps elsewhere and plays a role in setting prices by requiring them to end in 99 cents.

The App Store has generated payments to developers of more than $26 billion (for 2017), with two million apps featured.

But the class-action suit focuses on the cut Apple takes, and while a resolution could be years away, a ruling against Apple and the level it hits developers would have a longer-term impact on its business strategy, as Apple has tried to shift to services and away from a reliance on sales of iPhones.  In the latest quarter, Apple’s services revenue, which includes app sales, grew 16.2 percent to $11.45 billion.

Justice Kavanaugh wrote for the majority: “The plaintiffs’ allegations boil down to one straightforward claim: that Apple exercises monopoly power in the retail market for the sale of apps and has unlawfully used its monopoly power to force iPhone owners to pay Apple higher-than-competitive prices for apps.”

--Microsoft Corp. issued an extraordinary warning that a computer bug it has now patched could be used by a cyber weapon similar to the WannaCry worm, which spread across the globe two years ago.

The bug in Microsoft’s Windows software, announced Tuesday, is one of several high-profile computer-security issues to emerge in recent weeks, including Facebook’s announcement it was patching its WhatsApp messaging application to fix a flaw that let attackers use it to install spyware on mobile phones.

Microsoft said it hasn’t seen anyone take advantage of the Windows flaw, which affects older versions of the operating system, but expects the flaw to be exploited now that it has been publicly disclosed.

The flaw affects Windows 7 and Windows Server 2008, as well as Windows 2003 and Windows XP – older versions of Windows that Microsoft doesn’t typically patch.  But, in a sign of the severity of the bug, Microsoft released XP and Windows 2003 patches as well.

Users of Windows 10 and Windows 8 aren’t affected by the flaw, Microsoft said.

WannaCry spread quickly, and infected more than 200,000 systems world-wide with ransomware – software that rendered computer systems unusable and demanded a digital ransom.  It affected the U.K.’s National Health Service, FedEx Corp. and Nissan Motor Co.

--Walt Disney Co. moved to take full control over Hulu, through a deal with Comcast Corp., ending years of joint-ownership of the streaming-service pioneer.  Hulu had four partners when it was launched in 2008, and has since emerged from being an afterthought in the streaming wars to a legitimate competitor to Netflix Inc. by expanding into live television and betting on original shows such as ‘The Handmaid’s Tale,’ a critical and commercial success.

Under Tuesday’s agreement, Comcast – Hulu’s last remaining minority stakeholder – can require Disney to purchase the one-third stake its NBCUniversal subsidiary owns in Hulu as early as 2024, the companies said.

Disney can also require NBCUniversal to sell that stake to Disney for at least $9 billion, under a guarantee that Hulu’s equity value at the time of a deal be at least $27.5 billion.  Last month, the streaming service was valued at $15 billion, when another minority shareholder, AT&T Inc., agreed to sell its stake back to Hulu.

Disney has ambitious plans for Hulu, even as it launches its own direct-to-consumer streaming service Disney+.  Disney+ is to be focused on content for families and children, while Hulu would target the adult audience.  Disney’s FX cable channel, for example, could make original content for Hulu.

Hulu’s subscriber base has grown from 6 million in 2014 to more than 25 million last year.  But the company loses money, an estimated $1.5 billion for 2019, according to Disney.

--Bayer AG shares resumed their monthslong fall on Tuesday after the company was hit by a more than $2 billion jury award over its Roundup herbicide, marking a sharp escalation in the chemical and drug giant’s legal woes.

The stock hit a seven-year low this week, after Bayer’s third Roundup court defeat in 10 months, with a California jury awarding $2.055 billion to a couple who blamed the weedkiller for causing their cancer, a significantly higher amount than the two-digit million figures Bayer is facing in previous cases.

The bad news was unfortunate in that it overshadowed some good news for Bayer this week, as the company said it reached an agreement to sell its Coppertone sunscreens for $550 million, the first in a series of measures Bayer said it was instituting in an effort to convince skeptical investors it had its drugs-to-crops business under control.

But the company has yet to have a court victory on Roundup, so its caught in a downward spiral, with each verdict that goes against it.

Bayer is appealing all of them.

--Investigators with the California Department of Forestry and Fire Protection have concluded that Pacific Gas & Electric equipment caused the devastating Camp fire that destroyed nearly 14,000 homes and killed 85 people, most of them elderly, last year.

“Cal Fire has determined that the Camp fire was caused by electrical transmission lines owned and operated by Pacific Gas and Electric located in the Pulga area,” the agency said in a news release Wednesday.

PG&E in February acknowledged that “the company believes it is probable that its equipment will be determined to be an ignition point of the 2018 Camp fire.”

The utility’s new CEO, Bill Johnson, said in testimony to state lawmakers that the company was committed to safety, which includes visually inspecting all of its equipment in areas of high fire risk, intensifying vegetation management and shutting off power in advance of dangerous conditions.

PG&E declared bankruptcy and faces scores of lawsuits, but the company received financing so it could continue to meet the power needs of its customers.  The shares barely moved in response to Cal Fire’s anticipated conclusions.

--Drivers for ride-hailing company Uber Technologies Inc. are independent contractors and not employees, the general counsel of a U.S. labor agency has concluded, in an advisory memo that is likely to carry significant weight in a pending case against the company and could prevent Uber drivers from joining a union.

Peter Robb, a general counsel appointed to the National Labor Relations Board by President Trump, said in a memo dated April 16, but just released Tuesday, that Uber drivers set their hours, own their cars and are free to work for the company’s competitors, so they cannot be considered employees under federal labor law.

Uber said in a statement it is “focused on improving the quality and security of independent work, while preserving the flexibility drivers and couriers tell us they value.”

Meanwhile, shares in Uber, which went public at $45 ten days ago, did climb off their bottom set Monday, amid the broad market swoon, when they hit $37, closing the week at $41.75.

--A painting by Claude Monet has been bought for $110.7 million, a new world record for a work by the French artist who is a favorite of your editor.

Monet completed the oil painting in 1890 as part of his Meules (Haystacks) series, depicting rural life near his home in the Normandy region.

The sale is also the first time an Impressionist painting sold for more than $100m.

Get this...this particular work was last auctioned in 1986, fetching just $2.5m.

Until then it had been in the hands of one family – who bought the piece directly from the artist’s dealer – for nearly a century.

A Sotheby’s press release said the painting is now the ninth-most expensive work ever sold at auction.  The auction house didn’t identify the buyer, who reportedly beat five other bidders at the sale in New York.

Foreign Affairs

Iran: Just what is U.S. policy on Iran today?  President Trump told his acting defense secretary, Patrick Shanahan, that he does not want to go to war, as reported by the New York Times, while Trump himself, at the White House yesterday, when asked if the U.S. was seeking war with Iran replied, “I hope not.”

But the United States has sent further military forces to the Middle East, including an aircraft carrier, B-52 bombers and Patriot missiles, in a show of force against what U.S. officials say are Iranian threat to its troops and interests in the region.

Trump apparently told officials at a meeting in the Situation Room on Wednesday, that he did not want conflict, even as American intelligence indicated Iran has placed missiles on small boats in the Persian Gulf, prompting fears that Tehran may strike at U.S. troops and assets or those of its allies.

But at the meeting, no new information was presented, and several officials said, Trump was firm in saying he did not want a military clash with the Iranians.

Clearly, there is a split in the administration between the president and national security adviser John Bolton and Secretary of State Mike Pompeo, who reports say are spoiling for a fight.

But in a tweet on Wednesday evening, the president said, “There is no infighting whatsoever.  Different opinions are expressed, and I make a decisive and simple decision – it’s a very simple process.  All sides, views, and policies are covered.”

Trump added he was confident Iran “will want to talk soon,” an openness to diplomacy not shared by Bolton or Pompeo.

A week ago, Iran notified the five remaining signatories that it would scale back some commitments under its 2015 nuclear deal, a year after Washington left the pact and reimposed sanctions on Tehran.  Tehran has asked the other signatories to help protect its economy from the sanctions.

Iranian Foreign Minister Mohammad Javad Zarif told state media today during a visit to Japan and China that the international community and remaining signatories of Iran’s nuclear deal should act to save the accord as “supportive statements” are not enough.

“Safeguarding the (nuclear pact) is possible through practical measures, and not only through supportive statements,” Zarif was quoted as saying by the state news agency IRNA.

“If the international community feels that this (nuclear) accord is a valuable achievement, then it should take practical steps just like Iran does,” Zarif said on Iranian state television.  “The meaning of practical steps is fully clear: Iran’s economic relations should be normalized.”

As for discussions with the U.S., Zarif said there was “no possibility” of them.  “The escalation by the United States is unacceptable,” he told reporters in Tokyo, according to Agence France-Presse.

So that’s the diplomatic angle.  At the same time today, the deputy head of Iran’s Revolutionary Guards said even short-range Iranian missiles could reach U.S. warships in the Gulf, and the United States could not afford a new war.

Iran has accused the United States of “psychological warfare” and Supreme Leader Ayatollah Ali Khamenei said this week Tehran would not negotiate another deal after Washington left the 2015 pact.

“Even our short-range missiles can easily reach (U.S.) warships in the Gulf,” Mohammad Saleh Jokar, the Guard’s deputy for parliamentary affairs, was quoted by Fars as saying.

“America cannot afford the costs of a new war, and the country is in a bad situation in terms of manpower and social conditions,” he added.

Separately, a political deputy of the armed forces command, Rasoul Sanai-Rad, said today: “The actions of American leaders in exerting pressure and launching sanctions...while speaking of talks, is like holding a gun at someone and asking for friendship and negotiations.

“The behavior of American leaders is a political game which consists of threats and pressure while showing a willingness to negotiate in order to present a peaceful image of themselves and fool public opinion,” Sanai-Rad said, as reported by Mehr.

Secretary Pompeo, meanwhile, has outlined 12 steps that Iran must take to satisfy the United States, Pompeo long calling for regime change in Tehran.

It was reported that the Pentagon presented President Trump with options to send up to 120,000 troops to the Middle East, if Iran attacked American forces or accelerated its work on nuclear weapons.

David Ignatius / Washington Post

“In any tense military confrontation, diplomats start looking for an ‘off ramp’ that could de-escalate tensions.  But in the current standoff between the United States and Iran, it’s hard to find any such exit route.

“The U.S.-Iran faceoff is one of those odd situations where both players appear eager to set off sparks, although neither seems to want a raging fire.  They seem comfortable in a halfway zone of conflict, where nations use force in deniable ways across different domains, hoping they don’t set off an explosion.

“The problem is that nobody in Washington, Europe or the Middle East has a convincing answer to the obvious question: What’s next?  Each side says it fears an attack by the other, but hard-liners in both capitals seem eerily ready for an exchange of blows.

“Here’s how a senior Trump administration official put it in a talk with reporters Thursday: ‘Because we are applying levels of pressure that don’t have any historic precedent, I think we can expect Iran to increase its threats to increase its malign behavior.’

“Washington and Tehran both view the confrontation through rosy lenses, tinged by ideology.

“The Trump administration sees an Iran straining to cope with punitive sanctions; White House officials are telling colleagues that in six months, the Iranian regime will have to make a deal – or face chaos in the streets.  Rather than reducing sanctions, Trump officials are talking about adding even more, affecting petrochemicals, for example.  Intelligence analysts here and abroad are skeptical about the Trump policy assumption that Iran will cave.

“The Iranians, for their part, appear to have concluded that confrontation is the only way to deal with what they see as an untrustworthy, bellicose United States.  Tehran decided a few weeks ago that waiting out the Trump administration wasn’t working.  Sanctions were squeezing too hard, and Trump looked as though he might be reelected.

“Iranian leaders then began messaging the Revolutionary Guard Corps and its proxies in Iraq and elsewhere to begin planning strikes against American targets, U.S. and European analysts believe.  This messaging, accompanied by some new Revolutionary Guard Corps shipments of missiles that could attack U.S. forces, rang the Pentagon’s alarm bell.

“President Trump sits astride the war machine with an optimistic but probably incorrect assumption that the Iranian regime will capitulate under pressure.  He doesn’t want a war with Iran (indeed, he’s somewhat allergic to war in the Middle East), but he thinks that a weak Iran will bargain for a new mega-deal that limits its nuclear options and regional meddling.  ‘I’m sure that Iran will want to talk soon,’ Trump tweeted Wednesday.

“Reality check: Ayatollah Ali Khamenei, Iran’s supreme leader, has insisted emphatically that he is not prepared to talk with the United States.  He grudgingly agreed to the 2015 nuclear deal, warning colleagues that the United States was unreliable and would renege, and he isn’t going to be fooled again.  Khamenei’s whole career is premised on the defiant logic of resistance.

“Khamenei may die or be overthrown.  But even if that happened, there’s little evidence he would be replaced with a more pliable regime – unless the United States was prepared to fight a protracted war for regime change.  So what’s Trump’s plan?  That the part that mystifies analysts in Washington and abroad.

“As independent Sen. Angus King of Maine told me this week, ‘Some of the president’s people act like they want Iran to punch America in the nose, so we can hit them with a baseball bat.’....

“(There’s no sign the two sides are ready to talk), yet.  Instead, each wants to make the other feel more pain – softening them up for what hard-liners expect will be later concessions.

“As Gen. David Petraeus famously said during the invasion of Iraq in 2003: ‘Tell me how this ends.’”

Today, President Trump tweeted:

“With all of the Fake and Made Up News out there, Iran can have no idea what is actually going on!”

“The Fake News Media is hurting our Country with its fraudulent and highly inaccurate coverage of Iran.  It is scattershot, poorly sourced (made up), and DANGEROUS.  At least Iran doesn’t know what to think, which at this point may very well be a good thing!”

Mr. President, you sent a carrier group into the Gulf.  That’s not Fake News.

Iraq: This week the U.S. State Department ordered the pull-out of all non-essential personnel from both the U.S. embassy in Baghdad and its consulate in the city of Erbil in Kurdistan, the embassy said in a statement.

“Normal visa services at both posts will be temporarily suspended,” it said, recommending those affected depart as soon as possible.

The U.S. military reaffirmed concerns about possible imminent threats from Iran to its troops in Iraq, although a senior British commander cast doubt on that and Tehran has called it ‘psychological warfare.’

Maj. Gen. Chris Ghika, who is deputy commander of the American-led coalition fighting the Islamic State, said, “There has been no increased threat from Iranian-backed forces in Iraq or Syria.”

British foreign secretary Jeremy Hunt said his nation was worried about the risk of accidental conflict “with an escalation that is unintended really on either side.”

Intelligence and military officials in Europe have said most of the aggressive moves in the region have originated in Washington, not Tehran.

But Iraqi Prime Minister Adel Abdul Mahdi said on Tuesday that he was getting indications from talks with both the United States and Iran that “things will end well,” despite the rhetoric.

Saudi Arabia: The Saudis accused Iran of ordering an attack on Saudi oil pumping stations that Yemen’s Iran-aligned Houthi militia has claimed responsibility for.  The attack “proves that these militias are merely a tool that Iran’s regime uses to implement its expansionist agenda,” tweeted Prince Khalid bin Salman, a son of King Salman.  “The terrorist acts, ordered by the regime in Tehran, and carried out by the Houthis, are tightening the noose around the ongoing political efforts.”

The Houthis, which have been battling a Saudi-led military coalition in Yemen for four years, said they carried out Tuesday’s drone strikes against the East-West pipeline, which caused a fire but Riyadh said did not disrupt output or exports.

Other Saudi officials have been racheting up pressure on the kingdom’s arch enemy as tensions escalated between Washington and Tehran

Saudi Minister of State for Foreign Affairs Adel al-Jubeir tweeted: “The Houthis are an integral part of the Revolutionary Guard forces of Iran and follow their orders, as proven by them targeting installations in the kingdom.”

The drone attack happened two days after four vessels, including two Saudi oil tankers, were damaged by sabotage off the coast of the UAE.  The UAE has not blamed anyone for that incident, with Iran distancing itself from them.  But U.S. officials believe Iran encouraged the Houthis or Iraq-based Shiite militias to carry out the attack.  At last report, however, the U.S. apparently has no direct evidence that Iranian personnel played any operational role.

China: According to an annual report to Congress by the U.S. Defense Department, Beijing is gearing up its efforts to reunify the self-ruled island of Taiwan, but might lack the core assault landing capabilities to conquer the island.

Among the options for China listed in the report is a blockade to cut off Taiwan’s imports, accompanied by large-scale missile strikes and the occupation of offshore islands like Quemoy and Matsu.

An air and missile attack might aim to destroy important military and communications infrastructure, while a full-scale invasion might start at northern and southern points along the west coast, according to the Pentagon.

As for Taiwan, the report says it is having significant problems in recruiting sufficient military personnel, while facing “considerable equipment and readiness challenges.”

But as some experts told the South China Morning Post, China currently has inadequate sealift capabilities and an inability of its amphibious forces to work in concert with other services.

Under the Taiwan Relations Act, the United States is bound by law to help defend the island.

Separately, Taiwan’s legislature this week became the first in Asia to legalize same-sex marriage.

North Korea: Pyongyang admitted Wednesday it was suffering its worst drought in 37 years, adding to a food crisis that the UN said would worsen in coming months without urgent outside aid.

The country has received just 2.1 inches of rain this year, the lowest level since 1982, and heavy rain was not expected until the end of the month.

A joint announcement from two UN relief agencies earlier this month had 10 million North Koreans, or 40 percent of the population, facing “severe food shortages” after the country had its worst harvest in a decade last fall.

UN sanctions imposed after the North’s fourth nuclear test in 2016 have sharply reduced the country’s exports, and with questions over its foreign currency reserves, it seems it has little to finance food imports.

Kim Jong-un continues to seek sanctions relief in return for the partial dismantlement of his nuclear weapons facilities, but none is forthcoming.

Separately, North Korea said on Tuesday the seizure of one of its cargo ships by the United States was an illegal act that violated the spirit of the Singapore summit, and demanded the return of the vessel without delay.

“The United States committed an unlawful and outrageous act of dispossessing our cargo ship,” an unnamed ministry spokesman said in a statement carried by the North’s official KCNA news agency.

“The latest U.S. act constitutes an extension of the American method of calculation for bringing the DPRK to its knees by means of ‘maximum pressure’ and an outright denial of the underlying spirit of the June 12 DPRK-U.S. Joint Statement.”

The U.S. Justice Department last week said a North Korean cargo ship known as the ‘Wise Honest’ was seized and impounded to American Samoa.  The vessel was accused of illicit coal shipments in violation of sanctions and first detained by Indonesia in April 2018.

Russia: President Vladimir Putin told Secretary of State Pompeo that he was eager to repair relations between their two countries despite sharp differences over the escalating crisis in Iran.

The two met in the resort city of Sochi, Putin saying he was reassured in a phone call with President Trump that they can rebuild ties now that the special counsel probe into Russian election meddling had concluded.

“We’ve said many times that we also want to fully restore our relations,” Putin said, echoing Trump in calling ample evidence of Russian interference in 2016 “fake.”

Putin seemed to ignore Pompeo’s earlier admonition that tampering was “unacceptable” and if repeated in 2020, U.S.-Russian relations would deteriorate to “an even worse place.”

Putin said that in his May 3 call, Trump told him that the investigation by Mueller had cleared him.  [Mueller reached no conclusion on obstruction of justice charges.]  Trump has acknowledged that in his call with Putin, he failed to mention the 2016 interference and did  not warn Putin against repeating it.

Venezuela: Another week with President Nicolas Maduro still in control, amid the failed U.S. policy to depose him.  Opposition leader Juan Guaido said last weekend he had asked his envoy to the United States to meet with Pentagon officials to “cooperate” on a solution to the country’s political crisis.  Guaido added he had received word from China that the country would join a diplomatic effort between European and Latin American countries, known as the International Contact Group on Venezuela, to negotiate an end to the crisis.

Congo: The death toll in the latest Ebola outbreak in the region hit 1,136 this week, government officials said, with doctors needing to mask their identities to avoid harassment and violence in Congo, where the epidemic is spreading at the fastest rate since it started in August – and where rampant misinformation fuels a distrust of outsiders in medical garb, as reported by the Washington Post.

There are real fears the current crisis in Congo’s north could become as lethal as the battle in West Africa against the fever from 2013 to 2016, which killed 11,310 people across three countries.

World Health Organization Director General Tedros Adhanom Ghebreyesus tweeted on May 10: “The tragedy is that we have the technical means to stop Ebola, but until all parties halt attacks on the response, it will be very difficult to end this outbreak.”

The people here are such idiots that they throw rocks at doctors who dare wear their uniforms, so now the doctors dress in street clothes and they’ve abandoned driving their distinctive SUVs through town, replaced by motorbikes that draw less attention.

Canada: It’s not gaining the attention in the U.S., but it’s a big deal up north that China formally arrested two Canadian citizens on espionage charges, five months after the pair was first detained, advancing a case seen as retribution for Canada’s arrest of a senior Huawei Technologies Co. executive.

The two Canadians, one a researcher and former diplomat, the other an entrepreneur, were first detained on national-security grounds, and now with the formal arrests, they will face trial; with the allegations carrying steep prison sentences.

Canada condemned the arrests, but Prime Minister Justin Trudeau told reporters in Paris that the arrests won’t persuade his country to release Meng Wanzhou, Huawei’s chief financial officer, who was arrested at the behest of Washington on Dec. 1.

U.S. prosecutors allege Ms. Meng took part in bank fraud to circumvent American sanctions against Iran.  She has denied the charges and is out on bail in Vancouver awaiting extradition proceedings.

Random Musings:

--Presidential tracking polls:

Gallup: 42% approval of Trump’s job performance, 52% disapproval (May 15, May 1-12 survey).  The split two weeks prior was 46-50.  90% of Republicans approve of Trump’s performance, but only 33% of Independents, down from 39% in the last survey. 
Rasmussen: 45% approval, 53% disapproval (May 17), down from 49-50 last Friday.

--According to a new Reuters/Ipsos poll, 29% of Democrats and independents said they would vote for Joe Biden, up from 24% who said so in a poll that ran in late April, days before Biden announced his bid.  Biden led the field among all major demographic groups except Millennials (ages 18-37), who favored Sen. Bernie Sanders over Biden 18% to 16%.

Overall, 13% of those polled supported Sanders, with none of the other candidates receiving more than 6%.

But it is still so early, and Biden and Sanders poll as well as they do because of voter familiarity.  That will begin to change with the first debates in July.

In a new Fox News Poll, Biden leads with 35% of Democratic primary voters (up from 31% in March), with Bernie Sanders a distant second at 17% (down from 23%).  Elizabeth Warren is next at 9%, followed by Pete Buttigieg (6%), and Kamala Harris (5%).

Biden also performs best in hypothetical 2020 matchups.  Among all registered voters, he leads Trump by 11 points (49-38), with Sanders topping Trump by 5 (46-41).

Overall, 28 percent of voters would “definitely” reelect Trump, while 46 percent would “definitely” vote for someone else.

--According to a Quinnipiac University Poll released Thursday, in Pennsylvania, Joe Biden leads President Trump 53-42 percent, with women backing Biden 60-36, while men back Trump 49-45. Biden also leads 51-37 among independent voters.

But....54 percent of Pennsylvania voters say they are better off financially today than they were in 2016, while 71 percent describe Pennsylvania’s economy as “excellent” or “good.”

--Ukraine’s top prosecutor said he hasn’t seen any evidence of wrongdoing by former Vice President Joe Biden nor his son Hunter Biden in dealings with the country.

Prosecutor General Yuriy Lutsenko said Hunter Biden and Burisma, a Ukrainian private gas company of which the younger Biden served on the board, were not the targets of investigations by his office.

He also said the former vice president didn’t act improperly when he called for the dismissal of Ukraine’s former prosecutor general, Victor Shoki, who had been investigating the company.

“ ‘I do not want Ukraine to again be the subject of U.S. presidential elections,’ Lutsenko said in an interview with Bloomberg.  ‘Hunter Biden did not violate any Ukrainian laws – at least as of now, we do not see any wrongdoing.  A company can pay however much it wants to its board.”

President Trump’s allies, including his outside attorney Rudy Giuliani, have suggested the Bidens acted inappropriately.  Giuliani had threatened to travel to Ukraine to investigate things on his own, then suddenly canceled those plans.

--New York City Mayor Bill de Blasio entered the 2020 presidential race, becoming the 23rd Democrat to join the field.  This is a farce, and New Yorkers, of both parties, are not happy he’ll be neglecting the important business of Gotham over the coming weeks and months, until he sees the light.

And understand, it’s not like the people like the dude.

In a March Monmouth University survey, de Blasio was the only candidate or potential candidate out of 23 to earn a negative rating among national Democrats, with 24 percent giving him a thumbs down while just 18 percent had a favorable view of him.

In an April Quinnipiac University Poll, 76 percent of Big Apple voters didn’t think he should run.

I can agree with President Trump on this topic. De Blasio has been a disaster for New York, plus he is still being investigated by the state’s Joint Commission on Public Ethics for corruption over a nonprofit that folded in 2016 after taking in $4.3 million to promote his pet-projects including pre-K expansion.  He ducked federal and state charges in 2017, after he was accused of handing out favors in exchange for donations to his political group.

For example, City Comptroller Scott Stringer has subpoenaed the mayor for information about a $173 million real estate deal with developers Stuart and Jay Podolsky who are represented by politically connected Brooklyn attorney Frank Carone, as reported by the New York Post, with the city paying the Podolskys $30 million above the appraised price for 21 buildings in the Bronx and Brooklyn to create more affordable housing. Carone then donated $5,000 to de Blasio’s Fairness PAC last fall.

President Trump tweeted:

“The Dems are getting another beauty to join their group.  Bill de Blasio of NYC, considered the worst mayor in the U.S., will supposedly be making an announcement for president today.  He is a JOKE, but if you like high taxes & crime, he’s your man.  NYC HATES HIM!”

--Michael Goodwin / New York Post

“America needs a true opposition party.   Instead, it has a crazed resistance movement stuck in 2016.  Consider the evidence.

“Democrats in Congress are acting like teenagers auditioning for a school play.  Rep. Jerry Nadler, finally in a starring role after decades in the shadows, is trying to gin up outrage at President Trump and Attorney General Bill Barr but his amateur theatrics bear no relation to reality.

“Nadler’s insurmountable problem is that he wants to make the report of special counsel Robert Mueller something it’s not.  If there were anything resembling a smoking gun showing collusion or obstruction, Mueller and his team of biased prosecutors would shout it from the rooftops....

“Then there’s Nancy Pelosi, the speaker who increasingly speaks incoherently.  Pelosi claims in one sentence she opposes impeachment while in the next says the party’s mad dogs should continue to hunt for something impeachable.

“Critics accuse her of wanting it both ways, but that’s too kind.  Pelosi simply doesn’t have the courage to rein in the radicals, allowing the loudest, angriest voices to seize her bully pulpit....

“Meanwhile, out on the 2020 campaign trail, Joe Biden surprisingly sits atop the party’s presidential heap....

“Color me skeptical.  Not of the polls, but of the prospect that Biden will finish on top....

“Consumed with rage and determined to drive Trump from office one way or another, (Dems) are betting on Biden only because they accept the claim he can beat Trump in a head-to-head match-up.

“In theory, anything is possible.  In reality, Biden was a disaster in his previous two bids for president and at 76 years old he’s not going to get better.  Already he’s slurring words and 18 grueling months will kick the human gaffe machine into high gear.

“More critically, the idea that he can appeal to working-class voters who put Trump in the Oval Office is a media and consultants’ fantasy....

“While Dem decisions are bad for them and good for Republicans, none of this is good for America.  Just as competition improves performance in sports and business, the nation needs two parties fighting for the same voters.

“Traditionally, that competition has forged compromise and progress. Even Trump is a more  disciplined president when convinced his freewheeling style is hurting him.

“But rather than try to convert the president’s supporters with better ideas, Dems are collapsing into a heap of nonsense-babbling Trump-haters.  Their agenda ranges from idiotic – Green New Deal, Medicare For All – to the insane idea of removing him before the end of his term.

“None of this is rational – yet they offer nothing else.

“Oh, and things are almost certain to get worse for Dems.  As Barr’s investigation of the investigators heats up, it will bolster Trump’s claim that the FBI’s 2016 investigation was at best improper and at worst a partisan bid to sway the election and then, when that failed, depose him....

“All the more reason why Dems ought to quit the resistance nonsense and turn their energies into becoming a genuine opposition party.  They can start by quietly accepting that Trump was fairly elected in 2016, then make news with constructive criticisms of his policies and credible alternatives. That would give voters a substantive contrast.

“And Dems would be practicing what they preach. They demand respect for presidential norms and the separation of powers, yet they refuse to accept Trump’s legitimacy.

“If they can’t do even that, they deserve a long exile in the political wilderness.”

--Maureen Dowd / New York Times

“When Barack Obama was elected, it felt like we were moving to a bold, gleaming future with a young, appealing president who would reposition America to deal with Asia, A.I., globalization and all the fresh challenges of the 21st century.

“But Obama’s presidency was bogged down by W.’s epic mistakes and his own professional aloofness.  The fears and ire of Americans who felt displaced and left behind intensified and metastasized across social media.  We learned the dark side of the fiendish little devices that were supposed to make our lives brighter, and the avaricious side of the lords of the cloud, who turned out to have world domination dreams that rivaled Cheney’s.

“Silicon Valley’s touted utopia helped deliver our current dystopia.

“ ‘Collectively,’ the Mueller report said, the social media accounts of the Russian troll farms and bots, pretending to be American activists, ‘reached tens of millions of U.S. persons.’

“Boosted by all the phony content on social media during the campaign, and by his own adeptness using Twitter as a saber, Donald Trump got into the White House and began yanking us back to the ‘50s – on abortion, on climate change, on women’s rights, on regulations.  Most devastatingly, he’s turning back the clock with the judiciary.

“Trump always seems like someone who walked out of a Vegas steam bath in 1959.  And now the whole country is starting to smell of moth balls.

“When the Vatican complains that you’re dragging the U.S. ‘back to the past,’ you know you’re in trouble.

“Besides Mark Zuckerberg, Trump is the most successful exploiter of social media in history – and he’s 72.

“Chris Hughes is not the perfect messenger.  He stumbled into a fortune based on a lucky roommate situation and then used it to trash the venerable New Republic magazine and help bungle a swing district for the Democrats.  But the co-founder of Facebook is correct that Zuckerberg’s unbridled power is frightening; it’s a story straight out of Mary Shelley.

“ ‘Mark may never have a boss, but he needs to have some check on his power,’ Hughes wrote in a searing Times Op-Ed piece.  ‘The American government needs to do two things: break up Facebook’s monopoly and regulate the company to make it more accountable to the American people.’

“It’s time for all our social-media-addicted dictators – in the D.C. swamp and in Silicon Valley – to have their wings clipped.”

--Abortion is going to be a massive issue in 2020.  Alabama Republican Gov. Kay Ivey on Wednesday signed into state law the nation’s most restrictive abortion ban, with a number of other states having passed similarly restrictive abortion laws as part of a broader push by anti-abortion activists.

As noted last week in this space, the Alabama measure will ban abortions in almost all cases except where a woman’s health is in danger, with those performing the procedure facing up to 99 years in prison.

Several other states – Kentucky, Georgia, Mississippi, and Ohio – have all passed laws this year banning abortion once a fetal heartbeat is detected, which can occur before many women know they’re pregnant.

And today Missouri became the latest to advance legislation aimed at limiting abortions with the passage of a bill outlawing them after the eighth week of pregnancy. The House and Senate passed it and the Republican governor is expected to sign it.

As of this writing, President Trump has yet to comment on the recent bills, but at rallies, he has repeatedly issued misleading statements on Democrats’ stance on abortion.

“Democrats are aggressively pushing late-term abortion allowing children to be ripped from their mother’s womb, right up until the moment of birth,” he said this month in Panama City, Fla.  “The baby is born and you wrap the baby beautifully and you talk to the mother about the possible execution of the baby.”

But according to the Centers for Disease Control and Prevention, between 2003 and 2014, only 143 babies were born alive after a failed abortion.  In addition, the CDC reported that just 1.3% of abortions take place after 21 weeks, which often involve either severe fetal anomalies or conditions that endanger the mother.

2020 Democratic presidential candidates are hitting back following Alabama’s action.  Several of the White House hopefuls are touting their health care programs and the need to defend the precedent set in Roe v. Wade.

The Alabama bill doesn’t go into effect for six months and in the interim opponents have vowed to challenge the measure, with it being likely a lower court would block it.  But those backing the bill want it to get to the Supreme Court, hoping the justices will use the case to reconsider the central ruling in Roe, now that Justices Kavanaugh and Gorsuch have the high court.

--Separately, the U.S. is confronted by its lowest number of births in 32 years, according to provisional data released by the National Center for Health Statistics. 

The total fertility rate (which represents the number of births per woman), is steadily decreasing and remains under its replacement level of 2.1 per 1,000, where it has been since 2009.

The total number of U.S. births has declined four years in a row.

--The San Francisco Board of Supervisors on Tuesday enacted the first ban by a major city on the use of facial recognition technology by police and all other municipal agencies.

Police forces across America have begun turning to facial recognition to search for both small-time criminal suspects and perpetrators of mass carnage.  But civil liberty groups have expressed unease about the potential abuse of the technology by government amid fears this could be a slippery slope leading to an oppressive surveillance state.

The law does not prohibit companies or individuals from using facial recognition cameras or other surveillance tools, or from sharing their contents with law enforcement during an investigation.

The U.S. Department of Justice said the technology is not always accurate and that implementation poses significant challenges to civil rights.

“The potential for misuse of face recognition information may expose agencies participating in such systems to civil liability and negative public perceptions,” according to a December 2017 report on facial recognition by the Bureau of Justice Assistance.  “The lack of rules and protocols also raises concerns that law enforcement agencies will use face recognition systems to systematically, and without human intervention, identify members of the public and monitor individuals’ actions and movements.”

--Back in February, when we first learned President Trump wanted to hold a Fourth of July spectacular in Washington, even though I have watched such a party on PBS since I was little tyke, I decried the move.  Needless to say, I thus agree with the following, and the stated security concerns at the bottom are a big reason why.

Editorial / Washington Post

“According to an account by Post reporters, he has ‘effectively taken charge’ of planning for the D.C. celebration. The plans apparently include moving the giant fireworks display from the traditional spot on the Mall to make room for Mr. Trump to give a speech from the steps of the Lincoln Memorial.  Unfortunately, Mr. Trump has had many opportunities to show that he could speak for and to the entire nation in such circumstances – and he has flunked each one.  On his first full day in office, he politicized a visit to Central Intelligence Agency headquarters.  He delivered a political speech at the National Scout Jamboree, of all places.  He turned an overseas presidential visit to U.S. troops into just another campaign stop.  He will hijack any event for partisan political purposes, or to stoke his ego, or both.  The Fourth of July should be a time to remember what binds us as a country, not exploit what divides us.

“(But) there are practical concerns, too.  The fireworks display on the Mall and the free concert that precedes it attract hundreds of thousands of Americans annually.  The National Park Service – coordinating with local officials, police and transit – has mastered the logistics.  Time is running short to design a new plan, and accommodating a presidential appearance, and accompanying protests, means additional layers of security that will inconvenience those attending.  Mr. Trump has spent previous Independence Days at the White House, hosting military families at a cookout.  We would urge him to continue that fine tradition and allow Washington to celebrate a holiday that doesn’t need fixing.”

--Actress Felicity Huffman pleaded guilty Monday to rigging her older daughter’s SAT score in a deal for prosecutors to recommend a four-month prison sentence.

In exchange for Huffman’s guilty plea to conspiracy to commit mail fraud and honest services mail fraud, Assistant U.S. Attorney Eric Rosen said the feds would seek a four-month prison term, along with one year of supervised release and a $20,000 fine.

Rosen said Huffman scored “multiple concessions” from the government, avoiding prosecution for money laundering, after Huffman had paid-off college-admissions consultant William “Rick” Singer by transferring money from her bank account to Singer’s crooked “Key World Wide” charity.

--Finally, I forgot to mention last time to try and catch HBO’s mini-series “Chernobyl,” on the 1986 nuclear accident.  Its Mondays...last Monday being part two of five.  It is truly outstanding, and accurate.  I posted an old piece I did on the topic on my “Hot Spots” link.

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

God bless America.

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Gold $1277
Oil $62.71

Returns for the week 5/13-5/17

Dow Jones  -0.7%  [25764]
S&P 500  -0.8%  [2859]
S&P MidCap  -2.3%
Russell 2000  -2.4%
Nasdaq  -1.3%  [7816]

Returns for the period 1/1/19-5/17/19

Dow Jones  +10.4%
S&P 500  +14.1%
S&P MidCap  +13.6%
Russell 2000  +13.9%
Nasdaq  +17.8%

Bulls:  51.4
Bears:  17.5

Have a great week.

Brian Trumbore

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