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Week in Review

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01/18/2020

For the week 1/13-1/17

[Posted 9:30 PM ET, Friday]

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Edition 1,083

I wrote the following in this space 12/21/19, after the House had impeached President Trump.

“We’ll see what happens when Congress returns but remember one thing...long after the Senate’s looming action, other information is going to be coming out, and eventually some of the witnesses will be compelled to talk, all during the height of the 2020 campaign.  So remember my adage, ‘wait 24 hours.’”

I strictly recite some facts below on the Senate trial and the background that will envelop us all next week and the following one.  I’m as interested as many of you to see how it proceeds.  I want key witnesses to testify, but my hopes for that are not high.  Some figures, on both sides, will shine, others will see their reputations, and legacies, damaged.

I wrote about Sen. Margaret Chase Smith last week as an example of one who rose above it all and secured her legacy as a true American hero.  One or two may do the same for themselves in the impeachment trial.

As for the U.S.-China trade deal, I comment on it heavily below, but I’ve been consistent for the past 22 months on this issue.  China is not going to fundamentally change its behavior.  China will continue to lie, cheat and steal to ensure it is the leader in technology in the 21st century, period.

I do, and have, given President Trump credit for confronting China, unlike past presidents.

But nothing in the trade deal does anything of substance on the key issues of subsidies to state-owned companies, intellectual property theft, or forced technology transfers.   Don’t believe the words of our leaders that there are safeguards regarding the latter two.  That could only come in a phase two agreement and that is not part of 2020’s story.

The phase one accord will be about implementation and execution on various targets, but President Trump, as I said last week, will have more than enough ammunition to tout a “huge success” to his base on the campaign trail.

We do at the same time have, however, a very good consumer economy.  Yet growth, as defined by GDP, remains punk (mired at 2% for what will be three quarters in a row with release of the fourth quarter data shortly), because business confidence in the C-Suite has been lagging.  Capital spending has been muted.

Will the phase one trade agreement thus supply executives with enough confidence to begin to spend on plant and equipment again, as they did in 2018, on the heels of the Trump tax cuts?  That’s the real issue.  I suspect at least for now that CEOs will take a wait and see approach before making massive new commitments.

The level of CEO confidence will also impact just how good, or poorly, the stock market performs this year.  And whether my prediction of a down Dow Jones and S&P 500, but an up Nasdaq will be accurate as well.

Trump World

--House Speaker Nancy Pelosi announced seven impeachment managers who will press the House’s case against President Trump during a Senate trial expected to begin next Tuesday.

Aside from two obvious picks, House Judiciary Committee chairman Jerrold Nadler and House Intelligence Committee chair Adam Schiff, Pelosi selected Hakeem Jeffries of New York, among the rest, giving him a tremendous opportunity to increase his stature.

Pelosi said, “The emphasis is on litigators.  The emphasis is on comfort level in the courtroom.  the emphasis is making the strongest possible case to protect and defend our Constitution.”

Adam Schiff said that Pelosi’s delaying transmitting the articles to the Senate pressured senators to hold a “fair trial.”

“Do they want a fair trial – one that’s fair to the president but also fair to the American people – or are they going to participate in a cover-up?” Schiff asked.

The White House called the impeachment process “illegitimate” and a “sham,” and accused Pelosi of focusing on “politics instead of the American people.”

“President Trump has done nothing wrong.  He looks forward to having the due process rights in the Senate that Speaker Pelosi and House Democrats denied to him, and expects to be fully exonerated. ...He will continue working and winning for all Americans, while the Democrats will continue only working against the President,” White House press secretary Stephanie Grisham said in a statement.

Trump tweeted during Pelosi’s news conference: “Here we go again, another Con Job by the Do Nothing Democrats.  All of this work was supposed to be done by the House, not the Senate!”

Thursday, the third impeachment trial in U.S. history officially began amid the swirl of new allegations.

Republican lawmakers appeared unswayed by the new information, focusing on attacking the Democratic-led investigation in the House for not uncovering the evidence before sending the impeachment articles to the Senate.

Sen. James Lankford (R-Okla.) said it is the responsibility of the House, not the Senate, to gather evidence and present a case for impeachment.

“As a juror, I’m not fishing, looking for more information on this,” he said.  “I’m trying to respond to what the House is sending over and what they’re doing.”

With Republicans unwilling to consider additional evidence, Democrats face an uphill climb in their attempts to further build a case against Trump as the Senate trial plays out.

House Speaker Nancy Pelosi said Thursday, “The American people have seen allegations...We need to see more evidence that would be contained in the documentation.  This is just another avoiding of the facts and the truths on their part.”

According to a new Quinnipiac University national poll, 51% approve of the House’s vote to impeach the president, 46% disapprove.  But 48% say the Senate should not vote to remove him and 46% say they should.

--President Trump bolstered his legal team in his impeachment trial by adding former independent counsel Ken Starr, his successor Robert Ray and famed defense attorney Alan Dershowitz.  They will join a team headed by White House counsel Pat Cipollone and outside attorney Jay Sekulow, who plan to deliver statements on Trump’s behalf on the Senate floor.

Pam Bondi, the former Florida attorney general, is serving as special adviser to the president for impeachment, according to reports.

--An aide to Rudy Giuliani claims President Trump “knew exactly what was going on” regarding efforts to pressure Ukraine into investigating Joe and Hunter Biden.

Lev Parnas, a close associate of the president’s lawyer, made the comments in an interview with MSNBC.

Parnas, who is facing separate criminal charges, said Mr. Giuliani was never investigating corruption.  The intention was to damage a potential Democratic rival to President Trump.

The president denies the allegations, or that he ever knew Parnas.

Parnas said the president was lying and knew that unless there was an investigation into the Bidens, military aid to Ukraine would be withheld.  He also claimed that the investigation was about digging up dirt on Joe Biden.

Earlier this week, letters, phone records, notes and flash drives were obtained from Mr. Parnas, a Ukrainian-American businessman, in a bid to bolster Democrats’ case against President Trump at the forthcoming Senate trial.

In the interview aired on Wednesday, Parnas said Trump was “aware of all my movements.  I wouldn’t do anything without the consent of Rudy Giuliani or the president.  Why would President Zelensky’s inner circle or [Interior] Minister [Arsen] Avakov or all these people or [former] President [Petro] Poroshenko meet with me?”

Documents also showed that Parnas was involved in monitoring the movements of former U.S. Ambassador to Ukraine Marie Yovanovitch before Trump removed her in May.  In an interview with Reuters, Giuliani said he pushed Trump to fire Yovanovitch but did not know if Parnas put her under surveillance.  [More on Yovanovitch below.]

--Russian military hackers tried to steal emails from the Ukrainian energy firm where Hunter Biden had a seat on the board, according to U.S. cybersecurity firm Area 1 Security.  Area 1 identified the hacking of Burisma and linked it to Russia’s Main Directorate of Military Intelligence, or GRU.  The same hacking group, known as “Fancy Bear” by cybersecurity researchers, breached the Democratic National Committee in 2016 in what U.S. investigators described as part of an operation to disrupt that year’s election.

“You can see this attack really is starting to parallel with what we saw in 2016,” Oren Falkowitz, Area 1’s chief executive, said in an interview.

What data the hackers were looking to steal is not clear, Area 1 said. Breaching Burisma could yield communications from, to, or about Hunter Biden, who served as a director between 2014 and 2019.   A leak of stolen data could potentially affect the impeachment process and U.S. electoral contest.

--Despite the fact the impeachment trial will be underway, as of tonight, President Trump is still slated to participate in the 50th anniversary meeting of political and business leaders being held at Davos, Switzerland next week, the World Economic Forum.  Trump appeared in 2018, but did not last year.

But Ivanka and Jared will definitely be there, regardless of whether Dad shows.

--Trump tweets:

“Mini Mike Bloomberg ads are purposely wrong – A vanity project for him to get into the game.  Nobody in many years has done for the USA what I have done for the USA, including the greatest economy in history, rebuilding our military, biggest ever tax & regulation cuts, & 2nd A!” [Ed. Second Amendment]

“Mini Mike Bloomberg doesn’t get on the Democrat Debate Stage because he doesn’t want to – he is a terrible debater and speaker.  If he did, he would go down in the polls, even more (if that is possible).”

“They are rigging the election again against Bernie Sanders, just like last time, only even more obviously.  They are bringing him out of so important Iowa in order that, as a Senator, he sit through the Impeachment Hoax Trial.  Crazy Nancy thereby gives the strong edge to Sleepy...

“...Joe Biden, and Bernie is shut out again.  Very unfair, but that’s the way the Democrats play the game.  Anyway, it’s a lot of fun to watch!”

[Of course it was the president who was looking for dirt on Sleepy Joe in Ukraine to kill his chances of becoming the Democratic nominee.]

“Bernie Sander’s volunteers are trashing Elizabeth ‘Pocahontus’ (sic) Warren. Everybody knows her campaign is dead and want her potential voters.  Mini Mike B is also trying, but getting tiny crowds which are all leaving fast.  Elizabeth is very angry at Bernie.  Do I see a feud brewing?”

“The powerful Trump Wall is replacing porous, useless and ineffective barriers in the high traffic areas requested by Border Patrol.  Illegal crossings are dropping as more and more Wall is being completed!  #BuildingTheWall”

“I JUST GOT IMPEACHED FOR MAKING A PERFECT PHONE CALL!”

Wall Street and the China Trade Deal

Trump tweet:

“The farmers are really happy with the new China Trade Deal and the soon to be signed deal with Mexico and Canada, but I hope the thing they will most remember is the fact that I was able to take massive incoming Tariff money and use it to help them get through the tough times!”

Yes, the phase one trade agreement was finally signed at the White House on Wednesday. The agreement, meant to reduce tensions after nearly two years of a tit-for-tat tariff war, included a pledge by China to purchase at least an additional $12.5 billion worth of agricultural goods in 2020 and at least $19.5 billion over the 2017 level of $24 billion in 2021.  President Trump’s insistence on a big commitment to buy farm products was a major sticking point in the weeks and months leading up to the signing.

The centerpiece nonetheless is the pledge by China to purchase at least an additional $200bn worth of U.S. goods and services over the next two years, over a baseline of $186bn in purchases in 2017.  Aside from the increased ag buys, China has committed to $54 billion in additional energy purchases, $78 billion in additional manufacturing purchases, $38bn in services, and the $32bn in agriculture.

But Chinese negotiator Liu He said Chinese ‘buys’ over the next two years would be “based on market conditions.”  As I’ve noted ad nauseam, Beijing has commitments with other trading partners, and has signed new soy bean contracts with Brazil since the trade war started.

The deal also doesn’t end retaliatory tariffs on U.S. farm exports, makes farmers “increasingly reliant” on Chinese state-controlled purchases and doesn’t address “big structural changes.”

Again, while the deal on paper seems to be a boost for America’s farmers, auto makers and heavy equipment manufacturers, I’m just questioning China’s ability to divert imports from other trading partners.  It’s just not going to happen the way we are led to believe it will.

Both countries have the option to reimpose tariffs if a disagreement cannot be resolved regarding the deal’s enforcement.  Beijing and Washington will start talks on “phase two” later in the year.

Still, a host of difficult issues such as Chinese subsidies to domestic companies weren’t resolved in the phase-one deal.  The latest agreement also didn’t touch tensions surrounding Chinese telecom giant Huawei Technologies.  Huawei has been on the U.S. Commerce Department’s trade blacklist since last May, which is limiting the sale of American tech products to the company.

Taoran Notes, which is affiliated with China’s official Economic Daily newspaper that is used by Beijing to manage trade talk expectations, published its first piece for two months on Monday, saying the deal set to be signed this week is just “the first step to solve a problem.”

“We must bear in mind that the trade war is not over yet – the U.S. hasn’t revoked its tariffs on China and China is still implementing its retaliatory measures. There are still many uncertainties down the road.”

It added that the broad meaning of reaching a trade deal is to find an approach to solving China-U.S. disputes in other areas.

Editorial / Global Times...a Communist Party mouthpiece...

“The U.S. formally removed China’s designation as a currency manipulator, according to the U.S. Treasury Department on Monday. This is obviously part of the phase one trade agreement between China and the U.S.

“It was absurd for the U.S. Treasury Department to list China a currency manipulator in August 2019 because it meets only one of the three indicators of a currency manipulator – having a significant bilateral trade surplus with the U.S.  The short-term fluctuation of the yuan against the U.S. dollar resulted from the U.S. escalation of its trade war against China....

“But the U.S. Treasury Department’s latest decision is still welcome. As China and the U.S. are about to sign the phase one trade agreement, the U.S. is becoming somewhat reasonable again.  However, there is obviously no reason for China to feel grateful to the U.S.  Many Chinese people and international observers may wonder if Washington will repeat the same tricks again if China and the U.S. have disputes again in the future.

“In the past two years, China had many reasons to be enraged by the unreasonable U.S. pressure.  But we have been seeking balance between maintaining our own interests and alleviating China-U.S. disputes.

“Such rationality from China needs to be supported by national strength.  The strength has offered Chinese people more confidence and calm.  Over the past two years, China’s countermeasures against the trade war were not desperate resentment, but calm measures mingled with negotiations.  The trade war and negotiations were combined into one.

“China’s General Administration of Customs announced on Tuesday that China’s foreign trade rose 3.4% in 2019, with its exports expanding 5%, although China-U.S. trade declined by 10.7%.  This shows that China is capable of withstanding the loss in its relations with the U.S.  Such strength has helped China achieve the balance between firmly fighting the U.S. and resolving disputes with it.

“The decline of 10.7% in China-U.S. trade seems to be a large number, but historically, it is not.  Amid tensions, the U.S. vented dissatisfaction against China.  China-U.S. antagonism was stopped in time by the phase one agreement.  The two countries are likely to see a rebound in their trade in 2020.

“The two countries are trying to get their trade relations back on track after a long detour.  This will be a challenging task because the factors that triggered the trade war have not disappeared.  So far, the losses caused by the trade war to both countries have been limited.

“Chinese economy cannot be taken down.  This is the basis for China and the U.S. to jointly promote negotiations.  In 2020, China must do its best to develop its economy, expand its domestic market and make sure that its economy is one of the most dynamic among the large economies. The prospect of China-U.S. trade negotiations is largely in our own hands.”

Global Times, Part II...after the agreement was signed...

“China and the U.S. eventually signed the phase one trade agreement. The hard-fought agreement should be cherished by both sides.

“The agreement was achieved after 22 months of the U.S.-launched trade war against China.  Although both countries have suffered some losses, their economies are running smoothly, showing strong tolerance for trade wars.  In other words, if the trade war continues for another 22 months, China and the U.S. will probably be able to withstand it. Thus, the agreement will never be a zero-sum game. It is destined to be the result of mutual compromises.

“This full-fledged trade war waged by the U.S. had at times made the two sides ‘see red.’  But it was stopped by the phase one agreement before causing any deadly consequences for either side. This shows that both China and the U.S. are clear-minded.  Both sides believe that continuing the trade war for a longer time is counterproductive to achieving their own strategic goals and exacerbates the loss and creates more serious risks....

“Can a preliminary trade agreement, reached during a period when China-U.S. strategic relations are clearly declining, really work?  How long can it last?  Will it be replaced by new conflicts or further progress as negotiations continue?

“The future is unpredictable, but it is clear that the Chinese and the U.S. markets, and the global market all welcome the phase one trade agreement. This is more real than political voices and public opinion, because real trade speaks for itself.

“Huge uncertainty remains.  It may be difficult for China and the U.S. to reach a comprehensive trade deal, but we hope the preliminary agreement will enlighten both sides’ further efforts.  There have been twists and turns in the past 22 months, but neither side has given up contacts and negotiations and the desire to reach a consensus. This is one of the most profound experiences.

“We urge individuals and forces to exercise some restraint in their nitpicking of the agreement and bad-mouthing future trade negotiations. Those who are preaching for confrontation should also exercise restraint. It is not empty talk that peace between China and the U.S. benefit both, while fighting will hurt both.  To verify it with greater loss is a waste.  Continuing to push for such a waste is immoral.

“We hope the implementation of the phase one agreement will be smooth as it can stimulate the two countries’ further trade consultations and help ease overall China-U.S. relations. History moves forward and it is good to help achieve progress.”

Editorial / Washington Post

“Has President Trump made a good deal on trade with China?  Well, compared with what?  Compared with the prospect of a continued or even escalating tariff war, the truce that Mr. Trump and Chinese Vice Premier Liu He signed in Washington on Wednesday is cause for relief.   A source of uncertainty in the global economy, and its potentially destructive consequences for Americans, has abated, now that Mr. Trump has agreed to reduce some of the tariffs he imposed on China in return for Chinese concessions.

“If the standard of success is China abandoning its mercantilist economic model, as the administration initially demanded, the deal barely merits the ‘phase one’ name Mr. Trump has given it. The Trump team did extract some promises to protect the trade secrets and intellectual property of U.S. firms operating in China that are somewhat more enforceable than previous pledges Beijing has made. Also, there seems to have been modest but real reduction in structural barriers to U.S. financial services and food exports.  Overall, though, the deal leaves intact the foundations of Chinese mercantilism: a vast system of subsidies to favored high-tech industries and state-owned firms.

“Still less has the Trump administration accomplished its goal, set forth in a May 2018 negotiating position paper, that China reduce its trade surplus with the United States by $200 billion over two years.  Instead, it commits China to increasing imports of goods and services by a total of $200 billion over the next two years, relative to the pre-trade-war level of $187 billion in 2017.  In practical terms, this means the upward path of U.S. exports prior to 2018 will resume and accelerate, though with no guarantee that China will favor U.S. goods after 2021.

“Which brings us to another point of comparison: the one between this trade deal and its zero-sum mind-set on the one hand, and a vision of truly free and reciprocal global commerce on the other.  We do not doubt that the United States needed to pressure China, even through the blunt instrument of tariffs, if it was ever to force Beijing to abandon mercantilism and do business – at home and abroad – on the commercial merits.  Yet this deal actually enshrines a norm of managed, i.e., politicized, trade, both in China’s purchasing guarantees and in Mr. Trump’s retention of 25 percent U.S. tariffs on $250 billion in industrial goods and a 7.5 percent tariff on $120 billion worth of consumer items.

“Finally, there’s the contrast between these results and the short-term costs American consumers and farmers paid in the tariff war. Those might have been avoided if Mr. Trump had chosen a different strategy, one that exercised pressure on China via a united front with other Pacific Rim and European countries, as his predecessor President Barack Obama had tried to do through the Trans-Pacific Partnership.

“The odd upshot: movement toward decoupling the world’s two largest economies, as U.S. manufacturers take action to limit tariff risk, leavened by negotiated Chinese purchases of U.S. commodities to appease the current president.  As so often with his administration, the deal is not as bad as it could have been but far short of what might have been achieved if the United States had chosen to work with allies.”

Editorial / Wall Street Journal

“President Trump is naturally hailing the ‘phase one’ trade agreement with China he signed on Wednesday as a victory that vindicates his strategy of whipping Beijing until it pleaded for mercy.  The truth is that this is a mutual truce that relieves considerable economic damage to both sides and, let us hope, helps the cause of reformers in China.

“In Mr. Trump’s blunderbuss two-year tariff campaign, China has been the one legitimate target. The People’s Republic has too often failed to live up to its commitments under the World Trade Organization and has pursued mercantilist policies that harm foreign companies.  U.S. firms are at the mercy of Beijing’s unfair practices when their secrets are stolen or regulations favor Chinese competitors.

“U.S. Trade Representative Robert Lighthizer was right to focus on these abuses, and the new deal offers a new process for dispute resolution and relief.  Trade officials from the two countries will review complaints, with appeals rising in stages to the level of Mr. Lighthizer and China’s top trade negotiator Liu He.  The U.S. could impose tariffs if the Chinese decline to enforce the rules of the agreement.

“The deal makes it easier for U.S. IP owners to obtain injunctions to prevent use of stolen secrets, and it requires China to impose stiff criminal penalties on IP burglars. There’s also a mechanism for pharmaceutical companies to enforce patent rights in China and provisions that obligate the government to crack down on piracy and counterfeit goods.  Beijing has also agreed to eliminate foreign ownership restrictions on credit rating firms, fund managers, insurers and securities companies.

“China has made promises of this sort before but at least now the U.S. has an enforcement mechanism.  China has also agreed to increase its imports of U.S. goods by $200 billion over the next two years over a 2017 baseline of $187 billion.  President Trump is obsessed with the bilateral U.S. trade deficit with China, but what really matters is reducing Chinese trade and regulatory barriers.

“Mr. Trump’s defenders say none of this would have happened without Mr. Trump’s tariffs.  We’ll never know.  We argued that Mr. Trump should have marshalled a coalition of nations to pressure China instead of imposing unilateral tariffs.  But the President foreclosed that when he walked away from the Trans-Pacific Partnership and imposed steel and other tariffs on America’s main trading allies.

“The President’s strategy has also caused plenty of economic harm – on China to be sure, but also on global manufacturing and the U.S.  The tariffs and China’s retaliation have been a tax on U.S. consumers and companies that use Chinese goods....

“The tariff war has led to a decline of business investment, and a Federal Reserve study says trade uncertainty cut U.S. GDP growth by about a percentage point.  Some say this is a price worth paying.  But it’s simply false to assert that the President’s trade wars have been cost free. Americans have paid a high economic price in the hope that China will behave better in the future as the result of this deal.

“Mr. Trump essentially admitted as much when he agreed to this phase-one deal because his free-market advisers rightly persuaded him that he needed the trade relief in this election year.  The phase-one deal cuts the 15% tariffs imposed in September on $120 billion in goods by half.  Most of these items are consumer products including children’s clothing, lithium ion batteries and other electronics that the U.S. imports mainly from China.

“The President says talks on phase two will begin pronto, but don’t expect anything before the election.  In the best case this initial deal offers a year or two of trade calm, China will honor its commitments, Mr. Trump will sheath his tariff sword, and he or his successor can move on to the thornier issues of Chinese subsidies for state-owned industries and high-tech protectionism in 2021 or 2022.

“The phase-one deal is progress, but U.S.-China economic and political competition has decades to run.”

We did have another big trade deal this week finally clear the Senate, the revamp of the 26-year-old North American Free Trade Agreement, U.S.-Mexico-Canada Agreement, or USMCA, which the Senate approved 89-10, after the House passed it overwhelmingly (385-41) in December.  President Trump will sign it to further fanfare, but this deal is an improvement only at the margins.    It does include tougher labor and automotive content rules, but leaves $1.2 trillion in annual U.S.-Mexico-Canada trade flows largely unchanged. It also opens up Canadian dairy markets, though just wait to see how this is implemented.  Canada also still has to approve the deal itself.

---

On the economic front, the stock market continued to power to new highs, the major indices closing in record territory again today, on the signing of the U.S.-China trade deal, and solid earnings from the banking sector.

We also had more tame news on the inflation front, with the December consumer price index at 0.2%, 0.1% ex-food and energy; 2.3% year-on-year for both.  Producer prices rose 0.1% on both headline and core; 1.3% year-on-year on headline, 1.1% on core.

December retail sales were a solid 0.3%, 0.7% ex-autos.

December industrial production was punk, -0.3%.

But December housing starts came in at 1.608 million, way above forecast and the best since 2006, a major positive for the economy.

The National Retail Federation came out with its definitive reading on holiday sales for November and December and they rose a robust 4.1%, vs. my own forecast of 3.5%.  This was in stark contrast to last year’s 2.1% increase, which was pulled down by a partial government shutdown, interest-rate increases from the Fed, and volatility in the stock market.

The Atlanta Fed’s GDPNow barometer for the fourth quarter, however, fell to 1.8% from 2.3% the week before.

Lastly, the federal budget deficit for calendar year 2019 topped $1 trillion, up 17% from 2018, Treasury data shows. That was a slowdown from the 28% growth in 2018, the first year President Trump’s signature tax cuts were in full effect.  Last year’s deficit would have been even larger if not for a series of interest-rate cuts undertaken by the Federal Reserve, which helped to push the cost of new government debt down.

It was the first calendar year since 2012 the deficit topped $1 trillion and it is up and up from here.  Total federal receipts rose by 5% in 2019, the fastest rate of growth for receipts since 2015, but spending grew by 7.5% in 2019, the fastest pace since 2009.

Yes, President Trump’s promise to balance the budget and constrain spending as a candidate in 2016 was a crock, let alone his claim he could pay off the entire federal debt in eight years.

The Trump tax cuts have not paid for themselves through economic growth.

Europe and Asia

A little data for the eurozone (EA19), as November industrial production rose 0.2% over October, but was still down 1.5% year-on-year.  [Eurostat]

A final reading on inflation for the EA19 in December came in at 1.3%, up from 1.0% in November.   A year earlier, the rate was 1.5%. [Eurostat]

Germany’s GDP for 2019 was just 0.6%, the lowest since 2013, as manufacturing fell 3.6%.

Brexit: Britain is still on course to exit the European Union on January 31, with some final legislative maneuvering yet to take place, but then it’s about finalizing a trade pact with the EU in just eleven months, Prime Minister Boris Johnson insisting he won’t seek an extension of the transition period.

France: French Prime Minister Edouard Philippe on Saturday offered a major concession to unions contesting his government’s overhaul of the pension system, in a move aimed at ending strikes now in their fifth week. Philippe in a letter to unions and employers said he was prepared to withdraw plans to raise the retirement age for full pension benefits by two years to 64 if certain conditions were met. The CFDT union, France’s biggest, is inclined to accept a limited reform and welcomed the move.

France currently spends 14% of economic output on pensions.  Philippe aims to present the reform bill to parliament next week, though any passage won’t be before the summer break.  The unions need to agree on how to ensure the long-term financing of the pension system in April.  Otherwise the government will issue decrees doing so and there would be renewed protests.

Turning to Asia...China’s GDP for the fourth quarter was 6.0%, according to the National Bureau of Statistics, with the full-year growth rate at 6.1%, the lowest since 1990, and at the lower end of the government’s forecast issued back in March of 6-6.5% growth.  It was 6.6% in 2018.

Experts expect the government to peg 2020 also at 6% when they issue their official forecast this coming March, relying on infrastructure spending to ward off a sharper slow down.

Fixed-asset investment rose 5.4% for the full year, while retail sales rose 8.0% in December vs. a year ago.

Real estate investment rose 9.9% in 2019.  New-home prices for the 70 major-city index rose 6.6% year-over-year in December, the slowest pace since July 2018.

December exports, however, were better than expected, up 7.6% yoy, with imports up 16.3% (though the yoy comparisons are vs. a December 2018 that was particularly weak).

For all of 2019, exports rose 0.5%, imports fell 2.8%.

China’s exports to the U.S. fell 12.5% last year, with imports from the U.S. down 20.9%.

Chinese agriculture imports from the U.S. did hit $2 billion in December.  As pig inventory rises after dropping 40% due to African swine fever, that will help soymeal imports from the U.S.

--One note on Japan...core machinery orders in November surged to their biggest monthly expansion on record, in a positive sign for business spending which has helped sustain a fragile recover in the world’s third-largest economy.  Core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 18.0% over October.  The jump was largely driven by big-ticket items, such as orders for railway cars.  Economists only expected a 3.2% rise after an unexpected drop in October of 6.0%.

October’s sales tax hike hit consumption, one of the economy’s key drivers of growth, and government data last week showed Japan’s inflation-adjusted real wages declining at their fastest pace in four months in November.

Fourth quarter GDP comes out next month.

Street Bytes

--As noted above the Dow Jones, S&P 500 and Nasdaq all closed at new highs today, the Dow up 1.8% on the week to 29348, the S&P gaining 2.0% to 3329, and Nasdaq 2.3% to 9388.  Nasdaq is already up 4.6% for the year.

Surprisingly, the S&P 500 hasn’t moved 1% of more in either direction since mid-October, its sixth-longest streak since the end of 1969 and third-longest since the end of 1995, according to Dow Jones Market Data.

Meanwhile, with earnings season now in full swing, for one week at least the commentary from the banks was largely positive.

We also had Alphabet, the parent of Google, see its valuation climb above $1tn for the first time, making it the fourth tech giant to cross that threshold.

The others in the $trillion market cap club are Amazon, Microsoft and Saudi Aramco.  [Amazon has dropped back below $1tn.]

--U.S. Treasury Yields

6-mo. 1.56%  2-yr. 1.56%  10-yr.  1.82%  30-yr.  2.28%

Literally unchanged on the week.

--Surging oil production from non-OPEC countries led by the United States along with abundant global stocks will help the market weather political shocks such as the U.S.-Iran standoff, the International Energy Agency (IEA) said on Thursday.

“For now the risk of a major threat to oil supplies appears to have receded,” the Paris-based IEA said in a monthly report.

The IEA said it expected production to outstrip demand for crude from OPEC even if members comply fully with a pact with Russia and other non-OPEC allies to curb output.

--JPMorgan Chase finished up its most profitable year on record, with CFO Jennifer Piepszak saying on an earnings call Tuesday, “The U.S. consumer remains in very strong shape, both from a credit perspective and spending sentiment.”  Among the bank’s corporate clients, “sentiment is at least certainly better than it was six months ago. So we have a constructive outlook as we’re heading into 2020.”

CEO Jamie Dimon said: “The consumer is in very good shape. Their wage growth is up. Their home values are up.  And the amount of the income they have that goes to servicing interest expense is as low as it’s been in 50 years.”

JPM’s total profit rose 21% to $8.52 billion in the fourth quarter, led by a 31% revenue jump in the corporate and investment bank.   Fixed-income trading revenue in the final quarter was 86% higher than a year ago.

For the year JPM earned $36.4bn vs. $32.5bn in 2018.

--Citigroup Inc. beat analysts’ estimates for fourth-quarter profit on Tuesday, boosted by growth in its credit card business and a jump in trading revenue.  North American branded cards, which account for a majority of the bank’s consumer banking revenue, clocked double-digit revenue growth for the second straight quarter, rising 10% from a year earlier.  The third-largest U.S. bank by assets has been leveraging its card business to help grow deposits by pitching checking and savings accounts to card holders.

Trading revenue rose nearly 31% as markets steadied during the last three months of 2019, with fixed-income trading revenue surging 49%.

2019 earnings came in a $19.4bn, $5bn in Q4.

--Goldman Sachs missed earnings expectations for the second quarter in a row, owing to a surge in litigation (to the tune of $1bn), with net income falling 26%, while rival JPMorgan Chase was booking record profits for both the quarter and the year.

Revenues across the group rose 23%, to $9.96bn, fueled by a 63% surge in fixed income revenues versus a year earlier.  The global markets arm, which includes fixed income and equities trading, saw a 33% jump in fourth-quarter revenues.

Investment banking was Goldman’s worst performing division in the fourth quarter, with revenues falling 6% year-on-year, versus the 6% rise for both Citigroup and JPMorgan Chase.

CEO David Solomon has his work cut out for him as he has to convince investors that his team has found a way to improve returns at its trading businesses, even as post-crisis regulations made trading more costly.

--Bank of America said fourth-quarter profit fell 4%, as the second-largest U.S. bank by assets said it earned $6.99 billion in the quarter, down from $7.28bn a year earlier.  Revenue was $22.35bn, down about 1% from a year ago, though this was slightly better than expected.

BofA’s consumer bank reported lower profit and revenue, while net interest income (the amount banks make from lending minus what they pay out on deposits), fell 3% from a year ago.

CEO Brian Moynihan said the bank is seeing more optimism among its commercial clients as economic uncertainty recedes and the trade war between the U.S. and China cools.

“We see some resolution of those issues, and that combined with the continued consumer strength leads us to expect to see businesses continue their solid activity,” Moynihan said.

--Wells Fargo & Co.’s latest quarter was another downer as the nation’s fourth-largest bank by assets racked up operational losses of $1.9 billion in the final quarter, with new CEO Charles Scharf saying the bank’s cost structure was simply too high.

“Wells Fargo is a wonderful and important franchise that has made some serious mistakes, and my mandate is to make the fundamental changes necessary to regain the full trust and respect of all stakeholders,” Scharf said in a statement.

Wells is operating under heavy scrutiny, including an unprecedented cap on its balance sheet by the Federal Reserve, as it tries to rebuild its reputation since it was revealed that the bank had opened potentially millions of bogus accounts.

At least the bank’s mortgage income rose to $783 million from $467 million a year earlier, benefiting from lower interest rates, but the same low rates led to net interest income falling 11%.

--The last of the big six banks to report, Morgan Stanley, knocked it out of the park, shares surging 6.6% Thursday, as MS outlined its two-year performance goals after the Q4 results topped the Street’s expectations. The bank set the bar higher for expense controls, returns on equity and wealth management profits over the next two years and beyond.  Analysts cheered the new targets.

Bond trading, underwriting and investment management each produced much higher revenue in the most recent quarter, as profit jumped to $2.09 billion from $1.36bn a year earlier.  The bank’s net revenue rose 27% to $10.9 billion, setting new records for annual profit and revenue while meeting or exceeding goals set by CEO James Gorman a year ago.  The return on the share price still badly trails the competition over the ten years Gorman has been at the helm, but he argues the first five years of his tenure he was focused on cleaning things up after the financial crisis.

--BlackRock Inc., the world’s largest asset manager, beat analysts’ estimates for quarterly profit, shares rising 2%, as more money rolled into its cash management business and exchange-traded funds, despite concerns over the rate of global growth.

With $128.84 billion in new money during the quarter, BlackRock’s total assets grew to $7.43 trillion, up from $5.98 trillion a year earlier.

Trading revenue rebounded 7% year-over-year.

Investors continue to prefer BlackRock’s low-fee passive-investment products over its actively managed funds.  Its iShares-branded ETFs took in $75.20 billion of new money, up from $41.50bn in the prior quarter.

Adjusted profit came in at $8.34 per share, up from $6.08 per share in the prior-year period and far higher than the $7.65 the Street forecast.

--Shares in Target fell 7% on Wednesday after the retailer lowered its comparable-sales growth expectations amid weaker holiday sales, specifically citing “softer-than-expected performance” in sales of key seasonal categories – electronics, toys and some homewares – which combined account for around a third of Christmas sales.  Electronics sales fell more than 6% from a year ago.

Comp sales in November and December grew just 1.4% year-over-year, badly trailing the 5.7% growth of the previous year.  Due to the poor performance, Target said it lowered its fourth-quarter comp sales growth outlook to 1.4% from prior guidance of 3% to 4%, which is a significant miss as these things go.

CEO Brian Cornell has to be miffed at some of the analysis he was being given in the C-Suite.

--UnitedHealth Group Inc. said revenue rose 4.25% to $60.9 billion in the latest quarter as the nation’s largest health insurer said the number of people it served in Medicare Advantage and commercial benefits programs rose.

Overall earnings were $3.54 billion, compared with $3.04bn a year ago.  Shares rose nearly 3% in response.

--Boeing Co. said deliveries and new orders for its jetliners hit their lowest point in more than a decade as the global grounding of the 737 MAX undermined the aerospace giant’s business.

Boeing handed over 380 aircraft, including military versions of its jetliners, a 14-year-low that compares with a record 863 deliveries by European rival Airbus SE.  Boeing delivered 806 planes in 2018, a high for the company.

The Chicago-based company last year brought in new orders for 246 commercial jets of all types, its lowest tally before cancellations and model swaps since 2003.

Boeing’s order count has suffered from a two-year drought from China customers, which historically has accounted for a quarter of deliveries.  We now wait to see if the new trade deal signed Wednesday results in large orders of Boeing planes.

At least Boeing delivered 45 787s in the fourth quarter, along with other widebody jets – its biggest source of cash with the MAX grounded.

As for the ongoing impact of the MAX, both American and Southwest said they would remove the plane from its schedules until June, and now we potentially have another summer flying season without the aircraft.

Boeing still has orders for around 4,500 of the MAX jets, but has halted production because of uncertainty over when the MAX might resume flying and the risk of airlines and leasing companies canceling existing deals.  Leasing accounts for more than 40% of the MAX order book.

But wait...there’s more.  This afternoon Boeing announced it is addressing a new software issue discovered in Iowa last weekend during a technical review of the proposed update to the grounded MAX, a development that could further delay the plane’s return to service.  “We are making necessary updates,” Boeing said in a statement.

--Delta Air Lines reported better-than-expected results for its fourth quarter after a strong season of holiday travel and offered a full-year projection for 2020 that straddled Street estimates on expectations for continued “healthy” demand.

Adjusted earnings for the three months through Dec. 31 rose to $1.70 a share from $1.30 in the same period a year ago, with expectations at just $1.39.  Operating revenue increased to $11.44 billion from $10.74 billion, with CEO Ed Bastian saying 2019 was the best in its history operationally and financially.

Delta then celebrated by dumping jet fuel on Los Angeles schoolchildren, injuring 60.

--Microsoft CEO Satya Nadella said he wanted to remove “all of the carbon” from the environment that the company has emitted since its founding in 1975.  Nadella said he wanted to achieve the goal by 2050.

To do so, the company aims to become “carbon negative” by 2030, removing more carbon from the environment than it emits.

Microsoft president Brad Smith said in a blog post: “When it comes to carbon, neutrality is not enough.  The carbon in our atmosphere has created a blanket of gas that traps heat and is changing the world’s climate.  If we don’t curb emissions, and temperatures continue to climb, science tells us that the results will be catastrophic.”

--According to International Data Corp. and Gartner Inc., fourth-quarter personal-computer shipments rose, boosted by businesses moving to snap up devices running a newer version of Microsoft’s Windows operating system, Windows 10, after Microsoft stopped supporting Windows 7 on Tuesday.

Gartner said computer makers shipped 70.6 million units in the fourth quarter, up 2.3% from the year earlier.

IDC said Q4 shipments for desktops, notebooks and other computers increased 4.8% from the year earlier to 71.8 million units, the best quarterly total since the fourth quarter of 2015. [IDC and Gartner use different definitions of PCs, resulting in different shipment numbers.]

Lenovo Group Ltd., HP Inc. and Dell Technologies Inc. continue to dominate the industry, controlling about 65% of market share in the fourth quarter, according to IDC.

--China’s Association of Automobile Manufacturers said vehicle sales fell 8.2% in 2019 from a year earlier, total sales 25.8 million.*  In 2018, sales declined for the first time in decades, falling 2.8%.

Monday, the CAAM reaffirmed its forecast of a 2% sales drop in 2020.

Ford said its China sales fell 26% in 2019, while GM posted its biggest-ever China sales drop, roughly 15%, last year.

U.S. car makers’ share of China’s passenger-vehicle market last year was down to 8.9%, CAAM data showed.  Chinese brands lost market share as well, while German and Japanese brands grew by 2.8 and 2.5 percentage points respectively in 2019.

*This figure and percentage sales decline is different from what I gave last week. I have checked this number through various sources and it’s possible the story I was referencing last time just wrote it down wrong.  The above is definitive, as are the sales decline figures for Ford and GM.

--The number of visitors to Hong Kong dropped by 14% last year amid the ongoing anti-government protests roiling the city, tourism authorities revealed on Wednesday, as the government announced that the signature Lunar New Year fireworks show would be cancelled. 

In 2019, arrival figures dropped to 55.9 million from 65.15 million the year before, dragged down by a 14.2 percent decline in mainland Chinese who accounted for the bulk of visitors to the city, the Tourism Board said.

The numbers are actually far worse because the protests didn’t really start in earnest until June.

--Americans bought less wine last year, down 0.9%, the first such drop in a quarter of a century, as millennials opt for alternatives like hard seltzers, cocktails and nonalcoholic beer.

Overall, U.S. wine sales by value rose 1.1% from a year earlier to $38.3 billion, according to industry tracker IWSR.

--The supervillain origin story “Joker” took the lead in the Oscars race with 11 nominations – including for best picture, best director and best actor – as the Academy of Motion Picture Arts and Sciences announced its awards contenders Monday.  Sam Mendes’ World War I movie “1917,” Quentin Tarantino’s show-business saga “Once Upon a Time...in Hollywood” and Martin Scorsese’s mob epic “The Irishman” nabbed 10 nods each, including for directing and best picture.

Netflix made a strong showing with 24 nominations for films including “The Irishman” and divorce drama “Marriage Story.”

The hostless awards show is set to air earlier than ever on Feb. 9, so it’s a short campaign period.

“1917”, after nabbing best-picture at the Golden Globes, captured the box office last weekend, grossing $36.5 million in the U.S. and Canada, the first weekend it had wide distribution.

--NBCUniversal has inked Seth MacFarlane, one of television’s most successful producers, to a reported deal at slightly less than $200 million for a multiyear production arrangement for new shows.  MacFarlane, however, will be free to shop film projects to other studios while his signature TV show “Family Guy” will continue to run on Fox.

Foreign Affairs

Iran / Iraq:  An ABC News/Ipsos poll has 43% approving of President Trump’s handling of the situation in Iran, 56% disapproving.  57% of independents disapprove.  The same survey has only 25% of Americans feeling more safe, with 52% saying we are less safe after the airstrike that took out Iranian General Soleimani.

But a Quinnipiac University national poll of registered voters has 45% saying the killing of Soleimani was the right action and 41% saying it was the wrong action.  But only 32% said it has made Americans more safe, 45% saying less safe.  64% would oppose the United States going to war against Iran, while 26% would support it.  Independents oppose war against Iran 73% to 18%.

We’ve learned that the Iranian airstrike on Al Asad air base was not without casualties, despite what President Trump first told us.  Eleven American troops were treated for concussions after Iranian missiles struck two Iraqi bases where the servicemembers were stationed.

At first it seemed the Iranians had purposely missed human targets, but after the media got in there over the weekend and Monday, we all saw the extensive damage the rockets caused, some landing on buildings housing troops.  Had there not been warnings hours before, allowing commanders to effectively move their forces out of harm’s way, the death toll could have been devastating and the United States and Iran would be at war today.

Friday, Iran’s Supreme Leader Ayatollah Ali Khamenei, speaking during his first Friday prayers sermon for eight years, at a time when Iran is under pressure at home and abroad, called for national unity and a high turnout in a February election, after protests erupted following the military’s admission that it had shot down an airliner by mistake during the confrontation with the United States.

Khamenei defended the country’s armed forces, saying the Revolutionary Guard “maintained the security” of Iran.  The ayatollah said Iran’s “enemies” had used the shooting down of the Ukraine International Airlines Boeing 737-800 with 176 passengers on board to overshadow the killing of senior Iranian General Qasem Soleimani in a U.S. drone strike.

“Our enemies were as happy about the plane crash as we were sad,” he said.  “[They were] happy that they had found something to question the Guard and the armed forces.”

Khamenei criticized the “evil” administration of President Trump, who he called a “clown.”  He also accused Washington of “lying” when it expressed support for the Iranian people, and said the U.S. would “stab them with their poison dagger.”

Khamenei described Iran’s Qud Force as a “humanitarian organization with human values.”  He also called Soleimani’s funeral and the Iranian military response a “turning point in history.”

Meanwhile, Iran accused Britain, France and Germany of succumbing to “high school bully” Donald Trump when they triggered a dispute mechanism in the nuclear accord that Trump opposed, a step that could eventually lead to the reimposition of UN sanctions.

The pact, known as the JCPOA, was agreed to in 2015 between Iran and world powers, offering Iran sanctions relief if it curbed its nuclear work.  Trump then withdrew from the deal in 2018 and reimposed U.S. sanctions, saying he wanted a tougher deal.  Iran has responded by scaling back its compliance with terms of the pact.

Brtian, France and Germany triggered the accord’s dispute mechanism this week, with British Prime Minister Boris Johnson saying it was now time for a “Trump deal” to replace it, while Paris said broad talks were needed.  [There is no Trump deal, by the way.]

President Hassan Rouhani said on Thursday that Iran was now enriching more uranium than before the 2015 deal.

Rouhani also said European troops stationed in the Middle East could be in danger if the 2015 nuclear accord collapses.

“The American soldier today is not secure.  Tomorrow, the European soldier could be insecure too,” the president told his cabinet meeting.

Iran’s foreign minister, Javad Zarif, told a conference in India that the future of the nuclear agreement depended on Europe.

Back to the shootdown of the Ukrainian airliner, Iran said it had arrested several people accused of a role in the tragic accident, the regime making a series of apologies that have done nothing to quell the protests in the aftermath of it.

Rouhani said the government would be accountable to Iranians and those nations who lost citizens.  Most of those on board the flight were Iranians or dual nationals.

As for the whole deal whether Qassem Soleimani represented an imminent threat, President Trump said on Monday the threat “doesn’t really matter,” given Soleimani’s history.

“The Fake News Media and their Democrat Partners are working hard to determine whether or not the future attack by terrorist Soleimani was ‘imminent’ or not, & was my team in agreement,” Trump tweeted.  “The answer to both is a strong YES, but it doesn’t really matter because of his horrible past!”

Democrats are trying to pass legislation to rein in Trump’s ability to wage war on Iran without lawmakers’ approval.

What seems clear is that President Trump lied to the public when he talked of four embassies being directly targeted by Soleimani.  Sunday, Defense Secretary Mark Esper said he did not see specific evidence that Iran was planning an attack.  “What the president said was that there probably could be additional attacks against embassies.  I shared that view.  The president didn’t cite a specific piece of evidence.”  When pressed on whether intelligence officers offered concrete evidence on that point, Esper said: “I didn’t see one with regards to four embassies.”

On the issue of the protests in Iran following the government’s admission of guilt in the shooting down of the Ukrainian airliner, President Trump tweeted:

“To the brave, long-suffering people of Iran: I’ve stood with you since the beginning of my Presidency, and my Administration will continue to stand with you.  We are following your protests closely, and are inspired by your courage.

“The government of Iran must allow human rights groups to monitor and report facts from the ground on the ongoing protests by the Iranian people.  There cannot be another massacre of peaceful protesters, nor an internet shutdown.  The world is watching.”

Tonight, Trump tweeted anew:

“The so-called ‘Supreme Leader’ of Iran, who has not been so Supreme lately, had some nasty things to say about the United States and Europe. Their economy is crashing, and their people are suffering.  He should be very careful with his words!”

In Iraq, caretaker Prime Minister Adel Abdul-Mahdi indicated he would leave a decision whether to expel U.S. forces from the country to his successor, potentially slowing a push that could trigger American military-aid cuts and sanctions.

U.S. officials informed the Iraqi government last week that the country’s access to its central bank account at the New York Federal Reserve could be denied if American troops are kicked out.  The Trump administration is also preparing possible cuts of $250 million in military aid to Iraq, funds already approved by Congress, if the government expels U.S. troops.

Syria: At least 18 civilians were killed in air strikes that hit a market and an industrial zone in the rebel-held city of Idlib, with the Syrian Observatory for Human Rights saying Russian and Syrian planes carried out the attacks, which happened despite a ceasefire brokered earlier in the month by Russia and Turkey.

UN human rights chief Michelle Bachelet called Friday for an immediate cessation of hostilities in Idlib.  “It is deeply distressing that civilians are still being killed on a daily basis in missile strikes from both the air and ground,” she said in a statement on the ceasefire.

Around 350,000 Syrians, mostly women and children, have fled a renewed Russian-backed offensive in the opposition-held Idlib province since early December, and have sought shelter in border areas near Turkey, the UN said this week.

Lebanon: The ongoing crisis in government here has been flying under the radar, but with Hezbollah having a huge arsenal, as well as being a player in government, it’s a powder keg the Middle East cannot afford to let blow. 

Lebanon’s finances have long been in a shambles (though it has an unblemished record of paying its obligations), but it’s worse than ever now and Fitch’s top sovereign analyst said the country looks likely to default on its debt in some way, with Lebanese savings at direct risk.  [Think confiscation of savings.]

Lebanon has $2.5 billion in Eurobonds due this year including a $1.2 billion bond set to mature in March.

Saudi Arabia: Twenty-one Saudi military cadets undergoing training in the United States were ousted following an investigation into the fatal shooting of three Americans by a Saudi officer at a Florida naval base that U.S. Attorney General William Barr on Monday branded an act of terrorism.

Afghanistan: A roadside bomb killed two U.S. military personnel and wounded two others in southern Afghanistan on Saturday, an attack claimed by the Taliban.  The deaths brought to at least four killed in hostile action in Afghanistan since Dec. 12, when the United States declared a “brief pause” in talks with the Taliban on a U.S. troop pullout.

China / Taiwan: Taiwan’s President Tsai Ing-wen handily won reelection last weekend in the island’s presidential election, garnering a record 8.17 million votes, 57% in a three-way race, to secure a second term, a convincing win over her main rival, Han Kuo-yu from the Beijing-friendly Kuomintang, that gives her a mandate to continue her approach to cross-strait relations.  [Turnout was a stunning 74 percent.]

In an interview with the BBC, Tsai said mainland China needed to face the reality that the island was “an independent country already,” remarks that infuriated Beijing.

“We don’t have a need to declare ourselves an independent state.  We are an independent country already and we call ourselves the Republic of China, Taiwan.”

In her victory speech, Ms. Tsai called for unity as she pledged to work to defend the island’s sovereignty and improve the economy.

“With each presidential election, Taiwan is showing the world how much we cherish our democratic way of life.  We must work to keep our country safe and defend our sovereignty.”

Official ties have been suspended since Tsai took office in 2016 and refused to accept the one-China principle – a political understanding that there is only one China with ambiguity over whether it is governed by Taipei or Beijing.

Mainland China sees Taiwan as part of its territory to be returned to its control, by force if necessary.  With Tsai as president, Beijing has ramped up pressure on the island, including by poaching its diplomatic allies (buying them off) and staging military drills nearby.

But Tsai warned against military activity from Beijing, which responded to her reelection by accusing her independence-leaning Democratic Progressive Party of “dirty tactics.”

“Invading Taiwan is something that is going to be very costly for China,” Tsai said.  “We’re a successful democracy, we have a pretty decent economy, we deserve respect from China.”

In Beijing, a spokesman for the Taiwan Affairs Council said any pro-independence activities seeking to separate the island from the mainland would not be tolerated.

The Communist Party’s mouthpiece newspaper, People’s Daily, insisted that Beijing retains the upper hand against Ms. Tsai.  “Facts from recent years already prove that our advantage of ‘mainland strength, Taiwan weakness’ in the cross-strait balance of power will widen further,” it said in a commentary.

President Xi Jinping has long warned Taiwan that unification between the sides was inevitable, adding China would use force to prevent the island from taking steps toward formal independence.

Separately, U.S.-based Human Rights Watch released a scathing review of the Chinese government, calling on the international community to push back against “the most brutal and pervasive oppression China has seen in decades” in its 2020 annual report.

Kenneth Roth, the Executive Director of Human Rights Watch, was denied entry on Sunday to Hong Kong where he was expected to launch the report, which covers the global human rights situation but features China prominently.

The report condemns Beijing’s treatment of Uighur Muslims in the Xinjiang region and warns that China’s growing political influence and efforts to censor people abroad pose an “existential threat to the international human rights system.”

“If not challenged, Beijing’s actions portend a dystopian future in which no one is beyond the reach of Chinese sensors, and an international human rights system so weakened that it no longer serves as a check on government repression,” Roth wrote in the report.

China last month announced sanctions on HRW and other U.S. nongovernmental organizations (NGOs) as a response to the U.S. Hong Kong Human Rights and Democracy Act, which supports anti-government protests in Hong Kong and threatens China with sanctions for human rights abuses.

Geng Shuang, a spokesman for China’s foreign ministry, told Reuters, “Currently, China’s human rights’ situation is the best it’s been in history.”

You can stop laughing.

On a different issue, Gerhard Sabathil, the European Union’s former ambassador to South Korea, has been identified as the subject of a German probe into alleged spying for China’s Ministry of State Security, according to European sources.

The investigation is roiling Beijing, Berlin and Brussels after German authorities raided the homes and offices of Sabathil and two other individuals on Wednesday.

At the heart of the investigation is the alleged link between the German ex-diplomat and the Chinese security ministry, the top counter-intelligence and foreign intelligence unit in China.  Several Western governments have raised concerns about Beijing using espionage to influence policy, as China expands its political and economic reach around the world.

Sabathil was recalled from his ambassadorial stint in Seoul in 2016, just a year into his posting, after his security clearance was revoked, and since 2017 he has joined a European lobbying firm.

Meanwhile, the number of births in China last year fell to a nearly six-decade low, exacerbating a looming demographic crisis that is set to reshape the world’s most populous nation and threaten its economy.

About 14.6 million babies were born in China in 2019, according to the National Bureau of Statistics, 4 percent lower than the previous year, and the lowest number of births in China since 1961.

Births have now fallen for three years in a row, after rising slightly in 2016, a year after the government ended its one-child policy and allowed couples to have two children.

The New York Times interviewed Wang Feng, a professor of sociology at the University of California, Irvine, who said: “It’s a society where nobody wants to get married and people can’t afford to have children.  On a deeper level, you would have to think about what kind of society China will become, not just demographically, but socially.”

North Korea: Last weekend, North Korea’s state-run media said they won’t rely on the personal relationship between Kim Jong Un and President Trump as it doesn’t intend to trade its nuclear weapons for a lift of sanctions.

“There will never be such negotiations as that in Vietnam, in which we proposed exchanging a core nuclear facility of the country for the lift of some United Nations sanctions,” Kim Kye Gwan was quoted as saying by the Korean Central News Agency.  “There is no need for us to be present in such talks, in which there is only unilateral pressure, and we have no desire to barter something for other things at the talks like traders.”

Meanwhile, South Korean President Moon Jae-in, desperate to keep the lines of communication between him and Kim Jong Un open, said on Tuesday there was no need to be pessimistic about stalled denuclearization dialogue between the U.S. and North Korea, adding Pyongyang has not yet shut the door to more talks.

Russia: For over an hour, President Vladimir Putin’s annual state-of-the-nation speech on Wednesday sounded just like those that had come before it.

As in previous years, Putin proposed measures for encouraging Russians to have more children, tackling poverty levels and stimulating economic growth.

Prime Minister Dmitry Medvedev reportedly had trouble staying awake in the room.  But he was jolted upright when near the end of the 80-minute address, Putin began outlining a raft of proposed changes to the country’s constitution.

The amendments, supposedly 11 of them, could be put to a vote through a referendum, Putin suggested.

“All of these changes are aimed at reigning in his successor,” said Tatiana Stanovaya, a nonresident scholar at the Carnegie Moscow Center.  “Medvedev had become too toxic,” she said.

Putin said the changes he envisaged include limiting future presidents to two terms in office; allowing the Duma, the lower house of parliament, to appoint the prime minister and cabinet; and giving the upper house the power to confirm the heads of Russia’s powerful security services and judges.

Putin had long been coy about whether he intended to stay in office beyond 2024, when he is legally obliged to step down as president. But the decision appeared to confirm longtime speculation that he intends to either become prime minister for a second time or head a revamped State Council as a supreme leader figure in the model of China’s Deng Xiaoping.

Dmitry Medvedev resigned hours after Putin’s declaration.  The rest of the cabinet followed.

Putin said Medvedev would take up a newly created position as deputy head of the Kremlin’s security council, and asked the government to remain in post until a new administration was appointed.

Medvedev said the cabinet wanted to “give our country’s president the chance to make all the necessary decisions” regarding the constitutional change.

Putin then announced later in the evening that Mikhail Mishustin, a little-known head of Russia’s Federal Tax Service, would become Russia’s prime minister.  He has zero known ambitions to be Russia’s leader at any point, unlike those that Medvedev, some said, harbored.

Putin’s approval ratings have been hovering near record lows, amid a stagnant economy where real incomes have fallen for half a decade.  During his address, Putin vowed to help Russians facing hard times by announcing major social spending on child welfare, public sector salaries and free school lunches, which sounds gross, if you’ve ever seen a typical Russian meal.

Patrick Tucker / Defense One

“Russian President Vladimir Putin wouldn’t seem to be a man with any check on his authority, but there is still the Russian constitution, which says that a president can’t serve more than two consecutive terms.  Russia watchers believe he has found a way to stay in power after his second term expires in 2024 – one that will have disastrous effects on freedom and particularly Internet freedom in Russia.

“On Tuesday, in a televised address, Putin announced reforms to shift authority to the State Council, a part of the Russian parliament. That would seem to have the opposite effect of consolidating power within the presidency.  But then Russian Prime Minister Dmitry Medvedev resigned, along with his cabinet. That clears the way for Putin to stack government bodies with loyalists whom he has empowered to amend the constitution and give him the permanent control he’s seeking, either by allowing him to remain president or elevating whatever new role he takes to be de facto leader.

“ ‘This wasn’t much of a surprise.  We knew the Kremlin would have to put a plan in motion,’ said Alina Polyakova, director of the Project on Global Democracy and Emerging Technology at the Brookings Institution.  Putin has held the presidency for a total of four terms, bookending a 2008-12 hiatus as Prime Minister that is regarded as a simple Potemkin ploy to retain power.

“The change in the constitution was one of a few options Putin and his loyalists were exploring, said Polyakova.  Among the other options Russia watchers have highlighted, doubling down on the invasion of Ukraine or annexing the state of Belarus in order to become the President of a new Russian ‘super state.’  Polyakova called the new constitution change the ‘path of least resistance.’

“The move ‘solidifies Putin’s role as president of Russia for life’ and ‘the source of power in Russia for the long term.  That only spells bad things for the future of Russian democracy,’ she said.  It ‘doesn’t change the regime’s attitude toward democracy.  It strengthens the position toward dictatorship.’”

Andrei Loshak, a Russian journalist, said at an event at the Atlantic Council on Tuesday, “The next ideological battle will be YouTube.”

Loshak said the Google-owned video service, which has ignored Moscow’s demands for control, currently represents “a real alternative to the government propaganda machine.”  Russia is working on a state-sponsored attempt to mimic YouTube because it needs a Russian version of the popular service in order to pacify public outcry in the event of a shutoff.

Putin clearly wants to block online platforms and internet services to help him retain control and push through his agenda.

Andrei Shary, director of Radio Free Europe’s Russian Service, said at the Atlantic Council event: “That’s why they need a system of blockage for the press, to be able to secure the inheritance of power in Russia.  It’s not just against journalists. It’s about power.  If you want to have total control over Russia, you need to be able to control the press.”

Russian opposition leader Alexei Navalny, Putin’s best-known political opponent, tweeted: “The main outcome of Putin’s address: How dumb and/or crooked are all those who said Putin would leave in 2024.”

Ukraine: Prime Minister Oleksiy Honcharuk resigned Friday, days after he was caught on tape saying the country’s president knows nothing about the economy.  Honcharuk, in a Facebook post, said he had given his resignation to President Volodymyr Zelensky.

“I took this post to implement the president’s program.  He is an example of transparency and decency to me,” he said.

“However, in order to dispel any doubts about our respect and trust for the president, I have written a resignation letter and submitted it to the president for introduction to parliament,” Honcharuk’s statement read.

But Zelensky declined to accept the letter.

Separately, Ukrainian authorities opened a criminal probe into whether the U.S. ambassador to Ukraine was put under surveillance by American citizens, as text messages made public this week suggest, before she was removed from her post last year.

The messages about Amb. Marie Yovanovitch were among materials involving an associate of Rudy Giuliani, released by House Democrats as part of the impeachment probe into the president.  Those messages and prime-time television interviews by the associate, Lev Parnas, reverberated in Washington on Thursday as the Senate opened the impeachment trial.

Text messages released by Democrats showed Robert F. Hyde, a Trump backer and Republican congressional candidate in Connecticut, telling Parnas he was monitoring the ambassador’s movements.

Random Musings

--Presidential tracking polls....

Gallup: 45% approval of President Trump’s job performance, 51% disapproval, 89% of Republicans approve, 42% of independents (still stuck on Dec. 2-15 data).
Rasmussen:  49% approve, 50% disapprove (Jan. 17).

A Quinnipiac University national poll has 43% approving of Trump’s job performance, while 52% disapprove.  [57% approve of his handling of the economy, a new record high, with 38% disapproving.]

--Quinnipiac’s poll has Joe Biden leading the Democratic primary, nationally, with 25%, followed by Bernie Sanders at 19%, and Elizabeth Warren 16%.  Pete Buttigieg receives 8%, and Michael Bloomberg 6%.  [Andrew Yang 5%, Amy Klobuchar 4%.]

Health care is the most important issue in deciding who to vote for in the Democratic primary among 27% of Democratic voters and independents who lean Democratic.  Climate change is named by 24% as the most important, followed by the economy (12%) and foreign policy and education (9% each).

A Reuters/Ipsos national poll of registered Democrats and independents said they back Sanders over Biden 20% to 19%, with 12% for Warren, 9% for Michael Bloomberg (huh) and 6% for Mayor Pete.

--A Monmouth University poll of likely Iowa Democratic caucusgoers found Joe Biden at 24%, Sanders 18%, Buttigieg 17% and Warren 15%.  [Klobuchar 8%.]  This was prior to Tuesday’s debate.  Only 43% are firmly decided on their candidate choice.

--As for Tuesday night’s debate in Des Moines, Iowa, the last such event prior to the Feb. 3 Iowa caucuses, yes, the story was Elizabeth Warren for nailing the much-anticipated question about electability.  And Amy Klobuchar was again very solid and the clear alternative for Biden voters.

As in Biden was awful, a bumbling mess.  Seriously, I don’t know why his supporters don’t see this, and how Klobuchar is the clear moderate alternative for them.

But everyone looks at these debates differently.  I like Mayor Pete but he’s just too young and inexperienced.

[Reminder, these are just my dispassionate views as an observer.]

As for the destruction of the Warren-Sanders nondisparagement pact, the two had spent Monday disagreeing over a Politico report that volunteers for Sanders’ campaign were given a script bad-mouthing Warren, while Sanders denied saying he had told Warren in a private December 2018 meeting that, in his view, a woman can’t win the White House against President Trump.

Bernie then said in a statement: “What I did say that night was that Donald Trump is a sexist, a racist and a liar who would weaponize whatever he could.”

On the debate stage, Warren said, “I am not here to fight with Bernie,” as Sanders insisted that of course a woman can be elected.

“Does anybody in their right mind” doubt that a woman can win, Sanders shouted, noting Hillary Clinton carried the popular vote against Trump.

Then once the debate ended, Warren refused to shake Sanders’ hand and the two engaged in a brief but animated discussion.  It took a while but CNN’s sound technicians found the audio, with Warren telling Bernie, “I think you called me a liar on national television.”  Bernie goes, “What?’  “I think you called me a liar on national television.”  Bernie then goes “You know, let’s not do it right now...If you want to have that discussion, we’ll have that discussion...”

Should the Sanders-Warren dispute continue, it could easily redound to the benefit of Joe Biden, or Buttigieg, or Klobuchar.

Meanwhile, polls in Iowa suggest that up to half of Iowa voters are still undecided.  But now Sanders, Warren and Klobuchar will be tied up in Washington with impeachment during the critical last few weeks of campaigning.

--New Jersey Sen. Cory Booker became the latest to drop out of the Democratic race, Booker never gaining traction while he ran as the happy warrior, framing himself as the uplifting, unifying figure who emphasized his bipartisan work record.

Booker is a good guy.  I noted months ago that he should just focus on getting reelected this fall, which he will now do, and maybe his time comes again.  He turns just 51 this coming April, after all.

--The Army Times (Military Times) released its latest survey on troops’ feelings about the commander-in-chief.  The poll was conducted from Oct. 23 to Dec. 2, 1,630 responses from active-duty troops, with Trump receiving an approval rating of 42%, setting a low mark in the survey since being elected president.  Some 50% of troops said they had an unfavorable view of him.  By comparison, just a few weeks after his electoral victory in November 2016, 46% of troops had a positive view of Trump, and 37% had a negative opinion.

But Trump still has a higher approval number than former President Barack Obama when he left office in January 2017.

Needless to say a lot has happened since the polling period so I’ll be anxious to see what the next survey reveals.

But among the questions asked, 58% disapproved of Trump’s decision to withdraw forces from northern Syria, and 59% disapproved with the decision to use military construction funds to build his border wall.

47% backed impeachment, 46% said they were opposed.

By the way, former secretary of defense Marine General Jim Mattis still draws an 86% favorability rating among all service members.

--It is beyond pathetic that ten states are not holding Republican primaries for president.

--According to a new report from New York State Comptroller Thomas DiNapoli, New Jersey received just 79 cents for every $1 paid in federal taxes, lowest among the 50 states, in the first year under President Trump’s tax law.  That’s a loss of $2,792 per person, also more than anywhere else.  New York received 90 cents for every $1 in federal taxes, tied with Massachusetts for 47th place.  Minnesota was 49th at 89 cents.  This blows, mused the Garden Stater.

Yes, it’s all about the federal deduction for state and local taxes being capped at $10,000.

--Former Pope Benedict, in a new book written with a conservative cardinal, Cardinal Robert Sarah, defends priestly celibacy in the Catholic Church in what appears to be a strategically timed appeal to Pope Francis not to change the rules.

But whether you agree or not isn’t the real issue for Benedict.  What is is the fact that in 2013, when he became the first pope in 700 years to resign, Benedict, who lives in the Vatican, is 92 and in failing health, vowed to remain “hidden from the world,” yet he has given interviews, written articles and contributed to books, which breaks his pledge to Francis.  That’s not cool, though conservatives in the church love Benedict and have huge issues with Francis.

--The World Meteorological Organization (WMO) said on Wednesday that 2019 was the second-hottest year on record, adding that heat was likely to lead to more extreme weather events like the Australian bushfires in 2020 and beyond.  The WMO’s Secretary-General Petteri Taalas said: “Unfortunately, we expect to see much extreme weather throughout 2020 and the coming decades, fueled by record levels of heat-trapping greenhouse gases in the atmosphere.  Australia had its hottest, driest year on record in 2019, setting the scene for the massive bushfires which were so devastating to people and property, wildlife, ecosystems and the environment.”

The hottest year on record was in 2016 at 1.2 Celsius above pre-industrial levels, the WMO said, due to the warming impact of an El Nino event.  “In the future we easily can expect warmer El Ninos than the previous ones,” said WMO scientist Omar Baddour, adding that that would drive temperatures even higher.   “We can raise a red flag now.”

Separately, the BBC interviewed Sir David Attenborough for a year of special coverage on the subject of climate change.

“The moment of crisis has come” in efforts to tackle it, Sir David warned.  “We have been putting things off for year after year.”

“As I speak, southeast Australia is on fire.  Why?  Because the temperatures of the Earth are increasing,” he said.

“We know perfectly well,” he said, that human activity is behind the heating of the planet.

Back in 2018, the UN climate science panel spelled out how the world could have a reasonable chance of avoiding the most dangerous temperature rises in future. 

It said that emissions of the gases heating the planet – from power stations and factories, vehicles and agriculture – should be almost halved by 2030.  Instead the opposite is happening.

The release of those gases is still increasing rather than falling and the key gas, carbon dioxide, is now in the atmosphere at a level far above anything experienced in human history.

--The most serious outbreak of desert locusts in 25 years is spreading across East Africa and posing an unprecedented threat to food security in some of the world’s most vulnerable countries, authorities say.  Unusual climate conditions are partly to blame.

Roughly the length of a finger, the locusts fly together by the millions and are devouring crops and forcing people in some areas to bodily wade through them.  Kenya is being particularly hard hit.

An East African regional body said, “A typical desert locust swarm can contain up to 150 million locusts per square kilometer. Swarms migrate with the wind and can cover 100 to 150 kilometers in a day.  An average swarm can destroy as much food crops in a day as is sufficient to feed 2,500 people.”

--Queen Elizabeth reluctantly agreed to her grandson Harry and his wife Meghan’s wish for a more independent future after the royal family held crisis talks on Monday to resolve the widening rift among the Windsors.  So Harry and Meghan will begin a “period of transition” that will see them splitting time between Britain and Canada.

The 93-year-old queen described the talks as “very constructive” between herself, Harry, Prince William and his father, Prince Charles.  In a statement, the queen said: “My family and I are entirely supportive of Harry and Meghan’s desire to create a new life as a young family.  Although we would have preferred them to remain full-time working members of the Royal Family, we respect and understand their wish to live a more independent life as a family while remaining a valued part of the family.”

After thinking about this whole deal more, and weighing all the various opinions of royal watchers, including a supposed comment Harry made to Disney CEO Bob Iger about Iger hiring Meghan for voiceover work, boy, I have soured on Harry bigly.  And there is the story Canadian taxpayers will be picking up the enormous tab for the couple’s security, which stinks, but Canada is part of the British Commonwealth.  [Exactly half of those polled by the Angus Reid Institute in Canada say they don’t care if the Duke and Duchess of Sussex moved there for good, but only 5 percent believed taxpayers should help pay for whatever the family needed, with 73 percent adamant that the Sussexes should pay for everything.]   It’s true Harry is deemed a particularly high-level risk following his service as a British Army officer who served in Afghanistan.

Anyway, I agree with President Trump...I support the queen.

--A second person has died from pneumonia in the central Chinese city of Wuhan following an outbreak of a previously unknown virus, local authorities said Thursday, as the World Health Organization warns of a wider possible outbreak.  Cases have been reported in Thailand and Japan and the main concern over the coming weeks is all the travel associated with China’s Lunar New Year holiday late this month and into February.  The virus is a new type of coronavirus, a large family of viruses that can cause infections ranging from the common cold to deadly Severe Acute Respiratory Syndrome (SARS).  Back in 2002/03, a SARS outbreak which emerged in China killed 800 worldwide.

Tonight, the first direct flights from Wuhan to the U.S. are being met by CDC officials in Los Angeles, San Francisco and New York.

---

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

God bless America.

---

Gold $1557
Oil $58.81

Returns for the week 1/13-1/17

Dow Jones  +1.8%  [29348]
S&P 500  +2.0%  [3329]
S&P MidCap  +2.2%
Russell 2000  +2.5%
Nasdaq  +2.3%  [9388]

Returns for the period 1/1/20-1/17/20

Dow Jones +2.8%
S&P 500  +3.1%
S&P MidCap  +1.6%
Russell 2000  +1.9%
Nasdaq  +4.6%

Bulls 57.0
Bears 17.8  [prior two weeks, ratios were 58.9/17.8; 55.1/17.8, as we catch up from the holidays.  Pretty amazing bear percentage hasn’t budged.]

Have a great week.

Brian Trumbore



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Week in Review

01/18/2020

For the week 1/13-1/17

[Posted 9:30 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 1,083

I wrote the following in this space 12/21/19, after the House had impeached President Trump.

“We’ll see what happens when Congress returns but remember one thing...long after the Senate’s looming action, other information is going to be coming out, and eventually some of the witnesses will be compelled to talk, all during the height of the 2020 campaign.  So remember my adage, ‘wait 24 hours.’”

I strictly recite some facts below on the Senate trial and the background that will envelop us all next week and the following one.  I’m as interested as many of you to see how it proceeds.  I want key witnesses to testify, but my hopes for that are not high.  Some figures, on both sides, will shine, others will see their reputations, and legacies, damaged.

I wrote about Sen. Margaret Chase Smith last week as an example of one who rose above it all and secured her legacy as a true American hero.  One or two may do the same for themselves in the impeachment trial.

As for the U.S.-China trade deal, I comment on it heavily below, but I’ve been consistent for the past 22 months on this issue.  China is not going to fundamentally change its behavior.  China will continue to lie, cheat and steal to ensure it is the leader in technology in the 21st century, period.

I do, and have, given President Trump credit for confronting China, unlike past presidents.

But nothing in the trade deal does anything of substance on the key issues of subsidies to state-owned companies, intellectual property theft, or forced technology transfers.   Don’t believe the words of our leaders that there are safeguards regarding the latter two.  That could only come in a phase two agreement and that is not part of 2020’s story.

The phase one accord will be about implementation and execution on various targets, but President Trump, as I said last week, will have more than enough ammunition to tout a “huge success” to his base on the campaign trail.

We do at the same time have, however, a very good consumer economy.  Yet growth, as defined by GDP, remains punk (mired at 2% for what will be three quarters in a row with release of the fourth quarter data shortly), because business confidence in the C-Suite has been lagging.  Capital spending has been muted.

Will the phase one trade agreement thus supply executives with enough confidence to begin to spend on plant and equipment again, as they did in 2018, on the heels of the Trump tax cuts?  That’s the real issue.  I suspect at least for now that CEOs will take a wait and see approach before making massive new commitments.

The level of CEO confidence will also impact just how good, or poorly, the stock market performs this year.  And whether my prediction of a down Dow Jones and S&P 500, but an up Nasdaq will be accurate as well.

Trump World

--House Speaker Nancy Pelosi announced seven impeachment managers who will press the House’s case against President Trump during a Senate trial expected to begin next Tuesday.

Aside from two obvious picks, House Judiciary Committee chairman Jerrold Nadler and House Intelligence Committee chair Adam Schiff, Pelosi selected Hakeem Jeffries of New York, among the rest, giving him a tremendous opportunity to increase his stature.

Pelosi said, “The emphasis is on litigators.  The emphasis is on comfort level in the courtroom.  the emphasis is making the strongest possible case to protect and defend our Constitution.”

Adam Schiff said that Pelosi’s delaying transmitting the articles to the Senate pressured senators to hold a “fair trial.”

“Do they want a fair trial – one that’s fair to the president but also fair to the American people – or are they going to participate in a cover-up?” Schiff asked.

The White House called the impeachment process “illegitimate” and a “sham,” and accused Pelosi of focusing on “politics instead of the American people.”

“President Trump has done nothing wrong.  He looks forward to having the due process rights in the Senate that Speaker Pelosi and House Democrats denied to him, and expects to be fully exonerated. ...He will continue working and winning for all Americans, while the Democrats will continue only working against the President,” White House press secretary Stephanie Grisham said in a statement.

Trump tweeted during Pelosi’s news conference: “Here we go again, another Con Job by the Do Nothing Democrats.  All of this work was supposed to be done by the House, not the Senate!”

Thursday, the third impeachment trial in U.S. history officially began amid the swirl of new allegations.

Republican lawmakers appeared unswayed by the new information, focusing on attacking the Democratic-led investigation in the House for not uncovering the evidence before sending the impeachment articles to the Senate.

Sen. James Lankford (R-Okla.) said it is the responsibility of the House, not the Senate, to gather evidence and present a case for impeachment.

“As a juror, I’m not fishing, looking for more information on this,” he said.  “I’m trying to respond to what the House is sending over and what they’re doing.”

With Republicans unwilling to consider additional evidence, Democrats face an uphill climb in their attempts to further build a case against Trump as the Senate trial plays out.

House Speaker Nancy Pelosi said Thursday, “The American people have seen allegations...We need to see more evidence that would be contained in the documentation.  This is just another avoiding of the facts and the truths on their part.”

According to a new Quinnipiac University national poll, 51% approve of the House’s vote to impeach the president, 46% disapprove.  But 48% say the Senate should not vote to remove him and 46% say they should.

--President Trump bolstered his legal team in his impeachment trial by adding former independent counsel Ken Starr, his successor Robert Ray and famed defense attorney Alan Dershowitz.  They will join a team headed by White House counsel Pat Cipollone and outside attorney Jay Sekulow, who plan to deliver statements on Trump’s behalf on the Senate floor.

Pam Bondi, the former Florida attorney general, is serving as special adviser to the president for impeachment, according to reports.

--An aide to Rudy Giuliani claims President Trump “knew exactly what was going on” regarding efforts to pressure Ukraine into investigating Joe and Hunter Biden.

Lev Parnas, a close associate of the president’s lawyer, made the comments in an interview with MSNBC.

Parnas, who is facing separate criminal charges, said Mr. Giuliani was never investigating corruption.  The intention was to damage a potential Democratic rival to President Trump.

The president denies the allegations, or that he ever knew Parnas.

Parnas said the president was lying and knew that unless there was an investigation into the Bidens, military aid to Ukraine would be withheld.  He also claimed that the investigation was about digging up dirt on Joe Biden.

Earlier this week, letters, phone records, notes and flash drives were obtained from Mr. Parnas, a Ukrainian-American businessman, in a bid to bolster Democrats’ case against President Trump at the forthcoming Senate trial.

In the interview aired on Wednesday, Parnas said Trump was “aware of all my movements.  I wouldn’t do anything without the consent of Rudy Giuliani or the president.  Why would President Zelensky’s inner circle or [Interior] Minister [Arsen] Avakov or all these people or [former] President [Petro] Poroshenko meet with me?”

Documents also showed that Parnas was involved in monitoring the movements of former U.S. Ambassador to Ukraine Marie Yovanovitch before Trump removed her in May.  In an interview with Reuters, Giuliani said he pushed Trump to fire Yovanovitch but did not know if Parnas put her under surveillance.  [More on Yovanovitch below.]

--Russian military hackers tried to steal emails from the Ukrainian energy firm where Hunter Biden had a seat on the board, according to U.S. cybersecurity firm Area 1 Security.  Area 1 identified the hacking of Burisma and linked it to Russia’s Main Directorate of Military Intelligence, or GRU.  The same hacking group, known as “Fancy Bear” by cybersecurity researchers, breached the Democratic National Committee in 2016 in what U.S. investigators described as part of an operation to disrupt that year’s election.

“You can see this attack really is starting to parallel with what we saw in 2016,” Oren Falkowitz, Area 1’s chief executive, said in an interview.

What data the hackers were looking to steal is not clear, Area 1 said. Breaching Burisma could yield communications from, to, or about Hunter Biden, who served as a director between 2014 and 2019.   A leak of stolen data could potentially affect the impeachment process and U.S. electoral contest.

--Despite the fact the impeachment trial will be underway, as of tonight, President Trump is still slated to participate in the 50th anniversary meeting of political and business leaders being held at Davos, Switzerland next week, the World Economic Forum.  Trump appeared in 2018, but did not last year.

But Ivanka and Jared will definitely be there, regardless of whether Dad shows.

--Trump tweets:

“Mini Mike Bloomberg ads are purposely wrong – A vanity project for him to get into the game.  Nobody in many years has done for the USA what I have done for the USA, including the greatest economy in history, rebuilding our military, biggest ever tax & regulation cuts, & 2nd A!” [Ed. Second Amendment]

“Mini Mike Bloomberg doesn’t get on the Democrat Debate Stage because he doesn’t want to – he is a terrible debater and speaker.  If he did, he would go down in the polls, even more (if that is possible).”

“They are rigging the election again against Bernie Sanders, just like last time, only even more obviously.  They are bringing him out of so important Iowa in order that, as a Senator, he sit through the Impeachment Hoax Trial.  Crazy Nancy thereby gives the strong edge to Sleepy...

“...Joe Biden, and Bernie is shut out again.  Very unfair, but that’s the way the Democrats play the game.  Anyway, it’s a lot of fun to watch!”

[Of course it was the president who was looking for dirt on Sleepy Joe in Ukraine to kill his chances of becoming the Democratic nominee.]

“Bernie Sander’s volunteers are trashing Elizabeth ‘Pocahontus’ (sic) Warren. Everybody knows her campaign is dead and want her potential voters.  Mini Mike B is also trying, but getting tiny crowds which are all leaving fast.  Elizabeth is very angry at Bernie.  Do I see a feud brewing?”

“The powerful Trump Wall is replacing porous, useless and ineffective barriers in the high traffic areas requested by Border Patrol.  Illegal crossings are dropping as more and more Wall is being completed!  #BuildingTheWall”

“I JUST GOT IMPEACHED FOR MAKING A PERFECT PHONE CALL!”

Wall Street and the China Trade Deal

Trump tweet:

“The farmers are really happy with the new China Trade Deal and the soon to be signed deal with Mexico and Canada, but I hope the thing they will most remember is the fact that I was able to take massive incoming Tariff money and use it to help them get through the tough times!”

Yes, the phase one trade agreement was finally signed at the White House on Wednesday. The agreement, meant to reduce tensions after nearly two years of a tit-for-tat tariff war, included a pledge by China to purchase at least an additional $12.5 billion worth of agricultural goods in 2020 and at least $19.5 billion over the 2017 level of $24 billion in 2021.  President Trump’s insistence on a big commitment to buy farm products was a major sticking point in the weeks and months leading up to the signing.

The centerpiece nonetheless is the pledge by China to purchase at least an additional $200bn worth of U.S. goods and services over the next two years, over a baseline of $186bn in purchases in 2017.  Aside from the increased ag buys, China has committed to $54 billion in additional energy purchases, $78 billion in additional manufacturing purchases, $38bn in services, and the $32bn in agriculture.

But Chinese negotiator Liu He said Chinese ‘buys’ over the next two years would be “based on market conditions.”  As I’ve noted ad nauseam, Beijing has commitments with other trading partners, and has signed new soy bean contracts with Brazil since the trade war started.

The deal also doesn’t end retaliatory tariffs on U.S. farm exports, makes farmers “increasingly reliant” on Chinese state-controlled purchases and doesn’t address “big structural changes.”

Again, while the deal on paper seems to be a boost for America’s farmers, auto makers and heavy equipment manufacturers, I’m just questioning China’s ability to divert imports from other trading partners.  It’s just not going to happen the way we are led to believe it will.

Both countries have the option to reimpose tariffs if a disagreement cannot be resolved regarding the deal’s enforcement.  Beijing and Washington will start talks on “phase two” later in the year.

Still, a host of difficult issues such as Chinese subsidies to domestic companies weren’t resolved in the phase-one deal.  The latest agreement also didn’t touch tensions surrounding Chinese telecom giant Huawei Technologies.  Huawei has been on the U.S. Commerce Department’s trade blacklist since last May, which is limiting the sale of American tech products to the company.

Taoran Notes, which is affiliated with China’s official Economic Daily newspaper that is used by Beijing to manage trade talk expectations, published its first piece for two months on Monday, saying the deal set to be signed this week is just “the first step to solve a problem.”

“We must bear in mind that the trade war is not over yet – the U.S. hasn’t revoked its tariffs on China and China is still implementing its retaliatory measures. There are still many uncertainties down the road.”

It added that the broad meaning of reaching a trade deal is to find an approach to solving China-U.S. disputes in other areas.

Editorial / Global Times...a Communist Party mouthpiece...

“The U.S. formally removed China’s designation as a currency manipulator, according to the U.S. Treasury Department on Monday. This is obviously part of the phase one trade agreement between China and the U.S.

“It was absurd for the U.S. Treasury Department to list China a currency manipulator in August 2019 because it meets only one of the three indicators of a currency manipulator – having a significant bilateral trade surplus with the U.S.  The short-term fluctuation of the yuan against the U.S. dollar resulted from the U.S. escalation of its trade war against China....

“But the U.S. Treasury Department’s latest decision is still welcome. As China and the U.S. are about to sign the phase one trade agreement, the U.S. is becoming somewhat reasonable again.  However, there is obviously no reason for China to feel grateful to the U.S.  Many Chinese people and international observers may wonder if Washington will repeat the same tricks again if China and the U.S. have disputes again in the future.

“In the past two years, China had many reasons to be enraged by the unreasonable U.S. pressure.  But we have been seeking balance between maintaining our own interests and alleviating China-U.S. disputes.

“Such rationality from China needs to be supported by national strength.  The strength has offered Chinese people more confidence and calm.  Over the past two years, China’s countermeasures against the trade war were not desperate resentment, but calm measures mingled with negotiations.  The trade war and negotiations were combined into one.

“China’s General Administration of Customs announced on Tuesday that China’s foreign trade rose 3.4% in 2019, with its exports expanding 5%, although China-U.S. trade declined by 10.7%.  This shows that China is capable of withstanding the loss in its relations with the U.S.  Such strength has helped China achieve the balance between firmly fighting the U.S. and resolving disputes with it.

“The decline of 10.7% in China-U.S. trade seems to be a large number, but historically, it is not.  Amid tensions, the U.S. vented dissatisfaction against China.  China-U.S. antagonism was stopped in time by the phase one agreement.  The two countries are likely to see a rebound in their trade in 2020.

“The two countries are trying to get their trade relations back on track after a long detour.  This will be a challenging task because the factors that triggered the trade war have not disappeared.  So far, the losses caused by the trade war to both countries have been limited.

“Chinese economy cannot be taken down.  This is the basis for China and the U.S. to jointly promote negotiations.  In 2020, China must do its best to develop its economy, expand its domestic market and make sure that its economy is one of the most dynamic among the large economies. The prospect of China-U.S. trade negotiations is largely in our own hands.”

Global Times, Part II...after the agreement was signed...

“China and the U.S. eventually signed the phase one trade agreement. The hard-fought agreement should be cherished by both sides.

“The agreement was achieved after 22 months of the U.S.-launched trade war against China.  Although both countries have suffered some losses, their economies are running smoothly, showing strong tolerance for trade wars.  In other words, if the trade war continues for another 22 months, China and the U.S. will probably be able to withstand it. Thus, the agreement will never be a zero-sum game. It is destined to be the result of mutual compromises.

“This full-fledged trade war waged by the U.S. had at times made the two sides ‘see red.’  But it was stopped by the phase one agreement before causing any deadly consequences for either side. This shows that both China and the U.S. are clear-minded.  Both sides believe that continuing the trade war for a longer time is counterproductive to achieving their own strategic goals and exacerbates the loss and creates more serious risks....

“Can a preliminary trade agreement, reached during a period when China-U.S. strategic relations are clearly declining, really work?  How long can it last?  Will it be replaced by new conflicts or further progress as negotiations continue?

“The future is unpredictable, but it is clear that the Chinese and the U.S. markets, and the global market all welcome the phase one trade agreement. This is more real than political voices and public opinion, because real trade speaks for itself.

“Huge uncertainty remains.  It may be difficult for China and the U.S. to reach a comprehensive trade deal, but we hope the preliminary agreement will enlighten both sides’ further efforts.  There have been twists and turns in the past 22 months, but neither side has given up contacts and negotiations and the desire to reach a consensus. This is one of the most profound experiences.

“We urge individuals and forces to exercise some restraint in their nitpicking of the agreement and bad-mouthing future trade negotiations. Those who are preaching for confrontation should also exercise restraint. It is not empty talk that peace between China and the U.S. benefit both, while fighting will hurt both.  To verify it with greater loss is a waste.  Continuing to push for such a waste is immoral.

“We hope the implementation of the phase one agreement will be smooth as it can stimulate the two countries’ further trade consultations and help ease overall China-U.S. relations. History moves forward and it is good to help achieve progress.”

Editorial / Washington Post

“Has President Trump made a good deal on trade with China?  Well, compared with what?  Compared with the prospect of a continued or even escalating tariff war, the truce that Mr. Trump and Chinese Vice Premier Liu He signed in Washington on Wednesday is cause for relief.   A source of uncertainty in the global economy, and its potentially destructive consequences for Americans, has abated, now that Mr. Trump has agreed to reduce some of the tariffs he imposed on China in return for Chinese concessions.

“If the standard of success is China abandoning its mercantilist economic model, as the administration initially demanded, the deal barely merits the ‘phase one’ name Mr. Trump has given it. The Trump team did extract some promises to protect the trade secrets and intellectual property of U.S. firms operating in China that are somewhat more enforceable than previous pledges Beijing has made. Also, there seems to have been modest but real reduction in structural barriers to U.S. financial services and food exports.  Overall, though, the deal leaves intact the foundations of Chinese mercantilism: a vast system of subsidies to favored high-tech industries and state-owned firms.

“Still less has the Trump administration accomplished its goal, set forth in a May 2018 negotiating position paper, that China reduce its trade surplus with the United States by $200 billion over two years.  Instead, it commits China to increasing imports of goods and services by a total of $200 billion over the next two years, relative to the pre-trade-war level of $187 billion in 2017.  In practical terms, this means the upward path of U.S. exports prior to 2018 will resume and accelerate, though with no guarantee that China will favor U.S. goods after 2021.

“Which brings us to another point of comparison: the one between this trade deal and its zero-sum mind-set on the one hand, and a vision of truly free and reciprocal global commerce on the other.  We do not doubt that the United States needed to pressure China, even through the blunt instrument of tariffs, if it was ever to force Beijing to abandon mercantilism and do business – at home and abroad – on the commercial merits.  Yet this deal actually enshrines a norm of managed, i.e., politicized, trade, both in China’s purchasing guarantees and in Mr. Trump’s retention of 25 percent U.S. tariffs on $250 billion in industrial goods and a 7.5 percent tariff on $120 billion worth of consumer items.

“Finally, there’s the contrast between these results and the short-term costs American consumers and farmers paid in the tariff war. Those might have been avoided if Mr. Trump had chosen a different strategy, one that exercised pressure on China via a united front with other Pacific Rim and European countries, as his predecessor President Barack Obama had tried to do through the Trans-Pacific Partnership.

“The odd upshot: movement toward decoupling the world’s two largest economies, as U.S. manufacturers take action to limit tariff risk, leavened by negotiated Chinese purchases of U.S. commodities to appease the current president.  As so often with his administration, the deal is not as bad as it could have been but far short of what might have been achieved if the United States had chosen to work with allies.”

Editorial / Wall Street Journal

“President Trump is naturally hailing the ‘phase one’ trade agreement with China he signed on Wednesday as a victory that vindicates his strategy of whipping Beijing until it pleaded for mercy.  The truth is that this is a mutual truce that relieves considerable economic damage to both sides and, let us hope, helps the cause of reformers in China.

“In Mr. Trump’s blunderbuss two-year tariff campaign, China has been the one legitimate target. The People’s Republic has too often failed to live up to its commitments under the World Trade Organization and has pursued mercantilist policies that harm foreign companies.  U.S. firms are at the mercy of Beijing’s unfair practices when their secrets are stolen or regulations favor Chinese competitors.

“U.S. Trade Representative Robert Lighthizer was right to focus on these abuses, and the new deal offers a new process for dispute resolution and relief.  Trade officials from the two countries will review complaints, with appeals rising in stages to the level of Mr. Lighthizer and China’s top trade negotiator Liu He.  The U.S. could impose tariffs if the Chinese decline to enforce the rules of the agreement.

“The deal makes it easier for U.S. IP owners to obtain injunctions to prevent use of stolen secrets, and it requires China to impose stiff criminal penalties on IP burglars. There’s also a mechanism for pharmaceutical companies to enforce patent rights in China and provisions that obligate the government to crack down on piracy and counterfeit goods.  Beijing has also agreed to eliminate foreign ownership restrictions on credit rating firms, fund managers, insurers and securities companies.

“China has made promises of this sort before but at least now the U.S. has an enforcement mechanism.  China has also agreed to increase its imports of U.S. goods by $200 billion over the next two years over a 2017 baseline of $187 billion.  President Trump is obsessed with the bilateral U.S. trade deficit with China, but what really matters is reducing Chinese trade and regulatory barriers.

“Mr. Trump’s defenders say none of this would have happened without Mr. Trump’s tariffs.  We’ll never know.  We argued that Mr. Trump should have marshalled a coalition of nations to pressure China instead of imposing unilateral tariffs.  But the President foreclosed that when he walked away from the Trans-Pacific Partnership and imposed steel and other tariffs on America’s main trading allies.

“The President’s strategy has also caused plenty of economic harm – on China to be sure, but also on global manufacturing and the U.S.  The tariffs and China’s retaliation have been a tax on U.S. consumers and companies that use Chinese goods....

“The tariff war has led to a decline of business investment, and a Federal Reserve study says trade uncertainty cut U.S. GDP growth by about a percentage point.  Some say this is a price worth paying.  But it’s simply false to assert that the President’s trade wars have been cost free. Americans have paid a high economic price in the hope that China will behave better in the future as the result of this deal.

“Mr. Trump essentially admitted as much when he agreed to this phase-one deal because his free-market advisers rightly persuaded him that he needed the trade relief in this election year.  The phase-one deal cuts the 15% tariffs imposed in September on $120 billion in goods by half.  Most of these items are consumer products including children’s clothing, lithium ion batteries and other electronics that the U.S. imports mainly from China.

“The President says talks on phase two will begin pronto, but don’t expect anything before the election.  In the best case this initial deal offers a year or two of trade calm, China will honor its commitments, Mr. Trump will sheath his tariff sword, and he or his successor can move on to the thornier issues of Chinese subsidies for state-owned industries and high-tech protectionism in 2021 or 2022.

“The phase-one deal is progress, but U.S.-China economic and political competition has decades to run.”

We did have another big trade deal this week finally clear the Senate, the revamp of the 26-year-old North American Free Trade Agreement, U.S.-Mexico-Canada Agreement, or USMCA, which the Senate approved 89-10, after the House passed it overwhelmingly (385-41) in December.  President Trump will sign it to further fanfare, but this deal is an improvement only at the margins.    It does include tougher labor and automotive content rules, but leaves $1.2 trillion in annual U.S.-Mexico-Canada trade flows largely unchanged. It also opens up Canadian dairy markets, though just wait to see how this is implemented.  Canada also still has to approve the deal itself.

---

On the economic front, the stock market continued to power to new highs, the major indices closing in record territory again today, on the signing of the U.S.-China trade deal, and solid earnings from the banking sector.

We also had more tame news on the inflation front, with the December consumer price index at 0.2%, 0.1% ex-food and energy; 2.3% year-on-year for both.  Producer prices rose 0.1% on both headline and core; 1.3% year-on-year on headline, 1.1% on core.

December retail sales were a solid 0.3%, 0.7% ex-autos.

December industrial production was punk, -0.3%.

But December housing starts came in at 1.608 million, way above forecast and the best since 2006, a major positive for the economy.

The National Retail Federation came out with its definitive reading on holiday sales for November and December and they rose a robust 4.1%, vs. my own forecast of 3.5%.  This was in stark contrast to last year’s 2.1% increase, which was pulled down by a partial government shutdown, interest-rate increases from the Fed, and volatility in the stock market.

The Atlanta Fed’s GDPNow barometer for the fourth quarter, however, fell to 1.8% from 2.3% the week before.

Lastly, the federal budget deficit for calendar year 2019 topped $1 trillion, up 17% from 2018, Treasury data shows. That was a slowdown from the 28% growth in 2018, the first year President Trump’s signature tax cuts were in full effect.  Last year’s deficit would have been even larger if not for a series of interest-rate cuts undertaken by the Federal Reserve, which helped to push the cost of new government debt down.

It was the first calendar year since 2012 the deficit topped $1 trillion and it is up and up from here.  Total federal receipts rose by 5% in 2019, the fastest rate of growth for receipts since 2015, but spending grew by 7.5% in 2019, the fastest pace since 2009.

Yes, President Trump’s promise to balance the budget and constrain spending as a candidate in 2016 was a crock, let alone his claim he could pay off the entire federal debt in eight years.

The Trump tax cuts have not paid for themselves through economic growth.

Europe and Asia

A little data for the eurozone (EA19), as November industrial production rose 0.2% over October, but was still down 1.5% year-on-year.  [Eurostat]

A final reading on inflation for the EA19 in December came in at 1.3%, up from 1.0% in November.   A year earlier, the rate was 1.5%. [Eurostat]

Germany’s GDP for 2019 was just 0.6%, the lowest since 2013, as manufacturing fell 3.6%.

Brexit: Britain is still on course to exit the European Union on January 31, with some final legislative maneuvering yet to take place, but then it’s about finalizing a trade pact with the EU in just eleven months, Prime Minister Boris Johnson insisting he won’t seek an extension of the transition period.

France: French Prime Minister Edouard Philippe on Saturday offered a major concession to unions contesting his government’s overhaul of the pension system, in a move aimed at ending strikes now in their fifth week. Philippe in a letter to unions and employers said he was prepared to withdraw plans to raise the retirement age for full pension benefits by two years to 64 if certain conditions were met. The CFDT union, France’s biggest, is inclined to accept a limited reform and welcomed the move.

France currently spends 14% of economic output on pensions.  Philippe aims to present the reform bill to parliament next week, though any passage won’t be before the summer break.  The unions need to agree on how to ensure the long-term financing of the pension system in April.  Otherwise the government will issue decrees doing so and there would be renewed protests.

Turning to Asia...China’s GDP for the fourth quarter was 6.0%, according to the National Bureau of Statistics, with the full-year growth rate at 6.1%, the lowest since 1990, and at the lower end of the government’s forecast issued back in March of 6-6.5% growth.  It was 6.6% in 2018.

Experts expect the government to peg 2020 also at 6% when they issue their official forecast this coming March, relying on infrastructure spending to ward off a sharper slow down.

Fixed-asset investment rose 5.4% for the full year, while retail sales rose 8.0% in December vs. a year ago.

Real estate investment rose 9.9% in 2019.  New-home prices for the 70 major-city index rose 6.6% year-over-year in December, the slowest pace since July 2018.

December exports, however, were better than expected, up 7.6% yoy, with imports up 16.3% (though the yoy comparisons are vs. a December 2018 that was particularly weak).

For all of 2019, exports rose 0.5%, imports fell 2.8%.

China’s exports to the U.S. fell 12.5% last year, with imports from the U.S. down 20.9%.

Chinese agriculture imports from the U.S. did hit $2 billion in December.  As pig inventory rises after dropping 40% due to African swine fever, that will help soymeal imports from the U.S.

--One note on Japan...core machinery orders in November surged to their biggest monthly expansion on record, in a positive sign for business spending which has helped sustain a fragile recover in the world’s third-largest economy.  Core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 18.0% over October.  The jump was largely driven by big-ticket items, such as orders for railway cars.  Economists only expected a 3.2% rise after an unexpected drop in October of 6.0%.

October’s sales tax hike hit consumption, one of the economy’s key drivers of growth, and government data last week showed Japan’s inflation-adjusted real wages declining at their fastest pace in four months in November.

Fourth quarter GDP comes out next month.

Street Bytes

--As noted above the Dow Jones, S&P 500 and Nasdaq all closed at new highs today, the Dow up 1.8% on the week to 29348, the S&P gaining 2.0% to 3329, and Nasdaq 2.3% to 9388.  Nasdaq is already up 4.6% for the year.

Surprisingly, the S&P 500 hasn’t moved 1% of more in either direction since mid-October, its sixth-longest streak since the end of 1969 and third-longest since the end of 1995, according to Dow Jones Market Data.

Meanwhile, with earnings season now in full swing, for one week at least the commentary from the banks was largely positive.

We also had Alphabet, the parent of Google, see its valuation climb above $1tn for the first time, making it the fourth tech giant to cross that threshold.

The others in the $trillion market cap club are Amazon, Microsoft and Saudi Aramco.  [Amazon has dropped back below $1tn.]

--U.S. Treasury Yields

6-mo. 1.56%  2-yr. 1.56%  10-yr.  1.82%  30-yr.  2.28%

Literally unchanged on the week.

--Surging oil production from non-OPEC countries led by the United States along with abundant global stocks will help the market weather political shocks such as the U.S.-Iran standoff, the International Energy Agency (IEA) said on Thursday.

“For now the risk of a major threat to oil supplies appears to have receded,” the Paris-based IEA said in a monthly report.

The IEA said it expected production to outstrip demand for crude from OPEC even if members comply fully with a pact with Russia and other non-OPEC allies to curb output.

--JPMorgan Chase finished up its most profitable year on record, with CFO Jennifer Piepszak saying on an earnings call Tuesday, “The U.S. consumer remains in very strong shape, both from a credit perspective and spending sentiment.”  Among the bank’s corporate clients, “sentiment is at least certainly better than it was six months ago. So we have a constructive outlook as we’re heading into 2020.”

CEO Jamie Dimon said: “The consumer is in very good shape. Their wage growth is up. Their home values are up.  And the amount of the income they have that goes to servicing interest expense is as low as it’s been in 50 years.”

JPM’s total profit rose 21% to $8.52 billion in the fourth quarter, led by a 31% revenue jump in the corporate and investment bank.   Fixed-income trading revenue in the final quarter was 86% higher than a year ago.

For the year JPM earned $36.4bn vs. $32.5bn in 2018.

--Citigroup Inc. beat analysts’ estimates for fourth-quarter profit on Tuesday, boosted by growth in its credit card business and a jump in trading revenue.  North American branded cards, which account for a majority of the bank’s consumer banking revenue, clocked double-digit revenue growth for the second straight quarter, rising 10% from a year earlier.  The third-largest U.S. bank by assets has been leveraging its card business to help grow deposits by pitching checking and savings accounts to card holders.

Trading revenue rose nearly 31% as markets steadied during the last three months of 2019, with fixed-income trading revenue surging 49%.

2019 earnings came in a $19.4bn, $5bn in Q4.

--Goldman Sachs missed earnings expectations for the second quarter in a row, owing to a surge in litigation (to the tune of $1bn), with net income falling 26%, while rival JPMorgan Chase was booking record profits for both the quarter and the year.

Revenues across the group rose 23%, to $9.96bn, fueled by a 63% surge in fixed income revenues versus a year earlier.  The global markets arm, which includes fixed income and equities trading, saw a 33% jump in fourth-quarter revenues.

Investment banking was Goldman’s worst performing division in the fourth quarter, with revenues falling 6% year-on-year, versus the 6% rise for both Citigroup and JPMorgan Chase.

CEO David Solomon has his work cut out for him as he has to convince investors that his team has found a way to improve returns at its trading businesses, even as post-crisis regulations made trading more costly.

--Bank of America said fourth-quarter profit fell 4%, as the second-largest U.S. bank by assets said it earned $6.99 billion in the quarter, down from $7.28bn a year earlier.  Revenue was $22.35bn, down about 1% from a year ago, though this was slightly better than expected.

BofA’s consumer bank reported lower profit and revenue, while net interest income (the amount banks make from lending minus what they pay out on deposits), fell 3% from a year ago.

CEO Brian Moynihan said the bank is seeing more optimism among its commercial clients as economic uncertainty recedes and the trade war between the U.S. and China cools.

“We see some resolution of those issues, and that combined with the continued consumer strength leads us to expect to see businesses continue their solid activity,” Moynihan said.

--Wells Fargo & Co.’s latest quarter was another downer as the nation’s fourth-largest bank by assets racked up operational losses of $1.9 billion in the final quarter, with new CEO Charles Scharf saying the bank’s cost structure was simply too high.

“Wells Fargo is a wonderful and important franchise that has made some serious mistakes, and my mandate is to make the fundamental changes necessary to regain the full trust and respect of all stakeholders,” Scharf said in a statement.

Wells is operating under heavy scrutiny, including an unprecedented cap on its balance sheet by the Federal Reserve, as it tries to rebuild its reputation since it was revealed that the bank had opened potentially millions of bogus accounts.

At least the bank’s mortgage income rose to $783 million from $467 million a year earlier, benefiting from lower interest rates, but the same low rates led to net interest income falling 11%.

--The last of the big six banks to report, Morgan Stanley, knocked it out of the park, shares surging 6.6% Thursday, as MS outlined its two-year performance goals after the Q4 results topped the Street’s expectations. The bank set the bar higher for expense controls, returns on equity and wealth management profits over the next two years and beyond.  Analysts cheered the new targets.

Bond trading, underwriting and investment management each produced much higher revenue in the most recent quarter, as profit jumped to $2.09 billion from $1.36bn a year earlier.  The bank’s net revenue rose 27% to $10.9 billion, setting new records for annual profit and revenue while meeting or exceeding goals set by CEO James Gorman a year ago.  The return on the share price still badly trails the competition over the ten years Gorman has been at the helm, but he argues the first five years of his tenure he was focused on cleaning things up after the financial crisis.

--BlackRock Inc., the world’s largest asset manager, beat analysts’ estimates for quarterly profit, shares rising 2%, as more money rolled into its cash management business and exchange-traded funds, despite concerns over the rate of global growth.

With $128.84 billion in new money during the quarter, BlackRock’s total assets grew to $7.43 trillion, up from $5.98 trillion a year earlier.

Trading revenue rebounded 7% year-over-year.

Investors continue to prefer BlackRock’s low-fee passive-investment products over its actively managed funds.  Its iShares-branded ETFs took in $75.20 billion of new money, up from $41.50bn in the prior quarter.

Adjusted profit came in at $8.34 per share, up from $6.08 per share in the prior-year period and far higher than the $7.65 the Street forecast.

--Shares in Target fell 7% on Wednesday after the retailer lowered its comparable-sales growth expectations amid weaker holiday sales, specifically citing “softer-than-expected performance” in sales of key seasonal categories – electronics, toys and some homewares – which combined account for around a third of Christmas sales.  Electronics sales fell more than 6% from a year ago.

Comp sales in November and December grew just 1.4% year-over-year, badly trailing the 5.7% growth of the previous year.  Due to the poor performance, Target said it lowered its fourth-quarter comp sales growth outlook to 1.4% from prior guidance of 3% to 4%, which is a significant miss as these things go.

CEO Brian Cornell has to be miffed at some of the analysis he was being given in the C-Suite.

--UnitedHealth Group Inc. said revenue rose 4.25% to $60.9 billion in the latest quarter as the nation’s largest health insurer said the number of people it served in Medicare Advantage and commercial benefits programs rose.

Overall earnings were $3.54 billion, compared with $3.04bn a year ago.  Shares rose nearly 3% in response.

--Boeing Co. said deliveries and new orders for its jetliners hit their lowest point in more than a decade as the global grounding of the 737 MAX undermined the aerospace giant’s business.

Boeing handed over 380 aircraft, including military versions of its jetliners, a 14-year-low that compares with a record 863 deliveries by European rival Airbus SE.  Boeing delivered 806 planes in 2018, a high for the company.

The Chicago-based company last year brought in new orders for 246 commercial jets of all types, its lowest tally before cancellations and model swaps since 2003.

Boeing’s order count has suffered from a two-year drought from China customers, which historically has accounted for a quarter of deliveries.  We now wait to see if the new trade deal signed Wednesday results in large orders of Boeing planes.

At least Boeing delivered 45 787s in the fourth quarter, along with other widebody jets – its biggest source of cash with the MAX grounded.

As for the ongoing impact of the MAX, both American and Southwest said they would remove the plane from its schedules until June, and now we potentially have another summer flying season without the aircraft.

Boeing still has orders for around 4,500 of the MAX jets, but has halted production because of uncertainty over when the MAX might resume flying and the risk of airlines and leasing companies canceling existing deals.  Leasing accounts for more than 40% of the MAX order book.

But wait...there’s more.  This afternoon Boeing announced it is addressing a new software issue discovered in Iowa last weekend during a technical review of the proposed update to the grounded MAX, a development that could further delay the plane’s return to service.  “We are making necessary updates,” Boeing said in a statement.

--Delta Air Lines reported better-than-expected results for its fourth quarter after a strong season of holiday travel and offered a full-year projection for 2020 that straddled Street estimates on expectations for continued “healthy” demand.

Adjusted earnings for the three months through Dec. 31 rose to $1.70 a share from $1.30 in the same period a year ago, with expectations at just $1.39.  Operating revenue increased to $11.44 billion from $10.74 billion, with CEO Ed Bastian saying 2019 was the best in its history operationally and financially.

Delta then celebrated by dumping jet fuel on Los Angeles schoolchildren, injuring 60.

--Microsoft CEO Satya Nadella said he wanted to remove “all of the carbon” from the environment that the company has emitted since its founding in 1975.  Nadella said he wanted to achieve the goal by 2050.

To do so, the company aims to become “carbon negative” by 2030, removing more carbon from the environment than it emits.

Microsoft president Brad Smith said in a blog post: “When it comes to carbon, neutrality is not enough.  The carbon in our atmosphere has created a blanket of gas that traps heat and is changing the world’s climate.  If we don’t curb emissions, and temperatures continue to climb, science tells us that the results will be catastrophic.”

--According to International Data Corp. and Gartner Inc., fourth-quarter personal-computer shipments rose, boosted by businesses moving to snap up devices running a newer version of Microsoft’s Windows operating system, Windows 10, after Microsoft stopped supporting Windows 7 on Tuesday.

Gartner said computer makers shipped 70.6 million units in the fourth quarter, up 2.3% from the year earlier.

IDC said Q4 shipments for desktops, notebooks and other computers increased 4.8% from the year earlier to 71.8 million units, the best quarterly total since the fourth quarter of 2015. [IDC and Gartner use different definitions of PCs, resulting in different shipment numbers.]

Lenovo Group Ltd., HP Inc. and Dell Technologies Inc. continue to dominate the industry, controlling about 65% of market share in the fourth quarter, according to IDC.

--China’s Association of Automobile Manufacturers said vehicle sales fell 8.2% in 2019 from a year earlier, total sales 25.8 million.*  In 2018, sales declined for the first time in decades, falling 2.8%.

Monday, the CAAM reaffirmed its forecast of a 2% sales drop in 2020.

Ford said its China sales fell 26% in 2019, while GM posted its biggest-ever China sales drop, roughly 15%, last year.

U.S. car makers’ share of China’s passenger-vehicle market last year was down to 8.9%, CAAM data showed.  Chinese brands lost market share as well, while German and Japanese brands grew by 2.8 and 2.5 percentage points respectively in 2019.

*This figure and percentage sales decline is different from what I gave last week. I have checked this number through various sources and it’s possible the story I was referencing last time just wrote it down wrong.  The above is definitive, as are the sales decline figures for Ford and GM.

--The number of visitors to Hong Kong dropped by 14% last year amid the ongoing anti-government protests roiling the city, tourism authorities revealed on Wednesday, as the government announced that the signature Lunar New Year fireworks show would be cancelled. 

In 2019, arrival figures dropped to 55.9 million from 65.15 million the year before, dragged down by a 14.2 percent decline in mainland Chinese who accounted for the bulk of visitors to the city, the Tourism Board said.

The numbers are actually far worse because the protests didn’t really start in earnest until June.

--Americans bought less wine last year, down 0.9%, the first such drop in a quarter of a century, as millennials opt for alternatives like hard seltzers, cocktails and nonalcoholic beer.

Overall, U.S. wine sales by value rose 1.1% from a year earlier to $38.3 billion, according to industry tracker IWSR.

--The supervillain origin story “Joker” took the lead in the Oscars race with 11 nominations – including for best picture, best director and best actor – as the Academy of Motion Picture Arts and Sciences announced its awards contenders Monday.  Sam Mendes’ World War I movie “1917,” Quentin Tarantino’s show-business saga “Once Upon a Time...in Hollywood” and Martin Scorsese’s mob epic “The Irishman” nabbed 10 nods each, including for directing and best picture.

Netflix made a strong showing with 24 nominations for films including “The Irishman” and divorce drama “Marriage Story.”

The hostless awards show is set to air earlier than ever on Feb. 9, so it’s a short campaign period.

“1917”, after nabbing best-picture at the Golden Globes, captured the box office last weekend, grossing $36.5 million in the U.S. and Canada, the first weekend it had wide distribution.

--NBCUniversal has inked Seth MacFarlane, one of television’s most successful producers, to a reported deal at slightly less than $200 million for a multiyear production arrangement for new shows.  MacFarlane, however, will be free to shop film projects to other studios while his signature TV show “Family Guy” will continue to run on Fox.

Foreign Affairs

Iran / Iraq:  An ABC News/Ipsos poll has 43% approving of President Trump’s handling of the situation in Iran, 56% disapproving.  57% of independents disapprove.  The same survey has only 25% of Americans feeling more safe, with 52% saying we are less safe after the airstrike that took out Iranian General Soleimani.

But a Quinnipiac University national poll of registered voters has 45% saying the killing of Soleimani was the right action and 41% saying it was the wrong action.  But only 32% said it has made Americans more safe, 45% saying less safe.  64% would oppose the United States going to war against Iran, while 26% would support it.  Independents oppose war against Iran 73% to 18%.

We’ve learned that the Iranian airstrike on Al Asad air base was not without casualties, despite what President Trump first told us.  Eleven American troops were treated for concussions after Iranian missiles struck two Iraqi bases where the servicemembers were stationed.

At first it seemed the Iranians had purposely missed human targets, but after the media got in there over the weekend and Monday, we all saw the extensive damage the rockets caused, some landing on buildings housing troops.  Had there not been warnings hours before, allowing commanders to effectively move their forces out of harm’s way, the death toll could have been devastating and the United States and Iran would be at war today.

Friday, Iran’s Supreme Leader Ayatollah Ali Khamenei, speaking during his first Friday prayers sermon for eight years, at a time when Iran is under pressure at home and abroad, called for national unity and a high turnout in a February election, after protests erupted following the military’s admission that it had shot down an airliner by mistake during the confrontation with the United States.

Khamenei defended the country’s armed forces, saying the Revolutionary Guard “maintained the security” of Iran.  The ayatollah said Iran’s “enemies” had used the shooting down of the Ukraine International Airlines Boeing 737-800 with 176 passengers on board to overshadow the killing of senior Iranian General Qasem Soleimani in a U.S. drone strike.

“Our enemies were as happy about the plane crash as we were sad,” he said.  “[They were] happy that they had found something to question the Guard and the armed forces.”

Khamenei criticized the “evil” administration of President Trump, who he called a “clown.”  He also accused Washington of “lying” when it expressed support for the Iranian people, and said the U.S. would “stab them with their poison dagger.”

Khamenei described Iran’s Qud Force as a “humanitarian organization with human values.”  He also called Soleimani’s funeral and the Iranian military response a “turning point in history.”

Meanwhile, Iran accused Britain, France and Germany of succumbing to “high school bully” Donald Trump when they triggered a dispute mechanism in the nuclear accord that Trump opposed, a step that could eventually lead to the reimposition of UN sanctions.

The pact, known as the JCPOA, was agreed to in 2015 between Iran and world powers, offering Iran sanctions relief if it curbed its nuclear work.  Trump then withdrew from the deal in 2018 and reimposed U.S. sanctions, saying he wanted a tougher deal.  Iran has responded by scaling back its compliance with terms of the pact.

Brtian, France and Germany triggered the accord’s dispute mechanism this week, with British Prime Minister Boris Johnson saying it was now time for a “Trump deal” to replace it, while Paris said broad talks were needed.  [There is no Trump deal, by the way.]

President Hassan Rouhani said on Thursday that Iran was now enriching more uranium than before the 2015 deal.

Rouhani also said European troops stationed in the Middle East could be in danger if the 2015 nuclear accord collapses.

“The American soldier today is not secure.  Tomorrow, the European soldier could be insecure too,” the president told his cabinet meeting.

Iran’s foreign minister, Javad Zarif, told a conference in India that the future of the nuclear agreement depended on Europe.

Back to the shootdown of the Ukrainian airliner, Iran said it had arrested several people accused of a role in the tragic accident, the regime making a series of apologies that have done nothing to quell the protests in the aftermath of it.

Rouhani said the government would be accountable to Iranians and those nations who lost citizens.  Most of those on board the flight were Iranians or dual nationals.

As for the whole deal whether Qassem Soleimani represented an imminent threat, President Trump said on Monday the threat “doesn’t really matter,” given Soleimani’s history.

“The Fake News Media and their Democrat Partners are working hard to determine whether or not the future attack by terrorist Soleimani was ‘imminent’ or not, & was my team in agreement,” Trump tweeted.  “The answer to both is a strong YES, but it doesn’t really matter because of his horrible past!”

Democrats are trying to pass legislation to rein in Trump’s ability to wage war on Iran without lawmakers’ approval.

What seems clear is that President Trump lied to the public when he talked of four embassies being directly targeted by Soleimani.  Sunday, Defense Secretary Mark Esper said he did not see specific evidence that Iran was planning an attack.  “What the president said was that there probably could be additional attacks against embassies.  I shared that view.  The president didn’t cite a specific piece of evidence.”  When pressed on whether intelligence officers offered concrete evidence on that point, Esper said: “I didn’t see one with regards to four embassies.”

On the issue of the protests in Iran following the government’s admission of guilt in the shooting down of the Ukrainian airliner, President Trump tweeted:

“To the brave, long-suffering people of Iran: I’ve stood with you since the beginning of my Presidency, and my Administration will continue to stand with you.  We are following your protests closely, and are inspired by your courage.

“The government of Iran must allow human rights groups to monitor and report facts from the ground on the ongoing protests by the Iranian people.  There cannot be another massacre of peaceful protesters, nor an internet shutdown.  The world is watching.”

Tonight, Trump tweeted anew:

“The so-called ‘Supreme Leader’ of Iran, who has not been so Supreme lately, had some nasty things to say about the United States and Europe. Their economy is crashing, and their people are suffering.  He should be very careful with his words!”

In Iraq, caretaker Prime Minister Adel Abdul-Mahdi indicated he would leave a decision whether to expel U.S. forces from the country to his successor, potentially slowing a push that could trigger American military-aid cuts and sanctions.

U.S. officials informed the Iraqi government last week that the country’s access to its central bank account at the New York Federal Reserve could be denied if American troops are kicked out.  The Trump administration is also preparing possible cuts of $250 million in military aid to Iraq, funds already approved by Congress, if the government expels U.S. troops.

Syria: At least 18 civilians were killed in air strikes that hit a market and an industrial zone in the rebel-held city of Idlib, with the Syrian Observatory for Human Rights saying Russian and Syrian planes carried out the attacks, which happened despite a ceasefire brokered earlier in the month by Russia and Turkey.

UN human rights chief Michelle Bachelet called Friday for an immediate cessation of hostilities in Idlib.  “It is deeply distressing that civilians are still being killed on a daily basis in missile strikes from both the air and ground,” she said in a statement on the ceasefire.

Around 350,000 Syrians, mostly women and children, have fled a renewed Russian-backed offensive in the opposition-held Idlib province since early December, and have sought shelter in border areas near Turkey, the UN said this week.

Lebanon: The ongoing crisis in government here has been flying under the radar, but with Hezbollah having a huge arsenal, as well as being a player in government, it’s a powder keg the Middle East cannot afford to let blow. 

Lebanon’s finances have long been in a shambles (though it has an unblemished record of paying its obligations), but it’s worse than ever now and Fitch’s top sovereign analyst said the country looks likely to default on its debt in some way, with Lebanese savings at direct risk.  [Think confiscation of savings.]

Lebanon has $2.5 billion in Eurobonds due this year including a $1.2 billion bond set to mature in March.

Saudi Arabia: Twenty-one Saudi military cadets undergoing training in the United States were ousted following an investigation into the fatal shooting of three Americans by a Saudi officer at a Florida naval base that U.S. Attorney General William Barr on Monday branded an act of terrorism.

Afghanistan: A roadside bomb killed two U.S. military personnel and wounded two others in southern Afghanistan on Saturday, an attack claimed by the Taliban.  The deaths brought to at least four killed in hostile action in Afghanistan since Dec. 12, when the United States declared a “brief pause” in talks with the Taliban on a U.S. troop pullout.

China / Taiwan: Taiwan’s President Tsai Ing-wen handily won reelection last weekend in the island’s presidential election, garnering a record 8.17 million votes, 57% in a three-way race, to secure a second term, a convincing win over her main rival, Han Kuo-yu from the Beijing-friendly Kuomintang, that gives her a mandate to continue her approach to cross-strait relations.  [Turnout was a stunning 74 percent.]

In an interview with the BBC, Tsai said mainland China needed to face the reality that the island was “an independent country already,” remarks that infuriated Beijing.

“We don’t have a need to declare ourselves an independent state.  We are an independent country already and we call ourselves the Republic of China, Taiwan.”

In her victory speech, Ms. Tsai called for unity as she pledged to work to defend the island’s sovereignty and improve the economy.

“With each presidential election, Taiwan is showing the world how much we cherish our democratic way of life.  We must work to keep our country safe and defend our sovereignty.”

Official ties have been suspended since Tsai took office in 2016 and refused to accept the one-China principle – a political understanding that there is only one China with ambiguity over whether it is governed by Taipei or Beijing.

Mainland China sees Taiwan as part of its territory to be returned to its control, by force if necessary.  With Tsai as president, Beijing has ramped up pressure on the island, including by poaching its diplomatic allies (buying them off) and staging military drills nearby.

But Tsai warned against military activity from Beijing, which responded to her reelection by accusing her independence-leaning Democratic Progressive Party of “dirty tactics.”

“Invading Taiwan is something that is going to be very costly for China,” Tsai said.  “We’re a successful democracy, we have a pretty decent economy, we deserve respect from China.”

In Beijing, a spokesman for the Taiwan Affairs Council said any pro-independence activities seeking to separate the island from the mainland would not be tolerated.

The Communist Party’s mouthpiece newspaper, People’s Daily, insisted that Beijing retains the upper hand against Ms. Tsai.  “Facts from recent years already prove that our advantage of ‘mainland strength, Taiwan weakness’ in the cross-strait balance of power will widen further,” it said in a commentary.

President Xi Jinping has long warned Taiwan that unification between the sides was inevitable, adding China would use force to prevent the island from taking steps toward formal independence.

Separately, U.S.-based Human Rights Watch released a scathing review of the Chinese government, calling on the international community to push back against “the most brutal and pervasive oppression China has seen in decades” in its 2020 annual report.

Kenneth Roth, the Executive Director of Human Rights Watch, was denied entry on Sunday to Hong Kong where he was expected to launch the report, which covers the global human rights situation but features China prominently.

The report condemns Beijing’s treatment of Uighur Muslims in the Xinjiang region and warns that China’s growing political influence and efforts to censor people abroad pose an “existential threat to the international human rights system.”

“If not challenged, Beijing’s actions portend a dystopian future in which no one is beyond the reach of Chinese sensors, and an international human rights system so weakened that it no longer serves as a check on government repression,” Roth wrote in the report.

China last month announced sanctions on HRW and other U.S. nongovernmental organizations (NGOs) as a response to the U.S. Hong Kong Human Rights and Democracy Act, which supports anti-government protests in Hong Kong and threatens China with sanctions for human rights abuses.

Geng Shuang, a spokesman for China’s foreign ministry, told Reuters, “Currently, China’s human rights’ situation is the best it’s been in history.”

You can stop laughing.

On a different issue, Gerhard Sabathil, the European Union’s former ambassador to South Korea, has been identified as the subject of a German probe into alleged spying for China’s Ministry of State Security, according to European sources.

The investigation is roiling Beijing, Berlin and Brussels after German authorities raided the homes and offices of Sabathil and two other individuals on Wednesday.

At the heart of the investigation is the alleged link between the German ex-diplomat and the Chinese security ministry, the top counter-intelligence and foreign intelligence unit in China.  Several Western governments have raised concerns about Beijing using espionage to influence policy, as China expands its political and economic reach around the world.

Sabathil was recalled from his ambassadorial stint in Seoul in 2016, just a year into his posting, after his security clearance was revoked, and since 2017 he has joined a European lobbying firm.

Meanwhile, the number of births in China last year fell to a nearly six-decade low, exacerbating a looming demographic crisis that is set to reshape the world’s most populous nation and threaten its economy.

About 14.6 million babies were born in China in 2019, according to the National Bureau of Statistics, 4 percent lower than the previous year, and the lowest number of births in China since 1961.

Births have now fallen for three years in a row, after rising slightly in 2016, a year after the government ended its one-child policy and allowed couples to have two children.

The New York Times interviewed Wang Feng, a professor of sociology at the University of California, Irvine, who said: “It’s a society where nobody wants to get married and people can’t afford to have children.  On a deeper level, you would have to think about what kind of society China will become, not just demographically, but socially.”

North Korea: Last weekend, North Korea’s state-run media said they won’t rely on the personal relationship between Kim Jong Un and President Trump as it doesn’t intend to trade its nuclear weapons for a lift of sanctions.

“There will never be such negotiations as that in Vietnam, in which we proposed exchanging a core nuclear facility of the country for the lift of some United Nations sanctions,” Kim Kye Gwan was quoted as saying by the Korean Central News Agency.  “There is no need for us to be present in such talks, in which there is only unilateral pressure, and we have no desire to barter something for other things at the talks like traders.”

Meanwhile, South Korean President Moon Jae-in, desperate to keep the lines of communication between him and Kim Jong Un open, said on Tuesday there was no need to be pessimistic about stalled denuclearization dialogue between the U.S. and North Korea, adding Pyongyang has not yet shut the door to more talks.

Russia: For over an hour, President Vladimir Putin’s annual state-of-the-nation speech on Wednesday sounded just like those that had come before it.

As in previous years, Putin proposed measures for encouraging Russians to have more children, tackling poverty levels and stimulating economic growth.

Prime Minister Dmitry Medvedev reportedly had trouble staying awake in the room.  But he was jolted upright when near the end of the 80-minute address, Putin began outlining a raft of proposed changes to the country’s constitution.

The amendments, supposedly 11 of them, could be put to a vote through a referendum, Putin suggested.

“All of these changes are aimed at reigning in his successor,” said Tatiana Stanovaya, a nonresident scholar at the Carnegie Moscow Center.  “Medvedev had become too toxic,” she said.

Putin said the changes he envisaged include limiting future presidents to two terms in office; allowing the Duma, the lower house of parliament, to appoint the prime minister and cabinet; and giving the upper house the power to confirm the heads of Russia’s powerful security services and judges.

Putin had long been coy about whether he intended to stay in office beyond 2024, when he is legally obliged to step down as president. But the decision appeared to confirm longtime speculation that he intends to either become prime minister for a second time or head a revamped State Council as a supreme leader figure in the model of China’s Deng Xiaoping.

Dmitry Medvedev resigned hours after Putin’s declaration.  The rest of the cabinet followed.

Putin said Medvedev would take up a newly created position as deputy head of the Kremlin’s security council, and asked the government to remain in post until a new administration was appointed.

Medvedev said the cabinet wanted to “give our country’s president the chance to make all the necessary decisions” regarding the constitutional change.

Putin then announced later in the evening that Mikhail Mishustin, a little-known head of Russia’s Federal Tax Service, would become Russia’s prime minister.  He has zero known ambitions to be Russia’s leader at any point, unlike those that Medvedev, some said, harbored.

Putin’s approval ratings have been hovering near record lows, amid a stagnant economy where real incomes have fallen for half a decade.  During his address, Putin vowed to help Russians facing hard times by announcing major social spending on child welfare, public sector salaries and free school lunches, which sounds gross, if you’ve ever seen a typical Russian meal.

Patrick Tucker / Defense One

“Russian President Vladimir Putin wouldn’t seem to be a man with any check on his authority, but there is still the Russian constitution, which says that a president can’t serve more than two consecutive terms.  Russia watchers believe he has found a way to stay in power after his second term expires in 2024 – one that will have disastrous effects on freedom and particularly Internet freedom in Russia.

“On Tuesday, in a televised address, Putin announced reforms to shift authority to the State Council, a part of the Russian parliament. That would seem to have the opposite effect of consolidating power within the presidency.  But then Russian Prime Minister Dmitry Medvedev resigned, along with his cabinet. That clears the way for Putin to stack government bodies with loyalists whom he has empowered to amend the constitution and give him the permanent control he’s seeking, either by allowing him to remain president or elevating whatever new role he takes to be de facto leader.

“ ‘This wasn’t much of a surprise.  We knew the Kremlin would have to put a plan in motion,’ said Alina Polyakova, director of the Project on Global Democracy and Emerging Technology at the Brookings Institution.  Putin has held the presidency for a total of four terms, bookending a 2008-12 hiatus as Prime Minister that is regarded as a simple Potemkin ploy to retain power.

“The change in the constitution was one of a few options Putin and his loyalists were exploring, said Polyakova.  Among the other options Russia watchers have highlighted, doubling down on the invasion of Ukraine or annexing the state of Belarus in order to become the President of a new Russian ‘super state.’  Polyakova called the new constitution change the ‘path of least resistance.’

“The move ‘solidifies Putin’s role as president of Russia for life’ and ‘the source of power in Russia for the long term.  That only spells bad things for the future of Russian democracy,’ she said.  It ‘doesn’t change the regime’s attitude toward democracy.  It strengthens the position toward dictatorship.’”

Andrei Loshak, a Russian journalist, said at an event at the Atlantic Council on Tuesday, “The next ideological battle will be YouTube.”

Loshak said the Google-owned video service, which has ignored Moscow’s demands for control, currently represents “a real alternative to the government propaganda machine.”  Russia is working on a state-sponsored attempt to mimic YouTube because it needs a Russian version of the popular service in order to pacify public outcry in the event of a shutoff.

Putin clearly wants to block online platforms and internet services to help him retain control and push through his agenda.

Andrei Shary, director of Radio Free Europe’s Russian Service, said at the Atlantic Council event: “That’s why they need a system of blockage for the press, to be able to secure the inheritance of power in Russia.  It’s not just against journalists. It’s about power.  If you want to have total control over Russia, you need to be able to control the press.”

Russian opposition leader Alexei Navalny, Putin’s best-known political opponent, tweeted: “The main outcome of Putin’s address: How dumb and/or crooked are all those who said Putin would leave in 2024.”

Ukraine: Prime Minister Oleksiy Honcharuk resigned Friday, days after he was caught on tape saying the country’s president knows nothing about the economy.  Honcharuk, in a Facebook post, said he had given his resignation to President Volodymyr Zelensky.

“I took this post to implement the president’s program.  He is an example of transparency and decency to me,” he said.

“However, in order to dispel any doubts about our respect and trust for the president, I have written a resignation letter and submitted it to the president for introduction to parliament,” Honcharuk’s statement read.

But Zelensky declined to accept the letter.

Separately, Ukrainian authorities opened a criminal probe into whether the U.S. ambassador to Ukraine was put under surveillance by American citizens, as text messages made public this week suggest, before she was removed from her post last year.

The messages about Amb. Marie Yovanovitch were among materials involving an associate of Rudy Giuliani, released by House Democrats as part of the impeachment probe into the president.  Those messages and prime-time television interviews by the associate, Lev Parnas, reverberated in Washington on Thursday as the Senate opened the impeachment trial.

Text messages released by Democrats showed Robert F. Hyde, a Trump backer and Republican congressional candidate in Connecticut, telling Parnas he was monitoring the ambassador’s movements.

Random Musings

--Presidential tracking polls....

Gallup: 45% approval of President Trump’s job performance, 51% disapproval, 89% of Republicans approve, 42% of independents (still stuck on Dec. 2-15 data).
Rasmussen:  49% approve, 50% disapprove (Jan. 17).

A Quinnipiac University national poll has 43% approving of Trump’s job performance, while 52% disapprove.  [57% approve of his handling of the economy, a new record high, with 38% disapproving.]

--Quinnipiac’s poll has Joe Biden leading the Democratic primary, nationally, with 25%, followed by Bernie Sanders at 19%, and Elizabeth Warren 16%.  Pete Buttigieg receives 8%, and Michael Bloomberg 6%.  [Andrew Yang 5%, Amy Klobuchar 4%.]

Health care is the most important issue in deciding who to vote for in the Democratic primary among 27% of Democratic voters and independents who lean Democratic.  Climate change is named by 24% as the most important, followed by the economy (12%) and foreign policy and education (9% each).

A Reuters/Ipsos national poll of registered Democrats and independents said they back Sanders over Biden 20% to 19%, with 12% for Warren, 9% for Michael Bloomberg (huh) and 6% for Mayor Pete.

--A Monmouth University poll of likely Iowa Democratic caucusgoers found Joe Biden at 24%, Sanders 18%, Buttigieg 17% and Warren 15%.  [Klobuchar 8%.]  This was prior to Tuesday’s debate.  Only 43% are firmly decided on their candidate choice.

--As for Tuesday night’s debate in Des Moines, Iowa, the last such event prior to the Feb. 3 Iowa caucuses, yes, the story was Elizabeth Warren for nailing the much-anticipated question about electability.  And Amy Klobuchar was again very solid and the clear alternative for Biden voters.

As in Biden was awful, a bumbling mess.  Seriously, I don’t know why his supporters don’t see this, and how Klobuchar is the clear moderate alternative for them.

But everyone looks at these debates differently.  I like Mayor Pete but he’s just too young and inexperienced.

[Reminder, these are just my dispassionate views as an observer.]

As for the destruction of the Warren-Sanders nondisparagement pact, the two had spent Monday disagreeing over a Politico report that volunteers for Sanders’ campaign were given a script bad-mouthing Warren, while Sanders denied saying he had told Warren in a private December 2018 meeting that, in his view, a woman can’t win the White House against President Trump.

Bernie then said in a statement: “What I did say that night was that Donald Trump is a sexist, a racist and a liar who would weaponize whatever he could.”

On the debate stage, Warren said, “I am not here to fight with Bernie,” as Sanders insisted that of course a woman can be elected.

“Does anybody in their right mind” doubt that a woman can win, Sanders shouted, noting Hillary Clinton carried the popular vote against Trump.

Then once the debate ended, Warren refused to shake Sanders’ hand and the two engaged in a brief but animated discussion.  It took a while but CNN’s sound technicians found the audio, with Warren telling Bernie, “I think you called me a liar on national television.”  Bernie goes, “What?’  “I think you called me a liar on national television.”  Bernie then goes “You know, let’s not do it right now...If you want to have that discussion, we’ll have that discussion...”

Should the Sanders-Warren dispute continue, it could easily redound to the benefit of Joe Biden, or Buttigieg, or Klobuchar.

Meanwhile, polls in Iowa suggest that up to half of Iowa voters are still undecided.  But now Sanders, Warren and Klobuchar will be tied up in Washington with impeachment during the critical last few weeks of campaigning.

--New Jersey Sen. Cory Booker became the latest to drop out of the Democratic race, Booker never gaining traction while he ran as the happy warrior, framing himself as the uplifting, unifying figure who emphasized his bipartisan work record.

Booker is a good guy.  I noted months ago that he should just focus on getting reelected this fall, which he will now do, and maybe his time comes again.  He turns just 51 this coming April, after all.

--The Army Times (Military Times) released its latest survey on troops’ feelings about the commander-in-chief.  The poll was conducted from Oct. 23 to Dec. 2, 1,630 responses from active-duty troops, with Trump receiving an approval rating of 42%, setting a low mark in the survey since being elected president.  Some 50% of troops said they had an unfavorable view of him.  By comparison, just a few weeks after his electoral victory in November 2016, 46% of troops had a positive view of Trump, and 37% had a negative opinion.

But Trump still has a higher approval number than former President Barack Obama when he left office in January 2017.

Needless to say a lot has happened since the polling period so I’ll be anxious to see what the next survey reveals.

But among the questions asked, 58% disapproved of Trump’s decision to withdraw forces from northern Syria, and 59% disapproved with the decision to use military construction funds to build his border wall.

47% backed impeachment, 46% said they were opposed.

By the way, former secretary of defense Marine General Jim Mattis still draws an 86% favorability rating among all service members.

--It is beyond pathetic that ten states are not holding Republican primaries for president.

--According to a new report from New York State Comptroller Thomas DiNapoli, New Jersey received just 79 cents for every $1 paid in federal taxes, lowest among the 50 states, in the first year under President Trump’s tax law.  That’s a loss of $2,792 per person, also more than anywhere else.  New York received 90 cents for every $1 in federal taxes, tied with Massachusetts for 47th place.  Minnesota was 49th at 89 cents.  This blows, mused the Garden Stater.

Yes, it’s all about the federal deduction for state and local taxes being capped at $10,000.

--Former Pope Benedict, in a new book written with a conservative cardinal, Cardinal Robert Sarah, defends priestly celibacy in the Catholic Church in what appears to be a strategically timed appeal to Pope Francis not to change the rules.

But whether you agree or not isn’t the real issue for Benedict.  What is is the fact that in 2013, when he became the first pope in 700 years to resign, Benedict, who lives in the Vatican, is 92 and in failing health, vowed to remain “hidden from the world,” yet he has given interviews, written articles and contributed to books, which breaks his pledge to Francis.  That’s not cool, though conservatives in the church love Benedict and have huge issues with Francis.

--The World Meteorological Organization (WMO) said on Wednesday that 2019 was the second-hottest year on record, adding that heat was likely to lead to more extreme weather events like the Australian bushfires in 2020 and beyond.  The WMO’s Secretary-General Petteri Taalas said: “Unfortunately, we expect to see much extreme weather throughout 2020 and the coming decades, fueled by record levels of heat-trapping greenhouse gases in the atmosphere.  Australia had its hottest, driest year on record in 2019, setting the scene for the massive bushfires which were so devastating to people and property, wildlife, ecosystems and the environment.”

The hottest year on record was in 2016 at 1.2 Celsius above pre-industrial levels, the WMO said, due to the warming impact of an El Nino event.  “In the future we easily can expect warmer El Ninos than the previous ones,” said WMO scientist Omar Baddour, adding that that would drive temperatures even higher.   “We can raise a red flag now.”

Separately, the BBC interviewed Sir David Attenborough for a year of special coverage on the subject of climate change.

“The moment of crisis has come” in efforts to tackle it, Sir David warned.  “We have been putting things off for year after year.”

“As I speak, southeast Australia is on fire.  Why?  Because the temperatures of the Earth are increasing,” he said.

“We know perfectly well,” he said, that human activity is behind the heating of the planet.

Back in 2018, the UN climate science panel spelled out how the world could have a reasonable chance of avoiding the most dangerous temperature rises in future. 

It said that emissions of the gases heating the planet – from power stations and factories, vehicles and agriculture – should be almost halved by 2030.  Instead the opposite is happening.

The release of those gases is still increasing rather than falling and the key gas, carbon dioxide, is now in the atmosphere at a level far above anything experienced in human history.

--The most serious outbreak of desert locusts in 25 years is spreading across East Africa and posing an unprecedented threat to food security in some of the world’s most vulnerable countries, authorities say.  Unusual climate conditions are partly to blame.

Roughly the length of a finger, the locusts fly together by the millions and are devouring crops and forcing people in some areas to bodily wade through them.  Kenya is being particularly hard hit.

An East African regional body said, “A typical desert locust swarm can contain up to 150 million locusts per square kilometer. Swarms migrate with the wind and can cover 100 to 150 kilometers in a day.  An average swarm can destroy as much food crops in a day as is sufficient to feed 2,500 people.”

--Queen Elizabeth reluctantly agreed to her grandson Harry and his wife Meghan’s wish for a more independent future after the royal family held crisis talks on Monday to resolve the widening rift among the Windsors.  So Harry and Meghan will begin a “period of transition” that will see them splitting time between Britain and Canada.

The 93-year-old queen described the talks as “very constructive” between herself, Harry, Prince William and his father, Prince Charles.  In a statement, the queen said: “My family and I are entirely supportive of Harry and Meghan’s desire to create a new life as a young family.  Although we would have preferred them to remain full-time working members of the Royal Family, we respect and understand their wish to live a more independent life as a family while remaining a valued part of the family.”

After thinking about this whole deal more, and weighing all the various opinions of royal watchers, including a supposed comment Harry made to Disney CEO Bob Iger about Iger hiring Meghan for voiceover work, boy, I have soured on Harry bigly.  And there is the story Canadian taxpayers will be picking up the enormous tab for the couple’s security, which stinks, but Canada is part of the British Commonwealth.  [Exactly half of those polled by the Angus Reid Institute in Canada say they don’t care if the Duke and Duchess of Sussex moved there for good, but only 5 percent believed taxpayers should help pay for whatever the family needed, with 73 percent adamant that the Sussexes should pay for everything.]   It’s true Harry is deemed a particularly high-level risk following his service as a British Army officer who served in Afghanistan.

Anyway, I agree with President Trump...I support the queen.

--A second person has died from pneumonia in the central Chinese city of Wuhan following an outbreak of a previously unknown virus, local authorities said Thursday, as the World Health Organization warns of a wider possible outbreak.  Cases have been reported in Thailand and Japan and the main concern over the coming weeks is all the travel associated with China’s Lunar New Year holiday late this month and into February.  The virus is a new type of coronavirus, a large family of viruses that can cause infections ranging from the common cold to deadly Severe Acute Respiratory Syndrome (SARS).  Back in 2002/03, a SARS outbreak which emerged in China killed 800 worldwide.

Tonight, the first direct flights from Wuhan to the U.S. are being met by CDC officials in Los Angeles, San Francisco and New York.

---

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

God bless America.

---

Gold $1557
Oil $58.81

Returns for the week 1/13-1/17

Dow Jones  +1.8%  [29348]
S&P 500  +2.0%  [3329]
S&P MidCap  +2.2%
Russell 2000  +2.5%
Nasdaq  +2.3%  [9388]

Returns for the period 1/1/20-1/17/20

Dow Jones +2.8%
S&P 500  +3.1%
S&P MidCap  +1.6%
Russell 2000  +1.9%
Nasdaq  +4.6%

Bulls 57.0
Bears 17.8  [prior two weeks, ratios were 58.9/17.8; 55.1/17.8, as we catch up from the holidays.  Pretty amazing bear percentage hasn’t budged.]

Have a great week.

Brian Trumbore