Week in Review

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Week in Review

06/18/2016

For the week 6/13-6/17

[Posted 11:00 PM ET, Friday]

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Edition 897

Washington and Wall Street...and Orlando

It was a lousy and tragic week, starting late Saturday night with the massacre at the Pulse nightclub in Orlando, Fla., a heated political debate over the war on terror, the murder of an MP in Britain that may tip the scales on the Brexit referendum there June 23, negative interest rates in Germany, and even a highly-publicized alligator attack, while at the same time the U.S. Federal Reserve weighed in on its monetary policy and the Fed is now offering that a rate increase in July is off the table.

I’ll address the other topics in a bit, but for now, the Fed indicated its views on the economy haven’t changed much since April. It will continue to “closely monitor” inflation indicators and global economic and financial developments, though this was actually a comedown from December when it said risks to the economy were balanced.

In holding the line yet again, the Open Market Committee reduced its estimate for how much growth the economy will generate this year from 2.2% to 2%, while pegging 2017 at 2% as well.

Back in late May, Chair Janet Yellen said a move on rates was probable “in the coming months” if the economy continued to strengthen, but then we had that dismal May jobs report as well as the Brexit referendum and any immediate rate hike was off the table.

Additionally, the Fed’s new projections show officials expect the federal-funds rate to rise to 0.875% by the end of 2016, which implies two rate hikes this year, yet a greater number of board members now see just one increase, rather than two.

The central bank also sees the funds rate at 1.625% by the end of 2017 and 2.375% at the end of 2018, when regarding this last figure the median estimate was 3% just three months ago.  So Fed officials’ views are changing but nothing has really changed fundamentally except one bad labor report.

These guys really are incredibly overrated.  Plus you had one Fed governor, James Bullard, come out on Friday to say he was changing his mind, just days after the FOMC meeting, and is now looking for just one rate hike all the way through 2018, after having been a staunch hawk!  What a jerk.

It’s exasperating, to say the least.  Oh, I understand why the Fed is loath to hike today, given negative rates around the world and the Brexit vote, which indeed is important, but it’s just amazing we have to listen to these folks incessantly, let alone base so many personal and corporate decisions on their ‘wisdom,’ when it is clearly lacking.

But as for the rest of 2016, I still think if the June jobs report shows renewed strength, and if Britain votes to Remain in the EU, July is back on the table for a rate hike.  Why? Because as I’ve said many times before, they can’t possibly move in September because of the election, which then leaves December.  What if the Fed’s preferred inflation indicator suddenly hits 2% owing to wage gains in, say, September?  The markets will have a fit knowing the Fed has to remain on hold. The Fed says it isn’t political, but of course it is.

Anyway, there was some important economic data on the week.

May retail sales were solid and better than expected, +0.5%, ex-autos +0.4%. May industrial production was not so hot, -0.4%, while May housing starts were solid and are now +9.5% year-over-year, but permits are -10.1% over the same period.

On the inflation front, producer prices for May were +0.4%, as expected, +0.3% ex-food and energy, with the PPI -0.1% for the 12 months, the core +1.2%.

Consumer prices for May were +0.2%, including on core, while year-over-year the CPI is +1.0%, but +2.2% ex-food and energy.  Ergo, the 2% target the Fed is waiting for, but the CPI is not its preferred indicator, which is running at about 1.6%.  This bears watching over the coming months, however, as I’m convinced the Fed will be caught with its pants down (but as I alluded to, may not be able to move when conditions otherwise demand they do).

The Atlanta Fed’s GDPNow indicator, by the way, pegs second quarter growth at 2.8%...solid, though when averaged with the first quarter figure of 0.8%, is basically at the 2% level we’ve been stuck in for years.

Orlando

The news Sunday morning could not have been worse.  The death toll from a ‘mass casualty’ incident at Pulse nightclub was first announced at 20, and then we heard the figure 50 (soon revised to 49).  America had witnessed the worst mass-shooting event in its history.

There was no clear evidence that the shooter, Omar Mateen, had been directed by a larger terrorist network.  President Obama said Mateen had been “inspired by various extremist information that was disseminated over the internet.”

But Michael Leiter, former director of the National Counterterrorism Center under both Presidents George W. Bush and Obama, said on CNN Thursday that Mateen was “absolutely ISIS inspired,” period. 

Tuesday, in rambling remarks on his ‘successes’ in the war, Obama said some of the following:

“With regard to Syria, it means our continued support for the fragile cessation of hostilities there. The cessation of hostilities has not stopped all or even most of the hardship on the Syrian people, the hardship on civilians. And the Assad regime has been the principal culprit in violating the cessation of hostilities. ISIL and al Nusra, which is al Qaeda’s affiliate in Syria, also continue to terrorize Syrians. But as fragile and incomplete as the cessation is, it has saved lives and it has allowed the delivery of some lifesaving aid to Syrians who are in desperate need.  And as difficult as it is, we will continue to push for a political process that can end the civil war and result in a transition away from Assad.”

Unreal.  About 400 packages of food aid were delivered this past week, the first in years in some parts under siege by the Assad regime, and Obama says nothing about the 400,000* already dead, 380,000 of which are largely his responsibility, as I’ve documented in these pages.  [John McCain was basically right in his comments the other day.]

[*I was pleased to see NBC News’ respected foreign correspondent, Richard Engel, begin to use the 400,000 figure I’ve been using for months this past week.  Incredibly, a majority in his profession are so lazy they continue to employ the 250k figure from nearly two years ago.]

Obama then transitioned to gun control, and then this:

“And let me make a final point.  For a while now, the main contribution of some of my friends on the other side of the aisle have made in the fight against ISIL is to criticize this administration and me for not using the phrase ‘radical Islam.’ That’s the key, they tell us – we can’t beat ISIL unless we call them ‘radical Islamists.’ What exactly would using this label accomplish? What exactly would it change?  Would it make ISIL less committed to trying to kill Americans? Would it bring in more allies?  Is there a military strategy that is served by this? The answer is none of the above.  Calling a threat by a different name does not make it go away.  This is a political distraction.  Since before I was President, I’ve been clear about how extremists groups have perverted Islam to justify terrorism. As President, I have repeatedly called on our Muslim friends and allies at home and around the world to work with us to reject this twisted interpretation of one of the world’s great religions.

“There has not been a moment in my seven and a half years as President where we have not been able to pursue a strategy because we didn’t use the label ‘radical Islam.’  Not once has an adviser of mine said, man, if we really use that phrase, we’re going to turn this whole thing around.  Not once. So if someone seriously thinks that we don’t know who we’re fighting, if there’s anyone out there who thinks we’re confused about who our enemies are, that would come as a surprise to the thousands of terrorists who we’ve taken off the battlefield....

“So there’s no magic to the phrase ‘radical Islam.’ It’s a political talking point; it’s not a strategy.  And the reason I am careful about how I describe this threat has nothing to do with political correctness and everything to do with actually defeating extremism. Groups like ISIL and al Qaeda want to make this war a war between Islam and America, or between Islam and the West.  They want to claim that they are the true leaders of over a billion Muslims around the world who reject their crazy notions. They want us to validate them by implying that they speak for those billion-plus people; that they speak for Islam.  That’s their propaganda. That’s how they recruit. And if we fall into the trap of painting all Muslims with a broad brush and imply that we are at war with an entire religion – then we’re doing the terrorists’ work for them.”

As Dr. Sebastian Gorka said after, Obama  was “passionate in his petulance.”

Editorial / Wall Street Journal

“Sunday’s massacre in Orlando contradicts President Obama’s many attempts to downplay the risks that Islamic State poses to the U.S. homeland, so it’s no wonder he wants to change the subject to something more congenial.  To wit, his disdain for Donald Trump and Republicans.  ‘For a while now the main contribution of some of my friends on the other side of the aisle have made in the fight against ISIL is to criticize this Administration and me for not using the phrase ‘radical Islam,’’ Mr. Obama said Tuesday, using his preferred acronym for Islamic State.  ‘That’s the key, they tell us.  We cannot beat ISIL unless we call them ‘radical Islamists.’ What exactly would using this label accomplish?  What exactly would it change?’

“Since the President asked, allow us to answer. We’re unaware of any previous American war fought against an enemy it was considered indecorous or counterproductive to name.  Dwight Eisenhower routinely spoke of ‘international Communism’ as an enemy. FDR said ‘Japan’ or ‘Japanese’ 15 times in his 506-word declaration of war after Pearl Harbor.  If the U.S. is under attack, Americans deserve to hear their President say exactly who is attacking us and why. You cannot effectively wage war, much less gauge an enemy’s strengths, without a clear idea of who you are fighting.

“Mr. Obama’s refusal to speak of ‘radical Islam’ also betrays his failure to understand the sources of Islamic State’s legitimacy and thus its allure to young Muslim men.  The threat is religious and ideological.

“Islamic State sees itself as the vanguard of a religious movement rooted in a literalist interpretation of Islamic scriptures that it considers binding on all Muslims everywhere. A small but significant fraction of Muslims agree with that interpretation, which is why Western law enforcement agencies must pay more attention to what goes on inside mosques than in Christian Science reading rooms.”

Kyle Smith / New York Post

“A dangerous mindset has taken hold in America, but it isn’t Islamophobia.  It’s Islamophobia-phobia.

“In a large and growing segment of American society, fear of being tagged ‘racist’ about Muslims (though Islam is not a race) provides a much more direct threat to your livelihood than radical Islam.

“Former police officer Daniel Gilroy told Florida Today that he repeatedly raised red flags about Omar Mateen when both men worked at the same security firm, but his employer did nothing because Mateen was a Muslim.

“The pattern is familiar.  Before the Islamist attack that left 14 dead in San Bernardino last December, neighbor Aaron Elswick told ABC 7 News in Los Angeles that shooter Syed Farook was ‘kind of suspicious’ and ‘wanted to report it’ but ‘didn’t want to profile’ him....

“No one wants Muslims to feel harassed as a class but it’s silly to pretend that being a Muslim makes you just another patch in the glorious American quilt, like being black or Jewish or gay.

“In a poll of British Muslims, a majority said homosexuality should be illegal.  Nearly a quarter said Shariah law should be imposed in Britain.  Four percent – that’s tens of thousands of people – admitted they sympathized with suicide bombers.

“The Islamophobic-phobic-in-Chief poo-poohs both the terrorist threat and its ideological root.  President Obama likes to say that bathtubs kill more Americans than terrorists.  I’d like to see him try that argument with the families of the victims of the Orlando massacre.

“Last year Obama actually chided us that we shouldn’t look askance on Islam because Christians committed violent acts, too, during the Crusades, 600 or so years ago.  I’d like to see him tell the Orlando families that, too.

“Obama is the avatar of the false moral equivalence, that, having infected elite universities in the 1960s, has gradually metastasized to infect virtually the entire elite class of American society, along with a large chunk of the cringing, guilt-ridden bourgeoisie.

“The supreme rule is the severely undergraduate notion that everyone and everything is roughly equal.  We like our ideas, but, hey, if you have a different point of view, that’s groovy, too.

“Taking it to its most absurd conclusion, as Obama does, the ideal holds that Western liberal democracy and murderous medieval fanaticism each should be given a fair hearing.

“At his National Prayer Breakfast speech last year, Obama euphemistically referred to global jihad as ‘this’: ‘This is not unique to one group or one religion.  There is a tendency in us, a sinful tendency, that can pervert and distort our faith... We should start with some basic humility.  I believe that the starting point of faith is some doubt – not being so full of yourself and so confident that you are right.’

“They believe this, we believe that. Who’s to say who’s wrong?  Obama’s response to the global culture clash is a shrug.”

Bret Stephens / Wall Street Journal

“In the spring of 2013 Barack Obama delivered the defining speech of his presidency on the subject of terrorism. Its premise was wrong, as was its thesis, as were its predictions and recommendations. We are now paying the price for this cascade of folly.

“ ‘Today, Osama bin Laden is dead, and so are most of his top lieutenants,’ the president boasted at the National Defense University, in Washington, D.C.  ‘There have been no large-scale attacks on the United States, and our homeland is more secure.’ The ‘future of terrorism,’ he explained, consisted of ‘less capable’ al Qaeda affiliates, ‘localized threats’ against Westerners in faraway places such as Algeria, and homegrown killers like the Boston Marathon bombers.

“All of this suggested that it was time to call it quits on what Mr. Obama derided as ‘a boundless ‘global war on terror.’’  That meant sharply curtailing drone strikes, completing the withdrawal of U.S. forces from Afghanistan, and closing Guantanamo prison.  It meant renewing efforts ‘to promote peace between Israelis and Palestinians’ and seeking ‘transitions to democracy’ in Libya and Egypt. And it meant working with Congress to repeal the 2001 Authorization for Use of Military Force (AUMF) against al Qaeda.

“ ‘This war, like all wars, must end,’ he said.  ‘That’s what history advises. That’s what our democracy demands.’

“King Canute of legend stood on an English shoreline and ordered the tide to recede.  President Canute stood before a Beltway audience and ordered the war to end.  Neither tide nor war obeyed....

“It would require more humility than Mr. Obama is capable of mustering to admit that what happened in Orland is also a consequence of his decisions – of allowing Iraq and Syria to descend to chaos; of pretending that we could call off the war on terror because fighting it didn’t fit a political narrative; of failing to defeat ISIS swiftly and utterly; of refusing to recognize the religious roots of terror; of treating the massacre in San Bernardino as an opportunity to lecture Americans about Islamophobia, and Orlando as another argument for gun control.

“This is the president’s record.  His successor will have to do better to avoid future Orlandos. Will she?”

William McGurn / Wall Street Journal

“On Sunday morning, the nation awoke to the news that nearly 50 innocent people had been murdered by a gunman at Pulse, a gay nightclub in Orlando.  Soon they would learn the shooter was 29-year-old Omar Mateen, born in America to parents of Afghan origin.

“In other words, a heavily-armed man with Afghan parents and a Muslim name had targeted a gay nightclub for his bloody rampage. And yet as the American people watched those Sunday press conferences on their TV sets, they were treated to a parade of officials, including the obligatory imam, all reluctant to connect the killer with anything suggesting Islam.

“At 1:59 p.m. it was the president’s turn.

“Though he did call the slaughter at Pulse an ‘act of terror,’ anyone relying on Barack Obama for a read of the situation would have had no idea that the killings at a Florida nightclub might have been inspired by the same ideology behind the forces still confronting American troops in Afghanistan and Iraq.

“Now ask yourself: Does this undermine the Trump message or fuel it?

“On Monday, after a security briefing, President Obama conceded the shooter was ‘inspired by various extremist information’ online.  His sole reference to what this might be was a line about the ‘perversions of Islam that you see generated on the internet.’”

Editorial / Wall Street Journal

“The two presidential candidates sound like opponents in a college debate trying to score rhetorical points.  Mr. Trump keeps saying, ‘We must find out what is going on.’  We know what’s going on. We’ve known it since Islamic State rose to power during the Obama Presidency. The American people have about five months to be given a better idea than they have now of what Donald Trump or Hillary Clinton will do about it.”

Editorial / New York Post

“President Obama proved Thursday that when it comes to radical Islam, he not only won’t say the words, he won’t even acknowledge the reality – or its role in the Orlando massacre.

“Obama visited Orlando to meet privately with the relatives of Sunday’s victims and then to speak at a public memorial service.

“But the only lesson Obama’s willing to draw from the attack is the need for gun control.

“In linking Orlando to other horrors, he rightly mentioned last year’s San Bernardino attack. But not the 2013 Boston Marathon bombing.

“Instead, he went back to 2012: the Aurora, Colo., movie-theater slaughter and the Newtown, Conn., school massacre – both perpetrated by mentally deranged gunmen.

“In Orlando, he said, ‘the motives of this killer may have been different’ – but he refused to even hint at what that motive was.

“This, even as it becomes clearer with each passing day that Omar Mateen, inspired by Islamist propaganda, committed an ideological act of murderous terror....

“Obama said the families he met with wanted to know why such killing sprees keep happening. As in Boston and San Bernardino, the answer in Orlando was not guns.”

Europe and Asia

Before I get to the big topic, a few economic tidbits involving the eurozone.  Industrial production rose 1.1% year-over-year in April, with Ireland having the best growth at 6.7%, while Spain fell 0.1%.

Inflation in the eurozone for the month of May was -0.1% annualized vs. -0.2% in April.

The unemployment rate in the U.K. fell to 5.0% for the rolling three months, February through April, according to the Office for National Statistics, the lowest since November 2005.  May retail sales rose 6.0%, the biggest annualized rise since September.

Greece will receive a fresh tranche of money as part of its third bailout, 7.5bn euro or $8.4bn early next week, part of a larger deal agreed to in May but dependent on Greece meeting a number of reform conditions.

Greece owes its creditors more than 300bn euro and the country is in urgent need of fresh money to service two debt payments to the European Central Bank next month.

But this is just a brief respite for Greece as eurozone leaders and the International Monetary Fund wrestle over how to move forward with the debt crisis. The IMF is not part of the Greece program and has said it wouldn’t contribute to the latest bailout unless there were plans to cut Athens’ debt burden, 180% of GDP.

In France, as it struggles to keep millions of soccer fans safe during the Euro 2016 tournament, French officials, from President Francois Hollande on down, are increasingly furious over ongoing labor demonstrations. Prime Minister Manual Valls said “Enough is enough” after dozens were hurt in Tuesday’s street battles.  The government told the hardline CGT labor union it would be denied permission for further street rallies unless it rooted out troublemakers.  In a grim assessment of the broader climate in France, Valls said terrorists would inevitably strike again, that police were stretched thin, and that the anti-reform protests had now degenerated into “unbearable violence.”

Valls spoke after a police officer and his partner (also an officer) were knifed to death by a Frenchman pledging allegiance to ISIS.

Valls reiterated that his government would not back down on a labor reform bill that will make hiring and firing easier and devolve the setting of work conditions to the company level. He wants it adopted by July.

Separately, Spain has another nationwide vote on June 26, a re-vote of the last election where none of the parties were able to form a government.  The result in a week’s time will be more of the same and continued uncertainty.

But the big story aside from the Brexit vote was the level of interest rates in the eurozone, with the yield on the German 10-year, the bund, going negative for the first time ever before finishing the week at 0.02% as money went into stocks, and out of bonds, on Friday owing to optimism on the Brexit front.  That said, the 10-year in the U.K. also hit an all-time low of 1.10% (closing Friday at 1.14%), but while there was a flight to safety in German and British paper for much of the week, yields rose in heavily indebted Italy, Spain, Portugal and Greece.

The Brexit vote has been adding to the clamor for havens and traders pointed to Fed Chair Yellen’s comments that some of the forces holding down interest rates may be long-lasting, with the bund the biggest beneficiary of the flight to safety.

But at the same time, investors are crowding into a rapidly diminishing pool of government paper that still has positive yields.

Editorial / Wall Street Journal

“We live in an age of astonishing events, not least the 10-year bond requiring that you pay the government to borrow your money. This has been true in Japan for a while, and on Tuesday the yield on the 10-year benchmark German bund also fell into negative territory for the first time.

“Central banks in Europe and Japan have been experimenting with negative interest rates for some time to spur more spending and less saving – not that it’s working. But a negative 10-year bond is a new, well, low. This means that investors are willing to pay the government for the privilege of holding their money and returning it after a decade, which is a large chunk of the average human lifetime. The government borrows for nothing, and the lender gets nothing for his money other than a contract and promise to return the principal....

“This is good for governments that want to finance spending on the cheap, but it’s not so good for the private risk-taking that drives economic growth.  Negative interest rates reflect a lack of confidence in options for private investment. They also discourage savings that can be invested in profitable ventures. A negative 10-year bond is less a sign of monetary wizardry than of economic policy failure.”

And as I noted last time, negative rates are killing insurance companies and pension funds, among others.

Brexit: The campaign ahead of the June 23 referendum on whether Britain should Leave or Remain in the European Union was roiled after the murder of Labour lawmaker Jo Cox, an advocate for voting to stay. Events by the two main campaign groups were canceled through Monday, while publication of opinion polls and an IMF report were delayed until the weekend as tributes were paid to Cox.

Cox, 41, was shot dead in the town of Birstall, northern England, early Thursday afternoon, with witnesses saying they saw a man shoot and then stab her.  There were multiple reports the killer, a 52-year-old who was then arrested, said “Britain First” or “Put Britain First”. The killer had ties with far-right, neo-Nazi type groups.

So the initial feeling is that the murder of Cox will aid the Remain camp, both in sympathy and revulsion, and, perversely, equity markets rallied on the news.

Prior to the murder, A YouGov poll had it 46% Leave, 39% Remain, when days earlier the same survey had it 44-42 in favor of Remain. An Ipsos-Mori/Evening Standard poll had it 53-47 in favor of Leave.  A Survation/IG telephone poll was at 45-42 Leave.

Earlier, the Bank of England warned that uncertainty about the EU referendum is the “largest immediate risk” facing global financial markets.  The Bank said there were “risks of adverse spill-overs to the global economy.”  It added it was “increasingly likely” that sterling would fall further in the event of a vote to leave the EU, perhaps sharply.

German finance minister Wolfgang Schauble said a Leave vote would spread referendum contagion across a discontented Europe, pointing to the Netherlands as being the first to follow Britain’s lead.

Editorial / Washington Post

“The European Union is not popular just now.  The E.U.’s median favorability rating in 10 major nations, encompassing 80 percent of its 508 million inhabitants, is a tepid 51 percent, according to a recent Pew Research Center survey.  This is not surprising given the crises – economic, migratory and security-related – confronting Europe.

“In the United Kingdom, the E.U.’s approval rating is an even lower 44 percent, even though Britain has opted out of Europe-wide institutions that euroskeptics most dislike – such as the common currency – and has negotiated other special exemptions from E.U. strictures.  In this skeptical mood, British voters will go to the polls and choose whether to stay in the E.U. or begin a negotiated departure. ‘Brexit’ would be the first such secession in E.U. history but, if successful, possibly not the last.  The latest polls – taken before Thursday’s shocking assassination of Jo Cox, a pro-E.U. Labour Party member of Parliament, prompted a suspension of the referendum campaign – suggest British voters may well vote ‘leave.’

“This would be contrary to the pleas of Prime Minister David Cameron, President Obama and practically every elected leader across Europe.  It would be contrary to the internationalist example set by Ms. Cox, a committed and thoughtful campaigner for the rights of refugees and supporter of a vigorous British response to the Syrian war that has forced so many to flee.

“It also would be dangerous for the world, for Europe and, not least, for Britain.

“We understand the populist impulse behind the Brexit surge. Brussels and its multiple officious agencies are remote; their ponderous processes offer no prompt resolution to the issues that worry Britons most, including a surge of immigrants via the borderless E.U.  That this impulse is understandable, however, does not make it any less, well, impulsive; there’s nothing particularly new, or particularly admirable, about the politics of anti-immigrant backlash.  Any control Brexit would ‘take back,’ to paraphrase the Leave campaign slogan, would be offset by increased economic uncertainty and political tension, to include conflict, potentially, with Scotland, which might rethink its recent vote to remain in the U.K. rather than join a flight from Europe.  Brexiteers promise a boom born of deregulation; practical people grasp that Britain’s global financial center and export economy require regulation and standard-setting, including some that will inevitably be carried out multilaterally. Leaving the E.U. won’t change that reality, just render Britain less influential in shaping it.”

Editorial / The Economist

“The peevishness of the campaigning has obscured the importance of what is at stake. A vote to quit the European Union on June 23rd, which polls say is a growing possibility, would do grave and lasting harm to the politics and economy of Britain. The loss of one of the EU’s biggest members would gouge a deep wound in the rest of Europe. And, with the likes of Donald Trump and Marine Le Pen fueling economic nationalism and xenophobia, it would mark a defeat for the liberal order that has underpinned the West’s prosperity.

“That, clearly, is not the argument of the voices calling to leave. As with Eurosceptics across the EU, their story is about liberation and history. Quitting the sclerotic, undemocratic EU, the Brexiteers say, would set Britain free to reclaim its sovereign destiny as an outward-looking power.  Many of these people claim the mantle of liberalism – the creed that this newspaper has long championed. They sign up to the argument that free trade leads to prosperity. They make the right noises about small government and red tape.  They say that their rejection of unlimited EU migration stems not from xenophobia so much as a desire to pick people with the most to offer.

“The liberal Leavers are peddling an illusion.  On contact with the reality of Brexit, their plans will fall apart. If Britain leaves the EU, it is likely to end up poorer, less open and less innovative.  Far from reclaiming its global outlook, it will become less influential and more parochial.  And without Britain, all of Europe would be worse off.”

Gideon Rachman / Financial Times

“In the referendum campaign on Britain’s membership of the EU, each side has one trump card that they will play repeatedly until voting day on June 23. The Remain camp will talk about the economy. The Leavers will talk about immigration.

“Many diehard Remainers regard the Leave campaign’s stress on immigration as proof that it is a movement that ultimately rests on racism and xenophobia. But immigration is a legitimate issue in this campaign. Indeed, the Leave side would be stupid not to use it since, when voters are asked to name their concerns, they regularly put immigration at the top of the list.  In 2015, net migration to the UK hit 333,000, the second-highest number on record, with about half that number coming from the EU.

“For the Leave campaign, immigration from Europe is a gift because it perfectly captures three of the themes that the ‘Outers’ most like to stress: loss of sovereignty, the faulty judgment of elites and the difficulty of achieving meaningful reform of the EU....

“(Immigration) provides a meaningful practical example of what ‘loss of sovereignty’ actually entails. After the arrival of more than 1m migrants from Eastern Europe over the past decade, some British voters wanted to call a halt. That put David Cameron, the prime minister, in the awkward position of having to explain that the UK government is powerless to control the flow of migrants from the rest of the EU. The EU’s rules on the free movement of people mandate that all EU citizens have the right to live and work anywhere within the 28-country bloc.

“One of the basic characteristics of a nation state has traditionally been the right to decide who can live in the country and enjoy the benefits of citizenship.  Many voters instinctively feel that this is the way it should still be.  But that traditional sovereign right has indeed been sacrificed (or pooled, if you prefer) by EU members.

“The British government’s failure to anticipate the scale of migration from eastern Europe has also fed the public’s skepticism about official pronouncements on the EU....

“As far as I can see, large-scale migration from Europe has benefited Britain. And many important institutions, from the National Health Service to my local coffee shop, would struggle to get by without it.  But then again, as an affluent Londoner, it is predictable that I would take a relaxed view of immigration.

“However, at a time when real wages are stagnant, house prices are rising and public services are creaking, many British people are susceptible to the argument that high immigration is making such problems worse.

“Are these concerns about immigration – real and imagined – enough to overwhelm the economic and strategic case for staying inside the EU?  Not as far as I am concerned. But I will not be remotely surprised if Britain decides differently on June 23.”

Finally, on the same issue, during the first quarter of 2016, Eurostat reported there were 287,100 first-time asylum seekers in the Member States of the EU, down 33% compared with the fourth quarter of 2015 (when 426,000 first-time applicants were registered).

102,000 of the 287,100 were from Syria (88,000 of whom applied in Germany), ahead of Iraq and Afghanistan (both with around 35,000 applicants).

Six in ten applied for asylum in Germany (175,000), followed by Italy (22,300), France (18,000), and Austria (13,900).

The number of applicants fell 91% to Sweden.

Turning to Asia, China’s National Bureau of Statistics released a slew of data, with fixed asset investment +9.6% the first five months of the year vs. a year earlier, the slowest rate in 16 years.  Private sector FAI was up only 3.9% vs. state sector growth of 23.3%.

Industrial production in May was +6%, unchanged from April.

Retail sales rose at a 10.0% annualized rate in May, down from April’s 10.1% figure.

Cement output was +3% in May, steel +2%.  Coal output fell 17% last month, year-over-year.

Car sales did reach a five-month high in May, owing to new models and ongoing discounts, up 11% vs. year ago levels, according to the Chinese Association of Automobile Manufacturers.

And housing sales for the period January through May rose 53.4%, but this was down from the 61.4% pace of the first four months.

So add it all up and it’s stagnation. Remember, in boom times all of the above were far higher.

Separately, U.S. Treasury Secretary Jacob Lew warned China over its unfair business practices, with Chinese domestic firms getting advantages.

“We continue to raise concerns about the general climate in China for U.S. businesses,” Lew said in a speech Thursday in Washington.  “They need the innovation that comes from foreign companies, they need the economic activity that comes from foreign companies, and they’re going to have to make a choice on how they manage this set of obstacles.”

I noted the other week that the European Union Chamber of Commerce in China echoed these thoughts, saying the environment in China is “increasingly hostile” toward foreign companies.

In Japan, the government kept its assessment of the economy unchanged this month but warned that consumer prices are rising at a slower pace, casting more doubt on policymakers’ three-year effort to shake off deflation.  A day before, the Bank of Japan cut its view on consumer inflation.

Overall, the Cabinet Office said, “Japan’s economy remains on track for recovery, while weakness can be seen.” It maintained its view that capital spending was “picking up” and exports were “almost flat.”  Truly stirring.

Street Bytes

--Stocks fell across the board, mostly on Brexit fears, with the Dow Jones losing 1.1% to 17675, while the S&P 500 lost 1.2% and Nasdaq 1.9%.

This coming week it’s all about the British referendum, and to a lesser extent Chair Yellen’s semi-annual House and Senate testimony on the state of the economy.

--U.S. Treasury Yields

6-mo. 0.35%  2-yr. 0.69%  10-yr. 1.61%  30-yr. 2.42%

The yield on the 10-year hit 1.52% at one point, the lowest since Aug. 2012, before bonds sold off with an improved outlook on the vote in Britain.

--U.S. crude oil inventories fell for a fourth straight week, in the latest indication the glut of supply may be easing.  That said, inventories are still at historically high levels for this time of year, the Energy Department said.

The price of crude bounced all over the place, falling to as low as $46.00 before closing at $47.98.

--In what has been a terrible week for the Walt Disney Company, the $5.5 billion Shanghai Disney Resort opened on Thursday.  “Our dream comes true,” said Disney CEO Robert Iger.

The park is Disney’s first on the Chinese mainland and took nearly two years of bruising negotiations to realize.  China’s president, Xi Jinping, said the resort was a sign of China’s “commitment to cross-cultural cooperation and our innovation mentality in the new era.”

Disney owns 43 percent of the operation, with the majority stake held by a Chinese state-controlled consortium.

As for the incident at the Disney resort in Orlando that claimed the life of a two-year-old, vacationing with his family from Nebraska, at first I thought, how can anyone in this country not know there are tons of alligators in Florida?  But Disney is at fault for not posting the threat on its signs that read “No swimming.”  And while there are some signs that say ‘don’t feed the wildlife,’ alligators aren’t specifically noted.

What has emerged is that guests at some of the Disney properties have been feeding alligators over the years and management has looked the other way.

[Disney also learned this week that Omar Mateen was casing one of its properties.]

--93-year-old Sumner Redstone and his daughter, Sheri, toppled five members of Viacom Inc.’s governing board, including Viacom Chairman and Chief Executive Philippe Dauman.

The Redstone family vehicle, National Amusements Inc., announced five new directors had been elected – none of whom are affiliated with the Redstone family.  Redstone, whose competency has been called into question, is the controlling shareholder of Viacom and can do what he wants.

--The World Health Organization says the risk of Zika spreading at the Olympic Games in Rio is minimal and not high enough to justify postponing or moving the event.

An emergency committee concluded on Tuesday that the risk of contracting the virus in transmission areas could be contained by good public health measures.

But the University of Ottawa professor, Amir Attaran, who was among the 150 public health experts who wrote an open letter to the WHO last month calling for the Games to be moved or postponed, disagreed with the WHO’s risk assessment on the basis that if the risk of the virus spreading globally was small, its consequences could nonetheless be catastrophic.

Meanwhile, three women in the U.S. infected with the Zika virus have delivered infants with birth defects and three others have lost or terminated pregnancies because their fetuses suffered brain damage from the virus, the Centers for Disease Control and Prevention said Thursday.  It’s the first time the CDC has provided a total number of Zika-related birth defects since the start of the U.S. response earlier this year.

All of the women picked up the virus outside the country.

--Microsoft announced it was acquiring LinkedIn for $26 billion in cash.  While the price paid was a 50% premium to LinkedIn’s share price, it is 29% below last year’s all-time high.

From the Financial Times’ Lex column:

“In the future, Microsoft promises, your digital assistant will find meetings on your Outlook calendar and prepare you by mining the LinkedIn profiles of the other participants.  You can then casually drop salient details of their careers into the conversation.  Hands will be shaken, deals made, jobs offered.  Either that, or everyone will find you extremely creepy....

“(The acquisition) is a big gamble because $26bn does not get you prime internet real estate.  LinkedIn is a fixer-upper in an iffy neighborhood.  Plenty of people use it.  It is less clear how many of them love it.  Less than a quarter of the 433m users visit once a month. Then there are the grating updates: ‘Congratulate Bob on the work anniversary!’  And for those eager for entry-level positions in loosely connected industries 1,000 miles from home, there is career advice.

“Growth has tapered dramatically... (and) there are no profits [Ed. once stock-based pay is taken into account.]  It is no mystery that LinkedIn was willing to sell.

“To generate faster revenue growth, Microsoft will have to scrap its promise of autonomy to LinkedIn’s management and overhaul the company, making it less irritating to users.”

--Oracle Corp. posted earnings for its fiscal fourth quarter that fell short of Wall Street’s expectations, though the company’s cloud-computing business picked up steam with revenue up 66% in the segment to $690 million.

But Oracle remains way behind Microsoft and Amazon.com in this arena, while it has to battle rivals Salesforce.com and Workday that deliver software and storage solely on the web.  And its non-cloud businesses, which still accounts for the lion’s share of its revenues, declined 1% from a year earlier.

That said, co-founder and chairman, Larry Ellison, vowed that Oracle would become the first cloud company to reach $10bn in revenues, even as Salesforce is already at a $7.7bn annualized pace.

--Alibaba founder Jack Ma infuriated luxury goods makers when he said this week, “We have to protect [intellectual property], we have to do everything to stop the fake products, but OEMs are making better products at a better price,” referring to original equipment manufacturers that typically make products for branded sellers.

“The problem is the fake products today are of better quality and better price than the real names,” Ma said during a speech at Alibaba’s headquarters in Hangzhou.  “They are exactly the [same] factories, exactly the same raw materials but they do not use the names.”

Ma felt compelled to make the remarks because his company has long been criticized for tolerating the sale of counterfeit goods on some of its platforms.

The founder of one Italian luxury goods company told the Financial Times: “I am stunned by his comments.”  He declined to be named.

In May, Alibaba was suspended from the International Anticounterfeiting Coalition, a watchdog for the retail industry, over concerns about knock-offs.

And talk about an a-hole, while Chinese regulators periodically probe Alibaba’s counterfeit issues, Ma said he was confident the company’s economic importance insulated it from severe treatment.

“You can’t stop Alibaba for two hours otherwise it’s going to be a disaster for China.”

Like I’ve said since day one, when it comes to Alibaba stock, don’t touch it.  I’ve long offered it’s a dirty company and here Ma is telling you that directly.

--Speaking of China, a Beijing regulator ordered Apple to stop selling some smartphones in the city because their design was too close to a Chinese firm’s model.  The ruling didn’t have any immediate impact, but yet another reminder of the uneven playing field in China, as I’ve noted with regards to Apple for some time now...as in Tim Cook and Co. will continually get screwed, hacked and copied. 

Apple’s handsets are still available for sale as the company appeals, and it’s not expected that Apple will suddenly be shut down in China, but just wait.  It will be about geopolitics as much as anything else.

--Bank of America is preparing to slash another 8,000 jobs at its consumer arm as the digital banking revolution gathers steam and reduces the need for back-office staff and tellers.

But the biggest U.S. retail bank by deposits does plan to add sales staff – such as mortgage loan officers and small business bankers.  The overall head count, though, will be reduced by thousands.

BofA has slashed the headcount at its consumer division by almost 40,000 since 2009.  In the past seven years Bank of America’s retail branch count has also fallen by about 1,400, or almost a quarter, to 4,690.

--As part of an ongoing cost-cutting campaign, Morgan Stanley is looking to shed an additional $1 billion in annual costs through an initiative dubbed “Project Streamline.”  The plan includes shifting some 1,250 support staff members to lower-cost offices in the likes of Bangalore, Glasgow and Baltimore.

--PIMCO is still bleeding assets in the post-Bill Gross area, so for the first time it is laying off employees, 3%.  The actual numbers aren’t significant coming off a 2,300 base, but it’s a reflection of a serious decline in the Total Return Fund, which Gross used to manage.  Overall company assets have fallen from $1.9 trillion to $1.4 trillion.

--As expected, “Hamilton” won a bunch of Tony Awards – 11 in all, including best new musical, but it fell short of the record for a single show, which was 12, held by “The Producers.”

Owing to “Hamilton,” CBS’ ratings for the Tony telecast hit a 15-year high.  Tickets for creator Lin-Manuel Miranda’s last show on July 9 are going for as much as $6,600 according to online ticket reseller TiqIQ.

--The World Health Organization issued a report on Wednesday that said coffee and tea drinkers should be careful not to drink their beverages at temperatures hotter than 149 degrees Fahrenheit because this could lead to cancer of the esophagus.

Beverages that are too hot can injure cells in the esophagus and lead to the formation of cancer cells, according to Mariana Stern of the University of Southern California’s Keck School of Medicine.

But a cup of joe at the right temperature can be beneficial as it could decrease the risk of liver cancer by 15%, according to research published in Lancet Oncology.

The research involved 23 scientists from 10 countries, who examined about 1,000 studies on more than 20 types of cancer.

According to a 2015 Gallup poll, 64% of adults in the U.S. said they drank at least one cup of coffee a day.

Needless to say the National Coffee Association is pleased.

--Finally, former General Electric CEO Jack Welch told the Wall Street Journal that his first job was as a caddie, which he did for 10 summers beginning when he was 8 years old.

“Caddying was the best learning experience I ever had.... I witnessed virtually every aspect of human behavior.

“I was disgusted by instances of cheating and poor sportsmanship.  I learned to appreciate clients who were generous of spirit – and generous with tips. The few bucks that meant very little to them meant a lot to us.

“One day around my senior year in high school, I was assigned to caddie for a notoriously difficult club member.  I’d seen him approaching and tried to hide behind the caddie shack, to no avail.  I was stuck with him.

“On the sixth hole, he hit the ball into a water feature. He told me to go get it.

“I’m not quite sure what got into me, but I responded by tossing his clubs into the water and telling him to go get those. Then I ran home.  The caddie master later came to my house to speak with my parents.  I was fired, of course – the end of my caddying career.”

Foreign Affairs

Iraq/Syria/ISIS/Russia: Iraqi forces raised the national flag over the main government compound in Fallujah Friday, according to top commanders, a breakthrough in the four-week-old offensive against the ISIS’ bastion.

The troops met limited resistance, with commanders telling AFP that ISIS fighters were fleeing the city, many slipping out by blending in with fleeing civilians.  It is the latest setback for the group, which has been losing territory in Syria and in Libya in recent weeks, even as CIA director John Brennan was warning ISIS remains a formidable force with global reach.

Iraq claims to have liberated 70 percent of Fallujah, but the city is a shambles.  Tens of thousands of civilians were forced from their homes and fled.

The Norwegian Refugee Council, which runs camps for the displaced outside Fallujah, said the sudden influx meant relief was drying up fast.

Fallujah is a Sunni Muslim city and the involvement of Shiite militia groups in the operation has raised fears of sectarian revenge attacks.

Mosul is the last major Iraqi city under ISIS control, and Iraqi Prime Minister Haider al-Abadi has vowed to defeat ISIL nationwide by the end of the year.

In Syria’s Aleppo province, heavy fighting killed at least 70 fighters in clashes between pro-government forces, extremists and rebels, as reported by the Syrian Observatory for Human Rights.  Russian fighter jets have been active in the area, with the Pentagon saying Russian warplanes struck at forces that are backed by the United States. The Syrian Observatory said warplanes struck a meeting of U.S.-backed forces fighting against ISIS near a border crossing with Iraq.

And according to a Syrian news site, Syrian Mirror, and the Jerusalem Post, for the first time in the five years of the Syrian civil war, a rift has developed between Hizbullah and the Syrian Regime, with heavy clashes breaking out between the two Thursday in Aleppo’s suburbs.  Dozens of Hizbullah fighters were reportedly killed in airstrikes carried out by the Syrian Air Force.

The skirmishes seem to have broken out because Hizbullah disagreed with the regime’s decision to pull back from areas where Hizbullah sacrificed many fighters to prevent opposition forces from gaining ground.

Also, last Saturday, suicide bombers struck a Shiite shrine near Damascus, killing at least 20.  ISIS claimed responsibility.  The shrine contains the grave of Zeinab, a granddaughter of the Prophet Mohammed.

Hizbullah had cited the threat to the shrine as a principal reason for its intervention in the civil war on the side of President Bashar Assad.

Back to CIA Director John Brennan, in testimony to the Senate Intelligence Committee on Thursday, he described Sunday’s terror attack in Orlando as an example of one that was inspired by ISIS’ online propaganda even though the killer had “no direct links to the group.”

“Unfortunately, despite all our progress against [Islamic State] on the battlefield and in the financial realm, our efforts have not reduced the group’s terrorism capability and global reach.”

Brennan added: “The group’s foreign branches and global networks can help preserve its capability for terrorism regardless of events in Iraq and Syria.  In fact, as the pressure mounts on [Islamic State], we judge that it will intensify its global terror campaign to maintain its dominance of the global terrorism agenda.”

Friday, we learned that more than 50 State Department officials signed a confidential document calling for targeted military strikes against Syria and lobbies for regime change.

The document calls for “judicious use of stand-off and air weapons, which would undergird and drive a more focused and hard-nosed U.S.-led diplomatic process,” as first reported by the New York Times.

This is an extraordinary rebuke of administration policy.

Separately, the United Nations issued a report stating that Islamic State is committing genocide against the Yazidis in Syria and Iraq to destroy the religious community of 400,000 people through killings, sexual slavery and other crimes.  Such a designation marks the first recognized genocide carried out by non-state actors, rather than a state or paramilitaries acting on its behalf.  The Kurdish-speaking Yazidis are a religious sect whom the Sunni Muslim Arab militants view as infidels.  ISIS holds at least 3,200 Yazidi women and children, mainly in Syria.

Libya: Government forces (defined loosely...the forces aligned to the UN-backed unity government) have re-taken control of the port in the city of Sirte, battling militants from Islamic State.  Sirte is ISIS’ most significant stronghold outside Iraq and Syria, and was the former hometown of Muammar Gaddafi.

The militias aligned with the unity government have been quick to coalesce and taking Sirte is big, as the fear was ISIS would use it as a launchpad for IS attacks on Libya’s North African neighbors and Europe.

The U.S., France and the U.K. have advisers in Libya helping the militias.

But a key figure there, Gen. Haftar, who has battled Islamist extremists effectively, refuses to support the unity government because it includes Islamist figures.  [I need to do more work on him.]

Egypt: The flight data recorder from the EgyptAir plane that crashed in the Mediterranean Sea last month was recovered, Egyptian investigators said; a day after search teams recovered the cockpit voice recorder from the wreckage of Flight MS804.

The data recorder was retrieved “in several pieces” but it is thought critical information will be obtained from it.  Not sure how long it will take to analyze it.  While a terror attack is still suspected, no group has come forward to claim responsibility.  But as I noted when the plane went down, if it was the work of AQAP (Al Qaeda in the Arabian Peninsula), they have zero incentive to claim responsibility as they want to keep their bomb-making capabilities secret.

Importantly, Egypt invited the U.S. National Transportation Safety Board to participate in the investigation.  French experts have been on the scene from day one.  I am confident we’ll learn the truth.

Iran: Tehran said it finalized a historic deal with Boeing to buy passenger planes in an ongoing effort to upgrade the country’s civilian fleet.

If approved, the agreement would mean that new American aircraft would fly over Iran for the first time since the 1979 Islamic Revolution.  IranAir would acquire more than 100 Boeing jets under the potential multi-billion-dollar deal.

However, gaining approval will not be easy because remaining sanctions ban the use of dollars in trade with Iran and Republican lawmakers who opposed the nuclear agreement could easily object to the Boeing deal.  I am in the opposition camp.

China: I’ve been saying the past few months that the geopolitical surprise of 2016 could be China making a move on Taiwan and this week’s developments certainly make the odds of something serious happening greater.

Taiwan’s new government blocked its immediate past president, Ma Ying-jeou, from traveling to Hong Kong over concerns he might take state secrets to the semiautonomous Chinese territory.

President Tsai Ing-wen denied Ma’s travel application after Ma was invited to speak at a forum in HK.

During his time in office, Ma bolstered ties with Beijing, signing 23 deals on trade and investment, and allowing direct flights between the two sides.  But many on Taiwan think Ma went too far and that the island was getting too close to China.

Ma has access to confidential information, including state secrets, while embracing the rhetorical framework of “one country,” one China, that Tsai has yet to do.  It’s almost as if Ma is under house arrest.  His office said the travel rejection “disrespected the former head of state” and “could tarnish the international reputation of Taiwan’s freedom and democracy.”  [Los Angeles Times]

On a different topic...Editorial / Washington

“Censorship and information control come in many flavors and methods, not always in the caricature of a stern apparatchik wielding a red pencil.  In the information age, China has become world champion at using tools to influence what its 1.3 billion people can see and read. The ruling Communist Party rejects the norms of openness, democracy and accountability promoted by the West.  Authoritarian and illiberal, China’s leaders want to stay that way, and are waging a fierce campaign to do so....

“China’s ambitious Great Firewall, which blocks overseas social media sites such as Facebook and Twitter, is well-known, but other methods of control are less so. The regime has been tightening enforcement of rules on foreign companies that provide online content inside China, prohibiting them from offering streaming services under their own brands or without a Chinese partner. The latest casualty appears to be Apple, which has been more successful than most in China but was forced in April to close its iBooks Store and iTunes Movies streaming services at the request of the State Administration of Press, Publication, Radio, Film and Television.  There wasn’t a specific reason given in public – Apple had earlier received approval – but the shutdown may have signaled another step in China’s determination to push back against Western culture, brands and content. Separately, in recent weeks, according to Bloomberg, the authorities have been talking with Chinese Internet portals, mobile apps and online video companies about a scheme in which the state would take shares of their businesses and a board seat to make sure they do not get out of line.

“China’s ascension to the World Trade Organization was to be an opening to the world. The WTO agreement was negotiated before the existence of today’s mammoth e-commerce sector, but attempts to dictate contents of the Internet and choose winners and losers online, accelerated by President Xi Jinping, run against the spirit of the WTO agreement.”

Russia: Russian Sports Minister Vitaly Mutko said Russian football fans in France had reacted to “numerous provocations.”  “Our fans are being continually provoked. Whatever happens, the Russians are to blame.”

I watched the Russia-England match and England fans indeed jeered the Russian national anthem, which Mutko pointed to, but an assault on an English fan in Marseille left him in a coma and others were injured severely.

A French prosecutor in Marseille called some Russian fans “well prepared fighters.”  Some 150 Russian “were well prepared for ultra-rapid, ultra-violent action” and were able to evade arrest.  Far-right leader Alexander Shprygin was among 20 Russians deported.  His All-Russia Supporters Union is backed by the Kremlin.  Shprygin has been photographed giving a Nazi salute.

Meanwhile, seven Russians were involved in an assault on three Spanish tourists outside Cologne Cathedral.  Plain clothes police rounded up six of the men, reported to be in their 20s.  The group were found to have had tickets for the Russia-England match in Marseille.

Separately, NATO Secretary-General Jens Stoltenberg said new estimates show military spending from European countries and Canada is set to rise 1.5% this year, an increase of $3 billion, which is encouraging.

“This is real progress. After many years going in the wrong direction, we are starting to go in the right direction.”

Stoltenberg added a 4,000-strong deterrent force to be positioned on the alliance’s eastern border will be under NATO command and control.  The alliance will position four battalions of roughly 1,000 troops each in the Baltic states and Poland for six-to-nine-month rotations in a move to deter Russia.  The U.S., U.K. and Germany will lead three of the four battalions, while Canada is considering serving as lead for the fourth.  [Julian E. Barnes / Wall Street Journal]

For his part, Vladimir Putin, appearing at an annual investor forum in St. Petersburg, conceded: “America is a great power, probably the sole superpower today.  We accept that.”

But Putin also insisted Russia won’t tolerate interference in its internal affairs.

“We don’t need them to constantly interfere in our business, showing us how to live,” he said.

A few hours later, though, we learned Russia’s track and field team has been barred from competing in the Rio Olympics because of a far-reaching doping conspiracy, an extraordinary punishment seemingly without precedent in the history of the Games.

The global governing body for track and field, known as the I.A.A.F., ruled Russia had not done enough to restore global confidence in the integrity of its athletes.  Putin called the ruling ‘unjust and unfair.’

Meanwhile, Ukraine is furious following remarks U.N. Secretary-General Ban Ki-moon gave at the St. Petersburg International Economic Forum.

Ban said Russia “has a critical role to play...in addressing other pressing global issues, from ending the conflicts in Ukraine and Syria, to safeguarding human rights and controlling the proliferation of weapons of mass destruction.”  [Ban’s spoken remarks omitted Ukraine, but his written ones, available to all, were as noted.]

Ukrainian leaders were incensed that Ban’s comments came across as praise for Moscow.  Russia continues to deny being behind the two-year old conflict in Ukraine that erupted following Moscow’s annexation of Crimea.

Brazil: Interim president Michel Temer went on the offensive against allegations he solicited bribes, vowing he wouldn’t let the claims derail his reform agenda.  The accusations involve a race for mayor of Sao Paulo in 2012.

Temer has long been thought to be dirty, but he and his centrist Brazilian Democratic Movement party, or PMDB, are trying to consolidate support for the impeachment of elected president Dilma Rousseff, who was suspended for six months while the senate determines whether she is guilty of accusations of manipulating the budget.

Bring on the Olympics!  Bzzzz.....

Venezuela: President Nicolas Maduro said the referendum the opposition is trying to call to oust him will not take place this year.  Maduro said there wasn’t enough time to organize the vote.

The National Electoral Council, which the opposition says is working alongside the government, has invalidated at least 600,000 signatures on a petition for the referendum.

Only 197,000 valid signatures were needed for the first stage of the process and the opposition said it handed over 1.85 million.  So of the nearly 1.3 million whose signatures have not been struck off by the Electoral Council, they need to turn up at regional electoral offices to confirm their identities later this month.  Of course this guarantees chaos.

Random Musings

--Polls....

Seven in 10 Americans see Donald Trump unfavorably in a new ABC News/Washington Post poll, up 10 points in just the past month to a new high since he announced his candidacy for president.  But Hillary Clinton’s unfavorability rose to 55 percent, a new high for her as well.

Trump’s favorable/unfavorable ratio was 37/60 in mid-May, but 29/70 now after a week in which he took sharp criticism for saying he was being treated unfairly by a federal judge because of the judge’s Mexican heritage.  Over the same time, Clinton’s ratios haven’t changed much, from 44/53 to 43/55.

Separately, Trump’s unfavorability among minorities is stark.  94% of blacks see him negatively, as do 89% of Hispanics.  The survey was conducted June 8-12, almost all of it before the Orlando massacre.

A poll by Bloomberg Politics has Clinton holding a 12-point lead over Trump in a national poll, 49-37 among likely voters, while 55% say they could never vote for Mr. Trump, with an equal percentage saying they were bothered by Trump’s accusations against Judge Curiel.  Libertarian candidate and former New Mexico governor Gary Johnson had 9% in the Bloomberg survey.

In a Fox News poll, among independents, Trump took 32%, followed by Gary Johnson with 23% and then Clinton at 22%.  This is bad news for Hillary, even as the poll shows her at 42% among all voters, to Trump’s 39%.

--In the wake of the mass shooting in Orlando, Donald Trump took to Twitter Sunday to say he was “right” about warning about the danger of radical Islamic extremists – but didn’t want his supporters to pat him on the back.

“Appreciate the congrats for being right on radical Islamic terrorism, I don’t want congrats, I want toughness & vigilance.  We must be smart!”

Then on Monday, in a statement, Trump said: “We admit more than 100,000 lifetime migrants from the Middle East each year. Since 9/11, hundreds of migrants and their children have been implicated in terrorism in the United States.”

Trump then said Hillary Clinton wants to “dramatically increase admissions from the Middle East, bringing in many hundreds of thousands during a first term – and we will have no way to screen them, pay for them, or prevent the second generation from radicalizing.”

Trump also said he would suspend immigration “from areas of the world where there’s a proven history of terrorism against the United States, Europe and our allies.”

Also, on NBC Monday, he called into question Obama’s motivations, insinuating that the president may sympathize with radical jihadism.

“Well, there are a lot of people that think maybe he doesn’t want to get it.  A lot of people think maybe he doesn’t want to know about it.  I happen to think that he just doesn’t know what he’s doing, but there are many people that think maybe he doesn’t want to get it.”

Both leading Democrats and Republicans rebuked Trump’s calls, post-Orlando massacre, to temporarily ban Muslims from entering the U.S.

President Obama said: “Are we going to start treating all Muslim-Americans differently?  Are we going to start discriminating against them, because of their faith?”

Trump retorted in an emailed statement: “President Obama claims to know our enemy, and yet he continues to prioritize our enemy over our allies, and for that matter, the American people.”

Then Trump said at a rally in North Carolina: “(Obama) was more angry at me than he was at the shooter...That’s the kind of anger he should have for the shooter.”

Trump also raised questions about Mr. Obama’s response to the extremist threat, saying that the president “doesn’t get it, or he gets it better than anybody understands.”

Hillary Clinton called Trump’s comments “shameful” and “disrespectful.”

“Even in a time of divided politics, this is way beyond anything that should be said by someone running for president,” she told supporters in Pittsburgh.

House Speaker Paul Ryan rejected Trump’s call to ban Muslims, saying the U.S. should tighten its screening process of refugees entering the country, rather than impose a religious test.

“I do not think a Muslim ban is in our country’s interest.  I do not think it is reflective of our principles – not just as a party, but as a country,” Ryan said.

--On the issue of gun control, Trump suggested he would be open to banning weapon sales to people on the terrorist watch list – a proposal put forward in the past by President Obama but rejected by Republicans because some are on the list unfairly.  The NRA, which has endorsed Trump, said it would be happy to meet with him on the issue.

Democrats, led by Connecticut Sen. Chris Murphy, staged a 15-hour filibuster on the Senate floor Wednesday to attach the ban along with universal background checks as an amendment to an existing bill.

Republican leaders have long opposed legislation that could undermine Second Amendment protections by preventing gun sales to those put on the terrorist list by mistake.

“A mid-level bureaucrat can put anybody on a no-fly list with no due process rights,” Speaker Paul Ryan has said in the past.

--More commentary on Orlando....

Michael Goodwin / New York Post

“If it is true that the best defense is a good offense, President Obama should be celebrating in the end zone now.  Obviously furious over criticism that his anti-terror policies are weak and that the Orlando slaughter proves it, he went on a televised tirade to let America know he’s mad as hell and not going to take it anymore.

“He laid waste to a field of straw men, cable-TV pundits and the always-evil ‘partisan rhetoric,’ by which he means anyone who disagrees with him. It was a striking display of personal anger and pent-up grievances – and a total failure of leadership during a national crisis.

“It also, inadvertently, captured why Donald Trump was able to brawl his way to the GOP nomination.  All his nice Republican rivals couldn’t stir voters because they never knew how to rattle Obama the way Trump is doing. The president didn’t mention Trump yesterday, but the whole speech was nothing but a desperate and incoherent reaction to Trumpism.

“As such, it was a huge moment in the general-election campaign, even though it comes before the nominees are formally crowned. For one thing, it showed that Obama’s plan to campaign against Trump as if he is running for his own third term won’t be a cakewalk for the president or his legacy.

“For another, the Obama-Trump war means Hillary Clinton could be overshadowed in what was supposed to be her campaign for vindication. Throw in her husband and the stage is going to get crowded with alpha males competing for attention.

“Obama’s demeanor and tone were far from presidential – tantrums rarely are.  Nor was he effective in rallying the nation to his cause.  No surprise there.  His cause is himself, always and only, and his greatly diminished historic presidency looks especially insignificant next to the bloodshed in Orlando.  The iconic redeemer who promised hope and change never seemed so small and hopeless.

“America saw Barack Obama at low tide yesterday, revealed as brimming with fury and bankrupt of ideas and even sympathy for the dead. The man who had an answer for everything and a solution to nothing is now also out of excuses.”

--Jennifer Rubin / Washington Post

“In her speech last week on her opponent and national security, Hillary Clinton declared that ‘it’s not hard to imagine Donald Trump leading us into a war just because somebody got under his very thin skin.’  (Trump’s response?  ‘I don’t have thin skin.  I have very strong, very thick skin.’)

“The trouble with Clinton’s argument is that it is not just campaign rhetoric.  It’s analytically accurate.  We have literally no idea how Trump would use the awesome powers of the presidency.  We know that he has promised to abuse them in any number of ways: from committing war crimes to retaliating against his political enemies. And we know that discussion of the man tends to veer pretty quickly into the realm of the clinical. But with very few exceptions, Trump doesn’t articulate policy.   He articulates mood, anger, affection for those who say nice things about him, and the desire for retribution against those who criticize him.  Mostly, he promises government by magic: great deals, winning, America being great again. And magic is one power that the American presidency does not have....

“In truth, it’s not as though Trump has it all figured out.  In fact, he knows virtually nothing about any policy issue.  ‘He needs someone highly experienced and very knowledgeable because it’s pretty obvious he doesn’t know a lot about the issues,’ Senate Majority Leader Mitch McConnell (R-Ky.) said.  ‘You see that in the debates in which he’s participated.  It’s why I have argued to him publicly and privately that he ought to use a script more often – there is nothing wrong with having prepared texts.’”

--Joseph Epstein / Wall Street Journal

“How to account for (the millions of Trump voters)?

“Progressives easily enough account for them as racists, fools, thus, H.L. Mencken’s booboisie, but to a much higher power of ignorance than even Mencken himself, no slouch when it came to contempt for the common people, could have imagined. This interpretation of Mr. Trump’s supporters is, somehow, too easy, and too self-congratulatory.

“Something deeper, I believe, is rumbling behind the astounding support for Mr. Trump, a man who, apart from his large but less than pure business success, appears otherwise entirely without qualification for the presidency.  I had a hint of what might be behind the support for him a few weeks ago when, on one of the major network news shows, I watched a reporter ask a woman at a Trump rally why she was supporting him.  A thoroughly respectable-seeming middle-class woman, she replied without hesitation: ‘I want my country back.’

“This woman is easily imagined clicking through TV news channels or websites and encountering this montage: Black Lives Matters protesters bullying the latest object of their ire; a lesbian couple kissing at their  wedding ceremony; a mother in Chicago weeping over the death of her young daughter, struck by an errant bullet from a gang shootout; a panel earnestly discussing the need for men who ‘identify’ as women to have access to the public lavatories of their choosing; college students, showing the results of their enfeebling education, railing about imagined psychic injuries caused by their professors or fellow students.

“I don’t believe that this woman is a racist, or that she yearns for immigrants, gays and other minorities to be suppressed, or even that she truly expects to turn back the clock on social change in the U.S. What she wants is precisely what she says: her country back.

“Who, one needs to ask, took it away? Short answer the cultural warriors....

“The political rise of Donald Trump owes less to the economy, to his status as a braggadocio billionaire, to his powers of insult, to the belief that he can Make America Great Again, than to the success of this progressive program.  What the woman who said she wants her country back really meant was that she couldn’t any longer bear to watch the United States on the descent, hostage to progressivist ideas that bring neither contentment nor satisfaction but instead foster a state of perpetual protest and agitation, anger and tumult.”

--Charles Krauthammer / Washington Post

“When in his 1964 GOP acceptance speech Barry Goldwater declared that ‘extremism in the defense of liberty is no vice,’ a reporter sitting near journalist/historian Theodore White famously exclaimed: ‘My God, he’s going to run as Barry Goldwater!’

“Six weeks into Donald Trump’s general election campaign, Republicans are discovering that he indeed intends to run as Donald Trump. He has boasted that he could turn ‘presidential’ – respectful, respectable, reticent, reserved bordering on boring – at will. Apparently, he can’t.

“GOP leaders who fell in line behind Trump after he clinched the nomination expected, or at least hoped, that he would prove malleable, willing to adjust his more extreme positions and tactics to suit a broader electorate.

“Two problems.  First, impulse control: Trump says what he actually feels, whatever comes into his head at any moment. Second, a certain logic: Trump won the primaries Sinatra-style, his way – against the odds, the experts and the conventional rules. So why change now?  ‘You win the pennant,’ Trump explained, ‘and now you’re in the World Series – you gonna change?’....

“Hence his response to the Orlando terror attack...

“The textbook response for the challenger, therefore, is to offer sympathy, give a general statement or two about the failure of the incumbent’s national security policy, then step back to let the resulting national fear and loathing, amplified by the media, take effect.

“Instead, Trump made himself the (political) story.  First, he offered himself unseemly congratulations for his prescience about terrorism.  (He’d predicted more would be coming.  What a visionary.)  Then he went beyond blaming the president for lack of will or wisdom in fighting terrorism, and darkly implied presidential sympathy for the enemy. ‘There’s something going on,’ he charged. He then reiterated his ban on Muslim immigration.

“Why?  Because that’s what Trump does....

“It’s no accident that Trump’s poll numbers are sliding.  A month ago, when crowned as presumptive nominee, he jumped into a virtual tie with Clinton. The polls now have him losing by an average of six points, with some showing a nine- and 12-point deficit (Reuters/Ipsos and Bloomberg).  And his unfavorability ratings are up 10 points in just the past month.

“This may turn out to be temporary, but it is a clear reflection of Trump’s disastrous general election kickoff....

“Reagan biographer Lou Cannon thinks that the Goldwater anecdote is apocryphal. How could anyone (even a journalist) have thought that Goldwater, who later admitted he always knew he would lose, was going to run as anything but his vintage, hard-core self?

“Same for Trump. Give him points for authenticity. Take away for electability.”

--Trump turned 70 on Tuesday.  If elected, he’d be the oldest person ever elected to a first term as president.  [Reagan turned 70 a few weeks after his inauguration in 1981.]

--Marco Rubio, who announced his retirement from the Senate in March, said Monday he might consider running for re-election in the wake of the Orlando massacre.

“When it visits your home state, when it impacts a community you know well, it really gives you pause to think a little bit about your service to your country and where you can be most useful to your country,” he said.

Friday, Republican Rep. David Jolly announced he would not run for the Senate, in light of Rubio’s probable decision, and Jolly will run for reelection to his House seat instead.

--Russian government hackers broke into the Democratic National Committee’s computer network and accessed the organization’s trove of opposition research on Donald Trump, according to a security firm hired by the DNC, CrowdStrike.  According to DNC officials, the hackers were able to gain access to all of the DNC’s emails and inter-staff chats, as well as the research into Trump.

CrowdStrike believes the hackers were tied to the Russian government “based on the level of sophistication” of their methods.

Leonid Bershidsky / Bloomberg

“Writing about the latest Russian government-sponsored cyberattack his firm had to deal with, Dmitri Alperovich of cybersecurity company Crowdstrike noted it was rare for clients to want to publicize these breaches.  The Democratic National Committee, however, had a good reason to go public: It claimed that the Russians had been looking for opposition research on Donald Trump.

“Given how the U.S. media love to hate Trump, sinister theories could be expected to emerge, and they did. The New York Times, for example, mentioned ‘a subplot to the race: Paul Manafort, Mr. Trump’s campaign chairman, previously advised pro-Russian politicians in Ukraine and other parts of Eastern Europe, including former President Viktor F. Yanukovych of Ukraine.’ The image that springs to mind is of Russian spies handing over the DNC files to Manafort, or to Trump himself, to aid the Republican candidate.  Didn’t Hillary Clinton say they would be ‘celebrating in the Kremlin’ if Trump won?

“The Washington Post, which first reported the breach, quoted unnamed U.S. officials as saying the Clinton and Trump campaigns, as well as some Republican political action committees, had also been targeted – yet they didn’t see fit to spread the news.  The DNC’s revelations – less titillating then they are embarrassing – are nonetheless worrying.  The story of two independent breaches that allowed the hackers months of unhindered access shows a cavalier attitude toward cybersecurity in an organization that should have known better. It shows Clinton’s email scandal has taught U.S. Democrats little or nothing at all.”

--A House committee on Wednesday passed a resolution to censure IRS Commissioner John Koskinen, as the GOP pushes for his impeachment.  The vote out of the House Oversight and Government Reform Committee comes before the House Judiciary Committee is to hold its second hearing to consider whether Koskinen should be impeached.

The censure resolution condemns Koskinen for a pattern of conduct “that is incompatible with his duties and inconsistent with the trust and confidence placed in him as an officer of the United States.”

Republicans assert Koskinen lied under oath as Congress investigated revelations from 2014 that the IRS had given extra scrutiny to conservative groups applying for tax-exempt status.

Censure is the first step, but if the House voted to impeach him, the Senate would then have to convict and Senate Finance Committee Chairman Orrin Hatch (R-Utah) has said there’s no chance the Senate would act on it.  [Naomi Jagoda / The Hill]

Koskinen makes my skin crawl.

--NASA was the latest to weigh in on May’s temperatures, which its statistics show was the hottest documented, capping off the warmest spring on record for the northern hemisphere, along with the first four months of 2016 reaching the highest temperatures on Earth in 136 years.  The month’s unusually warm weather came with heavy rains throughout Europe and the southern United States.

Alaska experienced average temperatures 10 degrees Fahrenheit higher than usual.  According to the National Oceanic and Atmospheric Administration (NOAA), Alaska is on track to continue having above average temperatures for the rest of 2016.

NASA researchers said greenhouse gases, not El Nino, was the leading cause of rising temperatures.

--I was shocked by a piece I saw on NJ.com (Star-Ledger).  The opioid that was revealed to have killed Prince in April, Fentanyl, which is 50 times more powerful than heroin, has been killing New Jersey residents at a staggering rate.  As the Ledger revealed, the latest data from the New Jersey Medical Examiner’s Office shows that through the first six months of 2015, an average of 25 people a month were killed by fentanyl (150 in all), or more than in all of 2014.

--Lastly, you want to know how screwed up the world is....and just how many idiots people the planet? This deserved to be the lead story on nightly newscasts, it is so stupid...and entirely instructive.  I stumbled on it from the BBC News website.

“Following the shooting at a gay nightclub in Orlando, USA, people have been sharing a BBC news story about an attack in Kenya.

“In just one day, more than 672,000 people have read the story after seeing it on their social media accounts.  The shooting at Garissa University by the Somali militant group al-Shabab left 147 people dead....

“But the story was written in April 2015.”

People were reacting to the story as if it happened after the Pulse attack. 

Put me on the first flight to Mars.

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

God bless America....and a special shout out to the doctors, surgeons and nurses at Orlando Regional Medical Center for their truly heroic work this past week in treating the survivors of the Pulse nightclub attack. 

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Gold $1298
Oil $47.98

Returns for the week 6/13-6/17

Dow Jones  -1.1%  [17675]
S&P 500  -1.2%  [2071]
S&P MidCap  -1.3%
Russell 2000  -1.7%
Nasdaq  -1.9%  [4800]

Returns for the period 1/1/16-6/17/16

Dow Jones  +1.4%
S&P 500  +1.3%
S&P MidCap  +5.8%
Russell 2000  +0.8%
Nasdaq  -4.1%

Bulls  45.9
Bears 23.5 [Source: Investors Intelligence]

Have a great week.

Brian Trumbore

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