Week in Review

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Week in Review

02/03/2018

For the week 1/29-2/2

[Posted 11:30 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.  *Special thanks this week to Bobby C.

Edition 982

Trump World...it’s about action, not words....

I’m the ‘wait 24 hours’ guy and while I’ve been following the whole Russian collusion, Steele dossier, and alleged abuse at the FBI and Department of Justice stories every day as much as anyone, giving both CNN and Fox News equal time for my personal attention, and having just watched Sean Hannity tonight, as I do virtually every night because I view it as part of my job, I sure as hell am not making any broad, sweeping statements on the release of the memo from Republicans on the House Intelligence Committee.  I have comments below on the process and more, but I am sick of about 25 individuals on both sides of the political aisle.

You should have noticed I have written relatively little on the Mueller investigation, and the House Intelligence Committee’s probe, because I just haven’t seen any real facts.

I have a simple attitude at this point.  Wake me up when the Mueller investigation is complete, as well as the Department of Justice’s inspector general report that most Americans, I guarantee, don’t even know is of critical importance and is coming soon. The IG is independent.  We have to believe in his impartiality to do the job and draw the proper conclusions.

Between Mueller and the IG (Michael Horowitz), we should get the truth, and it’s very possible that Horowitz will trump Mueller.

Like I say, ‘wait 24 hours.’  In the meantime, ask me if I trust any of the major players you see every day on television, both parties.  Pundits and politicians.  Short answer...No.

On a different topic, you also may have noticed I said virtually zero last week about President Trump’s speech in Davos, which many fawned over, and I have virtually zero to say about the State of the Union while others sing hosannas and the polls afterward show solid support for Trump’s performance.

It’s beyond idiotic.  We are talking about a man, our president, whose ‘word’ is meaningless.  I’m glad he can stick to a script, as he did in both cases, but haven’t we learned anything the past year, and then some going back to the campaign? What the heck does a statement on X,Y or Z mean in a speech when you know he can adopt a totally different position within 24 hours?  Why waste your time?

I’ll admit I watched the State of the Union because I was curious if Trump would take the opportunity to give the man sitting behind him, Speaker Paul Ryan, credit for the tax act. Ryan, after all, has only been working on it his entire time in Congress.  Trump doesn’t get the bill without Ryan’s unstinting support and, most important, knowledge, with of course some credit also going to Senate Majority Leader Mitch McConnell.

But did Trump take five seconds to turn around and say “Thank you, Paul.”  Of course not.  It’s who the man is.

I will remind you, though, that I knew enough following passage of the tax bill that President Trump’s approval ratings, abysmal in the immediate aftermath, could easily improve once people began to understand the benefits (and receive same) and that is indeed the case.  It’s something we’ll be following closely the next ten months until November.

One thing is for sure, however.  As we learned this week in the markets, volatility is back in a big way, and that will be the case in the polling data as well.  It was kind of startling how consistent Trump’s approval numbers were all of 2017. This year they’ll be all over the place, and I’ve laid down my marker...geopolitics will play a big role in the public’s mood swings.

State of the Union

I like how the New York Post’s John Podhoretz sums it up:

“Trump’s policy is largely improvisational anyway, and there’s nothing he promised or vowed or cited as something America desperately needs that he couldn’t take back tomorrow.”

Karl Rove / Wall Street Journal

“The mainstream reviews of President Trump’s first State of the Union address Tuesday are begrudgingly glowing. NBC’s Savannah Guthrie said ‘it was optimistic; it was bright; it was conciliatory.’ CNN’s Jake Tapper noted ‘the inspirational stories of Americans, and the calls to unity, and the beautiful prose.’ Fox News’ John Roberts called it ‘very powerful – very patriotic.’

“White House aides may hope this praise will help reset the Trump presidency.  But that won’t happen unless they and the president take action to fulfill Mr. Trump’s call for ‘the unity we need to deliver for the people we were elected to serve.’ What follows the State of the Union address is more important than the speech itself.

“Mr. Trump called Tuesday for bipartisanship and united efforts to make America better.  That should become a regular theme. He represented an agenda; now he must deliver it so voters will realize he has worked hard to meet his commitments....

“Mr. Trump should (also) put more of his focus on jobs, paychecks and rising consumer and business confidence.  He ought to praise workers and business leaders for the growing prosperity, rather than congratulating himself.”

President Trump said virtually zero on foreign policy in the 80 minutes he spent largely clapping for himself.  This is basically all of it:

“As we rebuild America’s strength and confidence at home, we are also restoring our strength and standing abroad.

“Around the world, we face rogue regimes, terrorist groups, and rivals like China and Russia that challenge our interests, our economy, and our values. In confronting these dangers, we know that weakness is the surest path to conflict, and unmatched power is the surest means of our defense.

“For this reason, I am asking the Congress to end the dangerous defense sequester and fully fund our great military. [Ed. But Mr. President, you were telling us all year that you were building the military up to levels never seen before!  You mean you were lying?!]

“As part of our defense, we must modernize and rebuild our nuclear arsenal, hopefully never having to use it, but making it so strong and powerful that it will deter any acts of aggression.  Perhaps someday in the future there will be a magical moment when the countries of the world will get together to eliminate their nuclear weapons.  Unfortunately, we are not there yet.

“Last year, I also pledged that we would work with our allies to extinguish ISIS from the face of the Earth. One year later, I am proud to report that the coalition to defeat ISIS has liberated almost 100 percent of the territory once held by these killers in Iraq and Syria. But there is much more work to be done. We will continue our fight until ISIS is defeated.....

“Our warriors in Afghanistan also have new rules of engagement.  Along with their heroic Afghan partners, our military is no longer undermined by artificial timelines, and we no longer tell our enemies our plans.

“Last month, I also took an action endorsed unanimously by the Senate just months before: I recognized Jerusalem as the capital of Israel....

“When the people of Iran rose up against the crimes of their corrupt dictatorship, I did not stay silent. America stands with the people of Iran in their courageous struggle for freedom.  [Ed. I was telling you as Trump was saying this that the protests would go nowhere.  And they didn’t.]

“My Administration has also imposed tough sanctions on the communist and socialist dictatorships in Cuba and Venezuela.

“But no regime has oppressed its own citizens more totally or brutally than the cruel dictatorship in North Korea.

“North Korea’s reckless pursuit of nuclear missiles could very soon threaten our homeland.

“We are waging a campaign of maximum pressure to prevent that from happening.

“Past experience has taught us that complacency and concessions only invite aggression into provocation.  I will not repeat the mistakes of past administrations that got us into this dangerous position.”

That was essentially it on foreign policy.  Some of it is outright laughable, particularly his one line on Russia and China. And the throwaway line on Iran. And while we’ve made great strides in the fight against ISIS, we are giving up any chance at influence on the outcome for Syria, which will come back to haunt us in spades...and soon.

And we’ve been flat out losing the war in Afghanistan for some time now.

As for North Korea, I’ll let Victor Cha speak for me down below.  This is in no way President Trump’s fault, but I worry about where he is now taking us.

Max Boot / Washington Post

“National security and foreign policy were mainly an afterthought in President Trump’s State of the Union address. What he said was less notable than what he did not say.

“The National Defense Strategy, recently released by Secretary of Defense Jim Mattis, suggests that ‘interstate strategic competition, not terrorism, is now the primary concern in U.S. national security.’ It goes on to cite China and Russia as primary threats. Listed next are North Korea and Iran, only then followed by terrorism.

“As noted by the Brookings Institution’s Tom Wright, the State of the Union reversed the priorities: Trump mentioned ‘trade deals, immigrants, terrorism, and North Korea’ as primary threats. Great power rivals were barely mentioned....

“Trump took an understandable victory lap for the military success against the Islamic State...without, of course, mentioning that his strategy to combat the Islamic State is largely the same one laid out and implemented by President Barack Obama.  Praising his predecessor would have been an easy bipartisan note to strike, but Trump simply couldn’t bring himself to do it.

“He also made no mention of something Secretary of State Rex Tillerson recently said: U.S. troops would remain in Syria to stabilize the areas liberated from the Islamic State. This would seem to be at odds with Trump’s aversion to nation-building and prolonged military deployments overseas, but whether this plan has his approval must remain a matter of conjecture.  He also made no comment on the growing confrontation between, Turkey, a NATO ally, and America’s Kurdish allies in Syria, giving no clue about how he hopes to resolve this intractable conflict....

“What about North Korea? Trump mentioned that its ‘reckless pursuit of nuclear missiles could very soon threaten our homeland,’ without saying what he will do about it.  It’s not a good sign that the administration just abandoned the appointment of Victor Cha, one of the most respected Korea experts in Washington, as the ambassador to South Korea, reportedly because he opposes launching a preventive ‘bloody nose’ strike on the North.  But if Trump is seriously considering attacking North Korea (a very bad idea, for reasons Cha spelled out in The Post), he gave no hint of it in the State of the Union. You would think that if the administration is seriously considering going to war – and all indications are that it is – the president would want to make the case to the public for why military action is necessary....

“Trump’s outrage over North Korea’s human rights abuses, and those in Iran, Cuba and Venezuela, is undermined by the fact that he had nothing to say about human rights abuses in countries whose rulers he plainly admires. Countries such as the Philippines, Egypt, Turkey, China – and Russia.  Trump tweeted up a storm after Iran crushed anti-regime demonstrations. But he was silent this past weekend when Vladimir Putin’s goons arrested Russian opposition leader Alexei Navalny. Trump’s highly selective invocation of human rights makes it hard for anyone to take him seriously.”

Further opinion on the SOU....

Editorial / Los Angeles Times

“In his first State of the Union address, President Trump spoke in an almost conciliatory tone that largely eschewed his usual bluster. Yet the underlying message was his familiar appeal to fear and resentment, particularly toward noncitizens and foreign adversaries. And the agenda he laid out was, with few exceptions, a thinly detailed retread of past pronouncements.

“Trump was predictably full of praise for himself and his administration, citing the ‘incredible progress and extraordinary success’ achieved in his first year. And as usual, he exaggerated the credit he was due for both the economy and the fact that on his watch ‘the coalition to defeat [Islamic State] has liberated almost 100% of the territory once held by these killers in Iraq and Syria.’

“The president certainly tried to position himself as a unifying figure ready to compromise. Although most of his proposals were tired GOP ideas, he expressed support for a handful of initiatives that seemed designed to appeal to Democrats – a huge infrastructure-building program, paid family leave, a better approach to helping former inmates reenter society and a commitment to lowering prescription drug prices. Those are all worthwhile goals, and if he’s serious about them, Democrats should work with him. He didn’t say how he planned to achieve them, however, leaving one to wonder whether he’d renounce them all on Twitter in the morning.

“Truly engaging Democrats not only in respectful dialogue but in actual compromise would be good for the country, clearly.  It also would be beneficial for Trump’s political standing at a time when his sagging popularity [Ed. this is no longer true.] is threatening the Republican Party with losses in the midterm election.

“But Trump’s most detailed comments of the evening – on immigration, an issue crying out for compromise – were hardly an olive branch. Stressing the need for public safety and highlighting victims of violence by illegal immigrants, Trump urged Democrats to accept his latest proposal, which conditions a path to citizenship for so-called Dreamers – young people brought to this country illegally when they were children – on drastic cuts in legal immigration and the construction of his silly, wasteful wall.

“Not only is this proposal substantively offensive. In defending it, Trump used offensive language – though not as offensive as his infamous comments about not wanting immigrants from certain ‘shithole’ countries [Ed. or ‘shithouse.’] – that harked back to his suggestions during the campaign that illegal immigrants were dangerous.  ‘My duty, and the sacred duty of every elected official in this chamber, is to defend Americans – to protect their safety, their families, their communities, and their right to the American dream. Because Americans are dreamers too.’

“If the president insists on using that sort of language, he will find that his calls for good-faith negotiations will be met with deep and deserved skepticism.”

Daniel Henninger / Wall Street Journal

“It was impossible not to notice that Nancy Pelosi spent President Trump’s 70-minute State of the Union speech grimly chewing her cheek. She was thinking: ‘What I know, and he doesn’t know, is that history says a year from now I will be speaker of the House, and he’ll be on the brink of impeachment.’

“Odds are, she’s right.

“Mr. Trump gave a skillfully designed speech. He adroitly wove his conservative policies inside an attractive tapestry of generally self-evident American truths. While extending a fist of compromise to his opponents. But history records that the party of first-term U.S. presidents loses House seats in the midterm elections.  If Republicans suffer a net loss of 24 seats, Mr. Trump will fall into the hands of Mrs. Pelosi’s Madame Defarge (keyword: guillotine).

“In his State of the Union, Mr. Trump loaded up his presidency on the strong economy, jobs and low unemployment. ‘It’s the economy, stupid’ is a good political bet, but it isn’t decisive.

“Lyndon B. Johnson’s midterm election, in 1966, came amid a 3.7% unemployment rate delivered by the 1964 tax cuts. LBJ lost 47 House seats. George W. Bush had an unemployment rate of 4.6% in 2006 and lost 30 seats. For both LBJ and W, the effects of prolonged war – Vietnam and Iraq – undermined a strong economy. The absence of a big war is a plus for Mr. Trump....

“Barack Obama is the modern champ of first-term losses. He absorbed a 63-seat meltdown in 2010, with Great Recession unemployment that spiked to 9.6%. Control of the House gone, Mr. Obama resorted to rule by monarchical decree. It suited him, if not the country....

“Now comes the most intriguing midterm presidential exhibit: Bill Clinton.

“Mr. Clinton got wiped out in his first midterms, in 1994, losing 54 seats and House control amid political failure and the Gingrich/Republican revolution. But explain this: In the 1998 midterm, awash in scandal, Mr. Clinton gained five House seats and held his Senate losses to zero.

“Arguably the economy broke Mr. Clinton’s fall.  The unemployment rate, at 7.5% when he was elected in ’92, fell steadily to 4.5% in ’98.  Economic contentment was spreading across the U.S....

“Potential downdrafts abound – North Korea, the right getting ugly on immigration, a Mueller-made political crisis amplified by an irredeemably hostile press, more GOP incumbents like Rep. Trey Gowdy bailing out, or the possibility that economic contentment will suppress turnout. Plus, Mr. Trump might make history by tanking a successful presidency with tweets.

“The record suggests, however, that riding a significantly strong economy at mid-term – JFK, Reagan, Clinton – could have Nancy Pelosi sitting on her hands again during next year’s State of the Union.”

But now we have another government funding deadline of Feb. 8, with all the parties talking of a fourth continuing resolution, while President Trump said on Thursday that he is willing to walk away from immigration negotiations if Democrats won’t agree to his terms.  Chances of cutting a deal are disappearing fast, and Trump has his DACA deadline of March 5, after which nearly 1,000 people will begin losing their protections each day.

That is unless the president extends it.

Trumpets

--The Memo...

Jonathan Easley of The Hill had five takeaway from the Nunes memo, put together by the House Intel Committee and declassified by the White House, over the fierce objections of Democrats, the FBI and the DOJ, who described the documents as misleading and a partisan attempt to discredit the various Russia probes.

“Both sides think the memo gives them political ammunition.

“For those on the right, the memo confirms every suspicion they have had about the U.S. government spying on the Trump campaign and political bias that they say has reached the top levels of the DOJ and FBI....

“Democrats are firing back, saying that the memo is full of cherry-picked data points and ‘misleading allegations’ aimed at discrediting special counsel Robert Mueller....

“The FBI’s Russia investigation started with Papadopoulos.

“Trump’s allies have long alleged that the Russia probe is politically motivated because it began with the Steele dossier, which was funded by Hillary Clinton’s campaign and the Democratic National Committee.

“The Nunes memo states that the FBI’s counterintelligence investigation started in July 2016 and was based on information the FBI had gathered about George Papadopoulos, a former adviser to the Trump campaign.  (He) has since pleaded guilty to making false statements to the FBI and is cooperating with Mueller....

“The controversy around FBI agent Peter Strzok is only going to grow.

“The Nunes memo says (Strzok) – the FBI agent that Republicans have accused of harboring Trump bias – was responsible for launching the FBI’s counterintelligence investigation into whether Trump campaign officials coordinated with Russia....

“Memo claims that media was used to push the Trump-Russia narrative.

“Republicans have long accused the media of uncritically accepting Democratic talking points in an effort to push the idea that the Trump campaign colluded with Russia.

“The Nunes memo claims that Steele, the British spy, planted several stories on the Trump campaign and Russia while the FBI was paying him. Those same stories were subsequently used by law enforcement officials to obtain a warrant on Page....

“The memo names names.

“Steele is the primary GOP target in the memo, which seeks to cast him as a partisan who compiled the dossier because he was hell-bent on keeping Trump from getting elected.

“But the memo also calls out a host of senior FBI and DOJ officials that Republicans have accused of bias.”

And that’s where the likes of former FBI director Comey and deputy director Andrew McCabe are featured.

Like I said, I’m not trusting everything in “the memo” to be totally accurate given some of the stories lack context.  But I’ll listen to all sides the next few weeks, as I have been, and in the meantime let Congress make recommendations on changing the whole FISA warrant process.

Finally...a few more details outside the memo itself for the record:

Trump put himself on a course for the most explosive confrontation with his own FBI since he fired then-director James Comey by giving the OK for Congress on Friday to release a memo that accuses the feds of illegally spying on a former campaign aide, Carter Page. Today, Trump in a brief public appearance called it “a disgrace,” adding “a lot of people should be ashamed” by its contents, without elaborating.

“I think it’s terrible. I think it’s a disgrace what’s going on in this country. I think it’s a disgrace,” he said, ironically as he sat in the White House with North Korean defectors.  Boy, talk about mixed messages they were receiving!

“So I sent it over to Congress. They will do what they’re going to do. Whatever they do is fine. It was declassified, and let’s see what happens. But a lot of people should be ashamed.”

The president had tweeted Friday morning: “The top Leadership and Investigators of the FBI and the Justice Department have politicized the sacred investigative process in favor of Democrats and against Republicans – something which would have been unthinkable just a short time ago. Rank & File are great people!”

The FBI and DOJ had objected strenuously to the memo’s release. Earlier, Director Christopher Wray had expressed “grave concerns” about its accuracy. Some Republicans in Congress believe the same thing.

The president did not actually see the memo until Wednesday afternoon. According to the Washington Post, Chief of Staff John Kelly told Trump “that releasing the memo would not risk national security but that the document was not as compelling as some of its advocates had promised Trump.” [WP]

“Trump told aides and confidants he believed the memo would vindicate his claim early last year that the expansive Russia investigation overseen by special counsel Robert S. Mueller III was a ‘witch hunt.’....

“The president said he thought the release of the memo would help build a public argument against (Deputy Attorney General Rod J.) Rosenstein’s handling of the case, according to people familiar with the discussions. Trump suggested to aides and confidants that the memo might give him the justification to fire Rosenstein.” [WP]

Democrats such as California Rep. Adam Schiff of California, the ranking Democrat on the House Intelligence Committee, claimed that Devin Nunes shared with President Trump a “secretly altered” version of the Republican-crafted memo. Those changes, Schiff said, were not approved by the full committee as protocol dictates. Schiff also said Nunes cherry-picked information and left out details that would contradict what Democrats call a bogus narrative.

Earlier this week, FBI deputy director Andrew McCabe stepped down under withering criticism from Trump, including via Twitter; McCabe telling friends he felt pressure from Director Christopher Wray to do so, according to the New York Times.  [McCabe’s departure had been telegraphed earlier, but the time of departure was sudden.]

And House Speaker Paul Ryan defended Rob Rosenstein, saying the deputy attorney general is doing a “fine job” and that President Trump should not fire him.

For his part, Carter Page said in an emailed statement to Reuters today: “Now that a few of the misdeeds against the Trump Movement have been partially revealed, I look forward to updating my pending legal action in opposition to DOJ this weekend.”

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--President Trump signed an executive order Tuesday directing U.S. military officials to keep Guantanamo Bay operating, reversing a 2009 order by President Obama to close the facility, and then strongly hinted in his State of the Union he would fill it with ISIS prisoners currently being held in Syria, which would be a mistake; ISIS and the ilk using it as a major recruiting tool.

--Republican National Committee finance chairman Steve Wynn was forced to step down from his post following sexual misconduct allegations. Wynn was tapped for the position after Trump’s inauguration last year and he had served as a vice chairman on Trump’s inaugural committee, donating $729,000 to the event itself.

--Trump tweet: “Thank you for all of the nice compliments and reviews on the State of the Union speech.  45.6 million people watched, the highest number in history. @FoxNews beat every other Network, for the first time ever, with 11.7 million people tuning in. Delivered from the heart!”

The 45.6 million was smaller than the audience for President Obama’s first State of the Union address in 2010, which had 48 million viewers, and Trump’s 48 million viewers for his joint session of Congress speech a year ago was four million fewer than the 52 million Obama picked up in his joint session speech in 2009, according to Nielsen.

To carry it further, George W. Bush drew 51.8 million in 2002, and 62 million in 2003 for his post-9/11 State of the Union addresses.

Fox News did win the night Tuesday, with an audience of 11.7 million.

Wall Street

Before we get to the week’s losses, there was lots of economic data this week and I’ll start with the biggie, the jobs report for January, released today, that showed 200,000 jobs were created, above expectations, with November and December revised slightly downward. The three-month average is 192,000, above the average for all of 2017 at 181,000.  The unemployment rate remained at 4.1%, lowest since 2000, but President Trump won’t be crowing about the African-American jobless rate anymore as it surged up to 7.7% from 6.8%, this figure particularly volatile, we are learning.  [If I recall it was 7.8% Jan. 2017.]

U6, the underemployment rate, came in at 8.2%.  It was the 88th consecutive month of job creation.

The big news in the report, though, was a big uptick in average hourly earnings to 2.9% year-over-year, the highest such pace since June 2009. This is good...just not for the bond market.

Remember, in an expansion such as ours wage gains should be closer to 3.5% than the 2.5% they’ve been running at so a single number at 2.9% should not be a cause for panic that the Federal Reserve is going to be holding an emergency meeting to hike rates before their next Open Market Committee confab of March 20-21, when everyone believes they will raise rates a first of three (or four) times this year.

But the FOMC will get to see February’s jobs report before they gather, and, more importantly, they’ve long said their preferred inflation barometer is the personal-consumption expenditures index, PCE, and as noted in this week’s personal income and consumption data for December, both up a solid 0.4%, the PCE component came in at 1.7% annualized, just 1.5% on core, ex-food and energy. The Fed won’t be hiking certainly more than four times in 2018 unless that core figure gets to 2% and higher.

In other economic news, the Chicago manufacturing PMI for January was a very strong 65.7 (50 being the dividing line between growth and contraction), while the national ISM manufacturing reading for the month was 59.1.

Separately, December construction spending rose 0.7% and factory orders 1.7%, both better than expected.

Add it all up and it’s a rather bullish set of numbers. How bullish? The Atlanta Fed’s GDPNow barometer for the first quarter surged to 5.4% this week!  [For the record, the GDPNow final forecast for Q4 was 3.4% vs. the first look from the Commerce Department of 2.6%, though the latter can be revised upward in later reports.]

There was one downbeat economic note this week and that was on worker productivity, which advanced only 1.2% last year over 2016, according to the Labor Department, matching the average rate recorded from 2007 through 2017, and well below the 2.1% annual rate averaged since 1947.

In the fourth quarter, productivity decreased at a 0.1% seasonally adjusted annual rate.  Such soft figures are an impediment to stronger wages and thus better economic growth. 

As for the markets, I’ve written since day one of the column that when it comes to the bond market, ‘speed kills,’ and the rapid rise in yields, both here and in Europe, especially in the case of the German bund, has spooked investors. The yield on our 10-year hit 2.85% today for the first time since Jan. 2014 (before closing at 2.84%).  The month of January was particularly brutal as the 10-year had its biggest increase since November 2016 with investors betting on a pickup in growth and inflation.  If GDP for the first quarter came in at 4% or so, per the Atlanta Fed’s barometer today, look out.  [We won’t see that figure released, however, for a while.]

But another factor hitting bonds these days is the growing supply being thrown on the market, with the Treasury Department announcing it planned to increase its note and bond sales through April, with additional borrowing needed to help fund the $1.5 trillion tax cut package.

The U.S. announced the deficit for last fiscal year (ending Sept. 30) grew to $665.7 billion, the largest since 2013, and it’s going up; how much so is indeterminable at this juncture.  It’s about the pace of future economic activity.

The Federal Reserve held interest rates steady at its policy meeting this past week, as long expected, but it signaled a March hike in Chair Janet Yellen’s last time at the helm as Jerome (Jay) Powell now takes over as chairman. The Fed in its accompanying statement upgraded its near-term outlook for inflation, saying it expected year-on-year readings to “move up this year” before stabilizing around its 2 percent target in the medium term.

“Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low,” the Fed’s statement read.

So stocks suffered their worst week since Jan. 2016 in the case of the Dow Jones and S&P 500, Feb. 2016 for Nasdaq, while Friday’s 665-point swoon on the Dow was its worst point decline since Dec. 2008, and the worst percentage loss since 2016.

Blame the bond market and a major shift in sentiment, as well as uncertainty over the release of the Nunes memo...plus some of the earnings reports were less than exciting.

Europe and Asia

A flood of data for the eurozone (EA19) this week.

A flash reading on GDP for the fourth quarter came in at 0.6% over Q3, but 2.5% for all of 2017, the highest growth figure since 2007. For 2018, the European Central Bank is pegging growth at 2.3%.

A flash reading on January inflation came in at 1.3% annualized (1.2% ex-energy), which is down from 1.4% in December and 1.5% in November, so a bit of a mystery despite the surging data.

Such as the January manufacturing PMI numbers, 59.6 for the EA19 vs. 60.6 in December, very strong, with the following:

Germany 61.1
France 58.4
Spain 55.2
Italy 59.0 (best since early 2011)
Netherlands 62.5 (record high)
Greece 55.2 vs. 53.1 in December, the sharpest improvement since 2008
U.K. 55.3 vs. 56.2

Yes, the region is firing on all cylinders.

December unemployment in the eurozone is still 8.7%, however, unchanged from November, but an improvement from 9.7% a year earlier. So you could say there is still some slack in the labor force, thus the tame inflation data (ergo, still little wage growth...at least that is what the ECB would hang its hat on).

Germany 3.6%; France 9.2% (but coming down); Italy 10.8% vs. 11.8% year-over-year; Spain 16.4% vs. 18.5%; Ireland 6.2%; and Greece 20.7% (October).

Brexit: Prime Minister Theresa May vowed to fight the European Union over its attempt to extend protection for expats until 2021 as a condition for a transition period, saying the bloc should stick to its original cut-off date of March 2019.

Mrs. May said there should be different rights for European nationals who arrive in the U.K. before Brexit day in March 2019, compared with those who go there during what is expected to be a 21-month transition. Both sides had agreed on the earlier date in December as part of an interim deal that opened up discussions on the vital trade issue, but the EU is now backpedaling and playing hardball as part of extending the “implementation period.”

May added: “This is a matter for negotiations...but I’m clear there’s a difference between those people who came prior to us leaving and those who will come when they know the U.K. is no longer a member of the EU.”

Negotiations on the transition period are to begin shortly with the aim of reaching a deal by the end of March.  Businesses need the certainty of this to begin to cement their plans for a post-Brexit world.

Both sides agree that during the transition period, the U.K. will remain subject to EU legislation and court decisions and have to allow EU citizens to freely live and work in Britain, but you have the issue of citizens’ rights and a cut-off date.

Meanwhile, Prime Minister May continues to deal with dissension in her party (including on the above), and a leaked memo that talked of the impact on growth post-Brexit, that has Bank of England Gov. Mark Carney defending his pessimistic forecasts, which critics of Brexit are using to promote another referendum.

And then you have President Trump, in an interview with ITV’s Piers Morgan, entering the fray when he criticized the prime minister’s negotiating stance, saying he would take a “tougher” line with the European Union, only three days after putting on a show of unity with May at the World Economic Forum.

“Would it be the way I’d negotiate? No, I wouldn’t negotiate it the way it’s negotiated.  I would have said that the European Union is not cracked up to what it’s supposed to be and I would have taken a tougher stand in getting out.”

Catalonia: The speaker of parliament postponed a crunch vote on Tuesday to formally re-elect former president Carles Puigdemont into office, delaying his comeback bid.

Roger Torrent defended Puigdemont’s right to be re-elected, but delayed the vote after Spain’s Constitutional Court ruled on Saturday that Puigdemont must be present at the assembly to be chosen as the region’s chief, throwing uncertainty onto whether the parliamentary session would go ahead.

The court also warned that swearing Puigdemont in by videoconference, from exile in Brussels, would not be valid.

And it ruled that Puigdemont must ask the Supreme  Court for permission to attend the parliamentary session.

Torrent, while delaying the session, said, “I won’t propose any other candidate,” adding Puigdemont had “every right” to be re-elected.

Separatist parties won a majority of seats in parliament in December’s special election.

Prime Minister Mariano Rajoy said on Tuesday, “You can’t be a fugitive living in Brussels and expect to be elected president of a democratic institution.”

So the crisis continues...and Catalonia’s economy, and that of Spain’s, suffers as a result.

Eurobits....

--Around 68,000 industrial workers at 80 German companies began a third day of 24-hour strikes on Friday over pay and hours worked, affecting companies like Ford and Volkswagen. The IG Metall union and employers are slated to resume bargaining on Monday. But each side is holding firm.  IG Metall is now demanding an 8 percent pay rise over 27 months, with workers being given the right to reduce their hours worked a week to 28 to care for children, elderly or sick relatives, and to be able to return to full-time work after two years.

Employers have narrowed the gap since I last addressed this topic and are now offering a 6.8 percent wage increase, but no concessions on shorter hours unless they can increase hours when necessary.

--Poland’s Senate approved a controversial bill making it illegal to accuse the Polish nation or state of complicity in the Nazi Holocaust.

The bill sets fines or a maximum three-year jail term as punishment and must be signed off on by President Andrzej Duda, who has said Poland has the right “to defend historical truth.”

Israeli MPs are outraged. Prime Minister Netanyahu said it was an attempt to rewrite history.  Opposition lawmaker Tzipi Livni, normally a staunch opponent of Netanyahu, said: “(The Poles) have spat in Israel’s face twice, first as the state of the Jewish people that is trying to prevent a second Holocaust, and secondly in the face of an Israeli prime minister who had reached an agreement with his Polish counterpart, and had it ignored.”

Poland has long objected to the use of phrases like “Polish death camps,” which suggest the Polish state in some way shared responsibility for camps such as Auschwitz, which were built and operated by the Nazis after they invaded the country in 1939.

The more contentious point, though, raised by the bill, is whether there were Poles who were complicit, which historians say there is distinct evidence of.

And on this I can draw from my own experience that I have written of a few times; my trip in 1999 to the extermination camp at Treblinka in Poland, where I felt the hatred for my presence from the old ladies (witnesses) standing outside their houses as my guide and I drove by.  To this day I remember their expressions and ‘looks’ vividly.

Tonight, the Israeli Embassy in Warsaw issued a rare statement in Polish following an outburst of anti-Semitic comments against the embassy and its ambassador, Anna Azari, on both social media and Polish state television.

--Czech President Milos Zeman has won a second term in office following a tight run-off vote against rival Jiri Drahos.  Zeman, who fiercely opposes immigration and objects to EU sanctions against Russia, took 52% of the vote to beat Drahos, a pro-EU academic with no prior political experience.

The Czech president has an influential position in that he can name the prime minister and sign bills passed by parliament into law.

The election reflected divisions between low-income voters with lower education and those living in rural areas, who tend to vote for Mr. Zeman, and wealthier and well-educated residents of bigger cities, who are likely to prefer Drahos.

Zeman joined the Communist Party in 1968 during the “Prague Spring” but was expelled in 1970 for opposing Soviet intervention that crushed moves towards liberal reforms.

After communism fell he joined the left-leaning Social Democratic party and became its leader.

He is known for his outspoken remarks on immigration, once saying Muslims were “impossible to integrate” into Europe.

And lately he has opposed sanctions against Moscow, while making improving relations with China a priority.

In other words, I do not like Mr. Zeman, being part-Czech myself (though since the breakup of Czechoslovakia, really more Slovak).

But the broader issue, when looking at Poland’s action and the Czech vote, and knowing the state of affairs in Hungary, where a right-wing government rules, is that the Kremlin is no doubt licking its chops.  Three former states, souring on the West and the European Union.  Perfect fodder for Putin to gin up a crisis, a la Ukraine and, soon, the Baltics.

--The German government has denounced experiments funded by German carmakers in which humans and monkeys reportedly inhaled diesel exhaust fumes.

German media said the research was conducted by a body funded by Volkswagen, Daimler and BMW.  VW has already been embroiled in a scandal over software that gave false diesel exhaust data.

At the time of the experiments, the carmakers were arguing that modern technology had cut pollution from diesel engines to safe levels.  But VW was then found to have fitted “cheat” devices that rigged the emissions data.

Turning to Asia....in China, the government released its official PMI data and it came in at 51.3 for manufacturing in January vs. 51.6 in December, with the services reading at 55.3 vs. 55.0.  The private Caixin manufacturing number was unchanged at 51.5.

Japan’s manufacturing PMI was 54.8 vs. 54.0 in December, more good news here.

South Korea’s PMI was 50.7 last month vs. 49.9 in December, while Taiwan’s figure was a solid 56.9 vs. 56.6.

Street Bytes

--The Dow Jones lost 4.1% to 25520, while the S&P fell 3.9% and Nasdaq 3.5%.

But for the month of January, the Dow gained 5.8%, the S&P 5.6% and Nasdaq 7.4%. For the S&P it was the best January since 1997.

--U.S. Treasury Yields

6-mo. 1.63%  2-yr. 2.14%  10-yr. 2.84%   30-yr. 3.09%

As noted above, the 10-year is at levels not seen since Jan. 2014. Everyone had been targeting 2.63% as a key level, while I thought 3.00% would be the level that would truly wake everyone up.  But, again, speed kills and the move has been rapid on the long end of the curve, too much so for comfort.

--The Energy Information Administration estimated on Wednesday that U.S. oil production was running at just under 10.04m barrels per day last November, fractionally below the previous record set in November 1970, as the shale revolution that was temporarily set back by low crude prices has reaccelerated with oil over $50, and now $60.

The new surge puts U.S. output at more than double its low point of about 5m b/d in 2008.

But unlike what President Trump told us Tuesday, the U.S. remains a net oil importer, though purchases from other countries have fallen sharply, with net imports of crude and petroleum products down to 2.5m b/d last October, from a peak of 12.9m b/d in 2006.

One example of the shale revolution is in the Permian Basin of Texas and New Mexico.  Four years ago there were 196 b/d of oil being produced for every active drilling rig, according to the EIA. That number has more than tripled to 628 b/d per rig.  [Ed Crooks / Financial Times]

Meanwhile, OPEC oil output rose in January from an eight-month low as higher production from Nigeria and Saudi Arabia offset a further decline in Venezuela and strong compliance with a supply reduction pact, according to a Reuters survey.

OPEC pumped 32.4 million barrels per day in the month, up 100,000 from December.  Last month’s total was the lowest since April 2017.  Commitment to OPEC’s production curbs has been unwavering with the pact limiting supply to 32.6m b/d running through at least the end of the year. It has worked, oil now $65.

--Automakers reported less than exciting U.S. sales in January, up 1% to 1.2 million, according to Autodata Corp., with the seasonally adjusted pace of sales slipping to 17.1 million on an annualized basis, from 17.4 million a year earlier.  But the average price was up 4% to a record $36,270, according to Cox Automotive, a sign of inflation in the overall economy

General Motors Co. sold 198,548 vehicles in January, 1.3% more than the same period in 2017. Ford Motor reported a 6.3% decrease, though each reported higher selling prices and growth in truck sales.

Fiat Chrysler continued to report sales declines, down 13% last month as a result of pulling back from fleet sales to rental-car companies. 

Toyota reported a 16.8% increase, driven by sales of its popular RAV4 crossover and redesigned Camry.

Honda Motor Co.’s slipped 1.7%, while Nissan posted a 10% increase.

AutoNation Inc., the nation’s biggest dealership chain, is forecasting annual sales of 16.8 million for the U.S. market, or a 2.3% decline from last year.

Car sales had risen seven consecutive years before a slight decline in 2017, the peak being 17.5 million in 2016. The big issue now is the pent-up demand for vehicles appears to have been absorbed, while higher interest rates might have people gravitating to used cars instead of a new one.

--Apple reported record quarterly revenue and profit, even though the world’s largest company by market cap sold fewer of its most important product, the iPhone X.  Because of its starting price of $1,000, though, that lifted the average selling price for all iPhones by nearly 15%, the company said on Thursday.

Total revenue was up 13% to an all-time high of $88.29 billion in the quarter, even though the number of iPhones actually fell 1% to 77.3 million. Apple reported a profit of $20.07 billion, up 12% and another record.

But Apple forecast weaker-than-expected revenue for the current quarter of between $60 billion and $62 billion, well below the Street’s current $66.5bn estimate.

Previously, it was reported Apple would be slashing production of the iPhone X for the three-month period ending March 31, sources told the Wall Street Journal, amid a sign of weaker-than-expected demand.  Apple supposedly would make only about 20 million iPhone X handsets in the current quarter, down from an originally planned 40 million, according to a person familiar with Apple’s production goals.  Apple, as rumors have had it, has been cutting orders for components used in the iPhone X by 60%.

And global demand for smartphones has been waning, plus in the likes of China you have growing competition.

Apple doesn’t break out shipments of the iPhone by model, but the consensus is Apple shipped about 5-6 million fewer iPhone Xs than the company was targeting.  Many consumers are just opting to save some money with the iPhone 8 and 8 Plus.  The average selling price for the iPhone in the quarter was $796, up from less than $700 a year earlier.

Where Apple is showing steady progress is in its services arm, which includes the App Store and its music and payment services.  The division that makes the smartwatch and AirPods wireless earbuds also reported strong growth, up 18% to $8.4 billion, though this was a little shy of the Street’s expectations.

But the bottom line is sales of iPhones drive the company and that is not going to change.

The gloomy forecast, however, gave the Street an excuse to sell the shares hard, down 4.3% to $160.00, or about $20 off its high.

--Amazon.com Inc.’s quarterly profit topped $1 billion for the first time, $1.9 billion to be exact, extending its streak of profitability to over 2 ½ years, though this quarter’s results were aided by a large tax benefit as a result of the new tax act.

Amazon’s revenue during Q4 rose 38% to $60.5 billion, above analysts’ estimates, as the company benefits from a vastly more diversified product base, including Amazon Web Services, which now comprises more than 40% of the market for cloud-computing.  AWS sales rose 45% to $5.11 billion.

The fourth quarter was the first full period for acquisition Whole Foods, which reported sales of $4.52 billion, representing about 7% of the company’s total revenue.  The revenue from Prime memberships increased 49% to $3.2 billion, though the company doesn’t disclose the number of Prime subscribers. In January, it increased monthly rates for Prime by $2 to $12.99.

Online sales increased 20% to $35.4 billion, slower than third-quarter growth of 22%.

Overall, the company is forecasting sales for the current quarter of between $47.75 billion and $50.75 billion, which would be an increase of 34% to 42% over last year. 

Amazon now has 566,000 employees, up from 541,900 in the third quarter.

The shares were all over the place late Thursday ahead of the earnings announcement, trading down to $1,385 before closing today at $1,427, after hitting $1,498!

--Google parent Alphabet Inc. reported a hefty loss of $9.9 billion owing to the tax law, but excluding the charge the company reported a 28% increase in profit to $6.84 billion vs. year ago levels.  But the per share profit of $9.70 fell short of the Street’s estimate of $9.98.  Revenue rose 24% to $32.32 billion...the 32nd consecutive quarter of revenue growth of 20% or more.

The earnings miss led to a 5% decline in the stock today.

--Boeing reported blowout earnings and its stock soared 6% after the company also guided substantially higher than where the Street stood for 2018. Revenue rose to $25.37 billion from $23.29 billion a year earlier, also ahead of expectations.

Boeing said it expects its busiest year ever for plane deliveries, as the world’s biggest planemaker aims to ship between 810 and 815 commercial aircraft, nearly 7 percent higher than the industry-record 763 jets it delivered in 2017, putting it ahead of European rival Airbus.

--McDonald’s issued another solid earnings report, with U.S. sales rising 4.5% at established locations, 5.5% same-store sales growth globally.  The company earned $698.7 million on revenue of $5.34 billion, both above expectations, though after a 45% run in the last 12 months, the stock took a breather.

Sales were fueled by interest in its McPick 2 (two-for-$5) options, beverage deals and a “strong consumer response” to its new Buttermilk Crispy Tenders.

The company also plans to open 1,000 new stores worldwide (no location details given) while accelerating its plans to add new self-service ordering systems and other store upgrades.  McDonald’s has 37,000 locations worldwide.

--Facebook announced changes to its News Feed, the scrolling screen of content that members see when they log into the site, during its recent quarter after months of criticism over the harmful effects of the site (hate speech, fake news/propaganda), with CEO Mark Zuckerberg saying Facebook wanted to emphasize more “meaningful” content, such as photos and posts from friends and family, and would play down articles from publishers. At the time, the company said this would lead to people spending less time on Facebook.

For the quarter then, Facebook users spent about two minutes a day less than before, but other measures of engagement also fell, such as the overall number of  users in the U.S. and Canada, which dropped from 185 million a day to 184 million a year earlier.  The company claimed, though, that the number of total users a month jumped 14 percent to 2.13 billion users worldwide.

Zuckerberg said in a conference call with analysts: “I believe that the time spent on Facebook will be more valuable. If people interact more, it should lead to stronger community. When you care about something, you’re willing to see ads to experience it.”

Facebook saw revenue surge by 47 percent to nearly $13 billion in the fourth quarter year-on-year, while profit rose 56 percent to $4.3 billion.  The company accounted for about 17% of the global digital-ad market last year, behind Google, which accounted for 32%, according to eMarketer.

Facebook also announced capital expenditures of $2.3 billion, with the number of employees increasing 47 percent over a year ago to 25,100.  By the end of 2018, the company said 20,000 of its employees and contractors will handle safety and security issues.

--Microsoft continued to shift from traditional software sales to cloud computing services delivered over the internet, the latter involving selling to companies (commercial cloud) grew 56 percent to $5.3 billion in the fourth quarter.  Microsoft is now considered the No. 2 cloud provider after Amazon.

One of the company’s older businesses, Office, saw its commercial revenue rise 10 percent, with a sharp rise in the number who subscribe to a cloud version of the application suite, Office 365, to 29.2 million from 24.9 million. Gaming revenue (Xbox and such) rose 8 percent.

Microsoft’s overall revenue last quarter rose to $28.92 billion, up 12 percent from a year earlier.

Adjusted for the new tax law, both earnings and revenue beat Wall Street’s expectations, but the shares did little post announcement and fell in line with the market today.

--Amazon, Berkshire Hathaway and JPMorgan Chase announced jointly on Tuesday that they would form an independent health care company to serve their employees in the United States, though the three provided zero details about the new entity, other than that it would initially focus on technology to provide simplified, high-quality health care for their employees and their families, and at a reasonable cost.

But that was scary enough for the healthcare sector, whose shares sold off, and what was worse was the statement that while the venture was in its early planning stages, it would be a long-term effort “free from profit-making incentives and constraints.”

Change has already been rapid in the sector, with deals such as CVS Health’s acquisition of insurer Aetna for about $69 billion.

Amazon founder and CEO Jeff Bezos said: “The health care system is complex, and we enter into this challenge open-eyed about the degree of difficulty. Hard as it might be, reducing health care’s burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner’s mind, and a long-term orientation.”

Berkshire Hathaway CEO Warren Buffett said: “The ballooning costs of health care act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable.”

Separately, JPMorgan Chase CEO Jamie Dimon plans to stay in the job another five years, as the bank announced on Monday. He turns 62 in March. Two of his deputies, Daniel Pinto and Gordon Smith, are being promoted to the joint roles of presidents and chief operating officers, as the two now launch a multi-year death match to succeed Dimon.

Actually, those two, ages 55 and 59, are probably too old to replace Dimon.  So forget the death-match idea. 

Dimon became CEO of JPM in 2005, after the bank acquired Chicago’s Bank One, which he had been running, having resurrected his career after a fallout with Sandy Weill, who Dimon helped forge the conglomerate that became Citigroup.

--UPS reported fourth-quarter profit that was hurt by additional costs from surging shipping volumes during the holiday season and its shares fell 6% in response on Thursday, and another 2.5% today.  The world’s largest package delivery company faced system bottlenecks heading up to Christmas.

Revenue of $18.83 billion was, however, above expectations and more than the $16.93 billion from a year earlier, with the core U.S. domestic package service rising 8.4% on higher demand from online purchases.

--Exxon Mobil and Chevron Corp. both saw their shares fall more than 5% on Friday in the wake of lower-than-expected fourth-quarter profit, the Dow’s worst moves on the day.

--Ferrari said profits rose 34 percent, driven by a surge in V12 sales; the luxury carmaker reporting a profit of $669 million.  Ferrari sold 8,398 vehicles and aims to top 9,000 this year.

--Toymaker Mattel, which had warned of a challenging holiday season, delivered with a surprise loss as sales dropped 12 percent year-over-year to $1.6bn in the fourth quarter.

The maker of brands such as Barbie, American Girl and Fisher-Price, blamed the performance on tighter inventory, underperforming brands and the recent bankruptcy of Toys ‘R Us.  The new CEO, Margo Georgiadis, said, “We are optimistic about stabilizing revenue in 2018 anchored by our key power brands, entertainment partnerships and exciting new launches.”

--The New York Times had an extensive article last weekend on the amount of fraud in the number of followers for some high-profile celebrities and sports figures, many of whom bought Twitter followers or artificial engagement from a company called Devumi, which conducts a vast trade in fake followers and fraudulent engagement on Twitter and other social media sites, often using personal information taken from real users.  [Devumi has “an estimated stock of at least 3.5 million automated accounts, each sold many times over, and the company has provided customers with more than 200 million Twitter followers,” the Times investigation found.]

In one example, Democratic public relations consultant and CNN contributor Hillary Rosen bought more than a half-million fake followers from Devumi.

Saturday, Twitter said it would take action against Devumi’s practices, and by Tuesday, more than a million followers had disappeared from the accounts of dozens of Twitter users, including folks such as singer Clay Aiken and actor John Leguizamo.  And from Martha Lane Fox, a British businesswoman and Twitter board member.

There are numerous websites selling fake followers or engagement, not just on Twitter but also LinkedIn, YouTube, Instagram and other social media platforms.

Devumi promises customers “100 Percent Active, English Followers,” but the Times found virtually all of the followers and retweets the company provides are fake.  [Nicholas Confessore, Gabriel J.X. Dance and Rich Harris / New York Times]

I have strong feelings about all this.  I have zero Twitter followers, and that’s OK.  I use the platform to get a message out, including exhibiting my discipline, and it reaches far more than actual “followers.”

But I’ll never forget a total asshole I was referred to by a friend, a man who works (or worked, for all I know) at a major online aggregator, who dismissed me offhand in a phone conversation when he asked about my social media presence.   It wasn’t about content and what I did in the least, let alone my experience. I wish him the worst.

--Harley-Davidson shares fell sharply after the motorcycle maker reported shipments fell short of its target for 2017, down 7.9 percent.  For 2018, the Milwaukee-based company said it expects shipments to fall again, from 241,498 to between 231,000 and 236,000, or down 2 to 4 percent

Harley is struggling to draw in millennial consumers, as it focuses on its electric initiative, the first such motorcycle due out in 18 months.

The company is also closing an assembly line in Kansas City and merging those operations into those of a plant in York, Pennsylvania, resulting in 400 net job loss.

--India’s growth rate is projected to be 7% to 7.5% for the 2017-18 fiscal year, according to a government forecast, which would help India regain its position as the world’s fastest growing major economy.  

The IMF projects the Indian economy will grow 7.4% in 2018.

But India is known to fabricate some of its economic numbers just like its rival China.

--JAB Holding Co., which has been building a food-and-beverage empire, with brands such as Krispy Kreme Doughnuts and Caribou Coffee, has agreed to acquire Dr. Pepper Snapple Group Inc. through the investment firm’s Keurig Green Mountain Inc.

JAB is now up there with the likes of Coca-Cola and PepsiCo in its large stable of brands.

But one issue is the majority of Dr. Pepper’s beverages in the U.S. are distributed through Coca-Cola’s and PepsiCo’s bottling and sales networks, and the larger companies could refuse to stock some of its Keurig Dr. Pepper’s beverages – like ready-to-drink coffee brands – on shelves.

On the other hand, Keurig has a strong e-commerce presence, including with Amazon.com and Best Buy, an area in which Dr. Pepper isn’t strong.

--Bitcoin, which reached a record high of $19,500 on Dec. 18, hit $8,300 (now $8,700 on Coindesk as I post) amid more government oversight globally, the susceptibility of exchanges to hacking, and an asset price bubble.  Thursday, India said it may crack down on cryptocurrencies.

--HBO has more than 5 million online subscribers in the U.S., more than doubling the number in the past year by making its shows available on Amazon and new streaming TV services like DirecTV Now.

HBO was questioned when it became one of the first premium channels to be available to consumers who don’t have a cable TV subscription back in 2015, critics saying it would jeopardize HBO’s relationship with traditional pay-TV distributors like Comcast.

But 5 million web-only subscribers is pretty, pretty good....and online represents about 10% of its U.S. customers. Globally, it has 142 million subscribers.

Remember, HBO is owned by Time Warner, which is being acquired by AT&T, which is furiously attempting to kiss the Trump administration’s ass in order to get the deal cleared by the Dept. of Justice.  [I’m totally on AT&T’s side in this one.  They shouldn’t have to kiss anyone’s butt to get it approved.]

--Thomson Reuters Corp. sold a 55% stake to a group led by Blackstone Group LP, a significant bet by the private-equity giant on financial data.  Blackstone will take a 55% stake in the financial and risk unit, which will become a separate privately held firm, with Thomson Reuters holding a 45% stake.

Reuters traces its history back to the 1850s, merging with Thomson Corp. in 2008, which represented a bet that news and financial data, as well as analytics, would allow it to weather the storm in the publishing of business news.

Now the news service will be split from the financial and risk units.

--Aaron Elstein of Crain’s notes that Blackstone Group co-founder Stephen Schwarzman “could become the first CEO to make $1 billion in a single year” when Blackstone releases its annual report later this month.

Blackstone, Wall Street’s most powerful private-equity firm, had one kick-ass year, including 18% growth in assets under management, to $434 billion, while the value of its p-e holdings rose by 18% and the firm returned $55 billion to fund investors by selling off winners.

[The bulk of Schwarzman’s comp is through dividends paid out on his ownership of 232 million shares.]

That’s the way capitalism works, sports fans.  Mr. Schwarzman is co-founder and the face of the firm and they done well.  It’s similar to some of the pay days that Appaloosa founder David Tepper had (though never quite this level) when his hedge fund delivered.

Both give back bigly to the community in ways most never hear about, benefiting a lot of people. Tepper has donated huge sums to his alma maters Pitt and Carnegie Mellon (which redounds to the city of Pittsburgh, among others), and among the many things Schwarzman has done, he is a major benefactor of the New York Public Library.

--Here’s a crock of merde for you. According to the latest annual survey by the American Chamber of Commerce in China, which polled 411 member companies, 46% believed the Chinese government was committed to further opening the country to foreign investment over the next three years, up from 34% last year.

According to the survey, 64% said their companies reported revenue growth in 2017, up from 58% last year. 

Your editor is highly skeptical. For the year ahead, three-quarters of respondents said they plan to increase investment in China, though this is slower than a decade ago.

But here’s the thing. The companies surveyed had to admit major issues persist when it comes to the business environment for foreign firms. Three out of every four companies said they feel less welcome in China than before, and on China’s regulatory process, 73% of companies said they are pessimistic or neutral.

And 90% of respondents said their businesses are hit by slow cross-border internet speed, let alone lack of access to certain online tools and the need to use virtual private networks, or VPNs, to access websites blocked by China’s Cyberspace Administration.

--We note the passing of billionaire IKEA fonder Ingvar Kamprad, who died at the age of 91 on Sunday.  Kamprad founded IKEA in 1943 when he was just 17, but didn’t hit gold until 1956, when the company pioneered flat-pack furniture.

“He got the idea as he watched an employee taking the legs off a table to fit it into a customer’s car and realized that saving space meant saving money.” [Associated Press]

IKEA’s annual revenues today are about $62 billion.

It is with good reason Kamprad should be viewed as one of the greatest entrepreneurs of the 20th century.

Kamprad started off selling matches to his neighbors in southern Sweden at the age of five, then added seeds, Christmas tree ornaments, pencils and ball-point pens.

The company said he worked to the very end.

--Fox broadcast network agreed to pay an average $660 million a year for the rights to NFL “Thursday Night Football,” a five-year partnership kicking off this fall. Despite the NFL’s ratings drop over the past few years, Fox is willing to spend big to turn its network into a showcase of live sports after it sells most of its entertainment division to Walt Disney Co.

Fox is paying 47% more than the current-season rate, with CBS and NBC collectively paying the NFL $450 million for their shared package of games last season.

It was back in 1993 that Rupert Murdoch put Fox on the map by overpaying for the rights to the NFL’s Sunday afternoon NFC games.  Today, together with Sunday’s games, Fox will be shelling out $1.8 billion a year for its two packages. 

--The legend of Megyn Kelly continues to grow. As part of her $23 million a year contract with NBC, she insisted that she not be forced to do special events, such as the Olympics.  But once Matt Lauer was ousted, Kelly assumed she was next in line for the plum assignments, including the Thanksgiving Day Parade, according to the New York Post.

So now she’s fuming Katie Couric was hired to do the Opening Ceremonies at PyeongChang. Couric hasn’t co-hosted or worked at NBC since 2006.

As the Post noted, their source “added that [NBC News chairman Andrew] Lack – who originally signed Kelly to the network amid much fanfare in January 2017, starting with ‘Sunday Night With Megyn Kelly’ in June – has finally realized she is ‘a diva’ and that ‘she’s not going to be part of the NBC News...inner circle.’”

On the other hand, an NBC News insider said the opening ceremony is “the least desirable gig in broadcasting, given the inevitable brutal reviews.’”

--The telecast of the Grammy Awards was watched by 19.8 million viewers, a big 24% decline from last year’s show, and the smallest audience since 2009.

The rating among the key 18 to 49 demographic hit an all-time low.

Other big awards shows such as the Oscars and the Golden Globes have seen losses among younger viewers as well.

But CBS said live streaming of the Grammy Awards was up 40% over last year, though the network doesn’t release the actual number of people who watched in this fashion.

Foreign Affairs

Syria/Turkey: The U.S. pledged to stop supplying weapons to a Kurdish militia in Syria, Turkey said, in also calling on Washington to immediately remove its troops from the Syrian town of Manbij that Turkish forces plan to target in the northwest Syrian region of Afrin.  Turkey’s air and ground offensive in the area against the Kurdish YPG militia has opened a new front in the seven-year, multi-sided civil war.

Turkish President Erdogan vowed to clean its entire border with Syria of terrorists, telling his ruling AK Party congress that Turkey would make sure the Syrian refugees it hosts can return to their homes once the border is cleared.

Thursday, the Syrian government described Turkey’s offensive in Syria’s Afrin region as an illegal “aggression” and said it would deal with it accordingly. The unauthorized presence of foreign forces represents “occupation and will be dealt with on this basis,” a foreign ministry statement read.

But Turkey’s President Erdogan and Russian President Putin agreed to step up efforts to form observation posts in the northwestern Syrian province of Idlib

At the same time, the UN said Syria’s approval of aid convoys is at “an all-time low” since the UN launched a humanitarian taskforce in 2015, with no deliveries in the past two months, as noted by UN humanitarian adviser Jan Egeland, who called for a humanitarian pause in the fighting in the besieged rebel-held enclave of Eastern Ghouta where hundreds have been awaiting medical evacuation.  Addressing reporters in Geneva, Egeland said, “Humanitarian diplomacy seems to be totally impotent.”

Friday, France said it was “deeply concerned” that Syria’s government was flouting its pledges to stop using chemical weapons and Paris said it was working with its partners to shed light on recent suspected toxic gas attacks.  Senior U.S. officials said Thursday that the Syrian government may be working on developing new types of chemical weapons.  It’s not clear if President Trump is prepared to take further military action if necessary to deter chemical attacks.

Tuesday, a Syrian peace conference in Sochi, Russia got off to a rocky start after some delegates opposed to President Bashar Assad refused to leave the airport on arrival and the Russian foreign minister was subjected to hostile heckling.

Moscow has cast itself as a Mid-East peace broker, but the event was boycotted by the leadership of the Syrian opposition, while the U.S., Britain and France opted not to attend because of what they see as the Syrian government’s refusal to engage in any meaningful way.

Western countries support the UN-mediated peace process, taking place in Geneva and, most recently, Vienna.

Meanwhile, the war continues in pockets of Syria as Russian warplanes stuck a crowded market in a rebel-held city in Idlib, killing at least 15; video from the scene showing produce mixed up with human parts.  In another air attack on a nearby village, at least 11 people were killed, mostly farmers and traders.  And war planes knocked out of action the only public hospital in the city, Saraqeb, supported by the French charity Medecins Sans Frontieres (Doctors Without Borders).

Leonid Bershidsky / Bloomberg

“A Syrian opposition group that flew to the Russian resort of Sochi for a peace conference this week saw the gathering’s logo – the flag of President Bashar al-Assad’s government unfurled between the wings of a dove – and flew back to Ankara without even going through passport control.  That must’ve pleased the Russians, who didn’t really want Assad’s opponents to attend.

“It was the latest example of the game Russia is playing in Syria: It isn’t interested in any kind of resolution to the conflict even as it plays along with the peace process.

“Russia’s official position is to back Syria’s territorial integrity and a United Nations-sponsored political solution to end the country’s civil war. The Syrian National Dialogue Congress in Sochi ostensibly served that purpose. But Russia knew ahead of time that the Syrian opposition’s UN-recognized negotiators wouldn’t come, and the organizers did their best to scare away everybody else who wanted to speak up against Assad.  It didn’t quite succeed – Foreign Minister Sergei Lavrov was heckled as he opened the conference – but, for the most part, the gathering allowed pro-Assad delegates to have some nice meals and load up on souvenirs.

“What Russia really did at Sochi is put on a show for the UN’s special envoy for Syria, Staffan de Mistura, who initially worried that Russia, Turkey and Iran – the three countries behind the congress – were trying to set up an alternative to the official Syria talks in Geneva. The Sochi congress officially decided to hand off talks on a new constitution to a new Geneva-based committee representing all sides. De Mistura was, at least outwardly, satisfied, thanking the delegates and organizers for backing the UN-led process. It would have been counterproductive for him to reject assurances that the pro-Assad side was open to mediation.

“But De Mistura probably won’t be surprised if the new committee is deadlocked from the start. The Russian government isn’t rolling out a red carpet for the Assad supporters because it wants to point them toward Geneva. Rather, it wants them to feel like valued long-term allies.

“In July 2017, the Russian parliament ratified an agreement with the Assad government allowing Russia to keep its air force base in Khmeimim for at least another 49 years, with subsequent extensions every 25 years. A similar deal has also been made for the naval base in Tartus, which swelled significantly from a modest resupply facility during the Syrian war and is undergoing further expansion. Russian President Vladimir Putin clearly regrets his earlier moves to shrink Russia’s overseas military presence, and the two Syrian bases are valuable to him as Russia’s only strongholds in the Middle East....

“Whatever Russian officials, including Putin, say about a political solution, what they really want is for Syrian constitution talks to go on for 49 years, and then for another 25.

“The U.S. is in a very different position in Syria, where it has about 2,000 troops. While its presence there is characterized as open-ended and focused on the ‘strategic threat’ from Iran and countering terrorist groups, the U.S. already has enough bases in the Middle East.... It might be enough for the U.S. to retain a presence in neighboring Iraq.

“Similarly, Turkey is only involved in Syria as long as the chaos there creates a threat to its borders.  But Turkish President Recep Tayyip Erdogan doesn’t appear to believe in a lasting political solution, and he appreciates Russia’s acquiescence to his action against the Syrian Kurds.

“A de facto partition and a semi-frozen conflict (in which, like in eastern Ukraine, people keep dying every day but no major military action occurs) is the only viable option for Russia, the best one for Iran since it retains influence on Assad, an acceptable second-best scenario for Turkey and an unnecessary nuisance for the U.S.  But since Russia isn’t likely to believe any Western guarantees that it can retain its bases indefinitely under any alternative arrangement, none of the alternatives are feasible.

“That makes De Mistura’s position unenviable. He’ll be forced to attend more Russian-produced circuses as the pro-Assad side stalls further talks.”

Josh Rogin / Washington Post

“The raging battle between two U.S. allies in northern Syria is a stark illustration that despite some new rhetoric, the Trump administration still lacks the will and leverage needed to lead a solution to the Syrian crisis, or even to properly defend U.S. interests there.

“Secretary of State Rex Tillerson correctly identified the United States’ challenges in post-Islamic State Syria in a speech two weeks ago in California, including confronting the ongoing terrorist threat, Iranian expansion and Bashar al-Assad’s brutal aggression. By announcing that U.S. troops would remain in the country, Tillerson seemed to acknowledge that on-the-ground influence is necessary for the United States to achieve its objectives.

“Inside the administration, officials tell me that getting Syria policy that far was a herculean effort.  Many in President Trump’s orbit still advocate focusing solely on the Islamic State and letting the rest of Syria’s chips fall where they may. There’s still a contingent that wants to cut and run.

“While the Trump administration now says publicly that the United States does have long-term interests in Syria, it hasn’t yet connected that to a real plan. What’s clear is that the current U.S. commitment in Syria is not enough.

“ ‘Those who know history know everything is a question of leverage,’ French author Bernard-Henri Levy told me.

“As Turkey’s assault on Syrian Kurdish forces near its border continues into its second bloody week, the Trump administration has chosen to tacitly endorse the campaign. Levy sees that as a betrayal of the Kurds, who have fought the Islamic State with U.S. support and share the basic values and goals of the United States.

“In his view, both the Obama and Trump administrations abdicated responsibility and leadership in Syria, creating a vacuum that authoritarian powers Turkey, Iran and Russia have rushed to fill.

“Those powers saw the United States abandon Iraqi Kurds when Iraqi and Iranian militias attacked them last year, and they calculate that there’s no cost for attacking Syrian Kurds today.

“ ‘The real interest of America is to support the Kurds because they are faithful allies.  [Turkish President] Erdogan is not a faithful ally,’ Levy said, calling the United States’ tolerance of Turkey’s assault a ‘scandal.’....

“The Trump administration is still repeating many of President Barack Obama’s key mistakes. The United States is depending on Russia to exert pressure on the Assad regime, which Moscow has proven unwilling or unable to do.   The Trump administration touts a U.N.-sponsored peace process as the political way forward, but it has been a perennial failure.  The effort to confront Iran in Syria is not properly resourced. There’s no real pressure on Assad to halt his mass atrocities....

“A year into Trump’s presidency, his administration is saying the United States has a long-term interest in Syria. The next step is to match those words with action.”

Iran: According to a new poll under the auspices of the University of Maryland, which provides a rare glimpse into the political and economic views in Iran, especially after the biggest bout of unrest in a decade, more than 41% of Iranians rated the country’s economic situation as “very bad,” up from 34% in a previous poll by the same institution in June, and another 28% said the economy was “somewhat bad.”  On a different question, 60% said the economy was getting worse.

The numbers aren’t good for “moderates” like President Hassan Rouhani who are currently running the show.  Hard-liners have been taking advantage of the negative sentiment.  The non-oil economy hasn’t been growing and inflation and unemployment are high.

Cliff Kupchan, chairman of think-tank Eurasia Group, said, “Rouhani has to put pedal to the metal on reforms. He’s got to create jobs, fix the banking crisis, and go after corruption.  If he doesn’t, voters may well seek an alternative, even if that choice makes conditions even worse.” [Asa Fitch / Wall Street Journal]

Iraq: The country holds a critical national election May 12 as the government of Prime Minister Haider al-Abadi seeks to hold onto its hard-fought gains, while Iran’s influence has grown in certain regions and among the Shiite population.

Abadi made a mistake a few weeks ago by welcoming the leaders of Iranian-backed Shiite militias into a grand coalition that he hoped would cement his image as a moderating figure, but Iraq’s Shiites, in control since Saddam Hussein’s ouster in 2003, are fractured into competing political parties.

The Iranian-backed Shiite militias did help defeat Islamic State, but they’ve been accused of sectarian atrocities, and they’re tools of Iran. Sunni and Kurdish leaders weren’t happy with Abadi’s gesture.

So the prime minister has to deal with this self-inflicted wound, while the government overall is riven with corruption and the economy isn’t doing well, especially with the millions left homeless after the battles with ISIS. To be continued....

Israel: There is a major difference of opinion between the U.S. and Israel on Lebanon’s military, with the U.S. pledging to continue support for it, calling it a potential counterweight to Iranian-backed Hezbollah, while Israel has long said the two forces were indistinguishable and fair game in any war.

My opinions on this go back to 2005 and the assassination of former Lebanese Prime Minister Rafik Hariri, when I believe President George W. Bush made a major mistake in not flooding the Lebanese Army with aid at a time Syria was being booted out in the Cedar Revolution and Hezbollah was weak.  Our support ended up being minimal and we’ve paid a price, as Hezbollah has become more and more entrenched, post the 2006 war between it and Israel, which the Lebanese Armed Forces sat out.

That said, the U.S. in the last seven years has been training and supporting the Army to the tune of more than $1.5 billion, but it didn’t come at the most critical time.

Today, Israeli Defense Minister Avi Liberman reiterated his view that the Lebanese army was subordinate to Hezbollah.

“As far as I’m concerned, all of Lebanon – the Lebanese army and Lebanon – are no different from Hezbollah.  They are part of Hezbollah and they will pay the full price” for any large-scale attack on Israel, he added.  [Jerusalem Post]

Separately, Prime Minister Netanyahu, in talks with President Putin on the topic of Iran on Monday, said that Iran’s targeted missile factories in Lebanon were already “in progress” and that Israel stressed to Russia that it is a threat it was not willing to accept.  Netanyahu said he provided Putin with the details of Iran’s growing activity in the region, including its attempt to turn Lebanon into a missile manufacturing plant.

Afghanistan: According to a study conducted by the BBC, the Taliban are openly active in 70 percent of Afghanistan’s districts, fully controlling 4 percent of the country and demonstrating an open physical presence in another 66 percent. The BBC estimate was based on conversations with individuals in all districts of the country and is significantly higher than the most recent assessment by the NATO-led coalition of the Taliban’s presence, which puts the amount of territory controlled or contested by them at 44 percent as of October 2017.

The past two weeks, Afghanistan has been reeling, including an attack Monday on an Afghan army unit in Kabul that killed at least 11 soldiers, making it at least 136 killed in Kabul alone within a span of 10 days, including a horrific suicide bombing using an ambulance on Saturday that killed 103.

Speaking to reporters on Monday, President Trump rejected  talks with the Taliban following the series of attacks, but U.S. officials said on Tuesday it continued to aim for talks with them by pressuring them with military action.

Saudi Arabia: The government has arranged to seize more than $100 billion through financial settlements with businessmen and officials in its crackdown on corruption, the attorney general announced on Tuesday, but it remains unclear just what Crown Prince Mohammed bin Salman is going to do with it, MBS having launched the purge last November and predicting at the time he would net about $100 billion.

Dozens of top officials and businessmen were detained in the crackdown, with over 100 believed to have now been released, including Prince Alwaleed bin Talal, the owner of global investor Kingdom Holding, the most visible detainee.

Alwaleed insisted publicly he was innocent, but it’s unknown how much MBS seized from him.  MBS had promised some of the $100 billion would go to social benefits for the people, but we’ll see. Beware of heavy art purchases and the like.

North Korea: Pyongyang abruptly canceled plans to hold a joint musical performance with South Korea this week at a mountain resort in the North, in another move that has put a damper on the two Koreas’ attempts to build a détente before the Winter Olympics in PyeongChang, South Korea.

Pyongyang was upset over reports South Korea was questioning the North’s motives for agreeing to hold the joint performance, while the North also criticized South Korean press reports on a “domestic event” next week, an apparent reference to the large military parade on Feb. 8 in Pyongyang that appears to be in the cards.

North Korean athletes did begin to arrive in PyeongChang and there will be a joint women’s ice hockey team as initially planned.

Meanwhile, the Wall Street Journal’s Michael R. Gordon and Jonathan Cheng report: “North Korea’s armed forces have scaled back their annual winter military exercises this year, U.S. officials said, a development they believe reflects growing pressure from international sanctions on the isolated nation’s economy and its military preparedness....

“One possibility is that restrictions on shipments of oil and refined petroleum products to North Korea imposed by the United Nations have led the country, which has one of the world’s largest standing armies, to conserve fuel by cutting back on ground and air training exercises.”

The aforementioned Victor Cha / Washington Post

“North Korea, if not stopped, will build an arsenal with multiple nuclear missiles meant to threaten the U.S. homeland and blackmail us into abandoning our allies in Asia. North Korean dictator Kim Jong Un will sell these weapons to state and nonstate actors, and he will inspire other rogue actors who want to undermine the U.S.-backed postwar order. These are real and unprecedented threats. But the answer is not, as some Trump administration officials have suggested, a preventive military strike. Instead, there is a forceful military option available that can address the threat without escalating into a war that would likely kill tens, if not hundreds, of thousands of Americans.

“When I was under consideration for a position in this administration, I shared some of these views.

“Some may argue that U.S. casualties and even a wider war on the Korean Peninsula are risks worth taking, given what is at stake. But a strike (even a large one) would only delay North Korea’s missile-building and nuclear programs, which are buried in deep, unknown places impenetrable to bunker-busting bombs. A strike also would not stem the threat of proliferation but rather exacerbate it, turning what might be a North Korean moneymaking endeavor into a vengeful effort intended to equip other bad actors against us.

“I empathize with the hope, espoused by some Trump officials, that a military strike would shock Pyongyang into appreciating U.S. strength, after years of inaction, and force the regime to the denuclearization negotiating table. I also hope that if North Korea did retaliate militarily, the United States could control the escalation ladder to minimize collateral damage and prevent a collapse of financial markets.  In either event, the rationale is that a strike that demonstrates U.S. resolve to pursue ‘all options’ is necessary to give the mercurial Kim a ‘bloody nose.’  Otherwise he will remain undeterred in his nuclear ambitions.

“Yet, there is a point at which hope must give in to logic. If we believe that Kim is undeterrable without such a strike, how can we also believe that a strike will deter him from responding in kind?  And if Kim is unpredictable, impulsive and bordering on irrational, how can we control the escalation ladder, which is premised on an adversary’s rational understanding of signals and deterrence?

“Some have argued the risks are still worth taking because it’s better that people die ‘over there’ than ‘over here.’ On any given day, there are 230,000 Americans in South Korea and 90,000 or so in Japan. Given that an evacuation of so many citizens would be virtually impossible under a rain of North Korean artillery and missiles (potentially laced with biochemical weapons), these Americans would most likely have to hunker down until the war is over.

“While our population in Japan might be protected by U.S. missile defenses, the U.S. population in South Korea, let alone millions of South Koreans, has no similar active defenses against a barrage of North Korean artillery... To be clear: The president would be putting at risk an American population the size of a medium-size U.S. city – Pittsburgh, say, or Cincinnati – on the assumption that a crazy and undeterrable dictator will be rationally cowed by a demonstration of U.S. kinetic power.

“An alternative coercive strategy involves enhanced and sustained U.S., regional and global pressure on Pyongyang to denuclearize.  This strategy is likely to deliver the same potential benefits as a limited strike, along with other advantages, without the self-destructive costs.”

Mr. Cha goes into his four elements, such as continuing to strengthen the coalition of UN member states it has mustered thus far in a successful sanctions campaign, while providing Japan and South Korea with more missile defense, intelligence-sharing and anti-submarine warfare and strike capabilities to convey to North Korea that an attack on one is an attack on all.

“A sustained and long-term competitive strategy such as this plays to U.S. strengths, exploits our adversary’s weaknesses and does not risk hundreds of thousands of American lives.”

China: Pope Francis decided to accept the legitimacy of seven Catholic bishops appointed by the Chinese government, which the Vatican hopes will lead Beijing to recognize his authority as head of the Catholic Church in China.

For years, the Vatican didn’t recognize the bishops’ ordinations, part of a long-running standoff between the Catholic Church and China’s Communist Party.

The decision by the Pope is designed to better relations with Beijing, as Christianity, mostly in the form of Protestantism, spreads in China  [Protestants are estimated to be at 40 million compared with 9 to 12 million Catholics.]

Editorial / Wall Street Journal

“Few prelates have ever been as blunt in criticizing the Holy See as Joseph Cardinal Zen, the retired bishop of Hong Kong. In an open letter earlier this week, the cardinal put it this way: ‘Do I think that the Vatican is selling out the Catholic Church in China? Yes, definitely.’

“Cardinal Zen was speaking about the Vatican’s bid to force two underground Catholic bishops faithful to the church to resign – and be replaced by government-backed bishops who were excommunicated when they were illicitly appointed. So concerned was the 86-year-old cardinal that he flew to Rome and asked for an urgent meeting with Pope Francis to persuade him of the damage he would be inflicting.

“The Pope ignored him. On Thursday news broke that the Vatican will accept the legitimacy of seven bishops chosen by the Chinese government.  As head of the Catholic Church and sovereign of his own state, the Pope is free to chart whatever course with China he wishes.  Even so, it’s astounding that Rome would defer to Beijing to dictate one of the most important duties of any pope: Choosing the bishops who will lead his flock.

“Many of the Catholic faithful, especially in China, have been dispirited by the concession....

“Human rights in China are worsening, particularly for believers. The government is starting to enforce anti-religion laws long honored in the breach, such as restricting Mass attendance at underground churches. Christians continue to be arrested. And the government continues to tear down churches, most recently an evangelical mega-church built with $3 million in contributions from local worshippers in one of China’s poorest regions.  [Ed. as I wrote about last week.]

“Some suspect that this Vatican accommodation is about paving the way for a papal visit to China, or a historic deal normalizing relations between Rome and Beijing. If so the damage will carry an even higher price, because it is difficult to imagine such a rapprochement without the Vatican’s first agreeing to break relations with Taiwan and abandon its Catholics there. The history of China shows it is adept at exploiting foreigners too eager for a deal....

“Perhaps someone ought to remind the Vatican that the Lord’s advice was to ‘render unto Caesar’ not surrender to Caesar.”

Meanwhile, the government in Australia continues to harden rules on foreign investment in critical energy infrastructure and prime farmland, giving the country’s deals watchdog more powers as concerns mount about Chinese interference in the country, as I’ve been writing the past few months.

Updated electoral donations data shows China-linked business figures continuing to pour money into Australia’s major parties ahead of elections held back in 2016, with one lawmaker resigning after he admitted  to allowing a Chinese-Australian donor to pay his travel expenses.

Russia: Senate Democratic leader Chuck Schumer and Senator Ben Cardin blasted President Trump for being soft on Russian leader Vladimir Putin by not issuing new sanctions against Russia, even as the U.S. believes Moscow continues to try to interfere in American elections.

“These are mandatory sanctions. They passed 97-2 in the Senate.  (Trump) is ignoring them. And he’s not implementing them,” Schumer said.  “This is an extreme dereliction of duty by President Trump, who seems more intent on undermining the rule of law in this country than standing up to Putin.”

The State Department opted not to announce new sanctions on countries or companies that conducted significant transactions with the Russian defense and intelligence sectors – which was one of the provisions mandated by the Countering America’s Adversaries Through Sanctions Act.

A State Department spokesman said there was no need to impose sanctions since the legislation was already deterring Russian defense sales.

President Putin said on Tuesday that a release of a list of major Russian businessmen close to the Kremlin by the United States was an unfriendly act, but Moscow was not currently planning to retaliate.  The list, drawn up as part of a sanctions package signed into law in August last year, does not mean those included will be subject to sanctions, but it casts a potential shadow of sanctions risk over a wide circle of wealthy Russians.

Leonid Bershidsky / Bloomberg

“The U.S. Treasury Department spent six months compiling lists of Russian political leaders and ‘oligarchs’ as required by last year’s sanctions legislation. The end result is a bizarre cut-and-paste job where some of the inclusions, and some of the omissions, make little sense.

“The individuals on the list aren’t subject to any restrictions (except the 22 who are already on previous sanctions lists). But the publication of their names in connection with Russian President Vladimir Putin and U.S. sanctions will serve as a warning to anyone dealing with them that they might have a problem with the U.S. government in the future, at its convenience. That, in turn, may make many Western banks reluctant to take their money.  Not that Treasury seems concerned about the implications of its list.”

But in the end, in compiling the list, Bershidsky notes that Treasury “copied directly from the English-language websites of the Kremlin and the Russian government, as well as the Russian edition of Forbes’ billionaires list. As the first editorial director and publisher of Forbes Russia, I’m flattered that the U.S. government chose it as an unassailably authoritative source on who counts as an oligarch in Russia. I also  know that Forbes Russia has never pretended that its rich list was complete or that the wealth estimates were accurate.”

And as Mr. Bershidsky points out: “Some of the people (on the list) barely do any business in Russia (they just happen to be Russian citizens) and, second, there are others who have had some or even all of their wealth taken away by President Putin’s repressive apparatus.

“It’s fine if the Trump administration doesn’t believe in sanctions. But if Congress still demands sanctions – and it does – the administration should do a better job of selecting targets. The alternative is that Russians who bear little or no responsibility for the system Putin has constructed will have deals fall apart and see their credit withdrawn, while Putin himself will remain unscathed.”

Separately, Russia’s statistics agency Rosstat reported there were just 1.69 million births recorded last year, 203,400 fewer than in 2016. The government plans to spend $8.6 billion over three years to encourage Russians to have more babies, with measures including mortgage subsidies and payments to new and growing families.

Myanmar: At least five previously unreported mass graves have been uncovered, in the newest piece of evidence for what looks like genocide against the Rohingya in Rakhine state.  Villagers told the Associated Press that the toll could be as high as 400, based on evidence from relatives and the bodies they have seen in the graves and strewn about the area.  Thousands of others have been killed.

Random Musings

--Presidential tracking polls....

Gallup: 38% approve of Trump’s performance, 58% disapprove [Jan. 28...so next week’s number, post-SOU, should be interesting.]
Rasmussen:  49% approval (highest since March 7, 2017), 49% disapproval.

--A new Monmouth University Poll has President Trump’s approval rating at 42% (50% disapprove), a big jump from his December low of 32% (56% disapproval).

A majority (55%) of Americans say Trump has been at least somewhat successful at getting Congress to pass his legislative agenda, while 41% say he has not been successful.

On tax reform, 44% approve, 44% disapprove.  But in December, only 26% approved, 47% disapproved.

As for the generic Congress ballot, if the election for House of Representatives were held today, 47% of registered voters say they would vote for or lean toward voting for the Democratic candidate in their district compared to 45% who would support the Republican; a dramatic shift from just December, when Democrats held a 15-point advantage in the Monmouth survey, 51 to 36.

--According to a CBS News poll, eight in 10 Americans who watched Tuesday night felt the president was trying to unite the country, rather than divide it.

Nine in 10 Republicans said the speech made them feel proud, while just over half of Democrats said it made them feel angry.  Independents tended to approve of the speech, and say it made them feel proud.

On some of the specific issues, most viewers had a favorable opinion of what Trump had to say about the nation’s infrastructure, immigration, and national security.

54 percent who watched the speech gave Trump a lot of credit for the current state of the economy, up from 51 percent prior to the SOU.

--Rep. Trey Gowdy (R-S.C.), chairman of the powerful House Oversight and Government Reform Committee, announced Wednesday that he will not run for reelection.

“There is a time to come and a time to go.  This is the right time, for me, to leave politics and return to the justice system,” he said in a statement on Twitter.

Gowdy added, alluding to his past career as a prosecutor: “Whatever skills I may have are better utilized in a courtroom than in Congress, and I enjoy our justice system more than our political system.”

Gowdy, while denying it, appears to be angling for a spot on the 4th Circuit Court of Appeals, which has jurisdiction over South Carolina.

Gowdy is the 10th GOP committee chairman to head for the exit this cycle, a huge problem for the Republicans.

I like this guy a lot.  Republicans will miss him.

--Another Republican committee chairman who announced he will not seek re-election is my neighbor, Rodney Frelinghuysen, chair of the powerful House Appropriations Committee, whose district starts literally about 100 yards from where I live (my actual congressman is Republican Leonard Lance).

Frelinghuysen hails from a famous political family in New Jersey and is in his 12th term.  He handily won his heretofore very red district with about 65% of the vote, though he won last time with only 58%, owing in no small part to Trump’s unpopularity in my state.

Frelinghuysen faced an intense fight in November, with the press ganging up on him for issues like not holding town hall meetings and this is one seat the Democrats will target in a huge way as they seek to make up the 24-seat deficit they currently face in the House.

As the Wall Street Journal opined, prior to President Trump’s State of the Union address, referring to Frelinghuysen’s announcement:

“We trust someone is telling Mr. Trump about the impeachment danger he faces from a Democratic House. Presidential job approval is a leading indicator of midterm election results, and don’t believe those who tell you this time will be different. Republicans will find it easier to hold the House if Mr. Trump is less polarizing and drives fewer Democrats to the polls.”

--The Department of Justice moved on Wednesday to dismiss the remaining charges against New Jersey Democratic Sen. Robert Menendez, just weeks after prosecutors had announced their intention to retry him on federal corruption charges. So now he can run for re-election without being under indictment.

The trial of Menendez and his longtime friend, Dr. Salomon Melgen, ended in a mistrial in November after a jury said it could not reach a verdict.  Menendez had been charged with using the power of his office to conduct favors for Dr. Melgen in exchange for lavish gifts, including trips on his private plane as well as political contributions.

I’m long on record as hoping Menendez survived because I just feel at this  particular time his vast foreign policy expertise is sorely needed in the Senate. I admit it is a “dirty” belief on my part, and you’re not going to find many Republicans such as myself holding it.

--The state worker in Hawaii who sent a false wireless alert warning of an inbound ballistic missile on Jan. 13 issued the message intentionally, believing the state faced an actual threat, the Federal Communications Commissioner revealed on Tuesday.

The mistake occurred when the emergency management services worker on the day shift misinterpreted testing instructions from a midnight shift supervisor, and believing the instructions were for a real emergency, the day-shift worker sent the live alert to the cellphones of all Hawaii residents and visitors to the state.

Initially, we were told the episode was an accident, with Gov. David Ige, who has proved to be a real bozo, blaming the false alert on a state employee who “pressed the wrong button.”

The employee at fault, who has been fired, apparently had a poor job history, which begs the question, ‘How the heck does someone with this responsibility stay in that position?’

As one of the commissioners at the FCC said, “It is astounding that no one was hurt” in this fiasco.

But the FCC is now looking into the handling of other emergencies and alert systems, such as in California, where local officials did not always act in the best way when it came to the wildfires. Sonoma County officials were singled out for not sending out alerts “because they did not want to upset residents far from the fires.”

--The director of the Centers for Disease Control and Prevention, Brenda Fitzgerald, resigned Wednesday, one day after reports that she traded tobacco stocks while heading the agency.  You can’t make this stuff up.

Fitzgerald was already under scrutiny for failing to divest from other holdings she bought prior to taking the job, which led to her recusal at least four times on various health issues; unable to testify before Congress because of her conflicts of interest.

--Seth Barron / New York Post

“It emerged this week that a restaurateur who gave Mayor de Blasio tens of thousands of dollars and who received very favorable service from City Hall regarding a lease dispute, pleaded guilty in 2016 to federal charges of bribing the mayor.

“ ‘I gave these donations to the elected official,’ swore Harendra Singh, ‘in exchange for efforts by that official and other city officials to obtain a lease renewal from the city agency for my restaurant on terms that were favorable to me.’

“Singh is currently the key witness in the corruption trial of former Nassau County Executive Ed Mangano, whom Singh also bribed.

“The big question is how the briber is pleading guilty to serious crimes in federal court, while the guy who received the bribes is turning down invitations to the White House when he isn’t taking a convoy of SUVs to the gym?

“According to de Blasio, though, there is nothing to see here. He still insists that his actions were ‘legal and appropriate and ethical’ and that his campaign machinations were graded whistle-clean by the prosecutors who declined to bring charges, although the prosecutor involved, former acting U.S. Attorney Joon Kim, has specified that not being charged is not the same as a finding of innocence....

“The mayor agrees that Singh is ‘a bad human being’ who was ‘caught doing bad things,’ and suggests that Singh tried to implicate the mayor in order to deflect from his own guilt. But the bad things that Singh pleaded guilty to involve giving de Blasio’s campaign money in order to get favorable treatment for his business, money that the campaign took. So if Singh didn’t do anything bad, why is he a bad person? De Blasio extricating himself from the equation of Singh’s guilty plea is like a child eating all the cookies and explaining their disappearance by saying the cookies ate themselves.”

Personally, I never lied about eating all the cookies.  I just ate them as they came off Mom’s baking sheet.  Nestle Toll House cookies, baby! 

--Finally, Punxsutawney Phil saw his shadow today.  Six more weeks of winter.

It’s also the fourth anniversary of Mayor de Blasio dropping Staten Island Chuck, fatally killing the marmot.

---

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

God bless America.

---

Gold $1333
Oil $65.07

Returns for the week 1/29-2/2

Dow Jones  -4.1%  [25520]
S&P 500  -3.9%  [2762]
S&P MidCap  -3.9%
Russell 2000  -3.8%
Nasdaq  -3.5%  [7240]

Returns for the period 1/1/18-2/2/18

Dow Jones  +3.2%
S&P 500  +3.3%
S&P MidCap  +0.9%
Russell 2000  +0.8%
Nasdaq  +4.9%

Bulls  66.0
Bears   12.6 [Source: Investors Intelligence...back to April 1986 spread.  These figures became meaningful this week, didn’t they....]

Have a great week. 

I like Nick Foles. Go Eagles.

Brian Trumbore

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