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For the week 10/30-11/3
[Posted 11:30 PM ET]
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President Donald Trump departed today on an ambitious trip to Asia that will take him to Japan, South Korea, China, Vietnam and the Philippines. Along the way he will attend several summits, hold a series of meetings, be feted at banquets and spend time golfing with Japanese Prime Minister Shinzo Abe.
It’s a dangerous time for Trump. I’ve told you for a while now that he will screw up royally in China. And I also know that Trump will be totally naïve to the fact that President Xi Jinping will ignore every single word Trump says. I’ve been warning of Xi for a long time now. He feels it’s his stage.
But the best moments should come in Japan, where the Trump-Shinzo Abe relationship is a good one...and critically important.
Yet hiding somewhere in North Korea is Kim Jong-un, plotting how to best remind everyone he is not to be ignored. I think it was Guy Benson on one of the Fox News shows tonight who said he thought Kim would fire a missile while Trump and Abe are playing golf, just as he had done in similar fashion when Abe and Trump were having dinner at Mar-a-Lago, when word hit that Kim had launched a bottle rocket and the dining area was turned into a situation room.
We wish our president good luck and safe travels.
Trump World...Tax Reform
While there is a ways to go in hammering out a final deal between the House and Senate on tax cuts, the GOP House plan that was unveiled this week reduces the current seven tax brackets for individuals to the following: 12%, 25%, 35% and 39.6%, with the 39.6% bracket kicking in above $1 million in income for married couples, or $500,000 for others.
Many individual write-offs would disappear, though the charitable-donation deduction would be retained and homeowners would keep at least some of their key breaks.
Deductions that would be eliminated would include those for state and local income taxes (hereinafter SALT), highly controversial and a deal-breaker in some blue states (my own Republican Congressman Leonard Lance here in New Jersey has already said he would vote against the House proposal because of SALT).
Other deductions that would be repealed include some higher-education benefits, including the interest deduction on student loans and a deduction for tuition expenses.
To compensate, the House Republican proposal would roughly double the standard deduction, which would benefit the 70% of Americans who utilize this tax break rather than itemizing deductions separately. The new standard deduction would jump to $12,000 from $6,350 for single taxpayers, with a rise to $24,000 from $12,700 for married couples filing jointly.
On Housing: Existing homeowners would still be able to deduct their mortgage interest, but buyers of homes in the future would be limited to deducting interest on up to $500,000 in debt; down from a current cap of $1 million. And the bill carves out an exception for property taxes, capped at $10,000, to win over New York, New Jersey and California Republicans, though it isn’t enough for many congressmen in these and other high-tax states. [For example, modest homes in my area have property taxes in excess of $12,000.]
The House GOP plan establishes a new family credit, which includes expanding the child tax credit to $1,600 from $1,000. And it would provide a credit of $300 for each parent and non-child dependent.
The estate or death tax would be repealed – after six years, though this applies to well under 1 percent of Americans. The bill would, though, immediately double the exclusion to $10 million.
The Alternative Minimum Tax would be repealed.
But the biggie is really on the corporate side, where the top rate is cut from 35% to 20%, which would make the United States far more competitive across the globe. The U.S. would move to a territorial system that taxes income where it is earned, and profits already earned overseas would be invited back at a discount: 12% for cash, 5% for illiquid assts.
The bill also reduces the top rate to 25% on “pass through” businesses that now pay at the individual rate of 39.6%, an enormous tax cut but there are real questions as to who qualifies to pay this rate.
As for the impact on 401(k) plans, the bill did not end up reducing the annual contribution limits has had been rumored.
[A new Wall Street Journal/NBC News survey found that 25% of Americans rated the tax plan promoted by Mr. Trump a “good idea,” compared with 35% who deemed it a bad one. 40% had no opinion.]
Editorial / Wall Street Journal
“Kevin Brady and Paul Ryan, the chief House tax writers, understand the weaknesses in their plan. But the GOP is trapped in an iron cage of Beltway process. The party has bowed to the class-warfare crowd that says the bill cannot change the distribution of who pays taxes. The Senate’s budget procedures allow the GOP to pass the package with 51 votes, but the Byrd Rule says a bill can’t add to the deficit after 10 years. These twin realities mean the GOP has compromised with itself to water down reform.
“The pro-growth business reform is still worth the effort, but this assumes the plan doesn’t get worse as it moves through the House floor and Senate....If the GOP passes something called tax reform and there are no benefits to growth and incomes, Republicans will pay the political price in 2018 and 2020.”
Bottom line, this bill is changing, perhaps significantly so. But Republicans know they have to pass something, and personally, I am in favor of a large cut for corporations, and the provisions encouraging them to repatriate their overseas cash. But the individual tax cuts seem weak. [I’m also well aware that if the individual tax cuts were better, the deficit would swell even more... though this depends on what kind of rate of growth we get in the economy.]
As for the process, the tax-writing House Ways and Means Committee will begin considering the bill on Monday, with GOP leaders aiming for the measure to pass the House before Thanksgiving. Then, after the Thanksgiving recess, it would go to the Senate and hopefully a package between the two chambers could be agreed to for passage before Christmas. I just don’t see it getting done in that timetable.
The Russia Investigation....
President Trump’s former campaign manager Paul Manafort on Monday pleaded not guilty to all charges from special counsel Robert Mueller, who is conducting an investigation into ties between the campaign and Russia.
Manafort’s former business associate, Rick Gates, also pleaded not guilty.
A 31-page indictment unsealed Monday morning lays out the charges, which are related to work Manafort and Gates did on behalf of a Kremlin-backed political party in Ukraine.
Separately, former Trump adviser George Papadopoulos pleaded guilty to lying to FBI agents about the nature of his interactions with “foreign nationals.” According to court documents, Papadopoulos spoke to both Trump and now-Attorney General Jeff Sessions about his connections “that could help arrange a meeting between then-candidate Trump and President Putin.”
President Trump tweeted that the charges against Manafort were related to his actions before he “was part of the Trump campaign” and asked “why aren’t Crooked Hillary & the Dems the focus?????”
“Also, there is NO COLLUSION!” he tweeted.
Editorial / Wall Street Journal
“The most striking news is that none of this involves the 2016 election campaign. The indictment makes clear that Mr. Manafort’s work for Ukraine and his money transfers ended in 2014. The 2016 charges are related to false statements Mr. Manafort made to the Justice Department.
“In other words, Mr. Manafort stands accused of a financial and lobbying scam, which is exactly what Mr. Trump risked in hiring a swamp denizen.”
Thursday, President Trump’s former adviser Carter Page told the House intelligence committee that he told Attorney General Jeff Sessions about an upcoming trip to Russia during the campaign, when Sessions headed up the foreign policy advisory board.
Page reportedly mentioned the trip to Sessions during a group dinner in Washington, and said it was unrelated to his foreign policy role in Trump’s campaign.
The issue here is that Sessions, who recused himself after failing to disclose two meetings with Russian ambassador Sergey Kislyak, previously told the Senate he did not know of anyone from the Trump campaign who made contact with Russians during the election.
After Page’s testimony, Sen. Patrick Leahy (D-VT) of the Judiciary Committee told the New York Times, “[Sessions] now needs to be come back before the committee, in person, under oath, to explain why he cannot seem to provide truthful, complete answers to these important and relevant questions.”
But Rep. Mike Conaway (R-Texas) who is leading the House committee’s probe into Russia’s interference in the 2016 elections told CNN, “I don’t make anything sinister out of it. If I were Sessions, I wouldn’t have recalled it either.”
Page also recently told MSNBC he may have exchanged emails with George Papadopoulos about Russia.
[According to an ABC News-Washington Post poll, 49% of American believe President Trump likely committed a crime related to Russian interference in the 2016 presidential election, and that more than half approve of the job special counsel Robert Mueller is doing, while just a quarter of Americans disapprove.]
Daniel Henninger / Wall Street Journal
“The whole world knows that Mr. Mueller’s special counsel’s office announced an indictment of former Trump campaign manager Paul Manafort, charging him with evading taxes on payments of millions of dollars to his lobbying firm from the former Ukrainian government run by Viktor Yanukovych.
“There was another, less noticed event this week, but no one in Washington missed it, or its significance. Within hours of the Manafort indictment, Tony Podesta, who is former Hillary Clinton campaign chairman John Podesta’s brother, abruptly resigned from the lobbying firm they founded in 1988. OpenSecrets.org annually lists the Podesta Group as the third- or fourth-highest-paid lobbying firm in Washington.
“The special counsel has not named or charged Mr. Podesta or his firm with any violation. But Tony Podesta resigned so that he could address his firm’s involvement with Mr. Manafort’s firm while lobbying on behalf of then-Ukraine president Viktor Yanukovych on, for example, ‘the propriety of imprisoning’ his presidential rival....
“While the children poke the dirt over whether Mr. Mueller’s Manafort indictment does or doesn’t involve Trump ‘collusion’ with Russia, the rest of us should see that Robert Mueller is opening a drain on the Swamp....
“The indictment of Paul Manafort reads like a Google Maps navigation through the Swamp. That Tony Podesta would jump off the Swamp luxury liner called the Podesta Group suggests the seriousness of the threat Mr. Mueller could pose to the Washington economy....
“The largely unheralded Trump effort to reduce regulation – in energy, the environment, land use, education, finance, telecommunications – won’t kill the Swamp but should shrink it....
“In ’86, the Swamp was called Gucci Gulch – the K Street lawyers and accountants with little gold bars on their shoes who gamed the tax code for whoever could afford it. They’re back to smother tax reform in its crib.
“Pick your obsession: collusion or the Swamp. In the life of the country, getting to the bottom of the second matters more.”
Friday, a federal judge proposed May 7 as the start date for the trial of Manafort and Richard Gates.
Editorial / Wall Street Journal
“Law enforcement continues to investigate Tuesday’s terror attack in which a 29-year-old from Uzbekistan used a truck to murder eight pedestrians in lower Manhattan. So it’s unfortunate and counterproductive that President Trump’s first instinct has been to politicize the tragedy by blaming – what else? – immigration.
“The President apparently got a scoop early Wednesday that the alleged terrorist Sayfullo Saipov was admitted to the U.S. in 2010 under the State Department’s diversity visa lottery. He then shot off a barrage of tweets blasting the lottery, which he called a ‘Chuck Schumer beauty,’ singling out the Democratic leader. ‘We are fighting hard for Merit Based immigration, no more Democrat Lottery Systems. We must get MUCH tougher (and smarter),’ Mr. Trump tweeted.
“Later in the day he again attacked the visa program, and in an aside lashed chained migration that benefits relatives of U.S. citizens and green card holders. While we’re all for better vetting of immigrants, and monitoring of terror risks, the sad reality is that a radicalized U.S. citizen could also have committed the attack.
“Congress established the diversity lottery as part of the Immigration Act of 1990 – which Mr. Schumer co-sponsored along with several Republicans – to diversity the pool of immigrants. Chained family migration favors countries in Latin America while a disproportionate number of Chinese and Indians have immigrated on employer-sponsored visas.
“Each year, 50,000 visas are awarded at random to immigrants from countries whose admissions totaled fewer than 50,000 over the preceding five years. Lottery winners make up less than 5% of the total legal immigrants. Applicants must have graduated from high school or have at least two years of formal training in an occupation. Initially, most visas went to European countries, but Africa has lately been soaking up the most....
“In any event, reducing immigration or improving background checks wouldn’t have prevented the New York attack or many of the other two dozen or so Islamist-motivated attacks since 2001. Testimony from Mr. Saipov’s former acquaintances suggested that he didn’t come to the U.S. radicalized and that he became emotionally disturbed over time....
“More than an immigration crackdown, the Saipov case might call for better monitoring of terror websites and groups that are more likely to be radicalized. We’re also with Mr. Trump – and Senator John McCain – in suggesting that Mr. Saipov should have been interrogated at length before he was read his Miranda rights. The first priority is preventing future attacks and breaking any terror networks.
“Perhaps we will learn that Uzbekistan is a terror breeding ground from which immigrants need special vetting. But the Commander in Chief in particular should wait for answers before jumping to policy conclusions or exploiting immigration fears.”
--John Solomon and Alison Spann / The Hill
“After the Obama administration approved the sale of a Canadian mining company with significant U.S. uranium reserves to a firm owned by Russia’s government, the Nuclear Regulatory commission assured Congress and the public the new owners couldn’t export any raw nuclear fuel from America’s shores.
“ ‘No uranium produced at either facility may be exported,’ the NRC declared in a 2010 November 2010 press release that announced that ARMZ, a subsidiary of the Russian state-owned Rosatom, had been approved to take ownership of the Uranium One mining firm and its American assets.
“A year later, the nuclear regulator repeated the assurance in a letter to Sen. John Barrasso, a Wyoming Republican in whose state Uranium One operated mines....
“The NRC never issued an export license to the Russian firm, a fact so engrained in the narrative of the Uranium One controversy that it showed up in the Washington Post’s official fact-checker site this week. ‘We have noted repeatedly that extracted uranium could not be exported by Russia without a license, which Rosatom does not have,’ the Post reported on Monday, linking to the 2011 Barrasso letter.
“Yet NRC memos reviewed by The Hill show that it did approve the shipment of yellowcake uranium – the raw material used to make nuclear fuel and weapons – from the Russian-owned mines in the United States to Canada in 2012 through a third party. Later, the Obama administration approved some of that uranium going all the way to Europe, government documents show....
“The Senate Judiciary, House Intelligence and House Oversight committees have all announced plans to investigate the new revelation, and the Justice Department has given approval for the undercover informant to testify for the first time about what he witnessed the Russians doing to influence Obama administration decisions favorable to Rosatom between 2009 and 2014.”
To be continued....
--Related to the above, former interim Democratic National Committee chair Donna Brazile, in a surprising excerpt from her upcoming book in Politico, acknowledged that the DNC tipped the scales in favor of Hillary Clinton over Bernie Sanders during last year’s primary.
Brazile, who took over on an interim basis from Rep. Debbie Wasserman Schultz after she stepped down as chair, criticized the agreement between Clinton’s 2016 campaign and the DNC meant to keep the party financially viable.
Brazile wrote that while this was “not illegal...it sure looked unethical.”
“If the fight had been fair, one campaign would not have control of the party before voters had decided which one they wanted to lead,” Brazile wrote. “This was not a criminal act, but as I saw it, it compromised the party’s integrity.”
So many Democrats are not happy, such as Massachusetts Senator Elizabeth Warren, who when asked by CNN’s Jake Tapper if the Democratic Party was indeed rigged for Clinton, said just one word, “Yes.”
Sanders and Clinton have been at odds for the past year.
--The FBI is investigating a decision by Puerto Rico’s power authority to award a $300 million contract to a tiny Montana energy firm to rebuild electrical infrastructure damaged in Hurricane Maria.
Puerto Rico Gov. Ricardo Rossello canceled the contract with Whitefish Energy Holdings LLC on Sunday, saying it had become a distraction from the U.S. territory’s efforts to restore the devastated grid.”
This causes a new delay of 10-12 weeks in restoring power.
Another strong week on the economic data front, starting with September personal income, 0.4% and in-line with expectations, and consumption (consumer spending) up 1.0%. The only fly in the ointment here is that the Federal Reserve’s preferred inflation indicator, the personal consumption expenditures index (PCE) came in at just 0.1% for the month on core, and is stuck at just 1.3% year-over-year.
The Chicago Purchasing Managers Index was a spectacular 66.2 for October, a 29-year high (50 being the dividing line between growth and contraction).
The ISM (national) manufacturing figure for last month was a strong 58.7, while the services reading was 60.1, according to CNBC’s Rick Santelli just the fourth time this last figure has exceeded 60 in the 20+ years of this data set.
September construction spending came in better-than-expected, up 0.3%, and September factory orders were a strong 1.4%.
The CoreLogic S&P Case-Shiller national home price index for August (slight lag with this data) showed a 6.1% annualized price increase...so still strong, which isn’t great for home buyers, but they still have historically low mortgage rates.
So that leaves today’s jobs report for October and the bottom line is the last two reports are clearly distorted by the hurricanes and thus pretty meaningless. September’s figure, initially -33,000 for the first monthly decrease since 2010, was revised to up 18,000, while October’s figure of 261,000 was actually well below expectations. The unemployment rate ticked down to 4.1%, the lowest since December 2000, with the underemployment rate, U6, down to 7.9%, the best reading since Dec. 2006. This is good.
But, just as in the case of the above-cited PCE index, the Fed can’t ignore the wage component of the jobs report, average hourly wages for October flat, and up 2.4% year-over-year.
So when you combine the two, the mood is shifting on whether the Fed will hike rates again come its Dec. 12-13 confab. While Fed Chair Janet Yellen has said she doesn’t need to see the PCE running at the 2% target level before raising rates to stem any surge in prices, the 2.4% wage growth component needs to be 3%+ before the Fed would normally be concerned.
Meanwhile, on the topic of the Federal Reserve, President Trump nominated Jerome H. Powell to take over for Chair Yellen once her term expires in February, Trump bypassing Yellen for a second term (her three predecessors having been reappointed), yet turning to a man who is expected to stay the course on monetary policy assuming the economy continues on its current growth path.
Trump said in the White House Rose Garden, in introducing Powell, who has been a member of the Fed’s board of governors since 2012: “I am confident that with Jay (Trump using his nickname) as a wise steward of the Federal Reserve, it will have the leadership it needs in the years to come.”
The big question is how Powell would respond to a faltering economy. He is considered a centrist and pragmatist. He also doesn’t have a deep background in economics like many of his predecessors. Cliché alert: Time will tell.
[Powell has already gone through the nomination process in Congress and passed handily for various positions, including for his current post, so it’s not expected he’ll face fierce opposition. He is a Republican with roots in the party’s establishment.]
Europe and Asia
On the economic front in the eurozone, we had a slew of data:
Eurostats issued a flash estimate on third-quarter GDP for the EA19, 0.6% vs. 0.7% in Q2, a 2.5% annualized rate vs. 2.3% in the second quarter.
The manufacturing PMI, as measured by IHS Markit, came in a 58.5 for the eurozone in October:
Germany 60.6; France 56.1; Italy 57.8 (80-mo. high); Spain 55.8; Greece 52.1; Ireland 54.4; Netherlands 60.4 (80-mo. high).
Chris Williamson, Chief Economist at IHS Markit:
“October’s PMI was the highest (manufacturing figure) since February 2011 and the second-highest in over 17 years. The overall performance of the manufacturing sector so far this year has been the strongest since 2000.
“It’s especially encouraging to see employment growing at a survey-record pace as firms seek to boost capacity in response to fuller order books. Export order growth remains encouragingly solid, suggesting little impact from the strengthening of the euro this year, and domestic demand continues to improve across the region.”
On the jobs front, as released by Eurostats, the unemployment rate for the EA19 was 8.9% in September, a tick down from August’s 9.0% and the best since January 2009. [It was 9.9% a year ago.]
Germany had a jobless rate of 3.6%; France 9.7%; Italy 11.1%; Spain 16.7%; Ireland 6.1%; Greece 21.0% (July).
Still-high youth unemployment rates were in Italy (35.7%), Spain (37.2%), and Greece (42.8% for July).
Finally, a flash estimate on EA19 inflation for October came in at an annualized 1.4% vs. 1.5% in September; just 1.1% ex-food and energy.
This last item remains critically important to the European Central Bank, which while it is reducing its level of monthly bond purchases come January from 60bn euro to 30bn euro, is still highly accommodative and is a long ways from actually hiking interest rates.
A few other economic items:
Germany’s consumer price index for October came in at just 1.5% year-over-year, while retail sales in September rose a solid 4.1% vs. year ago levels, both according to the Federal Statistics Office.
Spain’s GDP for the third quarter was 0.8%, 3.1% year-over-year, according to the National Institute of Statistics. October inflation was 1.7%.
France reported GDP of 0.5% for Q3, 2.2% annualized, with October inflation running at 1.2%.
As for the U.K., the Bank of England on Thursday raised interest rates for the first time in more than 10 years (though only from 0.25 percent to 0.50 percent), but warned that it expects only “very gradual” increases in the run up to Brexit in 2019.
Unlike the low inflation of the eurozone that prevents the ECB from hiking rates, the BoE is concerned with Britain’s 3% inflation, even though there are serious potential issues with economic growth and Brexit uncertainty.
It’s the weak pound in Britain that has hurt consumers by boosting inflation at a time when wage growth is failing to keep up.
Governor Mark Carney said the Brexit talks were likely to be the biggest factor for the next BoE move on rates, either up or down.
Those in the independence movement here were betrayed as Carles Puigdemont, the leader of Catalonia’s secessionists, fled to Belgium on Monday without warning senior members of his party in order to escape authorities in Spain, defying an order to appear before a Spanish court on Thursday, as prosecutors now will probably wage a legal battle to force him home to face the music.
[Puigdemont had long said he would go to jail for the cause, then he wimped out.]
Spain’s state prosecutor announced previously he was seeking charges of rebellion, sedition and misappropriation of public funds against 20 ousted Catalan leaders, including Puigdemont.
In a televised statement aired on Catalan regional television, Puigdemont said he was the legitimate president of Catalonia despite being ousted and he called on Spanish authorities to release his ex-cabinet ministers. Belgium can’t allow Puigdemont to stay forever and ignore an extradition request from Madrid, though he may be able to stay there up to two months before forcing a showdown. If Puigdemont applied for political asylum in Belgium, his application would be ruled on within a week, and then the asylum process would kick in, further delaying extradition.
At a news conference in Brussels, Puigdemont did say he would return to Spain if he is guaranteed a fair trial there.
Belgium and Spain have a history of tensions over sheltering people, Belgium in the past accused of allowing Basque separatists to flee there.
[Late Friday, Spain issued an arrest warrant on sedition and other charges for Puigdemont, putting the pressure on Brussels. I’m reading Belgium has three, not two months to decide whether to send him back to Spain.]
Last weekend, Prime Minister Mariano Rajoy dissolved the Catalan parliament and ordered fresh elections be held on Dec. 21 as part of his temporary takeover of Catalonia’s institutions, including the police. Spain’s deputy prime minister was named interim Catalan leader until the December vote.
Hundreds of thousands took to the streets of Barcelona to rally for Spanish unity. Veteran Catalan politician Josep Borrell, a former president of the European Parliament, told demonstrators: “Mr. Puigdemont may speak on behalf of some of the Catalan people, but I am also Catalan, I am also part of the Catalan people, and I do not recognize his right to speak in my name.”
There were a number of initial polls for the Dec. 21 election, with one for the newspaper El Mundo showing unionist parties winning 43.4% support and pro-independence parties 42.5%.
But other polls taken after this one had only 33.5% favoring independence in one survey, while a poll published by El Pais put that number at 29%, vs. 41% in this same survey in July.
The government of Prime Minister Theresa May said it was accelerating preparations for “all eventualities” when it leaves the European Union, though both sides are hopeful that an agreement on stepping up the pace of talks will be sealed soon. There were to be three sessions of talks between now and year end (and a critical European Union summit), but last week was to be one of them...and there were no talks.
So the prime minister’s office said that “it is crucial that we are putting our own domestic preparations in place so that we are ready at the point that we leave the EU. The preparatory work has seen a significant acceleration... Departments are preparing detailed delivery plans for each of the around 300 programs underway across government.” A further 3,000-5,000 workers will be added next year to work on items such as customs posts, laws and systems that would need to work on day one of Brexit, even without a deal on a future relationship. It’s so easy to forget just what a monumental task this is going to be.
Meanwhile, Prime Minister May was forced to appoint a new defense minister on Thursday after her loyal ally Michael Fallon quit in a sexual harassment scandal that has prompted calls for an end to the “locker room” culture in parliament. Fallon resigned over past behavior he said had fallen “below the high standards we require of the armed forces.”
May then appointed Gavin Williamson, 41, a rising star in her Conservative Party, though with no former experience with the armed forces.
Fallon’s departure is a big blow to the prime minister as she struggles to hold the cabinet together since June’s disastrous election that cost May her parliamentary majority.
--German Chancellor Angela Merkel said on Friday she believes the three party groups trying to form a new German coalition government face more difficult talks but she believes they can bridge their differences; referring to an attempted three-way deal between her conservatives, the pro-business Free Democrats (FDP) and the ecologist Greens.
--The yield on Greek bonds plummeted after the government announced it was planning an unprecedented debt swap worth nearly $35 billion, aimed at boosting the liquidity of its paper and easing the sale of new bonds in the future. The yield on the 10-year fell from 5.44% a week ago to 4.99% on Thursday, closing the week at 5.04%.
Turning to Asia, China’s official manufacturing PMI was 51.6 in October vs. 52.4 the prior month; 54.3 for the service sector vs. 55.4 in September. The private Caixin/Markit manufacturing PMI was 51.0 last month, unchanged from September, while the Caixin services reading was 51.2, up a tick from the prior month.
In Japan, the October manufacturing PMI was 52.8 vs. 52.9 in September.
Retail sales here rose 2.2% year-over-year in September, but private consumption probably fell in the third quarter. Industrial output declined 1.1% in September.
The jobless rate held steady at 2.8%.
[Two other manufacturing PMIs in the region for October: Taiwan 53.6; South Korea 50.2]
--All three major indices hit new all-time highs on Friday, with the Dow Jones gaining 0.4% to 23539, the S&P 500 0.3% to 2587, and Nasdaq 0.9% to 6764.
While President Trump loves to tout his own role in the market’s ride since Election Day, the fact is all markets around the world are rocketing higher, and many to record levels. It’s about global economic growth, which has fueled the recent surge in the stock of U.S. multinationals.
For example, in October, the Dow rose 4.3% compared with the S&P’s 2.2% return, the largest margin of outperformance between the two since Nov. 2008, and that was because of the large multinationals that populate the Dow.
--U.S. Treasury Yields
6-mo. 1.29% 2-yr. 1.61% 10-yr. 2.33% 30-yr. 2.81%
While the short end of the curve saw rates tick up, the long end rallied on the tame inflation news as noted above; the yield on the 10-year falling to 2.33% from 2.41%.
--The U.S. Energy Information Administration reported that U.S. crude output edged down in August, falling slightly to 9.203 million barrels a day from 9.234 million barrels a day in July, while the American Petroleum Institute, an industry group, reported a 5.1-million-barrel decrease in crude supplies.
The aforementioned U.S. Energy Information Administration then announced that during the week ending October 27, oil exports hit 2.1m barrels, their highest ever, while U.S. crude inventories fell by 2.4m barrels, steeper than expected.
Recently, crude has been supported in the $54 range by comments from Saudi Arabia that OPEC’s production cut agreement with Russia would be extended until the end of 2018.
Today, oil finished at $55.70, the highest level since July 2015.
OPEC meets on Nov. 30, at which point they are expected to formally extend the cuts that otherwise would expire come March per the original agreement.
--October was another good month for U.S. auto sales. General Motors’ unit sales were down 2.2% (though pickup truck, SUV and crossover sales were all up) and Fiat-Chrysler reported a 13.2% drop.
But Ford was up 6.4% (the popular F-Series line of pickups up 15.9%), Nissan rose 10.2% (though the luxury Infiniti brand fell 8.1%), Toyota 5.2% (though sedan sales fell 12.7%), Honda’s were up just 1% and Volkswagen’s increased 11.9%, this last one seemingly behind its emissions scandal that proved so costly.
It’s about unemployment being down, consumer spending still solid, and gas prices at the pump, while up a bit, still reasonable historically.
The gas price is a huge reason why SUV sales continue to rock, and this means the average passenger vehicle sales price, about $35,000, is higher than ever.
According to Kelley Blue Book, SUVs in all size categories represent 35% of the market, up from 23% in 2007.
--Boy, this was predictable. Tesla CEO Elon Musk had to concede yet again that there would be production delays in the Model 3 sedan, saying this on his investor call after the close on Wednesday. The electric vehicle maker had aimed to make 5,000 Model 3 sedans a week by the end of the year, but said it won’t reach the milestone until late first quarter of 2018.
Tesla also reported its worst financial results for a quarter yet, posting a $619 million loss for the third quarter, compared with a small profit ($22 million) a year ago.
The company is blaming battery-pack assembly issues at its giant factory near Reno, Nev.
“The combined complexity of module design and its automated manufacturing process has taken this line longer to ramp than expected,” Musk said, first, in a shareholder letter. [He said on the conference call he was dealing with a cold, and seemed at a loss when asked how he expected Tesla to reach a rate of 10,000 Model 3s a week, as he’s been talking about in the past.]
Tesla also seemed, for the first time, to be hesitant about spending money, which caused analysts to question whether the company is running out of cash.
It was back in July that Musk began to lower his previously stated goals and warned of six months of manufacturing “hell.” Cleary, that’s where the company is today.
Meanwhile, revenue in the third quarter did come in at $2.98 billion, up 30%, on a 36% gain in sales of Tesla’s Model X sport-utility vehicle.
As for the cash position, the company issued $1.8 billion in bonds during the third quarter to boost cash, knowing production costs for the new Model 3 were continuing to soar, and Tesla ended the period with $3.5 billion in cash - $500 million more than the end of the second quarter.
Analysts said the cash burn rate is “horrible” but is expected to improve.
--Apple Inc. reported its best quarterly growth in two years with strong sales in all its key products. Demand for the iPhone, which represents 2/3s of sales, plus sales of Mac computers and iPad tablets, helped the company increase quarterly profits to $10.71 billion, up 19%.
Shipments of the iPhone rose 2.6% from a year earlier to 46.7 million units, with China sales rising for the first time in over a year. But the new iPhone 8 and 8 Plus had the weakest initial sales of any new iPhone in years, while the iPhone X, which began to ship today and features facial recognition and an edge-to-edge display, has been dogged by production challenges that delayed manufacturing, and there’s the $999 price tag. Long shipping delays are expected for those who ordered in advance.
That said, orders for iPhone X are “very strong” in the words of CEO Tim Cook, and you once again saw long lines outside Apple stores today. The company expects record sales in the current quarter.
As for China, Apple’s market share continues to shrink in this critical market for it, but revenue rose 12% in the latest period to $9.8 billion. Overall, Apple revenue was $52.58 billion, also up 12%.
Sales of Mac computers rose 25%, while shipments of the iPad increased 11%, and Apple Watch 50% from the prior quarter.
Apple’s cash reserves hit $268.9 billion.
Apple’s stock continued to hit new highs, up 50% this year alone, with the market cap finishing the week at $890 billion.
--Facebook reported a 79% jump in third-quarter profit on Wednesday, well ahead of expectations ($1.59 vs. a Street consensus of $1.28), and up from 90 cents a share a year ago. Revenue came in at $10.33 billion, up from $7.01 billion a year ago.
The company’s total advertising revenue rose 49% in the quarter to $10.14 billion, about 88% of which came from mobile ads.
And the firestorm over Russian propagandists’ activity during the election cycle didn’t necessarily hurt Facebook’s popularity, with monthly active users up to 2.07 billion.
On the safety and security issue, Facebook (represented by its general counsel), along with Twitter and Google got a grilling from Congress on Wednesday, while the incredibly naïve Mark Zuckerberg vowed on the earnings call that the company would redouble its security-focused engineering efforts to better detect “bad content and bad actors,” as he put it.
“I am dead serious about this,” Zuckerberg told analysts. “I’ve directed our teams to invest so much in security on top of the other investments we’re making that it will significantly impact our profitability going forward.”
Which is one reason why investors didn’t take the stock up after the earnings release, despite the great numbers. Expenses are definitely rising.
Facebook admitted 126 million users saw posts from accounts linked to a pro-Kremlin outfit that sought to use Facebook and others to amplify social divisions in the U.S.
--The New York Times reported higher revenue and profit in the third quarter owing to growth in digital subscriptions and online advertising, with total revenue rising 6% to $385.6 million, and net income of $32.3m.
Digital subscription revenues rose 46% to $85.7m, with the newspaper adding a net 154,000 digital subscribers in the quarter, bringing its total online subscriber base to nearly 2.5m. Total subscription revenue rose 14% to $246.6m.
Online advertising sales rose 11% to $49.2m, now accounting for 43% of total ad revenues. Print ad sales dropped 20% to $64.4m.
--Bitcoin climbed past $7,000 for the first time on Wednesday, after passing $5,000 less than a month ago. Friday it closed at about $7,300, up 650% this year.
I can only repeat...I showed you how organized crime is involved in this in a big way in Asia, for starters. Ergo, I’m in the Jamie Dimon camp, which this week Credit Suisse Group AG CEO Tidjane Thiam joined, calling bitcoin the “very definition of a bubble.”
--Broadcom Ltd announced Friday it is planning an unsolicited bid for smartphone chipmaker Qualcomm Inc., with an offer possible this weekend. Just Thursday, President Trump at a White House event with Broadcom CEO Hock Tan, announced the company planned to bring its headquarters back to the U.S. from Singapore. The deal would turn Broadcom into a tech juggernaut.
--Under Armour slashed its forecasts and reported its first quarterly fall in revenue since going public as the sportswear company deals with fierce competition from not just Nike, but resurgent Adidas in North America.
UA shares cratered to a new low, as its clear initiatives like its Stephen Curry basketball shoes are not panning out as hoped. It also hasn’t helped any of the big three in this space that the retail chains that feature their products, like Dick’s Sporting Goods, have been losing market share, while also slashing prices to fend off competitors.
Plus there seems to be reduced demand for athleisure fashion, exercise clothing worn in both casual and formal environments (which irks me to no end, but then I’m old fashioned...like I would never wear sweat pants while shopping).
Anyway, the repositioning of Adidas is killing Under Armour, especially in the shoe biz.
--Berkshire Hathaway Inc., Warren Buffett’s outfit, reported net income fell 43% in the third quarter, owing to losses from insurance claims tied to Hurricanes Harvey, Irma and Maria, as well as the earthquake in Mexico City. But it still made $4.07 billon, $3.44 billion when you exclude investment and derivative gains and losses, which Buffett says better reflects company performance.
The company’s earnings come after the close on Fridays and I might have more to say next week when I see all the commentary over the weekend, because I am curious how the insurance claims broke down.
--Sears Holdings Corp announced today it will close another 63 stores in the U.S. after the holidays (45 Kmart stores, 18 Sears stores), following 330 closures in 2017. The move will reduce the number of locations in the U.S. to around 1,000, from 2,019 in 2012.
--Papa John’s CEO John Schnatter was not a happy camper on Wednesday, as he noted on a conference call while reviewing his company’s results, that “The NFL has hurt us. We are disappointed the NFL and its leadership did not resolve (the national anthem protests).”
Mr. Schnatter said he thought the NFL had “nipped it in the bud” last season, when addressing the anthem issue. Schnatter appears to be blaming Commissioner Roger Goodell for the mess.
“Leadership starts at the top, and this is an example of poor leadership. NFL leadership has hurt Papa John’s shareholders.”
Papa John’s (with Peyton Manning as lead spokesperson) has had a substantial sponsorship deal with the NFL since 2010, but the company has been pulling some of its ads over the protests.
Many have been weighing in on social media that Papa John’s pizza blows, and I could be cute and pile on too, but I have never had the product. I’ve never seen one in my area. These days, I load up on Tombstone frozen pizzas when I see them 3 for $10 at my ACME.
--Filming on the upcoming and final season of Netflix’s Washington, D.C.-set drama House of Cards has been suspended indefinitely following the revelations surrounding star Kevin Spacey.
Netflix had announced the series was in its final season at the same time allegations of improper behavior with a then-14-year-old child actor, Anthony Rapp, had emerged.
Netflix and the production company (Media Rights Capital) said in a joint statement they were deeply troubled by the news on Spacey. The two had been exploring potential spinoffs.
House of Cards was critical in launching Netflix’s original programming explosion in 2013.
--Shares in Dunkin’ Donuts rallied to a record high this week on speculation European investment fund JAB was interested in acquiring the chain.
Personally, I’ve had the same breakfast at the store in my building for 8 years, a chocolate frosted donut and a large black coffee.
But I’m tired of the chocolate donut, especially when I saw the Halloween alternatives, so seeing as I’m the first customer through their doors each morning, I now have to shout as I open the door, “Marble-frosted donut....marble-frosted donut!” because once they see me, they scramble to put the old order together before I even reach the register. This is causing tension between me and store employees...if JAB makes a move, this may become part of the due diligence process.
--Yum Brands Inc. reported better-than-expected third-quarter results as same-store sales rose 4% at its KFC locations, 3% at Taco Bell, and 1% at Pizza Hut.
--Hedge-fund billionaire Kenneth Griffin, founder of Citadel LLC, is giving the University of Chicago’s prestigious economics department a gift of $125 million, the department being renamed the Kenneth C. Griffin Department of Economics.
Griffin actually graduated from Harvard, but he has long lived in Chicago and is a trustee at the university there. Six current Chicago professors are Nobel laureates in economics including this year’s winner, Richard Thaler.
My favorite Chicago economist was the late Gary Becker, who won the Nobel Prize in 1992.
--Starbucks Corp. reported less than exciting revenue growth and the company lowered its outlook and long-term profit growth target for the first time in seven years. The company also announced it would sell its Tazo brand of teas to focus on its Teavana brand.
Starbucks posted just a 2% rise in same-store sales in its home market in its fiscal fourth quarter and reset its long-term annual earnings-per-share growth target to 12% or greater, down from a previous forecast of 15% to 20%.
And the company adjusted its long-term annual global same-store sales growth target to 3% to 5%.
But Starbucks reported 8% same-store growth in China, though globally only 2%.
--My beer of choice, Coors Light, the second-best-selling beer in the U.S., has seen its sales decline at a faster rate than in recent years, but the good news is that rival Bud Light, the top-selling beer in the country, is in even steeper decline.
The two are in the premium light beer category, whose sales peaked in 2007 and 2008, and since then many have turned to craft beer and Mexican imports, while others are opting for wine and spirits.
For the year through Sept. 30, Coors Light case volume was down 3.4%, according to Nielsen data, while Bud Light’s fell 5.7% over the same period.
--I was kind of surprised to see a report from the American Hotel and Lodging Association that said fewer than a third of hotel guests leave any money for the housekeepers.
As noted in the New York Times, Shane C. Blum, an associate professor of hospitality and retail management at Texas Tech University, said, “As a general rule, people just don’t know they’re supposed to tip. Obviously, when you’re with a group of people, like at a restaurant, there’s social pressure to tip. In a hotel room, you’re usually by yourself and there’s not that social pressure.”
--And now...our irregular feature...Crime Blotter, from the world famous Mall at Short Hills (N.J.), a two-minute drive from moi.
[Courtesy of The Item of Millburn and Short Hills]
This one I really hope is a misprint: “A Millburn police officer responded to the Sunglass Hut store at The Mall at Short Hills...on a theft report. Sunglass Hut personnel reported the theft of a $400,000 pair of Gucci sunglasses.” A man was arrested and charged. I’m assuming this was $4,000, not $400,000...but even $4,000 for freakin’ sunglasses?!
Another: “A Millburn police officer responded to Nordstrom on a theft report that a female wearing a camouflage long-sleeved shirt and jeans concealed 15 pairs of sunglasses valued at $6,000 and left the store without making payment.”
Now that’s more like it...$400 a pair. [Though I can get ‘em at Dollar Tree for a buck.]
And: “A Millburn police officer responded to Nordstrom on a theft report...personnel reported the theft of nine scarves valued at $4,345, according to police.”
So for about $800 you can have that sunglasses / scarves thing goin’ for ya.
Finally: “Authorities are looking into the theft of 14 handbags valued at a total of $31,395 from the The Mall at Short Hills... Two entered the Saint Laurent store, grabbed the bags, then fled.”
Geezuz, girls. Go into New York and buy a knockoff for $10.
China: Benny Avni / New York Post
“The latest challenge for President Trump as he gets set to visit East Asia: Is South Korea going wobbly on us?
“Visiting Japan, South Korea and China, Trump will push trade talks while working to keep the tenuous anti-Pyongyang coalition together. And the goo-goo eyes South Korean President Moon Jae-in is making at Chinese leader Xi Jinping should worry us.
“This week, Xi and Moon ended a year-old dispute over the deployment of American-made Terminal High Altitude Area Defensive systems in the southern part of South Korea. The systems will stay and China will cool its kvetching
“What changed? Compare this quick retreat to the stink Beijing kicked up when President Barack Obama and Moon’s predecessor, Park Geun-hye, initially signed the agreement to deploy the missile-defense system.
“Commerce between China and South Korea’s top corporations crawled to a halt. Chinese tourists all but stopped visiting Seoul. Xi took his public snit show global: His diplomats stopped cooperating with their U.S. and Western colleagues.
“Yet, this week – poof – the crisis is already over.
“By Nov. 10, both sides announced Tuesday, Moon and Xi will seal their newfound friendship with a bilateral summit. Commerce between the two countries will be revamped and, hooray, kids in Beijing will once again dance to tunes by Psy and other catchy Korean pop stars...
“If something seems too good to be true, look under the hood. And indeed, there’s more than meets the eye here between Seoul and Beijing.
“On Monday, South Korean Foreign Minister Kang Kyung gave a noteworthy speech to the National Assembly. Kang, who until recently was a senior official at UN headquarters in New York, vowed South Korea would oppose a U.S.-led initiative to connect all East Asian anti-missile systems. She also swore Seoul’s joint exercises with the American and Japanese navies won’t develop into an outright military alliance. (China’s biggest fear is being surrounded by U.S.-allied adversaries.)
“In reality, the dovish South Korean government is much more in turn with China’s approach to North Korea than with the more aggressive thinking among President Trump’s top advisers and their steely partner in Tokyo, Prime Minister Shinzo Abe....
“Trump’s task will be to convince our traditional Asian partners – mostly South Korea – that America and not China is their most reliable ally and best friend.
“So forget tariffs and trade wars. Instead, find ways to show them why China’s interests don’t coincide with theirs – and ours do.”
Jackson Diehl / Washington Post
“While the Trump White House wallowed in its usual trifling controversies, China’s Communist leadership this month staged what will be remembered as the most important political event of the year, and maybe of the century so far. As the party Congress concluded last week, Xi Jinping was confirmed as the most powerful leader in Beijing since Mao Zedong – and he proclaimed the regime’s intention not just to become the world’s leading power, but to establish a new model of totalitarianism.
“Xi’s ‘new era of socialism with Chinese characteristics’ was written into the party constitution, making anyone who opposes it an enemy of the state. Its aim is to make China ‘a leading global power’ by 2050, with a ‘world class military’ built to fight and win wars. These aims will be achieved by reinforcing Xi’s dictatorial powers, and those of the party, over every area of life, using cutting-edge technologies like artificial intelligence. It’s a Stalinism for the 21st century.
“Perhaps most ominously, Xi envisions his updated police state as a model for the rest of the world. Twenty-five years ago, the liberal democratic system of the West was supposed to represent the ‘end of history,’ the definitive paradigm for human governance. Now, Xi imagines, it will be the regime he is in the process of creating. ‘It offers a new option for other countries and nations,’ he said during a three-hour, 25-minute speech that was its own statement of grandiosity. ‘It offers Chinese wisdom and a Chinese approach to solving the problems facing mankind.’
“Plenty of strongmen and would-be strongmen around the world were likely applauding, from Turkey’s Recep Tayyip Erdogan to Hungary’s Viktor Orban and, it seems, Stephen K. Bannon. The oracle of the alt-right called Xi’s 30,000-word text ‘an adult speech to adults,’ in contrast to the ‘pablum’ of John McCain and George W. Bush, who delivered contemporaneous speeches defending democratic values and U.S. global leadership.
“It’s worth considering what the world might look like 30 years from now if Xi’s ambitions are realized....
“Of course, it is possible that Xi is overreaching. As it watches the United States and much of the rest of the West struggle with populist and nationalist movements, the political consequence of the last crisis of capitalism, the Chinese elite may overestimate the attraction of their totalitarian alternative. Centralized control of society and the stifling of individual freedom led China and other Communist nations to catastrophe in the late 20th century; Xi’s bet that a modified, technologically updated system can work in the 21st century could easily fail.
“It would nevertheless be dangerous not to take China’s strongman seriously. He is imagining a world where human freedom would be drastically curtailed and global order dominated by a clique of dictators. When a former chief political adviser to the U.S. president applauds that ‘adult’ vision, it’s not hard to imagine how it might prevail.”
[Ed. I totally missed Steve Bannon’s reaction to Xi’s speech. Indeed troubling.]
North Korea: President Xi replied to North Korean leader Kim Jong-un’s message of congratulations after the Communist Party congress, with the Chinese leader saying he is hoping to improve ties between the two nations, according to North Korean state media; Xi’s message not carried by Chinese media.
President Trump is going to call on China to take tougher actions against North Korea, but Xi is likely to ignore much of what Trump requests. One thing to watch after Trump’s visit is whether Kim Jong-un travels to China (he has yet to visit since becoming leader in 2011), or will Xi visit Pyongyang, which he has yet to visit. Either one would be most disconcerting to Washington.
Trump will not visit the Demilitarized Zone (DMZ) on his trip to South Korea, though he will be visiting Camp Humphreys, a military base about 40 miles south of Seoul, to highlight the U.S.-South Korean partnership.
While the administration won’t admit it, there is no doubt a Trump visit to the DMZ would have only further inflamed tensions.
Last Saturday, Defense Secretary Jim Mattis, speaking from Seoul, said the threat of a nuclear attack by North Korea is accelerating. Mattis added Pyongyang engages in “outlaw” behavior and that the U.S. will never accept a nuclear North.
Separately, reports this week had about 200 people dying when tunnels collapsed at a North Korean nuclear test site in October. Kim had detonated an underground nuclear device in northeast North Korea on Sept. 3, setting off a magnitude 6.3 earthquake, and then about 100 people got caught in a collapsed tunnel around Oct. 10, while others were then trapped in a further collapse during a rescue attempt, TV Asahi reported.
Iraq / Syria: The Syrian army has retaken Deir al-Zour, the last major stronghold of Islamic State in Syria, state TV announced on Friday. ISIS had held the city since 2014 and it was strategically important because of its proximity to the Iraqi border. Some 350,000 civilians in the province had been forced to flee their homes.
Last month a U.S.-backed alliance of Syrian fighters pushed IS out of Raqqa, the self-styled “caliphate.”
In some areas the U.S.-backed forces and Russian-backed Syrian army have taken up positions just a few miles apart.
But I’m reading right before I go to post tonight (via Reuters) that Syrian government forces plan to advance to take Raqqa, and this is coming from a senior Iranian official, the top adviser to Iran’s Supreme Leader, which is not good. This could be exceedingly dangerous.
Russian President Vladimir Putin said on Wednesday that the situation in Syria and peace talks to resolve the crisis were developing positively, which isn’t exactly the truth, but he spoke alongside the president of Iran in Tehran.
In Iraq, last Sept. 25 longtime Kurdish leader Massoud Barzani staked his political career on an independence referendum that was supposed to reinvigorate the long-held dream of an independent Kurdistan. Instead, it backfired badly, perhaps irrevocably ending the Kurds aspirations for statehood.
Last Sunday, after it was clear Barzani had lost his bet, the Iraqi army having taken large swaths of Kurdish territory, including key oil reserves in response to the vote, the 71-year-old stepped down as president of the Kurdish semiautonomous region of Iraq, leaving a mess...the Kurds with no real successor to him.
The region is torn apart. Barzani’s legacy tarnished forever. He condemned the United States for failing to back the Kurds when the Iraqi military moved on the region, specifically criticizing the Americans for allowing Abrams tanks supplied to Iraqi forces to fight ISIS militants to be used against the Kurds. Barzani also alleged American weapons were used in attacks by Iranian-backed paramilitaries.
The Kurds had lots of power, like control over border crossings, control of the airport...diplomatic relations with the rest of the world...a state within a state, and they blew it.
Meanwhile, clashes between Turkish security force members and Kurdish militants in two mainly Kurdish provinces in southeastern Turkey Thursday killed eight security force members and 22 militants, Turkish President Erdogan reported, vowing to press ahead with operations against the Kurdistan Workers’ Party, or PKK, that Turkey has waged a three-decade-long campaign against in southeastern Turkey.
Iran: President Hassan Rouhani said on Sunday in a televised speech that Iran will continue to produce missiles for its defense and does not consider that a violation of international accords.
Rouhani also criticized the United States over President Trump’s refusal to formally certify that Tehran is complying with the nuclear accord.
“You are disregarding past negotiations and agreements approved by the U.N. Security Council and expect others to negotiate with you?” Rouhani said. “Because of the behavior it has adopted, Americans should forget any future talks and agreement with other countries,” referring to North Korea, no doubt.
International Atomic Energy Agency director general, Yukiya Amano, visited Tehran and in an IAEA statement said “that the nuclear-related commitments undertaken by Iran are being implemented.”
Israel: A tunnel dug by Islamic Jihad into Israeli territory from the Gaza Strip was destroyed by the Israeli army on Monday, but some are saying Israel did too good a job in the operation, because seven Palestinian militants were killed, including senior commanders of Islamic Jihad (and a Hamas commander), that could spur the group to retaliate.
Islamic Jihad is not a signatory to the reconciliation agreement recently signed by Hamas and the Palestinian Authority, and it has 12,000 fighters and thousands of rockets.
Israel is in the process of building a wall that will block construction of additional tunnels and use sensors to identify existing tunnels or tunnels in the process of being dug, but it needs a year to complete the project.
Russia: David Ignatius / Washington Post, on the exposure of Russia’s attempt to meddle in the 2016 presidential campaign by special counsel Robert Mueller.
“Put aside for the moment what the indictments and plea agreement announced Monday will ultimately mean for Trump’s presidency. Already, Mueller has stripped the cover from Russia’s machinations: Trump’s former foreign policy adviser George Papadopoulos has confessed that he lied to FBI agents about his contacts with individuals connected to Moscow who promised ‘dirt’ on Hillary Clinton; Trump’s former campaign chairman Paul Manafort has been charged with laundering $18 million in payoffs from Russia’s Ukrainian friends.
“Russian meddling is now advertised to the world. This topic will dominate American debate for the next year, at least. In Europe, meanwhile, a similar reaction to Russian influence operations is gaining force. President Vladimir Putin once imagined that Trump would be Russia’s bridge back from isolation. Not anymore.
“Next comes the overtly dangerous part: When covert operations are exposed, nations sometimes adopt more aggressive actions....
“Putin made some comments last week that worry me. Before a meeting of his security council on Oct. 26, Putin announced that he was augmenting cyberwar policies to take into account ‘that the level of threat in the information space is on the rise.’ He proposed ‘additional measures’ to combat adversaries and protect Russia. He argued that Russia was simply protecting its citizens from cybercriminals, but his language was emphatic: ‘It is necessary to be tough as regards those persons and groups that are using the Internet and the information space for criminal purposes.’
“To me, that sounded as if Putin was doubling down on Russia’s bid to shape the ‘information space,’ by whatever means necessary. That was reinforced by his call for a ‘system of international information security,’ in which Russia would seek to impose new rules for the Internet through the United Nations and other pliable international organizations. That’s a threat I noted a week ago, now confirmed explicitly by Putin....
“Here’s the strategic impact of Mueller’s investigation: He is probing efforts by Russia and its foreign allies to manipulate our political system; he is unraveling a covert action. Trump’s protests of ‘witch hunt’ and ‘fake news’ are similar to words used by Moscow-controlled media outlets.”
On a different topic, Russia is hosting the 2018 World Cup, and some of us have been worrying about what a target it will present for terrorists, ISIS among them given Russia’s actions in Syria, for starters.
So this week ISIS photo-shopped a poster of star footballers Lionel Messi and Neymar being executed, both expected to compete at the World Cup next summer.
ISIS also published a photo of an IS fighter and a bomb in front of the Volgograd Arena with the words, “wait for us.”
Afghanistan: The New York Times had a piece on opium production and how it is benefiting the Taliban. Afghanistan “has consistently produced about 85 percent of the world’s opium, despite more than $8 billion spent by the United States alone to fight it over the years.”
And many of the processing labs, heroin refining operations, are under Taliban control, the drug trade making up at least 60 percent of their income, according to Afghan and Western officials, and by most estimates, the Taliban controls at least 50 percent of the country, so imagine the sums coming in for them.
Somalia: The bloodshed in Mogadishu has been staggering of late. About three weeks ago, twin bombings killed more than 350, other attacks another 40 or so after, and then last Sunday, at least another 29 were killed during a hotel siege, this one claimed by Islamist militants al-Shabaab.
Kenya: President Uhuru Kenyatta was declared winner of a controversial re-run of the presidential election. He won 98% of the vote with turnout at just under 39%, as opposition leader, Raila Odinga, pulled out of the re-run and urged his supporters to boycott it.
Kenyatta had been declared the winner in the August vote, but the Supreme Court annulled it because of “irregularities.”
Zimbabwe: I just saw this note from the BBC as I was about to post. “Police in Zimbabwe charged an American woman over a tweet that appeared to insult President Robert Mugabe, her lawyer has said.
“Martha O’Donovan, 25, is accused of referring to Mr. Mugabe as ‘selfish man and sick man,’ a charge she denies.
“She faces charges of insulting the president and plotting to overthrow the government, her lawyer told U.S. media.
“Her arrest appears to be the first of its kind since the country’s cyber ministry was created last month.”
O’Donovan reportedly manages an online satirical video outlet and she was arrested at her Harare residence.
Hell, I’ve called for the guy to be “taken out” a zillion times! He’s a multiple “Dirtball of the Year” recipient. Come and get me, henchmen.
I wish Ms. O’Donovan the very best. She doesn’t deserve this.
But for those of you who love Vladimir Putin and Xi Jinping, this is a fate facing you if you write one foul word in Russia or China these days.
--Presidential approval ratings....
Gallup: 39% approve of President Trump’s job performance / 57% disapprove.
Rasmussen: 43% approve / 55% disapprove...both tracking surveys largely stagnant for weeks now.
--A new Wall Street Journal-NBC News poll finds that President Trump’s approval rating was 38%, down five points from September. 58% disapproved of the job he was doing.
But I’ve been harping on the Independent vote when it comes to such polls and 2018 and 2020, and it has slipped slightly, while his job approval among some core voters is definitely eroding.
For example, his job approval among white women who do not have a four-year college degree stands at 40%, a sharp drop from September’s 50% approval.
Interestingly, Trump drew tepid support for his demand that NFL players stand for the national anthem at games, with 59% disapproving of his handling of the matter, and 30% approving.
As for the midterm elections, 48% say they want to see Democrats control Congress vs. 41% for Republicans, which is actually a narrowing from past surveys.
--A Washington Post-University of Maryland poll revealed that 7 in 10 Americans view the Trump administration as dysfunctional. But 8 in 10 say Congress is.
--There are just two gubernatorial races across the country next week...in Virginia and New Jersey.
In Virginia, Democrat Ralph Northam has seen a lead that once stood at 13 in a Washington Post-Schar School poll shrink to five this week over Republican challenger Ed Gillespie.
--My state of New Jersey has perhaps the worst two candidates running for governor to replace Chris Christie of all time. Democrat Phil Murphy and Republican Kim Guadagno; Murphy leading by 16 points [49-33], according to a Suffolk University/USA Today Network survey.
I mean to tell you....both of them are beyond horrid. We will actually be crying for Christie’s return by July.
Or maybe not...Christie’s approval rating in this same poll is 14 percent...1-4.
[Trump’s approval rating in my state is 31 percent.]
But for my New Jersey readers, please vote for a man I know, Jon Bramnick, currently state assembly minority leader and just a good man....and funny as hell...a legitimate standup comic. Plus he grew up in Plainfield, where I was born.
The only problem is some of us wanted him to run for governor, but I totally understand why he didn’t. He’s too smart. No Republican, post-Bridgegate, had a chance.
Also vote for Senate Minority leader Tom Kean Jr., a good man just like his awesome father, and Summit’s Nancy Munoz for the state assembly.
--Meanwhile, in Gotham, across the Hudson, Mayor Bill de Blasio is going to romp by 30+ points over a pathetically weak field.
This jerk is so freakin’ corrupt, and such an amazing asshole.
Editorial / New York Post
“As The Post reported back in May, at least 67 of the 102 bundlers for the mayor’s 2013 campaign reaped various political rewards from Team de Blasio. And two-thirds of the donors to his Campaign for One New York slush fund were doing city business or seeking city action when they contributed.
“Donors, lobbyists and other assorted power brokers have called the shots in his administration....
“This hypocrite campaigned as the voice of forgotten New Yorkers, only to sell City Hall to the very special interests he’d vowed to fight....
“And other then selling favors, he’s shown little interest in or attention to the job. His record is a litany of policy failures and mistakes. Having appointed tired hacks and arrogant ideologues to run city agencies, he wound up having to can a host of them as scandal and disaster struck.
“Yes, he kept his pledge to deliver universal pre-K. And the NYPD has kept crime at record lows – though he courted doom his first year as his embrace of anti-cop activists yielded the spectacle of hundreds of officers turning their backs to him at police funerals.
“But by his own admission, de Blasio has botched the city’s growing homeless crisis – a problem he long denied even existed, when The Post had proved otherwise....
“All the while, he jets off around the country and the world, trying to raise his political profile.”
--Republicans are losing another leader come the end of the 2018 congressional term, Rep. Jeb Hensarling of Texas, a solid conservative who has been trying to rollback much of the 2010 Dodd-Frank financial overhaul.
Hensarling, 60, said in a statement: “Although service in Congress remains the greatest privilege of my life, I never intended to make it a lifetime commitment, and I have already stayed far longer than I had originally planned.”
--Eric Schmitt / New York Times:
“Two collisions between Navy destroyers and commercial vessels in the Western Pacific earlier this year were ‘avoidable’ and the result of a string of crew and basic navigational errors, the Navy’s top officer said in reports made public on Wednesday.
“Seven sailors were killed in June when the destroyer Fitzgerald collided with a container ship near Japan. The collision in August of the John S. McCain – another destroyer, named after Senator John McCain’s father and grandfather – and an oil tanker while approaching Singapore left 10 sailors dead.
“In the case of the Fitzgerald, the Navy determined in its latest reports that the crew and leadership on board failed to plan for safety, to adhere to sound navigation practices, to carry out basic watch practices, to properly use available navigation tools, and to respond effectively in a crisis.
“ ‘Many of the decisions made that led to this incident were the result of poor judgment and decision making of the commanding officer,’ the report concluded....
“In the case of the John S. McCain, the investigation concluded that the collision resulted from ‘a loss of situational awareness’ while responding to mistakes in the operation of the ship’s steering and propulsion system while in highly trafficked waters..
“ ‘The collisions were avoidable,’ Adm. John Richardson, the chief of naval operations, said in a summary of the two reports.”
As Sen. McCain has been complaining, owing to cuts in the Defense budget there has been a lack of training and the forces, in this case the sailors, have been stretched too thin, working longer shifts than ideal, that sort of thing, and it showed in both of these accidents.
Because of the automatic cuts, known as sequestration, as McCain put it, “We’ve deprived them of the funds to do it. We’re putting those men and women in harm’s way to be wounded or killed because we refuse to give them the sufficient training and equipment and readiness. It’s a failure of Congress. It’s on us.”
We must do better. Heaven help us if China decides in the near future to create some mischief, let alone North Korean suicide attacks against our vessels.
--Dennis Banks died. He was 80. I remember as a kid Banks’ role in a news event that caught the nation’s attention (not the fake “attention” of today so often used by network news anchors), when his American Indian Movement, which he founded in 1968, led a number of protests over the treatment of Native Americans, culminating in the six-day takeover of the Bureau of Indian Affairs in Washington, and then an armed 71-day occupation of the town of Wounded Knee, South Dakota, on the Pine Ridge Reservation. Wounded Knee was the scene of the last major conflict of the American Indian Wars, in which 350 Lakota men, women and children were massacred by U.S. troops in 1890.
But Banks, a Chippewa, along with compatriot Russell Means, an Oglala Sioux, won few real improvements for the Indians living on America’s reservations through their protests. Instead, he glommed onto the celebrity spotlight and was a darling of the activists of those days, like Hollywood’s Jane Fonda and Marlon Brando.
Banks ended up being a fugitive for nine years before he finally gave up and was imprisoned for 14 months.
But it was in 1973, after a white man killed an Indian in a saloon brawl and was charged only with manslaughter, that events spiraled out of control in South Dakota and Banks led 200 American Indian Movement protesters in a face-off with police in Custer, S.D., that turned into a riot, and then Banks and Russell Means led 200 Oglala Lakota and A.I.M. followers with rifles and shotguns, occupying Wounded Knee.
You have to understand that as the 10-week standoff with U.S. marshals then ensued, many Americans, including yours truly, had recently read Dee Brown’s terrific best-selling book “Bury My Heart at Wounded Knee: An Indian History of the American West” that explored the record of massacres and atrocities against Native Americans on the expanding frontier. You felt as if you knew the place when you were seeing it on the news.
So on my first trip to South Dakota after I started StocksandNews, I went to Wounded Knee and longtime readers may recall I thought that was the end of me. Back then, there was just a two-sided billboard commemorating the massacre in 1890, while giving a sense of the brief takeover in 1973. It was on a desolate road, but I had done my research and was prepared for trouble, having left all my money and credit cards back in my hotel in Rapid City...except for $20, that I thought I’d offer anyone who wanted to roll me.
And sure enough, as I’m standing there alone, reading this billboard with the story on it, a car comes tearing up, an Indian from the Pine Ridge Reservation is dropped off, and then the car goes screaming down an embankment, out of sight.
So now it’s just me and, as he called himself, Larry. Larry wanted to be my guide. I said I needed no help, I understood the story, but just wanted to see where it all happened. I was nervous as hell, wondering where his friend had disappeared to. No other cars drove by.
There’s more to the story, but I finally pulled out the $20, handed it to Larry, who was the real deal, and he gave me a trinket and bolted. The car pulled up and whisked him away and my heart didn’t stop pounding for a while...as I got the hell out of the reservation! [Years later I took my brother through parts of it, but didn’t dare take him to Wounded Knee. I have since learned there is more of a formal memorial there (and burial ground) and I assume a little more traffic.
But I also read a Rapid City paper every day online and many of the murders committed in the area are by perpetrators from Pine Ridge. [For those of you who have been through the Badlands, yes, part of the trail you’re going through Pine Ridge but that is not the area where the issues are.]
--The Garden State Parkway had the most fatal crashes of any highway in my state of New Jersey in 2016, as just released by the State Police. What struck my eye was the total was 32 last year, compared with 10 in 2015. And it’s not as if there were a few crashes with multiple fatalities.
So what’s your conclusion? I’m sure it was the same as mine. More and more distracted driving.
And we had a high-profile example right here in Jersey of a figure being caught driving while distracted the other day, New Jersey’s first lady, Mary Pat Christie.
To her credit, as reported by NJ.com, she did not play the “Do you know who I am?” card after being pulled over, dash cam video of the traffic stop shows. She ended up getting a ticket.
What’s ironic is that state Attorney General Christopher Porrino had requested and just received $1.2 million in federal grant money to launch a campaign against texting and other distracted driving that was behind the rise in traffic fatalities. And the officer who issued the ticket was assigned to a grant-funded detail. Mrs. Christie was pulled over for clutching her phone in her hand while driving. The officer had no idea who she was.
--Speaking of smartphones, depressing article in the Nov. 6 issue of TIME by Markham Heid.
“Parents, teenagers and researchers agree that smartphones are having a profound impact on the way adolescents today communicate with one another and spend their free time. And while some experts say it’s too soon to ring alarm bells about smartphones, others argue that we understand enough about young people’s emotional and developmental vulnerabilities to recommend restricting kids’ escalating phone habits....
“Between 2010 and 2016, the number of adolescents who experienced at least one major depressive episode leaped by 60%, according to a nationwide survey conducted by a branch of the Department of Health and Human Services....Suicide deaths among people ages 10 to 19 have also risen sharply; among teenage girls, suicide has reached 40-year highs, according to the Centers for Disease Control and Prevention.”
And then there is lunch hour.
“Colleen Nisbet has been a high school guidance counselor for more than two decades. One of her duties at Connecticut’s Granby Memorial High School is to monitor students during their lunch periods. ‘Lunch was always a very social time when students were interacting and letting out some energy,’ she says. ‘Now they sit with their phones out and barely talk to each other.’”
Now I know none of this is new to you, but it’s depressing. Heck, for me, high school lunch hour, especially in the fall, was about placing football bets with my friends. Everyone with their sheet out....friendly banter...and then squaring up come Monday morning...all in fun...and then it would start all over again.
I can’t imagine what society will be like in just another ten years, let alone 20, but I’ll be long gone by 2037. You’re on your own.
--I’m a big fan of Seth MacFarlane, creator of “Family Guy” among many other things. It was MacFarlane who we all saw made a knowing joke about Slimeball Harvey Weinstein at the 2013 Oscars.
But in reading a column by the great Maureen Callahan in the New York Post, I learned that back in 2005, MacFarlane inserted a joke about Kevin Spacey, the newest Dirtball, in “Family Guy.”
“MacFarlane had Stewie, the baby of the family, run through a public space shouting, ‘Help! I’ve escaped from Kevin Spacey’s basement! Help me!”
But on the broader issue of how Hollywood has been protecting sexual predators, of both persuasions, Maureen Callahan summed it up:
“The next tipping point is one Hollywood may not see coming: Public disgust with those in power who know and do nothing, who knew and still deny knowing. Just ask Matt Damon and George Clooney, who spent all last week denying they knew about Harvey Weinstein (except when they did), only for the public to call out their blatant hypocrisy and reject their new movie ‘Suburbicon,’ which flatlined at the box office. By week’s end, both actors pulled out of their scheduled public appearances. Wonder why.
“The old ways no longer work. The entertainment media, as a single organism, should refuse publicist demands to keep questions about these scandals off the table. And those who know should speak up now, before it’s too late.”
Word tonight is the NYPD is preparing rape charges against Weinstein for a 2010 incident involving an actress.
--The Trump administration released a dire scientific report today on the growing threats of climate change, which is mandated by law, but the White House didn’t seek to prevent its release.
The National Climate Assessment affirms that climate change is driven almost entirely by human action, with the report warning of a potential sea level rise of 8 feet by the year 2100. Top administration officials have been disparaging of the federal scientific establishment’s findings.
I’m on board with the report, though I’ve always said, for over a decade, that the topic should be relabeled “Global Pollution,” to make it more identifiable with the masses.
Those of us in the northeast just went through the warmest October on record. It was lovely. But it’s not normal. [Central Park, warmest on record, 7.2 degrees above normal. Boston 7.4 degrees hotter than normal. Burlington, Vermont, 10.5 degrees! Which has done a number on the fall foliage...as in it sucks. The main culprit here is the lack of cool nights.]
--Lastly, a military judge ruled today that Sgt. Bowe Bergdahl will not serve any prison time for walking off his post in Afghanistan in 2009, a startling decision.
The judge, Col. Jeffrey Nance, sentenced Bergdahl to a reduction in rank to private, a payment of $1,000 per month for 10 months and a dishonorable discharge.
Bergdahl pleaded guilty last month to charges of desertion and misbehavior before the enemy, and he faced a maximum sentence of life in prison. Prosecutors had recommended a sentence of 14 years.
This is a travesty, but his life from here on will be far from easy. I’m guessing by Saturday, he’ll be wishing he was in Leavenworth.
Pray for the men and women of our armed forces...and all the fallen.
Our thoughts and prayers are with the victims of the Manhattan terror attack and their families. It was so sad that five of those killed were high school friends from Argentina, celebrating three decades of friendship in the Big Apple. Life is so precious.
God bless America.
Oil $55.70...highest since July 2015
Returns for the week 10/30-11/3
Dow Jones +0.4% 
S&P 500 +0.3% 
S&P MidCap -0.2%
Russell 2000 -0.9%
Nasdaq +0.9% 
Returns for the period 1/1/17-11/3/17
Dow Jones +19.1%
S&P 500 +15.6%
S&P MidCap +10.6%
Russell 2000 +10.1%
Bears 14.4 [Source: Investors Intelligence...widest positive spread, 49.1, since early 1987, 50.5.]
Dr. Bortrum posted a new column. Great stuff.
Have a good week.