Week in Review

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Week in Review

04/21/2018

For the week 4/16-4/20

[Posted 4:30 AM ET, Saturday]

Note: StocksandNews has significant ongoing costs and your support is greatly appreciated.  Please click on the gofundme link or send a check to PO Box 990, New Providence, NJ 07974.

Edition 993

Thursday afternoon, as I was working on this column, I received a call from Life-Aid. “Your father fell, he reported being dizzy.”  Not exactly the kind of call a son or daughter wants to receive, especially from a disembodied voice.

Understand my father, aka Dr. Bortrum, is 90 and has been in great relative shape, while my mother, 92, is incapacitated, both living in the same house I grew up in, about a ten-minute drive from me.  As I crested the hill I expected to see an ambulance and police car in front of their place and there they were. “You must be the son,” said the officer.

The bottom line is a few days later, Dad is in the hospital with undetermined issues, but clearly headed for rehab, while Mom is at home, with some help.  My brother and I will be spending rather extensive time at each, to say the least.

And needless to say, this has the chance to severely impact my work, at least in the short term.  For starters, this week, I was hopelessly behind when the second half of Thursday and much of Friday was wiped out, and among those catching a break in my failure to cover them are Sean Hannity and Michael Cohen.

For now, as with everything else in life, my guiding dictum of ‘wait 24 hours’ is more key than ever, from the home front to Syria and North Korea.  From a personal standpoint, I don’t know what form this column will take next time.  Wish my family luck, including yours truly, as I figure out how to adjust and still get some sleep.

Trump World

President Trump told then-FBI Director James B. Comey that he had serious concerns about the judgment of his first national security advisor, Michael Flynn, according to 15 pages of documents, memos maintained by Comey, that contain new details about a series of interactions that Comey had with Trump in the weeks before his May 2017 firing.

Those encounters include a White House dinner at which Comey says Trump asked him for loyalty, and a meeting the next month in which Comey says the president asked him to end an investigation of Flynn.

According to one memo, Trump complained about Flynn at a private January 2017 dinner with Comey, saying, “The guy has serious judgment issues.” The president then blamed Flynn for a delay in returning the congratulatory call of an unnamed international leader, Comey wrote.

“I did not comment at any point during this topic and there was no mention or acknowledgement of any FBI interest in or contact with General Flynn,” Comey wrote.

Flynn was fired a month later after White House officials said he had misled them about his Russian contacts during the transition period.  In a separate memo, Comey says Trump cleaned the Oval Office of other officials, and then in a one-on-one meeting encouraged him to let go of the Flynn investigation and called him a “good guy.”

In a Senate hearing last June, Comey told Congress, “I knew there might come a day when I would need a record of what had happened, not just to defend myself, but to defend the FBI and our integrity as an institution and the independence of our investigative function.”

The memos were provided to Congress Thursday as House Republicans escalated criticism of the FBI, threatening to subpoena the documents and questioning officials.

Justice Department officials had allowed some lawmakers to view the memos but had never provided copies to the full Congress.

Special counsel Robert Mueller III is investigating potential cooperation between Trump associates and Russian interference in the 2016 election as well as possible obstruction of justice by the president.

Comey said in an interview Thursday with CNN that he’s “fine” with the Justice Department turning his memos over to Congress.

“I think what folks will see if they get to see the memos is I’ve been consistent since the very beginning, right after my encounters with President Trump, and I’m consistent in the book and tried to be transparent in the book as well,” he said.

Also as part of the memos, Comey recounts conversations with Trump where the president repeatedly raised concern over salacious allegations in the dossier.

Trump, in response to all the above, tweeted: “James Comey Memos just out and show clearly that there was NO COLLUSION and NO OBSTRUCTION. Also, he leaked classified information. WOW! Will the Witch Hunt continue?”

In one memo, Comey recounts a Feb. 8, 2017, meeting with then-White House Chief of Staff Reince Priebus, about two weeks after acting Attorney General Sally Yates had warned the White House that Michael Flynn had lied about his December 2016 conversation with the Russian ambassador to the United States.

Comey wrote in the memo that Priebus asked “if this was a ‘private conversation.’”  Priebus then asked: “Do you have a FISA order on Mike Flynn?” referring to the Foreign Intelligence Surveillance Act.

According to a memo in mid-February, Priebus requested that Comey and other senior FBI officials “publicly knock down media reports about communications between Donald Trump’s associates and Russians known to U.S. intelligence during the 2016 presidential campaign.” They declined to do so.

Of course much of the attention will fall on the salacious parts of the dossier. In a Feb. 8, 2017, memo, Comey recounted how the president denied he consorted with prostitutes in Moscow, as the writer of the dossier had reported, but Trump also claimed that Putin had told him “we have some of the most beautiful hookers in the world.”

If you believe Comey’s account, the problem is that after initially disclosing the allegation, at least twice more in the ensuing weeks, Trump laid out a timeline for Comey and claimed that it showed that any tape of golden showers could not exist, the president clearly being fixated on this.  Trump told Comey at a private dinner at the White House that he had spoken with several people who had been on the Moscow trip in question and said those people “reminded” him that he did not stay overnight in Moscow.

Trump said he had arrived in Moscow in the morning, attended a series of events, then went to a hotel to shower and dress for the pageant, leaving Russia afterward. [Ed. this isn’t accurate according to what his bodyguard previously said.]

I must say, I’d like to say more on this topic myself, and my two trips to Moscow since the start of StocksandNews, but I’ll leave that for another time...if this issues continues to lie out there.

As for the GOP chairmen of the House Judiciary, Intelligence, and Oversight and Government Reform committees – Bob Goodlatte, Devin Nunes and Trey Gowdy – who first requested the memos, they issued a joint statement saying the memos reveal Comey as a petty person with a grudge against Trump.

The memos also “lay bare the notion that former Director Comey is not motivated by animus,” the lawmakers said.  “He was willing to work for someone he deemed morally unsuited for office, capable of lying, requiring of personal loyalty, worthy of impeachment, and sharing the traits of a mob boss. Former Director Comey was willing to overlook all of the aforementioned characteristics in order to keep his job. In his eyes, the real crime was his own firing.”

Then there is the Michael Cohen situation.

Edward Luce / Financial Times

“The U.S. republic is under threat, according to Donald Trump: ‘It is an attack on what we all stand for,’ he warned. America’s president was not referring to Bashar al-Assad’s alleged use of chemical weapons, nor Russian assassinations.  He meant last week’s federal raid on Michael Cohen, his personal lawyer – and keeper of his secrets. American values are equivalent to Mr. Cohen’s legal immunity, according to Mr. Trump. That is how the president’s mind works.

“It is quite different to how a legal brain works.  Investigators now possess ten boxes of Mr. Cohen’s documents and have downloaded the contents of his devices. A judge has upheld their right to break Mr. Trump’s attorney-client privilege, which required a high evidential bar.  In the case of a sitting U.S. president, it is unusually high. Mr. Cohen cleared it with distinction.

“By his own admission, Mr. Cohen ‘would do just about anything’ for Mr. Trump. That involves paying off porn stars with whom the president has allegedly had affairs. It has also included acting as Mr. Trump’s business go-between in Russia and eastern Europe.  He dabbles in valuable New York taxi medallions, too. Mr. Cohen is the Trump family fixer who is also a lawyer. Fans of The Godfather will recognize a coarser version of Tom Hagen.

“There is no mystery why Mr. Trump is so worried. Mr. Cohen joins the growing list of close Trump associates under interrogation. Given his business dealings, he may well join Mike Flynn, Mr. Trump’s first national security adviser, and Rick Gates, a former campaign official, in cutting a deal with the investigators. Either that or risk many years in jail.

“Each time the net tightens, Mr. Trump reaches for the proverbial nuclear button. His target is Rod Rosenstein, the deputy attorney-general, who approved the raid on Mr. Cohen’s office.  Mr. Rosenstein also appointed Robert Mueller as special counsel. The fastest way to fire Mr. Mueller would be to first replace Mr. Rosenstein.  Twice before Mr. Trump has tried to sack the special counsel. In each case he was talked out of it.  Eventually, he is likely to get his way.

“Which brings us back to the attack on the American republic. The danger comes from Mr. Trump. In his newly published memoir, James Comey...talks about the president’s Cosa  Nostra values.  Mr. Comey’s dealing with Mr. Trump reminded him of the New York mafia families that he prosecuted in the 1980s: ‘The silent circle of assent. The boss in complete control.  Loyalty oaths. The us-versus-them world view. The lying about all things, large and small, in service to some code of loyalty.’

“It is this code that has stopped Mr. Trump from staffing his administration. Too many potential officials have signed ‘Never Trump’ letters, or criticized Mr. Trump in public. In Mr. Trump’s world – as in the mafia – disloyalty is the unforgivable sin.  That is why the ranks of his administration keep thinning.

“Mr. Trump has enmeshed most of the Republican party in that code. Senior Republicans no longer dare criticize him. On Monday, Jim Jordan, former chairman of the powerful Republican Freedom Caucus, refused to admit Mr. Trump has ever done anything wrong. Asked repeatedly if he had ever heard Mr. Trump lie, he said: ‘I have not.’

“If things go well for the U.S. republic, such spinelessness will become the epitaph of many politicians. Faced with a choice between loyalty and honesty, Republican leaders have chosen loyalty at any cost. That bill keeps mounting....

“The bigger tests are still to come.  Mr. Mueller has yet to take action on the Democratic email hacking; on the conflicts of interest of Jared Kushner, the president’s son-in-law; and on the Trump campaign’s alleged co-ordination with WikiLeaks.  Each of these poses dangers.  Mr. Mueller is made of sterner stuff than most. According to Mr. Comey, when the special counsel had a knee operation a few years ago, he turned down anesthesia in favor of biting on a leather belt. The U.S. republic will need more such mettle for what lies ahead.”

Trumpets....

--Former New York mayor Rudy Giuliani and two other former federal prosecutors (the team of Jane Serene Raskin and Marty Raskin) joined President Trump’s legal team Thursday

Giuliani said in an interview, “I’m doing it because I hope we can negotiate an end to this for the good of the country and because I have high regard for the president and for Bob Mueller.”

Trump said in a statement that Giuliani “wants to get this matter quickly resolved.”

Trump has been loudly complaining that James Comey, former deputy FBI director Andrew McCabe and Hillary Clinton, among others, should be charged with crimes for misdeeds alleged by Republicans.

Thursday, the Office of the Inspector General at the Dept. of Justice referred its findings on Andrew McCabe to the U.S. attorney in Washington for possible criminal prosecution.

--Trump has also complained that Supreme Court Justice Neil Gorsuch has proved too liberal in recent cases, which is funny given how Gorsuch has been praised at every Trump rally, post-election.

--Trump tweets: “So General Michael Flynn’s life can be totally destroyed while Shadey (sic) James Comey can Leak and Lie and makes lots of money from a third rate book (that should never have been written). Is that really the way life in America is supposed to work? I don’t think so!”

Wall Street

The International Monetary Fund released its latest Global Financial Stability Report and said downside risks to world financial stability have increased “somewhat” over the past six months.  “Financial vulnerabilities, which have accumulated during years of extremely low rates and volatility, could make the road ahead bumpy and could put growth at risk....

“Valuations of risky assets are still stretched, with some late-stage credit cycle dynamics emerging, reminiscent of the pre-crisis period.  This makes markets exposed to a sharp tightening in financial conditions, which could lead to a sudden unwinding of risk premiums and a repricing of risky assets.”

But the IMF is known for worrying, and despite the above, which is actually a mild warning, it is still calling for global growth of 3.9% in 2018 and 2019, the fastest since 2011, and after 3.8% in 2017.

The U.S. is forecast to grow 2.9% in 2018, up 0.2% from its last forecast, and 2.7%  in 2019.

The eurozone is projected to grow 2.4% this year and 2.0% next year.

China is forecast to grow 6.6% in 2018, 6.4% in 2019.

Oil fell Friday, then rallied back, after earlier hitting a four-year high this week, as President Trump criticized OPEC and said crude prices are “artificially Very High.”

The comments came as OPEC and non-OPEC members, including Russia, showed a willingness to further tighten oil markets and boost prices.

“Looks like OPEC is at it again,” Trump tweeted. “Oil prices are artificially Very High! No good and will not be accepted!”

Oil ministers from Saudi Arabia, Russia and the UAE pushed back, saying there’s no such thing as artificial prices and that current market levels reflect geopolitics.  What President Trump seems to be forgetting is that his threat to renew sanctions on Iran by pulling the U.S. out of the Iran Nuclear Accord has the potential to pull supply off the market, which the market in turn is anticipating, as markets are wont to do, and this comes amid rising demand.

I told you the other week, yes, U.S. production is rising, but OPEC has held firm on its cuts, which it wants to keep in place through year end, while production from Venezuela has been plummeting to potentially zero....again, with rising demand above any U.S. (and Canada) production increases.

Plus, to jump ahead, as I also noted, while President Trump likes to tout how tough he is on Russia with all the directed sanctions against oligarchs and their holdings, the president seems to forget that Russia’s budget is based on $40 crude and here we sit at $65+.  Ergo, any impact, aside from perhaps collapsing share prices of the oligarchs’ holdings, at least initially, is muted by the sudden oil largesse.

But back to Iran, all are in agreement that the U.S. decision on whether to impose new sanctions will have a huge impact on the market.

And Trump has to know that the higher price is stimulating U.S. production, which is at 10.5 million barrels a day, up from 9.3 million a year ago, according to government data.  That’s also how the market works. We wouldn’t be over 10 mbd if the price was still $40.

Yes, the president is scared of the economic potential for $3.00 a gallon gas at the pump, across the nation, to disrupt momentum and the impact that might have come November at the polls.  We’ve been there before.

Trump also said in his tweet that there are “record amounts of oil all over the place, including the fully loaded ships at seas.” 

This last bit may have been the situation a while ago, but no longer today as the government said U.S. oil inventories fell below their five-year average for the first time since 2014.  We are sopping up the excess.  That said, global inventories are still higher than before the downturn, Saudi Energy Minister Al-Falih noted at the meeting in Jeddah.

But Global oil demand growth is forecast to reach 2.55 million barrels a day, the strongest year-on-year expansion since 2010.

On the trade front, Japanese Prime Minister Shinzo Abe met with President Trump for a two-day summit at Mar-a-Lago and nothing was settled, with Trump saying at a joint press conference with Abe on Wednesday: “Japan sends us millions and millions of cars, and we tax them virtually not at all. And we don’t send so much product because we have trade barriers and lots of other things.”

Abe has called on the U.S. to join the Trans-Pacific Partnership trade deal, which has already been signed by 11 nations including Japan.  But TPP, which lowers tariffs and other trade barriers, does little on the car front, so Trump is demanding a bilateral deal with Japan. The two sides agreed to engage in two-way talks going forward, while TPP isn’t happening at this point.  None of the signatories want to reopen it for the U.S.

While this was going on, Japan’s auto makers announced they had exported nearly 10% more cars to the U.S. in the first three months of this year.

As the Wall Street Journal reports, Japan’s auto exports to the U.S. have nearly doubled in six years, while the U.S. share of the Japanese car market is less than 1%. Ford Motor Co. pulled out of Japan in 2016, saying it saw “no path to sustained profitability.”

Japanese buyers have the perception American cars are less reliable, and U.S. car companies don’t make the fuel-sipping models popular in Japan, plus it has unique safety standards.

The flip side is Japanese car companies have been building factories in the likes of Kentucky, Ohio, Tennessee and Texas.

Then there is China, whose foreign ministry on Friday warned the United States government about turning the tide in Sino-U.S. relations as an export ban threatened to put ZTE Corp., the country’s largest listed telecommunications equipment maker, out of business.

I have far more on ZTE (and Huawei) below, but for this space, the ministry said, relations between the two countries are now at a crossroad.

“We hope the U.S. doesn’t go against the flow,” spokeswoman Hua Chunying said.  “If the U.S. policy is based on all kinds of possible nonsense, it is extremely irresponsible and extremely dangerous.”

ZTE has vowed to take all available legal steps to challenge a seven-year ban on the export of American-made parts, including semiconductors.  [ZTE’s dependence on advanced U.S. technology, especially semiconductors, is the potential killer.]

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Germany is raising the first signs of alarm that U.S. sanctions against a major aluminum producer will hurt manufacturers outside of Russia.

According to a lobbying group for 655 metals companies, under the sanctions against United Co. Rusal, some European plants could be forced to close and carmakers may face supply shortages, the group said.

“Re-jigging all of those trade flows is really really tough,” said Michael Widmer, a Bank of America Merrill Lynch analyst in London.  “You’ve cut off the U.S. and Europe from its traditional supplier.”

Rusal has large plants in Ireland and Sweden. The plant in Limerick, Ireland, is a central part of the global supply chain. It buys bauxite shipped from Guinea and crushes the ore to make alumina, which is sold to smelters across Europe, that then, for example, supply auto companies like BMW and Daimler AG.

Last week I noted the observations of a friend, and major steel user in his business, Brad K. , on the chaos caused by even the threat of tariffs on the steel and aluminum industries in some countries.

So the next day in Barron’s, Avi Salzman and Daren Fonda had some of the following.

“Aluminum ingots shaped in Quebec smelting plants are shipped to Kentucky factories that roll them into sheets. Some are sent to Mexico, where they are installed in cars that later head through the Americas and to Asia. U.S. semiconductor manufacturing equipment that includes Chinese parts is shipped back to Asia, where manufacturers use them to churn out chips later installed in electronics that allow American teenagers to send selfies across the world.

“This is the way the world works today....

“(The) psychological impact of these tariffs, and threats on both sides to impose many billions of dollars more in tariffs, have already rippled through the global economy and could impact the flow of goods worldwide for years....

“ ‘There has  been optimism that we’re going to get 3% growth this year; tax reform is providing a huge stimulus for the overall economy,’ notes Chad Moutray, chief economist for the National Association of Manufacturers. Now, tariff talk is ‘pushing back against that.’....

“Tariffs are also starting to show up as risk factors in corporate filings from businesses with no direct impact from the current or proposed levies. This past week, the discount retailer Dollar Tree warned investors in a debt offering that it could be hurt by ‘future actions or escalations’ on trade with China: ‘We cannot provide any assurances as to whether such actions will occur or the form that they may take.’ Indeed, a growing number of U.S. companies are cautioning that tariffs are a risk to their businesses....

“Adding to this uncertainty is Trump’s unpredictable decision-making. This past week, he brought up the idea of rejoining the Trans-Pacific Partnership with several Asian countries that he had previously shunned. Then soon after, he was said to be planning to escalate trade pressure on China, according to the Wall Street Journal....

“President Xi Jinping said this past week that he would cut the country’s 25% tariffs on imported cars. That could end up being an olive branch. But it doesn’t eliminate the threat that China’s increasing ambitions in the auto sector pose for U.S. car makers, with or without tariffs.  The Chinese consumer who buys a Ford today will be buying a Chinese brand in 10 years.

“ ‘That’s already almost set in stone,’ says Robert Horrocks, chief investment officer for Matthews Asia.  Horrocks says that China has successfully partnered with U.S. companies and ‘turned their horrible Communist-era cars into something that worked.’”

President Donald Trump / Editorial, USA TODAY

“Tuesday is a day hardworking Americans may dread more than any other. Tax Day. A day that individuals and families, small business owners and part-time workers struggle to conquer a burdensome, complex and extremely unfair tax code to determine how much money they owe the government.

“But we are changing Tax Day for Americans across the country.

“This is the last year Americans will fill out outdated, complicated tax forms. In the years ahead, because I signed one of the largest tax cuts in history and the most sweeping tax reform in a generation, many Americans will complete their taxes on a simple, single sheet of paper.  Remarkably, Congress had to pass this critical legislation without a single Democrat’s vote.

“A typical family of four earning $73,000 a year can expect to see an income tax cut of more than $2,000 when they file their tax return in 2019 – slashing their income tax bill in half. The standard deduction has been nearly doubled, so now twice as much income is earned tax-free.

“I made sure the IRS acted quickly to deliver some of the benefits of this tax cut legislation to Americans.  As a result, Americans began to see bigger paychecks as early as February. And more savings are on the way.

“America’s competitive edge has also been restored. We significantly cut our corporate tax rate from one of the highest in the developed world, which means that American workers and businesses are finally able to win again against foreign competitors. We know that when American workers compete on a level playing field, American workers win.

“We have already created 3 million jobs since the election – including more than 290,000 new jobs in manufacturing and more than 75,000 in mining and logging....

“I want every American to have good jobs, rising paychecks and the opportunity to live a life of meaning, purpose and joy. That is why I insisted that the tax law also create ‘Opportunity Zones’ that target investments in distressed communities. These Opportunity Zones will create more jobs in areas of our country that need them the most and benefit those whom Washington has too often left behind.

“On this Tax Day, America is strong and roaring back. Paychecks are climbing. Tax rates are going down. Businesses are investing in our great country. And most important, the American people are winning.”

Europe and Asia

Eurozone March inflation came in at 1.3% annualized, as reported by Eurostats, which is vs. 1.1% in February, and 1.5% in March 2017.

Germany was 1.5%., France 1.7%, Italy 0.9%, Spain 1.3%, and Greece 0.2% (vs. 1.7% March ’17).

So still no pressure on the European Central Bank to drastically change policy.

Separately, Euro car sales (registrations, as they call them), were up 0.6% in the first quarter, according to the European Automobile Manufacturers’ Association (ACEA); the slowest pace since the second quarter of 2013.  A 5.2% downturn in March (year-over-year), led by drops in Germany, the U.K. and Italy, suggests that “momentum is starting to slow,” the ACEA said.

Sales in the U.K. were down a whopping 16% in March, down 12% for the quarter, with Brexit an ongoing drag.

At least wages in the U.K. rose 2.8% for the three months thru February, inflation 2.7% in February, which is a major improvement.

Brexit: Britain’s upper house of parliament inflicted an embarrassing defeat on Theresa May’s government on Wednesday, challenging her refusal to remain in a customs union with the European Union after Brexit.  The House of Lords voted 348 to 225 in favor of an amendment to her Brexit blueprint, the EU withdrawal bill, which would require ministers to report on what efforts they had made to secure a customs union by the end of October.  Initially, the bill was supposed to pass by ‘only’ 50 votes.

Mrs. May has rejected business demands that Britain stay in the customs union, saying it would prevent the government negotiating trade deals with other countries.

If the House of Commons backs the Lords’ vote, that would create chaos for the prime minister. If she then accepted staying in a customs union it would trigger a revolt by hardline Tories wanting a clean break with the EU.

This is a total mess for Mrs. May. The Commons vote has been delayed until, we’re told, second half of May.

Catalonia: Hundreds of thousands of Catalan separatists rallied in downtown Barcelona on Sunday to demand the release of high-profile secessionist leaders being held in pretrial detention.

But the latest poll published by the Catalan government said that support for independence had decreased to 40% from nearly 49% in October.

Macron / EU: French President Emmanuel Macron, who is coming to American this week for a state dinner at the White House, a high honor, has been very outspoken of late on the future of the European Union and the continent, warning “there seems to be a European civil war” between liberal democracy and rising authoritarianism, witness Hungary’s right-wing leader Viktor Orban and his big recent re-election victory.

Macron urged the EU to renew its commitment to democracy, in a passionate speech to the European Parliament in Strasbourg.

“I don’t want to belong to a generation of sleepwalkers that has forgotten its own past,” he said, recalling how the EU arose after World War Two.

Macron condemned what he called “a fascination with the illiberal” in Europe.

He has long wanted France and Germany to be in the vanguard of ambitious eurozone reforms, including turning the bailout fund – the European Stability Mechanism (ESM) – into a European Monetary Fund, like the IMF.

The idea is that an “EMF” could tackle a country’s debt problems and other financial crises before they spread to the rest of Europe.

But Germany’s Angela Merkel and her Christian Democrats are wary of any scheme that could make richer countries liable for the debts of poorer partners.

Turning to Asia, China reported first-quarter GDP was 6.8%, better than expected  and above the government’s 6.5% forecast for the year, but all the figures, one quarter after another, are within a fraction of each other; as one economist put it, “implausibly stable.”

Retail sales in March were up 10.1% year-over-year, with online retail sales up 35%.

Industrial production grew 6% last month, with fixed-asset investment up 7.5% for Q1.

Street Bytes

--Stocks finished higher on the week as the first earnings reports were largely better than expected, though this coming week the focus is on some of the tech giants, such as Alphabet, Facebook, Amazon and Microsoft.

For the week the Dow Jones rose 0.4% to 24462, though it remains in the red for the year, while the S&P 500 was up 0.5% and Nasdaq 0.6%.

--U.S. Treasury Yields

6-mo. 2.00%  2-yr. 2.46%  10-yr. 2.96%  30-yr. 3.15%

An inverted yield curve is one of the more reliable indicators of a pending slowdown. The last time the curve inverted, early 2006, the Great Recession began shortly thereafter.  Actually, an inverted curve has preceded each recession since at least 1975, but we haven’t inverted yet, sports fans, and there are zero signs of an imminent slowdown.

John Williams, president of the Federal Reserve Bank of San Francisco, said this week that while an inverted yield curve is a “very clear symbol that the economy’s about to go into a recession,” some flattening is typical when the Fed raises rates and he doesn’t anticipate an inversion. As the Fed raises interest rates and shrinks its balance sheet, longer-term interest rates should rise as well.

Separately, Williams said he expects U.S. inflation to rise to the U.S. central bank’s 2% goal this year and stay at or above that goal for “another couple of years.”  But, “I am not as worried by inflation right now as I think there are global factors that are holding inflation down.”

Still, Williams said the Fed needs to keep raising rates to keep the economy from overheating.

--As alluded to above, in a dangerous game of one-upsmanship, the U.S. and China are taking moves to support their own companies and guard against threats to national security.  With the Trump administration accusing China of stealing American intellectual property, China has responded.

The latest American moves against China’s Huawei and ZTE no doubt guarantee that the likes of Apple and Qualcomm will be caught in the crosshairs, with your editor for years warning Apple shareholders that this is going to be the case down the road, and that day is close to arriving.  Apple sold $46.5 billion worth of iPhones and other products in mainland China, Taiwan and Hong Kong last year.

For now, it is said because President Xi wants to keep his people happy, he hasn’t dropped the hammer down on Apple, wealthy Chinese still preferring iPhones.

But Beijing is not going to sit idly by.  It will get ugly before it gets better.  Plus Beijing is already stealing core computer code from American companies operating in China, and it could walk back recent commitments to open up financial services to American companies.

This week ZTE was sanctioned and because its smartphones run on American microchips and software, it could be forced to redesign its product line.

Google supplies the Android operating system in ZTE’s phones, and now ZTE may not be able to license the software, according to Reuters.

Tuesday, the Federal Communications Commission voted unanimously to move forward with a plan that would prevent federally subsidized telecommunications carriers from using suppliers deemed to pose a risk to American national security; a move that took direct aim at Huawei, which makes telecom equipment (think Cisco) as well as smartphones, and its main rival, ZTE.

A day earlier, ZTE had been barred from using components made in the U.S., largely because of false statements made during an investigation into its illegal sale of goods to Iran and North Korea.  A year earlier, ZTE pleaded guilty to unlawful exports and was hit with $1.2 billion in fines, the largest criminal penalty in U.S. history in an export control case.

--Goldman Sachs  reported sharply higher profit, up 26% from a year ago, with gains coming from nearly every one of the firm’s businesses, but shares fell when Goldman said it wouldn’t be buying back stock in the second quarter, opting to plow its capital back into the business, and supporting new initiatives, many of which won’t be profitable for years.

Goldman has spent more than $500 million on its new retail bank, making Silicon Valley acquisitions.

Trading revenue rose 31% to its highest level in three years, while the fixed-income division, which stumbled badly in 2017, saw revenues up 23% in the first quarter; stock-trading revenue rising 38% amid the market volatility.

--Bank of America reported a 34% rise in first-quarter profit on Monday, topping Wall Street estimates, with revenue rising at three of BofA’s four major businesses.

In consumer banking, revenue increased 9% as higher interest rates helped BofA charge more for loans while keeping deposit rates low.  Lower tax rates also helped.

Equities trading revenues were up 38%, but fixed-income, commodities and currencies fell 13%.

--Morgan Stanley reported record quarterly profit of $2.6 billion, with revenues of $11.1 billion, both record highs.  Morgan Stanley’s traders had their best quarter since 2009, riding the volatility a la Goldman and JPMorgan Chase.

The bank’s stock-trading business was up 27% in the quarter, while fixed-income revenue was up 9% to $1.8 billion, its best quarter in three years.  Wealth-management revenues rose 8%.

With all the big banks having now reported first-quarter results, we know combined profits rose 24% from a year ago, with an 18% rise in revenues.  Return on equity, a key metric of profitability, rose to its highest level in years, much of this owing to lower taxes, with the banks saving $2.8 billion in the quarter according to the Wall Street Journal.

But the shares in the Big Six were all down since they began reporting last Friday.

--Wells Fargo & Co. was hit with another fine, this one for $1 billion, for abuses that harmed mortgage and auto loan borrowers, and for what regulators said was a pervasive and “reckless” lack of risk management.

The penalty, announced by the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau, is the largest levied against a financial firm since President Trump took office, and it also dwarfs the $185 million Wells Fargo agreed to pay to federal regulators and the Los Angeles city attorney’s office in 2016 over the creation of accounts without customers’ authorization.

Some are saying that with this new penalty, it is more than piling on...just not necessary.  I think by now Wells has gotten the point, and it has been acknowledging other illegal or improper practices in its consumer lines of business.

--Shares in Netflix Inc. soared after reporting another quarter of blockbuster subscriber growth that exceed its own forecast, with the service now reaching 125 million people globally.  The stock jumped 9%.

The video-streaming giant added 7.41 million subscribers in the first quarter, including 5.46 million internationally, about one million more overall than analysts expected

CEO Reed Hastings sought to distance the subscription-supported company from other tech giants.  “We’re very different from the ad-supported businesses and we’ve always been very big on protecting all of our members’ viewing. I think we’re substantially inoculated from the other issues that are happening in the industry.”

Hastings said Netflix will spend more than $10 billion on content and marketing this year versus $1.3 billion on technology.  The CEO said “we’re much more of a media company in that way than pure tech.”

Netflix’ revenue jumped 40% to $3.7 billion.

--Shares in IBM had their worst day in four years after the company reported earnings and a full-year profit forecast that fell short of the Street’s expectations.  Analysts complained the quality of the earnings isn’t strong, with Big Blue’s legacy hardware business continuing to hurt margins, while what IBM calls “strategic imperatives,” which includes cloud computing, has been slowing.  IBM has been shifting its focus to higher-margin businesses such as cloud, cybersecurity and data analytics (Watson) to counter the years-long slowdown in its legacy businesses.

IBM’s revenues grew 5% to $19.07 billion in the quarter with 65% growth in sales from security services. Cloud revenue grew 25%, but net profit fell.  Adjusted profit was better than the Street estimated, but then the full-year forecast was hardly exciting vs. expectations.

But its services business revenue is declining, though it was up 4.5% in the quarter, reversing a declining trajectory in past quarters.

The revenue growth of 5% was at least the second consecutive quarter of revenue gains after nearly six years of declines, perhaps a sign CEO Ginni Rometty’s snails-pace turnaround may be taking hold.

--Amazon announced it now has more than 100 million paid Prime subscribers and will continue to invest to meet “ever-rising” customer expectations.  CEO Jeff Bezos noted the milestone in his annual shareholder letter, published Wednesday.

Bezos said that in 2017, Amazon shipped more than 5 billion items with Prime worldwide and more new members joined Prime than in any previous year.  He added the company will continue to invest aggressively to expand its customer base, brand and infrastructure.

Amazon’s margins have been less than 2% since 2011, but revenue continues to soar, up 31% last year to $178 billion. The company also has a big lead in cloud computing, which is a highly-profitable business.

On the issue of President Trump’s fixation on the U.S.P.S. and Amazon....

Editorial / Washington Post

“President Trump is angry at Amazon for, in his tweeted words, ‘costing the United States Post Office massive amounts of money for being their Delivery Boy.’ Yet in more recent days, Mr. Trump has at least channeled his feelings in what could prove a constructive direction, by ordering a task force to spend 120 days on a ‘thorough evaluation of the operations and finances’ of the U.S. Postal Service, including recommendations for reform.  An examination of the facts would certainly be preferable to more Twitter battles.

“At the top of Mr. Trump’s list of priorities for the task force is a study of package delivery pricing for the Postal Service’s various clients, including Amazon, of which The Post’s owner, Jeffrey P. Bezos, is chief executive and chairman. This is a perfectly legitimate subject for study and not one on which we would offer a view. Reasonable people can disagree about the precise allocation of fixed costs and other arcana that go into negotiating USPS’s deals with largely-scale shippers; and, whether optimally priced or not, package delivery is not the fundamental cause of the Postal Service’s chronic problems.

“Rather, the Postal Service has a basic structural problem: Technology has caused a permanent loss of the USPS’s most profitable line of business, first-class mail, while it sill must pay high and rising legacy costs for retiree and employee health care and pensions.  Products that account for 74 percent of USPS revenue are covered by a statutory price cap.

“When it comes out, Mr. Trump’s task force’s report will land on top of an already towering pile of previous studies confirming the above analysis.  In 2016, financial expert and former senior Treasury Department official James E. Millstein provided the Senate an exhaustive report on the agency’s need for restructuring. A key fact from Mr. Millstein’s report:  In 1995, USPS moved 181 billion pieces of mail, while the Internet transmitted 100 billion emails and text messages; in 2010, the Postal Service moved 172 billion pieces, while the Internet transmitted 216 trillion emails and texts.

“USPS has been keeping itself afloat in recent years by growing the package business and, less entrepreneurially, drawing on a line of credit with the U.S. Treasury and defaulting on a total of roughly $34 billion from 2012 through 2016 in mandatory prepayments to its health insurance fund. Only Congress can provide a more permanent solution.  Yet that has proved elusive, as we have pointed out many times, because none of the ‘stakeholders’ with an interest in the status quo – unions, regulators, shippers, rural communities, bulk mailers – are eager to surrender those aspects of it that benefit them.”

--Johnson & Johnson reported higher-than-expected sales in its latest quarter and boosted its sales outlook for the year despite ongoing pricing pressures for its drugs and medical devices.

J&J said it planned to cut costs in its supply chain by $600 million to $800 million a year by 2022.

At the same time, the company plans to invest $30 billion in capital projects and research-and-development in the U.S. through 2021.   The company cited tax reform as playing a role in an increased budget for same.

Overall, revenue grew 13% to $20.01 billion in the quarter, above expectations, though results were bolstered by foreign exchange rates.

--UnitedHealth Group Inc., the largest U.S. health insurer, posted quarterly profit that beat estimates as it kept medical costs within expectations despite the added demand for services due to a strong flu season; the company raising its 2018 outlook. Earnings rose to $2.84 billion, while total revenue rose 13.3 percent to $55.19 billion.

--General Electric reported a first-quarter loss on Friday, but there were also signs the industrial giant is beginning to stabilize its business.

GE’s big power-generator division continues to struggle, and the financial liabilities linger from the finance arm, GE Capital.

But some of the divisions, including aviation, health care, renewable energy and transportation, delivered solid results; what CEO John Flannery labeled, overall, “a step forward.”

Total revenue in the quarter rose 7 percent to nearly $28.7 billion, ahead of expectations. The shares rose 4% in a down market today.

--It was in early 2017 that Tesla CEO Elon Musk told analysts his goal was “to be the best manufacturer on Earth.”  He’d get there by investing in an army of robots that would resemble an “alien dreadnaught” video game warship.

Speed, he said, “is the ultimate weapon when it comes to innovation or production.”

A year later, Tesla was forced to halt production of its crucial mass-market Model 3 electric sedan at its Fremont, Calif., plant, the second such shutdown in the last two months.

Officially, Tesla said the weeklong shutdown was “planned downtime” to “improve automation and systematically address bottlenecks in order to increase production rates.”

Auto industry veterans said stopping a production line for a car in commercial production is not just unusual, it’s exceptional.  Some believe Tesla is now out to more closely resemble other auto plants around the world with its retrofits.

Former General Motors vice chairman Bob Lutz, a noted Tesla critic, said, “Periodic shutdowns of hours or a day are not uncommon during pre-launch pilot build. They are unheard of in regular production...This shutdown is most likely for the purpose of ripping out all the ‘22nd century’ fully-automated assembly systems which were going to ‘revolutionize automotive manufacturing’ and turned out not to work,” Lutz said in an email to Bloomberg.

But then a few days later, Tesla said in an eternal email it will begin around-the-clock production as it tries to ramp up Model 3 output to 6,000 cars a week by the end of June.  The company said it would be adding about 400 people per week for several weeks.

Elon Musk appeared on CBS This Morning on Monday, where he admitted Tesla over-automated the Model 3 assembly line.   Musk, in the interview with Gayle King, also conceded, “We got complacent about some of the things we thought were our core technology, we put too much technology into the Model 3 all at once.”

Tesla owner forums are ripe with complaints about dead batteries, body panels that don’t fit right and malfunctions in the input-output screen.  Many customer service calls result in instructions on how to reboot the system.

--Starbucks will close all its company-owned stores in the U.S. during the afternoon of May 29 in order to give racial-bias training to employees, an outgrowth of the incident involving two African-America men at one of its coffee shops in Philadelphia.

The anti-discrimination instruction is “designed to address implicit bias, promote conscious inclusion, prevent discrimination and ensure everyone inside a Starbucks store feels safe and welcome,” according to the company announcement.

CEO Kevin Johnson apologized and met with the two black men who were arrested by police when they didn’t buy anything and asked to use the restrooms. The men were told restrooms were only for paying customers but they explained they were waiting for a friend, who later arrived.  Starbucks didn’t press charges.

At first when I saw the story, I supported the police, as the initial stories didn’t talk about them waiting for a friend.

But this was a classic case of ‘wait 24 hours,’ and I never would have been stupid enough to write an immediate response on social media anyway.

Starbucks is handling this the best they can, and having watched the two young men in an interview Thursday, they should be duly rewarded in many a fashion.

But this is a problem Starbucks faces by its openness.  The few times I’ve been in my local store, yes, it’s clear people are just hanging out, sopping up the free Wi-Fi, while paying customers can’t find a place to sit during peak hours. No one likes that.

It’s also a huge problem in places like New York, where a neighborhood bar or restaurant can’t possibly just allow anyone walking in off the street to use the bathrooms, without some pushback, or you’d have real lowlifes in their all the time.

Finally, Philadelphia Police Commissioner Richard Ross apologized to the two black men.

“I failed miserably,” he said during a press conference Thursday. “I exacerbated the situation with my messaging, it’s as simple as that.”

But Ross continued to defend the officers, saying, “I should have said the officers acted within the scope of the law, and not that they didn’t do anything wrong. Words are very important.”

Ross said he was not aware of the mega-chain’s policy, noting the officers did not know patrons often sit in Starbucks for hours on end.

The manager at the Philadelphia location no longer works there.

--Shares in Philip Morris had their worst day Thursday since 2008, down 16%, after the company behind Marlboro reported disappointing revenues as growth in its heated tobacco devices (HeatStick) slowed and cigarette demand continued to decline.

The share performance was surprising in light of the fact that Philip Morris said shipments of heated tobacco units, which the company has been betting on for growth, more than doubled from a year ago but they were down from the December quarter, while cigarette shipments fell 5.3 percent in the first quarter from a year ago.  Combined shipments of the two fell 2.3 percent year-on-year.

--Martin Sorrell quit as the head of the world’s largest advertising agency, WPP, 33 years after he founded it due to an investigation into personal misconduct.  WPP stunned the industry last week when it said it had appointed lawyers to investigate alleged misconduct by Sorrell, who turned a two-man outfit into the world’s biggest advertising group with 200,000 employees.

The 73-year-old denied any misconduct “unreservedly” but in a letter to WPP staff published over the weekend, he said the “current disruption” was “putting too much unnecessary pressure on the business.”

WPP said the investigation related to a whistleblower’s allegation of misconduct against Sorrell. It’s not known what the allegations involved, but it shows how the dynamic within the company has changed as just a few years ago, Sorrell was untouchable.

Back in 1985, Sorrell bought a stake in a small manufacturing firm Wire and Plastic Products Plc and used it as a public vehicle to buy communications groups around the world.

Within a few years he had sealed a string of takeovers, including acquiring agencies such as J. Walter Thompson and Ogilvy before moving into the cash cow of media planning and buying by creating Group M.  Market-research and public relations firms followed.

Sorrell was omnipresent, often leading the charge to aggressively pitch for business over the heads of marketing.

--We note the passing of long time legendary investor Marty Whitman, founder of Third Avenue Value Fund. He was 93.  Whitman made “safe and cheap” a value-investing mantra during more than two decades managing Third Avenue, creating the fund in 1990 and managing it until early 2012, during which time the fund had an average annual total return of 12 percent, compared with 9 percent for the S&P 500 during that time. In 1990, he was named Morningstar’s mutual fund manager of the year.

But the firm he founded, Third Avenue Management, struggled and the firm’s assets, which reached $26 billion in 2006, sunk to $8 billion at the end of 2015, before the firm shut down its Focused Credit Fund, after which losses and redemptions caused assets to fall to $6.3 billion.

For a May 2015 article, Barron’s asked Whitman what it might take for investors to return to Third Avenue.  “Beats me,” he said.

Foreign Affairs

Syria: The United States, France and Britain retaliated for Bashar Assad’s chlorine gas attack on Douma (eastern Ghouta), hitting three suspected chemical-weapons production facilities with 105 missiles. 

President Trump declared “mission accomplished” for what was clearly a pinprick, having no long-term strategy whatsoever.

Russian President Vladimir Putin denounced the attack in a statement Saturday. “With their actions, the U.S. is deepening a humanitarian catastrophe in Syria,” he said. But there was no immediate military response from Moscow following the strike, which indicated a lack of desire to enter into direct conflict with the West.  There were no civilian casualties and with no Russian troops attacked, the Kremlin saw no reason to act beyond Putin’s words.

U.S. Ambassador to Russia Jon Huntsman said in a statement that Moscow was warned ahead of time of the strike “to reduce the danger of any Russian or civilian casualties.”

Iranian Supreme Leader Ayatollah Ali Khamenei said: “Today’s morning attack on Syria is a crime. I explicitly announce that the U.S. president, French president and the British prime minister are criminals and have committed crime.”

Iranian President Hassan Rouhani said: “U.S. aggression in the region will not have any result but destruction and ruins.”

But the Turkish government, which has clashed repeatedly with the West on Syrian issues in recent months while increasing military coordination with Russia, voiced support for the strikes.

As the week went on, Syria and Russia tried to block inspectors from the Organization for the Prohibition of Chemical Weapons (OPCW) from sending a team to the site of the suspected gas attack that killed at least 43. The delay no doubt allowed the incriminating evidence to be removed, but Syrian “White Helmets,” the rescue organization, apparently pinpointed for inspectors once they were granted access to the places where the victims had been buried, the White Helmets keeping the sites secret to preserve the evidence.

At weeks’ end, Russia warned that there would be consequences for the U.S. attack, spelling out only one of them.  The Kremlin said it may supply its Syrian ally with state-of-the art air defenses.

Israeli analysts and former defense officials say there’s only one likely response from the Jewish state if the S-300 surface-to-air missile systems are delivered to Syria: An immediate attempt to blow them up.  That would certainly create another dangerous moment with the potential to escalate the seven-year civil war into a wider conflict.

Moscow has sold the S-300 systems to Iran, and Syria was on track to receive them too – in 2013, when President Putin froze the contract in response to pleas from Israel. But Putin said at the time that if the U.S. attacked, Moscow would “think how we should act in the future.”

Separately, Saudi Arabia said it would send troops to Syria under the U.S.-led coalition if a decision was taken to widen it.

Meanwhile, U.S. ambassador to the United Nations, Nikki Haley, announced on one of the Sunday news programs that new sanctions against Russia would be announced Monday, only to see the White House pull back in a humiliating move for Haley.  Some administration officials hinted the ambassador had misspoke and was confused, which Haley made clear in no uncertain terms she wasn’t.

“With all due respect, I don’t get confused,” she told Fox News.

Editorial / Wall Street Journal

“The military strike by the U.S., France and the United Kingdom Friday night was a necessary response to what President Trump appropriately called ‘barbarism’ in describing the use of chemical weapons by the Bashar Assad regime in Syria. The question going forward is whether this is another one-time attempt to punish Assad or if it presages a larger strategy to counter the attempt by the Assad-Russia-Iran axis to dominate the middle East.

“ ‘The purpose of our actions tonight is to establish a strong deterrent against the production, spread, and use of chemical weapons. Establishing this deterrent is a vital national security interest of the United States,” President Trump said in a speech to the nation. He’s right, but a one-time strike won’t have the deterrent effect he wants. Assad, and above all his Iranian and Russian patrons, have to know that they will pay a price for supporting Assad’s behavior.”

Separately, another Editorial / WSJ....

“(One) bombing won’t change the fundamentals of the Syrian battlefield, or the strategic reality that the Russia-Iran-Assad axis is winning.  By Sunday Assad had already resumed bombing rebel areas, including civilian homes. To alter those realities, Mr. Trump has to do more than plead with the Russians and Iranians as he did Friday night:

“ ‘To Iran, and to Russia, I ask: What kind of a nation wants to be associated with the mass murder of innocent men, women, and  children?’ The answer is they do.

“And the only way to change their minds is to change their recognition of the costs and benefits of intervention.

“One useful step would be keep the pressure on Russia to fulfill its agreement to eliminate chemical arms from Syria. Russia surely knew about the stockpiles, and the U.S. should demand that the United Nations office in Damascus inspect the chemical attack areas. It should also insist on U.N. access to all areas needing humanitarian aid. If Syria refuses, the U.N. should cease all such aid to the country since most of it now goes to the regime.

“More broadly, Mr. Trump needs a strategy for putting pressure on the Syrian axis and gaining leverage in talks to end the civil war. The best idea we’ve seen would follow the example of President George H.W. Bush after the first Gulf War in 1991.

“The U.S. and its allies established and enforced a no-fly safe zone in northern Iraq that protected the Kurdish areas from attacks by Saddam Hussein. The plan worked for a decade and allowed the Kurds to build the most prosperous, pro-American part of Iraq.”

Well I called for this in Syria in 2012, as many of you know all too well, seeing as I’ve only repeated this fact about 50 times. Turkish President Erdogan was begging President Obama to join him in a no-fly zone in the north that would have largely stopped the war cold in its tracks, the death toll ‘just’ 20,000 at the time.  ISIS was years away.  Ditto Russian involvement.  We would have seen neither, nor would we have had the hordes of refugees...the millions...who then moved to Europe, destabilizing the continent.

Even today the UN is now conceding the death toll could be as high as 700,000...conservatively, the figure is up to 550,000.  Half the country displaced.

But I’m sick of being right on this.  The world should be sick.  I said this war was over...lost...in 2013.  Nailed it.

Jackson Diehl / Washington Post

“The bloody mess that is Syria stands as Exhibit A of what is happening to global order with the retreat of American leadership. The carefully circumscribed strike ordered by President Trump last week will do nothing to change the reality that he, like Barack Obama before him, has left a power vacuum in the heart of the Middle East. The beneficiaries are Russia, Iran, Hezbollah, Turkey and a host of jihadists who will haunt the region – and the West – long after the end of the Islamic State.

“That’s the obvious story. What’s less evident is how far-reaching and consequential the collapse of American-led order has been in the 15 months since Trump took office.  In multiple miserable corners of the world, where U.S. envoys and aid would normally be helping victims, deterring malevolent actors and seeking political solutions, there is a void.”

Jackson Diehl then details the plight of Venezuela, South Sudan, Burma and:

“A final stop is worthwhile, somewhere near Tibet, the Chinese-ruled land that has become a laboratory for high-tech, 21st-century repression. The prime minister of the Tibetan government-in-exile, Lobsang Sangay, was in Washington last week for a singular purpose: to try to persuade the Trump administration to fill the State Department post of special coordinator for Tibetan issues – which, of course, is vacant.

“It might seem like a small bureaucratic function, but as Sangay pointed out, no other government in the world has a Tibet coordinator. This U.S. official, he said, has been vital in getting other countries to attend meetings with his government, in channeling aid and in simply forcing China to address Tibet.  Without the U.S. representative, he said, ‘the Tibet issue is not raised.’  A little-noticed loss, perhaps, but one of many in a world without U.S. leadership.

Israel / Iran: A senior commander of the Iranian Revolutionary Guards threatened Israel with destruction on Friday.  “The finger is on the trigger and the missiles are ready at any given moment that the enemy conducts something against us, and we will launch them,” said Brig. Gen. Hossein Salami before Friday prayers in Tehran.

Speaking of the American presence in Syria, Salami said: “The United States has been defeated in Syria because the Americans did not have a clear strategy and policy, and every action they take makes them look ridiculous, like the operation they did a  few days ago, because they have no strategy.”

Israeli Prime Minister Netanyahu, responding to the threats from Iran, said: “We are certain of our capabilities to protect ourselves with our own power... We will not be deterred by the price, and those who want to kill us will pay the price.  The IDF is ready for its mission, and the people will rise up to it.”

Turkey: President Recep Tayyip Erdogan on Wednesday called an election for June 24 more than a few years early, a move that could help him secure a new term while the nation’s economy is still recording record economic growth.

Obtaining a new mandate would allow Erdogan to take on vastly expanded presidential powers he secured in a constitutional referendum last year and that come into force following an election.

Previously, Erdogan said he had no plans to bring forward the presidential and legislative votes that had been due to be held in November 2019.

North / South Korea...the United States: We learned this week that President Trump’s CIA director, Mike Pompeo, made a secret trip to Pyongyang over Easter to meet with Kim Jong Un to discuss parameters, and potential sites, for the upcoming summit between Kim and President Trump.

According to South Korean media, Trump wants to hold the meeting with only interpreters present. It is still slated for late May or early June.

Sweden and Switzerland now seem to be at the top of the list, but I’ll stay with Mongolia, as was my guess last week.

Meanwhile, North and South Korea installed the first-ever telephone hotline between their leaders Friday as they prepare for their rare summit next week.  South Korea’s presidential office said a successful test call was conducted on the hotline between Seoul’s presidential Blue House and Pyongyang’s powerful State Affairs Commission.

South Korean President Moon Jae-in and Kim Jong Un plan to make their first telephone call before their face-to-face meeting April 27 at the border truce village of Panmunjom.

The meeting between the two will be only the third summit between the rivals since the end of the 1950-53 Korean War.

While South Korean and U.S. officials have said Kim is likely trying to save his broken economy from heavy sanctions, some analysts see him as entering the negotiations from a position of strength after having declared his nuclear force as complete.

Separately, President Moon said that Kim is prepared to accept “complete denuclearization.”  Kim is reportedly also no longer demanding that U.S. troops leave South Korea as a condition for giving up his nuclear arsenal, a key stumbling block in previous negotiations.

Moon told reporters, “North Korea is expressing a commitment to a complete denuclearization, They are not presenting a condition that the U.S. cannot accept, such as the withdrawal of the American troops in South Korea.

“North Korea is only talking about the end of a hostile policy against it and then a security guarantee for the country.”

Wednesday, at a news conference with Japanese Prime Minister Abe, Trump said, “If we don’t think (the summit) is successful, we won’t have it.”

Trump said his administration is “fighting very diligently to get three American citizens back. I think there’s a good chance of doing it; we’re having very good dialogue,” referring to three U.S. citizens of Korean ethnicity currently held captive in the North.

Today, early Saturday, Kim Jong Un announced he had stopped nuclear and missile tests and would close a nuclear test site.

The announcement, reported by North Korea’s state media, appeared to signal a major policy shift ahead of Kim’s meeting with South Korea’s Moon and later President Trump.

In a new policy proposed to a meeting of the Central Committee of his ruling Worker’s Party, Kim said the country required no further nuclear and long-range missile tests because it had already achieved a nuclear deterrent. It was now time to focus on rebuilding the economy, he said.

President Trump tweeted: “North Korea has agreed to suspend all Nuclear Tests and close up a major test site. This is very good news for North Korea and the World – big progress!  Look forward to our Summit.”

Japanese Prime Minister Abe, said that while he welcomed North Korea’s statement as “forward motion,” this must lead to verifiable denuclearization.

Japan’s defense minister said Saturday it was not the time to ease pressure on North Korea.

Eli Lake / Bloomberg

“If you Google ‘Trump,’ ‘Nixon’ and ‘China,’ you will find billions of pixels devoted to comparing the 37th president’s breakthrough with Beijing to the potential summit between Donald Trump and Kim Jong Un.

“The parallel is understandable. It took a committed anti-communist to open relations with Communist China. Perhaps it will take a president who threatened ‘fire and fury’ to open ties to the leader he called ‘little rocket man.’  In 1972 when Mao Zedong hosted President Richard Nixon in Beijing, Communist China suffered severe international isolation in much the way North Korea does today.  Like Mao, Kim espouses a harsh collectivism that imposes misery, famine and death on his people.

 

“All of that said, Trump’s willingness to meet with North Korea’s dictator is not really comparable to the opening of relations between the U.S. and China. The latter was far more important strategically and economically for both countries.  What’s more, the geopolitical conditions that drove China to go to Nixon were entirely different from those today for the grandson of the ‘Great Leader’ in Pyongyang....

 

“Kim is facing a very different set of problems. To start, he presides over a weak country that relies almost exclusively on China for the power and trade that allows his regime to survive. China’s relationship with the Soviet Union during the Nixon years was one of two rival great powers, not a client-state relationship that North Korea has with China.  Where Mao was motivated by an opportunity to cooperate against a common adversary by turning a foe to a friend, no such opportunity exists for Kim.

 

“It’s hard to distill Kim’s motivations for these gestures toward U.S. talks, because North Korea is after all the Hermit Kingdom – with no free media and an opaque regime. But there are two leading theories. The first is that Kim is motivated by fear, the second that he is motivated by confidence.

 

“Michael Auslin, a scholar on contemporary Asia at the Hoover Institution, puts it like this: ‘One theory is that Kim is rattled and scared by the unknown quantity of Trump, and he doesn’t know how far will he go.’  This view is bolstered after the implementation of the U.S.-led ‘maximum pressure’ campaign that has targeted North Korea’s hard currency reserves. The breaking point has not yet come, but perhaps Kim can see it coming in the near future. In this sense, Auslin says, Kim is pursuing a summit with Trump to take the pressure off.

 

“Auslin says the second big theory of Kim’s motivation is all about the nuclear weapons Trump is trying to get Kim to relinquish.  ‘Now that Kim has shown he has a ballistic missile and a nuclear capability, he feels he can negotiate from a position of strength,’ Auslin told me.  This is different from other moments in U.S.-North Korean nuclear diplomacy, Auslin said. In the 1990s, the regime’s nuclear program was still theoretical; it had not yet tested a nuclear device.  In the 2000s, the regime had tested a device but didn’t have reliable intercontinental ballistic missiles to reach the U.S.  Today, the Kim regime has both of those things and only needs to finish work on miniaturizing a warhead to fit on those missiles.

 

“Auslin said it’s possible that Kim believes he can turn a summit that is ostensibly meant to negotiate the terms of his disarmament into a pledge from the U.S. to recognize North Korea as a nuclear-weapons-capable state.

 

“As Trump once said, Kim will keep us in suspense. In the meantime it’s important to understand what the potential summit is and is not. It may present a chance to remove the threat of nuclear missiles aimed at American cities. That’s always a worthy goal.

 

“But there is no chance this summitry will unshackle a great power the way Nixon’s fateful trip to China did in 1972. China remains authoritarian and a danger to its neighbors.  But the opening  and normalization that began nearly 50 years ago has modernized its economy and lifted hundreds of millions of people out of subsistence poverty.  Today China, whether we like it or not, plays an important role in world affairs.

 

“Nothing like that is in the cards for North Korea. After a Trump-Kim summit, North Korea will remain a weak client state. Short of a revolution, its regime will remain a moral stain. And its people will continue to suffer.”

 

China: Chinese aircraft have again flown around self-ruled Taiwan in what China’s air force on Thursday called a “sacred mission,” as Taiwan denounced its big neighbor over what it called a policy of military intimidation.  China has been incense by comments by Taiwan Premier William Lai that it deemed were in support of Taiwan independence.

 

The military movements come during a time of heightened tension between Beijing and the island and follows strong warnings by President Xi against any Taiwan separatism.  Taiwan’s President Tsai Ing-wen said she is committed to peace and maintaining the status quo across the Taiwan Strait.

 

Russia: According to Russian media, citing the Russian Foreign Ministry, President Trump invited President Putin to the United States during a phone call, and said he would be glad to see Putin in the White House.

 

Foreign Minister Sergei Lavrov, according to RIA Novosti, said Trump returned to the subject of an invitation a couple of times during a call last month and that Russia was now expecting Trump to formalize the invitation.  Lavrov added Moscow would like to host Trump in a reciprocal visit after a White House get together.

Separately, a Russian investigative reporter who had written about mercenaries in Syria has died after a mysterious fall from his balcony.

Maxim Borodin died after falling from his fifth floor apartment in Yekaterinburg, the 32-year-old never regaining consciousness after the fall and dying three days later.

Borodin had recently published information about mercenaries from the region being among those killed in Syria during a U.S. airstrike.  CIA Director Mike Pompeo said the strike left “a couple hundred” dead.

Russia has not given a death toll but confirmed some of its citizens had been killed. They were believed to be working for the Wagner Group, which is linked to a Kremlin-connected businessman, Yevgeny Prigozhin, who has been accused by American prosecutors of running a troll farm to influence the U.S. election.

Cuba: Cuban lawmakers announced on Thursday they had elected the sole candidate, Miguel Diaz-Canel, to replace Raul Castro as president.  Whoopty-damn-do...this means nothing. Cuba still sucks bigly.

Random Musings

--Presidential tracking polls....

Gallup: 39% approve of Trump’s performance, 55% disapproval [April 15]
Rasmussen: 49% approval, 50% disapproval

A new Washington Post-ABC News poll had Trump with a 40% approval rating, 56% disapproval.  The 40% was up from 36% in January.

--In a new poll by Siena College, actress Cynthia Nixon has shaved New York Gov. Andrew Cuomo’s lead in the race for the Democratic nomination in the state as Cuomo runs for re-election.  Cuomo still leads 58-27, but this is substantially better for Nixon than a mid-March Siena survey.

Nixon picked up a big endorsement from the Working Families Party, a small but influential progressive group.

--Almost 100 million U.S.-operated airline flights, carrying several billion people, had taken off and landed safely in this country over a nine-year span since the last time a passenger died in an accident, the Colgan Air disaster on approach to Buffalo in 2009 that killed all 49 on board.

That was until Tuesday, when an engine on a Southwest Airlines plane exploded mid-air, spewing shrapnel into a window and killing a passenger, who was almost sucked out of the aircraft.

The pilot, Tammie Jo Shults, 56, said she and her crew “were simply doing our jobs” when their LaGuardia-to-Dallas airliner had to make an emergency landing in Philadelphia. 

Shults, in a statement released by Southwest, said: “Our hearts are heavy. On behalf of the entire Crew, we appreciate the outpouring of support from the public and our coworkers as we all reflect on one family’s profound loss.”

Passengers praised Shults and the Crew for their professionalism and bravery.  One, Amanda Bourman, wrote on Instagram, “The pilot, Tammy Jo was so amazing! She landed us safely in Philly.”

After graduating from MidAmerica Nazarene University in Kansas in 1983, Shults signed up with the Navy and became one of its first female fighter pilots, taking the yoke of an F/A-18. She eventually became an instructor.  She is married to a pilot as well.

As reported by Andy Pasztor in the Wall Street Journal, early clues are pointing to the engine cover, with safety experts “asking whether U.S. regulators and engine makers have underestimated the role of the cover in the unlikely event engine parts break loose in flight.

“A single, fast-rotating fan blade inside the engine broke off as the plane was cruising normally, apparently the result of a gradual weakening of the blade metal, the National Transportation Safety Board has said.

“The cabin depressurized suddenly, and the plane snapped into a rapid and steep left turn that would have startled passengers, according to investigators. The pilots quickly got the wings level, but significant vibrations continued for the rest of the flight, investigators said.

“The blade’s failure and the resulting vibrations appear to have damaged the cowling, or the engine’s external cover, according to Alan Diehl, a former NTSB and Pentagon air-crash investigator.  Fragments of the cowling may have ended up penetrating the fuselage and causing some of the worst damage, Mr. Diehl said.  ‘Loss of a single blade inside the engine shouldn’t have such a dramatic impact,’ he said, referring to the separation of nearly the entire cowling and a nearby structure that channels air into the jet engine.”

Investigators found remnants of the cowling on the ground, including a large piece roughly 65 miles from where the plane touched down.

But the many passenger videos of the flight show an appalling lack of knowledge on the simple issue of putting the oxygen mask over both the mouth and nose, with many just covering their mouth.  All of the preflight safety demonstrations, for decades, were for naught. 

--Federal authorities are urging people who bought chopped romaine lettuce in the United States to throw it away because it could contain E. coli, with a nationwide outbreak linked to romaine lettuce from Yuma, Ariz., 53 cases in 16 states through Wednesday.

Pennsylvania has seen 12 cases, followed by Idaho with 10.

People get sick within two to eight days of swallowing the germ, which causes diarrhea, stomach cramps and vomiting.  Although most recover in one week, it could lead to kidney failure.

--Poor Puerto Rico.  The island suffered another massive power outage this week, nearly seven months after Hurricane Maria destroyed much of the island’s infrastructure and power grid.

An excavator operated by a contractor to power authority Prepa caused the blackout; the largest disruption to hit the island’s recovery efforts.

--New York City opened a new front in the war on rats at the city’s public housing developments and the new key to controlling the exploding population is dry-ice.

The dry-ice treatment was recently approved by the Environmental Protection Agency, the process considered more humane and safer than poison, not that I’ve ever personally believed in being humane to rats, including of the human kind.

So how does it work?  The dry-ice is buried inside rat burrows, and as the dry ice evaporates, rats asphyxiate and die.

--What an awful early spring it’s been across a large swath of the country.  From last Friday through Sunday, Minneapolis set a record for the largest April snowstorm ever there, 14.9 inches.  It’s also the snowiest April on record in the Twin Cities.

Green Bay, Wisconsin had the second-largest snowstorm ever, 23.5 inches, all-time, not just April, with a record 35 inches in April.

--This was cool.  A 13-year-old boy and an amateur archaeologist have unearthed a “significant” treasure trove in Germany which may have belonged to the legendary Danish king Harald Bluetooth who brought Christianity to Denmark.

“Rene Schoen and his student were looking for treasure using metal detectors on northern Ruegen island when they chanced upon what they initially thought was a worthless piece of aluminum.

“But upon closer inspection, they realized that it was a shimmering piece of silver, German media reported.

“A dig covering 400 square meters that finally started (last) weekend by the regional archaeology service has since uncovered a trove linked to the Danish king who reigned from around 958 to 986.”

Up to 600 coins were found, with at least 100 dating back to Bluetooth’s era.

One coin dates back to 714.

Bluetooth is credited with unifying Denmark.

Now I had no idea who Bluetooth was, but as reported by Agence France Presse, “Bluetooth’s lasting legacy is found today in smartphones and laptops – the wireless Bluetooth technology is named after him.”

Engineers at Ericsson and Nokia, part of a consortium that came up with the technology, named it after the Danish king.

And now you know...the rest of the story.....

--Finally, we note the passing of former First Lady, and mother of another president, Barbara Bush, 92, who, just as she lived life, left this earth on her own terms, not wanting any extraordinary end of life care.

Known for her bluntness and candor, among her most memorable quotes:

Describing Geraldine Ferraro, her husband’s opponent for vice president in 1984: “I can’t say it, but it rhymes with ‘rich.’”

To the Wellesley College graduating class: “At the end of your life, you will never regret not having passed one more test, not winning one more verdict or not closing one more deal.  You will regret time not spent with a husband, a friend, your children, or a parent.”

Jon Meacham / New York Times

“Mrs. Bush never flinched, appearing at Wellesley and using her commencement address to explore the complexities of life’s choices. There was no single path, she told the graduates; one followed one’s heart and did the best one could. ‘Maybe we should adjust faster, maybe we should adjust slower,’ she said.  ‘But whatever the era, whatever the times, one thing will never change: Fathers and mothers, if you have children – they must come first.  You must read to your children, hug your children, and you must love your children. Your success as a family, our success as a society, depends not on what happens in the White House, but on what happens inside your house.’

“The loudest applause came when she remarked that perhaps there was someone in the audience who would, like her, one day preside over the White House as the president’s spouse.  ‘And I wish him well,’ Mrs. Bush said.

“It was classic Barbara Pierce Bush: politically skillful, balanced – and good for her husband, for she presented herself as at once reasonable and reasonably conservative, which was the essence of Mr. Bush’s own political persona.

“Barbara Bush was the first lady of the Greatest Generation – a woman who came of age at midcentury, endured a world war, built a life in Texas, raised her family, lost a daughter to leukemia, and promoted first her husband’s rise in politics, and then that of her sons. As the wife of one president and the mother of another, she holds a distinction that belongs to only one other American in the history of the Republic, Abigail Adams.

“It’s neither sentimental nor hyperbolic to note that Barbara Bush was the last first lady to preside over an even remotely bipartisan capital. She and her husband were masters of what Franklin D. Roosevelt once referred to as ‘the science of human relationships.’....

“She was tireless in her advocacy for literacy, and in 1989, at a time when AIDS was still shrouded in mystery and misunderstanding, Mrs. Bush visited a home for H.I.V.-infected infants in Washington, and hugged the children there, as well as an infected adult man. It sent a powerful message – one of compassion, of love, of acceptance. Her popularity as first lady was such that, in 1992, some voters sported buttons with a final plea for the World War II generation: ‘Re-Elect Barbara’s Husband.’”

Editorial / Wall Street Journal

“When Barbara Pierce married a dashing World War II pilot who had painted her name on his plane, she likely had no idea the kind of history they would make together. Mrs. George H.W. Bush would stay devoted by his side until Tuesday, when she died....

“Seventy-three years of marriage is itself an achievement few could match.  Mrs. Bush said she would tell her children she married the first man she ever kissed, and never looked back. It wasn’t without her share of heartache. One of her six children, Robin, died of leukemia before her fourth birthday. Mrs. Bush was combing Robin’s hair and holding her hand when she said she ‘saw her spirit go.’

“Over her long and extraordinary life, Mrs. Bush took her own place in American history. She was the wife of the 41st President, and the mother of the 43rd President and two Governors. More than one commentator in 2000 thought that George W. Bush won in part because voters believed they detected some of Barbara Bush’s integrity and steel.  They were not easy times: Both her husband and son would be war Presidents, with the strain, sorrow and unfairness that go with it....

“These days political scientists speak of an America impossibly divided between red and blue.  Barbara Bush was raised in a generation that could never think of America in those terms.  She won and retained the affection of the American people for her unselfish dedication to family and country.”

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

God bless America.

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Gold $1337
Oil $68.26

Returns for the week 4/16-4/20

Dow Jones  +0.4%  [24462]
S&P 500  +0.5%  [2670]
S&P MidCap  +0.9%
Russell 2000  +0.9%
Nasdaq  +0.6%  [7146]

Returns for the period 1/1/18-4/20/18

Dow Jones  -1.0%
S&P 500  -0.1%
S&P MidCap  unch
Russell 2000  +1.9%
Nasdaq  +3.5%

Bulls 43.6
Bears 19.8

This wasn’t a great week for your editor on a number of fronts, including the fact I changed my uniform number from Jack Ham to Chuck Bednarik, if you catch my drift. 

Brian Trumbore

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