Week in Review

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Week in Review

09/22/2018

For the week 9/17-9/21

[Posted 11:30 PM ET, Friday]

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Special thanks to Ken P.

Edition 1,015

Trump World

What a week.  What a day.  Like try the report from Adam Goldman and Michael S. Schmidt of the New York Times posted this afternoon.

“The deputy attorney general, Rod J. Rosenstein, suggested last year that he secretly record President Trump in the White House to expose the chaos consuming the administration, and he discussed recruiting cabinet members to invoke the 25th Amendment to remove Mr. Trump from office for being unfit.

“Mr. Rosenstein made these suggestions in the spring of 2017 when Mr. Trump’s firing of James B. Comey as FBI director plunged the White House into turmoil.  Over the ensuing days, the president divulged classified intelligence to Russians in the Oval Office, and revelations emerged that Mr. Trump had asked Mr. Comey to pledge loyalty and end an investigation into a senior aide....

“Mr. Rosenstein made the remarks about secretly recording Mr. Trump and about the 25th Amendment in meetings and conversations with other Justice Department and FBI officials.   Several people described the episodes, insisting on anonymity to discuss internal deliberations. The people were briefed either on the events themselves or on memos written by FBI officials, including Andrew G. McCabe, then the acting bureau director, that documented Mr. Rosenstein’s actions and comments.

“None of Mr. Rosenstein’s proposals apparently came to fruition. It is not clear how determined he was about seeing them through, though he did tell Mr. McCabe that he might be able to persuade Attorney General Jeff Sessions and John F. Kelly, then the secretary of homeland security and now the White House chief of staff, to mount an effort to invoke the 25th Amendment.”

Rosenstein disputed the story.

“The New York Times’ story is inaccurate and factually incorrect,” he said in a statement.  “I will not further comment on a story based on anonymous sources who are obviously biased against the department and are advancing their own personal agenda. But let me be clear about this: Based on my personal dealings with the president, there is no basis to invoke the 25th Amendment.”

[Rosenstein, under pressure from the White House this evening, issued a stronger statement refuting the Times’ piece, but I don’t have time to plug it in. The president hasn’t tweeted on the topic as yet.]

Then you had this story all week....

Christine Blasey Ford, a university professor from Northern California, came forward Sunday to reveal she was the face behind an anonymous letter, obtained by Sen. Dianne Feinstein (D-Calif.) of the Senate Judiciary Committee, that alleged that Judge Brett Kavanaugh, “stumbling drunk” along with a friend, pinned her to a bed, groped her and tried to remove her clothing at a high school party 36 years ago.

Initially, President Trump offered a level of restraint seldom seen from him, with his comments measured.

“I really want to see her.  I really would want to see what she has to say....If she shows up and makes a credible showing, that’ll be very interesting.”

At first, though, Ford ruled out appearing at a Judiciary Committee hearing scheduled for this Monday to hear her allegations.  But by week’s end she was requesting that she be allowed to testify next Thursday, though she doesn’t want Kavanaugh in the room.  Ford’s attorney, Debra Katz, raised questions about security that staff said would be provided by Capitol Police.

Sen. Chuck Grassley (R-Iowa), the Judiciary Committee’s chairman, had set a 10 a.m. Friday deadline for Ford to agree to testify on Monday.  Then it was moved to 10 p.m. tonight.  No word as of 11:30 p.m. as I go to post, but Ford’s lawyers are asking for one more day to respond.

Ford had started out saying she’ll cooperate with the Senate – but only after the FBI investigates her claims.

Republicans have said they’ve bent over backwards to accommodate the professor, offering her the chance to testify in public, behind closed doors or to Senate investigators at her home in California.

For Judge Kavanaugh’s part, he has vociferously denied Ford’s allegations and said he was ready to appear before the Committee on Monday to answer their questions on the matter.

Trump then tweeted today, Friday:

“Judge Brett Kavanaugh is a fine man, with an impeccable reputation, who is under assault by radical left wing politicians who don’t want to know the answers, they just want to destroy and delay. Facts don’t matter. I go through this with them every single day in D.C.”

“I have no doubt that, if the attack on Dr. Ford was as bad as she says, charges would have been immediately filed with local Law Enforcement Authorities by either her or her loving parents.  I ask that she bring those filings forward so that we can learn date, time, and place!”

“The radical left lawyers want the FBI to get involved NOW.  Why didn’t someone call the FBI 36 years ago?”

Trump, with these three tweets, destroyed any ‘goodwill’ he gained over his restrained behavior earlier in the week.  What a freakin’ idiot!  Maine Republican Sen. Susan Collins, a critical swing vote on the nomination, was livid.

Thursday night, at a campaign rally in Las Vegas, Trump had signaled he was changing his tune, wondering in an interview with Sean Hannity why Ford didn’t “call the FBI 36 years ago” to report his sexual misdeed.  Trump added, “To take a man like this and besmirch...That being said, let her have her say, and let’s see how it all works out.”

As for Sen. Feinstein, the Wall Street Journal opined:

“(Her role) is highly irregular and transparently political. The ranking Democrat on the Judiciary Committee knew about Ms. Ford’s accusations in late July or early August yet kept quiet.  If she took it seriously, she had multiple opportunities to ask Judge Kavanaugh or have committee staff interview the principals.  But in that event the details would have been vetted and Senators would have had time to assess their credibility.

“Instead Ms. Feinstein waited until the day before a committee markup on the nomination to release a statement that she had ‘information’ about the accusation and had sent it to the FBI.  Her statement was a political stunt....

“No one, including Donald Trump, needs to attack Ms. Ford. She believes what she believes. This is not he said-she said. This is a case of an alleged teenage encounter, partially recalled 30 years later without corroboration, and brought forward to ruin Mr. Kavanaugh’s reputation for partisan purposes.

“Letting an accusation that is this old, this unsubstantiated and this procedurally irregular defeat Mr. Kavanaugh would also mean weaponizing every sexual assault allegation no matter the evidence. It will tarnish the #MeToo cause with the smear of partisanship, and it will unleash even greater polarizing furies.”

My own mood on the Ford situation changed daily.  At first, I thought you had to give her a chance to tell her story.  Then when she said she wasn’t appearing before the Judiciary Committee and wanted an FBI investigation first, I was like, ‘The heck with you.  You’ve held this story all this time, just now coming forward, and I’m supposed to not just believe you when you won’t appear before the committee, but convict Kavanaugh in the court of public opinion?  No way.’

Then today, we heard she was appearing before Congress next week, though with all kinds of demands, but the deadline for her to respond to Chairman Grassley kept being extended and here’s my bottom line...Ford has lost me.

For his part, Grassley has vowed the Judiciary Committee will vote on her confirmation Monday, if a deal isn’t worked out, which would then set up a full Senate vote later in the week.

This whole week saw one instance after another where my dictum ‘wait 24 hours’ should have been followed by everyone.  It was a week of shifting stories.

But here we were, in a situation where the aftermath of Hurricane Florence was largely lost in the other news of the day, the president actually catching a break in this regard, but in the case of Rod Rosenstein, for now, the president’s supporters have further ammo for their ‘deep state’ narrative.

Trumpets....

--In a new Wall Street Journal/NBC News poll, only 34% support the nomination of Brett Kavanaugh, while 38% oppose.

--President Trump lashed out at Democrats on Thursday over the bipartisan spending bills currently making their way through Congress, and demanded that Republicans do more to ensure greater funding for border security, particularly for his proposed border wall with Mexico.

“I want to know, where is the money for Border Security and the WALL in this ridiculous Spending Bill, and where will it come from after the Midterms? Dems are obstructing Law Enforcement and Border Security,” he said in a tweet on Thursday morning.

The appropriations package, which would boost spending for the next fiscal year for the Defense Department, medical research and the opioid crisis, would fund other departments through Dec. 7 to avoid a government shutdown before the midterm elections.

--President Trump, in an Oval Office interview with Hill.TV, launched into one of his most ferocious broadsides against Attorney General Jeff Sessions, suggesting the AG was essentially AWOL and performing badly on a variety of issues.

“I don’t have an attorney general. It’s very sad,” Trump told the Hill.

“I’m not happy at the border, I’m not happy with numerous things, not just this,” he said.

“I’m so sad over Jeff Sessions because he came to me. He was the first senator that endorsed me. And he wanted to be attorney general, and I didn’t see it.

“And then he went through the nominating process and he did very poorly.  I mean, he was mixed up and confused, and people that worked with him for, you know, a long time in the Senate were not nice to him, but he was giving very confusing answers.  Answers that should have been easily answered. And that was a rough time for him.”

Sessions recused himself from the Russian investigation under pressure from congressional Democrats and after some Republicans said he should not take part in overseeing the probe at Justice.

Trump concluded his interview: “We’ll see how it goes with Jeff.  I’m very disappointed in Jeff.  Very disappointed.”

--Investigators for Special Counsel Robert Mueller have spent hours quizzing President Trump’s former lawyer, Michael Cohen, about his one-time client’s dealings with Russia, it was reported Thursday.

Cohen has voluntarily participated in the interviews without receiving any assurances of leniency from Mueller’s team, which is probing the Kremlin’s efforts to interfere in the 2016 presidential elections and ties between Russians and Trump advisers, according to ABC.

He is also cooperating with a separate probe by New York state authorities into allegations surrounding the Trump family charity, which has come under scrutiny after it was accused of using some funds for political and personal purposes.

--The Trump administration announced it was capping refugee admissions next year at 30,000, by far the lowest ceiling since the current program was established in 1980. The total is just over a third of the number admitted in 2016, the last year of the Obama administration.

In announcing the plan, Secretary of State Mike Pompeo said it should not be misread as “the sole barometer of America’s commitment to vulnerable people around the world.”

--Today, Trump tweeted: “I met with the DOJ concerning the declassification of various UNREDACTED documents.  They agreed to release them but stated that so doing may have a perceived negative impact on the Russia probe.   Also, key Allies’ called to ask not to release.  Therefore, the Inspector General...

“...has been asked to review these documents on an expedited basis.  I believe he will move quickly on this (and hopefully other things which he is looking at).  In the end I can always declassify if it proves necessary. Speed is very important to me – and everyone!”

So Trump hit the brakes on his demand that the Justice Department release documents and emails related to the Feds’ investigation into Russian election meddling – citing concerns raised by America’s allies.

Kind of funny, given all the foaming at the mouth at Fox and among the likes of Rep. Devin Nunes.

--More Trump tweets:

“The illegal Mueller Witch Hunt continues in search of a crime. There was never Collusion with Russia, except by the Clinton campaign, so the 17 Angry Democrats are looking at anything they can find. Very unfair and BAD for the country. ALSO, not allowed under the LAW!”

“While my (our) poll numbers are good, with the Economy being the best ever, it if weren’t for the Rigged Russian Witch Hunt, they would be 25 points higher!  Highly conflicted Bob Mueller & the 17 Angry Democrats are using this Phony issue to hurt us in the Midterms.  No Collusion!”

--I am not commenting on Stormy Daniels’ book, which describes in lurid detail all manner of, err, stuff, or junk.

Wall Street and Trade

The Dow Jones and S&P 500 hit closing all-time highs this week, though Nasdaq struggled a bit, as once again the markets shrugged off the growing trade war between the United States and China. The fact is the dollar value of the potential impact of the tariffs is a fraction of 1% of the total U.S. economy.  That doesn’t mean there won’t be pain in some industries and sectors, there already is, but it’s just not that big a deal...yet.  The geopolitical impact, on the other hand, is a big story, a most underreported one, but I’ll touch on that below.

In terms of the week’s economic data, August housing starts came in better than expected, but existing home sales for the month were less than forecast and continued their putrid trend, a sixth straight month of declines, which is worrisome.  So we have an auto sector that has been struggling a bit, and housing is, and these are two key components of the overall economy so some cause for concern should these trends continue.

Speaking of trade, President Trump imposed tariffs of 10 percent on $200 billion worth of Chinese goods such as shampoo, dog food, appliances, clothing, and accessories; the levies to start next Monday, significantly widening the scope of a trade war.  The tariffs would then increase to 25 percent on January 1.

China then retaliated by adding tariffs ranging from 5 to 25 percent on $60bn of U.S. products.  Trump has threatened that if China responded, the U.S. would “immediately pursue phase three,” which would mean imposing tariffs on another $267bn worth of Chinese products – effectively covering almost all Chinese exports to the U.S.

The American Chamber of Commerce in China said about half of U.S. firms in China are worried about a “strong negative impact” on their operations from an escalated trade war, and that “no one will emerge victorious from this counterproductive cycle.”

William Zarit, the chairman of the Chamber in China, said in a statement: “This will not result in bringing more business back to American soil: just 6 percent of our member companies say this current U.S.-China trade dispute would make them consider relocating operations back home.”

China is likely to cancel its tentative plans to send Xi Jinping’s top economic adviser to Washington after Donald Trump announced new tariffs.  One precondition for the talks was that the Americans would show sufficient goodwill but President Trump’s decision to escalate the trade war by slapping 10 percent tariffs on almost half of all Chinese exports may have scuppered the talks, although at week’s end, a final decision has yet to be made.

Walmart warned that it may raise prices on products if the U.S. government slaps additional tariffs on imported goods from China.  But the company, we learned today, sent a letter to U.S. Trade Representative Robert Lighthizer two weeks ago, and it was ignored by the White House.

The company said in the letter: “As the largest retailer in the United States and a major buyer of U.S. manufactured goods, we are very concerned about the impacts these tariffs would have on our business, our customers, our suppliers and the U.S. economy as a whole.”

Earlier, President Trump got in it with Apple, which issued a warning of its own on the tariffs, saying there’s an easy way for the company to avoid them: make its products in the United States. But as the Wall Street Journal’s Greg Ip observed: “If Apple follows his advice, Mr. Trump will have grabbed the least valuable link in the electronics supply chain with little net benefit to Americans, without addressing the real contest in global trade.

“That contest is over the more valuable production steps like research, design and the manufacture of more sophisticated components where the U.S. is dominant but China is closing the gap. Mr. Trump has correctly identified Chinese practices – such as forcing U.S. companies to transfer technology to Chinese competitors – as a threat to that dominance. But an all-out trade war could end up doing more long-run harm than good.

“Apple’s iPhone is one of the most successful consumer products in history, and one of the most globalized. The iPhone 7’s camera is Japanese, its memory chips South Korean, its power management chip British, its wireless circuits Taiwanese, its user-interface processor Dutch and the radio-frequency transceiver American, according to a study of the value added in smartphones by Jason Dedrick of Syracuse University and Kenneth Kraemer of the University of California at Irvine.

“The factory workers who assemble iPhones in China contribute just 1% of the finished product’s value. Apple’s shareholders and employees, who are predominantly American, capture 42%.”

But as Greg Ip also notes, if Apple were to assemble all its phones in the U.S., it would need to find 60,000 qualified workers, and that isn’t easy.  Apple could eventually find the 60,000, but it would be hiring from other companies, having to pay more for them, and “the benefit of the wages they earn would be offset by the higher prices other Americans pay for their phones.”

But it’s really more than 60,000 workers. When new phones are launched, “hundreds of thousands of workers” are added, which is only possible in Asia.

“If they are coming to market late and their products cost more...Apple is going to lose market share,” says Mr. Dedrick.

Meanwhile, for now Apple avoided being on the list of new tariffs.    Many gadgets, such as Fitbit’s fitness tracker, were spared as well.

Trump tweeted days after his trade action: “China has openly stated that they are actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me. What China does not understand is that these people are great patriots and fully understand that....

“...China has been taking advantage of the United States on Trade for many years.  They also know that I am the one that knows how to stop it. There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!”

Editorial / Wall Street Journal.

“More than half of Chinese imports now face punitive taxes, so it’s remarkable that the U.S. still hasn’t spelled out what it wants from Beijing. The lack of a strategy makes it hard to secure meaningful gains and resolve a trade war that is damaging both economies.

“The Administration is on solid ground when it says China’s behavior threatens the global trading system. A study by the U.S. Trade Representative found ‘numerous unfair policies and practices relating to United States technology and intellectual property.’  There is bipartisan U.S. support to address China’s violations of its promises to respect market forces.

“But Mr. Trump also continues to rail against China for its large bilateral trade surplus with the U.S., and this is clearly motivating his escalation of tariffs. The surplus is driven by Chinese comparative advantage in low-end manufacturing and global capital flows to the U.S.  Prioritizing a goal that flies in the face of market forces sends a mixed message to Beijing on what the U.S. wants, and it allows China to pose as the defender of free trade....

“But when the world’s second-largest economy goes rogue, the collateral damage is huge and has undermined political support in the U.S. and the West for free trade.  More ominously, China’s mercantilism is part of  a larger Xi Jinping strategy to establish a new military and commercial hegemony in Asia.

“The U.S. goal now should be to negotiate a deal with Beijing that sets new rules of the trading road.  That agreement should seek to change Chinese practices, not reduce the trade deficit per se. This may require superseding current WTO rules, and that is best accomplished with a united front that includes the world’s other major trading powers.

“Mr. Trump has instead employed a unilateral tariff policy that lets him boast about being tough without a clear goal.  The tariffs will hurt Chinese exporters, though many will move production to other countries.  But tariffs also damage American producers and consumers, as does the $60 billion in new retaliatory tariffs that Beijing announced Tuesday.

“Strong U.S. growth after tax reform and deregulation is so far dwarfing the overall economic harm from tariffs, as Tuesday’s market nonchalance indicates. But the tariffs are doing arbitrary harm to innocent Americans, and a policy of hurting yourself until the other guy changes his behavior is hard to sustain.  Mr. Trump’s political support will erode if he can’t deliver the new trade deals he promises.

“If Mr. Trump wants to change Chinese behavior, he should first finish a new NAFTA, drop his blunderbuss steel tariffs on allies, forget new auto tariffs, negotiate a zero tariff deal with Europe, and re-enter the Trans-Pacific Partnership. Then lead a coalition to confront Xi Jinping from a position of strength with targeted trade enforcement rather than scattershot tariffs. The real worry is that Mr. Trump supports tariffs for their own sake, and he may not want a China deal. With Donald Trump and trade, you never know.”

Thursday, Jack Ma, co-founder of Chinese giant Alibaba Group Holdings Ltd., said that people should make preparations for 20 years of China-U.S. trade frictions.  Ma also walked back his 2017 promise to create 1 million U.S. jobs.

“The commitment is based on friendly China-U.S. cooperation and the rational and objective premise of bilateral trade,” he told China’s Xinhua news agency.  “The current situation has already destroyed the original promise,” Ma said.

Here’s where the expanding trade war between China and the United States is going to hurt us.

I, more than the president himself, have long understood how China has been ripping off the U.S. blind.  I, more than the president, have been personally screwed by the Chinese, despite doing all the proper due diligence.  I, more than the president, understand modern Chinese history.

Trump’s approach in dealing with China will backfire in major geopolitical ways.   I believe in real, diplomatic negotiations...behind closed doors.  I agree with President Trump on how it is time to end China’s theft of our intellectual property, and that they can no longer demand that Corporate America, if it wants to operate in China and go after the Chinese market, must share its IP, and/or data bases.  This is bullshit.

But you don’t poke China in the eye as we have.  Through the Trump administration’s public bullying, we have embarrassed the Chinese, and they will lash out in ways that will in the long term cost us far more.

Do you think China will follow U.S. and/or UN sanctions on North Korea?  Of course not.  China wants revenge, and they’ve already been opening the spigot.  Do you think China will stop militarizing the South China Sea?  No, they will speed up the process.  Do you think China is now seriously considering taking Taiwan, sooner than they have planned?  Of course. 

None of the above has to do with trade.  But China is wounded.  Watch out.

Again, the Trump administration’s stance on China is correct.  The method, the ratcheting up of tensions to a level not seen before on the trade front between the two of us, is wrong.  We will pay a price.  And, of course, I believe we never should have walked away from the Trans-Pacific Partnership (and don’t give me this, ‘well even Hillary didn’t support it’...that was politics, not leadership, post-an election).  As the Wall Street Journal opined above, we need to confront China on a united front, with our allies, not think we can do it alone.  That’s a fools’ game.

Europe and Asia

Before I get to the Brexit disaster, there was a little economic data for the Eurozone (EA19).  The euro area inflation rate for August was 2.0%, down from 2.1% in July.  A year earlier the rate was 1.5%.  But the core rate, ex-food and energy, was 1.3%.  [Eurostat]

The inflation rate in Germany was 1.9%, France 2.6%, Italy 1.6%, and Spain 2.2%.  [In the UK, the inflation rate in August surged to 2.7%, according to the Office for National Statistics.]

IHS Markit issued its flash readings for Eurozone PMI in September and the EA19 composite output index came in at 54.2 vs. 54.5 in August, a 4-month low (50 the dividing line between growth and contraction). The manufacturing PMI was 52.8 vs. 54.7 last month, a 28-month low.  The services reading was 54.7 vs. 54.4.

Germany’s flash manufacturing PMI for this month was 53.7 vs. 55.9 in August, a 25-month low.  Services were at 56.5 vs. 55.0.

France’s flash manufacturing number was 52.5 vs. 53.5 last month, while services fell to 54.3 from 55.4.

IHS Markit Chief Economist Chris Williamson:

“A near stagnation of exports contributed to one of the worst months for the Eurozone economy for almost two years. Trade wars, Brexit, waning global demand (notably in the auto industry), growing risk aversion, destocking and rising political uncertainty both within the Eurozone and further afield all fueled the slowdown in business activity.

“Thankfully, the slowdown was limited to manufacturing.  A buoyant service sector, boosted in part by domestic demand being supported by strong job gains, means the survey data are running at a level indicative of the economy growing by a solid 0.5% in the third quarter.

“However...the risks to future growth appear tilted to the downside.”

Eurobits....

Brexit: Wednesday night, at an informal European Union leaders summit in Salzburg, Austria (the dinner that evening was held at the theater used to film the dramatic escape finale in the film “The Sound of Music”), Prime Minister Theresa May appealed directly to the group to drop “unacceptable” Brexit demands that she said could rip Britain apart, urging the bloc to respond in kind to her “serious and workable” plan.

They listened politely for a few minutes, then said a stalemate on the Irish border was unbroken, and it was downhill from there.

As the summit wrapped up Thursday, European Council President Donald Tusk said Mrs. May’s plan “will not work.”

The two sides are trying to reach a deal in time and want to avoid a hard border – physical infrastructure like cameras or guard posts – between Northern Ireland and the Irish Republic but cannot agree on how.

There is a formal EU summit Oct. 18 and this is the final deadline for at worst an outline acceptable to all sides, with the acknowledgement final details could still be worked out in November, to then give time for all the parliaments to ratify the plan ahead of the March 29, 2019, exit date.

May, in a statement at Downing Street Friday afternoon, said that for EU leaders to reject her plan with no alternative at this “late stage of negotiations” was “not acceptable.”

Progress could not be made without “serious engagement” on future trade relations and the Irish border.

Mrs. May says her plan for the UK and EU to share a “common rulebook” for goods, but not services, is the only credible way to avoid a hard border between Northern Ireland and the Republic of Ireland.

But speaking after talks with the prime minister, Tusk said while there were some “positive elements” in Mrs. May’s proposals, EU leaders had agreed that “the suggested framework for economic co-operation will not work, not least because it is undermining the single market.”

But speaking on Friday, the prime minister said: “Throughout this process I have treated the EU with nothing but respect. The UK expects the same, a good relationship at the end of this process depends on it.

“At this late stage in the negotiations, it is not acceptable to simply reject the other side’s proposals without a detailed explanation and counter proposals.

“So we now need to hear from the EU what the real issues are and what their alternative is so we can discuss them.  Until we do, we cannot make progress.”

Mrs. May said the two sides were still “a long way apart” on two big issues: the post-Brexit economic relationship between the UK and EU, and the “backstop” for the Irish border, if there is a delay in implementing that relationship.

The two options being offered by the EU for the long-term relationship – for the UK to stay in the European Economic Area and customs union or a basic free trade agreement – were not acceptable, she added.

The first would “make a mockery of the referendum” she said, while the second would mean Northern Ireland would be “permanently separated economically from the rest of the UK by a border down the Irish Sea.”

But the prime minister was embarrassed and humiliated on Thursday, and now her ability to maintain control of her government is in doubt.  Mrs. May presented her Chequers plan*, which was agreed to by a bulk of her party at a confab in July, though she has already lost two cabinet ministers over compromises that were part of the proposal, and has endured weeks of attacks from different wings of her party.

But as observers noted Friday, her anger was visible as she vowed not to back down.  Yet there are forces in the EU and her party that are intent on forcing her to do so.  The problem is that these two sides would push her in different directions.

*Under Chequers, Britain would follow EU rules for goods and agricultural products and abide by a raft of labor, state-aid and environmental standards under a future trade deal.  In exchange, the UK wants to be able to sell goods into the EU market without customs and other checks. But it wouldn’t align with the EU on services regulation and it would stop free movement of workers from the EU.

Both the UK and EU have to begin preparing for large-scale disruptions in trade, including long port delays, if a deal can’t be struck.

Earlier, the UK’s Brexit Secretary Dominic Raab said some EU leaders had shown unstatesmanlike behavior in Salzburg.  “We’ve already compromised hugely with the Chequers proposals. We’ve engaged and we want to hear more about what the real critique of it is and we’ve got no other credible alternatives on the table,” Raab told the BBC.  “What we’re not going to do is be salami sliced throughout this negotiation in a typical style that the EU engages in without movement on the other side.”

Interestingly, the bulk of the European press came down in support of the British prime minister, saying she was “ambushed.”

Italy’s conservative daily Il Foglio ran the headline, “Salzburg sadness for May.”  “France gets tougher on the UK with every passing day. Brexit cannot go well because it is a symbol, an embankment for Eurosceptics from other countries.  Macron wants no compromise, even some adjustments, because the EU cannot make last-minute changes.  It’s either inside or outside of the common market, there’s no third way.”

[Macron said Thursday: “Brexit is the choice of the British people, and it’s a choice pushed by some people who predicted easy solutions,” he said.  “It demonstrates that those who say it’s easy to do without Europe, that it will all go well, that it’s easy and everyone will make lots of money, they are liars.”]

“Poor Theresa May, poor United Kingdom,” says Dutch center-left daily Volkskrant.  European leaders “sent her away from Salzburg yesterday, where she had tried meticulously and desperately to gain sympathy for a Brexit that would not throw her population back to the Middle Ages completely.”

France’s Le Nouvel Observateur magazine demands to know: “After the ‘ambush’ against May, which scenarios can help avoid chaos?”

“The 27 have definitively decided to pressure London, but in a carefully staged manner.  They dined without Theresa May to harden their position. Then European Council President Donald Tusk met her to conscientiously demolish her Chequers plan and to ask her to find an Irish border solution before 18 October.  Finally, Emmanuel Macron took out the heavy weapons, accusing Brexiters of having lied to their people.”

Spain’s El Pais, though, said in an editorial, that “Theresa May showed too much arrogance. She miscalculated, as David Cameron did.”

“Mrs. May wanted to flex her foreign muscle to the ultras of the Conservative Party before their annual conference. Big mistake. She misinterpreted German Chancellor Angela Merkel and European Council President Donald Tusk’s good  intentions as support for her plan, rather than a demonstration of diplomatic courtesy.”

Spain’s La Vanguardia observed, “the EU has activated the timer.”  It says: “The futures of the UK...and of Mrs. May are at stake. Her ex-minister Boris Johnson, who is anti-European from head to toe, is already rubbing his hands.”

But now, Prime Minister May faces what will be a tumultuous annual conference of her Conservative Party from Sept. 30.

Meanwhile, Scottish First Minister Nicola Sturgeon called May’s statement “dreadful” and warned that May’s party would pay a high political price if there was “no deal.”  The other day, London Mayor Sadiq Khan added his voice to those including union and business leaders who said there should be a second Brexit referendum.

With all the above, it should be no surprise that a gauge of UK retail investor sentiment fell to its lowest level since 1995, according to research by Hargreaves Lansdown.  Said Laith Khalaf, a senior analyst at Hargreaves, “What investors want is a bit more visibility of life after Brexit, which is sadly lacking at the moment.”

Germany: A compromise to end a row over the fate of Germany’s spy chief exposed a prime fact: the parties in Chancellor Angela Merkel’s right-left coalition can’t stand each other, but none of them can afford to quit.

The coalition leaders sought on Tuesday to end a scandal that had been ongoing for 11 days by agreeing to replace the head of the BfV domestic intelligence agency, who has faced accusations of harboring far-right sympathies.

Their solution – promoting spymaster Hans-Georg Maassen to the Interior Ministry – only inflamed tensions among the rank-and-file of the ruling parties, whose leaders are united by fear more than collective purpose.

What this mess reveals is that Germany faces years of policy drift just as Germany and Europe are crying out for firm leadership.

Polls show both Merkel’s conservative bloc and its junior coalition partner, the center-left Social Democrats (SPD), would lose increasing votes to the far-right Alternative for Germany (AfD) and the ecologist Greens in any new elections.

Merkel, in her fourth and undoubtedly final term, is struggling to secure her legacy, while the SPD struggles to remain relevant to voters.

Meanwhile, Merkel’s conservative partners, the Christian Social Union (CSU), the sister party to Merkel’s Christian Democrats (CDU), is fearful of losing votes to the AfD in Bavaria’s state election on Oct. 14. It has been trying to sound tough on immigration to maintain its base, but it was Merkel’s 2015 decision on refugees that has proved to be the defining moment of her leadership and one that continues to haunt her. The CSU is likely to lose its absolute majority in Bavaria, which will make things even more difficult for Merkel.

Italy: By law, Italy’s government is to come up with a budget by Sept. 27, but the new populist leadership is facing a difficult decision: How to reconcile its expensive election promises with the reality of Italy’s fragile finances.

The coalition, which consists of the antiestablishment 5 Star Movement and the nativist League, wants to slash taxes and raise social benefits to keep its voters happy. But while both parties have pledged to respect EU rules limiting deficits, tensions are rising in Rome about how to do so without abandoning the parties’ promises.

Remember, Italy has a government debt that is equivalent to 132% of gross domestic product, the EU’s highest ratio apart from Greece.  Yet the promises of the League and 5 Star could cost more than $117 billion if implemented in full, according to some economists.

Together, the two parties still enjoy about 60% support in opinion polls.  But investors are demanding a significantly higher yield on Italian government bonds than what you have on supersafe German bonds.  [At Friday’s close, 2.82% vs. the Bund’s 0.46% yield.]

Turning to Asia...China’s Shanghai Composite Index closed at its lowest level since 2014 early this week, but rallied nicely to finish up 4.3% for the five days.

In Japan, Prime Minister Shinzo Abe won a ruling party leadership vote on Thursday, setting him on track to become Japan’s longest-serving premier as he tries to cement his legacy, including by revising the post-war pacifist constitution.

Abe says the central bank’s efforts to achieve its 2 percent inflation target, coupled with government steps to beat deflation, had succeeded in creating more jobs.

“The biggest goal of our macroeconomic policy has been fulfilled as a result of measures taken by the government and the Bank of Japan to achieve 2 percent inflation,” Abe said, signaling he was no longer insisting on hitting the elusive inflation target.  He added that he would strive to pave the way to end deflation during his new three-year term.

But Japan’s huge public debt and rising social welfare costs for a rapidly aging population also leave Abe with little room to ramp up fiscal spending.

Abe’s plan to enact another rise in the sales tax to 10 percent from 8 percent in October 2019 could hit the economy just as Trump’s protectionist policies could hurt Japanese exports.

Meanwhile, Japan’s core consumer prices rose 0.9 percent in August from a year earlier, government data showed on Friday. In Japan the core includes oil products but excludes fresh food prices.  Stripping away both food and energy, the CPI rose 0.4 percent last month from a year ago.

A flash reading on Japan’s manufacturing sector for September came in at 52.9 vs. 52.5 in August.

Street Bytes

--As alluded to above, the Dow Jones finished the week at an all-time high of 26743, up 2.3% on the week, while the S&P 500 advanced 0.8% to 2929, having hit its all-time closing high of 2930 the day before.  Nasdaq, though, has been struggling of late and closed down 0.3% to 7986, 123 points from its all-time mark.

--U.S. Treasury Yields

6-mo. 2.37%  2-yr. 2.80%  10-yr. 3.06%  30-yr. 3.20%

The 10-year yield is at its highest level since May 18.  But now we’re on Fed watch.  Another rate hike comes next week.  Trump is likely to react.

--OPEC and its Russia-led counterparts meet this weekend to discuss whether production increases are needed amid U.S. sanctions on Iran. The price of crude, including at the pump, could be a swing issue in some districts come November’s mid-term elections, and President Trump tweeted his concern this week:

“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices!  We will remember.  The OPEC monopoly must get prices down now!”

An OPEC official told the Wall Street Journal, Mr. Trump “is influencing both supply and demand” in oil markets.  If prices are not to his liking, “I would expect another tweet” while the producers meet in Algiers, the official said.

Separately, Russia’s energy minister warned the country is only three years away from maximizing oil production before costs and taxes drive down the amount that can be extracted.

“We expect about 553 million [metric] tons of oil production in 2018. We will reach a peak of 570 million tons in 2021,” Interfax quoted Energy Minister Alexander Novak as saying Tuesday.

Almost half of current capacity could be lost in less than two decades, Novak warned.

The importance of this, if you believe his figures, is that Russia risks losing $46.2 billion in taxes and $19.4 billion in investments beginning in 2022.

--Tesla Inc. is under investigation by the Justice Department over public statements made by CEO Elon Musk, according to various reports. The criminal probe is running alongside a previously reported civil inquiry by securities regulators.

Federal prosecutors opened a fraud investigation after Musk tweeted last Aug. 7 that he was contemplating taking Tesla private at $420 a share and had “funding secured.”

Tesla previously confirmed it had been contacted by the Justice Department.

Musk has abandoned plans to go private.  Both the criminal and civil inquiries could take months, and the SEC could easily opt not to bring an enforcement action. 

But the criminal probe isn’t good news and Tesla shares fell to $275, although they recovered to finish the week at $299.70, up $4.50 on the week.

Earlier, Musk acknowledged his company has been slow in getting new electric Model 3 cars to waiting customers, calling the problem “delivery logistics hell.”

Customers have been grumbling about the lack of firm delivery dates  and sometimes weeks-long waits to get Model 3 cars they have already paid for.  That sucks.  It’s also been very difficult for these customers to get their questions answered on the delivery process.

Last month, Business Insider reported that Tesla had to rework more than 4,300 of the 5,000 cars it built during that late-June “burst week.”  Tesla told the publication that “rework” can include minor repairs and that “our goal is to produce a perfect car for every customer.”

And late Thursday, another Tesla executive announced he was leaving the company.  Liam O’Connor, vice president of global supply management, resigned.

O’Connor, who joined Tesla in March 2015 from Apple Inc., becomes at least the fifth senior executive to be parting ways with the carmaker within the span of a few weeks.

One more, Tesla’s Model 3 electric sedan has received a five-star overall safety ratings from the National Highway Traffic Safety Administration.

Separately, Elon Musk’s SpaceX venture unveiled the first private passenger it plans to fly around the moon, Japanese billionaire and online fashion tycoon Yusaku Maezawa, 42, who announced: “I choose to go to the Moon.”

He is expected to lift off on the Big Falcon Rocket (BFR) launch system unveiled in 2016.

The mission is currently planned for 2023.  Incredibly, this will mark the first visit to the Moon by humans since NASA’s Apollo 17 landed in 1972.

--Regarding the new tariffs imposed by President Trump on China’s auto parts, this will hit carmaker profits, cut sales and threaten to “start a downward cycle” in the parts industry, analysts agree. Additionally, car prices are headed up.

More than 100 car parts – from tires and brake pads to engines and batteries – will be impacted.

Peter Nagle, an analyst at IHS Markit, said: “It’s going to be felt by Americans, and it’s going to be a big deal. Tariffs are taxes on consumption. Eventually costs will be passed down to the consumer.  This will drive vehicle costs higher. It also includes a lot of body shop equipment.”

--Ferrari announced it plans to add 15 new models, including hybrids, a utility vehicle and special editions in its drive to hit an exacting mid-term earnings target.  The Italian supercar maker shifted its core earnings forecast rage to $2.1-$2.3bn by 2022.

Since going public in 2015, Ferrari had seen its value more than double, but the company has been adjusting to the death of boss Sergio Marchionne and his ambitious plans.  New CEO Louis Camilleri said his team will introduce the new brands, such as hybrids, without sacrificing exclusivity.

Marchionne had orchestrated Ferrari’s spin-off from parent Fiat Chrysler, positioning it as a luxury brand rather than a carmaker, and managed to do what few thought possible...sail through a self-imposed production cap of 7,000 cars a year without sacrificing pricing power or its exclusive appeal.

I love this story. Vrooooom!

--Back to the impact of tariffs, FedEx Corp. executives said fears over the escalating trade fight with China are starting to hurt economic activity between the two countries.  FedEx said the tariffs implemented thus far have hit about 10% of its business in China, where the carrier generates about 2% of overall revenue.  But this could be just a start as to the impact.

FedEx Chairman Fred Smith said: “History is very, very clear that countries that pursue the most open markets are the ones that prosper the most and the ones whose citizens’ income increases the most.  Mercantilism does not work.”

FedEx reported a jump in fiscal first-quarter earnings and revenue due to higher shipping volumes, rate increases and lower tax payments.

But the bottom line suffered from higher bonuses for management and wage increases for hourly workers.

Total revenue rose 11% to $17.1 billion, with FedEx’s Express segment reporting a 5% increase in package volume and 3% increase in revenue per package, while the Ground component reported a 7% rise in package volume.

In gearing up for the holiday season, FedEx said it would add Saturday delivery to its ground delivery unit year-round, after only running six days a week or more during the busiest weeks around the holidays.

Adjusted earnings for the company rose to $933 million, from $683 million a year ago.

Nothing wrong with this story.  All good, though the trade impact bears watching.

--Wells Fargo & Co. announced it planned to cut as many as 26,500 jobs over the next three years as it adjusts to changing consumer behavior and works to recover from a series of scandals that have gripped the bank for several years.

The reductions, 5% to 10% of total employees, will include layoffs as well as attrition.

The bank’s profit and revenue have fallen over recent quarters as a result of its restructuring some of its businesses.  It is also operating under a Federal Reserve imposed asset cap, limiting its growth.

In recent months, Wells has been integrating its corporate and investment bank, which has resulted in ongoing layoffs.  The wealth and investment management units are also being restructured.

--Amazon announced the introduction of more than a dozen devices for its Alexa voice assistant, including a $59.99 microwave, made by AmazonBasics, the company’s house brand, that taps into the Alexa platform.

Other products that Amazon introduced included an Echo Auto that plugs into cars; Fire TV Recast, a DVR recording device that lets users record live TV and watch on a variety of devices; and an analog wall clock with a voice-controlled timer.

--The clash of media titans over the future of London-based pay-TV company Sky will be settled in an auction Saturday.

After years of maneuvering, Rupert Murdoch’s 21st Century Fox and Walt Disney Co. have teamed up to try to beat out Comcast Corp, the cable giant, for Sky, which provides pay-TV service, including soccer matches (Premier League) and other popular entertainment, to nearly 23 million customers in five countries in Europe.

But rather than submitting endless offers and counter-offers, the two bidders have agreed to participate in an auction conducted by British regulators.  There will be three rounds of bidding, which will begin after London’s stock market closes Friday, and the victor will be decided Saturday.

Fox already owns 39% of Sky, so it’s doing the bidding for Disney.  Fox wants to then turn over its stake in Sky – or all of the company should it win the auction – as part of its transfer of Fox assets to Disney.

Comcast jumped into the bidding for Sky in February as part of its efforts to expand its international presence in one fell swoop.

Fox starts out having a current offer for Sky of about $32 billion.  It can raise that figure in the first round of bidding.  Comcast then can counter.  The third, and final, round is for the companies to make their highest offer, according to the Takeover Panel.

Separately, Walt Disney’s Direct-to-Consumer and International segment said Thursday that ESPN+, ESPN’s multi-sport, direct-to-consumer subscription streaming service, surpassed one million paying subscribers in just over five months.

ESPN+ offers a portfolio that includes MLB, NHL, global soccer, boxing, UFC, college football and grand slam tennis, all for $4.99 per month or $49.99 per year.

--Oracle reported revenue rose 1% to $9.19 billion in its most recent quarter, less than expected, as the company scrambles to build out its cloud-computing infrastructure and services to compete with Amazon.com, Microsoft, and Alphabet’s Google and other companies. Earlier this year, Oracle said it would quadruple the number of its largest data centers in a bid to catch up with its competitors.

Executive Chairman Larry Ellison said on a conference call with analysts that while Oracle might be behind Amazon in terms of cloud infrastructure market share, the firm is “way ahead” in terms of cloud-infrastructure technology, which should help it gain market share “very, very rapidly.”

Oracle said its largest segment, now called cloud services and license support, rose 3.2% from a year ago, but revenue from its cloud license and on-premise license segment fell 3%.  The company’s hardware segment and services unit also saw declines, of 4% and 5%, respectively.

Meanwhile, the company announced it had increased its share buyback program by $12 billion, bringing the total available to spend on buybacks to $20 billion.

Oracle shares have lagged others in the S&P information technology sector badly this year.

--Bayer AG unit Monsanto asked a California judge to throw out a $289 million jury verdict awarded to a man who alleged the company’s glyphosate-based weed-killers, including Roundup, gave him cancer. 

A hearing on the motion to set aside the verdict or, reduce the award or grant a new trial, is set for Oct. 10.

This was the first case over allegations that glyphosate caused cancer to go to trial and Monsanto / Bayer is now facing some 8,000 similar lawsuits across the U.S.

Reminder, Bayer bought Monsanto this year for $63 billion, thinking they had a handle on any potential future liability and the company way underestimated the costs.

--General Mills issued upbeat first-quarter earnings that were overshadowed by a drop in sales that was shy of the Street’s estimates.

The maker of Cheerios, Haagen-Dazs and Yoplait, said net sales fell 2 percent in North America.

Earlier this year, the company moved into the fast-growing pet food market with an $8bn acquisition of Blue Buffalo, in an attempt to reshape its portfolio.

Net earnings slipped over a year ago but topped forecasts.  For fiscal 2019, it expects net sales to be flat or up 1 percent.

--From New Jersey’s Star-Ledger (NJ.com): “A nationwide investigation by NJ.com documented 47 cases across 14 states since 2008 in which families claim they took their dog to PetSmart, the nation’s leading pet retailer, for a grooming only to have it die during or shortly after the visit.   PetSmart, which fiercely defends its safety record, has not admitted wrongdoing in any of the cases.

“But the nine-month investigation found such deaths – once portrayed by company officials as ‘entirely separate and unrelated’ anomalies – appear to happen far more frequently than customers and the general public know.  And grieving families want to know why.”

--The series of deadly gas explosions and fires in three communities north of Boston about two weeks ago occurred after too much natural gas was pumped into a section of pipe owned by Columbia Gas, causing the fuel to leak into homes, the National Transportation Safety Board announced on Sunday.

At least 60 fires and explosions traced to gas lines erupted, killing an 18-year-old man and injuring scores.

The NTSB said it believed that gas flowed into homes at “significantly greater” rates and pressure than it was supposed to.

Columbia Gas was in the process of replacing old cast iron pipes with new plastic ones, and NTSB is examining whether construction the company was doing was the culprit.  NTSB Chairman Robert Sumwalt said there was an indication that Columbia Gas was checking pressure on a different line and didn’t understand what was happening on the line that became overpressurized.

--Time, the pre-eminent weekly newsmagazine of the 20th century, has new owners: Marc Benioff, the billionaire co-founder of the software company Salesforce, and his wife, Lynne.

Time’s parent company, Meredith Corporation, announced on Sunday that it had agreed to sell the flagship publication to the Benioffs for $190 million in cash.

So Benioff becomes the latest tech titan to acquire an iconic media brand. Jeff Bezos, founder and CEO of Amazon, bought the Washington Post in 2013, while Laurene Powell Jobs, the widow of Apple co-founder Steve Jobs, agreed to acquire a majority stake in The Atlantic magazine.

Meredith said in a release: “The Benioffs are purchasing Time personally and the transaction is unrelated to Salesforce.com.”

Benioff wrote: “The power of Time has always been in its unique storytelling of the people & issues that affect us all & connect us all.  A treasure trove of our history & culture.”

--Ticketmaster has been accused of colluding with scalpers – and collecting double fees in the process – in a weeks-long investigation published by CBC and the Toronto Star.  The outlets sent two undercover reporters to a live-entertainment conference in July, where representatives pitched them on TradeDesk, the company’s invite-only proprietary platform for reselling tickets.

Ticketmaster enables resellers to purchase tickets in bulk from the site, and then resell them at higher prices, with Ticketmaster getting a fee on both ends, while at the same time raising or dropping prices instantaneously depending on demand.

What’s really bad about this is that Ticketmaster has taken a highly publicized stand against bots and flagrant profiteers in the secondary market, but the CBC/Toronto Star report captures a rep on camera saying that Ticketmaster’s “buyer abuse” team looks the other way when such practices occur on its own platforms.

As Jem Aswad of Variety reports: “The report also accuses the ticketing giant of timing the release of tickets to make it appear that demand is higher than it actually is in an effort to drive fans to the higher-priced options – and then releasing less-expensive tickets later.”

A statement from Ticketmaster noted that it “is a technology platform that helps artists and teams connect with their fans. We do not own the tickets sold on our platform nor do we have any control over ticket pricing – either in the initial sale or the resale....

“As long as there is an imbalance between supply and demand in live event tickets, there will inevitably be a secondary market.”

--HBO and Netflix tied for the most Emmy Awards with 23 each.  Yes, the landscape has been changing at light-speed.

Amazon became the first streaming service to win Outstanding Comedy Series with “The Marvelous Mrs. Maisel.”

HBO’s “Game of Thrones” won Outstanding Drama Series for the third time in four years.

Foreign Affairs

Syria: The Syrian assault on the province of Idlib was put on hold as Russia and Turkey reached a tentative agreement to create a demilitarized buffer zone in Syria’s northwest, a move intended to help avert a fight and likely humanitarian catastrophe, as I’ve described for weeks.

Following a meeting in Sochi, Turkish President Erdogan and Russian President Vladimir Putin said soldiers from the two countries would patrol the last major opposition stronghold –which Assad has been anxious to reconquer – to enforce its demilitarization.

Among the supposed moves to take place, by Oct. 10, all heavy weaponry as well as radical groups would be moved out of the demilitarized zone, which would serve as a buffer between opposition and government forces in Idlib.  The zone, a 10- to 12-mile corridor along the line of contact between rebel and pro-Assad forces, would come into force by Oct. 15.

Putin said after: “Russia and Turkey are working hard to prevent the crisis from spreading.”

But Erdogan said that while radical rebels would be banned from the area, opponents to the Assad regime whom Turkey has backed would be allowed to keep their positions.

So it’s complicated, as has been everything else in this long, tragic war.  Turkey will keep its word, but it’s unlikely Russia will. Just another classic example of ‘wait 24 hours.’  Let’s see where we are in mid-October, while hoping for the best.

Separately, Russia on Tuesday accused Israel of a “hostile provocation” in striking the Syrian port city of Latakia, Bashar Assad’s stronghold (also the site of Russian air and naval bases), and threatened retaliation after Moscow blamed Israel for indirectly causing a Russian military plane with 15 servicemen on board to be shot down near Syria’s Mediterranean coast.

President Putin, though, said Israel did not shoot down the plane deliberately, but that it was the result of a chain of tragic circumstances.

Russia’s defense ministry accused Israeli military planes of creating a “dangerous” situation in Latakia, near where the aircraft was downed by Syrian air defense systems, as it claimed Israel warned Moscow about the planed operation one minute beforehand, adding that it was not enough time to get the plane to safety.

It seems the Israeli F-16 jets carrying out the air strikes used the Russian plane as a cover to allow them to approach their targets on the ground without being hit by Syrian anti-aircraft fire.

An Israeli army spokesperson said in a statement that Israel “expresses sorrow for the death of the aircrew members of the Russian plane that was downed tonight due to Syrian anti-aircraft fire,” but that Israel holds the Assad regime fully responsible for the incident.

“Israel also holds Iran and the Hezbollah terror organization” for the event, said the statement.  “Overnight, Israel Defense Forces fighter jets targeted a facility from which systems to manufacture accurate and lethal weapons were about to be transferred on behalf of Iran to Hezbollah in Lebanon.”

Iran: The United States is seeking to negotiate a treaty with Iran to include Tehran’s ballistic missile program and its regional behavior, the U.S. special envoy for Iran said on Wednesday ahead of U.N. meetings in New York next week.

But Iran has rejected U.S. attempts to hold high-level talks since President Trump tore up the nuclear deal between Tehran and six world powers (P5+1) earlier this year.

Trump will chair a session on Iran during the General Assembly. 

Jonathan S. Tobin / New York Post

“When President Trump withdrew the United States from the Iran nuclear deal back in May, the foreign-policy establishment was unanimous in its opposition.

“Their dismay was rooted in loyalty to Barack Obama’s legacy and personal contempt for Trump. But there was at least one point the critics made that seemed irrefutable, in warning against the re-imposition of U.S. sanctions on Iran’s oil exports.

“Trump’s unilateral move would certainly fail because of the interest of America’s European allies as well as the Russians and Chinese in continuing to do business with Iran. But if by some chance it worked, the experts were sure that would result in a severe hike in oil prices that American consumers would feel at the gas pump.

“But the experts were wrong. Reports in Bloomberg News, echoed by The New York Times, tell us that three months into the new sanctions – and less than two months before the Trump administration plans to implement even more far-reaching restrictions on doing business with Iran that will affect U.S. allies – the move has succeeded in crippling Iran’s oil exports without causing a significant increase in oil prices.

“Iran’s principal source of foreign exchange is drying up, ratcheting up the pressure on an unpopular despotic regime without Americans having to pay appreciably more for gas.

“How is that possible?

“The answer is obvious, and it explains why the Obama negotiating strategy – resulting in an agreement that allowed Iran’s rogue state to keep its nuclear program and its ability to eventually create a bomb, while also enriching it – was so wrongheaded.  In 2013, Obama relented just when sanctions were starting to bite and what followed was a strategic victory for Iran that brought it victory in Syria as well as a cash windfall to the tune of over $100 billion.

“The Obama administration was guided by two critical false assumptions.

“One was that the only way to limit Iran’s nuclear ambitions, ballistic-missile program or role as the world’s leading state sponsor of terrorism was to work in concert with U.S. allies as well as Russia and China.  Obama and former Secretary of State John Kerry were sure that the United States could achieve nothing acting on its own and allowed countries with a greater interest in commerce with Iran than in stopping it to exercise a veto over U.S. policy.

“The other assumption was that Iran was too strong to be brought to its knees even by international sanctions. That meant Obama and Kerry saw the only choices available to the West were either war or appeasement.

“So they punted on any effort to link the nuclear issue to missiles or terrorism and ultimately made concession after concession in the negotiations that wound up giving the Iranians pretty much everything they wanted while the West swallowed a terrible bargain.

“But it turns out that the Iran hawks in Trump’s new foreign-policy team – Secretary of State Mike Pompeo and National Security Advisor John Bolton – understood the situation better than the ‘adults’ who urged the president not to scrap the nuclear deal. Rather than allow weak-willed allies to dictate U.S. policy, Trump realized he could tell the appeasers what to do and make it stick because of the power of the U.S. economy....

“Far from a hopeless quest, the U.S. determination to force Iran to renegotiate the nuclear issue, cease its illegal missile program and desist from terror is a realistic goal.

“Just as important, though Trump didn’t enter the White House with much knowledge of the subject, this vindicates his instincts that the establishment is intellectually bankrupt. For decades it has guided U.S. Middle East policy on both Iran and Israel.

“The success of oil sanctions should not only encourage the United States to push Tehran harder. It’s also one more reason to ignore the so-called experts’ contempt for Trump’s unconventional but clearly spot-on approach to the region.”

North Korea: North Korea has agreed to permanently dismantle engine-testing facilities and missile launch pads in the presence of international inspectors and to move towards the decommissioning of a major nuclear enrichment site.

The announcement followed two days of talks between Kim Jong-un and Moon Jae-in, the South Korean president, who arrived in Pyongyang on Tuesday for a high-stakes summit intended to salvage nuclear diplomacy negotiations between North Korea and the U.S., which have stalled in recent weeks.

Kim also promised to “visit Seoul in the near future,” which would be the first visit by any North Korean leader.

In a joint statement, North Korea expressed its “willingness to continue taking additional steps in accordance with the June 12 North Korea-U.S. Joint Declaration, such as permanent dismantlement of its Yongbyon nuclear facilities.”

The Yongbyon Nuclear Scientific Research Center is a major complex about 100km north of Pyongyang, and its permanent closure would be a significant move, but many experts say North Korea has been shifting production and research to other sites, and in a joint press conference following their talks, President Moon clarified that steps to close the facility would be conditional on reciprocal, unspecified, measures from the U.S., effectively putting the ball in Washington’s court.

The Trump administration wants to see concrete steps on disarmament from Pyongyang, and the North Koreans want security assurances first.

The U.S. has demanded that North Korea disclose a full inventory of its nuclear assets, and the North wants the U.S. to agree to a peace treaty to formally end the 1950-53 Korean War.

Meanwhile, President Trump tweeted: “Kim Jong-un has agreed to allow nuclear inspections, subject to final negotiations, and to permanently dismantle a test site and launch pad in the presence of international experts.

“In the meantime there will be no rocket or nuclear testing. Hero remains to continue being returned home to the United States.  Also, North and South Korea will file a joint bid to host the 2032 Olympics. Very exciting!”

But satellite images and other evidence in recent months have suggested North Korea is continuing to work on its nuclear program clandestinely.

And a confidential new United Nations report, reviewed by the Wall Street Journal, says Pyongyang, often with help from people in Russia and China, has been able to circumvent restrictions, rendering “the latest U.N. sanctions ineffective.”

Citing U.S. intelligence, U.N. investigators found a “massive increase” in fuel shipments to North Korea involving Russian and Chinese ships, as well as numerous examples of coal shipments to China from North Korea.

Editorial / Wall Street Journal

“The good news from Pyongyang is that North Korea’s dictator says he still wants to give up his nuclear weapons. But Kim Jong-un’s summit Wednesday with South Korean President Moon Jae-in, the third this year, brought no significant progress toward that goal, notwithstanding the bonhomie.

“Kim did pledge to dismantle a missile-test range, but he told Donald Trump the same thing in Singapore in June.  This time, though, he will allow international experts to watch. The North Koreans are experts at selling the same horse twice, and it’s disappointing that a minor addition to an already symbolic concession is being hailed as a breakthrough when it was the only concrete result of the summit.

“Some observers are excited that Kim dangled the possibility of dismantling his Yongbyon nuclear facility, which includes a reactor and centrifuges to produce material for warheads. But the North promised to do that during the Bush Administration and reneged.

“And this time there’s a catch: The U.S. must first provide some unspecified benefits.  The North’s demands are likely to include the loosening of United Nations and unilateral sanctions, as well as a formal declaration to end the Korean War. The North has made the same unrealistic demands since June, which is why talks with the U.S. are stalled.

“Most important, Kim didn’t commit to provide the U.S. with an accounting of his nuclear facilities or a timetable for dismantling them. An accounting is the first crucial step because the world can’t monitor denuclearization if it doesn’t know the location of North Korea’s research facilities, bomb storage sites, missile launchers and warhead designers. This was Secretary of State Mike Pompeo’s first request after the Kim-Donald Trump summit in June, but the North has provided nothing.

“President Moon hardly held Kim’s feet to the fire.  He came to Pyongyang with an agenda to integrate the two Koreas economically and brought a delegation of 200 officials and business leaders to show his commitment....

“(But) sanctions would need to be relaxed for (Moon’s) plans to come to fruition, so in effect the agreement is a call to let the North resume trading with the world.  It’s no surprise that Kim won’t give an accounting of his nuclear program when the South is helping him pressure the U.S. to give up its sanctions leverage....

“Wednesday’s summit suggests that South Korea wants to shower Kim with carrots and put away the sticks.  North Korea’s past behavior has shown that this is unlikely to succeed.”

David Ignatius / Washington Post

“After the big bang of the Singapore summit in June, with its showy but vague North Korean commitment to denuclearization, many analysts doubted that the deal had any real substance. But we’re beginning to see the first signs of what a serious accord would look like.

“This week’s North-South summit meeting in Pyongyang produced agreement on some basic essentials of a real denuclearization process.  North Korea agreed to accept internal inspectors to monitor destruction of one of its test sites, a first step toward the broader inspection process that will be essential for any verifiable pact.  North Korea also agreed in principle to dismantle its main nuclear-weapons facility at Yongbyon, though the details are fuzzy and its offer is conditioned on reciprocal U.S. ‘corresponding measures.’  Finally, Secretary of State Mike Pompeo this week floated a timetable (without objection from North Korea) for completion of denuclearization by 2021.  That is aspirational, to put it generously, but it at least provides a baseline for the United States to protest if Pyongyang delays.

“The Trump administration seems willing to offer some version of the desired ‘corresponding measures’ as a confidence-building step that would facilitate the Yongbyon shutdown.  North Korea wants a formal declaration of the end of the state of war, but it’s unclear what precise formula the United States will propose.

“Meanwhile, President Trump continues his mutual flattery with North Korean leader Kim Jong Un.  Trump keeps cheerleading for a deal, tweeting Tuesday that emerging signs of détente between the Koreas is ‘very exciting.’  And Kim said this week that he wants a second meeting with Trump to ratify the moves toward denuclearization.

“This week’s summit between Kim and South Korean President Moon Jae-in also advanced Kim’s fundamental goal of economic modernization.  That’s the significance of the proposed bid for a joint North-South Olympics in 2032.  Managing such a global event would be impossible without a massive upgrade of the North’s infrastructure over the next decade....

“What’s not to like about this week’s Korean diplomacy?  First, there are still far more questions than answers.  Framing this agreement is a bit like assembling a jigsaw puzzle.  You find the strategic edges that define the perimeter, then start inserting the hard-to-fit pieces in the center.  The most difficult pieces are usually saved for last, and negotiators could be left with a big empty space in the middle of this deal.

“A second concern is that the diplomacy is driven by the two Koreas and their reunification ambitions. The spirit of reunification was prominent during the summit, but it is problematic for regional neighbors and for the countries themselves. Will South Korea really bankroll modernization of a country that is anti-democratic and xenophobic, and that has a history of belligerence?

“U.S. military officials and their counterparts in Japan will want to look very carefully at details of the inter-Korean military agreement announced this week. According to South Korea’s Yonhap News Agency, it may include ‘pulling out some border guard posts and setting up air, maritime and ground buffer zones.’  The U.S. military command in Seoul said Thursday it would ‘thoroughly review’ the pact, which indicates that no one had cleared it with them beforehand....

“A commentary last weekend in the state-run Rodong Sinmun newspaper stressed that ‘President Trump...repeatedly expresses his thanks’ for recent progress.

“The Rodong Sinmun piece also included this backhanded statement of North Korea’s expectation that Trump will offer the key concession Pyongyang wants: ‘We have not heard him saying that he will not do a declaration of the end of the war.’ And the commentary offers this obtuse reassurance: ‘Doing what we say we will do and seeing what we have started through to the end is our mettle and temperament.’

“ ‘I worry that in terms of the U.S. political calendar, we are already over the cliff, and that Korea policy is going to be a victim,’ cautions Robert Carlin, a former CIA analyst who has traveled to North Korea more than two dozen times.

“Is the North Korea denuclearization process for real?  Many hard-line U.S. military and national security officials remain skeptical. The outer boundaries of the agreement are becoming clearer. But the middle is a big blur.”

China: The Trump administration imposed sanctions on the Chinese military on Thursday for buying fighter jets and missile systems from Russia, in breach of a sweeping U.S. sanctions law punishing Moscow for meddling in the 2016 U.S. election.

The U.S. State Department said it would immediately impose sanctions on China’s Equipment Development Department (EDD), the branch of the Chinese military responsible for weapons and equipment, and its director, Li Shangfu, for engaging in “significant transactions” with Rosoboronexport, Russia’s main arms exporter.

The sanctions are related to China’s purchase of 10 SU-35 combat aircraft in 2017 and S-400 surface-to-air missile system-related equipment in 2018, the State Department said.

They block the Chinese agency, and Li, from applying for export licenses and participating in the U.S. financial system.

It also adds them to the Treasury Department’s list of specially designated individuals with whom Americans are barred from doing business.

The administration also blacklisted an additional 33 people and entities associated with the Russian military and intelligence, adding them to a list under the 2017 law, known as the Countering America’s Adversaries Through Sanctions Act, or CAATSA.

Doing significant business with anyone on that list can trigger sanctions like those imposed on China.

So China then protested the “unreasonable” decision to slap punitive sanctions on the Chinese military unit.

“The U.S. has seriously violated the basic norms of international relations and disturbed the relationship between China and the U.S.  We strongly call on the U.S. to remedy the mistake and cancel the sanctions.  Otherwise, the U.S. has to bear the consequences,” said foreign ministry spokesman Geng Shuang said on Friday.

Russia: France’s envoy to the United States on Tuesday accused Moscow of spreading fake news after Russia’s Defense Ministry said a French frigate in the Mediterranean had launched missiles on Syria, as part of the downing of the above-referenced Russian aircraft.

Switzerland has demanded that Russia cease any spying activities on its territory after two suspected espionage cases came to light in recent days. The Swiss foreign ministry has summoned Russia’s ambassador in Bern three times this year to raise concerns about suspected operations targeting organizations based in Switzerland, including a laboratory used to test chemical weapons.

Separately, Swiss prosecutors are investigating a cyberattack against the offices of the World Anti-Doping Agency in Switzerland.

President Trump said on Tuesday the United States is considering a request for a permanent military presence in Poland as well as a visa waiver program for the country.

“Poland is willing to make a very major contribution to the United States to come in and have a presence in Poland, and certainly it’s something we’ll discuss,” Trump said at the White House before a meeting with Polish President Andrzej Duda.

And an activist with Russian protest group Pussy Riot was poisoned after a court hearing last week, German doctors treating him have said.

Pyotr Verzilov, 30, was flown to Berlin from Moscow on Saturday after arriving at hospital in serious condition.  His symptoms reportedly included losing his sight and the ability to speak.  If he had not received immediate care, he no doubt would have died.

Verzilov is best known for taking part in a protest at the Football World Cup Final this summer. This is zero doubt he was then targeted for embarrassing President Putin, who was at the event.

Doctors in Berlin said the substance used has not yet been identified but that Verzilov was out of danger.

Brazil: The presidential election here is Oct. 7 (the first-round), and support for Brazilian far-right front-runner Jair Bolsonaro edged up in a poll by Ibope to 28 percent, up 2 points from last week, while Workers Party candidate Fernando Haddad moved into second at 19 percent, the two seemingly destined for a run-off.  Haddad was just at 8 percent in the previous Ibope survey.

Bolsonaro was stabbed and seriously injured in a Sept. 6 assassination attempt that will prevent him from campaigning before Oct. 7, though his availability for campaigning after for the run-off is unknown.

Venezuela: President Nicolas Maduro caused an uproar among his starving people when he was seen being filmed enjoying a steak dinner, served up by a celebrity chef at a time when food shortages are inflicting misery on millions.

Maduro and his wife were dining at a Turkish restaurant in Istanbul, with the chef posting footage of the visit on Instagram.  I would have told Maduro to go to Istanbul’s Kumkapi district for terrific fish dishes.

Random Musings

--Presidential tracking polls....

Gallup: 38% approval of Trump’s job performance, 56% disapproval (Sept. 16).  But 88% of Republicans approve, up 3 points over the prior week, while 33% of Independents do, down 3 points.  The overall job approval has been between 36 and 45 all of 2018.
Rasmussen: 49% approval, 50% disapproval (Sept. 21).

--Republican Party leaders are bemoaning the fact that the booming economy doesn’t seem to be winning over undecided voters, and instead the positives are being obscured by the president’s inflammatory moves on immigration, Vladimir Putin and other fronts.  Trump’s approval numbers shouldn’t be as low as they are.

Oklahoma Republican Rep. Tom Cole told the Washington Post: “This is very much a referendum on the president.  If we had to fight this campaign on what we accomplished in Congress and on the state of the economy, I think we’d almost certainly keep our majority.”

Glen Bolger, a leading Republican pollster, added: “People think the economy is doing well, but that’s not what they’re voting on – they’re voting on the chaos of the guy in the White House.”

Of course Democrats have their own problems.  Like no message!  And Nancy Pelosi is far from popular, especially among the ‘undecideds’.

But according to pollster Bolger, the Republicans will lose their 23-seat majority and as many as 60 seats are being fiercely contested by Democrats.

--New York Gov. Andrew Cuomo’s former senior aide and family friend was sentenced to six years in prison Thursday for accepting more than $300,000 in bribes for state action that benefited two companies.

In March, a Manhattan federal jury convicted Joseph Percoco, 49 years old, of two counts of conspiracy to commit fraud and one count of bribery.

Cuomo has called Percoco “my father’s third son.”  The governor wasn’t accused of wrongdoing.  But the sentencing gives Cuomo’s Republican challenger for governor more ammunition for November’s election.

--Michael Rubin / New York Post

“Former Secretary of State John Kerry admitted to meeting Iranian Foreign Minister Mohammad Javad Zarif ‘three or four times’ since leaving office. Seeking to preempt criticism that his talks violated U.S. laws prohibiting private citizens from advising or negotiating with foreign states, he said he merely wanted to see ‘what Iran might be willing to do in order to change the dynamic in the Middle East.’

“Even if Kerry violated no laws, a more self-aware statesman would recognize that such freelance diplomacy weakens the U.S., emboldens enemies and has a track record of failure.

“Consider North Korea: Bill Clinton’s presidency, like Trump’s, began with a North Korean crisis.  Clinton has been president barely a month when North Korea refused international Atomic Energy Agency inspections and, weeks later, announced that it would withdraw from the Nuclear Non-Proliferation Treaty.

“After Clinton declared, ‘North Korea cannot be allowed to develop a nuclear bomb,’ former President Jimmy Carter traveled to Pyongyang on an ostensibly personal visit to try to right what he believed was Clinton’s unnecessarily inflexible policy.  He met with North Korea’s absolute dictator Kim Il-sung and, without authorization, promised not only would the White House abandon its drive for UN sanctions, but also conceded North Korea the right to reprocess nuclear fuel rods – in effect giving Pyongyang enough plutonium to construct five nuclear bombs.  Carter had pulled the carpet out from the international pressure campaign Clinton sought to build.

“Then there was Syria: Bashar al-Assad’s government was an unrepentant terror sponsor.  It facilitated Hezbollah’s rearmament in defiance of UN resolutions after, in July and August 2006, Hezbollah launched much of its missile arsenal at Israel. As insurgency raged in Iraq, evidence mounted as to Assad’s culpability.

“In one raid on insurgents, US forces found a laptop that contained a database showing conclusively that most foreign fighters and suicide bombers entered Iraq via Syria, with the full complicity of the Syrian government.  Meanwhile, Assad covertly worked with North Korea to build a plutonium processing plant.

“Like Clinton with North Korea, President George W. Bush believed the best course of action was to isolate Syria.  To partisans, however, ‘cowboy’ Bush was the real problem.

“Enter Nancy Pelosi.  Defying Bush, the then-majority leader decided to break the diplomatic embargo.  Pelosi traveled to Damascus, posed diligently for phots and declared, ‘We came in friendship, hope, and determined that the road to Damascus is a road to peace.’  It wasn’t.

“In the wake of her visit, Assad doubled down on defiance and repression and, eventually, the pressure cooker he created exploded.  Pelosi today recognizes her mistake, as she no longer brags about cultivating a man subsequently responsible for a half million civilian deaths and the use of more chemical weaponry than any leaders since World War I.

“Kerry seems unwilling to learn such lessons. After all, Iran isn’t his first freelance attempt: During the Vietnam War, his antics emboldened the enemy while Americans were still in harm’s way....

“(As for Iran): When, in 2015, Sen. Tom Cotton and 46 other senators sent an open letter to its leaders warning them that absent Senate ratification the nuclear deal would not survive the Obama administration, Kerry quipped that the senators’ actions were an ‘unconstitutional, un-thought-out action.’

“Of course, they were neither.  Kerry’s castigation of Cotton, however, simply makes Kerry’s more covert and repeated outreach to Iranian officials more hypocritical.  Even assuming Kerry is well-meaning, his naivete is astounding.  Zarif arose in a system where freelancing insures imprisonment if not death and so may project officialdom onto Kerry even when there is none.

“Regardless, the basis of Trump’s strategy – like that of Clinton and Bush before him – is to coerce concession through isolation. Every president has the right to craft his own strategy. For a former secretary of state to unknowingly undercut that suggests antipathy toward democratic outcomes.  Perhaps it is that tendency, however, that best explains Kerry’s bizarre  affinity toward Tehran.”

--Hurricane Florence caused immense environmental damage to the Carolinas.  Heavy rains washed out a portion of a landfill used to dispose of coal ash, a byproduct of burning coal to generate electricity, which can contain arsenic, selenium, lead and mercury.  And today we learned that a retired Duke Energy plant in Wilmington had been compromised with flooding, impacting two other coal ash pools that could be leaking into the Cape Fear River.

Floodwaters also caused major damage to North Carolina’s hog farms, with more than 5,000 animals dying and several dozen waste lagoons releasing pollutants into waterways.

A spokesman for the North Carolina Pork Council said farmers moved 20,000 hogs to higher ground, which prevented a higher death toll, while claiming the damage to several of the state’s 3,300 active hog-waste lagoons was exaggerated.

Back in 1999, Hurricane Floyd killed 21,000 hogs, according to pork council numbers.

Regardless of the levels of spilled waste from the lagoons, it is beyond disgusting, and dangerous.  I sure as hell wouldn’t be drinking the water in any area that was potentially impacted.

Meanwhile, at least 3 million chickens were reported to have died in the flooding in both North and South Carolina.  Approximately six million were isolated by flood waters at 30 farms, Sanderson Farms announced.

North Carolina is the fourth-largest producer in the nation for broiler chicken production, according to the Department of Agriculture, raising more than 800 million in 2017.

During a tour of the storm-ravaged area, President Trump generally acted like a consoler-in-chief should, especially compared with his performance in Puerto Rico post-Hurricane Maria, though at one point, while handing meals to a man in hard-hit New Bern, N.C., he was caught on camera saying, “Got it?  Have a good time.”

--Teen use of e-cigarettes has soared this year, according to a person who has seen preliminary federal data.

As reported by the Wall Street Journal, the number of high-school students who used e-cigarettes in the  past 30 days has risen roughly 75% since last year.  That would equate to about three million, or about 20% of high-school students, up from 1.73 million in the most recently published federal numbers from 2017.

Nearly a third of 13-to-18-year-olds who responded to a separate survey conducted by The Wall Street Journal with research firm Mercury Analytics said they currently vape.

--This is pathetic.  A study of data obtained by USA TODAY shows that Chicago police solved less than one in six homicides committed in the city in the first half of 2018.  This continues a troubling trend in recent years, the percentage of cases ‘cleared’ falling six consecutive years.  Also, according to the data obtained through a Freedom of Information Act request, only 50 of 900 nonfatal shooting incidents in the first half were cleared.

--Sarah Knapton / Daily Telegraph

“A devastating solar storm which could wipe out communications on Earth and fry power grids is a matter of ‘when not if,’ the head of the British Met Office’s Space Weather Monitoring center has warned.

“Extreme space weather has already caused widespread disruption, with a geomagnetic storm leaving six million people without power in 1989, while Apollo astronauts narrowly missed being exposed to deadly radiation in 1972 and solar flares in 2003 forced the crew of the International Space Station to take cover.

“The largest solar storm ever recorded, The Carrington Event in 1859, knocked out telegraph systems and even set fire to paper in offices.”

The European Space Agency is launching the Solar Orbiter probe in 2020 to monitor the Sun.

Catherine Burnett, head of the UK Met Office’s Space Weather Monitoring Unit, said: “We think that the big solar incidents, like the Carrington Event, happen between 1 in 100 or 1 in 200 years so it is a case of ‘when, not if’ we have one.”

So stock up on beer, batteries, Chex Mix and candles, and maybe think about becoming a blacksmith. Back to the horse and buggy days, sports fans!

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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 $1203
Oil $70.71

Returns for the week 9/17-9/21

Dow Jones  +2.3%  [26743]
S&P 500  +0.8%  [2929]
S&P MidCap  -0.3%
Russell 2000  -0.6%
Nasdaq  -0.3%  [7986]

Returns for the period 1/1/18-9/21/18

Dow Jones  +8.2%
S&P 500  +9.6%
S&P MidCap  +7.4%
Russell 2000  +11.5%
Nasdaq  +15.7%

Bulls 59.0
Bears  18.1

Have a great week.

Brian Trumbore

 

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