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For the week 8/26-8/30
[Posted 10:30 PM ET, Friday]
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It’s been one chaotic week after another, with last weekend’s Group of Seven summit in Biarritz, France, exposing President Trump’s isolation on the world stage.
Wall Street Journal:
“Throughout the summit, attempts at bonhomie...gave way to tensions. G-7 leaders tried to squeeze concessions from Mr. Trump on Iran and other issues over closed-door meals, beyond the reach of White House advisers and TV cameras.
“But Mr. Trump responded by doubling down on his policies and offering accounts of group meetings that conflicted with other countries’ descriptions. He reaffirmed his commitment to a trade war with China and asserted his right to declare a national emergency over the matter; contradicted other leaders and his administration over whether a decision had been made to invite Russia to next year’s gathering; disputed French officials who said the leaders had reached a consensus over how to deal with Iran; and broke with Japan over whether recent missile tests by North Korea constituted a violation of agreements.
“ ‘We’re in the world of missiles, folks, whether you like it or not,’ Mr. Trump said.”
Even Britain’s new prime minister, Boris Johnson, Trump’s buddy, “warned the president about the effects of climate change and questioned Mr. Trump’s pursuit of a trade war.”
At one point, Trump suggested he was having “second thoughts” about the escalating dispute with China – comments viewed as a concession, but hours later, White House press secretary Stephanie Grisham issued a statement saying the president’s answer had been “greatly misinterpreted” and that he regretted only that he hadn’t “raised the tariffs higher.”
There were other items, such as at Saturday’s closed-door dinner when the conversation quickly turned to whether Russia should be allowed to re-enter the G-7, having been expelled in 2014 over its annexation of Crimea. Trump’s efforts to bring Russia back into the fold were rebuffed.
And you had the issue of French President Macron inviting Iran’s foreign minister to Biarritz, which I discuss in detail below. The White House wasn’t given an official heads-up about Zarif’s arrival, but President Trump was aware the visit was a possibility.
Then you had Monday’s press conference, where President Trump bragged about his personal properties from the presidential podium, suggesting he would hold next year’s G-7 at Doral, which has “incredible” conference rooms and “magnificent” bungalows. Each nation could have its own!
The president over 68 minutes attacked former President Obama’s intellect and defended Vladimir Putin for annexing Crimea, and he blamed Obama for the situation in Syria.
Trump also claimed to have gotten two phone calls on Sunday night from high-ranking Chinese officials seeking to negotiate a trade deal. “High-level calls,” he said. Chinese officials said that they were unaware of any such calls. Trump asked Treasury Secretary Steven Mnuchin, sitting in the room, to back him up and Mnuchin would only say there had been “communication,” avoiding the world “call.”
Veering off, Trump said the presidency has cost him $3 billion to $5 billion.
And he talked about North Korea’s potential from a real estate standpoint. And that of Iran, with Trump describing it as “A location that’s a little rough neighborhood. But eventually it’s going to be a beautiful neighborhood.” ‘Yours,’ I mused, in Wall Street parlance.
But perhaps the worst moment, if it was possible to single out just one, occurred when in saying North Korea’s missile tests didn’t bother him, President Trump nodded to Melania and claimed she had gotten to know Kim Jong Un very well. I was watching and got a kick out of Melania’s quizzical look. The White House was later forced to acknowledge that the first lady had never met Kim.
Mr. Trump would tweet after he returned home: “The G-7 was a great success for the USA and all. LameStream Media coverage bore NO relationship to what actually happened in France – FAKE NEWS. It was GREAT!”
This afternoon, during his press scrum before heading to Camp David, the president reiterated a new theme of his, that it’s Corporate America’s fault if they have issues with the trade war.
“A lot of badly run companies are trying to blame tariffs,” Trump said. “It’s not the tariffs, it’s called bad management.”
Trump also said of the trade talks, “China really wants to make a deal,” and that’s “keeping down the temperature in Hong Kong.”
Speaking of Hong Kong, police there banned protesters from holding another large march through city streets Saturday, though it’s unclear what organizers will do as I go to post. In a very worrisome development, three pro-democracy activists were arrested today for their involvement in an unlawful assembly, police announced.
Joshua Wong was arrested on three charges of organizing, inciting and taking part in an illegal assembly during the besieging of police headquarters in June, while Agnes Chow (the two looking like they are about 18 years old from their pictures, though Joshua is 22), was detained on charges of inciting and taking part in the same illegal assembly. Rick Hui Yui-yu was also arrested in connection with a July gathering.
Others are being hauled in. I want to do my small part in getting their names out. They are heroes.
Meanwhile, it’s not too soon to target October 1st as a key date for U.S.-China, China-Hong Kong, China-Taiwan relations. President Xi Jinping will deliver a major speech to mark 70 years since the official founding of the People’s Republic of China (PRC), the government announcing this on Thursday.
The speech will be accompanied by a national day parade showcasing China’s advance in military technology, per a government spokesman, Want Xiaohui, at a press briefing.
“The purpose is to motivate and mobilize the whole party, the whole military, and all of the people to unite closely around the Chinese Communist Party (CCP) Central Committee with Mr. Xi at the core,” Wang said.
This is going to be a critically important moment, and one wonders how events will play out prior to the speech, as China feels pressure on multiple fronts.
Xi is expected to review the nation’s achievements over the past 70 years and also talk about China’s future.
The parade, we are being told, will include strategic nuclear missiles and advanced fighter jets such as the nation’s first stealth fighter, the J-20...technology for which was stolen from the United States, of course.
But, hey, there will also be commemorative coins!
Lastly, it’s a long weekend, and we could easily see an escalation of the rhetoric on the trade front, and/or violence in Hong Kong and the invasion of the PLA. One never knows these days.
--The Trump administration is moving to rollback Obama-era rules on methane emissions from the oil-and-gas business, arguing the federal government overstepped its authority in setting limits on what scientists say is a significant contributor to climate change.
This is the latest move by the administration to further boost record oil and natural gas production by easing regulations. But there are growing concerns on the environmental impact of all the deregulation.
Ann Idsal, acting assistant administrator for the Environmental Protection Agency’s Office of Air and Radiation, said of the proposed rollback, “I don’t see that there’s going to be some big climate concern here.”
But methane, which accounts for about 10% of U.S. greenhouse-gas emissions, “is about 25 times more potent than carbon dioxide in trapping the earth’s heat, according to estimates used by the EPA.” [Wall Street Journal] The oil-and-gas industry has long been the nation’s largest emitter of methane.
Both the American Petroleum Institute and the EPA say the industry has an incentive to limit emissions because it can sell the gas it traps.
--Former FBI Director James Comey violated bureau policy by disclosing the contents of confidential memos detailing his interactions with President Trump, but the Justice Department has declined to file charges in the case, according to an internal review by Justice’s inspector general.
The IG, in a sharply-worded rebuke, concluded that Comey, who was abruptly fired two years ago, broke with bureau rules by both authorizing the disclosure of the memos and by failing to notify the FBI that he had stored some of them at a home safe. Yet prosecutors found no reason to bring criminal charges.
“We found no evidence that Comey or his attorneys released any of the classified information contained in any of the memos to members of the media,” the report found, adding that the former director’s actions nonetheless “violated department and FBI policies and his FBI employment agreement.”
Within minutes of the report’s release, Comey took to Twitter, asserting that the report had absolved him of any wrongdoing.
“I don’t need a public apology from those who defamed me, but a quick message with a ‘sorry we lied about you’ would be nice.
“And to all those who’ve spent two years talking about me ‘going to jail’ or being a ‘liar and a leaker’ ask yourselves why you still trust people who gave you bad information for so long, including the president,” he said.
Never in modern history has a figure been so loathed by both sides of the political aisle.
--Fox News anchor Neil Cavuto chastised President Trump on Thursday after Trump tweeted the following.
“Just watched @FoxNews heavily promoting the Democrats through their DNC Communications Director, spewing out whatever she wanted with zero pushback by anchor, @SandraSmithFox. Terrible considering that Fox couldn’t even land a debate, the Dems give them NOTHING! @CNN & @MSNBC...
“....are all in for the Open Border Socialists (or beyond). Fox hires ‘give Hillary the questions’ @donnabrazile, Juan Williams and low ratings Shep Smith. HOPELESS & CLUELESS! They should go all the way LEFT and I will still find a way to Win – That’s what I do, Win. Too Bad!...
“...I don’t want to Win for myself, I only want to Win for the people. The New @FoxNews is letting millions of GREAT people down! We have to start looking for a new News Outlet. Fox isn’t working for us anymore!”
So Cavuto began a segment by saying it’s ‘weird’ that the president is getting ‘sick’ of the network, because he believes Trump gets ‘pretty fair coverage at Fox.’
Cavuto curtly responded, “First of all, Mr. President, we don’t work for you. I don’t work for you. My job is to cover you, not fawn over you or rip you, just report on you. Call balls and strikes on you. My job, Mr. President, our job here, is to keep the scores, not settle scores.”
“It is called being fair and balanced, Mr. President, yet it is fair to say you’re not a fan when that balance includes stuff you don’t like to hear or facts you don’t like to have questioned,” Cavuto continued.
The anchor then went on to list things that Trump has done or said that have been fact-checked, including: a top Trump trade adviser calling tariffs a “wonderful thing,” Trump saying Mexico would pay for a wall on the southern border, Trump flip-flopping on gun background checks, Trump ordering former White House counsel Don McGahn to fire special counsel Robert Mueller, and Trump seeming to publicly call into question the conclusion of the U.S. intelligence community that Russia interfered in the 2016 election.
“These aren’t fake items, they’re real items and you really said them,” Cavuto stated. “Just like you never paid to silence a porn star until it turns out you did,” Cavuto said as a photo of Stormy Daniels was displayed.
“Fake is when it’s wrong, Mr. President,” Cavuto continued. “Not when it’s unpleasant,” referencing Trump’s infamous Access Hollywood tape where he can be heard telling host Billy Bush that because of his celebrity he is able to grope and kiss women without consent. When he sees attractive women, “I just start kissing them,” Trump said in the recording. “It’s like a magnet. Just kiss. I don’t even wait.”
“Hard as it is to fathom, Mr. President, just because you’re the leader of the free world, doesn’t entitle you to a free pass, just a free press. Goodnight,” Cavuto finished. [USA TODAY]
--Former defense secretary Jim Mattis, who resigned last year after clashing with President Trump, says in a new book excerpt that “I did as well as I could for as long as I could” and warns of the dangers of a leader who is not committed to working with allies.
Mattis announced his resignation in December after Trump shocked American allies and overruled his advisers by announcing a withdrawal from Syria. In his book he writes that he decided to depart “when my concrete solutions and strategic advice, especially keeping faith with our allies, no longer resonated.”
This isn’t earth shattering, as in we all knew this, but Mattis has maintained his silence for eight months and the timing is interesting.
In the book excerpt, Mattis writes about the need for leaders to appreciate the value of allies without explicitly mentioning Trump, who has made a slogan of “America First.”
“Nations with allies thrive, and those without them wither,” Mattis writes. “Alone, America cannot protect our people and our economy. At this time, we can see storm clouds gathering. A polemicist’s role is not sufficient for a leader. A leader must display strategic acumen that incorporates respect for those nations that have stood with us when trouble loomed.”
Mattis also writes that today he is more concerned about “our internal divisiveness” than “our external adversaries.”
“We are dividing into hostile tribes cheering against each other, fueled by emotion and a mutual disdain that jeopardizes our future, instead of rediscovering our common ground and finding solutions,” he says. “All Americans need to recognize that our democracy is an experiment – and one that can be reversed. We all know that we’re better than our current politics. Tribalism must not be allowed to destroy our experiment.”
--Attorney General William Barr booked President Trump’s D.C. hotel for a 200-person holiday party in December that is likely to deliver Trump’s business more than $30,000 in revenue, as reported by the Washington Post.
Barr is paying for the event himself and chose the venue only after other hotels were booked, according to a Justice Department official.
I’ll give the AG the benefit of the doubt on this one, as I bite straight through my tongue.
It does look rather bad, I think you’d agree.
--As for President Trump’s suggestion that next year’s G-7 summit be held at his golf resort in Doral, Fla., I have seen all manner of security experts pan it, because it is so difficult to secure such a massive property, but I have yet to see anyone state the obvious. You can’t hold it there because there is no way to secure a no-fly zone with Miami International right on top of Doral.
As in if I’m a commercial pilot that is part of a sleeper cell, if this was ever approved.....you can finish the thought.
“The disastrous IG report on James Comey shows, in the strongest of terms, how unfairly I, and tens of millions of great people who support me, were treated. Our rights and liberties were illegally stripped away by this dishonest fool. We should be given our stolen time back?
“The fact that James Comey was not prosecuted for the absolutely horrible things he did just shows how fair and reasonable Attorney General Bill Barr is. So many people and experts that I have watched and read would have taken an entirely different course. Comey got lucky!”
“General Motors, which was once the Giant of Detroit, is now one of the smallest auto manufacturers there. They moved major plants to China. BEFORE I CAME INTO OFFICE. This was done despite the saving help given them by the USA. Now they should start moving back to America again?”
[Amazingly dishonest tweet on so many levels.]
“So interesting to read and see all of the free and interesting advice I am getting on China, from people who have tried to handle it before and failed miserably – In fact, they got taken to the cleaners. We are doing very well with China. This has never happened to them before!”
“The Amazon Washington Post and @CNN just did a Fake Interview on Pardons for Aids on the Wall, and that I didn’t think the Wall on the Southern Border was that important to stop illegals wanting to come into our Country. WRONG, vitally important. Will make a BIG impact. So bad!”
“We are tracking closely tropical storm Dorian as it heads, as usual, to Puerto Rico, FEMA and all others are ready, and will do a great job. When they do, let them know it, and give them a big Thank you – Not like last time. That includes from the incompetent Mayor of San Juan!”
“Puerto Rico is one of the most corrupt places on earth. Their political system is broken and their politicians are either Incompetent or Corrupt. Congress approved Billions of Dollars last time, more than anyplace else has ever gotten, and it is sent to Crooked Pols. No good!...
“...And by the way, I’m the best thing that’s ever happened to Puerto Rico!”
“The question I was asked most today by fellow World Leaders, who think the USA is doing so well and is stronger than ever before, happens to be, ‘Mr. President, why does the American media hate your Country so much? Why are they rooting for it to fail?’”
[I can guarantee not one leader asked that.]
Wall Street and the Trade War
Stocks ended their four-week losing streak on the more positive tone on the trade war, though not warranted in the least. Every now and then, Wall Street just has a stupid week and this was one of them.
On the economic data front, durable goods (big-ticket items) for July were up a better than expected 2.1%, but down 0.4% ex-transportation.
A reading on housing from the folks at S&P Case-Shiller for June had the 20-city index up only 2.2% in terms of home prices year-over-year, the lowest yoy figure in seven years.
Today, we had a release on personal income for July, up just 0.1%, less than forecast, while consumption was up a strong 0.6%, better than expected. The Fed’s preferred inflation barometer, the personal consumption expenditures index, was up 1.7% on core (ex-food and energy) for the 12 months.
And a reading on Chicago area manufacturing for August came in at a better-than-expected 50.4 (50 being the dividing line between growth and contraction), a big improvement over July’s contraction level 44.4, though this is a volatile data set compared with the national ISM surveys, which will be released next week.
Finally, we had the second estimate on second-quarter GDP, 2.0%, down a tick from the first reading of 2.1%.
The overall rate of GDP for 2018 was 2.9%, which we allow President Trump to call 3%. In the second quarter, the moderate 2.0% print came despite strong pickups in corporate profits and consumer spending, after profits (this is different from earnings as reported on Wall Street) dropped in both the first quarter and fourth quarter of 2018.
Household spending in Q2 was up at a strong 4.7% annualized rate, the best since late 2014, as consumers continue to carry the load.
Add all the above up and the Atlanta Fed’s GDPNow barometer for third-quarter growth is at 2.0%. But this is just for one-third of the data for the entire quarter.
“The Euro is dropping against the Dollar ‘like crazy,’ giving them a big export and manufacturing advantage...and the Fed does NOTHING! Our Dollar is now the strongest in history. Sounds good, doesn’t it? Except to those (manufacturers) that make product for sale outside the U.S.
“...We don’t have a Tariff problem (we are reigning in bad and/or unfair players), we have a Fed problem. They don’t have a clue!”
“If the Fed would cut, we would have one of the biggest Stock Market increases in a long time. Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management...and who can really blame them for doing that? Excuses!”
[Wrote the man with countless bankruptcies on his resume.]
“Our Federal Reserve cannot ‘mentally’ keep up with the competition – other countries. At the G-7 in France, all of the other Leaders were giddy about how low their Interest Costs have gone. Germany is actually ‘getting paid’ to borrow money – ZERO INTEREST PLUS! No Clue Fed!”
Turning to the Trade War with China...
Last weekend, following Friday’s tit-for-tat tariff escalation between the U.S. and China, Beijing said it would continue fighting the trade war “until the end”. In a sharply worded commentary by official mouthpiece People’s Daily, the paper said China had the strength to continue the dispute and accused Washington of sacrificing the interests of its own people.
“China is confident that it will follow its own path and do its own things well, and will never waver in its stand on countering any provocations by the U.S. side,” the commentary read.
China imposed new tariffs on $75 billion in U.S. goods, while the U.S. announced additional tariffs on $550 billion in Chinese goods, moving from 10 percent to 15 percent on $300 billion starting Sept. 1, and 25 percent to 30 percent on $250 billion worth come October 1.
China had levied 10 percent tariffs on $75 billion, some for Sept. 1 and a second batch from Dec. 15, including on American-made vehicles and auto parts.
But as the week progressed, China hoped the U.S. could cancel the planned additional tariffs to avoid an escalation, commerce ministry spokesman Gao Feng told reporters on Thursday.
“The most important thing at the moment is to create necessary conditions for both sides to continue negotiations,” he said during a weekly briefing.
Gao reiterated that China had “ample” retaliatory measures if Washington eventually moved to impose the planned tariffs, but was willing to resolve the issue calmly.
Gao said both trade teams have maintained “effective communication.”
“We hope the United States will show sincerity and concrete actions,” Gao said.
President Trump tweet: “Great respect for the fact that President Xi & his Representatives want ‘calm resolution.’ So impressed that they are willing to come out & state the facts so accurately. This is why he is great leader & representing a great country. Talks are continuing!”
Formal talks are slated to resume in September, but no date has been set.
Greg Ip / Wall Street Journal
“Americans are deeply divided over many of President Trump’s policies, but the trade war with China, despite its economic fallout, isn’t one of them. Top Democrats and Republicans in Congress have applauded his tough line and polls show mistrust of China is growing across party lines.
“The mistrust goes beyond politicians and the public. ‘The attitude among the American foreign-policy elite has changed dramatically over the last three or four years to a very much hardened attitude towards China,’ says Stephen Hadley, who was national security adviser to President George W. Bush.
“There’s a good reason for the hawkish turn. Advocates of engagement have been dismayed by China’s mistreatment of foreign companies – such as forced transfer of their technology – its more bellicose behavior toward its neighbors and President Xi Jinping’s tightening grip over domestic dissent.
“Yet if the pendulum swung too far toward accommodating China in the past, it may be rebounding too far toward confrontation now. That’s what I gleaned from speaking with several establishment figures with decades of combined experience on China.
“ ‘ We have a China attitude, not a China policy,’ says Henry Paulson who, as Treasury secretary under Mr. Bush, dealt with China intensively and has recently become more critical. ‘You have Homeland Security, the FBI, CIA, the Defense Department, treating China as the enemy and members of Congress competing to see who can be the most belligerent China hawk. No one is leaning against the wind, providing balance, asking what can we realistically do that has some chance of getting results that won’t be harmful to our economic and national-security interests I the long term?’”
I liked the following summary from Reuters’ Andrea Shalal:
“U.S. companies doing business in China remain profitable, but 81% say escalating trade tensions between the world’s two largest economies have affected their business operations, a new survey released Thursday by the U.S.-China Business Council found. That marks an eight percentage-point increase from 2018, said the group, which represents more than 220 U.S. companies ranging from Boeing Co. to Archer Daniels Midland and Hewlett Packard.
“The next round of U.S. and Chinese tariffs will take effect on Sunday in a trade war that has roiled financial markets and threatens to push the global economy into recession. Nearly half the U.S. companies surveyed reported having lost sales and market share, mainly as a result of tariffs imposed by both the United States and China, and many cited concerns about their ability to compete given advantages offered to domestic firms. U.S. companies say they are also losing sales because their Chinese customers increasingly view U.S. companies as unreliable business partners given the volatility of the bilateral commercial relationship, the survey showed. Nearly 40% of those surveyed said they lost sales because of Chinese partners’ concerns about doing business with U.S. companies, a seven-fold increase over 2018.”
Europe and Asia
Just a little economic news from the eurozone (EA19), before the torrent of PMI data next week for August.
A flash reading on August inflation for the EA19 came in at 1.0%, same as July. The core reading, ex-food and energy, was 1.1%, also same as the month before. A year ago the annualized rates were 2.1% and 1.3%, respectively.
The figure on unemployment for July in the euro area was 7.5%, same as June, and versus 8.1% a year earlier.
Germany 3.0%, France 8.5%, Italy 9.9%, Spain 13.9%, Ireland 5.3%, Netherlands 3.4%, Greece 17.2% (May). [Both employment and inflation figures courtesy of Eurostat.]
Separately, July retail sales in Germany fell 2.2% over June, though they are up 4.4% from a year ago. Nonetheless, another poor data point.
And new car production in Britain fell by an annual 10.6% pace in July, the 14th consecutive month of declines due to weak demand in EU and Asian markets and model changes, according to the Society of Motor Manufacturers and Traders. Exports were down 14.6%.
Brexit: The battle for Brexit is in the final stretch, the deadline Oct. 31, and next week there will be an historic showdown between Prime Minster Boris Johnson – who has vowed to leave the European Union on Halloween, “do or die” – and lawmakers who view themselves as the last bulwark against economic ruin.
Members of parliament, which will include some of Johnson’s Conservatives, are trying to fashion a majority needed to either topple the government or change the law to prevent Britain from withdrawing from the bloc without an exit deal. They have just days to do this.
Some are looking for a vote of no confidence to bring the prime minister down, but for that to occur, you’d need Conservative MPs to go along.
But if that effort fails, the opposition’s weapons could be limited. Some are expecting every arcane parliamentary ploy to be attempted to stop Johnson.
It’s important to remember that the 2016 referendum vote was 52% for Leave, 48% for Remain. The result divided the population at every level and there has been zero reconciliation since. Three long years.
So on Wednesday, Prime Minister Johnson sparked fury by announcing the suspension of parliament for more than a month between mid-September and mid-October, depriving parliament of debating time to put their plans into action – which opponents have said is an assault on Britain’s constitutional integrity, and democracy itself. Outside of Parliament, demonstrators chanted “Stop the coup!”
You can thus see given this timeline, it’s all about next week...just three or four days to act. The opposition favors trying to pass a new law that would require Johnson to seek a delay to Brexit, but this would require a helping hand from parliament’s Speaker John Bercow, who would seize temporary control of the legislative process. This is where ‘arcane’ maneuvering would come into play. I have no freakin’ idea how he does this, but it’s why some of us will be watching a lot of BBC World News this week rather than Fox or CNN, for example.
Johnson’s Conservatives have a working majority of one...one...seat in the 650-seat chamber thanks to the support of the little Democratic Unionist Party in Northern Ireland.
According to Ireland’s No. 2, Simon Coveney, the British government has not made concrete or credible proposals on replacing the Irish border backstop arrangement in its Withdrawal Agreement with the European Union.
London said today that British and EU negotiators will hold twice-weekly talks next month to rework the agreement, but there are no real alternatives as yet.
Not to beat a dead horse, but another reminder. The backstop is the mechanism that would keep the Irish border open after Brexit by tying Britain to EU trading rules for a number of years, the term of which is Boris Johnson’s sticking point.
Coveney said: “If there are alternatives to the backstop that do the same job, well then let’s hear them. And if we can work out a deal on that basis, so be it. But it’s got to be credible.
“It cannot simply be this notion that we must have the backstop removed and we’ll solve this problem in the future negotiations, without any credible way of doing that. That’s not going to fly.”
There is a last-gasp EU summit slated for Oct. 17 and 18. But for now let’s just see what happens next week.
As to the chaos that is looming in a no-deal exit on Oct. 31, a story in today’s Irish Independent paints a bleak picture.
“Ireland’s supermarket shelves could start to run bare within two days of a hard Brexit, the head of the Freight Transport Association of Ireland warned yesterday.
“General manager Aidan Flynn appealed for haulage firms to take immediate steps to improve supply chains as the UK hurtles towards crashing out of the EU with no deal.
“ ‘Ireland’s retail shops have no space to stockpile anything,’ he told the Irish Independent.
“’ ‘They must be fed by distribution centers every day – and the UK is the major distribution hub for Ireland.
“ ‘Stores here have no space to stockpile anything, not even two days of products. They are seriously constrained.
“ ‘Everything will take days longer. And in the event of a no deal, there’s going to be absolute chaos for months.’
“Mr. Flynn said retailers currently order goods from UK warehouses and expect the products to arrive by Irish Sea ferry and truck within 24 hours. But a no-deal Brexit would make such speed legally and logistically impossible.”
For example, there’s the simple question of “how Ireland could bake bread.”
“ ‘We don’t mill most of our flour in Ireland. It just shows how reliant we are on the UK for our food,’ Flynn said. While the answer in part would be stockpiling, Mr. Flynn said warehousing was scarce.
“ ‘Cold storage and chilled warehousing is in particularly short supply,’ he said. ‘There certainly isn’t enough available to stockpile levels we would need to cope.’”
So there you have but one example of the chaos to come.
Editorial / Financial Times
“Boris Johnson has detonated a bomb under the constitutional apparatus of the United Kingdom. The prime minister’s request to the Queen to suspend parliament for up to five weeks, ostensibly to prepare a new legislative program, is without modern precedent. It is an intolerable attempt to silence parliament until it can no longer halt a disastrous crash-out by the UK from the EU on October 31. The seat of British democracy, long admired worldwide, is being denied a say on the most consequential decision facing the country in more than four decades. So, too, are the British people – in whose name Mr. Johnson claims to be acting. It is time for parliamentarians to bring down his government in a no-confidence vote, paving the way for an election in which the people can express their will....
“History has shown that charlatans, demagogues and would-be dictators have little time for representative government. They seek ways around parliament before concluding it is an inconvenience. Mr. Johnson may not be a tyrant, but he has set a dangerous precedent. He and the cabal around him who have chosen this revolutionary path should be careful what they wish for....
“Parliamentarians must seize their opportunity next week to assert the will of the Commons against that of the prime minister. The brief period for which they will sit may be too short to pass legislation demanding a delay to the UK’s EU departure. Those opposed to a no-deal Brexit must then cast aside their differences and pass a motion of no confidence in the government. This is unpalatable for even the most ardent Tory Remainers, and others such as the Liberal Democrats, since ousting Mr. Johnson in time to affect the Brexit process may also require the creation of a caretaker government under Labour’s Jeremy Corbyn – an outcome they rightly fear. The overriding priority, however, must be to safeguard British democracy. Mr. Johnson might seek to ignore such a vote and try to hang on until after Brexit. This would be an even greater constitutional affront than his actions this week. It would confirm that Britain has a despot in Downing Street.”
Italy: President Sergio Mattarella on Thursday tasked Prime Minister Giuseppe Conte with forming a new coalition government after the one between the anti-establishment 5 Star Movement and the far-right League fell apart when the latter withdrew its support.
The new government will be comprised of 5 Star and the center-left Democratic Party, which said late Wednesday it had agreed to join forces. Conte would remain prime minister in this setup.
But it is not going to be easy, with members of both parties highly suspicious of the other. Not only does a new government need to immediately produce a budget that can jumpstart Italy’s moribund economy, but dividing up the key ministerial posts will be contentious.
The Democrats are, however, also pro-European Union, taking the spot of the euroskeptic League, which is a positive if you’re on the side of less friction with the EU.
The big loser is Matteo Salvini, leader of the League, who was looking to ride his rising popularity to a snap election, from which he was supposed to emerge as prime minister. Salvini has been promising lower taxes and a harder stance on immigration, blocking boats carrying migrants from docking at Italian ports.
Conte said at a press conference after receiving his mandate, “I will make clear immediately that my government isn’t against anybody, but is rather for the good of Italians, to modernize the country and to make it more competitive, just, sympathetic and inclusive.”
During the 14 months that 5 Star was in coalition with the League, Conte often sided with 5 Star. So now with League in opposition, the attacks on Conte will grow.
Turning to Asia...tonight China just reported that its official manufacturing PMI fell to 49.5 in August, versus 49.7 in July, the fourth month in a row in contraction territory. But the National Bureau of Statistics reported that the service sector reading rose to 53.8 from 53.7.
Japan reported industrial output rose 1.3% in July over June, better than expected, while at the G-7 in France, President Trump and Prime Minister Abe agreed in principle to core elements of a trade deal that they hoped to sign in New York next month. The agreement, if finalized, would cool a trade dispute between the two allies just as the trade war between the U.S. and China heats up.
U.S. Trade Representative Robert Lighthizer said the deal covered agriculture, industrial tariffs and digital trade. Auto tariffs would remain unchanged. Trump said Japan had agreed to buy excess U.S. corn that is burdening farmers as a result of the tariff dispute between Washington and Beijing.
But there were no real details and Abe referred to a potential purchase of corn as being handled by the “private sector.” Trump said, “It’s a very big transaction, and we’ve agreed in principle. It’s billions and billions of dollars. Tremendous for the farmers,” Trump told reporters. But Abe was clearly hedging.
Everything has been tremendous for the farmers, Trump has been saying since the trade war commenced...until it wasn’t.
It does seem that if the deal goes through, however, that America’s beef, pork and wheat producers could benefit.
--As alluded to above, stocks had their best week since early June, with the major averages recovering much of their losses of the previous four weeks, the Dow Jones up 3% to 26403, the S&P 500 up 2.8% and Nasdaq gaining 2.7%. The S&P still lost 1.8% for the month.
--U.S. Treasury Yields
6-mo. 1.87% 2-yr. 1.51% 10-yr. 1.50% 30-yr. 1.96%
The inversion between the 2- and 10-year occurred most of the week, which if you believe in this as being an indicator of a recession down the road (but no way before mid-2020, I would say), it’s concerning.
Also concerning is the outrageous bond market in Europe. Following are 10-year yields at week’s end.
But there are two others that are beyond inexplicable.
Italy is down to 0.99% on its 10-year, when it was 1.80% just three weeks ago, because of the new coalition government, though the nation’s debt level, 135%, hasn’t changed and the economy is still sick!
And Greece’s 10-year is now 1.59%. It was 3.49% on May 10. Yes, as I have been documenting better than anyone in the world on a weekly basis, Greece, for now, has gotten its act together, with massive help from the EU and IMF, but it still has a debt-to-GDP level in excess of 180%!!!
No doubt there are some very smart (and lucky) investors who have made major bucks on this trade. But the worm will turn, sports fans. And it will be incredibly ugly.
One more. The amount of sovereign debt around the world trading with a negative yield is now $17 trillion, or 30% of all investment-grade securities.
Meanwhile, Treasury Secretary Steven Mnuchin, in an interview with Bloomberg News Wednesday, confirmed the administration is giving careful thought to selling ultra-long debt, bonds with maturities of 50 to 100 years.
“If the conditions are right, then I would anticipate we’ll take advantage of long-term borrowing and execute on that.”
But the idea, floated in the past, has been met repeatedly with a cool reception on Wall Street.
The risks of the ultra-long bond include the ebb and flow of demand over the course of an economic cycle.
As I noted last week, Germany’s flotation of ultra-long bonds did not go well, the government forced to take in the bulk of the offering.
But it’s true, the issuance of extremely long-term debt would save $billions on interest expense.
--In a totally outrageous move, former president of the Federal Reserve Bank of New York William Dudley said in a Bloomberg Opinion piece that “Trump’s reelection arguably presents a threat to the U.S. and global economy,” calling on his former colleagues to act accordingly.
Granted, Mr. Dudley, a research scholar at Princeton University, is now a private citizen, but the timing of the attack comes as President Trump is trying to undermine the Fed.
When asked about the column, Michelle Smith, a Fed spokeswoman, said: “The Federal Reserve’s policy decisions are guided solely by its congressional mandate to maintain price stability and maximum employment. Political considerations play absolutely no role.”
Dudley essentially said the Fed should wade into politics, arguing that the central bank should consider the political ramifications of the policy decisions it makes.
Editorial / Wall Street Journal
“Perhaps you’ve seen former Chairs of the Federal Reserve defending the central bank’s independence and foreswearing all political intentions. Fair enough. But then what are we to make of former Fed monetary Vice Chair William Dudley’s marker that the Fed should help defeat President Trump in 2020? That’s the extraordinary message from the former, and perhaps future, Fed grandee in Bloomberg.
“ ‘Officials could state explicitly that the central bank won’t bail out an administration that keeps making bad choices on trade policy, making it abundantly clear that Trump will own the consequences of his actions,’ Mr. Dudley asserts. We also think monetary policy should focus on prices rather than trade. But Mr. Dudley seems to be saying the Fed should do nothing to assist the economy even if it heads into recession. Then he goes further and essentially says the Fed should join The Resistance.
“ ‘There’s even an argument that the election itself falls within the Fed’s purview,’ Mr. Dudley writes. ‘After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.’
“Wow. Talk about stripping the veil. These columns wondered if Mr. Dudley was politically motivated while he was at the Fed, favoring bond buying to finance Barack Obama’s deficit spending, urging the Fed to intervene in markets to boost housing, and keeping interest rates low for as long as possible. And now here Mr. Dudley is confirming that he views the Fed as an agent of the Democratic Party.
“None of this helps current Fed Chair Jerome Powell navigate monetary policy in a tricky political moment. Mr. Dudley may be in private life now, but he left the Fed as recently as 2018. Urging his recent colleagues to act politically now will feed President Trump’s conviction that the central bankers have it in for him even if their monetary decisions are based on sound economic judgments. He will also damage the Fed’s ability to rally Congress and the business community to its defense.
“Perhaps Mr. Dudley is angling to become the next Fed Chair if Mr. Trump is defeated. But his partisan, reckless op-ed should disqualify him from any consideration.”
--Purdue Pharma, the opioid drug-maker owned by the billionaire Sackler family, is reported to be offering between $10bn and $12bn to settle thousands of lawsuits against it. The firm is facing over 2,000 such suits linked to its painkiller OxyContin.
Purdue said it was “actively working” towards a “global resolution” but wouldn’t discuss the amount.
In a statement: “While Purdue Pharma is prepared to defend itself vigorously in the opioid litigation, the company has made clear that it sees little good coming from years of wasteful litigation and appeals.
“Purdue believes a constructive global resolution is the best path forward, and the company is actively working with the state attorneys general and other plaintiffs to achieve this outcome.”
The Sackler family, as part of a settlement proposal, would give up ownership of Purdue Pharma and pay $3 billion of their own money, according to various reports.
On average, 130 Americans die from an opioid overdose every day, according to the U.S. Center for Disease Control and Prevention.
Opioids were involved in almost 400,000 overdose deaths in the U.S. from 1999 to 2017, according to its research.
Purdue is one of 22 opioid makers, distributors and pharmacies named in over 2,000 cases which are due to go to trial in October in Ohio, as part of a consolidation of lawsuits filed by state, local and tribal governments.
But the Wall Street Journal reported today that the proposed deal to resolve the 2,000 is facing pushback from several state attorneys general who say it doesn’t bring in enough cash to satisfy their demands.
State AGs from New York, Connecticut and Massachusetts, among others, are concerned with the deal’s reliance on future drug sales, how much money will be guaranteed and the Purdue-owning Sackler family’s contribution, these people said.
Meanwhile, Johnson & Johnson was ordered by an Oklahoma judge to pay $572 million for its role in the opioid crisis, marking the first time a court held the drug industry responsible for opioid abuse, with the amount limited to just one year. Judge Thad Balkman said the state didn’t present “sufficient evidence” that justified additional time and resources.
The amount, to pay for addiction-abatement programs, was below expectations of more than $1 billion and significantly less than what the state requested, and JNJ’s stock rose in response. Plus the $572 million is expected to be reduced after the company appeals the decision.
--Tobacco giants Philip Morris International and Altria Group are in talks to reunite, the companies said on Tuesday, in a deal that would combine the most popular brands of both traditional and electronic cigarettes.
The companies described the proposed deal as an “all-stock, merger of equals,” but discussions are still in the preliminary stages.
According to the CDC, the number of cigarettes sold in the U.S. fell 3.5 percent in 2017 from the previous year, while the e-cigarette market, worth about $11 billion in 2018, is projected to surpass $18 billion by 2024, according to analysts.
Altria agreed last year to pay nearly $13 billion for a 35 percent stake in Juul Labs. The proposed merger would thus be a boon for Altria’s investment because Juul lacks the global distribution network of Philip Morris, which has grown since it was spun off from Altria in 2008.
And a deal would allow Philip Morris to profit off Juul, rather than compete with it.
A big positive of a merger would be the ability to combine the research arms of each.
Meanwhile, the Federal Trade Commission is investigating whether Juul used influencers and other marketing to appeal to minors. The probe actually began before the agency’s antitrust review of the December deal in which Altria made its investment in Juul.
A Juul spokesman said: “We fully cooperate and are transparent with any government agency or regulator who have interest in our category.” The company says it has never marketed to youth and that its products are intended for adult cigarette smokers.
--Saudi Arabian Oil Co. is considering a plan to split the world’s largest IPO into two stages, offering a portion of its shares on the Saudi stock exchange later this year and then following that with an international offering in 2020 or 2021, according to the Wall Street Journal.
But Tokyo seems to be in Aramco’s plans, not London or Hong Kong due to political uncertainty in both the U.K. and China. Of course this can change.
--Tiffany & Co. reported a decline in second-quarter sales as it continued to see fewer foreign tourists in its U.S. stores, while the protests in Hong Kong are adding to pressures. Quarterly sales declined 2.5% from a year earlier to $1.05 billion, slightly below analysts’ forecasts.
Tiffany’s CEO said the results demonstrated “a continued sharp decline in sales to both Chinese and all other tourists, which we believe lowered our reported sales by a couple percentage points.”
But the shares rose some on Wednesday, helped by the company backing its full-year guidance, though the stock is down 35% over the past year.
In the first quarter, Tiffany saw a 25% decline in sales to foreign tourists in the Americas, with a stronger dollar a major hindrance.
Foreign tourists are major drivers of sales in New York, Los Angeles and San Francisco.
In the Americas, Tiffany said quarterly sales declined 4%.
But Tiffany continues to ramp up its efforts within China, where sales rose by a double-digit percentage, with the company opening its first mainland Chinese duty-free zone at the Beijing airport. Tiffany also expects to open flagship stores in Hong Kong and Shanghai.
But sales in the Asia-Pacific region fell 1%, hurt in particular by the protests in Hong Kong. There were numerous store closures as a result of the ongoing demonstrations and as the chief financial officer said of the company’s full-year sales and earnings forecasts, “If the situation in (Hong Kong) deteriorates even further or if the current level of unrest was maintained for the balance of the fiscal year, we may find ourselves at the bottom end of our ranges.” HK is Tiffany’s fourth-largest market.
And Tiffany, like other luxury retailers, expressed uncertainty over the impact of a looming consumption tax increase in Japan in October.
Profit in the second quarter was $136.3 million, beating expectations.
--Southern California’s housing market experienced its first sales increase in 12 months in July vs. a year earlier, 3.7%, per CoreLogic. The six-county median price climbed 1.9% from a year earlier to reach $540,000. Falling mortgage rates, moderating prices and rising inventory were cited for the bump in sales.
Economists have blamed the lack of affordability for drastically slowing the housing market toward the end of last year and causing the region’s median home price to fall slightly in March from a year earlier, the first decline since 2012.
But the average rate on a 30-year fixed mortgage was 3.55% last week, vs. 4.94% last November, according to Freddie Mac.
--Mowi ASA is a Norwegian company that is the world’s largest salmon producer and Mowi is threatening to stop buying Brazilian soy for its fish farms unless the country curbs Amazon deforestation, as the company announced Wednesday.
Mowi’s ‘Chief Sustainability Officer’ said in a statement: “The treatment of the Amazon is unacceptable. Mowi will have to consider finding other sources for feed raw materials unless the situation improves.”
Mowi expects to sell some 430,000 tons of salmon this year. It’s also a major producer of fish feed.
--Apple apologized for allowing human contractors to listen to snippets of people’s recorded conversations for its digital assistant Siri, a practice that undermined its efforts to position itself as a trusted steward of privacy.
As part of its apology posted Wednesday, Apple reiterated an earlier pledge to stop keeping audio recorded through Siri unless consumers give their permission.
Earlier, Apple had said it would temporarily halt a process called “grading,” a quality control measure that relies on contractors hired by Apple to listen to audio recordings to determine whether its Siri service accurately heard them. The information is used to improve Siri’s future performance and capabilities.
But it’s not clear how Apple is going to seek permission, though in the past Apple has typically requested permissions through prompts during software update installations.
Apple said it will still use computer-generated transcripts to improve services, even if a user hasn’t explicitly granted permission, or opted in.
[According to the Irish Independent, 300 Apple workers in County Cork who were employed to check Siri recordings for errors have been fired after Apple announced it was suspending its “grading” program. Apple employs around 6,000 in Ireland, mostly at Cork, where it has invested about $250 million.]
Separately, Apple is hosting an event on Sept. 10 at its Cupertino, Calif., headquarters where it is expected to unveil new iPhone models.
Apple faces levies of 15% imposed by the Trump administration on major products made in China such as smartwatches and wireless headphones on Sept. 1, with a tariff on its bigger seller, the iPhone, to take effect on Dec. 15.
One more on the company. Researchers with Google security say cyberspies exploited security vulnerabilities to plant spyware on Apple iPhones when users merely visited a small group of malware-infected websites. Security experts are calling the just-announced vulnerability, which Apple fixed in February, the worst yet affecting iPhones.
Google, which apparently has a crack security staff, said iPhone users were exposed for more than two years before Apple issued a patch. While not saying who was behind the cyberespionage, experts said it has the hallmarks of a nation-state effort.
The researchers did not disclose the identities of the infected websites. They estimated that the sites had thousands of visitors a week.
As reported by the Associated Press, Google researcher Ian Beer said in a blog post published late Thursday that the discovery should dispel any notion that it costs a million dollars to successfully hack an iPhone.
Apple did not respond to a request for comment.
Meanwhile, on a related matter today, Twitter said CEO Jack Dorsey’s accounts was hacked Friday afternoon, and then used to tweet several erratic, racist and anti-Semitic slurs. A Twitter spokesman only conceded that Dorsey’s account “was compromised” and the company was investigating.
One of the tweets, since deleted, said there was a bomb at Twitter’s headquarters.
--Best Buy Co. on Thursday reported strong quarterly profit but revenue fell short and the shares fell nearly 9%.
The company said it had fiscal second-quarter net income of $238 million, or $1.08 per share, adjusted, topping Wall Street expectations.
Comp-store sales rose 1.6%, below estimates.
But revenue of $9.54 billion was slightly short of forecasts and its guidance for the current quarter was also less than expectations, though it raised its full-year earnings outlook.
CEO Corie Barry said the company was still trying to determine how the tariffs would impact prices for consumers. “There is no precedent for this and there are a lot of moving pieces,” she said on a conference call.
--Hong Kong carrier Cathay Pacific Airways warned against what it described as an illegal protest outside its facilities on Wednesday (next to the International Airport) and that it had zero tolerance for “violent activities” and any staff who took part.
Cathay has been caught in the crosswinds between authorities in Beijing and anti-government protesters. It’s an awful time to be an employee of this regional powerhouse.
--Amgen said it has agreed to buy Celgene Corp.’s psoriasis treatment Otezla for $13.4 billion in cash, in a deal that helps pave the way for Bristol-Myers Squibb Co. to complete its acquisition of Celgene.
Bristol-Myers in January announced it would acquire Celgene in a deal valued at $74 billion, but the U.S. Federal Trade Commission raised anticompetitive concerns related to anti-inflammatory drugs. In June, the companies said they would shed Otezla to satisfy them.
The acquisition, assuming the FTC goes along, is expected to be completed by year end.
Otezla sales totaled $1.6 billion last year and the company, now Amgen, has exclusivity in the United States through 2028.
--Canada’s GDP outpaced expectations in Q2, coming in at a very solid 3.7% annualized growth rate after a 0.5% gain in Q1 (revised from 0.4%).
--India’s economic numbers are suspect, a la China’s, but you look for trends and the government reported the economy grew at just 5.0% annualized in the second quarter, which sounds good but it’s the slowest in more than six years, dragged down by weak consumer demand and private investment. I told you weeks ago that Prime Minister Modi was using Kashmir as a distraction in revoking its autonomy, playing the nationalism card to distract from the slowing economy. Look for further upheaval in the region as a result.
--In his press conference at the end of the G-7 summit in France, President Trump scoffed at wind power.
“We’re the No. 1 energy producer in the world. I’m not going to lose that wealth on dreams, on windmills, which, frankly are not working all that well.”
It was the latest in a line of statements disparaging wind power, but since he has taken office in 2017, the U.S. has added enough of it to power half of New York State, with the industry now employing more than 110,000 people.
In fact his own Energy Secretary, former Texas Gov. Rick Perry, touts the benefits of wind power in his home state. “America’s wind industry supports more than 100,000 American jobs at over 500 facilities across the country,” Perry tweeted on Aug. 6. “Wind energy is an important part of America’s all-of-the-above energy future.”
--For Labor Day weekend, the average price at the pump for gasoline nationally is poised to be the lowest in three years, $2.59. Last year it was $2.83 for the holiday.
--“Shark Tank” star and frequent CNBC guest Kevin O’Leary’s boat was involved in a collision with another boat last weekend on a lake in Ontario, killing two passengers in the other boat, with word then coming out that O’Leary’s wife was piloting their vessel.
TMZ reported that O’Leary said the other boat didn’t have its headlights on and he insisted that video footage will clear them both of any wrongdoing in the fatal crash. This is a classic case of my adage, ‘wait 24 hours.’
--In the great debate between Popeyes and Chick-fil-A as to who has the best chicken sandwich, we had a related crisis when Popeyes said it had run through its inventory.
“We’re sold out” Popeyes said in a video posted to its Twitter page.
But the fast-food chain plans to have the beloved sandwich back at locations everywhere in the near future.
Popeyes launched its new sandwich on Aug. 12 for $3.99 and, owing in no small part to a brilliant social media campaign, helped along by Chick-fil-A, Popeyes had a winner. Plus the reviews of the taste have been outstanding. Unfortunately, I don’t have either in my immediate area.
China: On Thursday, China completed what it called a routine rotation of the air, land and maritime forces stationed in Hong Kong. A detachment of People’s Liberation Army (PLA) soldiers have been stationed there since the 1997 handover which ended British rule. While they stage frequent drills they are seldom seen outside their bases.
But the possibility of their deployment has been hanging over Hong Kong since the protests started in June over the extradition bill, and an editorial in the China Daily newspaper today noted that soldiers stationed in Hong Kong are not there merely for symbolic purposes and they will have “no reason to sit on their hands” if the situation in the city worsens.
Analysts estimate the garrison numbers between 8,000 and 10,000 troops split between bases in southern China and a network of barracks in Hong Kong.
The China Daily editorial said: “If the already ugly situation worsens, with the violence and unrest threatening to spiral out of control under the orchestration of secessionist-minded troublemakers, the armed forces station in the SAR (Special Administrative Region) will have no reason to sit on their hands. The PLA garrison in Hong Kong is not merely a symbol of Chinese sovereignty over the city.”
Last Sunday, police officers drew their guns for the first time, with one firing a warning shot into the air after another officer fell, during violent clashes that brought an end to nearly two weeks of restraint.
Meanwhile, there is no doubt the 12 consecutive weeks of anti-government protests are doing a number on the Hong Kong economy, and that’s unfortunate. The property market, among the most expensive in the world, could totally collapse. Inquiries on real estate in Australia, apparently, are soaring. Singapore is also drawing significant interest.
Separately, China pulled the credentials of a Wall Street Journal reporter, Chun Han Wong, for writing a story, along with another reporter, Philip Wen, that said Australian authorities were looking into the activities of one of Chinese President Xi Jinping’s cousins as part of probes into organized crime, money laundering and alleged Chinese influence-peddling.
The foreign ministry said in a statement: “We resolutely oppose malicious, defamatory attacks on China by individual foreign reporters and we do not welcome this sort of journalist.”
If I’m reading it right, Mr. Wen is on a three-month visa, not the normal one year, so I’m assuming his won’t be renewed as well.
North Korea: Parliament approved changes to the country’s constitution to solidify Kim Jong Un’s role as head of state, official state media reported on Thursday. The move comes after Kim was formally named head of state and commander-in-chief of the military in a new constitution in July that analysts said was possibly aimed at preparing for a peace treaty with the United States, to give Kim equal stature with President Trump in terms of formal titles. Thursday’s move appears to confirm Kim is head of state, reviving his grandfather’s system.
Of course the title changes mean little since Kim already rules with an iron fist. And Kim continues launching tests of his missile program.
This week, Japan’s defense chief said Pyongyang appeared to be developing warheads to penetrate a ballistic missile shield defending Japan, pointing to the irregular trajectories of the latest missiles launched by North Korea.
The short-range missile tests that President Trump has dismissed as unimportant are far from that to Japan and South Korea. But these two ended their military intelligence-sharing pact over a worsening spat over wartime forced labor.
Last Saturday, North Korea fired two short-range ballistic missiles into the sea, the seventh such test since the end of July. Speaking afterwards, President Trump, as noted above, reiterated that he had a “really good relationship” with Kim, whom he said had been “pretty straight” with him and the tests were no big deal.
Japanese Prime Minister Shinzo Abe, on the other hand, is adamant Pyongyang’s missile launches violate UN resolutions, which they do.
Iran: Tensions are ratcheting up in the region as Israel has been expanding its attacks against Iran and its allies in the region. Israeli aircraft struck a Palestinian group’s base (that of the Popular Front for the Liberation of Palestine) in eastern Lebanon, the first suspected Israeli strikes in Lebanon since 2013, as well as other attacks described further below.
At the same time, during last weekend’s G-7, French President Emmanuel Macron gambled, and lost.
David Ignatius / Washington Post
“What really happened in Biarritz last weekend with the mysterious visit of Iranian Foreign Minister Mohammad Javad Zarif? U.S. officials saw it as a bit of diplomatic freelancing by French President Emmanuel Macron, which sought to foster negotiations but highlighted the obstacles that are in the way.
“The intrigue surrounding the summit was described by knowledgeable sources who requested anonymity to describe the sensitive diplomacy. ‘It felt like a gamble,’ said one source, a bet by Macron that he could engage President Trump’s flair for the dramatic by providing a venue for a face-to-face meeting. A French Embassy spokesperson in Washington declined to comment.
“Macron has been trying to coax Iran and the United States toward talks that would produce a new, broader nuclear agreement since April 2018, when he proposed during a visit to the White House ‘four pillars’ of such a revised agreement. Macron wants to add curbs on Iranian ballistic missiles and regional interference to an extended version of the 2015 nuclear pact.
“Macron, understanding Trump’s penchant for disruptive diplomacy, apparently thought that if he brought Zarif to the Group of Seven summit meeting on the French coast, it might prompt a U.S.-Iran meeting that would jump-start talks. Macron may have been modeling his effort on South Korean President Moon Jae-in’s success in leveraging the 2018 PyeongChang Olympics to encourage rapprochement with North Korea and Trump’s subsequent meetings with Kim Jong Un.
“Macron’s bet didn’t pay off, and there are some obvious explanations why: Zarif wasn’t senior enough, he’s personally disliked by the Trump team as the favorite interlocutor of the Obama administration, and he didn’t bring any concessions from Tehran. Perhaps if President Hassan Rouhani had arrived in Biarritz, carrying a meaningful message, then Trump would have found a dramatic meeting irresistible....
“After the Biarritz gambit, Trump himself seemed to be inviting a meeting with Rouhani. ‘I have a good feeling. I think [Rouhani] is going to want to meet and get their situation straightened out. They are hurting badly,’ he said Monday as the G-7 ended. But the next day, it was Rouhani’s turn to express disdain, saying, ‘We will not witness any positive development unless the United States abandons its sanctions.’....
“Trump clearly doesn’t want war with Iran, and neither do key U.S. allies. The United Arab Emirates recently floated the idea of a ‘Helsinki process,’ under United Nations sponsorship, that would allow discussions among nations of the Persian Gulf region, perhaps focused on maritime security. And the United States confirmed this week that it is conducting secret talks with the Iran-backed Houthi rebels in Yemen.
“Yet the war drums still beat. Israel last weekend attacked Iran-backed rebels in Iraq, Syria and Lebanon, in what seemed a significant escalation. Confused about where the Iran confrontation is heading? Welcome to the club.”
Separately, the International Atomic Energy Agency, in a quarterly report released this afternoon, confirmed that Iran is progressively backing out of the nuclear deal and increasing its stock of enriched uranium, while refining it to a greater purity than allowed. Iran has said it will breach the deal’s limits one by one, ratcheting up pressure on parties who still hope to save it.
But both the amounts of enriched uranium that Iran has accumulated, plus the level, up to 4.5%, are both well below the levels it possessed before the deal.
Israel: Speaking of Israel’s actions this week, it accused Iran on Thursday of stepping up efforts to provide Hezbollah with precision-guided missile production facilities, a warning to Beirut that Israeli counter-strikes could escalate.
“Dir balak,” Prime Minister Benjamin Netanyahu said in public remarks directed at Lebanon, using the Arabic for “watch out.” Israel and Hezbollah are on high alert after drones were used at the weekend to attack what appeared to be precision-guided missile projects. Hezbollah blamed Israel for the rare strike in Beirut, and said it will retaliate. Hezbollah denies harboring such facilities. Lebanon has accused Israel of seeking pretexts for aggression.
After Hezbollah said it would respond to the Beirut strike by downing Israeli drones that enter Lebanon’s skies, the Lebanese army on Wednesday shot at drones that it said had crossed the border. Israel said there was no damage to them.
Hezbollah leader Hassan Nasrallah said in a speech Sunday night, “What happened in Syria* and Lebanon last night is very, very dangerous,” adding that Prime Minister Netanyahu “would be mistaken if he thinks that this issue can go unnoticed.
“The time at which Israeli war jets used to strike targets in Lebanon while the usurping entity in Palestine kept safe has ended,” Nasrallah continued. “From tonight, I tell the Israeli army on the border, wait for our response, which may take place at any time on the border and beyond the border. Be prepared and wait for us.”
*Israeli aircraft struck Iranian forces near Damascus that it says were planning to launch armed drones at targets in Israel.
Editorial / Washington Post
“Since July, Israel has quietly expanded its air campaign against Iranian assets and allied militias from Syria to Iraq, with potentially far-reaching consequences for U.S. forces in the region. U.S. officials have said a July 19 airstrike on a weapons depot north of Baghdad was carried out by Israel, which has launched hundreds of strikes in Syria in recent years but had not targeted Iraq since 1981. Three other recent attacks on arms storehouses controlled by Iranian-linked militias are also believed to have been Israeli operations.
“On Sunday, a drone attack on a Shiite militia convoy in western Iraq reportedly killed a senior commander and up to eight others. The previous night, an Israeli air raid in Syria killed two operatives of the Lebanese group Hezbollah, which also blamed Israel for a drone that crashed near its media center south of Beirut. The government of Prime Minister Benjamin Netanyahu claimed credit only for the Syria operation, saying it had preempted an Iranian-directed drone attack on multiple military and civilian targets inside Israel.
“Israel clearly has a right to defend itself from Iranian attacks, and there should be no objection to its action in Syria, a lawless country where Tehran and its allies operate with impunity. But the expansion of what has been a mostly measured and covert Israeli campaign to Iraq comes with considerable risks – including for the United States. Some 5,000 U.S. troops are still based in the country – and could be targets for Iranian reprisals; at the same time, the Iraqi government, which remains allied with Washington, is highly vulnerable to pressure from the Shiite militia groups, which among other things control a large bloc in parliament. That faction reacted to the attack on the militia convoy Sunday by blaming both Israel and the United States and calling for U.S. forces to leave the country....
“Secretary of State Mike Pompeo, meanwhile, was working to prevent an escalation between Lebanon and Israel; according to Lebanese reports, he offered the government assurances that Israel did not intend to rupture a de facto cease-fire with Hezbollah.
“Mr. Netanyahu faces a tough election next month, and he has been a staunch opponent of any U.S.-Iranian rapprochement. He might consider this a good moment to escalate with Iran; he may also believe that Mr. Trump will not object, even if the result is damage to U.S. interests in Iraq and a greater risk of a full-scale war. Unfortunately, on the latter point, he’s probably right.”
Brazil: Brigitte Macron, France’s first lady, hit back at mockery of her age and appearance by Brazilian President Jair Bolsonaro amid a war of words between him and Brigitte’s husband, Emmanuel Macron, that has left 20m euros in emergency funding for the Amazon fires in limbo (though the 20m figure was a pathetic sum on the part of Europe and the G-7). Brazil is instead accepting 11m euros from the UK.
Bolsonaro, accused by critics of allowing tens of thousands of fires to rage unchecked in the rainforest, announced a two-month ban on fires deliberately started by farmers.
Critics have accused the leader of allowing farmers to start fires in order to clear forest for crops and grazing, labeling him “Captain Chainsaw.” And in response to the global condemnation, Bolsonaro also said that those living in the Amazon basin should be allowed “to develop along with the rest of the country” by exploiting the “incalculable wealth...of natural resources” in the region.
Anyway, Mrs. Macron (66) implied the 64-year-old Bolsonaro was out of tune with contemporary attitudes to women and then thanked the thousands of Brazilians who had offered apologies on social media for their president’s approval of a post deriding her for being nearly 25 years older than her husband.
The post implied Michelle Bolsonaro, the 37-year-old wife of Mr. Bolsonaro, was better looking than the French first lady. Mr. Bolsonaro wrote, “Do not humiliate the man hahaha.”
President Macron said, “It’s sad first of all for him and for Brazilians. Brazilian women are probably feeling ashamed of their president.”
Wednesday, President Trump lent his support to the Brazilian leader. Meanwhile, Bolsonaro’s poll numbers have been plummeting.
--Presidential tracking polls:
Gallup: 41% approve of Trump’s performance, 54% disapprove; 88% of Republicans approve, 37% independents (Aug. 1-14; new numbers next week).
Rasmussen: 47% approve, 51% disapprove (Aug. 30).
--A USA TODAY/Suffolk University poll had President Trump with a 44% approval rating, 54% disapproval among registered voters.
Voters in a Quinnipiac University survey give Trump only a 38% approval rating, 56% disapprove (it was 40-54 a month ago).
Joe Walsh, the former Tea Party congressman from Illinois, now radio host, announced he would challenge President Trump in the Republican primary. “I’m running because he’s unfit, somebody needs to step up and there needs to be an alternative. The country is sick of this guy’s tantrums, he’s a child,” Walsh said on ABC’s “This Week.”
Walsh will be out of the race in about, oh, two months.
--Last week I noted the results of a national CNN/SSRS poll of the Democratic field and Joe Biden garnered 29% of Democratic and Democratic-leaning registered voters, up 7 points compared with a late June CNN survey.
Bernie Sanders was at 15% and Elizabeth Warren at 14%.
So then this week the first national poll since the CNN one came out, Monday, this from Monmouth University, and it kind of rocked the political establishment, and media, as it found a virtual three-way tie among Sanders (20%), Warren (20%), and Biden (19%), among Democrats and Democratic-leaning voters across the country.
No way, I thought, focusing mainly on Sanders’ relative standing, and I don’t like the Monmouth polling anyway (I’m partial to Quinnipiac over them in the ‘independent,’ non-network-related space).
Kamala Harris was at 8%, Cory Booker and Pete Buttigieg 4%, Andrew Yang 3%, Julian Castro and Beto O’Rourke 2%.
Monmouth’s June poll had Biden at 32%, Warren 15%, and Sanders 14%.
Well the Biden camp panicked, and all media outlets, from right to left, had Biden’s candidacy on life support.
Monmouth’s “early states” polling (those initial primaries and caucuses through Super Tuesday (March 3rd), had Warren and Biden at 20% apiece, Sanders 16%, Harris 12%, and Andrew Yang at 5%!
Well, Wednesday sanity returned in the form of two new national polls.
USA TODAY/Suffolk University had Biden at 32%, up two points from his June standing in this one, while Warren was second at 14%, up 4 points, and Sanders 12%, down 3 points.
[Buttitieg and Harris at 6%, Yang 3%, O’Rourke and Booker 2%.]
This totally made more sense, and was similar to the prior week’s CNN/SSRS survey.
Also Wednesday we had a new national poll of Democratic voters and those leaning Democratic from Quinnipiac University and this one also had Biden at 32%, Warren 19%, and Sanders 15%. Harris 7%, Buttigieg 5%, Yang 3%.
By this point, it was now clear the Monmouth University survey was exposed to be an “outlier” and their polling director conceded as much later in the day.
Quinnipiac also found that in a head-to-head match-up, Biden would defeat Trump 54-38.
Sanders defeated Trump 53-39, Warren beats him 52-40; Harris 51-40, and Mayor Pete does so by 49-40.
The main takeaway is that Trump continues to receive 40% or a smidge higher.
Quinnipiac also found that 37% believe the national economy is getting worse, 31% say it is getting better. That is the first time since Trump was elected that more voters say the national economy is getting worse than getting better. The split in a June 11, 2019 poll found 39% saying the economy was getting better, just 23% saying it was getting worse, so a rapid reversal.
--The USA TODAY/Suffolk and Quinnipiac surveys were also the last ones before Wednesday’s deadline for qualifying for the Sept. 12 Democratic debate in Houston, and none of the candidates who still needed to reach 2 percent in any additional polls met that threshold.
So there are ten who qualified: Biden, Booker, Buttigieg, Castro, Harris, Klobuchar, O’Rourke, Sanders, Warren, and Yang.
Tom Steyer, Tulsi Gabbard and Marianne Williamson met the donor requirement but fell short in polling.
--But in a major development concerning the Democratic National Committee and Iowa, the DNC is rejecting the state’s plan for virtual caucuses – a decision that complicates the Iowa Democratic Party’s implementation of the 2020 presidential caucuses and threatens their very existence going forward.
The DNC’s Rules and Bylaws Committee voiced concerns about the security of the Iowa plan and the potential for hacking.
In February the state party had unveiled the most substantial changes to the caucuses since their inception, proposing a series of “virtual” caucuses that would allow registered Democrats to participate over the phone.
It was an effort to accommodate rules from the DNC, which issued a mandate after the 2016 elections requiring caucus states to allow some form of absentee voting.
So now Iowa’s “first in the nation” status is in doubt, as New Hampshire law allows its secretary of state to change the date of its primary so that it precedes any other state’s primary by at least one week. The DNC has said it will act on each state’s plan by Sept. 13. Today, the DNC said it was also examining Nevada’s process.
--Elizabeth Warren drew the largest crowd of her presidential campaign Sunday in Seattle, as an estimated 15,000 people turned out to support what she calls a movement for change.
The crowd responded loudly to her calls for a wealth tax of 2 cents on every dollar of assets above $50 million, as well as her call for overturning the Supreme Court’s ruling that lifted campaign finance restrictions.
Trump tweet: “They do stories so big on Elizabeth ‘Pocahontas’ Warren’s crowd sizes, adding many more people than are actually there, and yet my crowds, which are far bigger, get no coverage at all. Fake News!”
--Meanwhile, Joe Biden continued to make rather curious statements when on the campaign trail. During a discussion of mental health and school shootings at a health care town hall in Hanover, New Hampshire, the former Veep turned to his collegiate days, and spoke of the assassinations of his “political heroes,” Martin Luther King Jr. and Robert F. Kennedy, who were assassinated within weeks of each other.
Biden said, “My senior semester, they were both shot and killed. Imagine what would have happened if, God forbid, if Barack Obama had been assassinated after becoming the de facto nominee. What would’ve happened in America?”
Startling indeed. Plus his ‘senior semester’ comment doesn’t line up with his actual career timeline, but that’s par for the course with Uncle Joe.
And then there was the story broken by the Washington Post that Biden has been telling a war story about pinning a medal on a hero service member’s chest – but nearly every detail of the tale is wrong, the Post reporting that Biden apparently conflated several actual events to come up with his story.
Biden, when confronted Thursday, sounded confused about the events surrounding his riveting ‘account’ during an interview with The Post & Courier of South Carolina.
“I don’t understand what they’re talking about, but the central point is it was absolutely accurate what I said,” Biden told the paper.
--New York Sen. Kirsten Gillibrand dropped out of the presidential race after not making the September debate stage, seeing the handwriting on the wall.
But New York City Mayor Bill de Blasio still doesn’t get it. He has about three votes nationwide and refuses to quit.
--A Wall Street Journal/NBC News survey examined the values that Americans say define the national character, vs. when the question was asked 21 years ago, 1998.
Some 61% in the new survey cited patriotism as very important to them, down 9 percentage points from 1998, while 59% cited religion, down 12 points. Some 43% placed a high value on having children, down 16 points.
Among people 55 and older, nearly 80% said patriotism was very important, compared with 42% of those ages 18-38. Two-thirds of the older group cited religion as very important, compared with fewer than one-third of the younger group.
--NASA is investigating an allegation that an astronaut, Ann McClain, accessed the bank account of her estranged spouse from space, which is likely the first allegation of a crime committed in space, so you could build a case that crime is soaring in the stratosphere, or whatever layer those folks are at.
McClain allegedly accessed Summer Worden’s account while on a six-month mission aboard the International Space Station, according to a report in the New York Times. The pair were married in 2014; Worden filed for divorce in 2018.
Worden filed a complaint with the Federal Trade Commission claiming McClain had stolen her identity although she saw no signs anyone had moved or used funds in the account. After all not a lot of places to spend cash up there. No Kwik-E-Marts.
McClain said in a statement, “There’s unequivocally no truth to these claims. We’ve been going through a painful, personal separation that’s now unfortunately in the media.”
McClain was tipped to become the first woman on the Moon. Depending on her guilt or innocence, we could always decide to just leave her there.
--Since the firing of Officer Daniel Pantaleo by NYPD Commissioner James O’Neill, arrests have been plummeting, down 27% in the first week, with the number of criminal summonses issued falling 29%. It’s clear the cops on Gotham’s streets feel that the department doesn’t have their backs, so why should they put themselves on the line?
--Under Australian law, the Great Barrier Reef Marine Park Authority (GBRMPA) must produce a report on the state of the World Heritage site every five years.
The first report in 2009 concluded the reef was “at a crossroads between a positive, well-managed future and a less certain one.” The second report in 2014 ranked it as “an icon under pressure” with efforts needed to fight key threats.
Now, the new report says the outlook has been officially downgraded from poor to very poor due to climate change. While some habitats remain in a good state, the condition of the site as a whole is worsening.
“Threats to the reef are multiple, cumulative and increasing.” Due to rising sea temperatures, “mass bleaching events” in 2016 and 2017 wiped out coral and destroyed habitats for other sea life.
Imogen Zethoven, director of strategy for the Australian Marine Conservation Society, said: “This is now the third Outlook Report. We’ve had 10 years of warnings, 10 years of rising greenhouse emissions and 10 years watching the Reef heading for a catastrophe.” [BBC News]
Having been there, it’s sad. But moves can be made to save it. And, yes, I’m aware of that giant mass of pumice-like material from an underwater volcano that might be slowly drifting towards the region, which scientists say could be a lifesaver for it. Nature works in strange ways.
--Speaking of which, this holiday weekend it’s all about Hurricane Dorian. We pray it turns away from the Florida coast and moves out to sea. That’s all we can do. President Trump made the only move he could in canceling his planned trip to Poland this weekend to “ensure that all resources of the federal government are focused on” it.
Pray for the men and women of our armed forces...and all the fallen. We lost another soldier in Afghanistan today...number 15 this year.
God bless America.
Returns for the week 8/26-8/30
Dow Jones +3.0% 
S&P 500 +2.8% 
S&P MidCap +2.4%
Russell 2000 +2.4%
Nasdaq +2.7% 
Returns for the period 1/1/19-8/30/19
Dow Jones +13.2%
S&P 500 +16.7%
S&P MidCap +13.1%
Russell 2000 +10.9%
Bears N/A [end of summer vacation for these folks...last split was 49.1 / 17.9]
Happy Labor Day, as we pray for Florida and the Southeast.