Week in Review

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Week in Review

02/01/2020

For the week 1/27-1/31

[Posted 10:30 PM ET, Friday]

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Edition 1,085

I have more on the coronavirus crisis down below in my section on China, but on Thursday the World Health Organization (WHO) finally declared it an international public health emergency as the number of cases surged.

WHO Director Tedros Adhanom Ghebreyesus said though the vast majority of cases were in China, where the outbreak began, the agency was acting to protect more vulnerable countries with “weaker” health systems.

“We don’t know what sort of damage this virus could do if it were to spread in a country with a weaker health system,” Ghebreyesus said.  “We must act now to help countries prepare for that possibility.”

The director praised China for quickly identifying the new virus.

“So far we have not seen any deaths outside China, for which we must all be grateful,” Ghebreyesus said.

But the toll in China is rising rapidly and the number of cases outside the country is growing.  China deserves no praise for its botched handling of the crisis in the first weeks.

Some of us have learned that both officials in Hubei province (with Wuhan as its capital) and the central government release the latest death tolls once a day now, in the early evening eastern time.

So tonight the number of deaths from the coronavirus epidemic hit 259 in China, up by 46 since the day before, according to state broadcaster CCTV, while the number in Hubei is 249, with 192 of these in Wuhan.

The number of confirmed cases in the province is 7,153, with 11,791 in China overall.  There were 2,102 new confirmed infections in China Friday.

To say it’s out of control is an understatement.  While some experts in the U.S. say not to worry, pointing to the fact that over 8,200 Americans have died of the flu this season, it’s the uncertainty and unpredictability of the coronavirus that is causing governments around the world to take urgent precautions to shield their people.  The economic toll is rapidly escalating as well.

And relations between the United States and China are deteriorating by the hour.

Hot on the heels of the trade agreement between the two, Beijing is furious that Washington took the step to declare a public health emergency today, saying it would bar entry to the United States starting on Sunday of foreign nationals who have traveled to China, with all three major U.S. airlines announcing the cancelation of flights to mainland China; United and American Airlines through March, Delta through April.  U.S. citizens who have traveled to China’s Hubei Province within the last 14 days will be subject to a mandatory 14-day quarantine, Health and Human Services Secretary Alex Azar telling a media briefing at the White House today.  The U.S. is also limiting flights from China to seven U.S. airports.

Beijing called the moves “truly mean” given the WHO had commended its containment efforts and not recommended travel or trade curbs.

“The World Health Organization urged countries to avoid travel restrictions, but very soon after that, the United States did the opposite,” Chinese Foreign Ministry spokeswoman Hua Chunying said in a statement.  “It’s truly mean.”

Here’s the thing.  President Trump is already running around lying about the amount of U.S. goods China is supposedly obligated to buy with the new trade agreement, $200 billion each of the next two years, telling folks instead it’s “$250 billion...and more.”  Trump’s claims, echoed at every rally now, are outrageous and will only infuriate the Chinese further.  Do you think the Chinese will now come close to even complying with the $200bn?  Of course not.  Let alone as their economy freezes up with the coronavirus, demand for a lot of the products just won’t be there.

Just as I’ve been saying for almost two years now, the U.S. is doing what’s appropriate in its interactions with Beijing, including holding China to account on trade and intellectual property theft, but the American people need to understand that China is going to start lashing out.  Tonight, they are both frustrated and humiliated because they know they botched the Wuhan crisis, but they are also furious.

And I can’t help but reiterate what I said last week.  The topic hasn’t come up yet, but shortly it will...the threat to the Tokyo Olympics, which begin July 24!  You aren’t just going to get an “all clear” in March and everyone goes back to their normal lives with the snap of a finger.

U.S. business is certainly on edge.  In the tech sector, including with the likes of Apple, there are very real concerns over supply chain disruptions and they could last awhile.

You also have a situation in the energy sector.  The price of oil and natural gas is falling sharply on demand fears and it’s energy that has been the driver of the economy.  I have a story on Chevron down below but you are going to start hearing of sizable layoffs, at the worst possible time for the Trump campaign.

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As for the impeachment trial, tonight the Senate voted 51-49 to not seek witnesses or further documents, with Senators Susan Collins of Maine and Mitt Romney of Utah the only two Republicans joining all 47 Democrats in voting for more witnesses, i.e, John Bolton.

The Senate is breaking for the weekend and will reconvene on Monday morning for closing arguments.  The Senate will then vote on the articles of impeachment Wednesday, a day after President Trump’s State of the Union address.  Boy, this will be an interesting time, let alone the Iowa caucuses are Monday night.

The reason why we aren’t finished with it all tonight is because senators like Collins and Alaska Republican Lisa Murkowski want to deliver remarks, as do many Democrats, and of course you’ve seen that senators have been forced to be quiet thus far.

But the focus this week was former national security adviser Bolton, who in his upcoming book, “The Room Where It Happened,” alleges that President Trump admitted to him that he held up nearly $400 million in military assistance to Ukraine until President Volodymyr Zelensky began an investigation into former Vice President Joe Biden, according to the New York Times which has been apprised of portions of Bolton’s manuscript.

The book contradicts arguments from Trump and his Republican allies that the president paused the aid because he was concerned about rampant corruption in the country.

Thursday night, a key Republican Senator, Tennessee’s Lamar Alexander, who is retiring and was among a handful of GOP moderates under pressure to vote for more evidence, said after the trial’s second and final question-and-answer session that he had heard enough and did not consider it necessary to subpoena Bolton or any other outstanding witnesses.

“There is no need for more evidence to prove something that has already been proven and that does not meet the U.S. Constitution’s high bar for an impeachable offense,” Alexander said in a statement.

Still, Alexander nonetheless acknowledged the Democratic impeachment managers proved the allegation at the heart of their case – that Trump pressured Ukraine’s president to announce an investigation of Joe Biden while withholding $391 million in military aid as leverage “to encourage that investigation.”

“But the Constitution does not give the Senate the power to remove the president from office and ban him from this year’s ballot simply for actions that are inappropriate,” Alexander said.

“The question then is not whether the president did it, but whether the United States Senate or the American people should decide what to do about what he did.  I believe that the Constitution provides that the people should make that decision in the presidential election that begins in Iowa on Monday.”

Senators Collins and Romney had previously telegraphed they wanted to hear more testimony.

Alaska’s Murkowski, along with Alexander, were to be the other two to force witnesses.

So this was the backdrop before Friday’s official showdown and vote on witnesses, but beforehand, the New York Times reported more on Bolton’s book:

“More than two months before he asked Ukraine’s president to investigate his political opponents, President Trump directed John R. Bolton, then his national security adviser, to help with his pressure campaign to extract damaging information on Democrats from Ukrainian officials, according to an unpublished manuscript by Mr. Bolton.

“Mr. Trump gave the instruction, Mr. Bolton wrote, during an Oval Office conversation in early May that included the acting White House chief of staff, Mick Mulvaney, the president’s personal lawyer Rudolph W. Giuliani and the White House counsel, Pat A. Cipollone, who is now leading the president’s impeachment defense.

“Mr. Trump told Mr. Bolton to call Volodymyr Zelensky, who had recently won election as president of Ukraine, to ensure Mr. Zelensky would meet with Mr. Giuliani, who was planning a trip to Ukraine to discuss the investigations that the president sought, in Mr. Bolton’s account.  Mr. Bolton never made the call, he wrote.

“The previously undisclosed directive that Mr. Bolton describes would be the earliest known instance of Mr. Trump seeking to harness the power of the United States government to advance his pressure campaign against Ukraine, as he later did on the July call with Mr. Zelensky that triggered a whistle-blower complaint and impeachment proceedings.”

President Trump issued a statement after the article was published, denying the discussion that Mr. Bolton described.

“I never instructed John Bolton to set up a meeting for Rudy Giuliani, one of the greatest corruption fighters in America and by far the greatest mayor in the history of N.Y.C., to meet with President Zelensky.  That meeting never happened.”

Editorial / USA TODAY (7:00 p.m. ET, Jan. 30...before today’s new Bolton revelations...)

“As the Senate moves toward pivotal votes on witnesses and the articles of impeachment, Republican senators who decide that Donald Trump’s shakedown of Ukraine was sleazy, but not worth removing him from office, still have a problem.  They risk angering a president who insists his actions were ‘perfect’ and beyond reproach.

“In the face of such a dilemma, senators were offered an escape hatch this week by Trump lawyer Alan Dershowitz: Don’t worry about what Trump did, Dershowitz assured the senators.  You can tell your constituents that if the president didn’t commit a crime, he can’t be impeached and removed from office.

“In other words, it doesn’t matter if the president withheld nearly $400 million in congressionally approved military aid from Ukraine for the selfish purpose of acquiring political dirt on former Vice President Joe Biden.  Or that Trump stonewalled Congress’ investigation.

“Abuse of power and obstruction of Congress – the two House-approved impeachment articles against him – are not statutory crimes like treason or bribery, Dershowitz told the Senate.  The no-crime, no-foul argument resonated with some GOP senators.  ‘I don’t disagree,’ said Sen. Roy Blunt of Missouri, one of 14 sitting Republican senators who voted to impeach or convict President Bill Clinton two decades ago for lesser offenses.

“Is Dershowitz correct?

“In a word, no.

“If you don’t believe us, just ask...the very same Alan Dershowitz.  Back in 1998, during the Clinton impeachment proceedings, the famed Harvard law professor said, ‘It certainly doesn’t have to be a crime.  If you have somebody who completely corrupts the office of president and who abuses trust and who poses great danger to our liberty, you don’t need a technical crime.’  (Dershowitz now says he reached his new conclusion after further analysis and study.)

“The great majority of legal scholars agree that the impeachment doesn’t require a crime.  These include the Republicans’ star legal witness during the House impeachment proceedings, constitutional law professor Jonathan Turley.  Even Trump’s attorney general, William Barr, has written that abuse of power is a legitimate impeachment allegation....

“There is ample proof that Donald Trump abused the power of his office when he tried to extort election dirt from the Kyiv government and then obstructed Congress.  The Government Accountability Office, a nonpartisan congressional watchdog agency, said this month that the administration illegally delayed the military aid Ukraine needed to fight Russian aggression.  But even if Trump’s thuggish behavior didn’t fit neatly into a criminal statute, it was sufficiently egregious as to warrant his conviction.

“Just as all crimes aren’t necessarily impeachable, all impeachable conduct isn’t necessarily criminal.”

For the record, Alan Dershowitz asserted: “If a president does something which he believes will help him get elected in the public interest, that cannot be the kind of quid pro quo that results in impeachment.”

And that if a president were to tell a foreign leader he was going to withhold funds unless his foreign counterpart built a hotel with his name on it and gave him a million-dollar kickback, “That’s an easy case. That’s purely corrupt and in the purely private interest.”

“But a complex middle case is: ‘I want to be elected.  I think I’m a great president.  I think I’m the greatest president there ever was. And if I’m not elected, the national interest will suffer greatly,” Dershowitz said.  “That cannot be an impeachable offense.”

As the Washington Post editorialized:

“The implications of this position are frightening.  If Republicans acquit Mr. Trump on the basis of Mr. Dershowitz’s arguments, they will be saying that presidents are entitled to use their official powers to force foreign governments to investigate any U.S. citizen they choose to target – even if there is no evidence of wrongdoing.  Mr. Trump could induce Russia or Saudi Arabia or China to spy on Mr. Biden, or on any other of the many people subject to his offensive tweets.  In exchange for any embarrassing information, the president might offer official favors, such as arms sales or a trade deal or the lifting of sanctions.  Do Republicans really wish to ratify such presidential authority?  Will they not object if the next Democratic president resorts to it?”

I’ll offer my own final take on it all next time, after next week’s tumultuous action.  I won’t be kind to anyone.

For now I will just say this.  I thought Rep. Schiff’s best argument was that President Trump had all of 2017 and 2018 to ask Ukraine to investigate Hunter Biden (who became a board member of Burisma in 2014), but instead he gave over a $billion in aid to the Ukrainians, and a then highly-corrupt regime, without bringing up the Bidens once.  Joe Biden then announces he is running in the spring of 2019, though it had been in the works for the better part of a year, and that’s when the president becomes concerned about corruption in Ukraine, even though a reformer, Zelensky, had just been elected.

‘Tis a puzzlement...or maybe not.

Trump World

--A Quinnipiac University national poll of registered voters had the people saying 75 to 20 percent that witnesses should be allowed to testify in the impeachment trial.  Support for witness testimony includes 49 percent of Republicans, 95 percent of Democrats, and 75 percent of independents.

On the question of whether President Trump should be removed from office, voters remain divided, as 48 percent say the Senate should not remove him from office, while 46 percent said he should be removed.

More than half of voters – 53 to 40 percent, say President Trump is not telling the truth about his actions involving Ukraine.  89 percent of Republicans believe the president is telling the truth and 92 percent of Democrats say he is not telling the truth.  More independents, 56 percent, believe President Trump is not telling the truth, compared to the 33 percent who say he is telling the truth.

A Fox News poll released Sunday had 50% saying President Trump should be convicted and removed, with 44% saying he should not.  Independents said Trump should be removed by a nearly 20-point margin, with 53% favoring conviction and 34% opposed.

A Washington Post/ABC News survey has 47% saying senators should remove Trump from office and 49% saying they should not.

52% say they approve of the vote by the House to impeach the president, 45% disapprove.

66% say the Senate should call new witnesses, including over 6 in 10 independents, while Republicans are split, with 45% saying new witnesses should be called and 43% saying they should not.

--So on the issue of John Bolton’s book, the White House said in a letter addressed to Bolton’s lawyer, that his book contains classified information that rises to the top-secret level and should not be published.

A National Security Council official said it has reviewed the book and “the manuscript appears to contain significant amounts of classified information.”

“It also appears that some of this classified information is at the TOP SECRET level,” Ellen J. Knight, the senior director for records, access, and information security management, wrote in the letter dated Jan. 23 and obtained by several media outlets on Wednesday.

There is no telling how long the NSC, in cahoots with the White House, can hold up the book.

--Secretary of State Mike Pompeo, apparently angered by a reporter for NPR’s questions about the Trump administration’s firing of Ambassador Marie Yovanovitch during an interview last Friday, lashed out at her after, cursing and challenging her to find Ukraine on a map, according to the reporter, veteran Mary Louise Kelly.

“I’ve defended every single person on this team,” Pompeo said in the interview.  “I’ve done what’s right for every single person on this team.”

Asked whether he could point to specific remarks in which he defended Yovanovitch, Pompeo said: “I’ve said all I’m going to say today.  Thank you. Thanks for the repeated opportunity to do so.  I appreciate that.”

Soon after, Ms. Kelly said, an aide to Pompeo ended the roughly nine-minute interview, Pompeo glared at her and left the room.

But then Kelly said the aide who stopped the interview asked her to come with her, with no recorder, Kelly then taken to Pompeo’s living room, where he was waiting, and “where he shouted at me for about the same amount of time as the interview itself had lasted.”

“He was not happy to have been questioned about Ukraine,” Ms. Kelly said on NPR.  “He asked, ‘Do you think Americans care about Ukraine?’  He used the f-word in that sentence, and many others.”

Pompeo asked Ms. Kelly if she could find Ukraine on a map and it escalated further from there. 

The next day, Pompeo did not refute Ms. Kelly’s claims.  Instead, he accused her of lying to him about how she would conduct the interview.  Kelly did not lie, having made it clear beforehand she would ask questions about Ukraine, as well as other topics.

President Trump then made things worse, retweeting a comment from right-wing agitator Mark Levin, who asked, “Why does NPR still exist?” and accused the organization of being a “Democrat Party propaganda operation.”  The president added: “A very good question!”

Pompeo fumed on Saturday: “It is no wonder that the American people distrust many in the media when they so consistently demonstrate their agenda and their absence of integrity.”

I agree with a Washington Post editorial that concluded: “It’s the president’s immediate escalation to questioning NPR’s right to exist that demonstrates an integrity deficiency.”

--Trump tweets:

“ ‘Schiff blasted for not focusing on California homeless.’ @foxandfriends. His District is in terrible shape.  He is a corrupt pol who only dreams of the Impeachment Hoax.  In my opinion he is mentally deranged!”

“For a guy who couldn’t get approved for the Ambassador to the U.N. years ago, couldn’t get approved for anything since, ‘begged’ me for a non Senate approved job, which I gave him despite many saying ‘Don’t do it, sir,’ takes the job, mistakenly says ‘Libyan Model’ on T.V., and...

“...many more mistakes of judgement, gets fired because frankly, if I listened to him, we would be in World War Six by now, and goes out and IMMEDIATELY writes a nasty & untrue book.  All Classified National Security. Who would do this?”

“Why didn’t John Bolton complain about this ‘nonsense’ a long time ago, when he was very publicly terminated.  He said, not that it matters, NOTHING!”

“No matter how many witnesses you give the Democrats, no matter how much information is given, like the quickly produced Transcripts, it will NEVER be enough for them.  They will always scream UNFAIR.  The Impeachment Hoax is just another political CON JOB!”

“I NEVER told John Bolton that the aid to Ukraine was tied to investigations into Democrats, including the Bidens.  In fact, he never complained about this at the time of his very public termination.  If John Bolton said this, it was only to sell a book. With that being said, the...

“...transcripts of my calls with President Zelensky are all the proof that is needed, in addition to the fact that President Zelensky & the Foreign Minister of Ukraine said there was no pressure and no problems.  Additionally, I met with President Zelensky at the United Nations...

“...(Democrats said I never met) and released the military aid to Ukraine without any conditions or investigations – and far ahead of schedule.  I also allowed Ukraine to purchase Javelin anti-tank missiles.  My Administration has done far more than the previous Administration.”

“Really pathetic how @FoxNews is trying to be so politically correct by loading the airwaves with Democrats like Chris Van Hollen, the no name Senator from Maryland.  He has been on forever playing up the Impeachment Hoax. Dems wouldn’t even give Fox their low ratings debates....

“....So, what the hell has happened to @FoxNews.  Only I know! Chris Wallace and others should be on Fake News CNN or MSDNC.  How’s Shep Smith doing?  Watch, this will be the beginning of the end for Fox, just like the other two which are dying in the ratings. Social Media is great!”

Wall Street

Stocks cratered today as traders didn’t want to be ‘long’ heading into the weekend with all the coronavirus uncertainty.

Meanwhile, the first reading on fourth-quarter GDP was released Thursday and it came in at 2.1%, same as the third quarter and hardly exciting.  For the record, the Atlanta Fed’s GDPNow final estimate for Q4, released the day before, was 1.7%.  It’s first reading today on the first quarter is 2.7%, but the early numbers can vary widely from where we end up.

The government’s official number for Q4 will undergo two revisions over the coming months.

Boeing’s halt to production of its troubled 737 MAX aircraft this month is a blow to U.S. manufacturing, and now we have slowing growth in China, compounded by the coronavirus outbreak, which poses a risk to the global economic pickup many had expected for 2020.

GDP (annualized rates)

Q1 2019...3.1 percent
Q2 2019...2.0
Q3 2019...2.1
Q4 2019...2.1

GDP

2017...2.4
2018...2.9
2019...2.3

Where’s the vaunted 3%+ growth we were promised?  Worrisomely, personal consumption (consumer spending) has been declining the last three quarters...from 4.6% ann. in Q2, to 3.2% in Q3 and 1.8% in Q4 (though some economists are having trouble reconciling this last figure because the fourth quarter in many respects seemed strong).

Business investment dropped for the third quarter in a row, while residential investment picked up.

The Federal Reserve held the line on interest rates this week, as it is basically expected to all year, saying in its statement: “The committee judges the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the committee’s symmetric 2% objective.”

Fed Chair Jerome Powell said at a news conference following the unanimous decision that global economic growth was stabilizing, with diminishing uncertainties around trade policy, concerns about both of which were key factors in the Fed’s decisions to cut rates three times last year.

But, he added, “uncertainties about the outlook remain, including those posed by the new coronavirus....We are very carefully monitoring the situation.”

In other economic news this week, the housing sector has been a big positive for the economy, but Monday we had a report on new-home sales for December and it came in way below expectations at 694,000 annualized, while a reading on pending home sales in December fell 4.9% from the prior month, the largest decline in almost a decade, according to a report from the National Association of Realtors.  The NAR blamed the figure on a shortage of homes on the market.

NAR economist Lawrence Yun said, “The state of housing in 2020 will depend on whether homebuilders bring more affordable homes to the market.  Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains.”

Separately, the November S&P CoreLogic Case-Shiller 20-city home price index showed a gain of 2.6% year-on-year.

Tuesday, a reading on December durable goods rose a better-than-expected 2.4%, but ex-transportation it fell 0.1%, and was –0.9% for the capital expenditure component, not good.

Today, we had a reading on December personal income, up just 0.2%, while consumption (consumer spending) rose an expected 0.3%.  The Fed’s preferred personal consumption expenditures inflation barometer came in at 1.6% on core; still more than tame.

And we had a reading on Chicago-area manufacturing, the PMI for January, which was putrid, 42.9, the lowest since Dec. 2015 (50 being the dividing line between growth and contraction).

Editorial / Wall Street Journal

“President Trump promised to lift the economy above the 2% growth trend of the Obama years, and for a while tax reform and deregulation did the trick.  But his trade and tariff forays undermined business investment and global manufacturing, and the economy is now back down to a 2% growth plateau. That’s nowhere near a recession, but it’s disappointing as a lost opportunity.

“What happened?  Mr. Trump blames the Federal Reserve, and we warned at the end of 2018 about the uncertainty of raising rates and winding down its bond purchases at the same time. But the Fed quickly corrected that mistake, and its policy hasn’t been tight in the last few months.

“The big policy shift was trade.  Tax reform passed in December 2017, and Mr. Trump kicked off his trade offensive in the first quarter of 2018 with solar and washing machine tariffs, then steel and aluminum tariffs, saber rattling over NAFTA withdrawal and car tariffs, and then the tariff showdown with China.

“The cost in lost growth is all over the 2019 data.  The surge in business investment that followed tax reform gradually ebbed as uncertainty over trade policy spread.  Businesses have pulled back investment since they can’t be sure of supply chains or input costs.  Global manufacturing took a hit as China’s growth slowed, which hurt Europe....

“The good news is that the incentive boost from deregulation and lower taxes has been able to offset some of the costs of trade friction.  The strong job market and mighty American consumer have kept the economy growing.  Personal consumption grew more slowly in the fourth quarter but still contributed 1.2 points to the 2.1% growth in GDP.

“There are signs that growth may perk up in 2020.  Inventories knocked 1.09 points off GDP in the fourth quarter, and they should rebound in future quarters.  Jobless claims keep declining, which heralds a strong labor market.  The Fed is accommodative, despite its modest increase in payments on excess reserves this week to keep the fed-funds rate closer to the middle of its 1.5%-1.75% range.

“The best news is a pause in the tariff wars.  Mr. Trump’s truce with China will help, and the redone NAFTA accord should reduce uncertainty about North American supply chains.  The biggest growth risk may be the election, and the possibility of a left-wing Democratic nominee.  Consumer confidence in the economy is increasing, which will help Mr. Trump.  But a lesson of 2019 is how much better growth might have been without the trade battles.”

On trade, President Trump signed legislation to implement the U.S.-Mexico-Canada Agreement, or USMCA, on Wednesday, fulfilling a key campaign promise to renegotiate NAFTA.

Mexico has ratified the latest version of the pact, while Canada’s parliament is expected to ratify the agreement within weeks, which would allow the agreement to go into force in the next few months.

The bipartisan U.S. International Trade Commission said the deal will produce a tiny gain in the U.S. GDP – a boost of 0.35% total over the long term – in large part because USMCA removes trade-policy uncertainty for some key industries, like autos.

President Trump said Wednesday the pact will boost GDP by 1.2% without citing any study.

One more issue...the Congressional Budget Office predicted on Tuesday that the U.S. deficit will top $1 trillion annually over the next 10 years, ultimately reaching $1.7 trillion in 2030.

By 2030, the federal debt held by the public will surpass $31 trillion – about 98 percent of the forecast size of the nation’s economy.

The only good news was that the CBO lowered its expectations for interest rates over the next decade, which saves the U.S. hundreds of billions of dollars in interest payments on the federal debt.  The budget office now expects the interest rate on the 10-year Treasury to remain below 3 percent through 2027.

Understand the CBO can be wildly off with its projections and I expect this last one will be.

The CBO also pegs GDP at 2.2% in 2020, but declining to 1.5% by the middle of the decade.  On this one, who the hell knows. 

President Trump tweeted this week: “The Fed should get smart & lower the Rate to make our interest competitive with other Countries which pay much lower even though we are, by far, the high standard.  We would then focus on paying off & refinancing debt!  There is almost no inflation – this is the time (2 years late)!”

Europe and Asia

We had some important data on the eurozone (EA19) this week, with Eurostat releasing a flash estimate for GDP in the fourth quarter, just 1.0% annualized, 0.1% in the quarter over Q3.  The annualized rate was 1.4% after the first quarter of 2019.  For the year growth was 1.2%, the weakest since 2013.

Unemployment in the euro area came in at 7.4%, down from 7.8% in December 2018 and the lowest in the eurozone since May 2008, so some good news.

Germany’s jobless rate was 3.2% in December, France 8.4%, Spain 13.7%, Italy 9.8%, Ireland 4.8%, and the Netherlands 3.2%.  [The last rate in the UK is from October, 3.8%.]

Eurostat also released a flash estimate for inflation in January, 1.4%, unchanged from Jan. 2019; 1.3% ex-food and energy vs. 1.2% a year earlier on core.

Separately, France’s official GDP for the fourth quarter over the third was –0.1%, when a gain of 0.2% was expected, owing to the impact on manufacturing of all the strikes over President Emmanuel Macron’s pension reform plan. For the year, France had growth of just 1.2%.

The German government didn’t release official data for GDP in 2019 yet, but it is forecasting only 1.1% in 2020, 1.3% in 2021.

Brexit: Today is the day.  Three and a half years after the UK voted to leave the European Union, a withdrawal agreement is finally coming into force.

But now we start the 11-month “transition period,” after which there is supposed to be a sweeping trade agreement between the UK and the EU.  Few expect this to occur in that time frame, but for today, Prime Minister Boris Johnson, a key ‘leave’ campaigner during the 2016 Brexit referendum, can declare victory. 

The country’s 66 million citizens remain divided, with many having claimed an Irish passport in order to “stay” in the EU.  Businesses fear the potential of time-consuming checks on goods crossing in and out of Europe and the Bank of England further downgraded its forecasts for the UK economy to levels not seen since the second world war...like growth of only 1%.

But tonight as the clock struck 11 p.m. in Britain – midnight in Brussels – Boris Johnson pronounced “the dawn of a new era,” describing the severing of ties with the other 27 member nations as “a moment of real national renewal and change” that “is the moment when we begin to unite and level up.”

But now it’s about reaching an agreement with the bloc on trade and other issues – such as security, energy, transport links, fishing rights (a biggie, by the way) and data flow – all by Dec. 31.

Johnson has vowed not to extend the transition period beyond 2020.

If the two sides fail to reach an agreement, the legal default will be a potentially crippling no-deal Brexit whereby trade between Britain and the EU after 2020 will have to be done on World Trade Organization terms, which would mean the imposition of tariffs and other controls.

And Johnson has to work out a deal with the United States.

The UK’s biggest manufacturing lobbying groups are calling for more clarity in establishing a post-Brexit trading relationship.  While Boris Johnson has talked of a “zero tariff, zero quota” trade deal before the end of the year, it just doesn’t seem possible given the tight timeline.

Business leaders know they can’t afford to get to the end of the year and not have a deal, which would be a major threat to their futures.

The EU is insisting that the UK sign up to strict rules on fair competition to prevent its companies undercutting their European rivals.

“Without a level playing field on environment, labor, taxation and state aid,” said the European Commission President, Ursula Von Der Leyen, in a recent speech, “you cannot have the highest quality access to the world’s largest single market.”

In late February or March, the UK and EU are expected to begin negotiations.

Editorial / The Economist

“Not much will change at 11pm on January 31st.  Some 50p pieces proclaiming ‘peace, prosperity and friendship with all nations’ will go into circulation to mark Britain’s departure from the European Union, but people, goods and services will continue to move freely between Britain and the EU, for the difficult business of making a deal on trade and migration has been left to the transition period that lasts until the end of this year.

“Yet leaving the EU is a huge moment.  Britain will be quitting the institutional structure that governs Europe’s single market, which will necessarily imply more friction in its trade relations with a club that takes almost half its exports.  Britons will lose the automatic right they now have to live and work across the EU.  Brexit has also administered a shock to the country.  The nation has argued long and bitterly over the issue, and its ruling elite has suffered a blow.  The unarguable outcome is the most powerful government in a generation, under Boris Johnson.  Much now depends on how he responds.

“The Economist did not advocate this outcome.  [Ed. Nor did I going back to June 2016.]  Most of the changes that Mr. Johnson’s government favors could have been accomplished without leaving the EU.  System-wide shocks are usually a costly way to bring about change.  Yet now that Brexit is definitely happening, the country should make the most of the chance to recalibrate the economy and reset its priorities.

“The last couple of times Britain pressed the reset button, in 1945 and 1979, the programs that it put into place to create the welfare state and replace socialism with Thatcherism had been long-planned.  This time is different. Mr. Johnson was focused entirely on leaving the EU and is now being buffeted by the storms that brew up swiftly in the affairs of state: he had to decide this week whether to bow to American demands that Britain keep Huawei, a Chinese company, out of its mobile-phone network (he did not), and must shortly make a call on whether a high-speed rail project to link the north of England to the south should go ahead (it should).

“Mr. Johnson grasps the excitement of the moment, but so far he has shown himself no more than a brilliant opportunist.  If his premiership is to leave its mark, it needs to be founded on a strategic vision, not tactical campaigning....

“Britain’s future is full of uncertainty.  No longer part of one of the great global blocs, it has to find a new role in the world.  Pulled apart by the tensions within the union, its nations need to find a new accommodation.  Shaken by the bitter arguments over Brexit, it has to mend its frayed social contract.  The difficulties should not be underestimated.  But when Britain previously reset its course, in 1945 and 1979, the choices it made helped reshape the world.  It should aim to do that again.”

For the record, the European Parliament, which needed to sign off on Britain’s withdrawal agreement, did so on Wednesday by a 621 to 49 vote.  A simple majority in the 751-seat legislature was required.

“We will always love you and we will never be far,” European Commision President von der Leyen said ahead of the vote.

The parliament’s Brexit coordinator, Guy Verhofstadt, said, “We will miss you.”

After the vote, lawmakers held hands and sang “Auld Lang Syne.”

Tonight, Boris Johnson told the nation, “We have obeyed the people.  We have taken back the tools of self-government.”

Italy: Far-right leader Matteo Salvini suffered a big setback after his League Party failed to unseat the left in a key regional election in the country’s north last weekend.  The center-left Democratic Party (PD) candidate won 51.4% of the vote in Emilia-Romagna, while the League candidate took 43.6%.

The election was seen as a test of Italy’s national coalition government, with Salvini himself campaigning extensively, hoping to depose the left and force a snap election.

Turning to Asia....China’s official PMI data for January was released by the National Bureau of Statistics, with the manufacturing reading at 50.0, down from 50.2 in December, while services rose to 54.1 from 53.5.  The impact of coronavirus is not fully accounted for in the survey and, as I noted last time, the data for January and February was already going to be a mess because of the Lunar New Year holiday which always distorts the data the first two months of the year.

One thing we do know, though, and that is the Wuhan virus is going to definitely lower growth for at least the first two quarters, perhaps significantly.

In Japan, factory output fell at the fastest pace on record in the fourth quarter, -4.0%, amid sluggish demand at home and abroad, reinforcing views the economy likely contracted in the fourth quarter.  Retail sales fell for a third straight month in December, -2.6% vs. a year ago, adding to worries about consumer spending after October’s sales tax increase.  And now we have the growing coronavirus.  China accounts for 30% of tourists to Japan, for  starters.

Street Bytes

--Stocks had their worst week in six months when it came to the Dow Jones and S&P 500, worst in 4 months for Nasdaq, as coronavirus fears overwhelmed earnings season, the Dow falling 2.5% to 28256, while the S&P lost 2.1% and Nasdaq 1.8%.  The awful Chicago PMI reading today didn’t help either as slowdown fears predominated, the Dow falling 2.1%, 603 points.

--U.S. Treasury Yields

6-mo. 1.52%  2-yr. 1.31%  10-yr. 1.51%  30-yr. 2.00%

With the Wuhan virus crisis leading to a flight-to-safety around the world, yields have plummeted the last two weeks, the 10-year seeing its yield fall from 1.82% to 1.51% over that time.

Germany’s 10-year bund has seen its yield go from –0.22% to –0.44%.  Italy’s, kind of astoundingly, has fallen from 1.37% to 0.93%; this as eurozone growth is virtually non-existent, if you want a report card on the European Central Bank’s zero/negative interest rate policy.

--Apple Inc. on Tuesday reported sales and profits for the holiday shopping quarter that were above expectations, powered by a rise in iPhone sales for the first time in a year and soaring demand for add-ons like AirPods wireless headphones.  The strong performance outweighed concerns over the coronavirus in China, seeing as the country is not just a major market for its products but also a manufacturing hub for Apple.

[But by week’s end all that had changed and Apple shares fell over 4% today.]

The number of active iPhones, computers and other devices owned by customers, called the installed base, grew by 100 million to more than 1.5 billion over the past year, and Apple executives set a new target of 600 million paid subscribers for music, TV, gaming and other services by the end of calendar 2020.

Apple gave a revenue forecast for the quarter ending in March above Wall Street’s forecasts, but CEO Tim Cook said the wider-than-normal prediction range was because of the uncertainty created by the coronavirus outbreak.

Apple’s share price has more than doubled since Cook warned a year ago that the company was likely to miss financial targets for its biggest sales quarter of its fiscal 2019.  In the year since, Apple slashed prices in China, one of its most important markets, to rekindle interest there.  And Apple made a big push into paid services.

Apple posted $91.8 billion in revenue for the quarter, compared with estimates of $88.5 billion.  The company forecast $63bn to $67bn in revenue for the current quarter, ahead of forecasts, showing it believes that its phones and other devices such as AirPods will continue to sell well during what is otherwise a slow time of year.

Apple reported services revenue of $12.7bn, which was below analysts’ estimates, but up from $10.9bn a year ago.

The shift toward services nonetheless depends on Apple growing its base of users and signing them up for recurring subscriptions.

Apple said it now has more than 1.5 billion active installed devices and 480 million subscribers to both its own and third-party paid services, compared with 1.4bn devices and 360 million subscribers a year earlier.

Cook said the company’s Apple TV+ subscription streaming video service released last fall was a “rousing success” and that it is “very strong, both the people that are getting it in the bundle and the people that are paying for it that haven’t bought a new device.”

Apple’s iPhone sales of $55.96bn compare with year-before sales of $52bn, snapping a yearlong trend of major sales declines for Apple’s biggest product.

Apple’s wearables segment, which includes AirPods and Apple Watch, hit $10bn, up sharply from $7.3bn.  Sales of AirPods alone, which Apple doesn’t break out, may have reached as much as $4bn, according to leading analyst Toni Sacconaghi of Bernstein.

--Microsoft Corp. beat analysts’ estimates for quarterly revenue, driven by strength in its cloud computing platform Azure.  Revenue in the company’s intelligent cloud segment, which includes Azure, rose 27% to $11.9 billion in the quarter, beating the Street.

Microsoft faces intense competition from Amazon.com’s AWS (Amazon Web Services) for share in the cloud infrastructure market, as more companies look to shift their computing work to data centers managed by cloud providers.  AWS has 32.6% of the market to Azure’s 17% share, according to data research firm Canalys.  Forester Research puts it at 45% AWS, 22% Azure, and 5% Google, for 2019. 

Azure, which has been reporting slower growth since last year, posted quarter-over-quarter growth of 62% in the fiscal second quarter vs. 59% growth in the first one.  Reacceleration, sports fans.

Revenue from Microsoft’s personal computing division, its largest by sales, rose 2% to $13.2 billion. This unit includes Windows software, Xbox gaming consoles, online search advertising and Surface personal computers.  Windows sales were strong ahead of the end of support for Windows 7.

Microsoft’s total revenue rose 13.7% to $36.91 billion, with net income rising to $11.65 billion, up from $8.42 billion, or $1.08 per share a year earlier.

--Amazon.com shares soared 7% Friday (but up over 13% when the market opened), CEO Jeff Bezos making something like $13 billion in the process initially, as the company reported earnings and sales that handily beat the Street, demolishing estimates on the former in particular.

Sales came in at $87.4bn for the holiday period, and the company sees Q1 revenue between $69-$73 billion, vs. the Street view of $71.5bn.

But it was the profit figure that blew analysts and investors away; $6.47 per share vs. estimates of $3.97, and with the solid estimate for future profits, $4.2 billion in the current quarter, the company is showing its investments in shipping would not erase its e-commerce and cloud windfalls.

Jeff Bezos, in a statement, said the company now has more than 150 million paid members in its loyalty club Prime, a 50% increase from the retailer’s last disclosure in 2018.  Amazon is looking to cut delivery times to one day for Prime members, as it aims to outmaneuver rivals such as Walmart that have marketed two-day shipping without subscription fees.

Revenue from subscription fees grew 32% to $5.2 billion.

Amazon’s total operating expenses rose 21.8% during the quarter to $83.56 billion, as the bet on faster delivery has meant a surge in hiring and related costs.  The company has said it added more than 250,000 full and part-time seasonal positions to fulfill holiday orders, which brought its global headcount to 750,000.  Expenses similarly have grown as the company placed inventory closer to customers and built out its last-mile shipping network, now carrying the biggest share of U.S. Amazon-ordered packages.  Its Amazon Logistics unit delivered more than 3.5 billion boxes globally in 2019.

Amazon Web Services (AWS), typically a bright spot, also has seen infrastructure and marketing costs rise.  AWS increased revenue 34% to $9.95 billion, the third quarter in a row in which its rate of growth was under 40%.

--Facebook’s profit and revenue for the last three months of 2019 handily surpassed the Street’s expectations, as the company made more money on advertising and added more users despite challenges it faces around regulation and efforts to fight election interference.

Facebook is under regulatory scrutiny around the world, and in the U.S., it faces several government investigations for alleged anti-competitive behavior.

The company, however, said Wednesday it earned $7.35 billion, or $2.56 per share, up 7% from $6.88bn a year earlier.  Revenue rose 25% to $21.1 billion from $16.9 billion.  Ad sales jumped 25% to $20.74 billion.

Facebook said that about 2.89 billion people use at least one of its services, Facebook, WhatsApp, Instagram or Messenger, each month.  About 2.26 billion use one every day.  The company said its main service had 2.5 billion monthly users at the end of the year, up 8% from a year earlier, with 1.66 billion daily users.

But the shares fell sharply on the news, about 6% (and then more today), as operating margins dropped after it ramped up spending to improve content and security across its platforms.  Total costs and expenses surged a higher-than-expected 34% to $12.22 billion in the fourth quarter, dragging down operating margins to 42% from 46% a year earlier.

--Tesla Inc. posted the second quarterly profit in a row on record vehicle deliveries and said it would deliver more than 500,000 units this year, as the electric carmaker’s shares soared to new highs, cracking $600 for the first time, and closing the week at $650, the market cap at about $117 billion.

Tesla said on Wednesday the manufacturing process at its new Shanghai factory was running as expected and it would increase production of the mass-market Model 3 there due to strong demand in China.  The company also said it has started production of its new Model Y, an electric crossover utility vehicle, at its Fremont, California, plant this month and plans to deliver the first models by the end of March, ahead of schedule.

Net profit came in at $105 million, or 58 cents per share.

Investors are telling you that Tesla has overcome all its production, legal and management struggles and is the company to lead the next generation of vehicles.

Tesla said it “should comfortably exceed” 500,000 vehicle deliveries in 2020, up from 367,500 last year.

But last week, in noting Tesla had become more valuable than Volkswagen on a market cap basis, while Tesla could hit 500,000 in production this year, VW produces 11 million.

--IBM Corp. announced that Arvind Krishna would become CEO, replacing longtime CEO Virginia “Ginni” Rometty.  Krishna is currently the head of IBM’s cloud and cognitive software unit and was a principal architect of the company’s purchase of Red Hat, which was completed last year.  Rometty, 62, will continue as executive chairman and serve through the end of the year, when she will retire after almost 40 years with the company.

Since becoming IBM’s first female CEO in 2012, Rometty had bet the company’s future on the market for hybrid cloud, which enables businesses to store data on both private and public cloud networks run by its rivals Amazon Web Services and Microsoft’s Azure.  By then, Big Blue had lagged behind for years after essentially missing the cloud revolution under her predecessor, Sam Palmisano.

How poorly has IBM performed under Rometty?  When she took the helm it had a market cap of more than $200 billion and revenue of more than $100 billion.  Sales are down more than a quarter since the end of 2012, and its market value had dropped by 49% at the time of the announcement, though is now back to $127bn after a rally on the news today.

--General Electric Co.’s shares rose 10% on Wednesday after the company reported strong cash flow from its industrial operations in the fourth quarter and gave an upbeat outlook for 2020, as GE continues to unwind its money-losing power business while relying for now on its aviation division.

GE reported it generated $3.9 billion in free cash flow (money remaining after paying bills and making investments) for the quarter, helping the company exceed its targets for the full year.  This is the metric the company is focused on, even as it projected lower revenue growth and profits for this year.

GE has set a higher bar to clear for 2020, projecting cash flow of $2 billion to $4 billion, despite the grounding of the MAX jet and loss of cash generated by its biotech business and its former oil and gas business.

Revenue in the fourth quarter declined 1% to $26.24 billion, better than analyst expectations.

GE’s century-old power division, which makes turbines for power plants, has suffered from a global drop in demand for such equipment, with the unit cutting thousands of jobs in response to the market.

The aviation division, on the other hand, saw orders rise 22% in the quarter, despite the Boeing issues.  GE conceded its outlook was “dependent on the 737 MAX’s return to service,” which GE is planning for in mid-2020, in line with Boeing.

GE has a joint venture with Safran of France to make the Leap engine for the MAX.

--So speaking of Boeing and the MAX, BA reported an annual loss of $636 million for 2019 as mounting costs from the crisis sent the aerospace giant to its worst financial performance in two decades.

Boeing said it would also make another cut in 787 Dreamliner production amid waning demand, and booked more charges on its military tanker and space-taxi programs to underline the broader challenges facing new CEO David Calhoun.

Boeing booked another $9.2 billion in charges and associated costs to cover potential compensation to MAX customers as well as higher expenses from reducing and then halting production of the jetliner following two fatal crashes.  [Overall, Boeing expects more than $18bn in related costs as a result of the grounding of the aircraft.]

Calhoun said he is confident the MAX will re-enter service, but the MAX crisis, the biggest in the company’s history, has derailed its product strategy – losing share to rival Airbus SE – and strained its balance sheet.

The company burned through $2.2 billion in cash in the fourth quarter.

I watched Calhoun in an interview on CNBC and while the network’s anchors and reporters were positive on his performance, I frankly thought he came off as incredibly disingenuous.

Finally, there was a piece of good news for Boeing this week.  Saturday, the company successfully completed the maiden flight of the world’s largest twin-engine jetliner, the 777X, a larger and more efficient version of Boeing’s successful 777 mini-jumbo. 

Boeing says it has sold 309 of the aircraft, worth more than $442 million each at list prices, $39,595 during Presidents’ Day sales, but analysts have questioned the company’s reliance on Middle East carriers that have been scaling back purchases as they take a break in their expansion plans.  The 777X will compete with the recently introduced Airbus A350-1000, which seats about 360 passengers.

--Among those facing losses from the grounding of the MAX aircraft is Dublin-based budget carrier Ryanair Holdings, which had hoped to have up to 10 of the jets available from June, now says it does not expect Boeing to deliver the first of the grounded model until September or October at the earliest, as Ryanair warns its pilots of potential base closure and job reductions.

Last July the airline said it had 500 more pilots than it needed, in part due to the MAX delays, the company having based its expansion plans on the delivery of a steady stream of the aircraft in the coming years.

--Samsung Electronics Co. reported a 39% drop in fourth-quarter net profit but projected improved market conditions in 2020, as the chip industry starts to pull out of a protracted slump.

The South Korean company reported a quarterly net profit of $4.4 billion for the fourth quarter, with revenue of $50.7bn, a 1.1% increase from a year earlier.

Samsung’s results had been weighed down over the past year by a semiconductor glut and the U.S.-China trade fight.  Since then, the likes of Intel and Taiwan Semiconductor have delivered robust results and forecasts, raising expectations for 2020.

Samsung has also largely been shielded from the Trump administration’s restrictions on doing business with China’s Huawei Technologies.  On Tuesday, U.S. chip maker Xilinx Inc. said it planned to cut 7% of its workforce, pointing to lost business with Huawei and lax adoption of 5G networks.

--But speaking of Huawei....In a blow to the Trump administration, Britain opted not to introduce an outright ban on the company’s technology, instead prohibiting it from supplying equipment to “sensitive parts” of the network, otherwise known as the core, while limiting its role supplying antennas and base stations for the less sensitive “radio access network” to 35% of the kit.

Prime Minister Boris Johnson said he wanted to ensure people have access to the best technology but that a decision on allowing Huawei a limited role in Britain’s 5G network would not harm cooperation with the United States.

“I want to assure...the country that I think it’s absolutely vital that people in this country do have access to the best technology available,” he told parliament.  “But that we also do absolutely nothing to imperil our relationship with the United States, to do anything to compromise our critical national security infrastructure or to do anything to imperil our extremely valuable cooperation with five eyes security partners.”  [Five Eyes being a pact between the U.S., UK, Canada, Australia and New Zealand to share signals intelligence.]

The U.S. has been lobbying European allies to ban Huawei, over concerns it could be compelled to help with electronic eavesdropping after Beijing enacted a 2017 national intelligence law.  U.S. officials have repeatedly warned they would have to reconsider intelligence sharing with allies that use Huawei.  The company has steadfastly denied the allegations.

Secretary of State Mike Pompeo urged Britain to look again at its decision.

“There is also a chance for the United Kingdom to relook at this as implementation moves forward and then it’s important for everyone to know there is also real work being done by lots of private companies inside the United States and in Europe to make sure that there are true competitors to Huawei,” Pompeo told reporters.  “We will make sure that when American information passes across a network we are confident that that network is a trusted one.  We’ll work with the United Kingdom.  We were urging them to make a decision that was different than the one they made and we’ll have a conversation about how to proceed.”

The European Union unveiled security guidelines for 5G networks that stopped short of calling for a ban on Huawei, in another setback for the U.S. campaign against the Chinese company.

The EU’s Executive Commission on Wednesday outlined a set of ‘non-binding’ strategic and technical measures aimed at reducing cybersecurity risks from 5G networks.  The recommendations include blocking high-risk equipment suppliers from “critical and sensitive” parts of the network, including the core, which keeps track of data and authenticates smartphones connecting to cells.

While no companies were mentioned by name, the “high-risk” supplier was an obvious reference to Huawei.  But basically, the EU is going to leave it up to individual countries to decide what kind of role Huawei will play; the EU seeing 5G as key to boosting economic growth and competing with the United States and China.

In Europe, Huawei competes mainly with European rivals Finland’s Nokia and Sweden’s Ericsson.

Huawei responded positively to the EU’s “non-biased and fact-based approach towards 5G security,” adding it has been operating in Europe for nearly two decades and has a proven track record in security.

138 cities in Europe are poised to roll out 5G by the end of the year.

Newt Gingrich, the former Speaker of the House of Representatives, who has long warned on the risks presented by Huawei, tweeted:

“(The) British decision to accept Huawei for 5G is a major defeat for the United States.  How big does Huawei have to get and how many countries have to sign with Huawei for the US government to realize we are losing the internet to China?  This is becoming an enormous strategic defeat.”

Huawei’s founder has always denied the company would help the Chinese government attack one of its clients, saying he would “shut the company down” rather than aid “any spying activities.”

Well that’s a big, fat lie.

--One more on Huawei...the whole topic is complicated.  For example, as the Wall Street Journal reported last weekend, the Commerce Department’s efforts to tighten the noose on Huawei face an obstacle in the form of the Pentagon.

“The Pentagon is concerned that if U.S. firms can’t continue to ship to Huawei, they will lose a key source of revenue – depriving them of money for research and development needed to maintain a technological edge, the people said.  The chip industry has pressed that argument in talks with government officials....

“Huawei is an enormous customer for U.S. high-tech firms.  The semiconductor manufacturer Micro Technology Inc., for instance, said in its 2019 annual report that Huawei accounts for 12% of its revenue.

“If those companies can’t continue to ship to Huawei, Pentagon officials feared, the firms would fall behind economically and not have the funds to invest heavily in research and development, according to (sources).”  [Bob Davis / Wall Street Journal]

Yup, it is indeed complicated.  Meanwhile, as you can imagine, the Chinese government has been feverishly helping Huawei develop alternative, home-grown components to replace the U.S. and other foreign suppliers, especially when it comes to a proprietary operating system for its phones.

--McDonald’s reported earnings and revenue that beat Wall Street estimates during its fourth quarter, sending the shares higher.

U.S. same-store sales were up a better-than-expected 5.1%, with global same-store sales rising 5.9%, also above forecasts.

The fast-food giant’s results came on the heels of the company’s less-than-stellar third quarter, when earnings missed the Street for the first time in two years.

CEO Chris Kempczinski said in a statement: “2019 marked a year of significant milestones for McDonald’s - including surpassing $100 billion in Systemwide sales and achieving our highest global comparable sales growth in over a decade.”

The burger giant now offers delivery in over 25,000 restaurants.

On Tuesday, McDonald’s announced that it would be offering two new chicken breakfast sandwiches for a limited time across the U.S.

But McDonald’s, along with so many other businesses, now has to deal with the coronavirus outbreak, as it temporarily closes stores in Wuhan and surrounding cities.

--Starbucks beat the Street in its fiscal first quarter, October-December, as same-store sales jumped 5% worldwide, with revenue up 7% to $7.1 billion.  Earnings rose 16% to $886 million, beating estimates.

New drinks like the Pumpkin Cream Cold Brew were a hit with customers, as the company reaffirmed its 2020 profit guidance for now, BUT, it too has already closed more than half of its stores in China and that is a major market for it....like try 4,292 stores in the country overall.

--Coca-Cola Co. reported higher sales that beat forecasts, sales up 16% from a year earlier to $9.07 billion.  The company said organic revenue growth, excluding the effect of currency swings, acquisitions and divestitures, was 7%.

CEO James Quincey, addressing the issues in China with the coronavirus, said Coke is working with the government to reopen some manufacturing facilities to distribute its product in a way that wouldn’t contribute to the coronavirus outbreak in the country.  The plants closed at the start of the Lunar New Year, and the Chinese government has asked businesses to remain closed as it extended the holiday through Feb. 9.  China accounts for 10% of Coke’s global sales.  See a pattern here?

Unit case volume of water, enhanced water and sports drink were up 2%, while tea and coffer volume grew 4%.

--AT&T missed fourth-quarter revenue estimates on Wednesday, as another loss in satellite TV provider DirectTV’s subscriptions overshadowed better-than-expected sign ups in monthly bill paying customers.  Revenue from the entertainment segment, that includes DirectTV, fell 6.1% to $11.23 billion.

But AT&T said it added 229,000 net new subscribers, well above expectations.

AT&T has been losing satellite TV consumers as traditional television concedes to streaming platforms like Netflix and Amazon’s Prime, let alone the other alternatives now coming onstream.  So the company is launching its own streaming platform HBOMax in May.

Total operating revenue in the fourth quarter fell to $46.82 billion from $47.99bn a year earlier.  The WarnerMedia segment, which includes HBO, reported revenue of $8.92 billion, missing analysts’ expectations.

--Shares in 3M fell on Tuesday after the industrial giant posted fourth-quarter results that missed expectations, weighed down by a $134 million charge related to a global restructuring program.

3M, the maker of Scotch Tape and other products for consumers and industries, said the restructuring would result in the loss of 1,500 jobs “spanning all business groups, functions, and geographies.”

For the quarter, sales rose to $8.11bn from $7.95bn in the prior-year quarter, below consensus, ditto earnings, which came in well under the Street’s projections.

--Caterpillar reported adjusted profit that beat forecasts, but revenue of $13.1 billion was a decline from $14.3 billion a year ago, missing consensus.  CAT also said it expects profit to be below forecasts for 2020.

CEO and Chairman Jim Umpleby said, “We expect continued global economic uncertainty to pressure sales to users in 2020 and cause dealers to further reduce inventories.”

North American sales fell 18%, while Asia/Pacific revenues were flat.

--Chevron reported revenue of $36.35 in the fourth quarter, well below the Street’s estimates, while the company reported a profit of $2.92 billion for the year on revenue of $146.52 billion.

But the company reported a massive $6.6 billion loss in Q4 (its worst quarterly loss in a decade) after $10.4bn in write-offs in North America because of continuously weak natural gas prices, which closed today at $1.84, after a cycle peak of $4.61 on 11/30/18.

--Exxon Mobil also reported earnings that missed estimates, with revenue of $67.17 billion for the recent quarter, compared with $71.90 billion a year ago. That figure beat forecasts.

--General Motors announced it is spending $2.2 billion to refurbish an underused Detroit factory so it can build a series of electric and self-driving vehicles, eventually employing 2,200 people.

GM said the factory will start building the company’s first electric pickup late in 2021, followed by a self-driving shuttle for GM’s Cruise autonomous vehicle unit. 

The truck will be the first of several electric vehicles to be built at the plant, with GM planning to revive the Hummer* nameplate for one of the models.

*LeBron James will be featured in a Hummer ‘reveal’ during the Super Bowl.

The Detroit-Hamtramck plant was part of last fall’s contentious negotiations with the United Auto Workers union.  At the time the plant employed 1,500 hourly and salaried workers.  Currently the plant is down to 900 workers making the Cadillac CT6 and Chevrolet Impala sedans.

--The Wall Street Journal is reporting that the government will be releasing the results of an inquiry into Southwest Airlines Co. that concludes the airline failed to prioritize safety while the airline’s regulator, the Federal Aviation Administration, hasn’t done enough about it.

According to the Journal, the inspector general “found FAA managers in the Dallas-area office that supervises Southwest routinely allowed the carrier ‘to fly aircraft with unresolved safety concerns.’  And it said they failed to adequately confront shortcomings in the airline’s approach to safety, which were recognized by agency officials ranging from senior headquarters personnel to local inspectors. The audit indicates nearly two-thirds of the 46 FAA employees interviewed ‘raised concerns about the culture at Southwest.’”

--Shares in UPS cratered over 6% on Thursday (and another 4% today) after the package-delivery company’s fourth-quarter revenue came in below expectations, though up to $20.57 billion from $19.85bn in the prior-year period. 

The U.S. domestic segment saw revenue rise to $13.41bn from $12.56bn as total volume rose 9%.  International segment revenue slowed to $3.76bn from $3.83bn.

UPS offered up tepid full-year 2020 guidance, which doesn’t take into account the impact of the coronavirus with any specificity.

--Shares in Harley-Davidson took another header as revenue dropped 8.5% to $874 million in the fourth quarter, more than twice the expected decline.

Harley’s U.S. retail sales fell for the 12th straight quarter, off 3.1% from a year ago to 20,204 motorcycles.  Worldwide, Harley sold 38,754 bikes, a 1.4% decline from the fourth quarter of 2018.

The Asia Pacific region was the only market where Harley saw growth last quarter, with sales up 6.2%.

Harley is still dealing with the fallout from President Trump’s declaration that bikers should boycott the company because it planned to move some manufacturing overseas in response to European Union tariffs on imported motorcycles.  The EU move was in response to U.S. levies on European steel and aluminum imports.

Trump appeared to soften his stance some last spring, when he pledged to protect the company from European tariffs.

--Blackstone Group CEO Stephen Schwarzman pocketed an estimated $583 million after his private equity and asset management firm turned in a strong 2019.

Schwarzman’s pay, nearly 20 times more than JPMorgan Chase CEO Jamie Dimon’s, is so high because of his stakes in Blackstone’s leveraged-buyout funds and other vehicles that returned $40 billion to investors last year, as reported by Crain’s New York Business’ Aaron Elstein.

Investors poured a record $134 billion into Blackstone last year, which it then spent about half of to buy companies, properties or other assets.  It sits on $151 billion in cash for future opportunities.

Most of Schwarzman’s huge pay is attributable to his nearly 232 million shares in the firm he co-founded 35 years ago.  Shareholders receive a dividend, $1.95 per share last year, and then Schwarzman gets a cut when Blackstone sells an investment, as Elstein reported. 

The official compensation comes out in Blackstone’s annual report next month.

--According to Coresight Research, last year retailers closed more than 9,200 stores, including the liquidation of Payless ShoeSource, Fred’s, and Gymboree, as well as mass closures by Family Dollar, Forever 21, Sears, Kmart, A.C. Moore and GameStop, among others.

Thus far already in 2020, national chains such as Macy’s, J.C. Penney, Express and Pier 1 Imports, as well as other retailers, have collectively announced 1,218 closures.

And the trends seem to be worsening.  According to Cowen retail analysts, foot traffic to stores fell 4.9% compared with the same period last year in the first three weeks of 2020, despite much warmer than normal winter weather.

--According to the U.S. Energy Information Administration’s Annual Energy Outlook released Wednesday, renewable power will be the fastest-growing source of electricity over the next three decades, accounting for 38% of generation by 2050, up from a forecast of 31% in last year’s report, and it comes as costs for both solar and wind are continuing to decline.

Coal, meanwhile, will provide 13% of U.S. power in 2050, down from 24% today, as power plants close.  Natural gas, currently the largest source of electricity with 37%, will be surpassed by renewables by 2045, according to the EIA.

--We note the passing of longtime television executive Fred Silverman, 82, who handled the creative end of the business at ABC, CBS and NBC and advocated for shows such as “All in the Family” and “M*A*S*H.”

Among the many other hit shows that Silverman shepherded were “Scooby-Doo,” one of the longest-running TV animated series for CBS, where he became head of programming in 1963 at the age of 25.  There he championed programs including “The Mary Tyler Moore Show,” “All in the Family,” “The Waltons, “M*A*S*H,” “The Jeffersons,” “Kojak” and “The Sonny and Cher Show.”

At ABC he programmed “Laverne & Shirley,” “The Love Boat,” “Charlie’s Angels,” “Happy Days” and a 12-hour epic saga called “Roots,” among others.

But when he left ABC for NBC, while he experienced success with “Diff’rent Strokes,” “Hill Street Blues,” and “The Smurfs,” ratings foundered.

While at NBC, however, he did hire a relatively unknown comedian, David Letterman, to host a morning talk show.  That one only lasted four months (I was an avid watcher at the time and loved it), but Silverman kept Letterman under contract, saying, “It was the wrong show at the wrong time.”  Letterman then shortly thereafter took over the late-night spot at 12:30 and was an enormous hit for NBC.

Foreign Affairs

Israel / Palestinians: President Trump unveiled his long-awaited Middle East peace plan, Israeli Prime Minister Benjamin Netanyahu, who had just been indicted back home, by his side at the White House.

The plan, drafted under the stewardship of Trump son-in-law Jared Kushner, supports the Israeli position on nearly all of the most contentious issues in the conflict and falls far short of Palestinian demands, leaving them with disjointed areas and allowing Israel to annex its settlements in the occupied territory.

Israel has settled about 400,000 Jews in the settlements, with another 200,000 living in East Jerusalem.  The settlements have long been considered illegal under international law, although Israel disputes this. The Palestinians insist East Jerusalem be the capital of a future state.

Jerusalem would also remain Israel’s “undivided” capital, in President Trump’s words, but the Palestinian capital would “include areas of East Jerusalem.”

Palestinian President Mahmoud Abbas said Jerusalem was “not for sale.”  “All our rights are not for sale and are not for bargain,” he added.

Many Palestinians are expressing outrage at the seeming complicity of the Gulf Arab states, with representatives from Bahrain, Oman and the United Arab Emirates present at the White House, but of course no Palestinian representatives.

Prime Minister Netanyahu said Israel “will not miss this opportunity,” adding, “May God bless us all with security, prosperity and peace!”

President Abbas will speak in the UN Security Council in the next two weeks about the peace plan.  The 15-member Council would vote on a draft resolution concerning the proposal, though the U.S. would veto it.  A resolution needs nine votes in favor and no vetoes by permanent members the U.S., China, Russia, Britain or France to be adopted.

So while it wouldn’t be adopted, the Palestinian UN envoy Riyad Mansour said Abbas would use the visit to the UN to “put before the entire international community the reaction of the Palestinian people and the Palestinian leadership against this onslaught against the national rights of the Palestinian people by the Trump administration.”

Bottom line, Netanyahu and Trump are both seeking re-election and this was little more than a photo op.  Not everyone agrees with this take.  To wit....

Opinion....

Dennis Ross and David Makovsky / Washington Post

“The Trump administration has now unveiled its Mideast peace plan.  While we should expect plenty of debate about its terms, which represent a sharp departure from past U.S. peacemaking efforts, another development has essentially pushed the plan into the background.  Israeli officials have announced that they plan to annex all West Bank settlements next week.  If they do, this new phase of the process will be dead before it really starts.

“The peace plan was supposed to take the interests of both sides into account.  But the annexation move essentially makes any agreement superfluous, since Israel is already helping itself to the rewards that it’s supposed to gain from future negotiations over the plan.  Any benefits for the Palestinians are left for the four-year period ahead designated by the Trump administration when both sides are to consider the plan.  Israel has complained in the past that it is yielding tangible territorial assets for the intangible promise of peace.  Now, Israel would be adding land immediately while the Palestinian land would be conditional on other benchmarks.  The sudden urgency of the annexation plan seems designed to unite Israel’s right on the eve of the election, which might otherwise fracture the prospects of ceding territory to the Palestinians.

“The annexation plans also have the effect of alienating the Arab states, who initially reacted to the new peace plan without their usual stance of lining up behind the official Palestinian position.  This reflects a recent seismic shift that has taken place in Arab attitudes about Israel.  Many of the region’s leaders now believe that, if the United States retreats from the Mideast, Israel is not only a necessary bulwark against the threats Arab states face but also a potentially useful ally.  Unfortunately, the willingness of Israeli Prime Minister Benjamin Netanyahu to push annexation for his near-term political benefit could damage the emerging alignment between Israel and the Arab states.  Arab leaders certainly won’t want to look as though they are even indirectly helping Israel take what they consider to be Palestinian territory.

“Consider the irony: Mahmoud Abbas, the leader of the Palestinian Authority, has so far been unable on his own to mobilize the Arabs behind his campaign of rejection.  On the contrary, their initial responses have been low-key, emphasizing not comments on the plan but calls for direct negotiations between the Palestinians and Israelis.  And some have even complimented the administration for making a positive contribution.  But Netanyahu pushing annexation immediately, perhaps as soon as next week, will rescue Abbas, possibly forcing Arab leaders to respond to Israel’s unilateral moves and make the Abbas campaign of rejection a reality.  Once they, too, go on record rejecting the Trump plan, we should expect Abbas to take his case to the UN Security Council, hoping to provoke a U.S. veto to show how isolated the United States and Israel are.

“If there is to be any hope for the Trump plan – even in a modified form that would result from any direct negotiations between the parties – President Trump should use his good relationship with Netanyahu to tell him that he opposes any move to annex the territories now.  Trump can stress that his aim is to create the possibility of a negotiation, not to preempt it.  He has already stated that he expected an initial Palestinian rejection but was buying time so that Palestinians could reflect and see what could be gained by negotiating.  How is there any such time if the Israelis move to annex now?

“Moreover, think of the effect on Jordan if an annexation of the Jordan Valley goes ahead now.  Did the president intend his plan to endanger Israel’s peace treaty with Jordan, the country with which Israel shares its longest border?

“If Trump does not want his plan to be stillborn, and if the Israelis hope to salvage its most important parts (especially on security), it is essential that the Israelis postpone their annexation of the territories designated for them in the plan.  The last thing that both the administration and the Israelis should want is to drive Arab leaders into adopting Abbas’ uncompromising posture.”

Editorial / Wall Street Journal

“This is a pro-Israel plan by historical standards.  It envisions Palestinians controlling much less territory than they would under the 1967 borders, including as much as 80% of the West Bank.  It would not require the evacuation of Israeli settlements in the West Bank, and it demands that Hamas, the terrorist group that controls Gaza, be disarmed.  Israel would control the Jordan River valley that it says is vital to security on its eastern border.

“Yet far from bowing to the demands of Israel’s settlers, the plan provides for a four-year settlement freeze on construction in the West Bank, and settler groups are criticizing it.  More important, the plan gives a political boost to the two-state solution that Mr. Netanyahu’s base has been abandoning.  It also anticipates a high-speed rail link between Gaza and the West Bank that is sure to raise objections from Israeli security hawks.

“The press is describing the plan as a ‘gift’ to Mr. Netanyahu ahead of the next Israeli election in March, but parts of it may put the Prime Minister on defense against the rightward elements of his coalition.

“The recognition of some of Israel’s territorial expansion since 1967 simply reflects changes in political realities as the Palestinians rejected peace deal after peace deal.  No one serious in Israel expects the major settlement blocks to be demolished.  Meanwhile, Israel has unprecedented support from the Gulf Arab states, which are united with Israel against Iran and have grown tired of Palestinian rejectionism.

“The diplomatic approach is unconventional.  The U.S. norm has been to arm-twist the Israelis and bribe the Palestinians with cash.  Instead the Trump Administration has supported Israel unapologetically – including by moving the U.S. Embassy to Jerusalem – and wants the rest of the world to persuade the Palestinians to confront reality.

“The approach may fail like so many previous efforts, but sometimes unconventional diplomatic methods are worth a try.  Last week the Trump Administration contributed to a little-noticed diplomatic breakthrough in the Balkans as Serbia and Kosovo agreed to resume transit between their two countries that has been frozen since the 1990s wars....

“Stability on Europe’s periphery and a Palestinian state – these are hobbyhorses of the internationalist establishment more than of Mr. Trump’s populist supporters.  Yet critics shouldn’t overlook the Administration’s efforts toward solving them.”

David Ignatius / Washington Post

“Throughout the dense text of the peace plan that President Trump announced on Tuesday is a stark but unstated question to the Palestinians: If you reject this deal, as bad as you think it may be, what are you going to get instead?

“The phrase ‘take it or leave it’ doesn’t convey the sharp edge of Trump’s demand.  He is telling the Palestinians that after three decades of rejecting better offers than this one, they’re in danger of being abandoned by the Arabs, who will decide to move on and normalize relations with Israel even if the Palestinians say no.

“Palestinians bitterly reject the plan, for understandable reasons.  It ratifies their defeat.  It demands concessions now in return for quasi-statehood later.  It endorses most of Israel’s historic demands and almost none of the Palestinians’.

“The plan does include a ‘conceptual’ map of a future Palestinian state, but it’s shorn of the west bank of the Jordan River and dotted with Israeli settlements – with Israeli control of water rights, air space and other usual essentials of statehood.  For a people who prize dignity, this proposal is inescapably a mark of shame.

“ ‘We say a thousand no’s to this deal,’ said Mahmoud Abbas... He reversed Trump’s hyperbolic promises by calling the plan ‘the slap of the century.’

“Palestinian antagonism is understandable, but what alternative would they and their supporters propose?  That’s an urgent question for Israelis, Americans and Arabs who fear, as I do, that Trump’s attempt to impose a settlement favorable to Israel against the will of the Palestinians will set the stage for more bloodshed and bitterness.  If we think this won’t fly, what’s the alternative?

“Trump’s leverage is that many leading Arab states are giving what’s close to tacit support to the proposal and its promise of eventual normalization between the Arabs and Israel.  If Arab leaders begin taking additional steps, such as inviting Israeli trade or cultural delegations, the pace of normalization will accelerate – deepening the dilemma for the Palestinians.

“Here’s how one Trump administration supporter of the plan puts it: ‘If the Palestinians reject it, the Arabs may just say: ‘These guys are crazy.  Let’s move forward.’’

“The United Arab Emirates released a supportive statement Tuesday, saying that it ‘appreciates continued U.S. efforts to reach a Palestine-Israel peace agreement’ and calling the plan ‘a serious initiative that addresses many issues raised over the years.’  The UAE described the proposal as ‘an important starting point for a return to negotiations within a U.S.-led international framework.’  Not exactly a ‘no.’....

“Two details symbolized for me the regional ploy (Jared) Kushner is attempting: He proposes a ‘regional security committee’ that would include the United States, Israel, Palestine, Jordan, Egypt, Saudi Arabia and the UAE.  That sounds like a Middle East version of NATO, an outlandish pipe dream, you might think, but maybe not in today’s anti-Iran mobilization.  Kushner also proposes to throw money around a region that needs it: $27.8 billion for the West Bank and Gaza, $7.4 billion for Jordan, $9.1 billion for Egypt, $6.3 billion for Lebanon.

“The bottom line for the Trump peace plan, like so many other issues these days, is that it all depends on the November presidential election.  The Palestinians won’t sit at Trump’s negotiating table for now.  But what would they do if he were reelected, and an Israeli cultural mission was sitting in Riyadh?

“The peace plan is a squeeze play, and like everything about Trump, it’s ultimately about raw political power.”

Editorial / Washington Post

“The Mideast peace plan that President Trump unveiled at the White House Tuesday amounts, as a practical matter, to another one-sided gift to the right-wing Israeli government of Prime Minister Benjamin Netanyahu.  Mr. Trump promised U.S. recognition of Israeli sovereignty over the Jordan Valley and all of the settlements Israel has constructed in the West Bank – a radical shift in a half-century-old American policy.

“Mr. Netanyahu, who gleefully pledged to immediately ‘apply Israeli law to all areas the plan recognizes,’ reciprocated by calling Mr. Trump ‘the greatest friend Israel has ever had in the White House.’  Mr. Trump can be expected to flog that endorsement as he seeks reelection this year.  Mr. Netanyahu, in turn, will present himself to Israeli voters in a March election as the leader who extracted once-unimaginable concessions from Washington.  Both leaders can hope to distract from ongoing scandals: Mr. Trump from his impeachment trial and Mr. Netanyahu from his indictment Tuesday on corruption charges.

“U.S. sanctions for the annexation of settlements will meanwhile deliver a devastating blow to the prospects for a two-state resolution between Israelis and Palestinians.  Those who actually favor that, as we do, will have to hope that the remainder of the plan is soon forgotten.  Otherwise, it may provide a new set of benchmarks that will make peace impossible and from which future Israeli and U.S. governments will find it hard to retreat.

“The terms Mr. Trump set for Palestinian statehood are virtually identical to those promoted by Mr. Netanyahu, which is no doubt why the latter was so quick to endorse them....

“The only thing in the plan resembling an Israeli concession was a vague and unenforceable pledge that settlements in the territory envisioned for the future Palestine would not be expanded beyond their current footprint in the next four years.  The Palestinians, for their part, will work to mobilize Arab and European governments against the scheme.  If Israel proceeds with annexations, its diplomatic relations with Jordan and perhaps other Arab states could be endangered.

“None of that matters to Mr. Trump or Mr. Netanyahu, who are preoccupied with short-term political survival.  Mideast peace was an already distant prospect, but these cynical and self-seeking leaders have made it more so.”

Editorial / The Economist

“At a different time, under a different president, the proposal might have been the starting-point for more talks.  Not an evenhanded starting-point, mind.  The plan favors Israeli hardliners as no previous American plan has done.  It lets Israel formally annex the settlements, hang on to the Jordan valley, maintain control of holy sites and reject Palestinian refugees.  For the Palestinians, there are conditional promises of something like a state at some point in the future, with a capital on the outskirts of Jerusalem, plus billions of dollars of investment and an Israeli promise to freeze some settlement-building.  If they negotiate, they might get a better deal, suggests the Trump administration.

“The Palestinians do not believe it.  If Mr. Trump were serious about peacemaking, why did he try to woo only one side?  No Palestinian leader could have accepted the deal, let alone one as weak as Mr. Abbas.  Mr. Trump did not even invite him to the unveiling, which anyway seemed designed to distract Americans from impeachment, and Israelis from corruption charges against Mr. Netanyahu.  The prime minister appears eager to end the Palestinian dream of statehood.  He has already asked his cabinet to vote on annexing parts of the West Bank, and is whipping up hawkish voters ahead of a tough election on March 2nd.

“Should Mr. Netanyahu win another term, he will undoubtedly move ahead with annexation.  His main challenger, Benny Gantz, will face pressure to do the same if he is victorious.  Far from easing the conflict, Mr. Trump has pushed it down a perilous path.  He has given Israel a green light to take so much territory that a coherent Palestinian state is all but impossible.  And he offers no viable alternative to the two-state solution.  That may soon leave Israel with a choice: give the Palestinians equal rights and watch as they multiply and outvote Jews, or treat them as second-class citizens and formally become an apartheid state.

“The best that can be said of the Trump plan is that it acknowledges that the Oslo peace process is moribund and a new approach is needed.  But a successful peace deal means not only discarding what has not worked, but also coming up with what will: a plan that demands concessions from both sides as well as fair-minded leaders to implement it.  This is not that plan.  And Mr. Trump, Mr. Netanyahu and Mr. Abbas are not those leaders.”

As for the March 2 election in Israel, Attorney-General Avichai Mandelblit filed an additional indictment against Netanyahu, which could alter the course of negotiations over forming a new government.

Iran / Iraq: Anti-government protests resumed, with at least seven killed, hundreds wounded.  You also had protests against the U.S. military presence in the country.

Thursday, Iraq’s military said it was resuming operations with the U.S.-led coalition against Islamic State after a halt following the killing of Iranian Gen. Soleimani and Iranian attacks on bases hosting U.S. forces.

“In order to exploit the time that remains for the international coalition before the new relationship is set up...It was decided to carry out joint actions which enable our forces” to fight ISIS, a military statement said.

Also Thursday, Defense Secretary Mark Esper said it is trying to secure permission from Iraq to take Patriot missile defenses into the country to better defend U.S. forces after Iran’s Jan. 8 missile attack that we now know wounded 64 American troops, traumatic brain injuries that so far have been categorized as “mild.”

“We need the permission of the Iraqis,” Esper told a news conference.  He said securing their permission was one factor slowing the repositioning of the air defenses.

Syria: Syrian troops are in full control of a key rebel-held town in the country’s northwest after days of intense fighting and airstrikes that displaced tens of thousands more, the Syrian army said Wednesday.

The capture of the town of Maaret al-Numan in Idlib province marks another victory for President Bashar Assad’s forces, which now control most of Syria after a nearly nine-year conflict that has left at least 400,000 dead and displaced half of Syria’s population.

The risk grows in Idlib of a humanitarian catastrophe along the Turkish border, where the Turkish government now reports around 400,000 people from the province were on the move.

The Kremlin said on Friday that Russia was fully compliant with its obligations in the Idlib region, but that it was deeply concerned about what it said were aggressive militant attacks on Syrian government forces and Russia’s Hmeimim air base.

Turkish President Tayyip Erdogan on Wednesday accused Russia of violating agreements aimed at stemming the conflict and that Ankara was losing patience with the military assault in Idlib.

China: Today, the mayor of Wuhan, Zhou Xianwang, said the task of containing and preventing the spread of the coronavirus outbreak remains “severe and complex.”  Supplies of masks and other medical resources are still inadequate, officials said at a televised press conference.

The death toll in Wuhan and Hubei province exceeded 200 on Thursday and the number of fatalities nationwide has been increasing by 25 to 40 daily (213 in China overall).  We’ve now become conditioned to watch for the headline in the early evening, eastern time, for the figures.  Thursday, an astounding total of 1,982 new cases was confirmed on the mainland, bringing the country’s total to 9,692, far exceeding that of the 2002-03 SARS epidemic, which killed more than 800 people worldwide.

Medical experts on Friday warned that patients who had recovered from the virus were still at risk of being infected again, and said people should avoid any mass gathering, even dancing in public parks and squares – a popular activity for exercise in China.

As for getting re-infected, the head of infectious diseases at the China-Japan Friendship Hospital, said in a press briefing Friday that people who had already had the virus would have developed antibodies but should remain on alert.

“The antibodies may not remain for a long time, so there is still a risk that these recovered patients will be infected again,” said Zhan Qingyuan.

Like all nations, South Korea has been evacuating its citizens from Wuhan as tensions simmered around quarantine centers where they will be isolated, a plan vehemently opposed by local residents.

That’s just an example of the issues that are becoming more and more evident.  Russia reported its first two cases of coronavirus today, India previously reported its first.

Vietnam stopped issuing visas for Chinese tourists, with the government saying it didn’t encourage cross-border trade between the two countries.

But the biggest worry is Hong Kong, which early in the week stopped accepting Chinese tourists and then at week’s end closed schools until at least March as the number of cases hit 12.  It could obviously spread like wildfire there.

The U.S. State Department issued a directive Thursday advising Americans simply not to travel to China.

Tuesday, President Xi Jinping said China would defeat the “devil” virus.

Editorial / Washington Post

“Compared with the response in some previous outbreaks, including severe acute respiratory syndrome (SARS) in 2003 and swine flu in 2009, biomedical detective work got underway quickly in China in December, when people began to suffer a pneumonia-like illness.  Chinese researchers isolated the new coronavirus, sequenced its genetic code and prepared reagents for diagnostics.  But during all the weeks of this activity in December, Beijing largely kept the lid on information.  It did not alert the public until well into January.  The thought police were still on the beat, even as the virus spread.

“The common reactions of Chinese leaders to crisis – strict secrecy, media censorship, desperate attempts to protect ‘stability’ and slavish adherence to central authority – were evident throughout the early period of the crisis, according to a detailed insider account published by the China Media Project.  On Dec. 30, this account says, the Wuhan Health Commission ‘issued an order to hospitals, clinics and other healthcare units strictly prohibiting the release of any information about treatment of this new disease.’

“The account says that while Chinese officials informed the World Health Organization of a new coronavirus outbreak, ‘they did not inform their own people, but instead maintained strict secrecy.’  A free press might have made a difference – it might have at least raised questions about people’s illnesses.  But such a press does not exist in China.

“Instead, local authorities projected an air of normality.  Tourism authorities in Wuhan were issuing tickets to attractions in the city through mid-January, and one model residential community was still planning a ‘Spring Festival’ banquet celebration for 40,000 residents.  ‘There was no attempt to stem the flow of people to Wuhan from all over the country and around the world,’ the insider account says.  ‘During what was the most critical phase for controlling the outbreak, Wuhan was essentially an open city owing to the efforts of local officials to keep a lid on the story.’  The silence of the local officials was broken when President Xi Jinping issued official instructions to tackle the outbreak on Jan. 20 – some 40 days after the first signs were detected....

“If there is anything positive to come of this, it is the vibrant grass-roots reaction.  China’s social media is afire with concern, despite the censors.  Some have recalled the HBO television series ‘Chernobyl’ to raise issues of government lying, which happened in the 1986 disaster and is happening again in Wuhan.  One user recalled a quote from the show, ‘Every lie we tell incurs a debt to the truth.  Sooner or later, that debt gets paid.’”

---

Separately, Russia and China are waging a “digital war” with fake news and disinformation to undermine democracy in Europe, an EU official said.

European Commision vice-president Vera Jourova, who leads efforts to preserve democratic principles across the bloc, said the two countries have “weaponized information.”

She said they will not back down until Europe stands up to them.

“There are specific external actors, namely Russia and increasingly China, that are actively using disinformation and related interference tactics to undermine European democracy,” Ms. Jourova told a conference of disinformation experts in Brussels.

The two countries “will feel comfortable doing so until we demonstrate that we will not tolerate this aggression and interference,” she said.

Jourova said “digital war” was a favored method of Russia and China because “they see that it’s efficient, it’s cheap, and I am not naïve enough to believe that some talk will discourage them from doing that.”  [Irish Independent]

And then there are the latest arrests in the U.S. of academics and researchers who are passing along scientific intellectual property along to the Chinese government.

This week a Harvard University chemist, an ex-Coca-Cola Co. scientist and a University of Kansas researcher were among the latest swept up in a crackdown on IP theft.

U.S. officials also announced the prosecution Tuesday of a Boston University researcher who was allegedly a lieutenant for the People’s Liberation Army and a cancer researcher who allegedly tried to smuggle 21 vials of biological materials in his sock.

“China’s communist government’s goal simply put is to replace the United States as a superpower,” Joseph R. Bonavolonta, the FBI’s special agent in charge of the Boston Field Division, said at a press conference.  “China is also using what we call nontraditional collectors such as researchers, hackers and front companies.”

Harvard’s Charles Lieber was involved in China’s Thousand Talents Plan, a Chinese government program to recruit overseas researchers.  Lieber lied to prosecutors and “concealed he was paid $50,000 a month and received more than $1.5 million to establish a lab and do research at Wuhan University of Technology.  His deceit caused Harvard to make false statements to the National Institutes of Health about his work with China, because grants that Harvard received required disclosure of ties with foreign governments, the U.S. said.”  [Financial Times]

North Korea: The leadership does not foresee a breakthrough in diplomacy with the U.S. any time soon, and state media and propaganda efforts have been focusing on the prospect of a long confrontation between the two.

Behind the scenes, North Korean officials still say they are seeking badly needed sanctions relief.  Publicly, Pyongyang has said it is no longer bound by commitments to halt nuclear and missile testing, blaming the United States for failing to meet the year-end deadline for it to show more flexibility in the nuclear talks and its “brutal and inhumane” sanctions.

At the end of the year, in a speech, Kim Jong Un acknowledged the people may need to “tighten our belts” for the time being without sanctions relief.

But Kim and the regime have been eerily quiet in recent weeks, with some analysts wondering if they are biding their time before the rollout of their “new strategic weapon.”

Meanwhile, the appearance of Kim Kyong Hui last weekend, the influential aunt of Kim Jong Un, after being out of the public spotlight for six years, has North Korean watchers perplexed.  On Sunday, state media showed her sitting near Kim Jong Un at a performance celebrating the Lunar New Year in Pyongyang.

Kim Hyong Jui is the sister of former dictator Kim Jong Il.  Her husband, Jang Song Thaek, was executed in 2013 and she hadn’t been seen since.  Many thought she had been killed.

Random Musings

--Presidential tracking polls....

Gallup: 44% approve of President Trump’s job performance, 53% disapprove; 88% of Republicans approve, 37% of independents (Jan. 2-15).
Rasmussen: 50% approve, 49% disapprove (Jan. 31)

In the Quinnipiac University national survey, 43% of voters approve of the job President Trump is doing and 52% disapprove.  Republicans approve 94-4 percent, Democrats disapprove 95-3 percent, and independents disapprove 53-38 (there’s that 38% approval mark I’ve pegged as the key come November).

A Washington Post/ABC News national poll has President Trump with a 44% approval rating, 51% disapprove of his overall job performance.  His approval number was just 38% in October in this survey.

Importantly in this one, among independents, 47% approve of Trump’s performance, up from 38% in October. 

57% of men approve of Trump, up 12 points from October to the highest level of his presidency.  By contrast, 33% of women approve, little changed from 31% in the fall. The gap between men and women is the largest in the Post/ABC poll since Trump took office.

--In a New York Times/Siena College poll of likely Iowa caucusgoers, Bernie Sanders captured 25%, with Pete Buttigieg at 18% and Joe Biden 17%.  Elizabeth Warren receives 15%, down from 22% in an October poll. Amy Klobuchar is at 8%.

But a USA TODAY/Suffolk University poll of likely Iowa caucusgoers had Joe Biden at 25% and Sanders at 19%, followed by Buttigieg at 18%, Warren 13% and Klobuchar 6%.

A new Monmouth University poll of likely Iowa caucusgoers, released Wednesday (the most recent of the polls) had Biden at 23%, Sanders 21%, Buttigieg 16%, Warren 15% and Klobuchar 10%.  Mike Bloomberg was not included because he is not participating in the process.

The Des Moines Register’s editorial board endorsed Elizabeth Warren for president, arguing her ideas are needed at a moment “when the very fabric of American life is at stake.”

--A new CNN / University of New Hampshire survey of Democratic primary voters has 25% backing Bernie Sanders in the Granite State, compared with Joe Biden at 16%, Pete Buttigieg 15% and Elizabeth Warren 12%.  Then it’s Amy Klobuchar at 6%, Tulsa Gabbard 5% and Andrew Yang 5%.

Sanders won New Hampshire by more than 20 points in 2016.

Among liberals, Sanders has 39% to Warren’s 21%.

Yang, by the way, with his 5% in this survey, qualifies for the next Democratic debate in February.  Gabbard needs other polls showing her at 5% to get onto the stage.

An NBC News/Marist poll of the Democratic race in New Hampshire has Sanders at 22% and Mayor Pete at 17%.  Joe Biden follows with 15%, Elizabeth Warren 13% and Amy Klobuchar 10% in the survey of likely Democratic primary voters.

[On the Republican side, this is where former Massachusetts Gov. William Weld is making his stand against President Trump and the NBC/Marist poll has Trump at 87%, Weld 8%, and Joe Walsh 2%.  To make some noise Weld needed something closer to 20%.]

--The Quinnipiac survey has Joe Biden with a lead in a national poll with 26% among Democratic voters and independent voters who lean Democratic, while Bernie Sanders gets 21% and Elizabeth Warren receives 15%.  Michael Bloomberg is at 8%, Amy Klobuchar 7% and Pete Buttigieg 6%.

A Washington Post/ABC national poll has Biden at 32% among Democrats and Democratic-leaning registered voters, with Sanders at 23%.  Warren has fallen to 12%.

Mike Bloomberg is fourth in this one at 8%, while (shockingly) Andrew Yang takes 7%.  Buttigieg is only at 5%, Klobuchar 3%.

A new Wall Street Journal/NBC News national poll among Democratic primary voters has Bernie Sanders at 27%, Biden 26%.  Elizabeth Warren is third with 15%, then Mike Bloomberg at a solid 9%, Pete Buttigieg 7%, and Amy Klobuchar 5%.

Bloomberg’s 9% to me is significant as he has pegged his whole strategy towards Super Tuesday in March.

And he received some good news today, as the Democratic Party announced a new set of rules that allow the media mogul to appear at the next scheduled debate in Nevada on Feb. 19.  He has been prohibited because he wasn’t collecting donations from thousands of donors.

--Iowa Republican Sen. Joni Ernst, in comments to reporters Monday, questioned whether the impeachment trial might  make Iowa Democrats decide against caucusing for Biden.

“Iowa caucuses, folks.  Iowa caucuses are this next Monday evening and I’m really interested to see how this discussion today informs and influences the Iowa caucus voters,” Ernst said.  “Those democratic caucusgoers, will they be supporting Vice President Biden at this point?”

Democrats immediately criticized her, saying it showed Republicans are more focused on weakening Biden than in weighing the president’s actions in a fair and impartial trial.

Joe Biden responded in part: “Let me tell you something.  You Iowa caucusgoers have a chance for a twofer.  You can ruin Donald Trump’s night by caucusing for me, and you can ruin Joni Ernst’s night as well.”

Ernst then doubled down, tweeting Tuesday: “Yesterday the president’s counsel showcased that the Bidens were knee deep in corruption.  Corruption isn’t good politics nor is it good for the American people.”

--According to University of Cambridge researchers and the biggest global dataset on attitudes toward democracy, dissatisfaction with it within developed countries is at its highest level in almost 25 years.

The study, from the University of Cambridge’s Centre for the Future of Democracy, has tracked views on democracy since 1995 – with the figures for 2019 showing the proportion dissatisfied rising from 48% to 58%, the highest recorded level.

In 1995, the proportion of those dissatisfied with Democracy in the UK was 47%.  In 2019, in surveys before the general election, it reached 61%.

The U.S., meanwhile, has seen high levels of satisfaction – about 75% between 1995 and 2005 – followed by a “dramatic and unexpected” decline, to below 50%.

--Just for the record, and for perspective, the CDC says that in a bad year, the flu has killed up to 61,000 Americans.

--The Centers for Disease Control also announced this week that U.S. life expectancy rose in 2018 for the first time in four years, as deaths from drug overdoses declined for the first time in over 20 years.

Overall life expectancy improved by 0.1 years from 2017, to 78 years and seven months.

The news was “a real victory,” said Alex Azar, the secretary of health and human services.

--The above-referenced Quinnipiac University national survey asked for Americans’ rooting interest in the Super Bowl.  26% will be rooting for the Chiefs, 21% the 49ers, and 50% say they don’t care who wins. 

56% say they will be watching the Super Bowl, while 41% say they will not be watching the game.

--Finally, I have a ton on the death of Kobe Bryant on my Bar Chat link if you want opinions from around the country.  The whole accident was just an amazing tragedy, and to think Kobe and daughter GiGi went to Mass, as it seems they did regularly, before boarding the ill-fated chopper.  It’s just not fair.  We pray for the families of all the victims.

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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 $1593...highest weekly close since March 2013
Oil $51.63...lowest weekly close since Jan. 2019

Returns for the week 1/27-1/31

Dow Jones  -2.5%  [28256]
S&P 500  -2.1%  [3225]
S&P MidCap  -2.8%
Russell 2000  -2.9%
Nasdaq  -1.8%  [9150]

Returns for the period 1/1/20-1/31/20

Dow Jones  -1.0%
S&P 500  -0.2%
S&P MidCap  -2.7%
Russell 2000  -3.3%
Nasdaq  +2.0%

Bulls 52.8...big drop hardly surprising
Bears 18.9

Enjoy the Super Bowl. 

Brian Trumbore

 

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