Week in Review

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Week in Review

01/21/2023

For the week 1/16-1/20

[Posted 6:00 PM ET, Friday]

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Edition 1,240

It was another week filled with tragedy in Ukraine, between the Russian missile strike on an apartment building in Dnipro and the helicopter crash days later that claimed the lives of Ukraine’s interior ministry leadership.

Ukraine is under pressure to launch a new counteroffensive in coming months – and fend off any new campaigns by a Russian force buttressed with newly mobilized soldiers – at a time when attrition is testing its reserves of trained fighters and ammunition.

Today, at a meeting of the U.S.-led Ukraine Contact Group at Germany’s Ramstein Air Base, Pentagon chief Lloyd Austin said “Russia is running out of ammunition.  It’s suffering significant battle losses, and it’s turning to its few remaining partners to resupply its tragic and unnecessary invasion.”

But “Russia is regrouping, recruiting, and trying to re-equip,” the defense secretary continued.  “This is not a moment to slow down; it’s a time to dig deeper.  The Ukrainian people are watching us. The Kremlin is watching us. And history is watching us. So we won’t let up, and we won’t waver in our determination to help Ukraine defend itself from Russia’s imperial aggression.”

I’m haunted by a statement from a Ukrainian commander I referred to last week concerning the fighting around Soledar and Bakhmut. 

“So far, the exchange rate of trading our lives for theirs favors the Russians.  If this goes on like this, we could run out.”

Poland’s Defense Minister Mariusz Blazczak said today: “I am convinced that coalition building will end in success.  We must do everything to help Ukraine, so that the war does not spill over to NATO territory.”

I just have an awful feeling that it will, and that time is of the essence to prevent this.

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President Biden on Thursday finally commented on the discovery of classified documents at various locations of his and it was a beyond pathetic performance.  Biden, as we all know by now, has an incredibly high opinion of his intellect, one of the few in the country to believe so, and he was bound to handle this situation terribly.

Biden said he has “no regrets” about keeping the discovery of mishandled documents dating to his vice presidency under wraps until after last year’s midterms.

The president scolded a female reporter who asked him about the controversy during a trip to tour storm damage in California.

“What quite frankly bugs me is that we have a serious problem here we’re talking about,” Biden said.  “We’re talking about what’s going on, and the American people don’t quite understand why you don’t ask me questions about that.”

Biden then asked for the reporter to repeat her question about whether he regretted concealing the information from the public until after ballots were cast – before launching into another reprimand.

“Hang on, OK?  Look, as we found – we found a handful of documents that were failed, were filed in the wrong place.  We immediately turned them over to the [National] Archives and the Justice Department.  We’re fully cooperating and looking forward to getting this resolved quickly,” Biden said.

“I think you’re gonna find there’s nothing there.  I have no regrets.  I’m following what the lawyers have told me they want me to do.  That’s exactly what we’re doing.  There’s no there, there. Thank you.”

Documents marked “Classified’ have been found in two areas at his Wilmington, DE, residence, as well as at a Washington think tank he was associated with, dating back six years at this point.

Daniel Henninger / Wall Street Journal

“The Democrats are in hell days after their premature conclusion that the GOP’s House speaker drama had put them in heaven. Publicly Democrats like California Rep. John Garamendi call it an ‘embarrassment.’  Privately, they have to wonder if the Biden garage will finally connect the president to Hunter’s global influence-peddling business.

“Democrats aren’t in hell merely because of the Mar-a-Lago comparable. Ring-fence these two document disputes and normally they’d fade from view as procedural smoke.  The Democrats are in pain because of the four-year political bonfire they lit and stoked from 2016 through 2020.

“There were moments through and after the Trump term when some of us mused that the onslaught was over the top by any standard. Two impeachments. Now Joe Biden knows what it feels like to be media clickbait for all the wrong reasons.

“This is the permanent politics of retribution, and it can get worse. The investigations of two special counsels – Robert Hur for Mr. Biden and Jack Smith for Mr. Trump – will hang like two cement shoes waiting to drop across 2023 and perhaps into the 2024 presidential campaign.  Potential candidates soon need to visit primary states to campaign and fundraise, but the frozen legal status of Messrs. Trump and Biden will hamper that process….

“What would King Solomon do?  Herewith a way out of the Trump-Biden dilemma: a grand plea bargain. We the people pardon both Messrs. Trump and Biden (including Hunter).  We will drop everything against you if in return all three of you will just go away.”

Personally, I recognize that Attorney General Merrick Garland has to let Messrs. Hur and Smith do their thing because these investigations might involve far more individuals than Trump and Biden Squared.  Obstruction of justice is a serious charge and there have to be aides in both cases who are culpable.

But at the same time…I wish Garland would lay out the topics of the Classified Docs, sans sources and methods, of course, so that the American people finally get some facts, with Garland then saying the investigations continue.  I’m guessing we the people would quickly conclude, neither is fit to run for president in 2024. 

It would be easy for Biden to see the light at that point, and hopefully the three main women in his life, the First Lady, his daughter and granddaughter, would help him see it as well, though we’re told he’s planning to announce his run for reelection after he gives the State of the Union Address on Feb. 7.

It might not be that easy for Trump to ‘get it.’

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The Treasury Department began taking special measures to keep paying the government’s bills on Thursday as the U.S. bumped up against its borrowing limit, roughly $31.4 trillion.

Senate Minority Leader Mitch McConnell said not to worry, and we’ve been down this road before. 

I’m not really worried, and according to Treasury Secretary Janet Yellen we have until early June to reach a compromise in Congress to raise the ceiling.

But the debate will indeed be rather contentious, House Republicans vowing to reduce spending, and certainly by May the markets will begin to get antsy.

Yellen did add there was “considerable uncertainty” about how long extraordinary measures can last.

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This week in Ukraine….

--As part of a largescale missile attack on Ukraine, Saturday, an apartment block in the city of Dnipro was hit, with the death toll over the coming days rising to 45, including at least six children, with 19 missing.  A staggering tragedy, in a war filled with them.  And yet another war crime perpetrated by Vladimir Putin.

Russian missiles rained down on Ukrainian cities across the country, though Ukraine’s air force said it had shot down 25 out of 38.

In Dnipro, the locals were both weeping and expressing their anger at Putin and Russia.

It was the deadliest single incident since Moscow began its campaign of firing missiles at cities far from the front lines of the war.  The Kremlin denies it intentionally targets civilians.

President Volodymyr Zelensky in his Saturday night video address said the Russian attacks on civilian targets could be stopped only if Ukraine’s Western partners supplied necessary weapons.  “What is needed for this?  Those weapons which are in the depots of our partners and which our soldiers are waiting for so much.  The whole world knows what and how to stop those who sow death.  I thank everyone who helps us in this!”

--Ukrainian Energy Minister German Galushchenko said on Saturday that the coming days would be “difficult” on the energy front after Russia’s massive attack hit critical infrastructure in several regions.

“Due to the shelling in the majority of the regions, emergency (power) cut-offs are being introduced.  The coming days will be difficult,” he wrote on Facebook.

Galushchenko said energy infrastructure in six Ukrainian regions was damaged.  DTEK, Ukraine’s largest private energy company, said two of its thermal power stations were hit in Saturday’s strikes.  One station stopped producing electricity.  Government officials have previously said that about 40% of Ukraine’s energy grid has been damaged following three months of missile and drone attacks.

--Vladimir Putin on Sunday said that the military operation in Ukraine had gained positive momentum and that he hoped his soldiers would deliver more wins after Russia claimed control of the eastern Ukrainian salt-mining town of Soledar.

The Washington-based Institute for the Study of War said it was highly unlikely that Ukrainian forces still held positions within Soledar itself.

--Speaking at the World Economic Forum in Davos, Kyiv’s mayor Vitali Klitschko said the capital’s infrastructure could collapse at any second as Russia’s sporadic missile attacks along with freezing temperatures put local authorities under increasing strain.  Both Vitali and his brother Wladimir (both former world heavyweight boxing champions) urged the West to speed up deliveries of air defense systems capable of downing Russian missiles.

--Russia announced it had produced the first set of Poseidon nuclear capable super torpedoes that are being developed for deployment on the Belgorod nuclear submarine, TASS reported Monday.  Since a grim New Year’s Eve message describing the West as Russia’s true enemy in the war on Ukraine, Putin has sent several signals that Russia will not back down.  He has dispatched hypersonic missiles to the Atlantic and appointed his top general to run the war. 

U.S. and Russian officials have both described Poseidon as a new category of retaliatory weapon, capable of triggering radioactive ocean swells to render coastal cities uninhabitable.

“The first set of Poseidons have been manufactured, and the Belgorod submarine will receive them in the near future,” TASS quoted an unidentified defense source.

Back in 2018, in first announcing the Poseidon project, Putin said “There is no weapon that can counter them in the world today.”

The United States in its 2022 Nuclear Posture Review, said both Russia and China “continue to expand and diversify their nuclear capabilities, to include novel and destabilizing systems.”

“Russia is pursuing several novel nuclear-capable systems designed to hold the U.S. homeland or Allies and partners at risk,” according to the Posture Review.

Last year, the U.S. Naval Institute said Russia’s deployment of Poseidon turned assumptions about submarine-launched nuclear weapons upside down.  “Perhaps most frightening, this nuclear weapon has the potential for autonomous operation,” the institute said.  “A fully operational Kanyon [NATO’s name for the Poseidon] would have an incredible strategic impact,” it said in an article.  “As a new delivery platform, it is not covered by current nuclear arms treaties.”

--A helicopter crash in a Kyiv suburb Wednesday killed 14, including Ukraine’s interior minister and at least one child on the ground.

There was no immediate word on whether the crash was an accident or a result of the war.  No fighting had been reported recently in the area, though the Interior Minister Denys Monastyrski, his deputy Yevhen Yenin and State Secretary of the Ministry of Internal Affairs Yurii Lubkovych, all killed, were headed to a “hot spot.”

One witness told the BBC: “It was very foggy and there was no electricity, and when there’s no electricity there are no lights on the buildings.”

Monastyrskyi, who was in charge of the Ukrainian police and other emergency services, is the most senior Ukrainian official to have died since the start of the war.

Nine of those killed were aboard the emergency services helicopter that crashed in Brovary, an eastern suburb of the capital.  At least five died on the ground, including the child, though many others were critically injured.

--Russia detailed its plans to boost the size of its military as Ukraine warned that Moscow may be preparing an offensive and President Zelensky called on Western allies to accelerate the provision of arms to the country.

On Tuesday, Russian Defense Minister Sergei Shoigu provided a timetable for the troop increase the Kremlin outlined in December following a series of setbacks on the battlefield and criticism from Russian nationalists.  The country’s army will increase to 1.5 million military personnel between 2023 and 2026 – compared with its current level of 1.15 million and one million at the start of 2022, Shoigu said, according to state newswire TASS.

President Putin was quoted by TASS on Tuesday as saying that Russian military suppliers continue to increase their capacity.

Russian officials have portrayed the military buildup and the Ukraine war as part of a direct confrontation with NATO, which the West has strenuously denied.

“This is due to the war that the Western countries are waging – a proxy war,” Kremlin spokesman Dmitry Peskov told reporters on Tuesday.  “The security of our country must be ensured.”

Wednesday, Vladimir Putin said Russia’s military-industrial complex was one of the main reasons why Russia would prevail in Ukraine.  Speaking to workers at a factory in St. Petersburg that makes air defense systems, Putin said overall military equipment output was rising even as demand for it was growing because of Russia’s “special military operation.”

“In terms of achieving the end result and the victory that is inevitable, there are several things… It is the unity and cohesion of the Russian and multinational Russian people, the courage and heroism of our fighters…and of course the work of the military-industrial complex and factories like yours and people like you,” Putin said.  “Victory is assured, I have no doubt about it.”

Putin said Russian arms companies manufactured about the same number of anti-aircraft missiles as the rest of the world combined, and three times more than the United States. 

At an event marking the 80th anniversary of the lifting of the World War II siege of the city, then known as Leningrad, which Nazi German forces had blockaded for nearly 900 days, Putin told veterans that Russia was fighting in Ukraine to defend ethnic Russians and Russian-speakers, which Moscow says are subject to systematic discrimination in Ukraine. 

“What we’re doing today, including with our special operation, is an attempt to stop this war and protect our people who live in these territories,” said Putin.  “These are our historical territories,” a reference to the fact that large parts of today’s Ukraine were once part of the Russian Empire.

--Addressing the World Economic Forum at Davos, Wednesday, President Zelensky said Western supplies of air defense units and tanks should come more quickly and be delivered faster than Russia was able to carry out its own attacks.

“The supplying of Ukraine with air defense systems must outpace Russia’s next missile attacks,” Zelensky said.  “The supplies of Western tanks must outpace another invasion of Russian tanks.”

--Thursday, the Republican chairs of both the House Foreign Affairs and Armed Services Committees, Reps. Michael McCaul (Tex.) and Mike Rogers (Alabama), issued a statement criticizing an alleged “current handwringing and hesitation by the Biden administration and some of our European allies in providing critical weapon systems to Ukraine,” saying that the purported delay “stinks of the weak policies of 2021.”  Some examples of alleged weak policies from the current White House include “not sanctioning Nord Stream 2 or providing U.S.-origin Stinger [missiles] before the full-scale invasion,” according to McCaul and Rogers.

The two GOP chairmen say it’s now time for the U.S. and Germany to send Ukraine tanks – and for the U.S. to also send ATACMS, which are missiles with an almost 200-mile range, as well as “other long-range precision munitions.”

So today, the United States announced that as part of a new $2.5 billion package, it is sending more air defense weapons to Ukraine, as well as 59 more Bradley Fighting Vehicles, 90 Strykers, 53 more MRAPs, and 350 up-armored Humvees.

But German officials still decline to authorize sending their tanks to Ukraine.  And this reluctance from Chancellor Olaf Scholz appears to be in sync with the will of voters in Germany, according to a recent survey from YouGov, which showed 43% of respondents opposed the idea of sharing tanks with Ukraine while 39% approved.

Meanwhile, little Denmark just announced it’s sending all 19 of its French-made howitzers to Ukraine.  [Buy some Carlsberg this weekend.]

--Friday, the head of Russia’s Wagner group has claimed that its fighters have captured the village of Klishchiivka, a Ukrainian stronghold southwest of the key city of Bakhmut.

The loss of the village could imperil Ukraine’s ability to hold onto Bakhmut by severing supply lines to the city.  Ukrainians regularly repeat the slogan, “Bakhmut holds,” as the latest sign of unwavering resistance in the face of a brutal Russian war.

Back in Washington, the Biden administration designated Wagner Group a transnational criminal organization in a new effort to blunt the mercenary company’s powerful role on the battlefield and around the world.

New sanctions will be coming next week against the group, which the U.S. now believes has about 50,000 personnel deployed in Ukraine.

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--Former Russian President Dmitry Medvedev accused Japanese Prime Minister Fumio Kishida on Saturday of shameful subservience to the United States and suggested he should ritually disembowel himself.

It was the latest in a long line of shocking and provocative statements from Medvedev, who was once seen as a Western-leaning reformer but has reinvented himself as an arch-hawk since Russia invaded Ukraine.

Medvedev is a prominent ally of Putin who serves as deputy chairman of Russia’s Security Council and of a body overseeing the defense industry.

He was responding to a meeting last Friday between Kishida and President Biden, after which the two leaders issued a joint statement saying: “We state unequivocally that any use of a nuclear weapon by Russia in Ukraine would be an act of hostility against humanity and unjustifiable in any way.”

Medvedev said the statement showed “paranoia” towards Russia and “betrayed the memory of hundreds of thousands of Japanese who were burned in the nuclear fire of Hiroshima and Nagasaki.”

Thursday, Medvedev warned NATO that the defeat of Russia in Ukraine could trigger a nuclear war.  Striking a similar tone at what he described as an anxious time for the country, the head of the Russian Orthodox Church said trying to destroy Russia would mean the end of the world.

Medvedev has repeatedly raised the threat of a nuclear apocalypse, but his admission now of the possibility of Russia’s defeat indicates the level of Moscow’s concern over increased Western weapons deliveries to Ukraine.

“The defeat of a nuclear power in a conventional war may trigger a nuclear war,” Medvedev said in a post on Telegram.  “Nuclear powers have never lost major conflicts on which their fate depends.”

Asked if Medvedev’s remarks signified that Russia was escalating the crisis to a new level, Kremlin spokesman Dmitry Peskov said: “No, it absolutely does not mean that.”  He said Medvedev’s remarks were in full accordance with Russia’s nuclear doctrine which allows for a nuclear strike after “aggression against the Russian Federation with conventional weapons when the very existence of the state is threatened.”

Patriarch Kirill, aka Satan, the head of the Russian Orthodox Church, said in a sermon: “We pray to the Lord that he brings the madmen to reason and help them understand that any desire to destroy Russia will mean the end of the world.”

“Today is an alarming time,” state news agency RIA quoted him as saying. “But we believe that the Lord will not leave Russian land.”

CIA Director Williams Burns cautioned Putin’s spy chief Sergei Naryshkin in November about the consequences of any use of nuclear weapons by Russia.

--Boris Pistorious will take over as Germany’s defense minister following Christine Lambrecht’s resignation on Monday.  Pistorious, a member of the ruling Social Democratic Party, previously served as interior minister of Lower Saxony, a German state.  He takes over while other European governments are calling for increased Western armament of Ukraine.  His predecessor resigned after committing a series of blunders.

Lambrecht submitted her resignation request to Chancellor Olaf Scholz, saying “months of media focus on my person” had stood in the way of a factual debate about the military and Germany’s security policy.

Critics have long portrayed Lambrecht as being out of her depth.  The resignation came at a sensitive moment, as Scholz faces mounting pressure to take another significant step in German military aid to Ukraine by agreeing to deliver Leopard 2 battle tanks.

--Germany joined calls for jailed Russian opposition leader Alexei Navalny to get proper medical treatment amid growing concerns for his health.

Earlier about 500 Russian doctors signed an open letter to President Putin demanding that prison authorities stop “abusing” Navalny.

Navalny’s lawyers said he was being denied basic medication by prison officials.

He has spent two years in jail, often in solitary confinement, after his arrest in January 2021 upon returning from Germany, where he had been treated for a nerve agent attack in Siberia.

In the open letter, doctors expressed “great concerns for the life and health” of Navalny and said the refusal of Russia’s prison service to provide the necessary medicines “is directly threatening” his life.

Opinion….

Editorial / Wall Street Journal

“Western governments are applauding themselves for helping Ukraine resist Russia’s invasion, and some credit is certainly due. But as the war’s first anniversary looms, do does a new moment of decision: Will the U.S. and Europe let the war grind on as a brutal stalemate, or will they provide enough military aid so Ukraine can take back its territory and win the war?

“That’s the strategic choice, unspoken publicly but looming in the background, as Ukraine’s allies meet Friday at Ramstein Air Base in Germany. The Ukraine Defense Contact Group includes 50 governments, and Defense Secretary Lloyd Austin and Chairman of the Joint Chiefs Gen. Mark Milley will attend. Their decisions will set the terms of war from the Ukrainian side for the rest of the winter and beyond.

“The Ukrainians have put up a heroic fight and retaken some of the territory Russia grabbed early in the war.  But the bitter truth is that Vladimir Putin shows no sign of letting up despite his humiliating setbacks.  Mr. Putin is venting his frustration by lobbing missiles at apartment buildings…. American Patriot missile defenses are still weeks or months from arriving, as Ukrainian troops train on the system in Oklahoma.

“Russian may be gearing up for another offensive.  The Institute for the Study of War warned this week that Russia is ‘preparing to conduct a decisive strategic action in the next six months,’ perhaps in an attempt to overrun Luhansk Oblast in the east.

“Mr. Putin may also expand his conventional force to 1.5 million troops, up from 1.35 million now.  He is working to revive Moscow’s ability to produce weapons and calling every dictator in his Rolodex for arms.  Russian casualties are of no great consequence to him.  He thinks that, as the war drags on, he can outlast Western support for Kyiv and still emerge with much of Ukraine under his control.

“That may prove to be right if Ukraine can’t build on its gains in the latter half of 2022 and retake its territory soon.  Ukrainians clearly have the will to keep fighting, but they need more and better arms than the West has provided so far.

“An emerging fiasco over Ukraine’s urgent request for tanks illustrates the problem.  The U.K. said this week it will provide Challenger 2 tanks to Ukraine, but only 14.  News reports Wednesday said Germany won’t sign off on transfers of its Leopard tanks unless the U.S. provides its own Abrams tanks.  This military pas de do not should embarrass both the Germans and the White House….

“Yet the Biden Administration is leaking that the aid it plans to announce this week [Ed. announced Thursday] won’t include tanks.  Neither will the U.S. offer the Army tactical missile system, which would allow the Ukrainians to strike targets from afar, launched off the Himars systems that have been deployed to such great effect.

“This reluctance is a profile in puzzling timidity. The White House fear is apparently that the war will escalate if Mr. Putin continues to lose ground. The Russian is capable of anything, but there is no moral or strategic case for giving Ukraine just enough weapons to bleed for months with no chance of recovery.

“The stronger case is to help Ukraine win rapidly with more arms and by scrapping U.S. restrictions on how Ukraine wages war.  The U.S. has said Ukrainian strikes on Russian territory are off-limits, and the practical effect has been to let Moscow concentrate forces on Eastern Ukraine without having to defend some of its own depots and bases.  Why should a dictator who rolled over a foreign border be free to claim his territory as sacrosanct?

“The rejoinder is that Mr. Putin might unleash a nuclear weapon, but the past months have shown that he will make that decision based on his own calculations in any case.  If he does, he will face even more global ostracism and Western help for Ukraine.

“A long and ugly stalemate in Ukraine would put Russia in position to menace its neighbors for years to come, which would be even more costly for the U.S. and Europe.  President Biden is receiving plaudits for keeping the Ukraine coalition together despite the economic and military strains.  But the praise will turn to harsh and deserved criticism if the war grinds on and Russia wins its war of bloody attrition.”

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Wall Street and the Economy

On the economic data front, we had December producer prices, which came in better than expected, -0.5% over November, up 0.1% ex-food and energy, while for 2022, 6.2% on headline, down from 7.4% in November, and 5.5% on core vs. 6.2%.

But December retail sales were awful, -1.1%, ditto ex-autos, both worse than forecast, while industrial production for the month was -0.7%, well below consensus and on top of -0.6% the prior month, so not a good sign for manufacturing.

In the housing sector, December housing starts came in at a 1.382 million annualized pace vs. a prior revised figure of 1.401m, while permits were both below forecasts and November’s pace.

December existing home sales fell by 1.5% to a 4.02 million seasonally adjusted annual rate, down from 4.08 million in November, according to the National Association of Realtors released Friday.

The sales rate has declined every month since February 2022 and puts total sales 34% below their year-ago level.

Sales for all of 2022 fell to 5.03 million from 6.12 million in 2021 due to rising mortgage rates throughout the year, the NAR said.

NAR Chief Economist Lawrence Yun does “expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year.”

Specifically, the latest 30-year fixed-rate mortgage via Freddie Mac is 6.15%, down from a peak of 7.08% in November, and 6.42% at year end.

The median home price fell to $366,900 from $372,600 in November and was up only 2.3% from the $358,800 median price in December 2021.

Lastly, the National Retail Federation reported that U.S. holiday sales rose by 5.3% for November and December, down from their forecast of 6% to 8% over 2021.  The figures are not adjusted for inflation.

NRF Chief Economist Jack Kleinhenz said due to inflation the amount of money spent on a budget was large for food and probably took away spending on other retail products during the holidays. 

Speaking of inflation….

Former U.S. Treasury secretary Larry Summers suggested on Friday that financial markets may be underestimating how much further the Federal Reserve will go with rate hikes as it continues to seek to rein in inflation, even as recent data shows that headline consumer prices growth has started to decline.

“I can see many, many more scenarios in which rates end up higher than currently priced [by the market] than I can see rates lower than priced,” Summers said on a panel on the final day of the World Economic Forum in Davos.  “Therefore, I am a bit surprised by the market’s forecast of what is happening.”

Summers warned that any moves to change the 2 percent inflation target of most major central banks, including the Fed, the ECB and Bank of England, “would be a grave error.”

Thursday, Fed Vice Chair Lael Brainard indicated in remarks that she was supportive of slowing the pace of rate hikes to a more traditional quarter percentage point at the next policy meeting, Jan. 31-Feb. 1, joining a number of colleagues.

New York Fed President John Williams said at a separate event Thursday evening he was encouraged by signs interest-rate increases were having their desired effect in slowing growth and keeping consumers’ and businesses’ expectations of future inflation in check.

“We are seeing the shifting gears of tighter monetary policy having the desired effects,” he said during a speech to bond market analysts in New York.  But, he added, “we still have a ways to go to get” the Fed’s policy rate “to the level that I think is sufficiently restrictive to achieve our goals.”

Brainard echoed what all Fed governors have been saying the past few months, including Chair Jerome Powell.  “Policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” she said.

Next week we have the Fed’s preferred inflation gauge, the PCE, personal-consumption expenditures price index.

In the Wall Street Journal’s latest quarterly survey of economists, the probability of a recession in the next 12 months was at 61%, little changed from 63% in October’s survey.

The economists expect inflation, now 6.5%, to fall to 3.1% by the end of this year, and ending 2024 at 2.4%.

On average they expect GDP to expand at a 0.1% annual rate in the first quarter of 2023 and contract 0.4% in the second.  They see no growth for the third quarter and a 0.6% growth rate for the fourth.

For 2023 as a whole, the group expects payrolls will decline by 7,000 a month on average, which was a sharp downgrade from October’s survey, when economists expected employers to add nearly 28,000 jobs a month over the subsequent four quarters.

Among the participants gathering at the World Economic Forum in Davos, two-thirds of private and public sector chief economists surveyed expect a global recession this year, more than twice as many as in the previous survey conducted in September.

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IMF Deputy Managing Director Gita Gopinath said China could see a sharp recovery in economic growth from the second quarter onwards based on current infection trends after the dismantling of most Covid-19 restrictions.

She hailed China’s reopening as a positive sign, alongside indications it was ready to re-engage with the world.  “We expect growth in China to come back, to rebound,” Gopinath said in an interview on the sidelines of the World Economic Forum.  “Looking at the infection trends, and if those persist, we could see a very quick recovery starting from after the first quarter of this year,” she said of a current surge in infections seen as an “exit wave” linked to the reopening.

Gopinath added, “If growth in China comes in much more strongly, which is a possibility, then we could see another spike in oil prices or energy prices,” which is what I’m looking for.

She also reaffirmed the IMF’s concern that geopolitical tensions would lead countries toward protectionism as they tried to shore up their economic security.  Asked about the U.S. Inflation Reduction Act package of measures to boost green transition investment, she said it treated electric vehicles in a discriminatory way by favoring U.S. producers over other manufacturers, and she’s right.  Washington said on Tuesday it was trying to address European concerns over the $369 billion plan.

Kristalina Georgieva, the managing director of the IMF, said China’s ability to recover from nearly three years of self-imposed isolation “is very likely the single most important factor for global growth in 2023.  It matters tremendously.”

Details on China’s economy below.

Europe and Asia

Eurostat released its final look at December inflation in the eurozone, down to 9.2% from November’s 10.1% and October’s peak of 10.6%.

Germany 9.6%, France 6.7%, Italy 12.3%, Spain 5.5%, Netherlands 11.0% (down from a peak of 17.1%), Ireland 8.2%.

Britain: U.K. inflation dipped for a second month in December, boosting hopes that the worst cost-of-living crisis in a generation may be starting to ease.

Consumer prices rose 10.5% from a year earlier, the Office for National Statistics said Wednesday, less than November’s 10.7% and October’s peak of 11%, when domestic energy bills surged.

But the drop is unlikely to deter the Bank of England from delivering another 50-basis point hike next month.  Core inflation is proving sticky.

Meanwhile, the U.K. is dealing with a series of crippling job actions, with the train drivers’ union saying it had rejected a pay offer and its members would take fresh strike action on Feb. 1 and 3.

Tens of thousands of nurses in England will strike in February for a third time in as many months, adding further pressure on Prime Minister Rishi Sunak over crippling disruptions to key services caused by industrial action.

Teachers in England and Wales on Monday announced they would take strike action, the National Education Union with 500,000 members.  Leadership said the government’s 5% pay hike offer equated to a cut amid spiraling prices.

France: Trade union leaders in France declared victory Thursday after the first day of protests against President Emmanuel Macron’s plan to raise the retirement age from 62 to 64 and increase to 43 the number of years one must work to collect a full pension.

The interior ministry said 1.2 million people marched across France, including 40,000 in Paris.  The unions said there were more than two million protesters, including 400,000 in Paris.  Police fired tear gas and made about 30 arrests.

A second day of strikes and marches will take place on Tuesday, Jan. 31.

Italy: The nation’s most-wanted mafia boss, Matteo Messina Denaro, was arrested in Sicily after 30 years on the run.  Messina Denaro was reportedly detained in a private clinic in Sicily’s capital Palermo.  He is alleged to be a boss of the notorious Cosa Nostra mafia.  Over 100 members of the armed forces were said to have been involved in the arrest.

Messina Denaro was tried and sentenced to life in prison in absentia in 2002 over numerous murders, which included the 1992 killing of anti-mafia prosecutors Giovanni Falcone and Paolo Borsellino, the deadly 1993 bomb attacks in Milan, Florence and Rome, and the kidnapping, torture and killing of the 11-year-old son of a mafioso turned state witness.

In other words, this is a very, very bad guy.

Turning to Asia…China reported GDP for the fourth quarter, an annualized pace of 2.9%, above consensus of 1.8% and vs. 3.9% in the prior quarter.  For 2022, GDP was up 3.0%, save for 2020, the worst since 1976, the last year of the Cultural Revolution that wreaked the economy.

The 3.0% for 2022 was vs. a target of “around 5.5%” set last spring, and 8.4% in 2021.  The government is likely to set a 2023 target of around 5% when key policymakers meet on the topic in March.

China’s economic growth is in long-term decline after hitting a peak of 14.2% in 2007, hampered by hurdles including an aging, shrinking workforce and growing curbs on Chinese access to Western technology due to security concerns.

For December, industrial production rose 1.3% year-over-year, while retail sales fell 1.8% Y/Y, and fixed asset investment rose 5.1% for 2022.  December unemployment came in at 5.5%.  [All the above courtesy of the National Bureau of Statistics]

The same day it released the GDP data, Beijing said that for the first time since 1961, its population shrank…down by 850,000 to 1.412 billion.  The shift toward a shrinking population, which came faster than Beijing had projected, marks a watershed moment in China’s history with profound implications for its economy and its status as the world’s factory floor let alone the government’s ability to pay for an enormous population that is growing older.

So much for the “growing market for Western-made goods,” like cars.  Fewer consumers at a time when China is under pressure to achieve growth through greater consumption rather than investment and exports.

And then you have President Xi and his drive for self-sufficiency across a range of industries and his penchant for dictating how private business should be run that will continue to sap vitality from the economy.

Or as Mark Williams, chief Asia economist at Capital Economics puts it: “Xi’s desire to make sure that the Party’s control extends across society runs far deeper than his commitment to growing a market economy.”

Editorial / Wall Street Journal

“China’s Communist Party tried for decades to engineer slower population growth, and now it has what it wished for. The country’s population declined last year for the first time in six decades…at the same time economic growth fell to its slowest pace in nearly 50 years….

“This is happening even though the Communist Party dropped its one-child policy in 2016.  Beijing tried for decades to contain population growth, sometimes via forced abortions and sterilizations.  This caused enormous social disruption, especially as Chinese parents anxious for sons engaged in sex-selective abortions in large enough numbers to create a significant male-female imbalance.  The Party only belatedly realized that slower population growth would make it harder for China to grow rich before its population grows old.

“Yet now that the Party wants more children, it finds the Chinese public unwilling or unable to oblige.  A decline in optimism about the economy may be one reason.

“GDP growth in 2022 fell to 3%...Except for the first year of the pandemic in 2020, this is China’s worst economic performance since the 1970s.  It’s the functional equivalent of a recession for a developing economy still trying to lift hundreds of millions of people out of poverty.

“Blame will fall on President Xi Jinping’s destructive zero-Covid policy, which suppressed economic activity until the policy was lifted at the end of last year. But the economy has been slowing for some time, especially as Mr. Xi has tried to rein in credit excesses in the property market and bring more of the economy under tighter state control.

“The property bubble arose from the Party’s strategy for more than a decade of using runaway debt and real estate to fuel the economy.  The middle class is especially exposed since Chinese households invested heavily in property while Beijing failed to deliver financial and corporate reforms that offer alternative ways of saving.

“Beijing hoped popping the real-estate bubble would clear the way for slower but better GDP growth with more productive investment and job creation in other industries. Thanks to Mr. Xi’s other economic policies, the country is mostly getting the ‘slower.’

“All of this probably explains China’s recent shift to a less hostile attitude to foreign investors and trading partners.  Mr. Xi dispatched Vice Premier Liu He to the World Economic Forum in Davos Tuesday to tell global business leaders that, in Mr. Xi’s economic plans, ‘entrepreneurs, including foreign investors, will play a critical role as they are the key elements of social wealth creation.’  Beijing is clearly worried that companies will look elsewhere to build their global supply chains.

“China was able to become the world’s second-largest economy by unleashing the entrepreneurship of its people via economic reform.  Mr. Xi’s desire for top-down political control has put that progress in jeopardy at a moment it needs more market reform to cope with a shrinking population.”

In Japan…December inflation remained well above the Bank of Japan’s 2% target, 4% vs. 3.8% prior on consumer prices, a 41-year high, and 3% ex-food and energy vs. November’s 2.8%.

Producer prices rose 0.5% month-over-month, and 10.2% year-over-year vs. 9.7% prior.

December industrial production was -0.9% Y/Y.

December exports increased just 11.5% Y/Y vs. 20% prior, while imports rose 20.6% vs. 30.3% in November.

The Bank of Japan made a surprise decision that is an early taste of the turbulence the dollar is likely to experience this year.

The BOJ kept its cap on the 10-year government bond yield at 0.5% Wednesday – thereby keeping longer-term interest rates low – when many economists expected an increase.  The yen tumbled.  The BOJ is not concerned over the inflation rate, saying it’s about higher energy prices and they will come down.  I’m not so sure.

Taiwan’s economy contracted in the fourth quarter of 2022, rounding out its slowest full-year of growth since 2016 and reflecting waning global demand for its hi-tech products, ranging from iPhones to semiconductor chips.

GDP declined 0.86% in Q4 from a year earlier.  For the year, the economy grew just 2.43%, below the government’s forecast of 3.06%.

Street Bytes

--Wall Street had a rough start to the holiday-shortened week, with investors taking profits after the quick start to the year, and then the lousy economic news Wednesday, as well as the comments from some Fed officials that sparked worries that the central bank may not pause interest rate hikes any time soon.

But a big rally Friday on renewed ‘soft landing’ hopes helped the major indexes finish mixed on the week, with the Dow Jones off a sizable 2.7% to 33375, and the S&P 500 losing 0.7%, but Nasdaq rising 0.6%, helped by Netflix’s earnings.

Lots of big earnings reports next week.

--U.S. Treasury Yields

6-mo. 4.80%  2-yr. 4.17%  10-yr. 3.48%  30-yr. 3.65%

This has been the best start to a year for bond returns since 1999, according to a Bloomberg analysis.  As they note, “From European Banks to Asian corporates and developing-nation sovereigns, virtually every corner of the new issue market is booming, thanks in part to a rally” in global bonds of all stripes.

“Borrowers looking to raise fresh financing after getting turned away for much of 2022 are suddenly encountering investors with a seemingly endless appetite for debt amid signs inflation is cooling and central banks will call a halt to the harshest monetary tightening in a generation.”

--The International Energy Agency said this week that China’s rapid shift to reopen its economy should help oil demand rise to a record level this year.

The energy watchdog lifted its forecast for oil demand growth this year by nearly 200,000 barrels to 1.9 million barrels a day, or 101.7 million barrels a day on total demand as an average for 2023, well above pre-Covid levels and a record.

China’s demand for oil makes up most of the revision, with the IEA raising its forecast for Chinese demand by 100,000 barrels a day to 15.9 million.

The Paris-based agency kept its estimate of 2022 oil demand largely unchanged at 99.9 million barrels a day.

Meanwhile, Europe has continued to catch a major break with above-average, and in some cases record temperatures, though more normal temps have settled in.

European natural gas prices have thus feen falling amid a strong supply outlook.  As I noted in recent weeks, Germany, for one, has been refilling its supplies, not drawing down the surplus as would be the case in a normal winter.  And early conservation efforts, taken over the supply fears generated by Russia’s war in Ukraine, have worked.

Stockpiles in China are also strong, easing concerns of tightness in the liquefied natural gas market, according to Australia’s ANZ Bank.

In fact, ANZ noted this week that Chinese importers are reportedly trying to divert February and March shipments to Europe amid weak prices at home and high inventories.

--Rounding out the Big Six banks, we had earnings news from Goldman Sachs and Morgan Stanley on Tuesday, after hearing from JPMorgan Chase, Bank of America, Citigroup and Wells Fargo last week.

Both noted sharply lower fourth-quarter profits, but Goldman shares cratered 6%, while Morgan Stanley’s rose a like amount.

Morgan Stanley’s results topped analysts’ estimates as the lender logged “record” revenue in its wealth management business, helping offset declines in the institutional securities and investment management segments.

MS posted adjusted earnings of $1.31 a share, down from $2.08 a year ago, but better than consensus of $1.29.  Revenue amounted to $12.75 billion, lower than the $14.52 billion generated last year, but ahead of the Street’s view for $12.57 billion.

“Wealth management had a record year, and fixed income had its strongest performance in over a decade,” CFO Sharon Yeshaya said on an earnings call.  “While the firm was broadly impacted by increased volatility and economic uncertainty, the business model performed very well in a challenging environment as it was designed to do.”

Wealth management revenue climbed 6% to $6.63 billion.  The segment “provided stability” and $311.3 billion in net new assets for the whole of 2022, CEO James Gorman said in a statement.

Investment management revenue slumped 17% to $1.46 billion, while investment banking sank 49% to $1.25 billion as lower levels of completed merger and acquisition deals impacted advisory revenue.  Equity underwriting revenue declined “significantly” amid a sharp drop in global equity volumes, while fixed income underwriting revenue decreased due to lower bond and loan issuances amid deteriorating macroeconomic conditions, the bank said.

Goldman Sachs’ fourth-quarter results declined more than expected as depressed client activity tied to economic uncertainty hampered investment banking and asset management revenues.

Per-share earnings plunged to $3.32 from $10.81 a year earlier, below the consensus for $5.97 and the biggest miss in a decade, thus the big drop in the stock price.  Revenue declined to $10.59 billion, trailing the Street’s $10.91 billion view.

Global banking and markets revenue declined 14% to $6.52 billion, driven by a 48% plunge in investment banking to $1.87 billion amid lower equity and debt issuances and “a significant decline” in merger and acquisition transactions, the company said.

“Underwriting volumes remained extremely muted despite green shoots that appeared at the end of the third quarter,” CEO David Solomon said on an earnings conference call with analysts.

The Federal Reserve’s rate increases have eased inflation pressures but also hit economic momentum, Solomon said.  “Our clients are thinking a lot about how to navigate this complex backdrop,” which includes a tight labor market, he said.  Many firms are preparing for “tougher times” ahead.  Solomon said Goldman cut its headcount by 6% earlier this month.

Goldman also had to concede its push into consumer lending, like in rolling out savings accounts, personal loans and credit cards, going back to 2019, missed the mark and the consumer unit was never profitable, Goldman formally scaling back its plan to bank the masses.

“Marcus” is being folded into Goldman’s new asset and wealth management unit, after losses of about $3 billion since 2020.

[Multiple reports late Friday say the Federal Reserve is investigating Goldman over Marcus and the lack of appropriate safeguards.]

Separately, bonuses for junior bankers were slashed to just $10,000 or $15,000 from an average of $95,000 last year.  Coupled with the layoffs, the mood at Goldman is said to be rather bleak.

--United Airlines beat expectations for its fourth quarter results and said it expects revenue to climb 50% in the first three months of 2023 from the same time last year on travel demand and higher ticket prices.

The carrier reported Q4 adjusted earnings per share of $2.46, or $843 million, on revenue of $12.4 billion, up 14% from the fourth quarter of 2019.

Analysts expected earnings per share of $2.11 on revenue of $12.2 billion.

UAL said its operating margin increased by 14%, and its revenue per seat mile grew by 26%, compared with the same quarter in 2019, before the pandemic started.

United said for all of 2023, it expects earnings per share of $10 to $12, nearly twice the current estimate of $6.84.

United CEO Scott Kirby said, “Over the last three years, United has made critical investments in tools, infrastructure and our people – all of which are essential investments in our future.  That’s why we’ve got a big head start, and we’re now poised to accelerate in 2023 as our United Next strategy becomes a reality.”

The company is gearing up for that next phase, announcing on Dec. 13, that it had placed an order for 100 Boeing 787 Dreamliners with an option to purchase 100 more.

UAL also said Tuesday it has opened a newly renovated inflight training center in Houston, Texas, as part of a $32 million expansion project.

United said the 56,000-square-foot training center will support its goal of hiring 15,000 people in 2023, including 4,000 flight attendants.

United’s shares initially rose 4% in the after-market, but fell Wednesday in the general market slump amid the recessionary fears.

--The union representing Southwest Airlines’ pilots on Wednesday called for a strike authorization vote, citing the flight disruptions during the holiday travel season last month and the lack of progress on contract negotiations.

Southwest Airlines Pilots Association President Casey Murray said the vote will begin May 1 and be counted at the end of that month.

--The Wall Street Journal ranks America’s nine largest airlines annually on all kinds of categories, from on-time arrivals, delays, baggage handling and more, and Delta Air Lines was No. 1 for a second consecutive year and fifth of the past six.  Alaska Airlines was a repeat runner-up, while Southwest, despite the year-end meltdown, was third.

JetBlue Airways finished last for a second consecutive year, two spots behind merger partner Spirit Airlines.

--The National Transportation Safety Board said Sunday it is investigating the near-collision of jets operated by American Airlines and Delta at New York’s JFK International Airport last Friday, and then as the week went on, and more details emerged, this truly was a scary miss.

The Delta flight, bound for the Dominican Republic, stopped its takeoff roll 1,000 feet before the point where the American jet, a Boeing 777 headed for London, crossed from an adjacent taxiway. The early evidence seems to show a rather bad mistake on the part of the American Airlines jet, but we’ll see.  Air traffic controllers did their job, thankfully.

Then Sunday, we had Nepal’s deadliest crash in three decades, killing at least 68 on board a Yeti Airlines plane that crashed about a mile from a mountain runway.

--The Federal Aviation Administration confirmed what was talked about last week, that the glitch that led to travel chaos at the airports, resulting in more than 11,000 flights being delayed and 1,300 canceled on Jan. 11, was caused by a contractor deleting files on a crucial computer server used by pilots.

The FAA said the worker “unintentionally deleted files” on the Notice to Air Missions (Notam) database.

The system alerts pilots to potential hazards on flight routes.  They are required to check it before flights.

The technical issue marked the first time since Sept. 11, 2001, that flights across the U.S. were grounded.

--TSA checkpoint numbers vs. 2019

1/19…91 percent of 2019 levels
1/18…94
1/17…111
1/16…93
1/15…95
1/14…100
1/13…143…Friday of MLK weekend
1/12…116

[The TSA discovered more than 6,500 firearms in carry-on bags in 2022, a new record, the agency reported Tuesday.  The agency began reporting out the number of firearms when it was founded in 2001.  TSA said 88% of the guns were considered loaded.  About 736 million passengers were screened through TSA checkpoints in 2022.]

--Microsoft Corp. announced Wednesday it would eliminate 10,000 jobs and take a $1.2 billion charge as its cloud-computing customers dissect their spending and the company braces for potential recession.

The layoffs, far larger than cuts by Microsoft last year, pile on to tens of thousands of job cuts across the technology sector that’s long past its ceaseless growth during the pandemic.  It’s particularly dramatic for Microsoft, which has heavily invested in artificial intelligence that represents an industry bright spot.

CEO Satya Nadella, in a memo to employees, said the layoffs, affecting less than 5% of the workforce, would conclude by the end of March.

Nadella said customers wanted to “optimize their digital spend to do more with less” and “exercise caution as some parts of the world are in a recession and other parts are anticipating one.”

Another company serving enterprises, Palantir Technologies Inc., said this week that reducing cloud spending was a top-ten priority of its customers. 

Microsoft is also dealing with a slump in the personal computer market after a pandemic boom fizzled out, leaving little demand for its Windows and accompanying software.

The shares fell about 2% on the news.

--Google parent Alphabet Inc. said it will cut about 12,000 jobs, more than 6% of its global workforce, becoming the latest tech giant to retrench after years of abundant growth and hiring.

The cuts will affect jobs globally and across the entire company, CEO Sundar Pichai told employees in an email on Friday, writing that he takes “full responsibility for the decisions that led us here.”

So the carnage in the sector continues, as Pichai wrote: “These are important moments to sharpen our focus, reengineer our cost base, and direct our talent and capital to our highest priorities.”

--Netflix late Thursday reported fourth-quarter results that trailed Wall Street’s estimates even as subscriber growth came in stronger than expected, while co-founder Reed Hastings was named executive chair.

Per-share earnings declined to $0.12 during the three months ended Dec. 31 from $1.33 a year earlier, compared with consensus of $0.48.  Fourth-quarter EPS missed the company’s own $0.36 guidance due to a $462 million foreign exchange loss on its euro-denominated debt.

Revenue increased 1.9% to $7.85 billion, but fell just shy of the Street’s $7.86 billion view.

However, global streaming paid additions totaled 7.66 million, versus the consensus among 28 analysts for 4.5 million and the shares soared over 8% in response.

Netflix now has more than 231 million subscribers worldwide.

Hastings said that he has stepped down as co-CEO, but will continue as executive chairman.  Chief Operating Officer Greg Peters will become co-CEO with Ted Sarandos, who was promoted to that role in 2020.  The changes are effective immediately.

“Our board has been discussing succession planning for many years,” Hastings said in a blog post.  “The board and I believe it’s the right time to complete my succession.”

The company said it forecasts annual revenue growth of 3.9% in the first quarter and modestly “positive” paid net adds compared with a 200,000 slide a year earlier.  Fewer net adds expected in the first quarter compared with the fourth reflects “normal seasonality” and factors in strong growth in the fourth quarter, which “likely pulled forward some growth” from the current quarter, according to the company.

Netflix said it expects to expand its crackdown on password sharing later this quarter, which could trigger “some cancel reaction in each market” and impact near-term member growth.

Netflix rolled out an ad-supported tier in the U.S. last November.

--Last week I reported how recent Tesla buyers in China were rather upset after the company lowered prices 15% to 25% at the end of the year to juice sales.

Now it’s U.S. buyers, who may have purchased Teslas say in the fall, and then learned the company had cut the price of its cars as much as 20%, part of a push from CEO Elon Musk to increase sales volume in the face of weakening demand.  For existing customers, the resale value of the cars they own will take a hit along with the drop in prices of new models.

“For any existing owner it’s a kick to the teeth,” said Ivan Drury, director of insights for research website Edmunds.com.  “Anyone who bought a Tesla recently will feel an immediate impact and wish they leased it.”

--China’s car exports surpassed Germany’s after a 54.4% surge to 3.11 million in 2022, narrowing Japan’s lead.

Exports accounted for 11.5% of mainland China’s total 2022 production of 27 million vehicles, according to the China Association of Automobile Manufacturers.

Electric-car shipments surged 120% to 679,000.

According to MarkLines, an auto industry data provider, Japanese carmakers shipped 3.2 million vehicles abroad in the first 11 months of 2022, almost unchanged from a year earlier.

Germany exported 2.61 million cars last year, up 10% from 2021, according to the German Association of the Automotive Industry.

--Procter & Gamble on Thursday reported lower fiscal second-quarter results amid a challenging cost and operating environment, although the consumer goods company offered an improved sales outlook despite substantial headwinds.

The company posted adjusted earnings of $1.59 per share for the quarter ended Dec. 31, dropping from $1.66 a year earlier, and matching consensus.  Sales edged down 1% to $20.77 billion, slightly ahead of expectations, weighed down by a 6% decline in volume.

Sales in the beauty segment slipped 3%, while grooming fell 9%.  Healthcare sales climbed 2%.

P&G expects fiscal 2023 sales to be flat to 1% lower, compared with previous projections of a 1% to 3% decline.

The company continues to see earnings towards the low end of its original outlook range of flat to up 4% on a per-share basis, due to significant commodity and materials cost headwinds and foreign exchange inputs.

--Nordstrom Inc. on Thursday slashed its forecast for annual profit following weak sales during the all-important holiday period, as the department store chain took a blow from heavy discounts and promotions to clear out excess inventories.  The company’s shares fell about 6% in after-markets trading.

Department store peer Macy’s earlier this month tempered its holiday sales forecast, blaming a deeper-than-expected lull in shopping between major holidays such as Black Friday and Christmas, while Lululemon Athletica warned of a margin squeeze for the quarter.

Nordstrom said it expects net sales for the nine-week holiday period ended Dec. 31 to have declined 3.5%.

--The share of U.S. workers who are members of unions fell to a record low last year even though unions added more members than in any year since 2008, following union elections at workplaces including Starbucks Corp., Amazon.com and Apple Inc.

About 10.1% of wage and salary workers were union members last year, down from 10.3% in 2021, the Labor Department said Thursday.  The membership rate has been falling for decades as the economy has become more dependent on service industries, where workers haven’t traditionally been unionized.

--Wireless carrier T-Mobile said Thursday that an unidentified malicious intruder breached its network in November and stole data on 37 million customers, including addresses, phone numbers and dates of birth…but not passwords or PINs, bank account or credit card information, Social Security numbers or other government IDs.

T-Mobile, in an SEC filing, said the breach was discovered Jan. 5.

--Bitcoin closed 2022 at $16,600 (since it never officially stops trading, I’m pegging 6:00 p.m. on Dec. 30, which was the final trading day on Wall Street).

But it surged over $21,000 last Saturday amid optimism that it may have bottomed and inflation has peaked.  It hadn’t been over $20,000 since Nov. 8. The price has been stuck in a $16,000-$17,000 range for weeks before this breakout.

Foreign Affairs, Part II

China: On Thursday, China said the worst was over in its battle against Covid-19 ahead of what is expected to be the busiest day of travel in years on Friday, a mass movement of people that has fed fears of a further surge in infections.

Vice Premier Sun Chunlan, who oversees China’s virus response, said that the outbreak was at a “relatively low” level, state media reported on Thursday, after health officials said the number of Covid patients in clinics, emergency rooms and with critical conditions had peaked.

But there are widespread doubts about China’s account of an outbreak that overwhelmed hospitals and crematoriums since Beijing abandoned strict Covid controls and mass testing last month, unleashing the virus on its 1.4 billion population after protests against the anti-Covid policy.

British-based health data firm Airfinity maintains daily fatalities could hit 36,000 a day next week.

Friday, with the Lunar New Year holiday officially beginning on Saturday, will be the busiest day of travel across China since the pandemic erupted in late 2019.  President Xi said this week he was concerned about an influx of travelers to rural areas with weak medical systems, and that protecting the elderly – many of whom are not vaccinated – was a top priority.

China reported a large jump in hospitalizations in the week through to Jan. 15, the highest since the pandemic began, according to a report published by the World Health Organization on Thursday.

China said last Saturday that nearly 60,000 people with Covid had died in hospital between Dec. 8 and Jan. 12 – a roughly tenfold increase from previous disclosures.  The average age of those who died was 80.3, and 90 percent of the fatalities were aged 65 and over, according to China’s National Health Commission.

However, that number excludes those who died at home, and some doctors in China have said they are discouraged from putting Covid on death certificates.

The WHO continued to press for more data, including a breakdown of the variants circulating in the country.

Editorial / Washington Post

“From the beginning of the pandemic, the Chinese government has relied on secrecy, obfuscation, intimidation and fabrication to draw a veil over the origins of the virus as well as its contagion and death toll.  In early 2020, it concealed the person-to-person transmissibility of the virus for more than 20 days, admitting it only when it became obvious. Once China acknowledged Covid was indeed contagious, it introduced its zero-Covid policy, in which people were forced to quarantine and take daily tests. Patients were forcibly removed from their homes to government-run Covid centers.  People who had been exposed sometimes had their doors welded shut.  Buildings, and sometimes entire cities, were locked down, with residents forbidden to leave their homes.

“These measures, the government said, kept the disease in check and the death rate low, proving the superiority of its repressive political system.  While refrigerated trailers for the dead lined streets around New York hospitals beginning in the spring of 2020, no such scenes played out in China.

“But zero Covid could not go on indefinitely.  When the economy stalled and public frustration erupted, China abruptly dropped it.  The turnabout left a populace especially vulnerable to the virus – with little previous exposure and protected by locally made vaccines that are based on the original virus rather than the Omicron subvariants that are now dominant.  They are markedly less effective than the mRNA vaccines developed in the West.

“As expected, the disease exploded.  China’s refusal to acknowledge what was obvious to the world led to an outpouring of criticism and dire forecasts….

“Hundreds of millions of Chinese will be traveling for the Lunar New Year that begins Jan. 22, raising the likelihood that they will carry the disease to rural areas that are far less prepared to deal with it.  Yet the Chinese announcement (last) Saturday (revealing the death toll) asserted that ‘the national emergency peak has passed.’

“Given China’s policy of concealment, there is little reason for anyone to believe this. Distrust of Chinese pronouncements has already led 20 countries, including the United States, to impose new requirements on Chinese travelers, including negative coronavirus tests. Chinese officials have called the measures discriminatory.  But there is good cause for the world to be wary.

“The international community should keep the pressure on Chinese officials to come clean about the real scale of the current crisis and allow independent outsiders access to make their own assessments. What China and the world need in a pandemic is truth and transparency all the time, not just when it is no longer possible to lie.  The release of the new figures was a start, but only just a start.”

[Separately, in the first real-world test of vaccine boosters specially designed to protect against the Omicron variant, Israeli researchers have found that people 65 and older who got an updated jab were 81% less likely to be hospitalized with Covid than those who did not.  The preliminary findings were published in the British medical journal Lancet and have not been peer-reviewed.  They are based on the medical records of more than 85,000 people 65 and older who got a dose of Pfizer and BioNTech’s retooled mRNA booster and more than 537,000 others in the same age group who did not get the shot.]

On the issue of Taiwan….

Editorial / Wall Street Journal

“Good news: The Chinese military can’t easily seize Taiwan by force. That’s the gist of the headlines about a recent war game from a Washington think-tank. But that’s not the full story, and the details in the 160-page report show that even a victorious fight for Taiwan would be a ruinous affair, and the U.S. is still showing little sense of urgency in deterring it.

“The Center for Strategic and International Studies set out to test what would happen if China attempted an amphibious invasion of Taiwan.  Analysts played the war game 24 times, and in most instances U.S. intervention beat back the invasion. Taiwan remained an autonomous democracy, albeit as a ravaged island without basic services like electricity.

“War games are a product of choices and assumptions, but there were four preconditions to defeating an invasion, none of them guaranteed.  First the Taiwanese have to fight.  The island is ramping up its spending on defense but its conscription and readiness are underwhelming.

“Condition two: Arms need to be pre-positioned; the U.S. can’t pour in weapons over friendly borders after the fight starts a la Ukraine.  American weapons deliveries to Taiwan now lag years behind orders.

“Three: The U.S. must be able to rely on its bases in Japan.  American fighter jets lack the range to commute to the war without Japan’s outer islands, one more reason Tokyo is America’s most important Pacific ally.  The fourth condition?  The U.S. ‘must be able to strike the Chinese fleet rapidly and en masse’ with long-range weapons.

“The cost in blood of U.S. sailors and airmen would be enormous.  ‘In three weeks,’ the report notes, the U.S. would suffer ‘about half as many casualties as it did in 20 years of war in Iraq and Afghanistan.’  Commanders would have to ‘move forward despite a high level of casualties not seen in living memory.’

“The American public has no experience since World War II of enduring dozens of lost ships, including two U.S. Navy aircraft carriers (crew: 5,000) badly damaged or lost in most scenarios. The casualties and equipment losses compound the longer the U.S. waits to intervene, a warning about the costs of political indecision in a crisis.  It’s also worth asking if a U.S. President in his 80s would have the stamina and concentration to manage the flood of difficult decisions coming at him….

“One known unknown is how well the Chinese military would perform, a warning to the Communist Party. A contested amphibious assault, across about 100 miles of ocean, is a varsity operation, much harder than rolling over a land border as Vladimir Putin did in Ukraine. The last time a Chinese combat plane shot down a manned aircraft was 1967.

“Missile defenses may work well in peacetime testing but fail at higher rates in combat.  One question Chinese President Xi Jinping might ask himself, after watching Mr. Putin’s travails in Europe, is whether the reports he’s receiving on his military’s prowess are accurate.

“Some readers may conclude the answer to all this is to let Taiwan fall, but that would end America’s status as a credible global power. U.S. allies would recalibrate their alliances, and rogues would take more risks. All the more reason to spend the money and energy on demonstrating to China that it will lose a Taiwan war. CSIS has done a service in putting out an unclassified document that can educate the public on what is required.”

Iran: Tehran warned on Thursday that the European Union would “shoot itself in the foot” if it designated the Revolutionary Guard Corps as a terrorist entity, a day after the European Parliament called on the EU and its member states to do so.

The European Parliament has condemned the crackdown on protesters by Iran’s security forces after the death in custody of Kurdish Iranian Mahsa Amini back in September, including the powerful Revolutionary Guard Corps, as “brutal.”

Iran warned that it would take “reciprocal measures” should the EU list the group as a terrorist entity.

So with the above in mind, Iran executed a British-Iranian national who once served as its deputy defense minister, its judiciary said, defying calls from London and Washington for his release after he was handed the death sentence on charges of spying for Britain.

Britain, which had declared the case against Alireza Akbari politically motivated, condemned the execution, with Prime Minister Rishi Sunak calling it “a callous and cowardly act carried out by a barbaric regime.”

Akbari, 61, was arrested in 2019.  In an audio recording purportedly from Akbari and broadcast by BBC Persian on Jan. 11, he said he had confessed to crimes he had not committed after extensive torture.

Iranian state media has portrayed Akbari as a super spy, saying he had a role in the 2020 assassination of Iran’s top nuclear scientist, killed in an attack outside Tehran which authorities blamed at the time on Israel. 

French Foreign Minister Catherine Colonna summoned Iran’s charge d’affaires over the execution.  He was “warned that Iran’s repeated violations of international law cannot go unanswered, particularly with regard to the treatment of foreign nationals whom it arbitrarily detains,” a foreign ministry spokesman said.

Iran’s ties with the West have also been strained by its support of Russia in Ukraine.

Amnesty International said the execution displayed again the authorities’ “abhorrent assault on the right to life.” In Akbari’s case “it is particularly horrific given the violations he revealed he was subjected to in prison, including torture & other ill-treatment through being forcibly administered chemical substances & being held in prolonged solitary confinement,” it said in a Tweet.

Israel: The Supreme Court ordered Prime Minister Benjamin Netanyahu to remove a senior minister over a past tax fraud conviction, in a setback for the new right-wing coalition government.  The ten-to-one ruling on Shas party leader Aryeh Deri looks likely to further stoke tensions between the Cabinet and Israel’s High Court over government reform plans which aim to rein in the court.

Deri, who holds the interior and health portfolios and is due to become finance minister under a rotation deal, confessed to tax fraud last year in a plea deal that spared him jail time.  In 1999, he was sentenced to three years in jail for taking bribes.

Last Saturday, an estimated 80,000 Israelis gathered in Tel Aviv to protest the government’s plans for reform of Israel’s judicial system, after a week of growing tension and harsh rhetoric between the reform’s supporters and opposers.

The reform plan intends to give the Knesset – Israel’s legislative branch – and its government greater control over the courts.

This includes giving the Knesset with a 61-MK majority the power to overturn High Court rulings; giving the coalition complete power to appoint High Court judges; cancel the “legal unreasonable factor,” which the High Court uses to block decisions made by the government; and block their ability to give binding legal opinions.

Chairman of the Movement for Quality Government in Israel, lawyer Eliad Shraga, called the demonstrators “sons of light,” implicating that the government were agents of “darkness.”  He led the crowd in calls of “freedom, equality, quality of government.”  Shraga called on President Herzog to declare that Netanyahu was unfit to serve as prime minister.  He called the demonstration the “beginning of the counterattack,” and said that he would lead an attempt to institute a constitution and a human rights declaration.

The loudest cheers were reserved for former Justice Minister, Tzipi Livni.

“A government in Israel went to war against the democratic institutions themselves, in order to rule without straits. No debate, no legitimate criticism, but political takeover.  No, elections do not give those in power the ability to destroy democracy itself.

“Poison, lies, slandering each other, marking as an enemy anyone who thinks otherwise; all so that we crumble into pieces and become weaker as a society before the big attack, the dismantling of the defensive wall of democracy on all fronts.” [Jerusalem Post]

It is not overstating things to say that Israel could be on the verge of civil war…like in the coming 12 months.  I’m not alone in that opinion.

New Zealand: It was a big deal that Prime Minister Jacinda Ardern announced she was stepping down by February after five years that brought her international acclaim, though she was apparently politically isolated at home as inflation took hold.

Ardern said she no longer had the energy to continue as leader of the government and would resign rather than contest a general election this year.

“I have no regrets,” she told reporters about her decision, adding that she would be “doing a disservice to New Zealand” if she remained in the role.

Ardern’s premiership generated intense global interest in her country, both for her socially progressive mandate and hardline response to Covid-19.

As one political analyst in the country said, Ardern rose to power “out of nowhere” at a time when left-wing parties were in retreat.

“There was a sense of mania – Jacindamania,” he said, praising her charisma at a time when figures such as Donald Trump were in the ascendancy.  “She was a revelation and a nice counter to populist, reactionary politics,” observed Bryce Edwards of Victoria University in Wellington.

Ardern won a sweeping election in 2020 as the public backed her stringent policy of border closures and lockdowns in an effort to stem Covid’s spread, and she won praise for her strong and compassionate leadership in her response to the 2019 terrorist attack on two mosques in Christchurch in which 51 people were killed, as well as with the eruption of the White Island volcano.

But the public was souring as New Zealand grapples with a cost of living crisis, a sharp rise in interest rates, lower house prices and a rise in crime.  As a result support for her Labour Party has dropped to its lowest level since 2017.

Random Musings

--Presidential approval ratings….

Gallup: 40% approve of Biden’s job performance, 55% disapprove; 37% of independents approve (Nov. 9-Dec.2).

Rasmussen: 45% approve, 53% disapprove (Jan. 20).

--Former President Donald Trump blasted his successor Monday for storing classified documents in a “flimsy, unlocked, and unsecured” garage, months after officials discovered a trove of top-secret files.

Trump bragged that the files the feds seized at his Mar-a-Lago home this past summer were better protected.

“The White House just announced that there are no LOGS or information of any kind on visitors to the Wilmington house and flimsy, unlocked, and unsecured, but now very famous, garage,” Trump wrote on Truth Social.

“Maybe they are smarter than we think!  This is one of seemingly many places where HIGHLY CLASSIFIED documents are stored (in a big pile on the damp floor),” he continued.

“Mar-a-Lago is a highly secured facility, with Security Cameras all over the place, and watched over by staff & our great Secret Service.  I have INFO on everyone!” Trump concluded, curiously.

Wednesday, Trump suggested that federal investigators planted documents in empty classification folders he just so happened to be hoarding at Mar-a-Lago.

In a series of Truth Social posts, Trump claimed he kept “hundreds” of empty classification folders from meetings and briefings as a “cool keepsake.”

“Perhaps the Gestapo took some of these empty folders when they Raided Mar-a-Lago and counted them as a document, which they are not,” he wrote.  Trump went on to speculate that “the Trump Hating Marxist Thugs in charge will ‘plant’ documents while they’re in possession” of the empty folders.

Alongside the more than 300 classified and “top secret” documents recovered from Mar-a-Lago, the FBI did list 48 folders labeled “CLASSIFIED” and 42 folders labeled “return to staff secretary/military aide” that were empty in their inventory of materials seized in their August raid.

--Republican Rep. George Santos is still in Congress, but I maintain he will be hauled out of there long before 2024.  The latest, rather sick story emerged this week…that Santos had scammed a disabled military veteran who was raising money for his dog’s cancer surgery.

Santos denied the allegation: “Fake.  No clue who this is,” he said in response to the story, first reported by Patch on Tuesday.

Separately, the Washington Post had a series of extensive pieces linking Santos to a small Florida-based investment firm, Harbor City Capital, that is no longer in operation; its assets frozen in 2021, when the Securities and Exchange Commission accused it of running a “classic Ponzi scheme” that had defrauded investors of dollars, though the SEC complaint did not name Santos.

Another story linked Santos to a businessman who cultivated close links with a onetime Trump confidant and who is the cousin of a sanctioned Russian oligarch (billionaire Viktor Vekelsberg).

Andrew Intrater and his wife each gave the maximum $5,800 to Santos’ main campaign committee and tens of thousands more since 2020 to committees linked to him.

Intrater put hundreds of thousands of dollars into Harbor City.

Peggy Noonan / Wall Street Journal

“(Santos) is a nut but can’t be dismissed as only that.  He is also wicked in that he has for decades abused all around him by waging war on reality. He has stolen, from all who had dealings with him including voters, a sense of what is true.  He has lied about every central fact of his life, purloining achievement, stature and sympathy.  He then hoodwinked a congressional district on Long Island whose residents are now effectively without a functioning representative.  Seeing the chance to replace a Democrat with a Republican, they gave him solid backing on the assumption that surely he’d been vetted by someone.  He hadn’t….

“Like all professional hustlers, Mr. Santos seems to enjoy getting away with it. He thinks he’s getting away with it now, marching around Congress trailed by staff – this mameluke has staff – conferring with whoever will confer with him.  ‘I will not be distracted nor fazed,’ he tweeted, denying allegations he performed in drag shows in Brazil.  ‘I am working to deliver results.’  ‘I will NOT resign.’

“He shouldn’t be in Congress. We all know this.  It’s not good enough to say they’re all con men. Even in Congress there are degrees.  This one’s a pro, a menace, a total, not partial, fraud.  If he has any qualifications for public office they haven’t emerged.  He is a bad example for the young: Cheating works. He is an embarrassment to the old. He is an insult to the institution….

“(To Republican House leadership), have a majority of four, not five.  Give one up, protect the rest.  Get him off the floor and out of America’s sight.  And go public with it, show this is where you stand.

“Because George Santos shouldn’t be in Congress….

“Democrats love the George Santos story – more humiliation for the Republicans. Republicans hate it – he may be a bum but he’s our bum.  Neither is thinking seriously about it.

“Don’t give the world more reasons to laugh at our pretensions of good governance.  Don’t give America more reason to disrespect ourselves. If you have to drag George Santos off the floor, do.”

I maintain this guy is truly capable of committing some godawful crime.

--According to the Alfred Wegener Institute for Polar and Marine Research in Germany, an examination of temperatures over the ice sheet in central-north Greenland between 2001 and 2011 found the decade was the warmest in the past 1,000 years.

The likelihood that temperatures the researchers observed would have occurred under pre-industrial conditions is “almost zero,” the study found.

The shrinking and melting of Greenland’s ice sheet over the past decade – driven by hotter summer temperatures – is likely unprecedented over 1,000 years, authors said.

--The catastrophic series of atmospheric river storms that walloped California since Dec. 26 ended this week, as officials worked to tabulate the epic rainfall.

Downtown San Francisco, for one, received 18.09 inches of rain from Dec. 26 through Jan. 16, the most in a 22-day span since 1862.  Oakland and Stockton saw more rain fall from Dec. 26 to Jan. 10 than in any other 16-day period on record.

Last Saturday, downtown Los Angeles set a rainfall record for the date of 1.82 inches, bringing seasonal totals to 11.91 inches, 6.46 inches above normal to date.

But as we saw last year, after a terrific start to the rain/snow season, the state went right into zero precip for months, “a phenomenally dry January, February and March…and ended up really continuing with protracted drought,” as climate scientist Noah Diffenbaugh of Stanford University put it.

However, we did just get through mid-January with substantial precipitation vs. zero last year.

As for the reservoirs, which will benefit from the mammoth snow totals down the road, let’s just wait until April to see how things begin to shake out.

California may be OK, but the American southwest may not be. 

There were 22 storm-related deaths in California over the past three weeks.

--But now, climatologists are warning about the return of El Nino later this year, with some saying it will cause global temperatures to “rise off the chart” and deliver unprecedented heatwaves in 2024.

The hottest year in recorded history, 2016, was driven by a major El Nino.

--Meanwhile, officials in California, such as water managers, are going back to how the National Oceanic and Atmospheric Administration’s Climate Prediction Center (CPC) got it so wrong in their weather forecasts for California.

The CPC issues seasonal outlooks of precipitation and temperature for one to 13 months in the future, and back on Oct. 20, it favored below-normal precipitation in Southern California and did not lean toward either drier- or wetter-than-normal conditions in Northern California, as a story in the Washington Post put it.

Then a CPC update Nov. 17 was virtually unchanged on the precipitation front for the state.  That forecast called for a 33 to 50 percent chance of below-normal precipitation in the southern half of California, and equal chances of precip being above or below normal in the northern half of the state.

CPC Director David DeWitt said the outlook was heavily influenced by the expected continuation of La Nina conditions.  In an interview with the Washington Post, DeWitt said, “La Nina conditions are generally characterized or associated with below-normal precipitation for central and Southern California.  Northern California is kind of a dice roll.”

Back in mid-November, chances were high that La Nina would continue for a third winter in a row, which it has thus far, although it is weakening.  In the previous two La Nina winters, much of California recorded below-normal precipitation.

But El Nino and La Nina aren’t the only games in town and can be counteracted.

Finally, in mid-December, the CPC began to shift its forecast for California, calling for a 33 to 70 percent chance of above-normal precipitation across all of California, with the highest chances in the northern part of the state.

But as Jeffrey Mount, of the Public Policy Institute of California’s Water Policy Center put it, “You have no idea come Dec. 1 what your winter is going to look like because our seasonal forecasts are so bad.  They are just not reliable enough to make definitive water supply decisions.” [Dan Stillman and Diana Leonard / Washington Post]

--Finally, last weekend we had a single winning ticket in the $1.35 billion Mega Millions jackpot.  The ticket was sold at Hometown Gas & Grill in the town of Lebanon, Maine, population about 6,500.

Store owner Fred Cotreau was interviewed by the Boston Globe and I love what he said in speaking of the excitement and interest in knowing who the winner is.

“We got quite a crew of regular coffee guys in the morning, so we’re all kind of looking around at each other to see if anybody’s daily routine has changed.”

The store will receive $50,000, but as Cotreau put it, hopefully it’s someone local, at which point it’s, “Don’t forget where you bought it, buddy!”

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

Pray for Ukraine.

God bless America.

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Gold $1927
Oil $81.40

Regular Gas: $3.39; Diesel: $4.61 [$3.32 / $3.64 yr. ago]

Returns for the week 1/16-1/20

Dow Jones  -2.7%  [33375]
S&P 500  -0.7%  [3972]
S&P MidCap  -0.9%
Russell 2000  -1.0%
Nasdaq  +0.6%  [11140]

Returns for the period 1/1/23-1/20/23

Dow Jones  +0.7%
S&P 500  +3.5%
S&P MidCap  +5.3%
Russell 2000  +6.0%
Nasdaq  +6.4%

Bulls 46.5…reminder, contrarian indicator…
Bears 29.6

Hang in there.

Brian Trumbore

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