Week in Review

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Week in Review

01/28/2023

For the week 1/23-1/27

[Posted 6:00 PM ET, Friday]

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Edition 1,241

I’ve been starting out my columns the last few weeks discussing my concern that Russia is beginning to gain an upper hand in its war with Ukraine, including a rather scary simple fact…Russia has far more troops, and could eventually mobilize hundreds of thousands more.  Tonight, President Zelensky offered a stark warning, as I detail below.

The markets are ignoring the situation at their peril.

The Russian spring offensive could start as early as next month, some experts say, along with folks in the Kremlin, certainly in about six weeks. Putin is convinced Russia’s larger forces and willingness to accept casualties will allow it to prevail in the long run.  Ukraine, the U.S. and others believe Putin has an incentive to act before Kyiv gets its latest promised supplies of heavy weapons, including U.S. and European battle tanks, which won’t be in the field anytime soon.

Speaking of the tanks….

Editorial / The Economist

“Everybody knows that the second round of Ukraine’s war is coming.  Everybody knows that the Ukrainians need tanks and long-range missiles to withstand the next Russian offensive and to take back the territory that is theirs. And everybody knows that, sooner or later, the West usually ends up giving Ukraine what it needs.

“That is why the latest round of ‘After you!  No, after you!’ has been so dismal and self-defeating.  The fact that Ukraine is set to receive main battle tanks is welcome. But the way the decision came about prolonged Ukraine’s agony, damaged Western unity and benefited nobody except the man in the Kremlin. None of NATO’s actors comes out of the latest drama well, but Germany emerges worst.

“Germany should deserve plaudits: including aid channeled via the European Union, it has given more military and financial help to Ukraine than any country bar America.  But under its chancellor, Olaf Scholz, it has nonetheless contrived to appear reluctant and hesitant.  Just before Russia’s looming invasion of Ukraine, its first instinct was to limit military aid to helmets….

“Ukraine has been asking for German-made Leopards since day seven of the invasion, but Germany has not been willing to send any of its own, nor to give permission for other countries to re-export theirs… (Chancellor Scholz’s) government now pledges to send 14 Leopards to Ukraine, and to allow other countries to follow suit, a welcome 45th-birthday present for Ukraine’s president, Volodymyr Zelensky.  ‘It is right that we did not allow ourselves to be pushed, but chose…close cooperation with our allies,’ an unrepentant Mr. Scholz told the Bundestag….

“Furthermore, if Mr. Scholz’s reluctance was a fear of escalation, his demarche does not make sense: his argument in recent days has been that he wanted America to supply tanks at the same time as Germany. A darker calculation is that the chancellor knows that when the war eventually ends, Russia will remain a large and powerful presence in Europe.  Perhaps he wants to stay on reasonable terms with it. But this way of thinking ought to have been utterly discredited by Russia’s repeated invasions of its neighbors, in 2008, 2014 and 2022.

“Many will say this explanation of Mr. Scholz’s hesitation is too cynical.  A more charitable one would be a deep aversion to the spectacle of German tanks once again heading east, towards Kharkiv and Kursk.  This is understandable, but wrong-headed.  In 1941 German invaders entered Russia. This time the invaders are Russian.  There is no equivalence between helping a victim defend itself and committing an act of aggression.  Any Germans who confuse the two have learned the wrong lesson from their country’s terrible history.”

And so…This week in Ukraine….

--Russia is rotating “tens of thousands” of troops into Ukraine as they send in replacements after taking “heavy casualties” in the Bakhmut area, a senior U.S. defense official told reporters Monday.  But it’s not clear if these new troops will provide the breakthrough Moscow seeks in terms of occupying more of Ukraine, the official said.

“Despite these increased numbers in terms of replacements [and] reinforcements,” the new forces are not seen as “a significant enhancement.”  And that’s because they appear to be “ill-equipped, ill-trained, [and] rushed to the battlefield,” according to the official.

--After a lengthy debate, Wednesday, the German government announced plans to deliver 14 of the country’s Leopard 2 tanks to Ukraine and allow other countries to send theirs.

The Biden administration is sending 31 of the main U.S. battle tank, the M1 Abrams, though probably not until at least the fall.

“The goal is to quickly assemble two tank battalions with Leopard 2 tanks for Ukraine.  As a first step, Germany will provide a company with 14 Leopard 2 A6 tanks from Bundeswehr stocks.  Other European partners will also hand over Leopard-2 tanks,” said the statement from Chancellor Olaf Scholz.

The Leopard 2 tanks are relatively easy to operate and plentiful in Europe.

Berlin has long resisted calls to send tanks without acting in tandem with allies, saying that it did not want to be seen as a direct participant in the war, inviting potential retaliation from Russia.  And then recently, Germany wanted any decision on the tanks linked to a similar move by the United States.

Wednesday, the Russian embassy in Germany said Berlin’s decision would escalate the conflict to a new level.  The Kremlin said that Abrams battle tanks supplied to Ukraine by the United States would “burn.”

Poland and a number of other European members of NATO had indicated they are prepared to send Leopard 2s.  Finland, Greece, Poland, Spain, Sweden, Switzerland and Turkey all own at least 100 of them.  Britain has said it would send a small number of its Challenger 2 main battle tanks.

As recently as last week, however, when it comes to the U.S., officials argued the Abrams would be too burdensome for the Ukrainian military to operate and maintain.

Earlier, President Zelensky said the issue was not about five, 10 or 15 tanks, as Ukraine’s needs are greater, but about reaching final decisions on real deliveries.

But some U.S. officials said it could take years for Abrams tanks to reach any Ukrainian battlefields, while Russia’s ambassador to Washington, Anatoly Antonov, called the move to send Abrams a “blatant provocation” and warning “American tanks without any doubt will be destroyed.”

Russia is not known to have successfully struck a large convoy of Western weapons being shipped into Ukraine, with experts saying Ukraine has been winning the game of cat-and-mouse in transporting the huge munitions and vehicles into the conflict zone.

Zelensky said the U.S. announcement on the Abrams tanks was an “important step on the path to victory.”  In a tweet, he added, “Today the free world is united as never before for a common goal,” which he described as the liberation of Ukraine.

--Zelensky also repeated Ukraine’s contention that Russia is planning a new wave of aggression, with the first signs already visible in the broader Donbas region in the southeast.

“The occupiers are already increasing the pressure around Bakhmut and Vuhledar and elsewhere,” Zelensky said. “And they want to increase the pressure on a larger scale.”

Fighting around Bakhmut continued to intensify.  Wednesday, Ukraine confirmed its troops had withdrawn from nearby Soledar, almost two weeks after Russian troops said they had captured the small salt-mining town.

“In order to preserve the lives of service personnel, the Defense Forces withdrew from Soledar,” a military spokesman said, Ukraine’s first confirmation that Russian forces had captured it.  “(Our forces) fulfilled their main task: not allowing the enemy to systematically break through in the Donetsk direction,” the spokesman said.

Last Sunday, Russia’s defense ministry said for the second straight day that its forces were improving their positions in Ukraine’s southern Zaporizhzhia region.  Ukraine on Saturday said Russia’s claims of progress in the region were exaggerated.

A leading official in Russia’s parliament is warning of a “global tragedy” if Ukraine gets new weapons from allies.

Vyacheslav Volodin, speaker of the State Duma – Russia’s lower house of the country’s parliament – issued the ominous message Sunday following allies of Kyiv pledging to provide more armored vehicles, air defense systems and other equipment to take on Russian troops.

He said the countries sending more powerful weapons could lead to “global tragedy that would destroy their countries.”

“Supplies of offensive weapons to the Kyiv regime would lead to a global catastrophe,” said Volodin, a close ally of Putin’s.

“If Washington and NATO supply weapons that would be used for striking peaceful cities and making attempts to seize our territory as they threaten to do, it would trigger a retaliation with more powerful weapons.”

--Thursday, Russia fired dozens of missiles at Ukrainian cities, piercing air defenses to kill at least 12 people across the country, in the Kremlin’s ongoing campaign to punish civilians while its army fights in the east.

The wave of strikes came a day after Germany and the U.S. pledged to send dozes of battle tanks to Ukraine.  Ukraine’s military said it managed to shoot down 47 of the 70 missiles, but some of the debris proved deadly.  Twenty of the missiles targeted the Kyiv area.

As it has since October, Russia appeared to target Ukraine’s energy grid in subfreezing winter weather.  Russia has launched more than a dozen major waves of missiles and drones on Ukraine’s energy facilities.

Friday, President Zelensky said the situation at the front remained “extremely acute,” particularly in the eastern Donetsk region where Russia is stepping up an offensive.

Zelensky reported major battles for Vuhledar, to the southwest of Donetsk, and Bakhmut, to the northeast.  Bakhmut has been largely pulverized by repeated Russian attacks.

“The occupiers are not just storming our positions, they are deliberately and methodically destroying the towns and villages around them, with artillery, air strikes, missiles,” he said in his evening video address.  “The Russian army has no shortage of lethal means and can only be stopped by force.”

--Separately this week, President Zelensky shook up his government, with several senior officials forced to resign in an attempt to clamp down on corruption.  Others, he has signaled, could also be on the way out.

One of the officials – Kyrylo Tymoshenko – was implicated in scandals over his use of expensive cars.

Zelensky was responding to a “key public demand” that justice should apply to everyone, said top adviser Mykhailo Podolyak.

The corruption crackdown followed reports in Ukrainian media that the country’s defense ministry paid inflated prices with a relatively unknown firm for food supplies.  Meanwhile, another minister was arrested on bribery charges on Monday.

Zelensky has already banned top government officials from leaving the country unless on official state business.

Tymoshenko – the first to resign Tuesday – oversaw regional policy and had earlier worked on Zelensky’s election campaign.  He’s been a frequent spokesperson for the government.  In a Telegram post, he thanked Zelensky for “the opportunity to do good deeds every day and every minute.”

Deputy Defense Minister Vyacheslav Shopalov also resigned, following reports he oversaw the controversial deal for the military’s food supplies.

Ukraine has a history of corruption and in 2021 Transparency International ranked the country at 122 out of 180 countries in its ranking of corrupt states.

A crackdown is one of the EU’s key demands if the country is to advance its application to join the bloc.

In an address on Sunday, Zelensky promised there would be “no return to what used to be in the past, to the way various people close to state institutions” used to live.

His comments followed the arrest of Ukraine’s deputy infrastructure minister Vasyl Lozinskyi on Saturday on suspicion of accepting a bribe worth over $350,000 over the supply of electricity generators. He has denied the charges.

A report by newspaper Ukrainska Pravda suggests the heads of four regional administrations – Suny, Dnipro, Zaporizhzhia and Kherson – may be the next to go after Tymoshenko, due to their links to the presidential aide.

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--Turkey postponed a key meeting with Sweden and Finland that was intended to hash out differences over their bid to join NATO, Turkish officials said Tuesday, intensifying a standoff over an expansion of the alliance.

The decision was the latest setback for Sweden and Finland in a diplomatic dispute that has unfolded since last May when Turkish President Erdogan first threatened to veto the countries’ membership in NATO over their alleged ties to Kurdish militant groups.

The announcement that the meeting was being postponed came after Erdogan renewed his threat to block Sweden from the alliance in response to last weekend’s public burning of the Quran by a far-right politician in Stockholm, a spectacle that both the Turkish and Swedish governments condemned as an act of bigotry.

A senior Turkish official said earlier in the month that Turkey is unlikely to send the NATO matter to Parliament before Turkey’s presidential election, which Erdogan could hold in mid-May, which would mean Parliament would have to be dissolved in March, leaving little time for a vote in the meantime.

Western officials say they want to see Sweden and Finland in the alliance by the time NATO holds its summit in early July in Vilnius, Lithuania, leaving little time after Turkey’s presidential elections.

But Erdogan also keeps coming up with new extradition demands for Sweden which that government has said are a no go.

--A former top FBI official was arrested over the weekend on accusations he worked for sanctioned Russian oligarch Oleg Deripaska, prosecutors said on Monday.

Charles McGonigal, who led the agency’s counterintelligence division in New York before retiring in 2018, faces four counts including sanctions violations and money laundering.  Federal prosecutors in Manhattan say McGonigal, 54, received concealed payments from Deripaska, who was sanctioned in 2018, in exchange for investigating a rival oligarch in 2021.  He is also charged with unsuccessfully pushing in 2019 for the lifting of the sanctions on Deripaska.

Deripaska, the founder of Russian aluminum company Rusal was among two dozen Russian oligarchs and government officials blacklisted by Washington in 2018 in reaction to Russia’s alleged meddling in the 2016 U.S. election. 

--Norwegian police detained a former commander of the Wagner Group who recently fled to Norway.  Andrei Medvedev urged Norway to let him stay and testify against the private military group.  Instead, he was told he faced deportation.

Medvedev said he fled by crossing the Russian-Norwegian border and has said he is in fear for his life after witnessing the killing and mistreatment of Russian prisoners brought to the front lines in Ukraine to fight for Wagner.  “My goal in coming here was firstly of course to save my life and secondly to tell the truth to the people and the world,” he said in a phone interview with a Russian prisoners’ rights group.  He also said he wanted to “punish” Wagner founder Yevgeny Prigozhin, a close all of Vladimir Putin’s, for the deaths of people who died on his orders in Ukraine.

Gulagu.net, the prisoner rights group, said, “We do not whitewash Medvedev.  He has done many bad things in his life. But he has seen the light, he has realized this, he is ready and willing to cooperate with the world, with the international investigation and with the authorities of Norway, he wants to live and testify against Wagner and Prigozhin,” it added.

The U.S. took action Thursday against Wagner, designating it as a significant transnational criminal organization over its actions in Ukraine.  The Treasury Department said Wagner Group personnel also are involved in alleged ongoing criminal activity, including mass executions, rape and physical abuse in the Central African Republic and Mali.

--Speaking of Norway, its military chief said around 180,000 Russian troops have been killed or injured in Ukraine so far.  “Russian losses are beginning to approach around 180,000 dead or wounded soldiers,” and “Ukrainian losses are probably over 100,000 dead or wounded,” Defense Minister Eirik Kristoffersen told TV2 on Sunday.  He also said an estimated 30,000 civilians have been killed in the war so far, though he didn’t elaborate on how he arrived at any of his numbers.

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Wall Street and the Economy

All about the Fed’s next rate decision coming up, but first….

In key economic data this week, we had our first look (of three) at fourth-quarter GDP, up 2.9% vs. consensus of 2.7%, and vs. 3.2% in the third quarter.  Recall, Q1 and Q2, 2022, were down 1.6% and 0.6%, respectively, which is the classic definition of recession.

So will we have another similar performance to start out 2023?  Certainly possible, given the comments from corporations of all stripes on their earnings calls.

[The Atlanta Fed’s initial GDPNow forecast for the first quarter, issued this afternoon, was 0.7%.  For the record, its last look at Q4 was 3.5%.]

December durable goods were much better than expected, up 5.6%, but down 0.1% ex-transportation…the headline number in this volatile dataset fueled by airplane deliveries, always up and down, thus the reason why you should strip it out, same with autos.

December new home sales were up slightly over November at 616,000 annualized, a little better than expected.  And we had some good news today on December pending home sales, up 2.5%, recovering most of November’s 2.6% decline and the first increase since May, according to the National Association of Realtors.  But the figure was still down nearly 34% from December 2021.

Recent declines in mortgage rates are helping, with Freddie Mac’s 30-year fixed-rate mortgage down to 6.13% this week, vs. 3.55% a year ago, and down from the November peak of 7.08%.

So then today we had key December figures on personal income and consumption, and everything was in line with expectations, with income up 0.2%, and consumption down 0.2%, which isn’t good, with November revised from 0.1% to -0.1%.

But the Fed’s key inflation barometer, the personal consumption expenditures index, was exactly as forecast, 5.0%, and 4.4% on core, ex-food and energy, after the two figures came in at 5.5% and 4.7% in November.

So Chair Jerome Powell and his band of merry pranksters will be focusing on the PCE, in particular, and signs of ongoing inflation in the service sector, which Powell told you months ago was the key. It’s no longer about inflation in ‘goods,’ which is largely coming down, but the stickier kind.  That said, they have telegraphed a 25-basis point rate hike, with important commentary from Powell after, when they gather next Tuesday and Wednesday.

Next week could be action packed, with key readings on manufacturing and services, along with a jobs report, though the Fed’s rate decision will come before some of it is released, let alone we’ll have more important corporate earnings reports.

Meanwhile, the Bank of Canada on Wednesday hiked its key interest rate to 4.5% and became the first major central bank to say it would likely hold off on further increases for now. 

Don’t look for the Federal Reserve to make a similar pronouncement at 2:00 p.m. next Wednesday, nor the European Central Bank and Bank of England on Thursday.

Europe and Asia

The only important data in the eurozone this week was the flash report on PMIs for January, courtesy of S&P Global.

The EA19 composite came in at 50.2, vs. 49.3 in December.  Manufacturing 49.0 vs. 47.8 prior (7-mo. high); Jan. services 48.8 vs. 47.8 prior.

The flash readings also look at Germany and France…and separately the U.K.

Germany: January flash manufacturing 48.4; services 50.4 (7-mo. high)
France: Manufacturing 48.0; 49.2 services (22-mo. low)

U.K.: Manufacturing 46.6; services 48.0 (24-mo. low)

Chris Williamson / S&P Global

“A steadying of the eurozone economy at the start of the year adds to evidence that the region might escape recession.  The survey suggests that a nadir was reached back in October, since when fears over the energy market in particular have been alleviated by falling prices, helped by the warmer than usual weather and generous government assistance.  At the same time, supply chain stress has eased, benefitting producers most notably in Germany, and more recently the reopening of the Chinese economy has helped to restore confidence in the broader global economic outlook for 2023, propelling business optimism sharply higher.

“The region is by no means out of the woods yet, however, as demand continues to fall – merely dropping at a reduced rate – and an upturn in the rate of inflation of selling prices for both goods and services will add encouragement to the hawks to push for further monetary policy tightening.  The case for higher interest rates is fueled further by the upturn in employment growth recorded during the month and signs of higher wages driving the latest upturn in price pressures.

“A case for policy caution is supported by the survey merely indicating a stagnation of the eurozone economy, hinting that a renewed slide into contraction should not be ruled out as borrowing costs rise, but the survey undoubtedly brings welcome good news to suggest that any downturn is likely to be far less severe than previously feared and that a recession may well be avoided altogether.”

Turning to Asia…China was off this week for the Lunar New Year holiday, including the equity markets, so no government data.

Japan had the release of its flash PMI readings for January, with manufacturing at 47.1, but services up to 52.4.

Street Bytes

--Stocks rose on renewed hopes that the Fed has engineered a soft landing, inflation continuing to decline, and earnings thus far not as bad as feared.

At least this is what ‘they’ are saying, but let’s see what happens next week, with the Fed, all the economic news, and some heavyweight earnings reports.  [Like Exxon Mobil, McDonald’s, UPS, Meta, Caterpillar, Amazon, Alphabet and Apple.]

For now, the Dow Jones rose 1.8% to 33978, the S&P 500 gained 2.5%, and Nasdaq 4.3%.

The S&P is up 6% for the first four weeks of 2023, Nasdaq 11%.  As Ronald Reagan would have said, ‘Not bad, not bad at all.’

--U.S. Treasury Yields

6-mo. 4.81%  2-yr. 4.20%  10-yr. 3.51%  30-yr. 3.63%

All about next week’s FOMC confab.

--Chevron Corp. on Friday posted a record $36.5 billion profit for 2022 that was more than double year-earlier earnings, but the bottom line fell shy of Wall Street estimates, undercut by asset writedowns and rising costs.

The second largest U.S. oil producer’s adjusted net profit for 2022 exceeded its previous record set in 2011 by about $10 billion.  Still, higher expenses and weaker oil and fuel profits left fourth-quarter earnings 6.6% below Wall Street’s forecast.  The shares fell over 4% in response.

The White House on Wednesday protested Chevron’s decision to triple its spending on share repurchases, now at $75 billion over five years at current guidance.   But the company said shareholder rewards will continue to be the top priority for cash.

Chevron has been shifting its focus for new investments and targeting production in the United States.  U.S. production hit a record last year, led by a 16% increase in the Permian, the country’s main shale basin.

Separately, the price consumers are paying at the gas pump has been rising, up 40 cents over the past month to $3.50 for regular, nationwide.

But natural gas has been plunging, well below $3.00, a 20-month low, after hitting $9.71 last August on concerns that Europe, and the U.S., could suffer through winter with low supplies owing in no small part to the war in Ukraine.

But instead, we’ve had rising supplies amid warmer than normal weather, both here and across the pond.

A big wildcard in the gas market is Freeport’s LNG’s liquefied natural gas export plant in Texas that will be soon exiting a seven-month outage caused by a fire in June 2022.  More on this down the road.

--Microsoft on Tuesday reported its slowest growth in six years and cautioned that a broader slump will continue as both consumers and businesses put the brakes on spending.

Revenue increased 2 percent from a year earlier to $52.7 billion for the three months ending in December.  Profit fell 12 percent to $16.4 billion.  Both were below expectations.

Immediately after the news, which came after the market close, the shares shot up, thanks largely to its cloud-computing business, but it lost those gains, and more, after Amy Hood, Microsoft’s CFO, said in a call with investors that new business slowed in December.  The company added it expects growth to continue to slow in the current quarter, as business customers exhibit caution when it comes to buying new products.

Microsoft’s cloud computing business and Azure, its flagship cloud product, have been key to the company’s future.  In October, the company told investors to expect Azure’s growth to slow five percentage points in the quarter, but Azure sales growth slowed slightly less, to 31 percent, which was better than expected, thus the initial bump in the share price.

But then Ms. Hood said “performance in the U.S. was weaker than expected.”

Last week Microsoft began laying off 10,000 workers, and in December, its $69 billion deal to acquire the video game maker Activision was challenged by regulators in the United States.

On Monday, Microsoft announced a major new investment in OpenAI, the start-up behind ChatGPT and other artificial intelligence breakthroughs.

Satya Nadella, Microsoft’s CEO, emphasized the urgency with which the company is pursuing A.I.  “We fundamentally believe that the next platform wave is going to be A.I.,” he said on a call with analysts, while adding that Microsoft is moving aggressively to “catch the wave.”

The biggest slowdown came from Microsoft’s personal computing business, where sales fell 19 percent and operating income fell 47 percent.  The business boomed during the first part of the pandemic, but shipments of new PCs globally have been in a near free fall for months, and sales of the Windows operating system installed on new computers declined 39 percent. The company expects slow PC demand to persist.

Market research firm Gartner reported that worldwide PC shipments in the fourth quarter declined 28.5% from the same period of 2021, the steepest quarterly decline since Gartner began tracking the market in the 1990s.

--Japan and the Netherlands agreed to join the United States in limiting China’s access to advanced semiconductor machinery.  A new set of limits would be applied to Chinese companies to curtail their access to machinery only made in the three countries.

--Boeing Co. losses widened for 2022 on weakness in its defense unit but the U.S. planemaker reported its first yearly positive cash flow since 2018 on stronger commercial airplane deliveries. 

Boeing said net losses rose to $5 billion for all of 2022 from $4.3 billion in 2021, while losses from operations rose to $3.5 billion in 2022 from $2.9 billion.

The company missed Wall Street expectations on revenue and earnings per share in the fourth quarter. Revenue for the fourth quarter came in at $20 billion, up from $14.79 billion in the same quarter in 2021, and a loss per share of $1.75.  Boeing had been expecting to report $20.38bn in revenue and a gain of $0.26 a share.

“While challenges remain, we are well positioned and are on the right path to restoring our operational and financial strength,” Boeing CEEO Dave Calhoun said.  Boeing affirmed it plans to deliver up to 450 737 MAX narrowbody aircraft and 70 to 80 widebody 787 Dreamliners in 2023.

Earlier this month, Boeing reported a sharp jump in airplane orders and deliveries in 2022.  Boeing delivered 480 airplanes and won 774 net new orders after allowing for cancellations.  Boeing in 2021 delivered 340 planes and reported 479 net new orders.  The company still faces supply-chain issues as it works to ramp up 737 MAX and 787 production and is working to improve results at its Boeing Defense unit, which posted a $3.5 billion loss in 2022.  The company attributed this primarily to labor and supply issues that disproportionately impacted the KC-46 tanker and Air Force One replacement program.

--Airbus announced it is recruiting over 13,000 new staffers this year – after hiring the same number in 2022 – to help it accelerate production of its commercial jets, recover from escalating delivery delays and meet surging demand for new aircraft from its customers.

The Toulouse, France-based plane maker, which currently employs more than 130,000 people across its commercial jet, space, defense and helicopter businesses, said 9,000 of the new jobs would be based in Europe with the remainder spread across operations in places such as the U.S. and China.

So some good news on the job front, amidst the doom and gloom and signs of a global economic downturn.

Airbus’ best-selling family of jets, the A320neo, is mostly sold out through 2029, the company announced earlier this month.

[Various reports this afternoon have Boeing also adding staff, up to 10,000, to ramp up production, though it will be reducing some support jobs.]

--Southwest Airlines warned of a loss in the current quarter, as passengers shunned the carrier in the immediate aftermath of a tech meltdown that forced it to scrap thousands of flights between Christmas and New Year’s Eve.  The forecast heaps more pain on the largest U.S. domestic carrier.

Southwest, which reported a loss in the fourth quarter, said it expects a revenue hit of between $300 million and $350 million in the first quarter.  The Dallas-based carrier also expects non-fuel operating costs in the March quarter to be higher than its previous estimate, in part due to extra pay it has offered to workers for dealing with the December debacle.

“Thus far in January 2023, the company has experienced an increase in flight cancellations and a deceleration in bookings, primarily for January and February 2023,” Southwest said.

Operating revenue for the first quarter, when travel demand tends to slow after the holiday season, is expected to rise 20% to 24% against a period last year which was hit by the pandemic.  CEO Bob Jordan apologized again for the mass cancellations, which were attributed to Southwest’s outdated crew scheduling software.

The meltdown led to a revenue hit of $410 million and saw about a $390 million jump in operating expenses last quarter due to the flight cancellations.  Operating revenue for the quarter ended Dec. 31 was $6.17 billion, up from $5.05 billion a year earlier.

For 2023, Southwest has forecast “solid profits” with year-over-year margin expansion.

Meanwhile, the Department of Transportation has started investigating Southwest’s scheduling after the holiday meltdown during which 16,700 flights were canceled.  It is looking at whether the airline engaged in an “unfair and deceptive practice” by selling more flights than it could operate, the Wall Street Journal reported.

CEO Jordan has said the airline is focused on making sure the issues over the holiday travel week don’t re-emerge.

--American Airlines on Thursday forecast sharply higher profit for the full year and beat estimates for quarterly earnings on buoyant demand for air travel.

AAL said it was expecting an adjusted profit of $2.50 and $3.50 per share for 2023, up from 50 cents per share a year earlier, and vs. the Street’s outlook for $1.79.

Major airlines are trying to cash in on a travel boom since the pandemic eased its grip on the world, making the industry one of the few bright spots against the backdrop of runaway inflation, rising interest rates and a looming recession.  Industry executives have said they do not see any signs of slowing demand in the face of a potential slowdown.

American, with its regional partners, handled more than 475,000 flights in the quarter through December.  The Fort Worth, Texas-based carrier reported an adjusted profit of $827 million, or $1.17 per share, for the quarter ended Dec. 31, above estimates.  Operating revenue rose about 40% to $13.19 billion, basically in line with forecasts.

--TSA checkpoint numbers vs. 2019

1/26…112 percent of 2019 levels
1/25…83
1/24…99
1/23…96
1/22…107
1/21…94
1/20…115
1/19…91

--Tesla posted solid numbers in a make-or-break quarter for the electric vehicle giant.  But current earnings are less important than guidance, and Tesla expects to produce the best margins in the car business while developing its next generation vehicle platform.  As in Tesla wants to keep the pressure on its peers, even as the global economy weakens.

Tesla shook up the global auto industry by slashing prices by up to 20% end of the year, beginning of 2022, as a way to spur slowing sales.  It was able to do this because it has a cost advantage over other EV makers.

“The price really matters,” said CEO Elon Musk during the earnings call.  “These changes make a difference for the average consumer.”

But Musk said he expected a “pretty difficult recession this year,” though demand for Tesla vehicles “will be good despite probably a contraction in the automotive market as a whole.”

Of course as I’ve written the last two weeks, those in the U.S., China and elsewhere who purchased Teslas last fall were furious to see the 20% price cuts in December.

Tesla reported fourth-quarter earnings per share of $1.19 from sales of $24.3 billion.  Operating profit was a record $3.9 billion, up from the prior record: $3.7 billion in the third quarter.

For 2022, Tesla’s profit was $12.6 billion, up from $5.5 billion in 2021. Annual revenue rose to $81.5 billion, from $53.8 billion the year prior.

Wall Street was looking for earnings per share of about $1.13 and operating profit of $4.2 billion from $24.7 billion in sales.

Looking ahead, Tesla said it plans to produce 1.8 million units in 2023, though Musk talked of 2 million. The Street is looking for about 1.9 million.

But 1.8 million would be roughly 37% growth from 2022, not the 50% increase in vehicle deliveries it shoots for annually.

The company also said it plans to invest more than $3.6 billion on an expansion in the Reno, Nev., area. That includes money for two new factories where Tesla said it plans to manufacture battery cells and increase production of the semitrailer truck it brought to market in December.  Cybertruck, its next new electric pickup truck, will not begin volume production until next year.

Tesla’s earnings release comes in the middle of a federal trial in San Francisco over Musk’s 2018 tweets proposing to take Tesla private.  Investors say they lost billions of dollars because of Musk’s statements, some of which a judge has said were untrue.  Musk testified Tuesday that he tweeted about a possible deal because he wanted to share his thinking with shareholders and convey that funding wouldn’t be an issue.

Tesla shares rose 11% today, and were up $45 on the week, 34%, the best week for the stock since 2013.

--Ford Motor Co. plans to cut up to 3,200 jobs across Europe and move some product development work to the United States, Germany’s IG Metall union said on Monday, vowing action that would disrupt the carmaker across the continent if the cuts go ahead.

Rising costs for electric vehicle battery materials and projected slowdowns in U.S. and European economies are putting pressure on automakers to cut expenses.  The EV price war launched by Tesla Inc. earlier this month has intensified that pressure, analysts said.

But Ford employs about 45,000 in Europe and is planning seven new electric models in the region, a battery assembly site in Germany and a nickel cell manufacturing joint venture in Turkey as part of a major EV push on the continent.

--Back to Twitter Inc., advertising spend dropped by 71% in December, data from an advertising research firm showed, as top advertisers slashed their spending on the social-media platform after Elon Musk’s takeover.  The recent data from Standard Media Index comes as Twitter is moving to reverse the advertiser exodus.  It has introduced a slew of initiatives to win them back, offering some free ads, lifting a ban on political advertising and allowing companies greater control over the positioning of their ads.

Ad sales account for about 90% of Twitter’s revenue.

Elon Musk’s team has been exploring using as much as $3 billion in new fundraising to help repay some of the $13 billion in debt tacked onto Twitter for his buyout of the company, as first reported by the Wall Street Journal.

Musk borrowed $13 billion to close the Twitter acquisition in October from a syndicate of banks including Morgan Stanley and Bank of America.

--IBM announced 3,900 layoffs on Wednesday as part of some asset divestments and missed its annual cash target, dampening cheer around beating revenue expectations in the fourth quarter.  CFO James Kavanaugh told reporters that the company was still “committed to hiring for client-facing research and development.”

The company also forecast annual revenue growth in the mid-single digits on constant currency terms, weaker than the 12% it reported last year, as pandemic-led demand for digitizing businesses has given way to cautious spending by clients amid rising recession fears.  In October, IBM flagged softness in new bookings in Western Europe while peer Accenture Plc noted weakness in its consulting business.

IBM’s software and consulting business growth slowed down sequentially in the fourth quarter, but cloud spending was a bright spot, with deal signings doubling in 2022 for setting up services with partners such as Amazon.com’s AWS and Microsoft’s Azure.

Software revenue for the fourth quarter was $7.3 billion, up 2.8%.  Infrastructure revenue, including the company’s mainframe business, came in at $4.5 billion, up 1.7%.  Consulting revenue was $4.8 billion, up 0.5%.

Total revenue was flat at $16.69 billion in the period, compared with estimates of $16.40 billion.  For 2022, IBM recorded revenue growth of 5.5%, its highest in a decade.  Adjusted earnings came in at $3.60 a share, matching Street estimates.

--Intel on Thursday missed profit expectations for the fourth quarter and provided a revenue forecast for the March quarter well below Wall Street’s expectations, the shares falling 6% in response Friday.

The chip maker said its business in China was the weakest region relative to initial expectations for the fourth quarter.

Overall, revenue came in at $14 billion, below estimates for $14.49 billion, while adjusted earnings of 10 cents were well off the 21 cents analysts forecast.

But for the current quarter, Intel gave a revenue forecast range of $10.5 billion to $11.5 billion – well below the consensus of $13.93 billion.  Yikes.  That sucks.

Chief Financial Officer David Zinsner said the chip maker did not have enough visibility beyond the first quarter to provide a full year financial forecast, citing economic uncertainty.

--Software company SAP joined the ranks of tech companies announcing job cuts, saying it would shed up to 3,000 positions after a steep profit drop in late 2022.

--American Express issued upbeat long-term profit guidance, despite reporting mixed fourth-quarter results that missed expectations.

The payments company expects earnings to be in a range of $11 to $11.40 a share for 2023 on revenue growth of 15% to 17%.  The consensus of analysts is for EPS of $10.45 and revenue of $58.79 billion.  The firm’s profit fell 2% to $9.85 per share last year, while revenue jumped 25% to $52.86bn.

“The rising interest rate environment has had a fairly neutral impact on our results in ’22 as deposit betas lagged the rapid and steep benchmark rate increases during the year,” CFO Jeffrey Campbell said on an earnings call.  “I would expect the year-over-year impact from rising rates to represent more of a headwind in 2023.”

For the quarter ended Dec. 31, AXP’s EPS fell to $2.07 from $2.18 a year earlier, below the Street’s view for $2.23.  Revenue advanced 17% to $14.18 billion, just shy of estimates.

But CEO Steve Squeri said the company saw few signs of a recession in the short-to-medium term, noting that cardmember spending continues to remain strong and the Street loved that, sending the shares higher by a whopping 10%.

--Johnson & Johnson on Tuesday forecast annual profit above Wall Street estimates, as steady demand for its drugs such as cancer treatment Darzalex is expected to help ease pressure from inflation and a strong dollar.  Shares of the drugmaker fell, though, as fourth-quarter sales missed expectations due to lower demand for its medical devices.  J&J expects sales of the devices to be lower in the first half of 2023 than in the second half, as surging Covid-19 cases in China limit medical procedures in hospitals.

The company expects to earn between $10.45 and $10.65 per share on an adjusted basis for 2023, above analysts’ estimates of $10.35 at the midpoint.

--3M Co. said on Tuesday it would cut 2,500 manufacturing jobs after reporting a lower profit, as the U.S. industrial conglomerate faces a demand slowdown in its unit that sells products including notebooks, air purifiers and respirators.

The diversified manufacturer said demand for its consumer-facing unit fell faster in December as weaker customer spending spilled into the holiday season, sending the share down 5%.  3M expects adjusted sales growth to drop 6% to 2% this year due to declining disposable respirator sales and its exit from Russia.

“We expect macroeconomic challenges to persist in 2023,” CEO Mike Roman said.  Softer-than-expected consumer spending and a cut back from U.S. retailers amid inflationary pressures has eaten into the sales of 3M’s consumer unit which generated about $5.30 billion in revenue in 2022.

Sales in the current quarter fell 6% to $8.1 billion.  Ex-items, the company reported a profit of $2.28 per share compared to $2.45 a year earlier.

--Dow Inc. (formerly known as Dow Chemical Co.) on Thursday forecast current-quarter revenue below estimates and said it would cut about 2,000 jobs as the chemical giant navigates challenges including inflation and supply chain disruption.  Production costs have risen in recent quarters following Russia’s invasion of Ukraine, while China’s Covid-led lockdowns and signs of a global economic slowdown have squeezed demand for Dow’s chemicals used in industries ranging from automobiles and food packaging to electronic items.

Dow CFO Howard Ungerleider said while the pace of inflation has moderated, the overall cost levels remain elevated.  First-quarter revenue is now expected to be between $11 billion and $11.5 billion compared with average analysts’ expectations of $13.02 billion, and the shares fell in response.  The company also missed Street estimates for fourth-quarter profit and revenue.

--General Electric Co. forecast a lower-than-expected 2023 adjusted profit on Tuesday, as the industrial major struggles with persistent problems at its money-losing renewable energy business.  Shares in GE were down after the company forecast an operating loss between $200 million and $600 million for its energy business GE Vernova in 2023.  The company’s renewable energy business has been facing challenges due to inflation and supply chain pressures.  The unit reported a loss of $2.2 billion in 2022.

While GE is aiming to make its renewable business profitable next year, CEO Larry Culp has described its onshore wind unit as “the battleground” for the company.  The company is reducing global headcount at the unit by about 20% as part of a plan to restructure and resize the business.  GE, which completed the spinoff of its healthcare unit earlier this month, has plans to spin off its energy businesses, including renewables, into a separate company next year.

GE’s aerospace business is set to continue to boost results due to strong demand for engines and aftermarket services.  GE Aerospace is expected to turn an operating profit of between $5.3 billion and $5.7 billion for 2023.

--Texas Instruments reported fourth-quarter earnings of $1.96 billion, a per-share profit of $2.13, which beat estimates of $1.96.  Revenue of $4.67 billion was also slightly above forecasts of $4.6bn.

But the shares fell when for the current quarter, the company forecast revenue in the range of $4.17 billion to $4.53 billion, vs. expectations of $4.82bn.

--Union Pacific reported Q4 earnings of $2.67, up from $2.66 a year earlier, but lower than expected.  Operating revenue for the quarter ended Dec. 31 was $6.18 billion, up from $5.73 billion a year earlier, vs. analysts estimates for $6.26bn.  Net income fell 4% to $1.64 billion.

“We continued to face challenges hiring craft professionals in critical locations and experienced the impact of extreme winter weather on our network in December,” CEO Larry Fritz said. 

Looking ahead, the railroad operator, which connects 23 states in the western two-thirds of the country, suffered shipment delays over the Christmas period as the winter storm Elliott hit its networks.

But the company said it expects full-year 2023 carload growth to exceed industrial production, which is expected to drop 0.5%.  The company’s shares fell a bit.

--Verizon Communications Inc. forecast annual profit below expectations on Tuesday, as the pandemic-led boom in wireless customer growth fizzles out and the company makes heavy investments in 5G technology. 

Verizon, once an industry leader in postpaid customers, lost subscribers last year to its fast-growing rivals AT&T and T-Mobile that offered more affordable plans or had better 5G networks.

Aggressive offers and trade-in deals fueled some growth for Verizon during the holiday season, bringing in 217,000 net new monthly bill-paying subscribers in the fourth quarter. But that was still less than half the 558,000 customers the company added in the same period last year.  CEO Hans Vestberg also warned Verizon would move away from promotions.  “We believe current promotion incentives are not sustainable for the industry in the long run.”

Verizon expects adjusted profit between $4.55 and $4.85 per share in 2023, below Wall Street’s estimate of $4.97.  The New York-based company said it expects wireless service revenue to grow between 2.5% and 4.5% in 2023 after posting an 8.6% increase in 2022.

--AT&T, for its part, reported better than expected quarterly subscriber additions overshadowed a $25 billion non-cash charge related to the impact of higher interest rates on its businesses and triggered a 6% rise in its shares.  The carrier has used discounts and trade-in offers to lure customers as Verizon moves away from them. 

The company added 280,000 fiber customers in the December quarter.  It also added 656,000 postpaid phone subscribers, above estimates, and as you can see, well above Verizon’s 217,000, although it failed to match T-Mobile’s expected 927,000 additions.

“We don’t have an outlook that says we’ve solved the (economy) problem,” CEO John Stankey told analysts on a conference call.  “We will be operating in a challenging macroeconomic environment where wireless industry growth is likely to return to more normalized levels.”

--Hasbro Inc. said it would eliminate 15% of its global workforce this year in yet another indication that economic uncertainty is spreading to sectors beyond the tech and media sectors.

The toy and entertainment company said the reduction, slated to begin in the next few weeks, will comprise about 1,000 positions.

Hasbro also issued preliminary results for the fourth quarter showing that revenue declined 17% to $1.68 billion from a year earlier, and earnings of between $1.29 and $1.31 a share, both numbers well below expectations and the shares fell 8% on Friday.

--Bed Bath & Beyond Inc. announced late Thursday it didn’t have the funds to repay its banks after they determined the retailer has defaulted on its credit lines.

The home-goods chain said it received a notice of default from JPMorgan Chase & Co. on Wednesday, with the banks calling for an immediate repayment of all outstanding loans under the credit agreement.

Normally companies reach agreements with their lenders over their plans for filing for bankruptcy protection, putting a pause on the requirement to repay their debt.

--Walmart is raising its minimum hourly wage for employees at its U.S. stores beginning next month, the company said Tuesday.

Store employee starting pay will be between $14 and $19 per hour beginning in early February, Walmart said.  Those wages are up from $12 to $18 per hour.  John Furner, president and CEO of Walmart U.S. said in a note to employees that the company expects its average hourly wage in the U.S. to pass $17.50 as a result of the increases.  The company said 340,000 employees would see wage increases as part of the move.

--Ken Griffin’s Citadel churned out a record $16 billion in profits last year, outperforming the rest of the industry and one of history’s most successful financial plays.

The top 20 hedge fund firms collectively generated $22.4 billion in profits after fees, according to estimates by LCH Investments, a fund of hedge funds.  Citadel’s gain was the largest annual return for a hedge fund manager, surpassing the $15 billion that John Paulson generated in 2007 on his bet against subprime mortgages.

But as Bloomberg reported, outside the industry giants, hedge funds overall lost $208 billion last year.

--Meta has said it will allow Donald Trump back on Facebook and Instagram following a two-year ban from the platforms over his online behavior during the Jan. 6 insurrection.

Meta will allow Trump to return “in coming weeks” but “with new guardrails in place to deter repeat offenses,” Meta’s president of global affairs, Nick Clegg, wrote in a blog post explaining his decision.  “Like any other Facebook or Instagram user, Mr, Trump is subject to our community standards,” Clegg added.  “In the event that Mr. Trump posts further violating content, the content will be removed and he will be suspended for between one month and two years, depending on the severity of the violation.”

Trump, in a post on Truth Social, condemned Facebook’s decision to suspend his account.

“FACEBOOK, which has lost Billions of Dollars in value since ‘deplatforming’ your favorite President, me, has just announced that they are reinstating my account.  Such a thing should never again happen to a sitting President, or anybody else who is not deserving of retribution!”

Trump was recently reinstated on Twitter but has not tweeted as yet.  After a monthslong hiatus, he is also going back on the campaign trail this weekend with appearances in New Hampshire and South Carolina.

--James Cameron’s “Avatar: The Way of Water” led ticket sales in movie theaters for a sixth straight weekend, adding $19.7 million in the U.S. and Canada, bringing its global total to over $2 billion, putting it sixth all-time.

Separately, 39 Regal Cinemas theaters across the U.S. are set to shut down, according to a filing from the chain’s parent company, Cineworld Group.

Foreign Affairs, Part II

China: A Chinese military magazine has highlighted the vital role drones would play in the event of a war across the Taiwan Strait.

It said drones could be used to “assassinate enemy leaders’ and their use could minimize casualties by shortening the conflict.  They could also be used to target Taiwan’s mobile missile launchers and heavy weaponry.

The article in Ordnance Industry Science Technology outlines how a People’s Liberation Army attack on Taiwan might unfold.

After launching “the final unification war,” the PLA would seek to “suppress the island of Taiwan in all directions – land, sea, air, space, electricity and the internet,” according to the article.

It said drones would be key, noting their advantages over manned aircraft and other weapons systems.

“Manned combat aircraft can only stay in the air for a short time, usually three to four hours, which is completely different from the 30 to 40 hours of large and medium-sized drones,” it said.

Drones would also be the best way to attack smaller vessels, the article said.  [South China Morning Post]

On the Covid front, China reported almost 13,000 Covid-19 deaths in one week, while a leading epidemiologist said around 80 percent of Chinese had already been infected so a second wave was unlikely in the near future.

The Chinese CDC said on Sunday that the death toll related to Covid-19 in hospitals reached 12,658 in the seven days between January 13 and 19.

The country had previously reported nearly 60,000 deaths between December 8 and January 12 after the abrupt reopening of the zero-Covid policy.

Separately, Wu Zunyou, the CDC’s chief epidemiologist, played down concerns about a second wave in the next few months while also calling for caution over the elderly and other vulnerable groups over the Lunar New Year holiday.

Reporting has been light this holiday week in terms of the travel stories, the holiday starting last weekend, hundreds of millions of Chinese hitting the road for family reunions that had been basically suspended for three years.

Lastly, we had a real tragedy the other day in the Tibetan Himalayas, when a deadly avalanche engulfed a highway, with the death toll at 28, five hospitalized.

Almost all the deaths were caused by hypothermia and a lack of oxygen, state broadcaster CCTV said.

Strong winds and unseasonably warm weather triggered the slide.

Iran: The European Union on Monday introduced new sanctions against Iran for a “brutal” crackdown on protests, but the bloc’s top diplomat said the country’s Revolutionary Guards (IRGC) cannot be listed as a terrorist group without a court decision.

EU diplomats last week were set to add 37 names to a blacklist of Iranian people and entities banned from traveling to Europe and subject to an asset freeze.  The European Parliament has called on the EU to go further and list the IRGC as a terrorist entity, blaming it for the clampdown on protests now into their fourth month and the supply of drones for Russia’s war against Ukraine.

The IRGC was set up shortly after the 1979 Islamic Revolution to protect the Shiite clerical ruling system.  It has an estimated 125,000-strong military with army, navy and air units, and commands the Basij religious militia often used in crackdowns.  “The Iranian regime, the Revolutionary Guards terrorize their own population day after day,” German Foreign Minister Annalena Baerbock told Monday’s meeting.

But the EU’s top diplomat said a court ruling with a concrete legal condemnation had to first be handed down in a member country before the EU itself could apply such designation.

“It is something that cannot be decided without a court… decision first.  You cannot say I consider you a terrorist because I don’t like you,” Josep Borrell told reporters on the sidelines of the Brussels talks.

Israel: Israeli commandos killed seven gunmen and two civilians in a raid on a flashpoint town in the occupied West Bank on Thursday, Palestinian officials said, stirring fear of further flare-ups after the largest single death toll in years of fighting.  The Palestinian Authority said it was ending its security coordination with Israel, which is widely credited with helping to keep order in the West Bank and preventing attacks against Israel, though the PA has taken such a move from time to time over the years as a sign of protest.

Prime Minister Benjamin Netanyahu said Israel was not looking to escalate the situation, though he ordered security forces “to prepare for all scenarios in the various sectors.”

According to the Palestinian health ministry, at least 30 Palestinians, including gunmen and civilians, have been killed by Israeli forces in the West Bank since Jan. 1.

Meanwhile, thousands of American and Israeli military personnel joined forces this week for an unprecedented exercise intended to send a message to adversaries like Iran that the U.S. isn’t turning its back on the Middle East, even as it focuses on the war in Ukraine.

After four days of military exercises stretching from the Mediterranean Sea up into space, the U.S. and Israel fired more than 180,000 pounds of live munitions in the largest joint exercise ever carried out by the two allies.

And last Saturday, a reported 100,000 Israelis protested again in Tel Aviv against judicial reform plans by Netanyahu’s new government that demonstrators say will threaten democratic checks and balances on ministers by the courts.

The protesters say the future of Israeli democracy is at stake if the plans go through.

Netanyahu did dismiss a senior cabinet member with a criminal record on Sunday, complying with a Supreme Court ruling.

***And then late today, Friday, there was an apparent terrorist attack on a Jerusalem synagogue in which the Israeli Foreign Ministry said seven people had been killed, three injured (at last report), the attacker “neutralized.”

This is exactly what many feared with the spiraling violence in the West Bank.  It also comes on International Holocaust Remembrance Day.

Somalia: The United States said a major ISIS financier was killed during a raid on a “mountainous cave complex” in northeastern Somalia on Wednesday.  Plans for the raid were finalized last week, and President Biden personally approved the operation, U.S. officials said.

“Bilal al-Sudani is assessed to have supported ISIS’s expansion and activities across Africa and beyond the continent, in particular by providing funding to sustain the operational capabilities of ISIS elements around the world; that includes the ISIS Khorasan branch in Afghanistan, one of ISIS’s most lethal branches,” a White House official said.

Pakistan: Much of the country was left without power for several hours on Monday morning as an energy-saving measure by the government backfired. The outage spread panic and raised questions about the cash-strapped government’s handling of the country’s economic crisis.

Electricity was turned off across Pakistan during low usage hours overnight to conserve fuel across the country, officials said, leaving technicians unable to boot up the system all at once after daybreak.

Monday’s nationwide breakdown left many people without drinking water as pumps are powered by electricity.  Schools, hospitals, factories and shops were without power amid the harsh winter weather.

Power was largely restored by Tuesday, but a disconcerting episode in this chaotic place with nukes.

Peru: The government closed its most famous tourist site, Machu Picchu, indefinitely over the ongoing protests against the country’s president. The site was closed to protect tourists and its own citizens.

Hundreds of people, mostly foreigners, are currently thought to be stranded at the foot of the site.

Dozens of people have been killed in weeks of violent protests, which began after the previous leader was ousted. The demonstrators are demanding fresh elections and calling for the new President, Dina Boluarte, to stand down, which she has so far refused to do.

They want her left-wing predecessor, Pedro Castillo, who is in prison and who has been charged with rebellion and conspiracy, to be released.

The town of 7,000 that makes a living off tourism at Machu Pichu announced its support for the protests.

The violence has killed nearly 50 people in the past few weeks.

Around a million people a year visit Machu Picchu, the 15th-century Incan citadel in the Andes mountains that was named one of the New Seven Wonders of the World in 2007.

The other Seven Wonders are The Great Wall of China, Petra, Chichen Itza*, the Statue of Christ the Redeemer, the Colosseum, and the Taj Mahal.

*I’m embarrassed…I had to look this up…the Mayan ruins on Mexico’s Yucatan Peninsula.  This doesn’t make me a bad person.

Peru’s culture ministry said that those who had already bought tickets would be able to use them for one month after the end of the demonstrations, or else refund them.

New Zealand: Chris Hipkins replaced Jacinda Ardern as the country’s prime minister after emerging as the only candidate nominated to lead the Labour Party, Ardern resigning after she said she had “no more in the tank.”

But then immediately Hipkins has had to deal with catastrophic flooding in Auckland, where more rain fell today in about six hours than they normally receive all summer, which is what it is there now.

Random Musings

--Presidential approval ratings….

Gallup: New numbers…41% approve of Biden’s job performance, 54% disapprove; 36% of independents approve (Jan. 2-Jan. 22). [Trump was at 37% approval Jan. of 3rd year.]

Rasmussen: 43% approve, 54% disapprove (Jan. 27).

Biden Bits

--The U.S. Treasury Dept. refused Wednesday to provide House Republicans any suspicious activity reports it may have on foreign banking and other business transactions by Hunter Biden and other members of President Biden’s family.

A Treasury official told House Oversight and Accountability Chairman James Comer in a letter than he needs more details about why the panel is seeking such “highly sensitive” information.

Comer wrote to Treasury Secretary Janet Yellen on Jan. 11 for any so-called suspicious activity reports – used by banks to flag what they deem dubiously large transactions – as part of his panel’s probes into overseas business and other dealings by the president’s son.

The official, Jonathan Davidson, instructed Comer that “improper disclosure” of such information can undermine the executive branch’s “conduct of law enforcement, intelligence, and national security activities.”

Comer responded that “this coordinated effort by the Biden Administration to hide information about President Biden and his family’s shady business schemes is alarming and raises many questions.”

--The number of migrants from Cuba, Haiti, Nicaragua and Venezuela caught crossing the U.S.-Mexico border dropped 97% from December to January following new restrictions by President Biden that expel them back to Mexico.  U.S. authorities encountered an average of just 15 migrants from those countries over a weeklong period ending on Jan. 24, down from an average 3,367 on Dec. 11, the Department of Homeland Security said on Wednesday.  The department attributed the decrease to the restrictions and new legal pathways opened for migrants with U.S. sponsors who enter by air.

--Editorial / Wall Street Journal

“One of President Biden’s political character traits is his manifest disdain for anyone who questions his behavior or judgment. This has been on full public display since the discovery of classified documents at his office and home, and it’s drawing him deeper into a political morass.

“ ‘I think you’re gong to find there’s nothing there,’ Mr. Biden said (a week ago) Thursday when asked in California about the documents found at his Penn Biden Center office and in his garage next to his Corvette. ‘I have no regrets… There is no there there.’

“As to the garage, Mr. Biden said it was the equivalent of a secure facility.  ‘By the way, my Corvette’s in a locked garage, OK?  So it’s not like they’re sitting out on the street,’ Mr. Biden said, with a dismissiveness that would have produced days of commentary about the risks to national security and the rule of law had Donald Trump said it.

“We can’t wait to hear how the President explains the news late Saturday that a more thorough search of his Wilmington, Del., home discovered more documents with classified markings….

“All of this suggests Mr. Biden’s handling of documents hasn’t been all that different from Mr. Trump’s after all.  It appears he felt entitled to take classified documents home with him while a Senator.  Did he put them in his briefcase to read on Amtrak on his commute home for the weekend?  His attitude toward classified information was unserious enough that he kept them for years.

“The main difference is that Mr. Trump continued to resist turning over to the National Archives the documents he had kept.  Mr. Biden’s defenders want to focus on this difference, which has the advantage of downplaying the cavalier handling of the documents, which is the real transgression and has cost others their careers.

“All of this is fodder for Robert Hur, the special counsel appointed to investigate the Biden document discovery.   This ought to include a search of Mr. Biden’s other properties. The chain of custody for the documents will be important to track and disclose….

“Mr. Biden can’t be indicted as a sitting President under Justice Department rules, but the threat here is more political than criminal. The public can see the double standard the White House is indulging to explain away his actions, even if most of the press corps doesn’t.  The President had better hope there isn’t more ‘there there,’ or he might find his hope for a second term in jeopardy.”

Editorial / New York Post…hours before Saturday’s disclosure of the discovery of more docs…

“President Joe Biden helped himself to classified documents during his term as veep, eventually leaving some at his think-tank office and others all over his private house in Wilmington (including his garage).  His latest defense of the indefensible?  He has ‘no regrets’ over the move and ‘there’s no there there.’

“Oh, but there is, Joe. This may be your lamest lie yet.

“Worse still, that ‘no regrets’ line is a seemingly scripted remark, suggesting his communications staff approves of the utter contempt for Americans it displays.

“The man in charge of protecting the country from all enemies foreign and domestic has ‘no regrets’ about potentially damaging national security through sheer narcissism and insane carelessness.

“And if there’s no ‘there there’ and you have ‘no regrets,’ why hide it from the public for months, conveniently keeping mum till after the midterm elections?  Oh, yeah: because it’s a huge deal and if the American people had known about it that might have dented the prospects of Democrats around the country. At the moment 60% of Americans see Biden’s doc move as inappropriate, and 37% see it as criminal.

“Plus, the public (and Congress) still have exactly zero idea of what’s in these documents – and Biden insists he doesn’t know, either.  So the claim that it’s no big deal is just noise….

“And if snatching secrets on your way out of office is a nothingburger, how does the president justify turning the full force of the federal government on ex-President Donald Trump for doing so?  (The public doesn’t know what’s in those docs, either.)

“Despite the desperate effort by Dem lackeys in the media to pretend Biden’s doc grab is somehow different from Trump’s, it isn’t. Except that, being veep when he took them, Biden clearly had zero right to take anything….

“Even if Biden has utterly forgotten about it, he not only broke the law in taking this stuff: His years-long carelessness in storing it means there’s plenty of ‘there there,’ no matter what our mendacious president claims.”

--Jeff Zients is replacing Biden’s chief of staff Ron Klain, who is stepping down after guiding the president’s two years in office.  Klain plans to depart in the weeks following Biden’s State of the Union address Feb. 7.

Zients, who steered the president’s response to the pandemic during the first year of his administration, has also served as counselor to the president.

---

--A handful of classified documents were found at former Vice President Mike Pence’s home in Indiana and the FBI retrieved them last week, a representative for Pence wrote to the National Archives in a letter this month.

Pence’s lawyer characterized the documents as “a small number of documents bearing classified markings that were inadvertently transported to the personal home of the former vice president at the end of the last administration.”

Last year, Pence repeatedly denied any knowledge of classified documents at his home.  In August, when the Associated Press asked Pence if he took any classified documents to said abode, he responded, “No, not to my knowledge.”  In November, Pence told ABC News, “There’d be no reason to have classified documents, particularly if they were in an unprotected area.”

Sen. Mitt Romney (R-Utah) told USA TODAY that someone ought to be looking at the homes of pretty much every living president and vice president “very carefully to make sure they don’t have something inadvertently – or purposefully – there, which could be threatening to our security.”

Editorial / Wall Street Journal

“Here we go again: Documents with classified markings have been discovered at the Indiana home of Vice President Mike Pence, material that was quickly handed over to the FBI.  Which ex-statesman will be the next to do a disappointing double-check of the basement file cabinets?  Is Attorney General Merrick Garland prepared to give them all their very own special counsels?....

“(It’s hard) not to wonder what might be lurking in the closets of other former Senators and cabinet secretaries.  To anyone whose livelihood involves carefully and properly handling secret information, the apparent carelessness at the top of the org chart is probably nothing short of stunning.  All of this should inspire a drive to classify much less information in the first instance.

“The good news is that the notion of prosecuting a politicians for mere unauthorized retention of such material is becoming more farcical all the time.  Mr. Biden and Mr. Trump, two contenders for the White House in 2024, are already under investigation.  Mr. Pence now appears to be a third presidential prospect on the wrong side of the rules.

“The transfer of power between Election Day and Jan. 20 involves a whirlwind of paper.  Shorn of the context from Mr. Trump and Mr. Biden, the boxes at Mr. Pence’s home would probably get a news story on A12.  One frustration is that the public isn’t hearing clear explanations of the documents at issue, including their potential to undermine national security.  What are we talking about here, boilerplate briefings on Ukraine’s military that are long since outdated? Or deeply sensitive information that could tip off adversaries to U.S. capabilities or spies?

“AG Garland could have owned these inquiries himself and defended the Justice Department’s ability to do its job under normal political accountability.  Instead he opened Pandora’s box by appointing Jack Smith as special counsel for Mr. Trump. That led to Robert Hur as special counsel for Mr. Biden. The silver lining is that every time another official finds some secret documents in the basement behind a dusty Peloton bike, the odds go up that voters will get the final say on this behavior in 2024.  That would be best for the country.”

--Rep. George Santos claims in a newly surfaced interview that he was mugged in broad daylight a block from Trump Tower in Manhattan – and the crooks even took the shoes off his feet.

Seeking to demonstrate the impact of rising crime, the newly elected Long Island lawmaker told a Brazilian podcast that he was attacked on Fifth Ave. and E. 55th St. on one of the city’s fanciest shopping strips in the summer of 2021.

“They robbed me, took my briefcase, took my shoes and my watch. And that was in broad daylight,” he said, speaking in his native Portuguese.  “I was leaving my office, going to the garage, getting my car, and I was mugged.”

The interview, which was done after Santos won election in November, was unearthed by MSNBC.

But curiously, Santos also felt compelled to say this: “They weren’t Black.  They were even white.”

Aside from the mugging, Santos claimed that his Florida home was once burglarized because he “was attending a Republican party” on New Year’s Eve and that he was once the victim of an assassination attempt.

--Rep. Adam Schiff (D-Calif.) said he would join a crowded race for the Senate seat currently held by Democratic Sen. Dianne Feinstein, who hasn’t announced whether she plans to run again but clearly has to, her mental capacities fading rapidly.

Schiff joins fellow Reps. Katie Porter and Barbara Lee, who previously announced plans to run. Rep. Ro Khanna also could potentially do the same.

Under state election law, the top two vote-getters in the open primary race regardless of party will advance to the November 2024 general election.

Schiff was booted off the House Intelligence Committee this week by House Speaker Kevin McCarthy.

--Updated Covid-19 boosters originally designed to protect against early Omicron strains continued to reduce rates of illness from new mutants that have since spread rapidly throughout the U.S.

The shots’ effectiveness against symptomatic infection ranged from 38% to 50% in recent months as the XBB and XBB.1.5 strains became dominant, CDC scientists said Wednesday. The boosters helped most in adults from the ages of 18 to 49, according to the CDC’s Morbidity and Mortality Weekly Report.

Meanwhile, the Food and Drug Administration on Monday signaled a shift toward an annual Covid-19 vaccine booster, a policy that would enable a long tail of Covid-19 vaccine revenues for companies such as Pfizer and Moderna.

The FDA staff said that, going forward, the agency planned to pick each June which strain of the virus the boosters rolled out the following fall would target.  That schedule resembles the way influenza vaccines are currently updated, though the FDA picks the flu strain in March.

--In the span of eight days, California had three mass shootings claim at least six lives each.  Jan. 16 in Goshen, Calif., six people were found fatally shot inside a home, the incident believed to be gang-related…two suspects being sought.

Saturday night, Jan. 21, 72-year-old Huu Can Tran walked into the Star Ballroom Dance Studio in Monterey Park and killed 11, before killing himself.  Thankfully, he was disarmed at a second dance club in Alhambra.

Then Monday, Jan. 23, a 66-year-old man, Chunli Zhao, is suspected of opening fire at two rural farms about a mile apart, killing seven in all.

A database of 185 mass shootings between 1966 and 2022 maintained by the nonprofit Violence Project includes just one carried out by someone 70 or older.

--According to Utah State University biologist Mike Conover, in the latest edition of “Human-Wildlife Interactions,” deer are responsible for the deaths of about 440 of the estimated 458 Americans killed in physical confrontations with wildlife in an average year.

Those deer-inflicted fatalities are the unfortunate result of more than 2 million people a year plowing into deer with their sedans and SUVs, usually on a two-lane road, often at high speed.

With a few exceptions, the data show deer are at their most dangerous in November.  Indeed, the deer threat peaks just before Thanksgiving – typically Nov. 7 through 14 – when you’re about three times more likely to hit a deer than at any other time of year.

In much of the country, that’s rutting season when deer focus on procreation, not self-preservation.  [Washington Post]

--Here in Summit, N.J., we actually saw snow, like 0.2 inches on the grass, this past Wednesday, though New York City (Central Park) had none.

As in by definition you need an inch for a “measurable snowfall” and New York is about to surpass the record for latest first snow of a season, Sun., Jan. 29 (1972).  Kind of remarkable.  We had very little snow last year as well.

But fret not, Metro Area snow lovers.  AccuWeather is calling for a very cold, snowy period, late February well into March.

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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 $1928
Oil $79.36

Regular Gas: $3.50; Diesel: $4.68 [$3.34 / $3.69 yr. ago]

Returns for the week 1/23-1/27

Dow Jones  +1.8%  [33978]
S&P 500  +2.5%  [4070]
S&P MidCap  +2.4%
Russell 2000  +2.4%
Nasdaq  +4.3%  [11621]

Returns for the period 1/1/23-1/27/23

Dow Jones  +2.5%
S&P 500  +6.0%
S&P MidCap  +7.8%
Russell 2000  +8.5%
Nasdaq  +11.0%

Bulls 45.1
Bears 28.2

Hang in there.

Brian Trumbore

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