Week in Review

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Week in Review

03/18/2023

For the week 3/13-3/17

[Posted 6:00 PM ET, Friday]

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Edition 1,248

If you thought this week was nuts, especially in the global financial markets, wait until next week…after what is likely to be another hairy weekend.

The Federal Reserve will finally weigh in on all the turmoil, and Chair Jerome Powell will be put through the ringer at his 2:30 p.m. ET press conference on Wednesday.

As I go to post, bailouts for the likes of Credit Suisse and First Republic Bank have not worked.  But it’s all very fluid…and the story for Saturday and Sunday.

Meanwhile, Chinese President Xi will be meeting in Moscow with Vlad the Impaler, newly indicted war criminal, no doubt talking up a ceasefire…a totally bogus plan.  Recall, China recently released a 12-point “plan for peace” in Ukraine that deliberately made no mention of Ukraine’s sovereignty or Russia withdrawing from occupied territories.  Ukraine, the United States and NATO will knock it down in a flash.  And then we’ll wait to see what happens between China and Russia on the weapons front.

It is indeed March Madness!  And Happy St. Patrick’s Day!

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My explanation on the banking crisis from last week, written less than two hours after the market closed Friday, was correct.  Silicon Valley Bank, facing massive withdrawals, was forced to sell off its entire liquid bond portfolio at lower prices than it paid…paper losses having turned into realized losses…and having taken $1.8 billion in losses on the sales, they needed to raise capital and SVB didn’t have it teed up.  That’s as much of an example of incompetence as the mismanagement of the bond portfolio.

So, we awaited some kind of statement from federal officials over the weekend as to what the response would be to calm the markets, and a joint statement was issued Sunday by the Treasury, the Federal Reserve and the FDIC that read in part: “Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

[New York state regulators also closed Signature Bank, their deposits secured, discussed below.]

So not only would depositors below the $250,000 insured threshold be secured, but also those above $250K.  Uncle Billy, who failed to ensure SVB raised capital, was off the hook and a good time was had by all at George and Mary Bailey’s house (George having coincidentally just been rescued by California emergency workers from the latest atmospheric river) …the venture capitalists, who had all of two sleepless nights, partying raucously over their good fortune, their children still headed to Stanford, with the San Francisco Fed’s bank examiners nervously partaking.  After all, they hadn’t done their job particularly well.

But was the move of the Treasury, FDIC et al creating “moral hazard?”  The government just implicitly said, everyone’s deposit, regardless of the amount, is secure, not just the $250K.

It wasn’t however an ‘explicit’ statement.  And so this is what the markets would argue over the rest of the week.

Monday morning, about a half-hour before the market opened, President Biden gave a very brief statement:

“Americans can have confidence that the banking system is safe.  Your deposits will be there when you need them.”

After a weekend spent warning of domino effects and mass layoffs, venture capitalists and hedge fund managers were pleased with the plan that guaranteed deposits at both SVB and Signature Bank by invoking a “systemic risk exception” allowing regulators to backstop even deposits too large to qualify for federal insurance.

The plan also included a new instrument to prevent the spread of bank failures.  Under it, banks whose balance sheets are hobbled by high interest rates will be able to access liquidity in the form of Fed loans against their affected assets.

SVB’s top executives were fired and a new chief executive appointed.

The markets stabilized Monday, as initially, JPMorgan Chase, the largest U.S. bank, alone received billions of dollars, and Bank of America, Citigroup and Wells Fargo also saw higher-than-usual deposits, at the expense of their smaller brethren.

Moody’s Investor Service late Monday warned it was either downgrading or placing on review for downgrade seven individual financial institutions, and then the same day cut its view on the entire banking system to negative from stable, which many criticized as not being necessary.

But the firm, one of the big-three rating services, said it was making the move in light of the failures at SVB and Signature Bank, as well as Silvergate.

The moves are important because they could impact credit ratings and thus borrowing costs for the sector.

Moody’s said: “Banks with substantial unrealized securities losses and with non-retail and uninsured U.S. depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings and capital.”

Among the institutions Moody’s placed under review for potential downgrades were First Republic, Western Alliance and Comerica.

Tuesday, though, the crisis continued, as fears over the fate of Credit Suisse roiled European banks and equities, London’s FTSE, Germany’s DAX, and France’s CAC 40 indexes falling 3.3% to 3.8%.

CS, which has been troubled for years,  then announced Wednesday it will move to shore up its finances by borrowing up to nearly $54 billion from the Swiss central bank, bolstering confidence…at least for now.

The move came after Swiss regulators pledged a liquidity lifeline to Credit Suisse in an unprecedented move by a central bank after the flagship Swiss lender’s shares fell by as much as 30% on Wednesday.

Thursday, as regional First Republic Bank’s stock was acting like it would be the next crisis point, various reports emerged that the likes of Goldman Sachs, Morgan Stanley and JPMorgan Chase were working on a “rescue’ with an injection of $20-$30 billion.  And the market rallied.

We then learned JPMorgan Chase CEO Jamie Dimon and Treasury Secretary Janet Yellen hashed out an idea back on Tuesday where the nation’s largest lenders would deposit $billions into First Republic, and Dimon then worked the phones.  As Bloomberg reported: “Over two days of frantic phone calls, meetings and some arm-twisting, the CEOs of 11 banks agreed to chip in a total of $30 billion for First Republic, promising to park the money there at least 120 days.”

The hope is that this was enough…at least give the institution enough time to work out another solution, like a sale…but First Republic’s shares fell 19% in early trading Friday.

Also Thursday, Secretary Yellen told the Senate Finance Committee that U.S. officials made a “systemic risk exception” after SVB collapsed because they recognized that contagion could come from a depositor run at the bank, and that bank regulators’ depositor-rescue plan had stemmed fallout from the panic.

Yellen said the U.S. banking system remained sound and Americans can feel confident that their deposits are safe, but she denied that the emergency actions taken as a result of SVB et al mean that a blanket government guarantee now existed for all deposits.

Pressed by Oklahoma Republican Senator James Lankford on whether all deposits are guaranteed, Yellen said, “A bank only gets that treatment” if supermajorities of the boards of the Federal Reserve, FDIC and “I, in consultation with the president, determine that the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”

Editorial / Wall Street Journal

“President Biden tried to reassure Americans early Monday morning that the banking system is safe and not to worry about the failures of Silicon Valley and Signature banks.  Markets didn’t believe him because bank stocks took another plunge [Ed. Monday], with some down 60% or more.

“Perhaps investors don’t believe the Administration’s Sunday interventions solve the problems.  The Federal Deposit Insurance Corp. says it couldn’t find a private buyer for SVB, though a source tells us Treasury and the Federal Reserve favored one.  FDIC Chairman Martin Gurenberg nixed it owing to hostility to bank mergers.

“Instead the regulators offered solutions that bail out even uninsured bank depositors and other banks at unknown costs that Mr. Biden isn’t acknowledging.  Take Mr. Biden’s pledge that ‘no losses will be borne by the taxpayers.’  He said ‘the money will come from the fees that banks pay into the Deposit Insurance Fund.’

“That’s not nearly the full story. The FDIC’s Deposit Insurance Fund normally guarantees up to $250,000 in deposits, which protects small retail customers including mom-and-pop businesses.  Banks pay for this guarantee with insurance premiums, but the insurance fund isn’t intended to backstop deposits of bigger customers with more capacity to weather losses if a bank goes under.

“Yet after venture capitalists (Democratic donors) and Silicon Valley politicians howled, the FDIC on Sunday announced it would cover uninsured deposits at SVB and Signature Bank under its ‘systemic risk’ exceptions.  Apparently, Silicon Valley investors and startups are too big to lose money when they take risks.  They benefited enormously from the Fed’s pandemic liquidity hose, which caused SVB’s deposits to double between 2020 and 2021.  SVB paid interest of up to 5.28% on large deposits, which it used to fund loans to startups.

“But now the FDIC is guaranteeing a risk-free return for startups and their investors.  Uninsured deposits normally take a 10% to 15% hair cut during a bank failure.  Some 85% to 90% of SVB’s $173 billion in deposits are uninsured.  The cost of this guarantee could be $15 billion.

“The White House says special assessments will be levied on banks to recoup these losses.  That means bank customers with less than $250,000 in deposits will indirectly pay for this through higher bank fees.  In other words, this is an income transfer from average Americans to deep-pocketed investors.

“Mr. Biden also claimed ‘investors in the banks will not be protected. They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.’  Yes, ordinarily.  But the Federal Reserve’s new emergency lending facility will ensure banks don’t have to take losses liquidating their bonds to meet deposit redemptions.

“Many banks have hedged their interest-rate risk and diversified their deposits, which comes at a business cost, but some like SVB and Signature didn’t. The Fed is now saying that’s OK – we’ve got your back.”

Sebastian Mallaby / Washington Post

“The Biden administration’s bank rescue over the weekend teaches two lessons, both of them painful. First, it is time to give up on the convenient fiction that the checks and balances of the market can contribute to the policing of irresponsible bankers.  Second, it follows that the fearsome regulatory clampdown on banks after the 2008 crisis was actually not fearsome enough.

“Until now, financial regulation has operated on the theory that some failure is desirable.  Unlike airline safety regulation, where the objective is zero crashes, an occasional financial crash was supposed to incentivize prudent conduct.  But Silicon Valley Bank, the institution at the center of the weekend rescue, was a prime example of a lender that could have been allowed to fail messily, inflicting losses on depositors.  Instead, the tech start-ups and venture capitalists who unwisely entrusted cash to lousy bankers have escaped without a scratch.

“Consider how extremely risk-averse the government’s decision was.  Silicon Valley Bank was a medium-sized lender with almost no linkages to the wider financial system. Its collapse occurred at a time of full employment, when worries about the broader impact on the economy were particularly far-fetched. It was one thing for the government to bail out financiers in 2008, when capitalism itself seemed to be imploding. It’s another to do so when joblessness stands at under 4 percent.

“If Silicon Valley Bank posed no danger to the wider economy, the threat to U.S. dynamism has been overstated, too.  The bank’s clients – entrepreneurs and their investors – do indeed contribute disproportionately to innovation.  But they are also proudly independent risk-takers, people who have freely chosen to work in a sector in which company collapses are routine.  The magic of the Valley is precisely that failure is celebrated as a learning experience.  Well, if a bunch of start-ups failed because they selected flaky bankers, the tech world might have internalized a salutary lesson.

“Until last week, moreover, venture capitalists were complaining that there was too much capital washing around their industry.  During the pandemic bubble, venture funds had raised billions of dollars, and a lot of that capital was still sitting on the sidelines, waiting for start-up valuations to come down to a reasonable level.  Silicon Valley Bank could have been the shock that forced a reset.  Thanks to the government’s action, the market won’t have to adjust.

“The point here is not that the rescue was misguided.  There’s a strong argument that entrepreneurs should be able to form companies, raise capital and park the funds in a bank without having to worry about whether the cash will be safe.  Start-ups ought to focus on inventing products, not diligent banks.

“Rather, the point is that if Silicon Valley Bank’s rugged, entrepreneurial depositors get bailed out, then all future depositors will get bailed out when the next bank failure inevitably rolls around.  The clients of other failing midsize lenders will surely be less capable of coping without government help.

“So it’s time to abandon the notion that banks have to manage themselves prudently to attract deposits.  Zero depositor losses equate to zero discipline on bankers.  Henceforth, the only guarantee of sound behavior will be sound regulation….

“After the 2008 crisis, the Fed began to conduct regular stress tests on the largest lenders. These tests are a way of making routine the act of asking questions: Would the bank remain sound if the economy experienced a recession, the dollar fell sharply or oil prices spiked?  The lesson from last weekend is that even medium-sized banks need this sort of attention.

“During the Trump years, policy shifted in the opposite direction.  Congress rolled back some of the post-2008 safeguards, and the Fed decided there was no need to burden midsize lenders unduly.  But if depositors won’t discipline the bankers, regulators must do so.  Otherwise, bailouts will become dizzyingly common – and far more expensive to the economy than proper regulation.”

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This Week in Ukraine….

Chinese President Xi Jinping plans to travel to Russia to meet with Vladimir Putin next Monday to Wednesday, in an apparent show of support amid sharpening East-West tensions over the war in Ukraine.

The invasion is expected to dominate Putin and Xi’s discussions.  China has refused to condemn Moscow’s aggression and sought to project itself as neutral in the conflict even while Beijing declared last year that it had a “no-limits” friendship with Russia.

China has said the sovereignty and territorial integrity of all countries should be respected, while condemning Western sanctions and accusing NATO and the United States of provoking Russia into military action.

Xi was expected to speak with President Volodymyr Zelensky for the first time since the invasion, but reportedly not until after Xi’s visit to Moscow.  No doubt Zelensky will want to talk to Xi about his definition of “territorial integrity.”

Otherwise, it was still all about Bakhmut.  The commander of Ukrainian ground forces said the situation was difficult, though adding that his troops were repelling all Russian attempts to capture it.  The head of Russia’s Wagner Group, Yevgeny Prigozhin, who has led the assault on Bakhmut, said on Sunday the situation in the mining town was “tough, very tough… but we are advancing and we will be advancing.”  Prigozhin said his army would begin to reboot once Bakhmut was captured.

“In particular, we will start recruiting new people from the regions,” Prigozhin posted on Telegram.

But in one update from a frontline Russian commander, Prigozhin’s claims of preparing to take Bakhmut were rejected.  Prigozhin had claimed to have “captured [Bakhmut] so many times that no one is interested any more.”

--The Ukrainian military is preparing for an upcoming counteroffensive, with a top commander saying his forces’ ongoing defense of Bakhmut is necessary to “buy time” for that push.

British intelligence said that any further Russian advance in the devastated town would be “highly challenging.”

--With the massive losses on both sides, Ukraine and Russia are believed to be very low on ammunition, and both have lost nearly all their experienced soldiers to 12 months of intense war.  Said one Ukrainian commander to the Washington Post, “The most valuable thing in war is combat experience;” however, “There are only a few soldiers with combat experience.  Unfortunately, they are all already dead or wounded.”

U.S. and European officials have estimated that as many as 120,000 Ukrainian soldiers have been killed or wounded since the start of Russia’s invasion, compared with about 200,000 on the Russian side, which has a much larger military and roughly triple the population from which to draw conscripts.  Ukraine has been keeping its running casualty figures secret.

One British lawmaker said the war’s next critical phase will span events leading into July and August. “This summer is incredibly important for Ukraine’s military,” Robert Seely said, according to the Journal.  “If they cannot make progress by the end of it, the voices in the West either calling for a negotiated settlement, or arguing that we should not be supporting Ukraine at all, will grow.”

Related to the casualties, the UK defense ministry said the impact of Russia’s heavy casualties varies dramatically across the country.  The ministry’s intelligence update said that the major cities of Moscow and St. Petersburg remain “relatively unscathed,” particularly among Russia’s elite.  In contrast, in many of Russia’s eastern regions, the death rate as a percentage of the population is “30-40 times higher than in Moscow.”

Ethnic minorities are taking the biggest hit.  In the southern Astrakhan region, for example, the report says that about “75% of casualties come from the minority Kazakh and Tartar populations.”

--President Zelensky and his top military command agreed Tuesday to continue to defend Bakhmut, the president’s office said, saying it was vital to the defense of the whole eastern front.

Zelensky in his nightly video address said: “There was a clear position of the entire command: Strengthen this sector and destroy the occupiers to the maximum.”

In his Sunday address, Zelensky said: “In less than a week, starting from the 6th March, we managed to kill more than 1,100 enemy soldiers in the Bakhmut sector alone.  Russia’s irreversible loss, right there, near Bakhmut.”

Zelensky also said that 1,500 soldiers had been wounded in the conflict.

Russia continues to see taking Bakhmut as a steppingstone for its troops to advance on two bigger cities in the Donetsk region; Kramatorsk and Sloviansk.

--Tuesday, Vladimir Putin doubled down on his invasion, and called it “a task of the survival of Russian statehood” in remarks delivered at an airplane factory.  “So for us this is not a geopolitical task, but a task of the survival of Russian statehood, creating conditions for the future development of the country and our children,” he said.

He also alleged Ukraine’s supporters thought sanctions would bring down the Russian economy in two to three weeks, but that did not happen in part because “We have increased our economic sovereignty many times over,” Putin said.

The Kremlin said that Russia’s goal in Ukraine could only be achieved by military force at the moment, and that Kyiv needed to accept the “new realities” on the ground before a peaceful settlement could be reached.  Kremlin spokesman Dmitry Peskov said Russia’s position regarding an end to hostilities was “well known.” Moscow has repeatedly said that Ukraine would need to accept Russia’s claimed annexation – rejected as illegal by Kyiv and the West – of four regions of Ukraine that it partly occupies.

Peskov also said in a press conference when asked about reports the International Criminal Court in The Hague was expected to seek its first arrest warrants against Russian individuals, that Russia does not recognize the jurisdiction of the ICC.

--A Russian Su-27 fighter jet intercepted and struck the propeller of a U.S. military MQ-9 “Reaper” surveillance drone on Tuesday, causing it to crash into the Black Sea, in the first such incident since Russia’s invasion of Ukraine.

Two Russian Su-27 jets carried out what the U.S. military described as a reckless intercept of the American spy drone before one of them collided with it.  Several times before the collision, the Russian fighter jets dumped fuel on the MQ-9 – possibly trying to blind or damage it – and flew in front of the unmanned drone in unsafe maneuvers, the U.S. said.

U.S. Air Force General James Hecker, who oversees the Air Force in the region, said in a statement: “Our MQ-9 aircraft was conducting routine operations in international airspace when it was intercepted and hit by a Russian aircraft, resulting in a crash and complete loss of the MQ-9.  In fact, this unsafe and unprofessional act by the Russians nearly caused both aircraft to crash.”

Russia’s defense ministry said on Tuesday that its fighter jets did not come into contact with the drone.  The Russian ambassador to the United States, Anatoly Antonov, said, “We view this incident as a provocation,” adding after he was summoned to the State Department, “we do not want any confrontation between the United States and Russia.”

The incident followed a pattern of dangerous behavior by Russian pilots operating near aircraft flown by the U.S. and its allies, including over the Black Sea.

The Pentagon, in a rare move, then declassified video showing Russia’s intercept of the drone, and you indeed see the Russian Su-27 fighter jet come very close to the MQ-9 drone and dump fuel near it.  It also shows the loss of the video feed after another close Russian maneuver, which the Pentagon says resulted from the Russian jet’s collision with the drone, and the video with an image of the damaged propeller, which the Pentagon says resulted from the collision, making the aircraft inoperable.

The Pentagon said the Russia military was attempting to recover the drone.  Officials said measures were taken to ensure that no sensitive information can be gleaned from the remains of the vehicle.

After release of the video, Russia said nothing.

--Thursday, Poland announced it would send four MiG-29 fighter jets in the coming days, Polish President Andrez Duda said, becoming the first NATO country to do so.

“When it comes to the MI-29 aircraft, which are still operating in the defense of Polish airspace, a decision has been taken at the highest levels, we can say confidently that we are sending MIGs to Ukraine,” Duda said.  “They are at the end of their operational life but are still functional.”

And Ukrainian fighter pilots already know how to fly them.

Slovakia then said it would send 13 MiG-29s to Ukraine, though the jets are in various states of readiness. All have been grounded since August after a maintenance agreement with Russia was terminated.

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--According to the Ukrainian interior minister, Ihor Klymenko, Russia has bombarded Ukraine more than 40,500 times since its invasion, with the shelling destroying 152,000 residential buildings since the war began. 

--A UN-mandated investigative body said in a report published Thursday that Russia has committed wide-ranging war crimes in Ukraine such as willful killings, torture and the deportation of children.

The report, based on more than 500 interviews as well as satellite images and visits to detention sites and graves, comes as the International Criminal Court in The Hague is expected to seek the arrest of Russian officials for forcibly deporting children from Ukraine and targeting civilian infrastructure.

The documents gave details of torture methods used in Russian detention facilities where victims were subjected to electric shocks with a military phone – a treatment known as a “call to Putin” – or hung from the ceiling in a “parrot position.”

Russia denies committing atrocities or targeting civilians in Ukraine.

Friday, the ICC issued an arrest warrant for Vladimir Putin and a second Russian official for an alleged scheme to deport Ukrainian children to Russia.

Foreign ministry spokeswoman Maria Zakharova said on her Telegram channel, the ICC arrest warrants “have no meaning for our country, including from a legal point of view.”

--Putin said on Tuesday that last year’s blasts on the Nord Stream gas pipeline had been carried out on a “state level,” dismissing the idea an autonomous pro-Ukraine group was responsible as “complete nonsense.”   The Nord Stream 1 and 2 gas pipelines connecting Russia and Germany under the Baltic Sea were hit by a series of unexplained explosions last September.

“One should always look for those who are interested. And who is interested?  Theoretically, of course, the United States is interested,” Putin said.  The U.S. strongly denies any involvement.

--Turkey’s parliament will “highly likely” ratify Finland’s NATO accession bid before it closes in mid-April.  Finland’s bid will be approved independently from that of Sweden.  Turkey has repeatedly said that Sweden needs to take additional steps against supporters of Kurdish militants and members of the network Ankara holds responsible for the 2016 coup attempt.

The U.S. and other NATO countries are hoping that Sweden can join Finland at a NATO summit due to be held in July in Vilnius, Lithuania.

--Ukrainian farmers, which have already started the 2023 spring sowing, have only around 35% of the herbicides and pesticides they need, analysts believe.  Ukraine is seriously short of finances, seeds and crop protection products, which could have a negative impact on crop yields this year.

The Ukrainian Agrarian Council said the 2022 grain harvest fell to around 54 million tons from a record 86 million in 2021, and the 2023 harvest is forecast to fall 37% to 34 million tons.

--In his Sunday address, President Zelensky said he had ordered the long-established Ukrainian Orthodox Church to leave its base in the 980-year-old Pechersk Lavra monastery complex, prompting Russian Orthodox Patriarch Kirill, Putin’s butt-boy, to ask Pope Francis and other religious leaders to help stop the crackdown.

“One more step towards strengthening our spiritual independence was taken this week,” Zelensky said.  “We will continue this movement. We will not allow the terrorist state any opportunity to manipulate the spiritual life of our people, to destroy Ukrainian shrines…or to steal values from them.”

UOC church officials say it and its millions of worshippers are victims of a witch-hunt.  The independent Orthodox Church, founded after the collapse of the Soviet Union in 1991, has been gaining in size and following since the invasion.

--The Mayor of Paris said it was unthinkable that Russian and Belarusian athletes should be allowed to take part in the 2024 Summer Olympics under their national flags, adding she would do everything she could to prevent it.

--Opinion….

John Bolton, former national security adviser and ambassador to the UN / Wall Street Journal

“Today, White House policy is essentially: We support Ukraine’s defending itself, but not enough to be too effective.  This formula for protracted, inconclusive war ignores risks to America as well as Ukraine.  Critical U.S. munitions supplies are being depleted, and our current capacity to restock is insufficient, mirroring concerns about replacing our aging nuclear-powered submarine fleet while also supplying Australia under the Aukus deal. Although it is better we experience these problems now, before America itself comes under fire, shortfalls in U.S. stockpiles buttress isolationists who don’t want to assist Ukraine in the first place.

“One thing is plain: fears of Russian escalation are unwarranted.  Our prewar intelligence vastly overestimated Russian combat-arms capabilities, and the passing months show those capabilities steadily diminishing. Where is the hidden Russian army that threatens NATO? If it exists, why isn’t it already deployed in Ukraine?  Mr. Putin’s nuclear saber-rattling also has deterred NATO, but for no good reason.  Moscow’s threats to date have been bluffs.  Only in the most extreme circumstances – total Russian battlefield collapse, or Mr. Putin’s own regime on the verge of ouster – would using nuclear weapons realistically be an option. Accordingly, we should focus on deterring Mr. Putin in those scenarios, including threatening his own demise, rather than let his bluffing deter us.

“The Biden administration may not intend it, but its doubt and hesitation both impeded the war effort and open the door politically to those who oppose U.S. aid entirely.  Hence the urgent need to state our war objectives clearly.  Failure to do so exposes Ukraine’s supporters to claims they are granting Kyiv a ‘blank check’ or that we are in another ‘endless war’ (after 13 months and no U.S. casualties).  While this is a domestic political problem, it also reflects national-security leadership failures. Mr. Biden needs to get his act together.”

In a new national Quinnipiac University poll of registered voters, when asked about President Biden’s handling of the response to Russia’s invasion of Ukraine: Only 45 percent approve, while 47 percent disapprove.

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Wall Street and the Economy

The Federal Reserve has been in its ‘quiet period’ ahead of next week’s critical Open Market Committee meeting and with one eye on the banking crisis, the Fed also had to look at the February inflation data.

Consumer prices came in largely as expected, up 0.4%, but 0.5% ex-food and energy, a tick above forecasts, while the year-over-year figures were in line, 6.0% and 5.5%, respectively, down from January’s 6.4% and 5.6% on core.  The 0.5% was however disturbing.

Producer prices were much better, both below expectations…minus 0.1% on headline, and unchanged ex-food and energy, with the year-over-year figures 4.6% and 4.4% on core, far below January’s 6.0% and 5.4%.

All in all, though, the above remains well above the Fed’s target of 2%, as emphasized by Chairman Jerome Powell in his recent remarks to Congress.

So the debate all week has been what the Fed will do next Wednesday and I maintain they will hike 25, not 50 basis points, nor will they ‘pause’ because of the global uncertainty in the financial system.

But these days, things can change in a nanosecond.

What we do know is that the issues in the banking sector will slow the economy, probably into a recession, as we are setting up for a credit crunch.  Banks will pull back on lending to shore up their finances, which will cool economic activity and also slow inflation.

Just two other economic figures of note.  February retail sales fell 0.4%, ex-autos -0.1%.  But this after January’s robust activity…3.0%. 

February housing starts were well above expectations at 1.45 million, but this was solely due to multi-family housing, of which there is an abundance (I have a 245-unit complex going up two blocks from me), not single-family homes.

The Atlanta Fed’s GDPNow barometer for the first quarter is at 3.2%.  Freddie Mac’s 30-year fixed-rate mortgage is 6.60%, down from last week’s 6.73%, as the yield on the 10-year Treasury has collapsed.

Europe and Asia

The European Central Bank raised interest rates by 50 basis points Thursday as promised to curb inflation, ignoring financial market chaos and calls by investors to dial back policy tightening at least until sentiment stabilizes.  The ECB has been raising rates at its fastest pace on record, but a rout in global markets since the collapse of Silicon Valley Bank had threatened to upend those plans at the last moment.

In line with its often-repeated guidance, the central bank for the 20 countries* that share the euro lifted its deposit rate to 3%, the highest level since late 2008, as inflation is seen overshooting its 2% target through 2025.

“Inflation is projected to remain too high for too long,” ECB President Christine Lagarde told a news conference, reading the official statement from the bank’s policymakers.  “The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area,” she said, while adding that the region’s banks had strong capital and liquidity positions.  The statement offered no commitments for the future, despite previous calls by a long list of policymakers for more big moves in the fight against inflation.

“We know that if our baseline were to persist when the uncertainty reduces, then we have a lot more ground to cover,” Lagarde said.  “But it’s a big caveat, ‘if our baseline was to persist’,” she added, noting that it was “currently impossible to determine the future path of interest rates amid ‘completely elevated’ uncertainty stemming from the market ructions.”

The ECB sees euro area inflation averaging 5.3% this year.

*The EA19 became the EA20 on Jan. 1, 2023, as Croatia adopted the euro. 

Eurostat then released a report on February inflation in the eurozone, down to 8.5% from 8.6% in January.

Germany 9.3%, France 7.3%, Italy 9.8%, Spain 6.0%, Netherlands 8.9%, Ireland 8.1%.

Inflation, ex-food and energy, continues to rise, 7.4%, which is up from 7.1% in January and 6.0% in September.

Lastly, January industrial production in the EA20 rose 0.7% compared with December, according to Eurostat, and up 0.9% year-over-year.

France: President Emmanuel Macron on Friday faced the gravest threat to his authority since the so-called Yellow Vest protests after his decision to push through a contested pension overhaul without a vote prompted violent unrest overnight and into today.  Cars were torched in Paris and other cities during otherwise peaceful demonstrations involving several thousand people.

Trade unions urged workers to step up and briefly blocked the Paris ring road on Friday.

“Something fundamental happened and that is that, immediately, spontaneous mobilizations took place throughout the country,” hard-left leader Jean-Luc Melenchon said.  “It goes without saying that I encourage them, I think that’s where it’s happening.”

The pension overhaul raises France’s retirement age by two years to 64, which the government says is essential to ensure the system does not go bust.

Unions, and most French, disagree.  More than eight out of 10 people are also unhappy with the government’s decision to skip a vote in parliament, and 65% want strikes and protest to continue, a Harris Interactive poll for RTL radio showed.

Opposition lawmakers said they would file motions of no-confidence in parliament later on Friday, but there was little chance this would go through.  Votes in parliament were likely to take place over the weekend or Monday.

Macron took a calculated risk, infuriating opposition lawmakers, many citizens and the unions, using a special power to see his key priority through, minutes before a scheduled vote in the National Assembly, where the legislation had no guarantee of securing majority support.

Germany: The Ifo economic institute said the German economy will be unable to escape a recession in 2023, but following two quarterly contractions in the winter it will start its recovery in spring.  First-quarter GDP will contract by 0.2%, after a 0.4% contraction in the fourth quarter compared with the previous three months.  The institute forecasts economic output in 2023 will remain roughly the same level as the year before, contracting by 0.1%.  In contrast, the German government expects growth of 0.2% this year, and another leading German economic institute, the IfW, raised its growth forecast on Wednesday to 0.5% from 0.3%.  Both Ifo and IfW see a recovery in 2024 of 1.7% and 1.4%, respectively.  The Ifo sees 2023 inflation of 6.2%, IfW sees consumer prices rising by 5.4%.

Turning to Asia…China reported key data for January and February combined, with industrial production up 2.4% year-over-year, retail sales up 3.5% Y/Y, and fixed asset investment up 5.5%.  The February unemployment rate was 5.6%.

All in all, not bad.

Separately, China is setting up a new financial watchdog run by the Communist Party, state media reported on Thursday, as part of a broad reorganization of governing bodies set to give the ruling party direct control and supervision over financial affairs and technology.

China also unexpectedly kept its central bank governor and finance minister at the rubber-stamp National People’s Congress last week.

Japan’s February exports rose 6.5% year-over-year, making two straight years of export gains, led by solid U.S.-bound shipments of cars, although expectations of a strong recovery in demand are quickly fading amid global monetary tightening and worries about banks worldwide.  Japan’s post-Covid recovery has been spotty.  Imports rose 8.3%.

January industrial production was down 3.1% Y/Y.

Meanwhile, top Japanese companies offered their largest pay increases in a quarter century at annual labor talks which wrapped up Wednesday, heeding, at least for now, Prime Minister Fumio Kishida’s calls for higher wages to counter rising living costs.

Worker pay has been one casualty of decades of stagnation in the world’s third-largest economy since the late 1990s, leaving Japanese salaries well behind the OECD average.  But now a weak yen and rising commodities prices have driven up import costs and pushed inflation to the highest in four decades, prompting Kishida’s calls for higher wages.

While there were no specifics from Japan’s biggest corporations, like Toyota and Hitachi, the pay hikes were said to be about 3%, which would be the highest since 1997.  But for those working for smaller companies, the outlook was not as good.

Street Bytes

--At the end of the tumultuous week, stocks finished mixed, with the Dow Jones falling 0.2% to 31861, while the S&P 500 advanced 1.4% and Nasdaq 4.4%, the latter a classic ‘interest rates down, buy tech trade.’  It had nothing to do with the fact tech’s fundamentals still suck.

But next week, all about the Fed and further bank turmoil.  And also, Xi and Putin.

--U.S. Treasury Yields

6-mo. 4.60%  2-yr. 3.84%  10-yr. 3.42%  30-yr. 3.62%

Turmoil in the banking sector on Monday sparked the biggest one-day rally in short-term U.S. government bonds since 1987.  The yield on the 2-year Treasury note topped 5% (5.07%) just last week, and then traded down to 3.98% on Monday. 

The yield on the 10-year settled at 3.51%, down from last Friday’s 3.68%, after hitting 3.40%.

By the end of the week, well, you see above, the 2-year is all the way down to 3.84%, and with the 10-year at 3.42%, the spread of 42 basis points is down from 107, intraday…again, just ten days earlier.

Across the pond, Germany’s 10-year yield had its biggest drop since 1987 today, 40 basis points, to 2.10%.  It stood at an 11-year high of 2.77% at the start of the month.

--Oil, as measured by West Texas Intermediate, fell to $66 (intraday) on Wednesday, the lowest for WTI since 2021, closing the week at $66.27.

The International Energy Agency reported Wednesday that oil has been accumulating in storage tanks as supply has been strong and demand has remained slack.  The banking sector’s troubles certainly lead to fears of a slowing global economy.

But “Global demand is set to surge by 3.2 million barrels a day from the first quarter to fourth quarter, taking average growth for the year to two million barrels,” the IEA said. “Matching that increase would be a challenge even if Russia were able to maintain production at prewar levels.”

For the full year, supply should come in at 101.6 million barrels a day and demand should rise to a record 102 million barrels, the IEA said.

OPEC left its forecast for global oil-demand growth this year steady as growing optimism about Chinese demand for crude was countered by concerns about the economic picture in the U.S. and Europe.

In its monthly market report, the oil producers’ group said it expected oil demand to grow by 2.3 million barrels a day this year to 101.90 million barrels a day, largely on par with its previous estimates.

OPEC lowered demand forecasts for the wealthier countries that make up the Organization for Economic Cooperation and Development, while raising its demand forecast for non-OECD countries, which include India and China.

OPEC also left its forecasts for economic growth unchanged.  The cartel expects global growth of 2.6% this year, with China’s economy growing 5.2%, while the eurozone and the U.S. economies will grow 0.8% and 1.2%, respectively.

--Saudi oil giant Aramco announced a record profit of $161.1 billion for 2022, helped by soaring energy prices and bigger volumes.  It represents a 46.5% rise for the state-owned company, compared with last year.

Exxon Mobil made $55.7 billion.  British-Dutch Shell reported profits of $39.9 billion.

Aramco also declared a dividend of $19.5 billion for the fourth quarter of 2022, most of which goes to the Saudi Arabian government, which owns nearly 95% of the shares in the company.

Aramco’s President and CEO Amin Nasser said: “Given that we anticipate oil and gas will remain essential for the foreseeable future, the risks of underinvestment in our industry are real – including contributing to higher energy prices.”

To address those challenges, he said, the company would not only focus on expanding oil, gas and chemicals production – but would also invest in new lower-carbon technologies.

Responding to Aramco’s announcement, Amnesty International’s Secretary General Agnes Callamard said: “It is shocking for a company to make a profit of more than $161bn in a single year through the sale of fossil fuel – the single largest driver of the climate crisis.”

--The Biden administration is approving a scaled-back version of ConocoPhillips’ $7 billion oil and gas drilling project in Alaska, according to an Interior Dept. document released on Monday.  The decision comes despite an aggressive eleventh-hour campaign from opponents who say the development for the three drill sites in northwestern Alaska conflicts with efforts to fight climate change.  The fate of the project has been watched closely by Alaska officials, the oil and gas industry and green groups as President Biden seeks to balance his goals of a green future with calls to increase domestic production of oil to keep prices low.

ConocoPhillips had sought to build up to five drill sites, with miles of roads, multiple bridges and pipelines. The Interior Department went with three sites, after saying it was concerned about the greenhouse gas impacts of Willow. The Bureau of Land Management last month recommended a “preferred alternative” that includes three drill sites and less surface infrastructure than originally proposed.  ConocoPhillips and Alaska elected officials endorsed that version of the project, which the agency has said would reduce the impact on habitats for species like polar bears and yellow-billed loons.

Editorial / Wall Street Journal

“Wonder of wonders, miracle of miracles, President Biden on Monday approved the Willow oil drilling project on Alaska’s North Slope.  The decision should have been easy after it passed every review known to the federal government.  The project is projected to yield as much as 180,000 barrels of oil a day and will provide much-needed domestic oil production.

“The White House leaked the decision late Friday, and the climate lobby erupted in anger and tried to change it.  Earthjustice said it ‘greenlights a carbon bomb,’ Al Gore piped up, and the climate left talked ominously about a presidential primary challenge.  To calm the hysterics, the Administration leaked over the weekend that it will also put much of the rest of Alaska off limits to any drilling, creating a ‘firewall’ against future production.

“Firewall?  The Willow project takes up 0.002% of Alaska’s National Petroleum Reserve and is expected to bring 2,500 new jobs in the state.  The plan has broad political support in Alaska, including the state’s indigenous leaders and Alaska’s bipartisan Congressional delegation.

“The Biden Administration remains hostile to nearly all domestic fossil-fuel production, and political realism says Willow is the exception that proves that rule.  The White House knows a primary challenge from the left is unlikely, and its bigger concern is the opening for a GOP challenger if there is a surge in oil prices after Mr. Biden has sat on all drilling in the U.S.

“Whatever the political calculation, the Willow decision is a great relief to Alaskans and an economic boon to America.”

--Two Saudi Arabian airlines are nearing a deal to buy a total of about 80 Boeing Co. 787 Dreamliners with options for some 40 more, another significant order for the aircraft manufacturer.

Riyadh Air, a new airline launched by the Saudi sovereign-wealth fund over the weekend, is expected to commit to purchasing 39 of the wide-body jets, while existing carrier Saudia is expected to buy the same number of jets.

The order is valued at about $35 billion.

Boeing said Tuesday it delivered 28 airplanes in February, compared with 38 delivered in January.

The company delivered 24 of its 737 MAX airplanes in Feb., down from 35 the previous month.

--United Airlines shares fell after the company said it expects to post a loss in the current quarter due to expenses tied to a potential agreement with its pilots union and weaker travelling trends to start this year.

United said in a securities filing that it expects an adjusted per-share loss of between $1 and 60 cents in the first quarter, compared with a previous projection for a profit between 50 cents and $1 a share.

--TSA checkpoint numbers vs. 2019

3/16…98 percent of 2019 levels
3/15…97
3/14…93
3/13…97
3/12…99
3/11…100
3/10…97
3/9…96

--Facebook-parent Meta Platforms said on Tuesday it would cut 10,000 jobs, just four months after it let go 11,000 employees, the first Big Tech company to announce a second round of mass layoffs.

“We expect to reduce our team size by around 10,000 people and to close around 5,000 additional open roles that we haven’t yet hired,” CEO Mark Zuckerberg said in a message to staff.

The layoffs are part of a wider restructuring at Meta that will see the company flatten its organizational structure, cancel lower priority projects and reduce its hiring rates as part of the move.

The move underscores Zuckerberg’s push to turn 2023 into the “Year of Efficiency” with promised cost cuts of $5 billion in expenses to between $89 billion and $95 billion.

The shares soared 6% Tuesday in response.

--Apple Inc. is delaying bonuses for some corporate divisions and expanding a cost-cutting effort, joining its Silicon Valley peers in trying to streamline operations during uncertain times.

The shift will reduce the frequency of bonuses for a portion of Apple’s corporate workforce.  The company is also limiting hiring for more jobs and leaving additional positions open when employees depart.

--FedEx Corp. fiscal third-quarter profit came in higher-than-expected despite continued demand weakness, while the company late Thursday raised its full-year profit outlook amid cost-cutting measures.

Adjusted per share earnings fell to $3.41 in the three months ended Feb. 28 from $4.59 a year earlier, but topped the Capital IQ consensus of $2.74. Revenue declined to $22.2 billion from $23.6 billion, trailing the Street’s $22.74bn view.

“Continued weakening demand, particularly at FedEx Express,” impacted the quarterly results, while global inflation eroded operating income, the company said.  FedEx Express’ operating results fell due to lower global volumes, partially offset by a 3% increase in revenue per package.

FedEx Ground’s results improved, led by an 11% increase in revenue per package and cost-cutting measures, though package volume declined.

The company forecasts adjusted EPS of $13.80 to $14.40 in fiscal 2023 before certain retirement plan adjustments, compared to the prior forecast of $12.50 to $13.50.

With the improved outlook, FedEx shares surged over 8%.

--Pfizer Inc. has agreed to pay $43 billion for biotech Seagen Inc.  Under the terms, Pfizer would pay $229 in cash, the drugmaker said Monday.  The companies expect the deal, which includes debt, to close late this year or early next year.

However, it is likely to face scrutiny from antitrust legislators, who have stepped up their reviews of healthcare and other deals.

The drugmakers need to inject new drugs – and their sales – into aging lineups, and price tags have dropped after some research failures and interest rates rose.

Seagen, based outside Seattle, helped pioneer a class of drugs known as antibody drug conjugates, or ADCs, that can home in on tumors to strike them with a toxic agent.

The drugs could become one of the next big segments of the $375 billion worldwide cancer-drugs market, accounting for $31 billion in sales in 2028, according to research firm Evaluate.

Pfizer is looking to offset an expected sales loss of $17 billion by 2030 as some top-selling drugs like blood thinner Eliquis and breast-cancer drug Ibrance lose patent protection in the next several years.

--Mint Mobile, partly owned by actor Ryan Reynolds, will be acquired as part of a cash and stock deal worth as much as $1.35 billion, Reynolds revealed Wednesday.

T-Mobile said it is acquiring Mint’s sales, marketing, digital and service operations.  Officially, T-Mobile is acquiring Ka’ena Corp., which gives it access to the budget wireless provider Mint, along with Ultra Mobile and wholesaler Plum.  The brands, which already use T-Mobile for their network, will run as a separate business unit.

“I never dreamt I’d own a wireless company and I certainly never dreamt I’d sell it to T-Mobile,” Reynolds said in a tweet.  “Life is strange and I’m incredibly proud and grateful.”

Reynolds owns a “significant” stake in Mint, according to Bloomberg.  Reynolds took in $610 million in the sale of his gin company in 2020.

T-Mobile CEO Mike Sievert said the company plans to give a boost to Mint’s already successful digital direct-to-consumer business.

--Bed Bath & Beyond isn’t paying severance to employees at stores across the U.S. that it recently said it will close, an awful indicator as the retailer tries to stabilize its floundering business.

--As you know, bitcoin never stops trading and so when I went to post last Friday it was about $19,800, down from a recent peak of $25,000.  Then came word Signature Bank, with deep ties to the cryptocurrency industry, collapsed over the weekend.  Earlier, another crypto-friendly bank, Silvergate Capital, announced it was closing.

So bitcoin rallied to $26,000 in response.  Yes, nonsensical.  Of course we were told this was an appropriate response given the chaos in the markets.

But with the shutdown of Signature, New York City lost one of its most dependable sources of funding for real estate deals.

Signature held about $33 billion in outstanding mortgage loans at the end of last year, the majority of which were backed by buildings in New York.

Some of us have gotten a kick out of the fact that a co-author of the Dodd-Frank Act that was supposed to keep the banking system safe, former representative Barney Frank, was a member of the board at Signature.

--I was reading a piece by Brianna Sacks in the Washington Post on how insurers have slashed Hurricane Ian payouts far below damage estimates, and it’s sickening.

For example, one insurance adjuster did his job appropriately, examining a home near Fort Myers, Fla., and concluded it would cost $200,000 to repair the damage.  The licensed adjuster (whose name I will omit for my purposes) calculated his estimate for Heritage Property & Casualty Insurance Co.

But when the adjuster “checked in on his report about 10 days later, his stomach dropped, he said.  It had been drastically whittled down, with entire portions…removed.”  The homeowners were slated to receive a total of $27,000.  “The changes were made without (the adjuster’s) knowledge or consent, he said, but his name was still on the final report, according to documents seen by The Washington Post.”

“In one claim reviewed by The Post, a nearly $500,000 damage estimate on a house with a mostly tarped roof was reduced to about $13,000.”

There are tons of cases like this. 

--Buffalo Wild Wings was sued by a Chicago man because their ‘wings’ are breast meat.

As reported by Amanda Lee Myers in USA TODAY: “Aimen Halim of Chicago filed the lawsuit (last) Friday, saying he went into the Buffalo Wild Wings location in Mount Prospect, Illinois back in January and ordered ‘boneless wings.’

“ ‘Unbeknownst to plaintiff and other consumers, the products are not wings at all, but instead, slices of chicken breast meat deep-fried like wings,’ the lawsuit reads.  ‘Indeed, the products are more akin, in composition, to a chicken nugget rather than a chicken wing.’

“ ‘This clear-cut case of false advertising should not be permitted…’ according to the lawsuit.”

Now discuss amongst yourselves.

--ABC’s telecast of the 95th Academy Awards on Sunday averaged 18.7 million viewers, according to Nielsen data, up 12% from the previous year.  It was the largest audience for an Oscars telecast since 2020, when the event drew 23.6 million viewers.

I was happy to see HBO/CNN’s “Navalny” win for best documentary.  I’ve watched it three times.

Foreign Affairs, Part II

China: In comments to the National People’s Congress, President Xi pledged his support for the economic growth of Hong Kong, emphasized its long-term prosperity and stability were “inseparable” from the creation of a strong country, and vowing to “firmly advance” the “one country, two systems” governing principle.

Xi also called for the city to integrate into China’s overall development as he delivered his keynote speech at the closing ceremony of the annual “two sessions” in Beijing on Monday.

Xi then mentioned Taiwan and emphasized the need to stick to the party’s “holistic strategy in the new era” to settle the future of the self-ruled island, which Beijing regards as a renegade province.

“We resolutely oppose interference by external forces and separatist activities for ‘Taiwan independence’ and unswervingly advance the process of reunification of the motherland,” he said.

China’s new premier Li Qiang gave his first press conference and he singled out the destructive economic effects of a decoupling from the United States.  He also took only one question on foreign affairs.  His predecessor, Li Keqiang, usually took multiple foreign policy questions from a range of international media during his two terms in office.

Li, who is now China’s second most powerful leader, pointed out that “encirclement” and “suppression” will not benefit the U.S. or China.

Responding to the question on the development of U.S.-China relations amid geopolitical tensions, Li said some people in the U.S. had been “hyping the ‘decoupling’ of the two countries.”

Li said U.S.-China economic relations remain strong, with a record trade volume of $760 billion last year.  “China and the U.S. can and should cooperate.  There is great potential for China-U.S. cooperation. Containing and suppressing will do no one any good.”

Li, by the way, received 2,936 votes in favor of him becoming premier, with three votes against and eight abstentions.

Taiwan suffered a blow when Honduras said it would seek official relations with China and cut them with Taiwan, a decision Honduras’ foreign minister said was about “pragmatism, not ideology.”

China does not allow countries to hold diplomatic ties with itself and Taiwan.  Honduras owes Taiwan some $600 million.  It said it intends to keep trade ties with the island.  The foreign ministry said it “needs investment, cooperation, and Honduras needs to be aggressive.”

North Korea: Pyongyang said that Thursday’s launch of an intercontinental ballistic missile was its largest Hwasong-17 ICBM test, fired during a drill to demonstrate a “tough response posture” to ongoing U.S.-South Korea military drills, state media reported.  Photos released on Friday showed Kim Jong Un watching the launch with his daughter, and included pictures from space apparently shot by a camera mounted on the missile.

North Korea fired the ICBM into the sea between the Korean peninsula and Japan on Thursday, hours before South Korea’s president flew to Tokyo for a summit that discussed ways to counter the nuclear-armed North.

“The launching drill of the strategic weapon serves as an occasion to give a stronger warning to the enemies intentionally escalating the tension in the Korean peninsula, while persistently resorting to irresponsible and reckless military threats,” state news agency KCNA said.

South Korean and American forces began 11 days of joint drills on Monday.  Kim accused the U.S. and South Korea of increasing tensions with the drills.

China, which has a defense pact with North Korea, also blamed the United States for the current tensions, saying they are caused by Washington’s efforts to increase pressure on Pyongyang.

The Hwasong-17 is North Korea’s biggest missile yet and is believed to have the range to potentially deliver a nuclear warhead to targets anywhere in the U.S.  It was launched from Pyongyang’s airport and flew to a maximum altitude of 6,045 km (3,756 miles) and a distance of 1,000 km (621 miles) for nearly 70 minutes, according to KCNA, as well as South Korea and Japan.  Japan caught a rare site of the missile breaking up on reentry as it fell into the open sea.

The North has fired missiles, including from a submarine, four times over the past week in response to the ongoing joint U.S.-South Korean drills.

As for Japan and South Korea holding talks, the leaders promised to turn the page on years of animosity at a meeting on Thursday, putting aside their difficult, shared history and pledging to work together to counter regional security challenges.

The summit between South Korea’s Yoon Suk Yeol and Japan’s Fumio Kishida in Tokyo – the first visit to Japan by a South Korean president in 12 years – highlights how the two U.S. allies have been brought together by North Korea’s frequent missile launches and growing concern over China’s more muscular role on the international stage.

But Yoon faces skepticism at home.  In a poll by Gallup Korea published Friday, 64% of respondents said there was no need to rush to improve ties with Japan if there was no change in its attitude, and 85% said they thought the current Japanese government was not apologetic about Japan’s colonial history.  Nevertheless, economic ties are strong.  The two were each other’s fourth-largest export markets in 2021, according to the IMF.

Israel: I used the term ‘civil war’ months ago to describe the potential state of affairs here, as protests grow over Prime Minister Netanyahu’s plan to overhaul the country’s judicial system, and this week, President Isaac Herzog said he never thought he would use such a term himself, but he did.

Despite days of demonstrations, the far-right government appeared determined to move forward with legislation that would upend Israel’s legal system by handing Netanyahu’s government full control over the country’s judiciary, with the sovereignty of the Supreme Court also at stake.

Netanyahu snubbed a proposal by Herzog that was widely supported as a viable alternative to the controversial shakeup.

“As the president warned yesterday, we are one step away from civil war,” protest organizers said in a statement Wednesday.  “The one stirring up passions is Benjamin Netanyahu – he is responsible.”

Debate on Netanyahu’s proposal continues in the national assembly.

“This is the moment of truth for Israelis to go out and save Israeli democracy,” organizers said Wednesday.

“We are in a state of national emergency.  The Israeli government is pushing the economy with all its might into a recession and ignoring the warnings that keep coming. …Together we will stop the madness and fight for democracy, our country and our home.”

Under Netanyahu’s plan, the Supreme Court would lose its ability to overturn laws passed by the Israeli parliament and allow for high court decisions to be overturned by a simple majority in the national assembly.

Politicians would also be given more authority to appoint judges as the legislation provides for Netanyahu’s coalition to receive five of the high court’s nine members, with only a simple majority needed to appoint judges to every court in Israel.

The administration has also called for government lawyers to be classified as political appointees, which would strip the attorney general’s oversight authority.

Look for another day of massive protests tomorrow, Saturday.  Last Saturday, 200,000 turned up in Tel Aviv, 500,000 across the country.

The military and police are beginning to take sides, in case you’re wondering what a civil war in Israel would look like.  It would be awful and incredibly destabilizing for the region.

Iran: Meanwhile, the Saudi-Iran deal announced recently is a dangerous development that strips Israel of its regional defensive wall against Iran, former prime minister Yair Lapid said last weekend.

“The agreement between Saudi Arabia and Iran reflects the complete and dangerous failure of the Israeli government’s foreign policy,” Lapid said as he used the moment to attack Netanyahu.

Netanyahu had said one of his new government’s chief policy initiatives was to normalize ties with Saudi Arabia.

Former prime minister Naftali Bennett: “Countries in the world and the region are watching Israeli in turmoil over the dysfunctional government that is engaged in systematic self-destruction.

“This is what happens when one deals with legal insanity all day instead of doing one’s job against Iran and strengthening relations with the United States,” he added.

Bennett called news of the renewed Iran-Saudi alliance a “serious and dangerous development for Israel” and a “political victory for Iran.”

“This delivers a fatal blow to efforts to build a regional coalition against Iran,” said Bennett.

Random Musings

--Presidential approval ratings….

Gallup: 42% approve of Biden’s job performance, 54% disapprove; 40% of independents approve (Feb. 1-23).

Rasmussen: 46% approve, 53% disapprove (Mar. 17).

A new national Quinnipiac poll has President Biden with a slight lead over Donald Trump, 49-45, among all registered voters. When Biden is matched with Ron DeSantis, Biden receives 47 percent to DeSantis’ 46 percent.

Among Republican and Republican leaning voters, Trump leads DeSantis 46-32 percent in a multi-candidate field, Nikki Haley at 5 percent.

In a February Quinnipiac poll, Trump led DeSantis 42-36 percent.

President Biden only has a 37 percent approval rating in this survey, 55% disapproving.

In a CNN poll of Republicans and Republican-leaning independents conducted by SSRS, just 30% say the country’s best days are still ahead of it – a dramatic shift from 2019, when Trump held the White House and 77% were optimistic that the best was ahead.

Most Republicans and Republican-leaning independents (61%) say that the country’s increasing racial, ethnic and national diversity is enriching American culture, but a sizable and growing share see it as a threat.  The 38% who consider those changes a threat now is about twice as high as four years ago, and similar to where the party stood in 2016.

Looking ahead to the looming primary campaign, the survey finds that among these same two groups, they would choose a candidate who agrees with their views on major issues (59%) over one who has a strong chance to beat Biden (41%).  A broad majority see it as essential that the party’s nominee demonstrate the sharpness and stamina to serve effectively in office (87%), while smaller majorities say it is essential for the nominee to pledge to maintain Social Security and Medicare as they are (59%), represent the future of the party (57%), support government action to oppose “woke” values (54%) and attract support from outside the party (54%).

Asked to name the issue they consider most important in determining who they might support for the nomination, 32% in the potential GOP electorate mention the economy, 16% immigration, and 13% cite specific qualities they’d like to see in a candidate.  Fewer name foreign policy (9%), government’s size or spending (7%), or issues related to values, morals and rights (7%).

When the Republicans are asked to choose who they would most likely support from a list of potential candidates, 40% say they would likely back Trump and 36% Ron DeSantis.  No other candidate reaches double digits.  Mike Pence and Nikki Haley are at 6% each. 

--Speaking of former vice president Pence, at Saturday night’s Gridiron Dinner in D.C., Pence blasted Trump for Jan. 6 and said that “history will hold Donald Trump accountable.”

In his speech, Pence said, “President Trump was wrong.  I had no right to overturn the election. I know history will hold Donald Trump accountable.”

“Make no mistake about it, what happened that day was a disgrace,” Pence added.  “And it mocks decency to portray it any other way.”

In an interview with Yahoo News, Pence did not hesitate when asked about Trump’s promise to supporters at CPAC earlier this month, when he told them, “I am your retribution.”

“I don’t think that language belongs in the American political lexicon. I don’t,” Pence said.  “Look, we’ve got some major issues facing this country, but in the next election, I think the American people are going to be looking for problem solvers, not payback.”

Pence also rebutted Tucker Carlson’s claim that Trump supporters who stormed the Capitol on Jan, 6 were not insurrectionists, telling Yahoo News that while he still wants to know more about why there was a “breakdown in preparation,” he will “never, ever diminish the violence that occurred that day, the heroism of law enforcement, or the threat to our democracy because it was real and the American people know it.”

--Editorial / Wall Street Journal

“Ron DeSantis is sketching out a presidential campaign based on his manifest governing success in Florida and as a fearless fighter for principle who ignores the polls.  Then how to explain his puzzling surrender this week to the Trumpian temptation of American retreat?

“That’s not too strong a way to describe his decision to call the war in Ukraine a ‘territorial dispute’ that isn’t a vital U.S. interest.  He told Fox News that giving the Ukrainians long-range weapons and fighter jets ought to be ‘off the table,’ invoking the prospect of nuclear war with Russia.  And he called for ‘peace,’ albeit without explaining how to avoid making it a peace of the grave for Ukrainians if the West withdraws its support while Vladimir Putin advances.

“The argument goes that Mr. DeSantis is reading the political mood: About 40% of Republicans say the U.S. is providing ‘too much’ support for Ukraine, up from about 9% in March last year.  Yet some of this is a function of polarized U.S. politics.  Many Republicans oppose helping because Mr. Biden is doing it, and the mirror image is Democrats from the antiwar left putting Ukrainian flag stickers on their electric cars….

“Mr. DeSantis has a point that Mr. Biden doesn’t have ‘defined objectives’ in Ukraine – other than giving it enough arms to resist but not enough to drive Russia out of the country. This is a recipe for extended conflict. The Governor also rightly warns about the threat from China and dwindling U.S. weapons arsenals.

“But he may regret describing the war in Ukraine as a mere ‘territorial dispute.’ This is flirting with GOP isolationism that has emerged from time to time in history and has usually been an electoral cul-de-sac.  The party’s isolationism in the 1930s consigned it to decades in the wilderness, and that naivete was on national display when Japan attacked Pearl Harbor. The electoral stigma wasn’t removed until Dwight Eisenhower, the victor of D-Day, rescued the GOP from Republican Robert Taft’s unwillingness to support the North Atlantic Treaty Organization.

“The modern GOP model is Ronald Reagan, who combined principle with practicality and sold his policy to the public through persuasion. He paired a rapid expansion of U.S. military power with diplomatic efforts to end the Cold War.  He saw the struggle against the Soviet Union as moral, but he didn’t hesitate to arm enemies of communism, even unpalatable ones.  Aiding Ukraine now is in that Reagan Doctrine tradition.

“Reagan also didn’t indulge a false choice between influencing world affairs and managing economic and social problems at home.  He saw a roaring economy and cultural cohesion as essential elements of national power.  Reagan hated nuclear weapons and wanted to protect against their use. But he didn’t let Soviet threats dictate U.S. actions, as the populist U.S. right is doing now with Mr. Putin….

“The politics of Ukraine may also shift as facts on the battlefield do.  If Ukraine manages a victory even as Republicans call for retreat, the GOP will have surrendered one of its core selling points as the party voters trust on national security. It would then be all the harder to marshal support and resources for a stronger U.S. military deterrent against China.

“And what if Russia swallows all or most of Ukraine?  Mr. Putin will then set up shop closer to the Polish border and be even stronger as a malign force in Europe. The U.S. will be drawn deeper into the continent’s problems, not free to focus on the threat posed by China, which in any event will conclude that the U.S. is weaker.  Is that the world President DeSantis wants to inherit on Jan. 20, 2025?

“Reagan is declasse to some on the right, but China and Russia and Iran are combining forces to threaten the U.S. in a way not seen since the 1980s. Still relevant is Reagan’s 1983 warning, in his ‘evil empire’ speech: ‘Beware the temptation of pride,’ the impulse to ‘blithely’ declare ‘yourselves above it all,’ to ‘ignore the facts of history’ and label the contest ‘a giant misunderstanding’ and ‘thereby remove yourself from the struggle between right and wrong.’

“The Gipper’s ‘peace through strength’ remains the benchmark for Republican success in world affairs.  Let’s hope there’s still a lane for that kind of candidate in the GOP primary field, or the country and world are in more trouble than we have imagined.”

--House Oversight Committee Chairman James Comer believes that more than half a dozen members of the Biden clan may have been involved in various worldwide business schemes that profited off their family name.

Comer, whose committee is investigating the Biden family’s business dealings, shared the insight in a Wednesday night interview with Fox News host Laura Ingraham.

“At the end of this I think we’re gonna see there are probably six or seven Biden family members that were involved in various business schemes around the world,” Comer said.  He didn’t mention any names.

Comer first revealed on Monday that bank records obtained via subpoena implicate three Bidens, including one that’s “never before been identified” as being involved in the family’s alleged influence-peddling operation.

--Last Aug. 6, 2022, I wrote in this space:

“Near-record amounts of seaweed are smothering Caribbean coasts from Puerto Rico to Barbados, killing fish and other wildlife, choking tourism and releasing stinky, noxious gases.

“More than 24 million tons of sargassum blanketed the Atlantic in June, shattering the all-time record, set in 2018, by 20%, according to the University of South Florida’s Optical oceanography Lab.”

And so this week we had the report: “A giant blob of seaweed, spanning 5,000 miles and weighing an estimated 6.1 million tons, threatens to blanket Florida beaches and Caribbean islands with smelly piles of decaying brown goop… Scientists expect Miami Beach to become a hot spot later in the sargassum season, which runs from March through October.”

Yup, it’s coming.  Sometime in the summer.

--New York City cops are resigning at a record-breaking pace this year as the NYPD’s alarming exodus continues, according to data obtained by the New York Post.

A shocking 239 resigned in January and February, a 36% spike from the 176 who fled in the same period last year, NYPD pension data show.  That’s the highest number of resignations for the first two months of a year since 250 members quit in 2007 during a contentious contract dispute.

At the current rate, 1,400 cops are projected to resign this year before qualifying for retirement – even more than last year’s record 1,297 early exits.

One Manhattan cop told the Post, “The NYPD needs to be rebuilt from the ground up – it’s unfixable in its current state,” adding the department simply “doesn’t know how to manage personnel.

“Hundreds of cops are being hidden under fake assignments or assigned to headquarters sitting at a desk all day and are considered ‘untouchable’ for patrol or enforcement duty because they have high-ranking supervisors protecting them,” he seethed.

--On the weather front, since California’s water year began on Oct. 1, the 11+ atmospheric rivers that have hit the state have parts of it from the Bay Area south and northeastward into the Sierra Nevada having received 150% to 200% or more of normal precipitation.  And the above-normal precipitation continues along the Southern California region to the Mexican border.

In looking at the snowpack in the high Sierra, as of Wednesday, the average snow water equivalent – a measure of water available in the snow – is 56 inches, which is 223% of normal for this date.  And more rain/snow is forecast into next week, and through the end of the month.

Many of the reservoirs in the state have reached capacity, forcing officials to release water, often leading to evacuation orders.  [The plight of the Colorado River, from which Southern California receives about a quarter of its water, remains a different story.]

On the snow front, Mammoth Mountain had recorded 672 inches of snow at the summit, as of early in the week, and 528 inches at the main lodge of its resort complex.  Officials there expect another 100 inches through the middle of next week, which would near the all-time record of 668 inches at the lodge.

Sadly, at least 20 people have died in California as a result of the storms.

--Lastly, the European Space Agency reckons that there are more than 1 million pieces of space junk at least 1 cm (roughly ½ an inch) across orbiting the planet.  That number will soar in the years to come, given that 58,000 new satellites could be launched by 2030, according to European and American officials.

So there is a movement afoot among scientists from Britain and the U.S. to establish a regulatory body to deal with the debris, but fat chance anything will come of this.  Satellite-makers have no incentive to clean up after themselves. 

But the more debris in the atmosphere, the more dangerous and difficult launching new satellites becomes.

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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 $1987…soared $115 on global uncertainty
Oil $66.27…down $10

Regular Gas: $3.45; Diesel: $4.31 [$4.28 / $5.08 yr. ago]

Returns for the week 3/13-3/17

Dow Jones  -0.2%  [31861]
S&P 500  +1.4%  [3916]
S&P MidCap  -3.2%
Russell 2000  -2.6%
Nasdaq  +4.4%  [11630]

Returns for the period 1/1/23-3/17/23

Dow Jones  -3.9%
S&P 500  +2.0%
S&P MidCap  -2.3%
Russell 2000  -2.0%
Nasdaq  +11.1%

Bulls 40.3
Bears 27.8

Hang in there.

Brian Trumbore

 

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