Week in Review

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Week in Review

03/25/2023

For the week 3/20-3/24

[Posted 6:00 PM ET, Friday]

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Edition 1,249

As expected, it was a crazy week, market volatility continuing, helped in no small part by mixed messages from Fed Chair Jerome Powell and Treasury Secretary Janet Yellen.

Actually, Powell was solid.  It was the treasury secretary who was kind of a mess in various settings.  All about implicit and explicit, if any, guarantees on one’s savings.  The Fed doesn’t have the authority to issue a blanket assurance all deposits are safe, but both it and Treasury have tools and it’s going to depend on the individual case…that is, until Congress chooses to act.

[In a late press conference in Ottawa today, President Biden weighed in on the issue of deposit insurance and I don’t have time to analyze it.  But at first blush, it seemed, that like Yellen, he went too far in his statement.]

And over in Moscow, Presidents Xi and Putin held two days of talks and lavish dinners, but as discussed below, Putin gained little…at least for now.

The Middle East is also flaring up. 

And tomorrow, Donald Trump will be in Waco.  Perfect optics for him and his hard-core followers. Kind of scary for the rest of us.  I might have to break away from the March Madness action for a spell, if I remember when he’s speaking.

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The bank crisis continued last weekend, all eyes on the U.S. regional banks and in Switzerland, the fate of Credit Suisse, the 166-year-old institution.

After the stage-managed sale to UBS, its riskiest notes were completely wiped out at the behest of the Swiss regulator, even as shareholders got $3.3 billion.  That’s sparking outrage among creditors who scooped up the securities, known as Additional Tier 1 notes, on the expectation that they stood ahead of equity holders in any blow-up.

I have more on this below, but the emergency-brokered deal is proving to be a disaster for investors in Credit Suisse securities that were introduced after the global financial crisis as a way to impose losses on creditors in a crisis without recourse to the public purse.  But now some are looking to broker trades between AT1 holders and distressed funds willing to endure years of litigation for a potentially lucrative payout.

Bloomberg noted the AT1 bonds were trading at nearly 78% of face value earlier this month.  Not any longer.

It seems the prospectus allowed for the eventuality…equity holders over these bondholders.  That’s not what I learned when working on the Street.  More below.

Editorial / Wall Street Journal

“So much for 13 years of banking regulation.  Swiss authorities on Sunday organized the shotgun wedding of UBS and Credit Suisse to avert a failure of the latter – exactly the panicky too-big-to-fail rescue we were told new rules post-2008 would prevent….

“Yet what Swiss and other regulators have done is far different from what they promised voters and taxpayers after 2008.  Authorities appear to a have browbeaten UBS into offering three billion Swiss francs in an all-shares deal to buy Credit Suisse – up from an initial offer reported to have been about a billion francs.  That’s less than half of Credit Suisse’s market value as of Friday.  Swiss taxpayers will be on the hook to guarantee nine billion francs of UBS’s potential losses on ‘difficult-to-assess assets.’  The Swiss central bank will offer 100 billion francs in liquidity assistance.

“In the biggest insult to the market, regulators will allow this deal to proceed without a vote of either bank’s shareholders.  Credit Suisse’s owners faced losing all their equity in a bankruptcy, but they’re still entitled to ask whether the deal fairly values their stakes if the bank can survive in some form.

“As for UBS shareholders, they’re now being punished for the discipline they imposed over the years to turn UBS into a healthy bank by being saddled with managing a failed rival.  They also face more regulatory scrutiny and compliance costs now that their bank has grown far bigger.  Congrats….

“This weekend’s rescue is a warning that two weeks into the current banking panic the post-2008 rule book already has failed. Taxpayers are on notice that the solution to any crisis will be to amplify too-big-to-fail rather than reducing it – as it was the last time around.  Hang onto your wallets.”

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Chinese President Xi Jinping met with Russian President Vladimir Putin in Moscow for two days of talks.  The pair discussed growing trade, energy and political ties between the two nations, though, critically, Putin did not gain a commitment from Xi to buy a lot more gas, and there were few specifics on other areas of economic cooperation.

As for the war, in an article in Rossiiskaya Gazeta, a daily published by the Russian government, Xi wrote ahead of the trip that a peaceful resolution to the situation in Ukraine would “ensure the stability of global production and supply chains.”  He called for a “rational way” out of the crisis, which would be “found if everyone is guided by the concept of common, comprehensive, joint and sustainable security, and continued dialogue and consultations in an equal, prudent and pragmatic manner.”

Xi said that his trip to Russia is aimed at strengthening the friendship between the two countries, “an all-encompassing partnership and strategic interaction,” in a world threatened by “acts of hegemony, despotism and bullying.”

“There is no universal model of government and there is no world order where the decisive word belongs to a single country,” Xi wrote.  “Global solidarity and peace without splits and upheavals is in the common interest of all mankind.”

“China is the leading foreign trade partner of Russia,” Putin said, pledging to keep up and surpass the “high level” of trade achieved last year.

In a joint statement after their second days of talks on Tuesday, the two said they had ushered in a “new era” of bilateral ties while calling for an expansion of cooperation in various fields.

That includes boosting efforts to work with multilateral frameworks involving India, Mongolia and the 10-menber Association of Southeast Asian Nations (Asean).

China and Russia will promote the development of the ambitious Belt and Road initiative, a flagship policy unveiled by Xi a decade ago to boost trade and connectivity.

The two leaders also aired concerns over the increasingly tense situation on the Korean peninsula, urging the parties to “maintain calm and restraint,” calling on the U.S. to take “concrete actions” to respond to North Korea’s concerns and to facilitate the resumption of dialogue.

“We believe that sanctions and pressure are neither desirable nor feasible, and that dialogue and consultation are the only way to resolve the peninsula issue.”

In their statement, Xi and Putin also called on the United States to stop “undermining global strategic security” and to cease developing a global missile defense system. [We pause here for laughter from the West.]

But Xi reportedly “offered a more reserved vision for Russian-Chinese relations than what Putin was likely seeking,” according to an analysis from the Institute for the Study of War.  What’s more, “Xi’s rhetoric suggests that he is not inclined to fully give Russia the economic and political support that Russia needs to reverse setbacks in Ukraine,” the ISW said.

The ISW predicts China will “likely offer a more concrete proposal for a negotiated settlement to the war in Ukraine, although it remains unclear what this proposal will entail and how receptive the Kremlin will be to it.”  However, “The prospects of China supplying Russia with military equipment also remain unclear,” ISW writes.

More broadly speaking, Xi’s visit to Russia, just after cementing his precedent-breaking third term in power, brings together two men who have positioned themselves as leaders for life – and it sets the scene for global confrontation, with Beijing viewing its partnership with Moscow as useful in countering Washington, even if it means granting tacit approval for the destabilizing war in Ukraine.

“The grim outlook in China is that we are entering this era of confrontation with the U.S., the gloves are off, and Russia is an asset and a partner in this struggle,” said Alexander Gabuev, an analyst with the Carnegie Endowment for International Peace.

Which leads to the three nuclear powers squaring off in World War III, or just the opening chords of Cold War 2.0.

Xi’s visit does show sides being taken…China, Russia and Iran vs. the United States, Britain and other NATO allies, and you can include Japan, South Korea and Australia.

Throughout, the two referred to each other as “dear friend.”

Xi departed telling Putin: “Now there are changes that haven’t happened in 100 years. When we are together, we drive these changes.”

“I agree,” Putin said, to which Xi responded: “Take care of yourself, dear friend, please.”

But the public remarks were notably short of specifics, and during the visit, Xi had little of substance to say about the Ukraine war, beyond that China’s position was “impartial.”

Putin accepted an invitation from Xi to visit China this year.

Meanwhile, Secretary of State Antony Blinken told lawmakers on Wednesday that China was “very carefully” watching how Washington and the world respond to Russia’s invasion of Ukraine, the impact of which he said was being felt in Asia.

Speaking after Xi departed Moscow, Blinken said if Russia was allowed to attack its neighbor with impunity, it would “open a Pandora’s box” for would-be aggressors and lead to a “world of conflict.”

“The stakes in Ukraine go well beyond Ukraine… I think it has a profound impact in Asia, for example,” Blinken said, noting that Japan and South Korea have been major supporters of Ukraine in the conflict.

Russia’s invasion has led to debates over how the war will affect China’s military thinking regarding Taiwan.

“I think if China’s looking at this, and they are looking at it carefully, they will draw lessons for how the world comes together, or doesn’t, to stand up to this aggression,” Blinken said at a Senate Appropriations subcommittee hearing.

Blinken added he had not yet seen evidence that Beijing is providing Moscow with lethal aid for the conflict.

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This Week in Ukraine….

--Putin said China’s peace plan for Ukraine could be used as a basis to end the war.  But he said the plan could be put forward only when they are ready “in the West and Kyiv.”

China’s plan, published last month, does not explicitly call for Russia to leave Ukraine.  The 12 points call for peace talks and respect for national sovereignty, without specific proposals.  It’s a joke.

Ukraine has insisted on Russia withdrawing from its territory as a condition for any talks – and obviously Putin is not prepared to do that. Instead, he wants to press on.

In a joint news conference after talks with Xi ended, Putin said: “Many provisions of the Chinese peace plan can be taken as the basis for settling of the conflict in Ukraine, whenever the West and Kyiv are ready for it.”

But Russia had yet to see such “readiness” from the other side, he added.

Standing alongside the Russian leader, Xi said his government was in favor of peace and dialogue and that China was on the “right side of history.”

He again claimed that China had an “impartial position” on the conflict in Ukraine, seeking to cast Beijing as the potential peace-maker.

On Monday, Secretary of State Antony Blinken said that calling for a ceasefire before Russia withdrew “would effectively be supporting the ratification of Russian conquest.”

--On the war front, Wagner Group boss Yevgeniy Prigozhin told Russian Defense Minister Sergei Shoigu in a letter that the Ukrainian army was planning an offensive aimed at cutting off his forces from the main body of Russian troops in eastern Ukraine.  Prigozhin’s letter, published by his press service, said the offensive was planned for late March or the start of April.  He asked Shoigu to take all measures to prevent that from happening, which he said could lead to “negative consequences” for Russia’s military effort in Ukraine.

Prigozhin also said he plans to recruit approximately 30,000 new fighters by the middle of May.  In an audio message on Telegram, he said he had opened 42 recruitment centers in Russian cities, and they were hiring an average 500-800 people a day.

--After visiting Crimea during the day last Saturday, President Putin made a surprise visit to the scene of the crime, visiting the Russian-occupied Ukrainian city of Mariupol Saturday night, where some of the worst devastation of his year-old invasion took place.  State television showed extended footage of Putin being shown around the city, meeting rehoused residents and being briefed on reconstruction efforts.

The port city of Mariupol became known around the world as a byword for death and destruction as much of it was reduced to ruins in the first months of the war, eventually falling to Russian forces in May.  Hundreds were killed in the bombing of a theatre where families with children were sheltering.

Putin’s visit had an air of defiance after the International Criminal Court issued a warrant for his arrest on Friday, accusing him of the war crime of deporting hundreds of children from Ukraine.

The visit to Mariupol was the first that Putin has made to the Russian-occupied parts of Ukraine’s Donbas region since the war started, and the closest he has come to the front lines.

But the visit, unlike President Zelensky’s many trips to the front to boost morale, took place in darkness.  State TV showed him at the wheel of a car, driving through the city in the company of Deputy Prime Minister Marat Khusnullin.

The New York Post editorialized:

“The thugocrat is going to keep everything he’s taken so far, went the message (of the visit); you’ll have to make Kyiv accept that if you want the killing and destruction to stop.

“Yet Ukraine remains defiant: ‘The criminal always returns to the crime scene,’ an aide to President Zelensky wrote on Twitter.

“The West should answer by upping its support for the invaded nation, not that it doesn’t already have ample reason to do so.

“A rapist and murderer just did a victory dance on the corpses of his victims. Everyone hemming and hawing about helping to fight this horror needs to take that as a wakeup call.”

--Wednesday, the Moscow-backed authorities in annexed Crimea said an attack by three waterborne drones on the Black Sea Fleet in the Bay of Sevastopol had been repelled with no damage to the fleet.

Monday, explosions in another part of Crimea were said by Ukraine to have destroyed Russian missiles being transported by rail. Kyiv’s Defense Ministry said a train car of Russia cruise missies allegedly exploded in transit.

Also Wednesday, Russian forces attacked several Ukrainian cities, killing at least three people in a drone strike on a residential area of Kyiv region.

President Zelensky said Russia had launched more than 20 “killer drones,” as well as missiles and shells (50 overall).  The Ukrainian military said it knocked out 16 of 21 Iranian-made Shahed drone fired by Russia.

Referring to President Xi’s departure from Russia hours earlier, Zelensky wrote on Twitter: “Every time someone tries to hear the word ‘peace’ in Moscow, another order is given there for such criminal strikes.” 

But the death toll later increased to at least nine, eight of the victims when two dormitories and a college were hit in Rzhyshchiv (40 miles south of Kyiv).  Hours later, two residential buildings were damaged in a missile strike on the southeastern city of Zaporizhzhia.  One was killed there and 33 taken to hospital, officials said.

Zelensky described the attack on Zaporizhzhia as an act of “bestial savagery.”  In his Wednesday evening address, he said: “It is distressing to look at the cities of Donbas, to which Russia has brought terrible suffering and ruin.  Russia will lose this war,” and promised, “We will do everything so that the blue and yellow colors continue their liberation movement – returning normal life to our entire land, from Donetsk to the border.”

--Speaking during a Senate Armed Services Committee hearing Wednesday, 75-year-old Democratic Sen. Joe Manchin said: “Ukraine is the first just war that I have seen in my lifetime.”

--The Pentagon, in a significant shift, said Tuesday that it will send M1 Abrams tanks to Ukraine by the fall, after facing scrutiny for initially saying it could take a year or two to procure and get the powerful weapons to the battlefield.

The new plan calls for refurbishing tank hulls already in the U.S. arsenal, officials said.  A Pentagon spokesman said the original plan was to provide the more advanced variant, the M1A2, but continued “exploring options to deliver the armored capability as quickly as possible” and settled on refurbishing older M1A1 variants, allowing for expedited delivery.

--It was interesting that as Xi was in Moscow, Japanese Prime Minister Fumio Kishida was meeting with President Zelensky in Kyiv, on an unannounced visit underscoring Tokyo’s emphatic support for Ukraine.  Make that an outpouring of popular support in Japan following Russia’s invasion.

Kishida toured the town of Bucha, where more than 400 civilians were killed last year by Russian forces and which is synonymous with Russian brutality during the war.

“The world was astonished to see innocent civilians in Bucha killed one year ago, I really feel great anger at the atrocity upon visiting that very place here,” Kishida said.  “I would like to give condolence to all the victims and the wounded on behalf of the Japanese nationals.  Japan will keep aiding Ukraine with the greatest effort to regain peace.”

In what appeared to be a response to Kishida’s trip, Russia’s defense ministry said on Tuesday that two of its strategic bomber planes flew over the Sea of Japan.

Japan is due to host a G7 summit in Kishida’s hometown of Hiroshima in May.

--President Zelensky visited troops near the frontline city of Bakhmut Wednesday, handing out medals to exhausted troops and shaking hands.

“Your fate is so difficult, yet so historic. To defend our land and to return everything to Ukraine for our children,” he said. “I bow low before all the heroes, your close comrades you have lost in the east, and in general throughout this war,” Zelensky wrote on Telegram under video footage of the visit.

Thursday, the Institute for the Study of War said the months-long ground assault on Bakhmut could be stalling in the face of fierce resistance, and that the pace of Russian operations “appears to be slowing amid western reporting that Russian forces may be attempting to launch offensives in other directions.”

But the update from the ISW goes on to say Russian forces are currently increasing the tempo of their offensive operations around Avdiivka aiming to encircle the settlement, and it is possible that they are doing so at the expense of their operations around Bakhmut and the stalled offensive around Vuhledar.

British military intelligence also believes Russia’s assault on Bakhmut could be running out of steam.  But in its intelligence update on Wednesday, concluded the Ukrainian garrison there could still be surrounded.

--Thursday, a report emerged that Yevgeny Prigozhin is said to be preparing to scale back his private army’s operations in Ukraine after Russian military chiefs succeeded in cutting key supplies of men and munitions.  Kyiv, meanwhile, may be readying its expected spring counteroffensive after months of holding the line against waves of Russian conscripts, mercenaries and convicts.

Oleksandr Syrskyi, Ukraine’s top ground forces commander, said his forces would soon begin a counteroffensive, as the Wagner mercenaries “are losing considerable strength and are running out of steam.”

--Radio Free Europe/Radio Liberty’s Mark Krutov reported that Russia is withdrawing 75-year-old tanks from storage facilities.  The tanks first entered service back in 1948.  It’s yet another sign Russia is “struggling with tanks and other equipment shortages.”

--Friday, former Russian president Dmitry Medvedev said that Russia wants to create demilitarized buffer zones inside Ukraine around areas it has annexed.

“We need to achieve all the goals that have been set to protect our territories, that is the territories of the Russian Federation,” Medvedev, who is deputy chairman of Russia’s Security Council, said in an interview with Russian media.  We need to “throw out all the foreigners who are there in the broad sense of the word, create a buffer zone which would not allow the use of any types of weapons that work at medium and short distances, that is 70-100 kilometers, to demilitarize it.”

Russia would have to push further into Ukraine if such zones were not established, he said, taking Kyiv the capital or even the Western Ukrainian city of Lviv.

“Nothing can be ruled out here,” said Medvedev. “If you need to get to Kyiv, then you need to go to Kyiv, if you need to get to Lviv, then you need to go to Lviv in order to destroy this infection.”

In case you didn’t know what Russia is all about.  Infection?!

--Today, Russia did launch an offensive of its own, with further missile strikes and infantry moves along the southern and eastern front, killing at least seven civilians, at last report.

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--Ukraine’s 2023 combined grain and oilseed harvest is seen falling to a preliminary 63 million tons from 70 million harvested in 2022, Ukrainian Agriculture Minister Mykola Solsky told Reuters on Monday.  But Solsky emphasized the crop forecast could be revised lower.

A deal allowing the safe Black Sea export of Ukrainian grain was renewed on Saturday for at least 60 days – half the intended period – after Russia warned any further extension beyond mid-May would depend on the removal of some Western sanctions.  The pact was brokered with Russia and Ukraine by the United Nations and Turkey in July – and renewed for a further 120 days in November – to combat a global food crisis fueled by Russia’s invasion and Black Sea blockade.  The deal had been set to expire on Saturday, March 18.

--The World Bank now estimates that the cost to rebuild Ukraine’s economy is up to $411 billion, 2.6 times Ukraine’s expected 2022 GDP, a new study by the WB, United Nations, European Commission and Ukraine found.

The estimate released Wednesday covers the period spanning one year from Russia’s invasion and quantifies the direct physical damage to infrastructure and buildings, the impact on people’s lives and livelihoods and the cost to “build back better,” the World Bank said.

The figure is up sharply from an estimate of $349 billion released last September.  The new projection comes after the International Monetary Fund said its staff had reached agreement with Ukrainian authorities on a four-year, $15.6 billion loan package that could leverage billions more in aide from other bodies, once approved by the IMF’s executive board in coming weeks.

--Russia’s Investigative Committee said on Monday that it had opened a criminal case against the International Criminal Court prosecutor and judges who last Friday issued an arrest warrant for Vladimir Putin on war crimes charges.  The committee, responsible for investigating serious crimes, said there were no grounds for criminal liability on Putin’s part, and heads of state enjoyed absolute immunity from the jurisdiction of foreign states.

[Cue the situation comedy laugh track.]

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Wall Street and the Economy

All eyes were on Federal Reserve Chair Jerome Powell and his Open Market Committee on Wednesday.  The Fed is dealing with 6% inflation, and it’s been consistent; it will keep hiking and then when they pause, stay higher for longer. 

Then along came the collapse of Silicon Valley Bank, and the bailout of Credit Suisse, systemic risk concerns, and there was little certainty as to what the Fed would do.

The Fed’s official statement started out:

“Recent indicators point to modest growth in spending and production.  Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low.  Inflation has remained elevated.

“The U.S. banking system is sound and resilient.  Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.  The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.  In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent. [Ed. the vote was unanimous.] The Committee will closely monitor incoming information and assess the implications of monetary policy.  The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”

In his comments at his press conference after the statement was issued, always critical for the markets but none so more than Wednesday, Powell stressed the speed of the Silicon Valley Bank run, and how this is a new factor.  While he didn’t discuss it, picture Russian, Chinese or Iranian agents with their ‘legitimate’ social media accounts spreading disinformation on a particular bank or institution, and off go the lemmings.  It’s scary as hell.

But Powell stressed that the Fed is focused on items like core CPI, and PCE (personal consumption expenditures index), and the latter’s latest update comes next Friday, March 31.  He also reemphasized he is focused on the non-housing services sector numbers that comprise 56% of core CPI.

Powell said it was still possible the economy may not face a sharp downturn as the Fed works to contain inflation.  In terms of a soft landing for the economy, “There’s a pathway to that and that path still exists,” he said.

Lastly, with the release of the revised Summary of Economic Projections, or SEP, no one on the Open Market Committee is calling for rate cuts this year, as in a year end funds rate of 5.1%, or potentially one more rate hike from current levels.  As in whenever the Fed decides to pause, maybe after the next meeting, May 2-3, or June 13-14, it will do so for a considerable time.

But as always, this depends on the data, and now, developments on the global banking front.

For the record, the SEP, which is a compilation of the views of Fed members and bank presidents, revealed a new forecast for 2023 GDP of just 0.4%, and 1.2% for 2024.  The projected unemployment rate is 4.5%.

As for the economic data on the week, February existing home sales came in higher than expected, at a 4.58 million annualized pace, up 14.5% over January and the first increase since June 2022.  The median existing home price, however, $363,000, was down 0.2% from a year ago ($363,700), the first year-over-year decline in 131 months.

February new home sales were more or less inline at a 640,000 pace.

February durable goods were down 1.0%, worse than projected, and unchanged ex-transportation.

The Atlanta Fed’s GDPNow barometer for first quarter growth is at 3.2%.

Freddie Mac’s 30-year fixed-rate mortgage, 6.42%, down from the prior week’s 6.60%, and the peak of 7.08% in November.

Europe and Asia

We had flash PMI readings for March in the eurozone, courtesy of S&P Global, and the composite came in at 54.1, a 10-month high (50 the dividing line between growth and contraction).

Manufacturing was 49.9, but services came in at 55.6, a 10-month high.

German: mfg. 50.1; services 53.9
France: mfg. 46.9; services 55.5

UK: mfg. 49.0; services 52.8

Chris Williamson / S&P Global

“The eurozone economy is showing fresh signs of life as we enter spring, with business activity growing at its fastest rate for ten months in March. The survey is consistent with GDP growth of 0.3% in the first quarter, accelerating to an equivalent rate of 0.5% in March alone.

“Growth has been buoyed since the lows of late last year as recession fears and energy market worries fade, inflation pressures ease and the unprecedented supply chain delays seen during the pandemic are replaced with record improvements to supplier delivery times.  Business confidence is also so far showing encouraging resilience in the face of further interest rate hikes and the uncertainty caused by recent banking sector stress.

“However, although inflationary pressures continue to moderate, the rate at which prices charged for goods and services are rising remains higher than anything seen in the survey history prior to the pandemic.  Such stubborn inflationary pressures, fueled primarily by the service sector and rising wage costs, will be a concern to policymakers and suggests that more work may be needed in terms of bringing inflation down to target.

“Growth is also very unbalanced, driven almost solely by the service sector with manufacturing largely stalled and struggling to sustain production in the face of falling demand.”

Separately, after hiking interest rates another 50 basis points last week, at a conference in Frankfurt on Wednesday, European Central Bank President Christine Lagarde said, “Bringing inflation back to 2% over the medium term is non-negotiable.  We will do so by following a robust strategy that is data-dependent and embeds a readiness to act, but that does not entertain trade-offs around our primary objective.”

“We do not see clear evidence that underlying inflation is trending downwards,” she said.  While “falling energy prices are weakening a key driver” of such pressures, Lagarde added that “increasing domestic price pressures could offset some of this disinflationary impulse.”

But by week’s end, Lagarde was confronted with the Deutsche Bank issues.

In Britain, inflation came in far hotter than expected, 10.4% year-over-year for February vs. 10.1% in January.  The main culprit is food prices, which are rising at the fastest rate in 45 years, even as fuel costs continue to fall.

The surprise figure came ahead of a decision on interest rates by the Bank of England on Thursday, and the BoE raised its benchmark rate another 25 basis-points to 4.25%, its 11th consecutive increase in borrowing costs which began in December 2021, although it was the smallest rise since June.

The BoE kept unchanged its message that the Monetary Policy Committee saw less urgency about maintaining its fast run of rate hikes.  “The MOC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labor market conditions and the behavior of wage growth and services inflation,” the BoE said. “If there were to be evidence of more persistent pressures, then further tightening of monetary policy would be required,” it added.

The statement, though, said price growth remained on course to fall sharply in the April-June period of this year, despite the surprise jump to 10.4% in February.

Separately, Prime Minister Rishi Sunak gained a big victory, emphatically winning a key vote on a component of his post-Brexit agreement with the European Union.

MPs voted by 515 to 29 in support of the so-called Stormont Brake, a proposed veto mechanism for Northern Ireland’s politicians to reject new and updated EU rules.  As Bloomberg reported, it cements Sunak’s growing reputation as a problem solver.  And it helps to kill off any chance that Boris Johnson could mount a challenge.

Johnson was back in the spotlight this week as he appeared before a panel investigating whether he deliberately lied to MPs over “Partygate” – gatherings in Downing Street during the pandemic when the nation was under lockdown and ordered to keep strict social distancing rules.

Johnson described 10 Downing Street as a “cramped, 18th-century townhouse” where it was hard to work “efficiently and at speed” while social distancing.  He said he and “others” did not believe it necessary or possible to have a 2-meter or 1-meter “electrified force-field around every human being” when restrictions started to relax.

But when questioned by members of parliament, rather fiercely, Johnson had no good reason for why his wife was at least one of the social gatherings.  Bye-bye, Boris. 

France:  President Emmanuel Macron stood by his overhaul of France’s pension system on Wednesday but proposed several measures for workers – including bonus payments for employees of companies that buy back shares – in a bid to calm an escalating protest movement against his government.

In his first public remarks since pushing through the overhaul last week without a vote in Parliament, Macron said the law and its centerpiece, raising the retirement age from 62 to 64 by 2030, were needed to fix a pension system that would become unaffordable in a matter of years. He said he wanted the law’s provisions to enter into force by the end of this year, defying polls that show the public is largely opposed to the overhaul.

“Between the polls and the short-term, and the general interest of the country, I choose the general interest of the country,” Macron said in an interview on French television.

The president talked of measures to improve working conditions and training for people in their 50s.  Macron said he wanted to raise pay in certain parts of the country for workers who earn less than the minimum wage (which would suck in the U.S., but at least in France you have great cheese).  And he talked of bonus payments.

“They must distribute more to their employees,” he said, adding: “A democracy must listen to the extreme anger that is expressed in the framework of the republic and respond.”

The French government had survived two no-confidence votes in the lower chamber of parliament on Monday, and with the failure of both votes, the pension bill is considered adopted.

But violent protests continued.  Thursday night, the Bordeaux town hall was set ablaze.  More than a million people took to the streets across France yesterday, with 119,000 in Paris, according to the interior ministry.

Police fired tear gas at protesters in the capital and 450 people were arrested across the country, with 440 injuries to security forces being reported.

Because of the violence, a state visit from King Charles to France next week has been postponed, President Macron requesting that Friday.

Macron’s popularity has plummeted, with a survey by Ifop for Le Journal du Dimanche newspaper showing just 28% approve of his performance, down 4 points from a month ago.

Turning to Asia…China didn’t report out any important economic data this week.

Japan’s flash PMI reading for March showed manufacturing activity at 47.4, and services at a solid 54.2.

February inflation came in at 3.3% year-over-year, down from January’s 4.3%.  But core prices, ex-food and energy, rose 3.5% vs. 3.2% prior, and that’s a concern.

Street Bytes

--Wednesday was volatile after the Fed hiked rates, and the market was seeing different messages from various officials on how far the government will go to protect depositors, and other matters.  The Dow Jones finished off 530 points.

But for the week, the Dow gained 1.2% to 32237, the S&P 500 1.4% and Nasdaq 1.7%.  Nasdaq is back up to a 13% return for the year as interest rates plummet.

The markets were helped today by reassurances that Deutsche Bank’s issues are resolvable, or simply not that significant…at least so the Germans say.

--U.S. Treasury Yields

6-mo. 4.69%  2-yr. 3.76%  10-yr. 3.37%  30-yr. 3.64%

It’s incredible that the yield on the 2-year has collapsed to this level from a high of 5.07% just a few weeks ago (and some hedge funds are taking it on the chin as a result), part of the flight to safety trade, as well as a belief the Fed will be cutting rates, despite what Chair Powell has said.

Across the pond, euro bond markets stabilized.

--Saudi National Bank, 37% owned by the Kingdom’s $600 billion Public Investment Fund, admitted on Monday that its $1.4 billion swoop for 10% of Credit Suisse had gone sour after the latter collapsed into the arms of UBS.

The SNB’s play was back in November, when client money was already flowing out of Credit Suisse.  Back then, Saudi National Bank thought it was buying at a bargain when it became the largest shareholder.  The chairman then helped fuel the panic when he ruled out raising SNB’s stake in Credit Suisse.

Meanwhile, PIMCO and Invesco are among the largest holders of Credit Suisse’s so-called Additional Tier 1 bonds that were wiped out after the bank’s takeover by UBS.

[AT1 securities are a form of “contingent-convertible” (coco) bonds, part of the toolkit created after the global financial crisis of 2007-09 to prevent future bailouts.  In good times, they act like relatively high-yield bonds. When things go sour and trigger points are reached – such as a bank’s capital falling below certain levels relative to assets – the bonds convert to equity, cutting the bank’s debt and absorbing losses.  In a normal post-collapse pecking order, AT1 bondholders should come between senior bondholders, who have a right to payouts first, and stockholders, who in theory take first losses.  But not this time.  And that’s what has some folks upset.  The Swiss totally rewrote the rules of the game.  Why would you deal with them in the future?  Others, like Jeffrey Gundlach/DoubleLine, say the likes of PIMCO should put their “big boy pants on” and suck it up. ]

--Even before Credit Suisse was forced into crisis talks over the weekend, the Swiss lender was in the process of cutting 9,000 jobs in an effort to save itself.  That’s only the beginning, now that UBS Group has taken it over.

The two lenders together employed almost 125,000 people at the end of last year, with about 30%, or 37,000, in Switzerland.

--U.S. regional bank shares rose in morning trading on Tuesday following remarks by Treasury Secretary Yellen that the government could backstop deposits at more banks if there was a risk of contagion.

“The steps we took were not focused on aiding specific banks or classes of banks.  Our intervention was necessary to protect the broader U.S. banking system,” Yellen said in remarks prepared for a speech to the American Bankers Association.

Yellen said that the Treasury would continue its support for smaller and mid-sized banks.

“Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions,” Yellen said.

But in the afternoon, speaking before the Senate Appropriations subcommittee on Financial Services, at the same time that Jerome Powell was speaking, Yellen said there is no discussion on insurance for all deposits, which sent regional bank shares, such as First Republic’s, tumbling, making a “bull case” scenario more difficult for these stocks.

The optimistic case is based on a scenario in which the Federal Deposit Insurance Corporation insures all consumer deposits, and then Yellen said the government “is not considering insuring all uninsured bank deposits.”  Yellen also said the Treasury has not considered anything to do with guarantees for assets.

Thursday, Yellen backtracked, saying she was prepared to take further actions to ensure that Americans’ bank deposits stay safe.

“As I have said, we have used important tools to act quickly to prevent contagion. And they are tools we could use again,” Yellen said in prepared remarks to the House Appropriations committee.  “The strong actions we have taken ensure that Americans’ deposits are safe.  Certainly, we would be prepared to take additional actions if warranted,” the secretary added.

--TSA checkpoint numbers vs. 2019

3/23…98 percent of 2019 levels
3/22…96
3/21…94
3/20…98
3/19…102
3/18…102
3/17…98
3/16…98

--Amazon.com said Monday it plans to cut 9,000 more jobs in addition to the 18,000 layoffs announced in January, according to a note from CEO Andy Jassy that was sent to employees and posted on the company’s website.

The move will mostly affect employees in the company’s AWS cloud business, Twitch streaming services, advertising, and PXT.

“Given the uncertain economy in which we reside, and the uncertainty that exists in the near future, we have chosen to be more streamlined in our costs and headcount,” Jassy said.

“This initially led us to eliminate 18,000 positions (which we shared in January); and, as we completed the second phase of our planning this month, it led us to these additional 9,000 role reductions,” he added.

Jassy said there will be “limited hiring” in some other business areas.

Last week, Meta Platforms said it would cut 10,000 jobs this year, on top of more than 11,000 eliminated in the fall.

--Coinbase Global Inc. said on Wednesday it had received a notice from the Securities and Exchange Commission warning that its cryptocurrency exchange could face a civil action over some of its products.  A “Wells Notice” shows that SEC staff intend to recommend enforcement action against the company, but it does not always do so.

A battle between Coinbase and the SEC over its listing process would be a major threat not just to Coinbase’s business but to the future of the crypto industry in the U.S. and Americans’ access to it.

If crypto exchanges and tokens fell under SEC oversight, the agency would have a wide berth to monitor trading, bring enforcement actions and apply oversight to the token markets similar to what it does now for equities, which crypto executives say would be not only costly, but impossible to comply with given the way the companies are designed.

SEC Chair Gary Gensler has long said he believes most tokens except Bitcoin are likely securities and that trading platforms ought to register and subject themselves to the agency’s oversight.

Any lawsuit brought by the SEC would likely result in a legal battle that could last years.

Separately, the SEC charged crypto asset entrepreneur Justin Sun and three of his companies with the unregistered offer and sale of crypto asset securities Tonic and BitTorrent.

The SEC also charged Sun and his companies for paying eight celebrities and social media influencers to tout TRX and BTT without telling their fans and followers that they were being paid to do so and how much they were being compensated, as required.

The celebrities included Lindsay Lohan and Jake Paul, who together with four of the six others agreed to pay more than $400,000, collectively, in disgorgement, interest, and penalties to settle the charges, without admitting or denying the SEC’s findings.

The SEC said Sun and his companies fraudulently manipulated the secondary market for TRX through extensive “wash trading,” by simultaneously or near-simultaneously buying and selling a security to make it appear actively traded without an actual change in beneficial ownership, and for orchestrating the scheme to pay the celebrities to tout the instruments. 

--Back to Bitcoin, it surged to $28,450 on Sunday (I was following), highest since June 2022, despite a federal regulatory crackdown on crypto companies and an increasingly risk-averse market environment.

But the banking turmoil rattling global financial markets has boosted the confidence of investors who view the digital currency as an alternative to the traditional banking system.

Crypto is about narratives, or as Clara Medalie, director of research at Kaiko said, “Narratives are more powerful in crypto in generating real price movements than any other asset class.”

--Meanwhile, Terraform Labs co-founder Do Kwon was charged by U.S. prosecutors with orchestrating a yearslong cryptocurrency fraud that wiped out at least $40 billion in market value.

His indictment Thursday evening by the U.S. attorney’s office in Manhattan capped a dramatic day that began with the news that Kwon, already a fugitive from charges in his native South Korea, had been arrested in Montenegro.  It’s unclear if the arrest was at the request of U.S. authorities, but federal prosecutors said they would seek his extradition to New York.

The collapse of Singapore-based Terraform’s TerraUSD stablecoin shook the crypto world last spring. Meant to keep a constant value of $1 via a complex mix of algorithms and trader incentives involving its free-floating sister token Luna, Terra was designed as a refuge from the volatility of other cryptocurrencies. But both Luna and Terra unraveled when confidence in Kwon’s project evaporated during a few chaotic days in early May.

The token’s implosion rippled across the crypto sector and played a role in the failures of firms like Three Arrows Capital, Voyager Digital, and, most prominently, FTX and its affiliated trading firm, Alameda Research.

--A ChatGPT glitch allowed some users to see the titles of other users’ conversations, the artificial intelligence chatbot’s boss has said.

On social media sites Reddit and Twitter, users had shared images of chat histories that they said were not theirs.

OpenAI CEO Sam Altman said the company feels “awful,” but the “significant” error had now been fixed.

Many users, however, remain concerned about privacy on the platform.

--U.S. lawmakers on Thursday battered TikTok’s chief executive about potential Chinese influence over the platform and said its short videos were damaging children’s mental health, reflecting bipartisan concerns over the app’s power over Americans.

CEO Shou Zi Chew’s testimony before Congress did little to assuage worries over TikTok’s China-based parent company ByteDance and added fresh momentum to lawmakers’ call to ban the platform nationwide.

Over five hours of testimony, Chew repeatedly denied the app shares data or has connections with the Chinese Communist Party and argued the platform was doing everything to ensure safety for its 150 million American users.

But not a single lawmaker offered support for TikTok or sympathy for Chew’s reassurances, as they deemed his answers on China evasive and aired concerns over the power the app holds over U.S. children.

The company says it has spent more than $1.5 billion on data security efforts under the name “Project Texas” which currently has nearly 1,500 full-time employees and is contracted with Oracle Corp. to store TikTok’s U.S. user data.  But critics were not appeased as the company failed to announce any new efforts to safeguard privacy.

It is not clear how lawmakers will proceed after the hearing or how quickly they might move to pass legislation to strengthen the Biden administration’s legal powers to ban TikTok.

Editorial / Washington Post

“The implications of a ‘no’ here are vast. There are ways to distinguish between TikTok and other services, and ways to distinguish China from other countries. There may also be reasons the public is yet unaware of that the app is more of a menace than it seems. But the United States has rightly prided itself on its openness to free trade and free expression alike.  Cutting off a service that 150 million people in this country use, whether to watch lip-syncing videos, hype their small businesses or share news, might look like a blow to China in the short run.  Yet it would be a victory for that country’s philosophy of techno-nationalism and a defeat for an open world and open web. If the White House does try to ban TikTok, it will owe citizens – users of the platform and non-users alike – a good explanation.”

--Ford Motor expects to lose about $3 billion on its electric-vehicle business this year, a reminder of how far traditional auto makers have to go in turning their EV portfolios profitable.

Ford disclosed the figure Thursday while outlining a new financial-reporting structure intended to give investors better insight into the performance of its three business units: Model e, its EV business; Ford Blue, the traditional part of the company that sells internal-combustion-engine vehicles; and Ford Pro, its sizable commercial-vehicle division.

Ford finance chief John Lawler described the EV division as a startup inside the 119-year-old company, and said it is normal for a fledgling business to rack up losses. Ford today sells three electric vehicles in North America, including the F-150 Lighting pickup truck and the Mustang Mach-E SUV.

Last year, the EV business lost about $2.1 billion, reducing Ford’s overall operating profit to $10.4 billion.

--Accenture Plc lowered its annual revenue and profit forecasts and decided to cut about 2.5% of its workforce, or 19,000 jobs, the latest sign that the worsening global economic outlook was sapping corporate spending on IT services.

Accenture now expects annual revenue growth to be between 8% and 10%, compared with its previous projection of an 8% to 11% increase.  Earnings per share is expected in the range of $10.84 to $11.06, compared with $11.20 to $11.52 previously.

A survey of more than 1,000 IT decision makers by U.S.-based Enterprise Technology Research said they plan to reduce their 2023 budget growth. The growth expectations are now 3-4%, down from a 5.6% increase projected in October 2022.  “In short, the data indicates a very difficult environment ahead for consulting firms,” ETR said.

--David Klepper / Los Angeles Times (Associated Press):

“Soon after a train derailed and spilled toxic chemicals in Ohio last month, anonymous pro-Russian accounts spread misleading claims and anti-American propaganda about it on Twitter, using Elon Musk’s new verification system to expand their reach while creating the illusion of credibility.

“The accounts, which parroted Kremlin talking points on myriad topics, claimed without evidence that authorities in Ohio were lying about the true impact of the chemical spill. The accounts spread fearmongering posts that preyed on legitimate concerns about pollution and health effects and compared the response to the derailment with America’s support for Ukraine following its invasion by Russia.

“Some claims were verifiably false, and others were more speculative, seemingly designed to stoke fear or distrust.  Examples include unverified maps showing widespread pollution, posts predicting an increase in fatal cancers and others about unconfirmed mass animal die-offs.

“ ‘Biden offers food, water, medicine, shelter, payouts of pension and social services to Ukraine!  Ohio first! Offer and deliver to Ohio!’ posted a pro-Moscow account with 25,000 followers. Twitter awarded the account a blue check mark in January.

“Regularly spewing anti-U.S. propaganda, the accounts show how easily authoritarian states and Americans willing to spread their propaganda can exploit social media platforms to steer domestic discourse.”

Felix Kartte, a senior adviser at Reset, a London-based nonprofit that studies social media’s impact on democracy, said the report’s findings indicate that Twitter is letting Russia use its platform like a bullhorn.

“With no one at home n Twitter’s product safety department, Russia will continue to meddle in U.S. elections and in democracies around the world,” Kartte said.

--Credit card debt is at a record high, with 46% of people carrying debt from month to month, up from 39% a year ago, according to Bankrate.com.  An Associated Press-NORC Center for Public Affairs Research survey found 35% of U.S. adult report their household debt is higher than it was a year ago.  Just 17% said it has declined.

--The median wage for all employees, from senior executives to executive assistants, at Goldman Sachs, was $150,000 last year, down from $166,000 in 2021, according to a regulatory filing from the bank.

Goldman wasn’t the only financial institution to pay its people less last year.

Median pay at private-equity giant KKR fell by 30%, and was down 27% at American Express, to $49,000, in 2022.

The reason why this matters is it could be a troubling signal for New York City and State because they rely heavily on the financial sector for tax revenue.  Wall Street is responsible for 16% of all economic activity in the city, according to the state comptroller’s office, but only about 5% of jobs.

--I talk about Europe’s climate issues down below, but here in the United States, there are experts already talking about an unusually hot and dry summer, which combined with the war in Ukraine, could send wheat prices surging by about 20% from current levels as early as April.

“Drought will return and hurt spring wheat, not only in the U.S. but also in other places,” says Shawn Hackett, president of Hackett Financial Advisors in Boca Raton, Fla.  That, in turn, could lift prices. 

But not everyone is worried about this summer’s weather.  “The weather will be better this year than the past few,” says Joe D’Aleo, a meteorologist at forecasting company Weatherbell.  “Kansas is the big concern, but all of the forecasts say it should be wet in Kansas this summer.”  That would mean a larger crop than seen recently.  [Simon Constable / Barron’s]

Who will be right?  I saw a piece in the Wall Street Journal on Thursday that Kansas’ aquifers are dangerously low.

--Nike made progress working through the inventory glut that squeezed the sneaker maker last year, reporting a 14% jump in quarterly sales and raising its revenue growth target.

The sportswear company said its inventory increased 16% in the quarter ended Feb. 28 compared with the same period a year ago.  Inventories had swelled by more than 40% in each of the prior two quarters.

“We are increasingly confident that we will exit the year with healthy inventories across the marketplace,” Nike finance chief Matthew Friend said Tuesday on a call with analysts.

Higher markdowns once again hurt profit margins, though Nike’s quarterly earnings came in above Wall Street’s expectations.  Net income in the quarter fell 11% to $1.24 billion.

For the past two years supply-chain snarls have pinched Nike’s growth.  The company initially had a lack of inventory because of Covid-19 lockdowns and factory closures in Vietnam and China.  Then the company increased orders to both meet consumer demand and get ahead of transit constraints.

To deal with the excess inventory, Nike executives said in December that they were cutting orders from suppliers.

In China, Nike saw a rebound in traffic at its stores in January and strong sales through February, an improvement from what the company had reported in December when it dealt with different Covid policies. The company reported almost flat quarterly sales in the region compared with the same period a year earlier.

--Foot Locker Inc. on Monday reported fiscal fourth-quarter profit of $19 million.  Adjusted earnings came to 97 cents per share, beating Wall Street expectations.

The shoe store posted revenue of $2.34 billion in the period, also exceeding Street forecasts.

For the year, the company reported profit of $342 million, or $3.58 per share. Revenue was reported at $8.76 billion.

But the shares fell on tepid full-year guidance in the range of $3.35 to $3.65 per share.

--Howard Schultz’s decades-long run as Starbucks’ chief executive came to an abrupt end Monday as he stepped down two weeks earlier than expected.

Schultz handed the reins to Laxman Narasimhan, who was tapped as incoming CEO on Oct. 1 and was slated to assume the top job of the java giant on April 1 amid a reorganization of the company and fast-advancing labor movement.

In his letter to senior management Monday, Schultz did not address his early exit.

The company has faced a revolt from workers who have been leading unionizing efforts at locations around the country.

Foreign Affairs, Part II

China: Editorial / The Economist

“On Ukraine China has played an awkward hand ruthlessly and well. Its goals are subtle: to ensure Russia is subordinate but not so weak that Mr. Putin’s regime implodes; to burnish its own credentials as a peacemaker in the eyes of the emerging world; and, with an eye on Taiwan, to undermine the perceived legitimacy of Western sanctions and military support as a tool of foreign policy. Mr. Xi has cynically proposed a ‘peace plan’ for Ukraine that would reward Russian aggression and which he knows Ukraine will not accept.  It calls for ‘respecting the sovereignty of all countries,’ but neglects to mention that Russia occupies more than a sixth of its neighbor….

“The West has shown resolve over Ukraine, but many countries are ambivalent about the war and wonder how it will end. At least 100 countries, accounting for 40% of global GDP, are not fully enforcing sanctions. American staying power is doubted.  Neither Donald Trump nor Ron DeSantis…sees Ukraine as a core American interest.  All this creates space for new actors, from Turkey to the UAE, and above all, China.  Its message – that real democracy entails economic development, but does not depend on political liberty – greatly appeals to the new elites of non-democratic countries….

“Because China almost always backs ruling elites, however inept or cruel, its approach may eventually outrage ordinary people around the world.  Until that moment, open societies will face a struggle over competing visions.  One task is to stop Ukraine being pushed into a bogus peace deal, and for Western countries to deepen their defensive alliances, including NATO. The long-run goal is to rebut the charge that global rules serve only Western interests and to expose the poverty of the worldview that China – and Russia – are promoting.

“America’s great insight in 1945 was that it could make itself more secure by binding itself to lasting alliances and common rules. That idealistic vision has been tarnished by decades of contact with reality, including in Iraq.  But the Moscow summit reveals a worse alternative: a superpower that seeks influence without winning affection, power without trust and a global vision without universal human rights. Those who believe this will make the world a better place should think again.”

On the Taiwan front, the defense ministry announced it has contingency plans for any moves by China during Taiwan President Tsai Ing-wen’s upcoming overseas visit, including to the United States, that will inflame U.S.-China tensions.

At the same time, former Taiwan President Ma Ying-jeou is going to visit China this month, the first time a former or current Taiwanese leader has visited since the defeated Republic of China government fled to the island in 1949.

Ma, who remains a senior member of Taiwan’s Kuomintang (KMT) opposition party, held a landmark meeting with President Xi in Singapore in late 2015, shortly before President Tsai was elected.

Lastly, President Biden signed a bill Monday that requires Director of National Intelligence Avril Haines to declassify information related to the origins of Covid-19.

The bill passed unanimously in the Senate and House before being sent to the White House.

In interviews with more than 20 current and former Chinese Center for Disease Control and Prevention employees, experts and government advisors, and internal reports and directives obtained by the Associated Press, the reopening at the onset of winter, when the virus spreads most easily, was a catastrophe.

The Chinese Communist Party ignored scientific advice to kickstart exit plans until it was too late, the AP found.

Instead, the reopening came when many older people weren’t vaccinated, pharmacies lacked antivirals, and hospitals didn’t have adequate supplies or staff – leading “to as many as hundreds of thousands of deaths that could have been avoided, according to academic modeling,” and the interviews.

But the CCP just rolled it out there.  ‘We’re open. Now go out and play.’

Hours later… ‘cough cough’….

North Korea: Pyongyang claimed Friday to have tested a nuclear-capable underwater drone designed to generate a gigantic “radioactive tsunami” that would destroy naval strike groups and ports.  Analysts were skeptical that the device presents a major new threat, but the test underlines the North’s commitment to raising nuclear threats.

The test came as the United States reportedly planned to deploy aircraft carrier strike groups and other advanced assets to waters off the Korean Peninsula. Tensions are at a high point as the pace of North Korean weapons tests and U.S.-South Korean joint military exercises has accelerated.

Pyongyang’s official Korean Central News Agency said the North’s latest tests were aimed at alerting the U.S. and South Korea of a brewing “nuclear crisis” as they continue with their “intentional, persistent and provocative war drills.”  It said the tests were supervised by Kim Jong Un, who vowed to make his rivals “plunge into despair.”

The U.S. and South Korea completed an 11-day exercise Thursday that included their biggest field training in years, and are preparing another round of joint naval drills that will reportedly involve a U.S. aircraft carrier.

Earlier in the week, North Korea launched multiple cruise missiles toward the sea, three days after the North carried out what it called a simulated nuclear attack on South Korea.

Kim called for the country to stand ready to conduct nuclear attacks at any time to deter war.

“The present situation, in which the enemies are getting ever more pronounced in their moves for aggression against the DPRK, urgently requires the DPRK to bolster up its nuclear war deterrence exponentially,” KCNA quoted Kim as saying.

North Korea also claimed last weekend that 800,000 of its citizens volunteered to join or re-enlist in the nation’s military to fight against the United States, the state newspaper reported.

“The soaring enthusiasm of young people to join the army is a demonstration of the unshakeable will of the younger generation to mercilessly wipe out the war maniacs making last-ditch efforts to eliminate our precious socialist country, and achieve the great cause of national reunification without fail and a clear manifestation of their ardent patriotism,” the North’s Rodong Sinmun said.

Israel: Prime Minister Benjamin Netanyahu defiantly vowed Thursday to proceed with a divisive judicial overhaul, in a move that came just hours after his coalition passed a law making it harder to remove him from office.

Netanyahu, addressing Israelis on prime-time television, promised to go ahead next week with plans to give the government greater control over appointments to the Supreme Court – emphatically squashing rumors that had swirled throughout the day that he was about to back down.

His speech capped a day where tens of thousands of protesters demonstrated across Israel against the plan, leading to confrontations with right-wing supporters of Netanyahu and clashes with police.

The address came just minutes after the defense minister, Yoav Gallant, met with Netanyahu to warn him about the effect the turmoil has had on the military, amid speculation that Gallant, himself, was about to speak out against the plan.  The number of reservists for duty this month has declined, the military confirmed on Wednesday, amid widespread concerns among reservists about the effects of the judiciary plan, which is exactly what I wrote about last week.  This is what the beginnings of a civil war looks like.

Next week, let alone the now weekly protests on Saturday, could be explosive.

Eran Schwartz, a protest organizer, said last weekend on Israeli radio:

“We see the level of violence going up… This thing will end with blood in the streets, our protesters will be hurt.”

Syria / Iran: The U.S. conducted airstrikes in Syria Thursday against facilities affiliated with Iran’s Revolutionary Guard after a U.S. contractor was killed and five service members injured in an Iranian drone attack, according to the Pentagon.

The Iranian assault targeted a coalition base housing American personnel near Hasakah in northeast Syria, officials said.

A second contractor was also injured.

Why did Iran seek to provoke the U.S. at this time? How did the drone get through U.S. defenses?

Tonight, there’s word of further attacks.

Separately, but very much related, Russian pilots have significantly increased the number of flights they’re taking over a U.S. military installation in Syria, with armed jets violating U.S. airspace “roughly 25 times so far this month,” versus 14 times in January and none at all in February.  Those numbers are from Air Force Lt. Gen. Alexus Grynkewich, the combined forces air commander for U.S. Central Command, as reported by NBC News.

“They’re regularly flying directly overhead of our units, and I’ve defined directly overhead as within about a mile, no more than a mile offset one side or the other, while we’ve got forces right there on the ground at [At Tanf Garrison],” Grynkewich said. “So it’s an uncomfortable situation.”  Besides being uncomfortable, the flights are also a violation of an agreement between the U.S. and Russia.

The U.S. has nearly 900 troops inside Syria with the aim of stopping a resurgence of ISIS.  U.S. and U.S.-backed Syrian Democratic Forces are also helping watch over an estimated 10,000 fighters detained in 26 prisons spread across the region.

Meanwhile, there were some disturbing messages sent through the Pentagon this week that Iran is much closer to having a nuclear weapons capability than we’ve been led to believe (though not you, dear readers.  I’ve been all over it…and Israel does not have the capability to take it out.  They need the U.S.’s help).

Random Musings

--Presidential approval ratings….

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

Rasmussen: 48% approve, 50% disapprove (Mar. 24).

A new Associated Press-NORC Center for Public Affairs Research survey of adults in the U.S. has President Biden’s approval rating nearing the lowest of his presidency…38%, after 45% said they approved in February and 41% in January.  The low was 36%, last July, as the full weight of rising gasoline, food and other costs began to hit households.

--A federal appeals court ruled on Wednesday that a lawyer representing former President Donald Trump in the investigation into his handling of classified material had to answer a grand jury’s questions and give prosecutors documents related to his legal work.

The rapid ruling by the U.S. Court of Appeals for the District of Columbia was a victory for the special counsel overseeing the investigation and followed Trump’s effort to stop the lawyer, M. Evan Corcoran, from handing over what are likely to be dozens of documents to investigators.

In particular, prosecutors have been focused on a document that Corcoran drafted last spring stating that a “diligent search” had been conducted at Mar-a-Lago and that no further classified material remained there – an assertion that proved to be false. Prosecutors have been seeking to learn what Trump knew about that statement, according to reporting from the New York Times and people briefed on the matter.

As the Times noted: “The case involves a balancing act between attorney-client privilege, which generally protects lawyers from divulging private communications with their clients to the government, and a special provision of the law known as the crime-fraud exception. That exception allows prosecutors to break through attorney-client privilege when they have reason to believe that legal advice or legal services have been used in furthering a crime, typically by the client.”

This one, like the Georgia case, is serious stuff for the former president.

[ABC News reported this afternoon that a U.S. judge has ordered Trump’s former chief of staff, Mark Meadows, and other top former aides, including the loathsome Stephen Miller, to testify before the above federal grand jury probing the Jan. 6 attack on the Capitol.

Trump has sought to claim executive privilege to prevent former aides from testifying, but ABC reported that U.S. Judge Beryl Howell, in a sealed order last week, rejected Trump’s claim of executive privilege for Meadows and the others.]

--The Manhattan district attorney’s case, maybe not so much, and we learned Thursday that there will be no indictment this week in the Stormy Daniel-hush money affair, despite Donald Trump fanning the flames last weekend and then Monday and Tuesday.

Last Saturday, Trump posted on Truth Social: “OUR NATION IS NOW THIRD WORLD & DYING. THE AMERICAN DREAM IS DEAD!....

“NOW ILLEGAL LEAKS FROM A CORRUPT & HIGHLY POLITICAL MANHATTAN DISTRICT ATTORNEY’S OFFICE, WHICH HAS ALLOWED NEW RECORDS TO BE SET IN VIOLENT CRIME & WHOSE LEADER IS FUNDED BY GEORGE SOROS, INDICATE THAT, WITH NO CRIME BEING ABLE TO BE PROVEN, & BASED ON AN OLD & FULLY DEBUNKED (BY NUMEROUS OTHER PROSECUTORS!) FAIRYTALE, THE FAR & AWAY LEADING REPUBLICAN CANDIDATE & FORMER PRESIDENT OF THE UNITED STATES OF AMERICA, WILL BE ARRESTED ON TUESDAY OF NEXT WEEK. PROTEST, TAKE OUR NATION BACK!”

Trump accused D.A. Alvin Bragg of “election interference” for pressing ahead with the investigation.

“ALVIN BRAGG SHOULD BE HELD ACCOUNTABLE FOR THE CRIME OF ‘INTERFERENCE IN A PRESIDENTIAL ELECTION,” Trump wrote last Sunday on Truth Social.

Trump then claimed Monday that the statute of limitations has expired on his case, an assertion that legal experts reject.

“More importantly, THERE WAS NO CRIME!!!” Trump added.

On video, Trump said: “Whether it’s the Mar-a-Lago raid, the Unselect Committee hoax, or the perfect Georgia phone call – it was absolutely perfect – or the Stormy ‘horse face’ Daniels extortion plot, they are all sick, and it’s fake news.

“Our enemies are desperate to stop us because they know that we are the only ones who can stop them and they know it very strongly,” he continued.  “And they’re looking at the polls where not me, but we, are up by so much they can’t even believe it.”

“We won twice, and now we’ve got to win a third time.”

Thursday, Trump wrote on Truth Social:

“EVERYBODY SAYS THERE IS NO CRIME HERE. I DID NOTHING WRONG!”

He went on to describe Cohen as a “CONVICTED NUT JOB WITH ZERO CREDIBILITY,’ adding that Bragg “REFUSES TO STOP DESPITE OVERWHELMING EVIDENCE TO THE CONTRARY.”

Trump continued, falsely claiming that “THIS IS NO LEGAL SYSTEM, THIS IS THE GESTAPO, THIS IS RUSSIA AND CHINA, BUT WORSE. DISGRACEFUL!”

Bragg, Trump wrote, “IS JUST CARRYING OUT THE PLANS OF THE RADICAL LEFT LUNATICS. OUR COUNTRY IS BEING DESTROYED, AS THEY TELL US TO BE PEACEFUL!”

At about 1:00 a.m. Friday morning, Trump issued another dangerous bit, perhaps his most dangerous, on Truth Social:

“What kind of person can charge another person, in this case a former president of the United States, who got more votes than any sitting president in history, and leading candidate (by far!) for the Republican Party nomination, with a crime, when it is known by all that NO crime has been committed, & also known that potential death & destruction in such a false charge could be catastrophic for our country?

“Why & who would do such a thing?  Only a degenerate psychopath that truly hates the USA!”

--Editorial / New York Post

“Donald Trump is showing his glass jaw.

“The former president infamously launches vile, fact-free slurs at rivals, enemies and even the odd bystander.

“Yet after Florida Gov. Ron DeSantis, in an interview with The Post’s Piers Morgan, mildly noted Trump’s chaotic style and the alleged hush-money-to-a-porn-star thing, Trump (and his cronies) completely lost it.

“ ‘Ron DeSanctimonious is not working for the people of Florida as he should be, he is too busy chatting with a Ratings Challenged TV Host from England,’ Trump fumed in a Truth Social tweet.

“He was dumping on Morgan, who merely interviewed DeSantis.

“Trump-backer Steve Bannon called DeSantis a ‘weasel.’

“Mike Lindell slammed him as ‘disgusting.’

“Trump’s son, Donald Trump Jr., said DeSantis is ‘pathetically’ turning to the ‘liberal media’ (did he really mean The Post?) ‘on orders from his RINO establishment owners.’

“DeSantis, whose record of standing up to the Lockdown Left far excelled Trump’s, is a RINO?

“Trump even doubled down on his baseless suggestion that the Florida gov is a groomer – an utterly ridiculous smear he first echoed last month, after a grainy picture emerged of a guy who looked like a younger DeSantis partying with young women, one of whom appears to be holding a beer bottle.

“It’s perfectly fair – and not at all unhinged – you see, for Trump to ludicrously imply that the father of 2016 prez-race rival Ted Cruz helped John Kennedy’s assassin.

“And to call Cruz’s wife ugly.

“And to mock the looks of another 2016 rival, Carly Fiorina, in a debate.

“Or to call his own former national security adviser, John Bolton, a ‘dope.’

“Or Michael Bloomberg ‘Mini Mike.’

“Or his own niece, Mary Trump, ‘unstable.’

“No one has lobbed as many childish, bullying insults as Donald Trump.

“Sure, Trump faced an unprecedented onslaught of purely partisan fabricated attacks from the Left during his time in office.

“The Post and DeSantis stood up for him during Russiagate and the rest.

“But DeSantis merely says out loud what everyone already knows to be true about the ex-prez – that his term in office was plagued by ‘drama’ and chaos entirely of his own creation and that he spends his time ‘fighting with people on social media.’

“For this mere fact, Trump World goes nuts and proves DeSantis’ point.

“Trump can’t take one tiny bit of what he loves to dish out.

“Sad.”

--Karl Rove / Wall Street Journal…on the issue of Trump and the impact of a potential indictment in the Stormy Daniels case.

“The indictment talk has also moved Mr. Trump from his recent relative obscurity back to front-page headlines, in which he always revels. Even though he’s accused of paying $130,000 to an adult-film star for her silence about their alleged 2006 affair – accusations he denies – he clearly believes there’s no such thing as bad press. As he told an Iowa audience in 2016, ‘I could stand in the middle of Fifth Avenue and shoot somebody, and I wouldn’t lose any voters.’  But that might no longer be true.

“Still, believing a scandal is a terrible thing to waste, Mr. Trump has already stepped up his fundraising. Since Saturday, when he broke the indictment news, on through Wednesday, I’ve received 41 emails or texts from his team asking for contributions.

“In all of his cash demands, Mr. Trump plays the victim… (But) if the Washington Post report that he has only raised $1.5 million from this barrage is true, his donors could be getting burned out….

“Mr. Trump further damaged his standing by calling on supporters to respond to an indictment with ‘PROTEST! PROTEST! PROTEST!!!’  He forecast in a fundraising email that ‘millions of patriots’ would ‘peacefully defend our movement from the vicious political persecution.’  This is stupid.  If MAGAites protest and it gets ugly, it damages Mr. Trump’s 2024 chances by reminding swing voters of his role in the Jan. 6 attack on the U.S. Capitol.  If as is far more likely, any protests are poorly attended, it’ll be a sign of eroding support. And he may get both negatives:  Even small demonstrations could come across as semi-crazy.

“All in all, the upsides for Mr. Trump of his indictment are likely temporary. The idea of the married Mr. Trump having an affair with a porn star then illegally funneling money to pay for her silence has the odor of raunchy truth.  Nothing about it will convince anyone who voted against Mr. Trump to switch allegiance.

“Mr. Trump’s strategy appears to focus exclusively on winning the votes of true believers. But many are suffering Trump fatigue and there weren’t enough of them to re-elect him last time.

“The most probable result of his current ranting and raving will be to convince more Republicans that he’s unelectable. Some who supported him last time because of his policies now want to turn the page.  He promised we’d get tired of winning.  Instead, we’ve grown tired of his losing and increasingly crazed antics.  He’d be better off playing down his indictment and focusing on winning in court.  But then he wouldn’t be Donald Trump.”

Donald Trump, by the way, is holding a rally in Waco, Texas, Saturday, a rather curious location considering it will fall during the 30th anniversary of the siege of the Branch Davidian compound in Waco.  The botched federal raid of David Koresh’s HQ ended in 76 deaths, including 25 children.

--Editorial / New York Post…on Joe Biden’s failure to hold press conferences; or answer any questions of substance these days.

“Behind Biden’s lack of gab were surely all the topics he didn’t want to face.

“Revelations that daughter-in-law Hallie Biden got a cut of his son Hunter’s deal with a Chinese energy major.

“A Russian jet’s forced downing of a U.S. drone over the Black Sea.  Biden’s own Border Patrol head telling Congress that the border is not under our control.

“And that’s not even the full list. He cold-shouldered a group of reporters earlier this month – literally turning his back on them – because one dared to ask if he would hold China accountable for its Covid obfuscations.

“Either Biden arrogantly believes he’s simply above it all, not bound in any way to explain himself to the media and thus to the American people.

“Or he’s too scared to face the press because he has zero good answers on any important question about the disasters he’s wrought or the scandalous Biden ‘family business.’  So he just throws up his hands and walks off.

“No biggie!

“He’s gotten so brazen the White House press corps has started to rebel over the fact that Joe barely ever faces them.

“Which is all the more amazing because most of these reporters are firmly on Biden’s side of the aisle.

“Refusing to answer questions even from your friend says plenty all by itself.”

--Biden told a series of cringe-worthy jokes about his Irish ancestry to mark St. Patrick’s Day.

“I’ve been to Ireland many times, but not to actually look up, to find my actual family members. And there are so many – and they actually weren’t in jail.”

“There’s still a place called Finnegan’s pub…that’s related to my family,” the president went on.  “I’m the only Irishman you ever met, though, that’s never had a drink, so I’m OK.  I’m really not Irish.”

Oh brother.  

--From the Washington Post:

“Eliot Higgins, the founder of the open-source investigative outlet Bellingcat, was reading this week about the expected indictment of Donald Trump when he decided he wanted to visualize it.

“He turned to an AI art generator, giving the technology simple prompts, such as, ‘Donald Trump falling down while being arrested.’  He shared the results – images of the former president surrounded by officers, their badges blurry and indistinct – on Twitter.  ‘Making pictures of Trump getting arrested while waiting for Trump’s arrest,’ he wrote.

“ ‘I was just mucking about,’ Higgins said in an interview.  ‘I thought maybe five people would retweet it.’

“Two days later, his posts depicting an event that never happened have been viewed nearly 5 million times, creating a case study in the increasing sophistication of AI-generated images, the ease with which they can be deployed and their potential to create confusion in volatile news environments.  The episode also makes evident the absence of corporate standards or government regulation addressing the use of AI to create and spread falsehoods.”

We’re doomed.

--The U.S. Centers for Disease Control and Prevention warned Monday that cases of Candida auris, or C. auris – a potentially deadly and drug-resistant fungal infection – are on the rise at U.S. health care facilities.

There were 756 reported cases in 2020 and 1,471 in 2021 – a 95% increase.  Preliminary data shows 2,377 cases for 2022.

C. auris infections often cause no symptoms among healthy people, but can lead to serious complications among individuals with weakened immune systems, especially those who are hospitalized or in nursing homes.

It has a mortality rate of up to 60%.

--On Monday, the world’s leading climate science body, the UN Intergovernmental Panel on Climate Change, or IPCC, summarized five years of its own research with a stark warning: By the middle of the next decade, it may be too late to avoid a cycle of climate-induced disasters that dwarf what’s already happening across the globe.  “Evidence of observed changes in extremes such as heatwaves, heavy precipitation, droughts and tropical cyclones, and, in particular, their attribution to human influence, has further strengthened,” the report states.

The chance of evading the most severe impacts of burning fossil fuels is almost out of reach, scientists warn, unless radical changes are made – and immediately.

--Barely a drop of rain fell in France from mid-January until the end of February, the longest dry spell since records began in 1959.  In Italy, parts of the Po river have been reduced to large puddles, one reason why the canals of Venice, which are fed by the Po, have run nearly dry.

Last summer’s drought hit Europe’s energy supplies just as Russia cut natural-gas deliveries to the continent because of the war in Ukraine.  Hydropower generation across the European Union fell 19% to its lowest level in two decades.  France lowered output at some nuclear reactors because their exhaust water into rivers made them too warm, threatening wildlife.

Meanwhile, the drought significantly pushed down yields of summer crops.

French authorities said Monday that 80% of the country’s aquifers are at low or very low levels. The snowpack in the Alps is also low, meaning the spring melt could deliver a relatively limited infusion of water to the continent’s rivers.

I have seen the lack of snowfall all winter through my following of the World Cup Alpine Ski season, which had one event postponed after another due to lack of snow, though they amazingly made it all up.

Europe needs a rainy spring, or it will be another summer of stress on all manner of resources.

--As if California didn’t already have enough precipitation since December, they got a ‘bomb cyclone’ this week (atmospheric storm No. 12), with tornadoes, 100-mph winds, inches of rain, further feet of snow, and at least five deaths.  And every weather forecaster I saw before the storm hit was saying ‘this one won’t be as bad as the others,’ or something to that effect.

Ski areas in the state, from Mammoth Mountain to Big Bear, are obviously extending their seasons, Mammoth to “AT LEAST JULY,” as they put out in Trump-like fashion.

Actually, Mammoth often stays open until July, but this year, with 600+ inches of snow in much of the resort, it’s possible they could stay open all of 2023.  I mean there’s a chance they could.

[At the main lodge, as of Wednesday the figure was about 634 inches, the record being 668, and much more could be on the way next week.]

Snowpacks, overall, are at all-time record highs, and the state’s largest reservoirs, which were recently at critically low levels, have been replenished and are way past their historical averages as well.

But the Colorado River Basin remains in dire straits.  The country’s largest reservoirs – Lake Powell and Lake Mead – are hovering at or near record-low levels following several years of drought and continued overuse.  But this situation should improve in the coming months.

--Elsewhere in California, specifically Los Angles, the school district was shut down for three days by a strike by 30,000 Los Angeles education support staff (cafeteria workers, custodians, bus drivers) who are demanding a 30% salary increase plus a further $2 per hour for the lowest-paid workers, the L.A. Times reported.  The 35,000-member United Teachers Los Angeles walked off the job in sympathy, saying it wants to bring educational workers out of poverty, reduce class sizes and ensure each school is fully staffed.

The district has offered a 23% raise plus a 3% bonus.

Understand, the wages for these folks puts them under the poverty line…made worse by the cost of living in L.A. Give them the freakin’ money!

--New York City, snow season but over, had the least snowiest winter on record (as measured in Central Park), just 2.3 inches when the norm is about 28 inches, records going back to 1869.

Normally, my town of Summit, N.J., would receive about 3 or 4 more inches than what New York got, only because we’re a few degrees colder in the big storms.  But we didn’t get more than 2.3 ourselves.  Pathetic.

--I was curious what was served for Putin and Xi’s seven-course meal Monday night at the Kremlin.  According to the Daily Mail, the menu started with a blini with quail and mushrooms; a blini a traditional Eastern European savory pancake.  Mmmm.

Next up was a sterlet fish soup; a small sturgeon, known for its tender flesh and frequently noted as the best producer of caviar.

A pomegranate sorbet came next, the palate cleanser, usually made using lime and mint.

More fish was next.

Nelma – a giant Arctic whitefish, served with a side of vegetables. [Said to be a bit oily, so I’ll pass.]

Venison was on the menu, served with a cherry sauce.

“But rather devastatingly for Australians and New Zealanders, pavlova appeared to be on offer for dessert. The two countries down under have fought over the egg-white and sugar dessert for decades.  But the pudding was said to be named after Russian ballerina Anna Pavlova, who toured the two countries in the 1920s.  It seems as though a recipe made its way back to Moscow where the Russians have now adopted it as their own.”

And there was wine from Russia’s southern Krasnodar region.

[No word on what the two dictators ate Tuesday.]

---

Pray for the men and women of our armed forces…and all the fallen.  We learned in Syria this week why prayers are continually needed.

Pray for Ukraine.

God bless America.

---

Gold $1981
Oil $69.27

Regular Gas: $3.44; Diesel: $4.26 [$4.23 / $5.05 yr. ago]

Returns for the week 3/20-3/24

Dow Jones  +1.2%  [32237]
S&P 500  +1.4%  [3970]
S&P MidCap  +1.3%
Russell 2000  +0.5%
Nasdaq  +1.7%  [11823]

Returns for the period 1/1/23-3/24/23

Dow Jones  -2.7%
S&P 500  +3.4%
S&P MidCap  -1.1%
Russell 2000  -1.5%
Nasdaq  +13.0%

Bulls 39.7
Bears 28.8

Hang in there.

Brian Trumbore

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