Week in Review

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Week in Review

05/27/2023

For the week 5/22-5/26

[Posted 5:30 PM ET, Friday]

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Edition 1,258

Sixty percent of Americans say Congress should only raise the nation’s debt ceiling if it cuts spending at the same time, according to a new CNN Poll, as the government’s June 1 “hard deadline” to avoid economic catastrophe looms large over Washington. 

Still, a broad majority of Americans favor raising the debt ceiling (84%), with just 15% saying Congress should not do so under any circumstances. 

What’s interesting is that about half of Americans say they have been following the negotiations over the debt limit very (14%) or somewhat closely (36%), below the 70% who said they were following very or somewhat closely in 2011, when President Obama and Republicans in Congress were negotiating a debt ceiling increase.

As I note further below, the Federal Reserve released the minutes from its May meeting and officials noted the risks of not raising the debt ceiling in time.  Failure to do so threatens “significant disruptions to the financial system and tighter financial conditions that weaken the economy,” some participants noted.  “A number” of them said the central bank “should maintain readiness to use its liquidity tools” to offset the damage of a possible default.

But with Treasury Secretary Janet Yellen continuing to talk of a June 1 deadline* before Treasury has to start skipping payments of one kind or another, including potentially Social Security, Wall Street rallied today on word the Biden administration had agreed to long-standing GOP demands to pare back some of the $80 billion in new funding Congress approved last year for the Internal Revenue Service.  The administration agreed to the demands so officials could redirect as much as $10 billion from the IRS to shield other domestic programs from the steep cuts sought by Republicans.

The deal would raise the debt ceiling for two years – through the 2024 presidential election – in exchange for two years of new spending limits mostly focused on domestic government programs.

Defense spending would be at the level the administration is calling for, a 3.3% increase, not higher as Republicans wanted, but 3.3%, you understand, is a ‘real’ cut…3.3 being less than the inflation rate. 

[A default would threaten military readiness and national security.  As Joint Chiefs of Staff chairman Gen. Mark Milley put it, “I think there’s no doubt whatsoever that there would be a very significant negative impact on the readiness, morale and capabilities of the United States military,” adding that the nation’s reputation abroad would suffer.]

Speaker Kevin McCarthy has told his members they will get a chance to review the agreement over the holiday weekend, and a vote is expected on Tuesday, May 30, with the Senate voting the next day.

BUT…as I go to post, many of the details remain to be worked out, such as on new work requirements for federal aid programs, which could happen overnight, or maybe not.

And when it comes to a vote, there is little doubt Speaker McCarthy is going to need the help of some Democrats.  It still comes down to the Freedom Caucus vs. Progressives.

*So after 4:00 p.m. today, Secretary Yellen issued a revised default date of June 5.  A very slight reprieve and this should be considered a hard date.

Yellen was able to look at a late release today from the Treasury Department that revealed its operating cash balance as of Thursday was $38.84 billion, compared with $57.34 billion a week earlier.  Treasury said it also had $67 billion in remaining borrowing capacity on May 24 under available extraordinary cash management measures, down from $92 billion a week earlier.  You can start playing around with the math over beers this holiday weekend, but it’s easy to see how June 5 is realistic.

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I have a note down below on China’s hacking of various systems on the island of Guam, which the U.S. discovered back in February and has just come to light.  It’s immensely dangerous with our huge military presence there, a key to deterring a Chinese attack on Taiwan (and/or where much of our response to same would originate).

And then this week Guam was hit by a typhoon with Cat-4 winds of 150 mph, knocking out power and water on Thursday to virtually all of the island, though thankfully resulting in no deaths, Guam having been given a decent amount of time to prepare.

But having been to Guam at least five times myself, I can appreciate the scope of the damage and the lengthy cleanup.  Imagine had China wanted to initiate a strike on our forces, including 10,000 military personnel on the island, how vulnerable we would have been this week.

On a different matter, when you read between the lines, Iran and Israel appear closer than ever to a conflict, as also discussed below.

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This Week in Ukraine….

--In Hiroshima, Japan, last weekend, G7 leaders pledged to support Ukraine “for as long as it takes” while committing “to intensifying our diplomatic, humanitarian and military support for Ukraine, to increasing the costs to Russia and those supporting its war efforts…”

Russian Foreign Minister Sergei Lavrov said that decisions taken by the G7 were aimed at the “double containment” of Russia and China.  Addressing a televised conference, Lavrov reiterated Russia’s claim that the West is using Ukraine as a tool to inflict a strategic defeat on Russia.

“The task was set loudly and openly – to defeat Russia on the battlefield, but not to stop there, but to eliminate it as a geopolitical competitor,” Lavrov said.  “Look at the decisions that are being discussed and adopted today in Hiroshima at G7 summit of the Seven, and which are aimed at the double containment of Russia and China.”

The G7 also agreed to tighten sanctions against Moscow and pare back exposure to China. They also urged China to press Russia to halt its military aggression and immediately withdraw its forces from Ukraine.

--Russia said on Saturday it had completely taken the city of Bakhmut.  The head of the Wagner Group, Yevgeny Prigozhin, claimed full control of a city that became the focus of the longest and bloodiest battle of the war.

In a video in which he appeared in combat fatigues in front of a line of fighters holding Russian flags and Wagner banners, Prigozhin said: “Today, at 12 noon, Bakhmut was completely taken.”  He also said his forces would withdraw from the city from May 25 for rest and retraining.  “We completely took the whole city, from house to house,” he said.  Distant explosions could be heard in the background as Prigozhin spoke.

Ukrainian military leaders denied the city had fallen though called the situation there critical.

President Zelensky then muddied things when he said Sunday at the G7 summit in Hiroshima that Russian forces have “destroyed everything.”  Standing beside President Biden, Zelensky said: “There are no buildings. It’s a pity. It’s tragedy. But, for today, Bakhmut is only in our hearts.  There is nothing in this place, so – just ground and – and a lot of dead Russians.”

Later, Zelensky then claimed in response to a reporter’s question: “Bakhmut is not occupied by the Russian Federation as of today.”

The fog of war and conflicting comments from both sides.

Ukraine claimed Sunday that its forces were still advancing around the edges of Bakhmut, aiming to encircle the city.

Russian President Vladimir Putin congratulated the Wagner mercenary force and Russian troops for taking Bakhmut.  But Wagner Group leader Yevgeny Prigozhin played down the role of the regular Russian army.  In a voice message published by his press service on Telegram, Prigozhin said: “During the taking of Artyomovsk (the Soviet-era name for Bakhmut), practically no one from the army helped us.”  Prigozhin praised individual Russian army units, while restating longstanding criticism of the leadership of Russia’s defense ministry, which he has accused of hampering the war effort via incompetence.

Earlier on Sunday, the Russian defense ministry said its forces had also destroyed a road bridge previously used by Ukrainian forces to reinforce Bakhmut as well as a Ukrainian ammunition warehouse.

Tuesday, Ukraine claimed its forces still control the southwestern edge of Bakhmut and fighting in the city had decreased, deputy defense minister Hanna Maliar claimed.  Maliar wrote on Telegram that Kyiv’s forces had made some progress “on the flanks” and that Russian forces were continuing to clear areas they control.

Wednesday, Yevgeny Prigozhin said his forces lost more than 20,000 men in the battle for Bakhmut, with half of those dying being Russian convicts recruited to fight in the war.

The figure stood in stark contrast to the widely disputed claims from Moscow that just over 6,000 of its troops were killed in the entire war as of January.  Ukraine hasn’t said how many of its soldiers have died since the war began in Feb. 2022.

While Prigozhin’s proclamations have been all over the place, it was interesting the figure he gave is in line with many Western analysts and government’s projections for Bakhmut.

Thursday, Prigozhin issued a video wherein he said the Wagner forces have started to withdraw from Bakhmut and will be replaced by regular Russian troops.

Ukraine conceded that Russian forces control nearly all the city and has signaled that its forces are shifting their focus to Bakhmut’s outskirts, where they made gains this month. If Wagner’s forces do withdraw, it will represent a significant test for the Russian military, which will be challenged to hold the city.

In the video on Thursday, Prigozhin is shown visiting what he claims are Wagner positions in Bakhmut and telling his soldiers to hand over their positions to Russian troops.

“Leave them soap, but take away your toothbrushes,” he said.

--Monday, the governor of Belgorod region said a Ukrainian “sabotage group” had entered Russian territory in the Graivoron district bordering Ukraine and was being repelled by Russian security forces. Reports on some channels said the local headquarters of the interior ministry and FSB security service had been targeted.  Ukrainian presidential adviser Mykhailo Podolyak tweeted that Kyiv was “watching the events in the Belgorod region” but was not involved.

Two armed Russian opposition groups, the Liberty of Russia Legion and the Russian Volunteer Corps (RVC), were carrying out the attack.

The Liberty of Russia Legion is a Ukraine-based Russian militia led by Russian opposition leader Ilya Ponomarev that says it is working inside Russia for Putin’s overthrow.

The Kremlin said the incursion aimed to distract attention from Bakhmut, calling the militants “saboteurs.”

The Russian military said Tuesday it had routed the militants who had penetrated the Belgorod region with armored vehicles, killing more than 70 “Ukrainian nationalists” and pushing the rest back into Ukraine.

In what appeared to be one of the biggest incursions from Ukraine since the war began 15 months ago, the two purported anti-Kremlin armed groups employed Russians based abroad.

The Russian defense ministry, which blamed the Ukrainian authorities, said its forces had surrounded the enemy fighters and defeated them with “air strikes, artillery fire and active action by border units.”

One of the two fighting groups – the RVC – said on social media: “One day we’ll come to stay.”  In a later statement, the group denied its forces had been routed.  “The Russian Volunteer Corps has incurred no losses,” it said.

The second group, the Freedom of Russia Legion, said it had “demilitarized” a Russian motorized rifle company and destroyed armored vehicles.  It said Russian statements about thwarting the incursion described “imaginary losses… Putin’s forces have not distinguished themselves with any successes in the past day,” it said in a social media post.  “While they cowardly hide in the bushes, we will move forward to our goal – the complete liberation of Russia!”

Ukraine’s government had said it was watching the situation but had “nothing to do with it.”  It said the same in March when one of the groups – which Moscow said consisted of far-right Russian extremists managed by Ukrainian intelligence – mounted an incursion into another border region.

Kremlin spokesman Dmitry Peskov said Russia was conducting its “special military operation” in Ukraine in part to ensure that such incidents could not be repeated.  “This once again confirms that Ukrainian militants are continuing their activities against our country. This requires a great deal of effort from us, and these efforts are continuing.”

Of course Kyiv and its Western supporters say Russia’s campaign is an unprovoked invasion to grab territory from Ukraine, independent since the 1991 Soviet collapse.  Moscow says it is defending its own security from what it says is an ever-expanding NATO.

But the attackers were supposedly ethnic Russians, not ethnic Ukrainians.  Peskov said ethnic Russians living in Ukraine are “still Ukrainian militants.”

--Former Russian president Dmitry Medvedev, who serves as deputy chairman of the powerful Security Council, warned Tuesday that the more destructive the weapons that the West supplied to Ukraine, the higher the risk of “nuclear apocalypse.”

Medvedev has issued such warnings before, and Russia repeatedly says the West is engaged in a proxy war with Russia over Ukraine that could escalate into a much bigger conflict.

“The more weapons are supplied, the more dangerous the world will be,” Medvedev.

Addressing the Ukrainian nationalists who staged an incursion into Belgorod, Medvedev said the attackers were “scumbags” who should be exterminated “like rats.”

“Responsibility…is carried by the Kyiv regime, and ultimately by its sponsors overseas – that is, Washington and the countries of the European Union, along with affiliated states like Britain and others,” Medvedev said, according to TASS.  “This is their responsibility direct and immediate.”

The U.S. distanced itself from the incursion, the State Department insisting it did not “encourage or enable strikes inside Russia.”

Wednesday, Russian Defense Minister Sergei Shoigu said Russia will react “extremely harshly” to further attacks by fighters entering its territory from Ukraine.

--Also on Wednesday, one of Russia’s top spy chiefs ranted that the West had sown the seeds of its own destruction by turning away from what he called its core traditions and told it to “go to the devil” and stop interfering in global affairs.

In remarks at a security forum outside Moscow attended by foreign security officials, Sergei Naryshkin, head of Russia’s SVR foreign intelligence service, made some of his most anti-Western comments yet, underlining the depth of enmity Moscow harbors towards the West over its support for Ukraine.

“The Anglo-Saxons might be advised to attend to their own internal civil conflicts.  Better still, to clear off to their acquaintance, the devil,” said Naryshkin, who like other Russian officials refers to Britain, the United States and other English-speaking countries in the West as “the Anglo-Saxons.” “It is pertinent to remember the biblical truth: the end of them will be according to their deeds.  And that means that their end will be a sad one,” he said, saying the West was riven by serious internal and external problems.

Bottom line, Naryshkin could have just said, ‘My note to the West is stop arming Ukraine!’

--Russia moved ahead on Thursday with a plan to deploy tactical nuclear weapons in Belarus, whose leader, Alexander Lukashenko, said the warheads were already on the move.  Lukashenko made the announcement from Moscow, thus dispelling reports of his imminent demise.

--Friday, a Russian missile hit a clinic in the eastern Ukrainian city of Dnipro, killing at least two people and wounding 30 in an attack that President Zelensky described as a crime against humanity.

Video footage showed a devastated building with smoke pouring out of it and rescue workers looking on.  A covered corpse lay in the road nearby.

“Another (Russian) missile attack, another crime against humanity,” Zelensky wrote on Twitter, describing the damage to a psychological clinic and a veterinary clinic in Dnipro.  “Only an evil state can fight against clinics.  There can be no military purpose in this. It is pure Russian terror.”

--Russian Foreign Minister Lavrov and Chinese special envoy Li Hui discussed prospects for resolving the conflict in Ukraine at a meeting in Moscow Friday, with Lavrov expressing gratitude for China’s “balanced position” and willingness to pay a positive role.

Of course he would be gratified.  China’s 12-point plan for peace doesn’t freakin’ require Russia to withdraw its forces from any territory it has seized!!!  It’s a very bad joke.

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--U.S. officials said the drone attack on the Kremlin earlier this month was likely orchestrated by one of Ukraine’s special military or intelligence units, the latest in a series of covert actions against Russian targets that have unnerved the Biden administration.

As reported by the New York Times, the intel agencies do not know which unit carried out the attack and it was unclear if President Zelensky or his top officials were aware of the operations.

The agencies reached their preliminary assessment in part through intercepted communications in which Russian officials blamed Ukraine and other communications in which Ukrainian officials said they believed their country was responsible for the attack, in which two drones were flown on May 3 toward the Kremlin, causing little damage.

--The State Department said on Monday that Russia’s Wagner Group is trying to obscure its efforts to acquire military equipment for use in Ukraine, adding that Washington has been informed the mercenary force is seeking to move those acquisitions through Mali to aid Russia in its war.  But spokesperson Matthew Miller said, “We have not seen as of yet any indications that these acquisitions have been finalized or executed, but we are monitoring the situation closely.”  The Wagner group has been active in Mali since 2021, after a coup in the West African country.

--The Russia-Trump overlap continues: Russia unveiled a round of new sanctions against people Vladimir Putin dislikes.  But the list includes several of Donald Trump’s adversaries, as the New York Times’ Peter Baker reported Sunday, like “Letitia James, Brad Raffensperger and the officer who shot Ashli Babbitt even though none has anything to do with Russia policy.”  Pathetic.  Yup, all about Helsinki…and what was said between the two.  Five years later, we still have no clue.

--The Lefortovsky District Court of Moscow on Tuesday extended the pre-trial detention of Wall Street Journal reporter Evan Gershkovich for three months to August 30, Russian state agency RIA Novosti reported citing the court. 

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Wall Street and the Economy

In the Fed’s minutes from the Open Market Committee May meeting, released this week, officials “generally agreed” that the need for further interest rate increases “had become less certain,” with several saying that the quarter-point hike they approved might be the last.

Others cautioned the central bank needed to keep its options open given the risks of persistent inflation, which is still running at more than two times the Fed’s 2% target.  “Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,” the minutes said, adding weight to expectations the Fed is likely to pause its aggressive rate-hike campaign come June 13-14.

Yet there was division about the path ahead.  With Fed staff continuing to project a mild recession later this year, some policymakers “saw evidence that the past year’s tightening was beginning to have its intended impact,” with “almost all participants” seeing risks to economic growth due to a tightening of bank credit after a string of bank failures.

And “almost all” also saw upside risks to inflation, and “many participants focused on the need to retain optionality” to either hold rates steady or increase them.  Some saw the need for further rate hikes as “likely.”  In addition, “some participants stressed that it was crucial” not to convey that rate cuts are likely or that further increases in borrowing costs “had been ruled out.”

An example of the conflicts facing Fed decision makers is the comments this week of Fed Governor Christopher Waller, a permanent voting member.  [By the way, on the wall behind where I am typing this up is a list of voting and non-voting members for 2023, along with a list of all my losing DraftKings bets, a list of the population of each European Union nation, and a map of China’s nine-dash claim in the South China Sea…to give you a look ‘inside the process.’]

Waller said he is concerned about the lack of progress on inflation, and while skipping an interest rate hike at the June meeting may be possible, an end to the hiking campaign isn’t likely.

“I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2% objective,” Waller said in remarks Wednesday at an event in California.  “But whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks.”

Particularly critical, he said, will be two more reads on inflation, as well as data on what is a “very tight” labor market and wages rising too fast to be consistent with stable prices.  Evolving credit conditions since the string of regional bank failures that began in March will also help inform his views, Waller said.  “Between now and then, we need to maintain flexibility on the best decision to take in June.”

But, he added, “prudent risk management would suggest skipping a hike at the June meeting, but leaning toward hiking in July based on the incoming inflation data.”

Well, today we received critical inflation data, the Fed’s key benchmark, the personal consumption expenditures price index for April, with the core inflation rate 0.4% vs. an expected 0.3% month-over-month, 4.7% year-over-year, vs. consensus of 4.6%, and 4.6% prior.

This is not good.  And the Fed has a lot to mull over the next 2 ½ weeks.

Separately, personal income for April was 0.4%, in line, but consumption rose 0.8%, above expectations, and another sign of resilience in the economy (which the Fed won’t like either).

April durable goods rose 1.1% when a decline of 1% was expected, but ex-transportation fell 0.2%.

Earlier, April new home sales came in better than forecast, 683,000 annualized.

A second look at first-quarter GDP was also better than consensus, 1.3% vs. the first reading of 1.1%.

The Atlanta Fed’s GDPNow barometer for growth in the second quarter fell to 1.9% from the last reading of 2.9%.

Freddie Mac’s 30-year fixed-rate mortgage climbed to 6.57% from last week’s 6.39% and is likely to be higher still next week.

Lastly, last weekend at the Group of Seven summit, leaders said they wanted “constructive and stable” relations with China even as they pushed ahead with steps to reduce dependence on Beijing for critical supply chains.

The leaders emphasized that they were “not decoupling or turning inwards,” saying “economic resilience requires de-risking and diversifying,” according to the statement.  It said they would “push for a level playing field for our workers and companies” while fighting economic coercion and “protecting certain advanced technologies that could be used to threaten our national security without unduly limiting trade and investment.”

“Our policy approaches are not designed to harm China nor do we seek to thwart China’s economic progress and development,” said the communique.  “A growing China that plays by international rules would be of global interest.”

China responded by accusing the G7 of manipulation and interference in its internal affairs.  In a statement released on its official WeChat account of its embassy in the UK, China said the G7 has interfered in China’s internal affairs on issues related to Taiwan, Hong Kong, Xinjiang and Tibet and has stirred up tensions in the East and South China Seas in recent years.

In its statement, China reiterated that any motion for Taiwan’s independence is a threat to peace in the region. It also emphasized the “one country, two systems” in Hong Kong, and said Xinjiang has the maximum protection for human rights with social stability, economic development and religious harmony.

China called for the U.S. to stop its “bullying” to coerce allies to disrupt the stability of global supply chains, and urged the G7 to abandon its “Cold War mentality.”

It was then no surprise that China used the occasion of the G7 to retaliate against a U.S. chip maker, Micron Technology, story below.

Europe and Asia

We had just flash PMIs for May in the eurozone this week, courtesy of S&P Global and HCB, with the composite at 53.3 (50 the dividing line between growth and contraction).  Manufacturing was 46.3, services 55.9.

Germany: mfg. 47.4, services 57.8
France: mfg. 45.1, services 55.1

UK: mfg. 47.4, services 55.1

Cyrus de la Rubia / Chief Economist at Hamburg Commercial Bank:

“Eurozone GDP is likely to have grown in the second quarter thanks to the healthy state of the services sector.  However, the manufacturing sector is a powerful drag on the momentum of the economy as a whole.  German companies from this sector are particularly hard on the brakes, as new orders here have fallen even more significantly than in France and the production index is also pointing sharply downward.

“Overall, companies in the manufacturing sector are less optimistic about their production over the next twelve months….

“A welcoming development for the people of the eurozone is that companies continue to hire more workers… The risk of a recessionary downward spiral in the form of falling employment, lower consumer demand triggered by this, which in turn causes companies to downsize, is therefore rather low in these times of demographically induced labor shortages.”

Britain: The consumer price index in the UK registered 8.7% in April, adding to pressure on the Bank of England to keep raising interest rates through the summer.  Core inflation, ex-food and energy, rose to 6.8% in April, its highest level in 31 years, the statistics agency said, pushed higher by prices in the services sector.

Bank of England Governor Andrew Bailey warned that inflation in the UK is sticky and taking longer to come down after shock data that fueled bets on higher interest rates.

Bailey denied that the UK is suffering from a wage-price spiral but admitted that the central bank is grappling with stubborn core price pressures and a “very tight labor market.”

“It’s the stickiness downwards, and the question of how fast is it going to come down,” Bailey said Wednesday.  “Quite a bit of that obviously depends on how inflation expectations are coming down and they are coming down.”

Nonetheless, investors are betting the BOE’s key base rate will hit 5.5%, up from the current 4.5%.

Bailey said he was “determined” to bring inflation back down to the 2% target.

The yield on the British 10-year rose from 3.99% to 4.33% this week on the inflation news.

Germany: The government announced the economy entered a recession after contracting for a second consecutive quarter.  GDP shrank 0.3% in the first three months of 2023, following a 0.5% decline in the final quarter of 2022.  Inflation has hurt household spending, while government spending decreased significantly.  However, there is some optimism for the rest of the year.

Turning to Asia…nothing of note from China on the data front.

Japan’s flash May PMIs came in at 51.9 manufacturing, 56.3 services.

Street Bytes

--Stocks finished mixed, despite a strong rally today on optimism over the debt ceiling talks and a continued rally in chip stocks.  For the week the Dow Jones fell 1.0% to 33093, while the S&P 500 gained 0.3% and Nasdaq 2.5%; the fifth straight weekly gain for the (cliché alert) tech-heavy index.

As of last week, the market’s five biggest stocks – Apple, Microsoft, Alphabet, Amazon.com and Nvidia – had a combined market cap of about $8.4 trillion*, almost 25% of the S&P 500 market cap (and about 3.2 times the $2.7 trillion Russel 2000 cap).  The five stocks had also accounted for roughly 80% of the S&P’s 9% gain.

*Now $9 trillion.

--U.S. Treasury Yields

6-mo. 5.37%  2-yr. 4.56%  10-yr. 3.80%  30-yr. 3.96%

Yields surged on twin concerns…the debt ceiling negotiations and the realization the Fed is not finished with rate hikes, whether it is in June or July given the inflation data and the strength of the economy.  Next week it’s about the jobs report.

The 10-year is at its highest weekly close since March 3rd.

--Chevron deepened its commitment to oil-and-gas drilling in the U.S., spending more than $6 billion to acquire a rival with sizable operations in Texas and Colorado.

But in buying PDC Energy in a $6.3 billion all-stock deal, Chevron is aiming to build a bigger foothold in two prolific oil patches, one of which straddles Colorado and Wyoming, a region where Chevron already has a large stake.

The transaction also boosts Chevron’s position in its major U.S. onshore play, the Permian Basin of West Texas and New Mexico.

Separately, OPEC+ meets in Vienna next week, with Russian Deputy Prime Minister Alexander Novak saying they would make a decision on what is best for the oil market re production levels.

Oil closed the week at $72.78, after rallying to above $74 on West Texas Intermediate.  Natural gas fell to $2.41 from last week’s $2.60.

Americans hitting the road this weekend, however, will see an average price for gas at the pump of $3.57, down from last year’s $4.60, as a year ago we were about to hit record highs.

--China is banning major Chinese firms from buying from Micron Technology, saying its products pose a major national-security risk, in yet another high-profile example of the strained relations between Washington and Beijing.

The Cyberspace Administration of China said Sunday its review of Micron products found “significant security risks” that would affect national security and warned operators of key Chinese information infrastructure – such as telecommunications firms and state-owned banks – against purchasing the company’s goods.

“We are evaluating the conclusion and assessing our next steps,” Micron said.  “We look forward to continuing to engage in discussions with Chinese authorities.”

Two months ago, Beijing announced an investigation on imports from Micron, the largest memory-chip maker in the U.S., in what was clearly a political move aimed at hitting back at a sweeping ban Washington put in place late last year on selling advanced chip-making technology to China.

It also comes as China has broadly ratcheted up pressure on foreign businesses in a bid to fortify its economy from foreign influence.

“We firmly oppose restrictions that have no basis in fact,” the U.S. Department of Commerce said in a statement late Sunday.  “This action, along with recent raids and targeting of other American firms, is inconsistent with [China’s] assertions that it is opening its markets and committed to a transparent regulatory framework.”  The statement also said the Commerce Department will engage directly with Chinese authorities to detail the U.S. position and will engage with key allies and partners to address what it termed as distortions of the memory-chip market caused by China’s actions.

The action against Micron comes on the heels of Beijing’s condemnation of a statement issued by President Biden and leaders of six other democracies pledging to take steps to block transfer of sensitive technology to China and protect nations from what they see as Beijing’s tactics of intimidation.

Beijing in its response was careful not to punch back too hard as to further limit Chinese companies’ access to advanced Western technology.

Micron is a test case for China, as the company derives only about 10% of its revenue from China.  And Chinese companies can easily switch out Micron’s products for those made by competitors such as Samsung and SK Hynix.

The White House said Tuesday that the Chinese government’s ban on Micron over security concerns is “not based in fact.”  The Biden administration is troubled by Beijing’s recent actions and by raids targeting American consulting firms, as I’ve spelled out the prior two weeks.

--So with the above in mind, for good reason chip maker Nvidia is concerned that the growing tit-for-tat between the U.S. and China will hurt its business.  The loss of sales in China can hit much sooner than any boost they might get in the future from AI.

But for now, in terms of the stock market, AI is the key to Nvidia’s story and once again, the company blew away the Street’s expectations when it reported first-quarter earnings after the close on Wednesday.

The company forecast second-quarter revenue more than 50% above current consensus, with the company saying it is boosting supply to meet surging demand for its artificial intelligence chips, which are used to power ChatGPT and many similar services. 

Shares of the most valuable U.S. chip company then jumped 24% Thursday, another 2% Friday, and neared the $1 trillion market cap level by week’s end, a share price of $389 vs. $307 at Tuesday’s close, prior to the earnings release.

The AI boom has helped Nvidia become the fifth-most valuable U.S. company by market value.  The company has strained to meet demand for its AI chips, with Tesla CEO Elon Musk, who is reportedly building out an artificial-intelligence startup, earlier this week telling an interviewer that the graphics processing units (GPUs) are “considerably harder to get than drugs.”

But Nvidia CEO Jensen Huang (who literally made $billions this week on his stake in the company) said on Wednesday in a statement that the company is “significantly increasing our supply to meet surging demand” for its data center chips.

Nvidia forecast current-quarter revenue of $11 billion, plus or minus 2%.  Analysts polled by Refinitiv are expecting revenue of $7.15 billion. Adjusted revenue for the quarter ended April 30 was $7.19bn, vs. consensus of $6.52bn.

The company’s key data center chip sales hit a record $4.28 billion, also far better than the $3.89 billion forecast, and up 14% from a year ago and up 18% from the previous quarter. 

Net income rose to $2.04 billion, or 82 cents per share, from $1.62 billion, or 64 cents per share, a year earlier.

--China plans to launch the first commercial flight of its C919 narrow-body jet on Sunday, marking a much-anticipated milestone in Beijing’s push to break the duopoly of Boeing and Airbus in global airplane production.

The maiden journey is to be operated by China Eastern Airlines, from Shanghai to Beijing, the country’s busiest domestic-flight route.  The aircraft will then return to Shanghai.

The home-grown C919, built by the state-owned Commercial Aircraft Corporation of China (Comac) to compete with Boeing’s 737 and Airbus’ A320 family of planes, was certified in September by the Civil Aviation Administration of China after more than 14 years of development.

China has a lofty goal for the C919 to gain 10 percent of the domestic market share by 2025.

--TSA checkpoint numbers vs. 2019

5/25…107 percent of 2019 levels
5/24…107
5/23…92
5/22…102
5/21…128
5/20…104
5/19…95
5/18…98

--Netflix announced Tuesday that the company has begun sending email messages to customers accessing their account from more than one location – and advising them that the extra users need to find another option.

The company has been promising to take this step in the U.S. for months now, and previously launched crackdowns in some other markets, including Canada, New Zealand, Spain and Portugal.

“A Netflix account is for one use by one household,” the company said.  “Everyone living in that household can use Netflix wherever they are – at home, on the go, on holiday.”

And everyone who lives somewhere else is going to need to pay up.

Netflix has said previously that as many as 100 million households are watching Netflix content without paying for it. But those days are about to end.

People who pay for the $19.999 a month Premium account have the option to add up to two additional “extra members” who don’t live with the primary account holder for $7.99 a month.  Members with Standard accounts, which are $15.49 a month, can add a single extra member at the same $7.99 monthly rate.

--Meta on Monday was fined a record $1.3 billion and ordered to stop transferring data collected from Facebook users in Europe to the United States, in a major ruling against the social media company for violating European Union data protection rules.

The penalty, announced by Ireland’s Data Protection Commission, is potentially one of the most consequential in the five years since the European Union enacted the landmark data privacy law known as the General Data Protection Regulation.  Regulators say the company failed to comply with a 2020 decision by the E.U.’s highest court that data shipped across the Atlantic was not sufficiently protected from American spy agencies.

The ruling announced on Monday applies only to Facebook and not Instagram and WhatsApp, which Meta also owns.  Meta said it would appeal the decision and that there would be no immediate disruption to Facebook’s service in the E.U.

The ruling comes with a grace period of at least five months for Meta to comply, and the appeal could set up a potentially lengthy legal process.

The case against Meta stems from U.S. policies that give intelligence agencies the ability to intercept communications from abroad, including digital correspondence.

Meta faces the prospect of having to delete vast amounts of data about Facebook users in the European Union. That’s no easy task given the interconnected nature of internet companies.

Meta and other companies are counting on a new data agreement between the United States and the European Union to replace the one invalidated by European courts in 2020.

Meta also lost a court battle in the European Court of Justice over a demand by the European Commission that it hand over documents to be investigated for suspected anti-competitive behavior by the Facebook group.

The EU’s second-highest court dismissed the action brought by Meta Platforms Ireland, saying that its pleas in law “proved to be unfounded.” 

“The court dismisses the action in its entirety,” a court press release said.

In 2020, the EU executive ordered Meta to hand over all documents handled by three of its managers that contained certain phrases, and warned that failure to provide the information requested could be subject to a daily fine of 8 million euros.

Meta appealed to the court to annul the decision on the basis that the Commission had over-reached.

The documents captured included materials “containing private correspondence of employees concerning medical and autopsy reports and correspondence of employees at times of great personal distress,” Meta told the court.

The Commission’s initial request contained 83 unique questions regarding Facebook Marketplace, social networking and online classified advertisement providers.

--Lowe’s Cos. Inc. cut its annual sales and profit forecasts on Tuesday, joining larger rival Home Depot in highlighting waning demand for home improvement goods with sticky inflation forcing consumers to cut back on discretionary spending.  Americans are also prioritizing on travel and leisure activities instead of investing further in their houses as during the pandemic, while a slump in lumber prices and a damp start to the Spring season also squeezed sales.

Lowe’s expects full-year comparable sales to fall between 2% and 4%, compared to its prior outlook of flat to down 2%.  In comparison, Home Depot last week slashed its same-store sales forecast to a 2% to 5% fall from nearly flat sales expected previously.

Lowe’s projected 2023 adjusted earnings between $13.20 and $13.60 per share, compared with $13.60 to $14.00 estimated previously.

Comparable sales fell 4.3% in the first quarter.  Lowe’s heavier reliance on the DIY (do it yourself) customer than Home Depot hurt it, as DIY accounts for about 75% of its business, vs. the Pro side.

--Dick’s Sporting Goods reported stronger-than-expected fiscal first-quarter results fueled by higher transactions and average tickets, though the sporting good retailer’s comp sales narrowly missed the Street’s forecasts.

Revenue rose to $2.84 billion for the three months ended April 29 from $2.7 billion, beating consensus of $2.8 billion.  Adjusted earnings per share advanced to $3.40 from $2.85, ahead of the Street’s $3.21 view.  The shares rose in response.

Comparable store sales increased 3.4% versus a decline of 8.4% a year ago, driven by a 2.7% increase in transactions and an increase in average ticket.  However, comparable sales decelerated on a sequential basis from 5.3% in the fourth quarter.

“Even as consumers face macroeconomic uncertainties, our athletes have continued to prioritize sport and rely on Dick’s to meet their needs, and we continue to gain market share,” CEO Lauren Hobart said in a statement.

The retailer continues to expect full-year earnings per share in the range of $12.90 to $13.80. The outlook represents 11% year-over-year growth at the midpoint versus 2022, according to Hobart.

Dick’s affirmed its full-year forecast for comparable sales to be flat to up 2%, which would mark an improvement from a decline of 0.5% last year.

--Best Buy reported fiscal Q1 earnings of $1.15 per share, down from $1.57 a year earlier, but beating consensus of $1.10.

Revenue for the quarter ended April 29 was $9.47 billion, vs. $10.65 billion a year ago, with analysts’ expectations of $9.53 billion.

The company’s Q1 comparable sales were down 10.1%, compared with a fall of 8% a year earlier, analysts at a decline of 9.9%.

The retailer said it expects fiscal 2023 earnings of $5.70 to $6.50, vs. current consensus of $6.20.  BBY sees fiscal 2023 comp sales falling 3% to 6%.  It expects current quarter comp sales to fall 6% to 8%.

Best Buy continues to offer steeper discounts in a bid to counter weakness in demand for TVs, laptops and other electronic products as high inflation pressures consumers’ wallets.

--Kohl’s Corp. on Wednesday reported a surprise profit as the department store operator’s efforts to reduce excess inventory and slash costs under a newly appointed CEO started paying off, sending its shares, initially, up 18%, before giving up much of those gains by the end of the day.

The company also maintained its full-year targets even as it posted a bigger-than-expected drop in quarterly comparable store sales.

Kohl’s efforts under new CEO Tom Kingsbury to reduce reliance on margin-sapping discounts to cut inventory and focus on in-demand categories including work wear are already showing results.  First-quarter operating expenses fell 4.2% to $1.2 billion, while gross margin grew by 67 basis points, as the company’s inventory fell by 6%.

Earnings per share came in at 13 cents, compared with analysts’ average expectation of a loss of 42 cents, according to Refinitiv data.

For the full-year 2023, Kohl’s maintained its forecast for earnings per share in the range of $2.10 to $2.70, and a 2% to 4% dip in net sales.

Comp sales fell 4.3% in the first quarter, vs. consensus of a 3.9% decline.

--Shares in Dollar Tree cratered 10% Thursday (but were down much more earlier in the session), as the company reported adjusted fiscal first-quarter earnings of $1.47 vs. expectations for $1.54, and down from $2.37 a year earlier.

Net sales for the quarter ended April 29 were $7.32 billion, up from $6.90 billion a year ago, basically in line with analysts’ forecasts.

Enterprise same-store sales during the quarter rose 4.8% vs. consensus of 3.7%.

But the discount retailer said it expects fiscal Q2 EPS of $0.79 to $0.89 on net sales of $7 billion to $7.20 billion, and analysts polled by Capital IQ are looking for $1.23 and $7.15 billion, respectively.

The company also guided lower for the full fiscal year.

DLTR is being hurt by slowing demand for discretionary items, with the U.S. on the edge of recession, and higher rentals and surging prices hammering spending power.  Cash-strapped consumers have thus been pulling back on higher-margin discretionary and unimportant purchases ranging from homeware to toys.

“We expect the elevated shrink* and unfavorable sales mix to persist through the balance of the year,” CEO Rick Dreiling said in a statement.  The company is also still experiencing elevated raw materials, freight and labor expenses despite them easing from their highs.

*theft

--Target, which rolled out its Pride Collection at the start of May, is pulling some products from its stores after facing customer backlash, saying it was acting to protect employee safety.

The more than 2,000 products, including clothing, books, music and home furnishings, included “gender fluid” mugs, “queer all year” calendars and books for children aged 2-8 titled “Bye Bye, Binary,” “Pride 1,2,3” and “I’m not a girl.”

Oh brother.

--JPMorgan Chase and Co. has notified about 1,000 First Republic Bank employees that they are not being given jobs, even temporarily, following its takeover of the failed lender.  I saw an article this week where some of the First Republic employees on the adviser side were making $10 million a year!

CNBC reported today that JPMorgan itself cut around 500 jobs this week, mostly among technology and operations groups, citing people with knowledge of the matter.  But the bank still has around 13,000 open positions.

--Dr. Vivek Murthy, the U.S. surgeon general, gave an extraordinary public advisory Tuesday, warning of the risks of social media use for young people. He noted that while we don’t fully understand the effects of social media, there is evidence that it can “have a profound risk of harm to the mental health and well-being of children and adolescents.”

The surgeon general called on policymakers, tech companies, researchers and parents to “urgently take action” to safeguard against the potential risks.

But the research on the impact of social media use on teen mental health is inconclusive, which Murthy noted in his report.

That said, the rise in social media use has coincided with declines in exercise, sleep and other activities considered vital to developing brains.  At the same time, social media enables some young people to connect with others, find community and express themselves.

--Last week I mentioned the legislation in Congress to keep AM radio in automobiles, and this week Ford Motor said it will bring back AM broadcast radio in electric vehicles in 2024 because of concerns over public safety, CEO Jim Farley said.

“After speaking with policy leaders about the importance of AM broadcast radio as a part of the emergency alert system, we’ve decided to include it on all 2024 Ford & Lincoln vehicles,” Farley said on LinkedIn and Twitter.

Previous EV models without AM radio will be given a software update, Farley said.

Tesla got rid of AM radio from all current production models, including the Model S.

Car companies have said the motors on electric vehicles have electromagnetic frequencies that interfere with AM radio signals. As EV motors have grown more powerful, so too has AM static on the radio in the vehicle.

Ford didn’t say how it plans to address the issue.

--Ford also announced on Thursday it has agreed with Tesla to allow its electric vehicle owners to gain access to more than 12,000 Tesla Superchargers in North America in early 2024.  A Tesla-developed adapter will provide Ford EVs fitted with the Combined Charging Systems port access to Tesla’s V3 Superchargers.

Elon Musk and Ford CEO Jim Farley were highly complimentary of each other in announcing the partnership on Twitter Spaces.

Ford shares jumped 6% on the news.  Tesla’s, not necessarily for the same reason, rose 4%.

--Prices of extra virgin olive oil are at an all-time high, according to statistics tracked by the International Monetary Fund going back to 1990.

Olive oil was trading for $6,269.63 per metric ton as of April, up 46% from last year.  Actually, about $6 a liter, but shipping, marketing and sales costs will make that bottle a lot more expensive.

The latest olive season is “the most challenging on record, with the lowest crop yields in 30 years,” according to Filippo Berio, a top olive oil brand based in New Jersey.

Olive oil is much pricier because of the severe drought since last year in Spain, where about 40% of olive oil is made. 

Foreign Affairs, Part II

China: The New York Times reported Wednesday that a Chinese government hacking group installed malware into the telecommunications systems in Guam and elsewhere in the United States.

American intelligence agencies and Microsoft detected this, around the same time of the Chinese spy balloon in February.

The code raised alarms because Guam, with its Pacific ports and vast American air base, would be a centerpiece of any American military response to an invasion or blockade of Taiwan.  Microsoft and the intel community said it was installed with great stealth, flowing through routers and other common internet-connected consumer devices, to make the intrusion harder to track.

So instead, Microsoft and the National Security Agency on Wednesday published details of the code that would make it possible for corporate users, manufacturers and others to detect and remove it.

Microsoft said the hacking group that it called “Volt Typhoon” was part of a state-sponsored Chinese effort aimed at not only critical infrastructure such as communications, electric and gas utilities, but also maritime operations and transportation.  As the Times reported, “The intrusions appeared, for now, to be an espionage campaign.  But the Chinese could use the code, which is designed to pierce firewalls, to enable destructive attacks, if they choose.”

Meanwhile, Secretary of State Antony Blinken, subbing for President Biden, said a defense cooperation pact signed with Papua New Guinea on Monday would expand the Pacific island nation’s capabilities and make it easier for the U.S. military to train with its forces.

Blinken and Indian Prime Minister Narendra Modi held separate meetings with 14 Pacific island leaders in the PNG capital Port Moresby, pledging support for the region’s priorities of health, development and climate change. 

The United States and its allies are seeking to deter Pacific island nations from forming security ties with China, a rising concern amid tension over Taiwan, and after Beijing signed a security pact with Solomon Islands.

Pacific island leaders, whose territories span 15 million square miles of ocean, have said rising sea levels caused by climate change are their most pressing security priority.

Blinken told PNG Prime Minister James Marape that Washington would deepen its partnership across the board with PNG, and that he expected partnerships with U.S. businesses would bring tens of billions of dollars’ worth of new investment.

Marape said the defense agreement would see an increase in the U.S. military presence over the next decade, while the U.S. State Department said it would bolster regional security.

The U.S. also signed a renewed strategic agreement with Palau, and another with Micronesia, where my beloved island of Yap is.

Washington in another few weeks is also expected to sign an agreement with the Marshall Islands, as the current COFA (Compact of Free Association) accord is due to expire this year.  Last year, more than 100 arms-control, environmental and other activist groups urged the Biden administration to formally apologize to the Marshall Islands for the impact of massive U.S. nuclear testing there and to provide fair compensation.

Marshall Islanders are still plagued by health and environmental effects of the 67 U.S. nuclear bomb tests from 1946 to 1958, which included “Castle Bravo” at Bikini Atoll in 1954 – the largest U.S. bomb ever detonated.

These agreements are critically important and long overdue.  It doesn’t mean China won’t continue to make inroads in the region, all of these island nations more than willing to accept Chinese investment for their largely impoverished people, but we’ve strengthened our claims, and now Congress must understand that the future ‘spend’ is warranted.

Lastly, just over half of mainland Chinese support a full-scale war to take control of Taiwan, according to a new survey conducted by academics from the National University of Singapore and NYU Shanghai, published in the Journal of Contemporary China on Monday.

The survey of 1,824 people found mixed public attitudes, with 55 percent in favor of “launching a unification war to take back Taiwan entirely,” with a third opposing it and the remainder saying they were unsure.

Last weekend, Taiwanese President Tsai Ing-wen vowed to maintain the status quo of peace and stability across the Taiwan Strait.

Taiwan would not provoke and would not bow to mainland Chinese pressure, Tsai said in a speech in the presidential office in Taipei marking the seventh anniversary of her governance.

“War is not an option.  Neither side can unilaterally change the status quo with non-peaceful means,” Tsai said. “Maintaining the status quo of peace and stability is the consensus for both the world and Taiwan.”

Turkey: Sunday is the runoff in the presidential election between President Tayyip Erdogan and opposition candidate Kemal Kilicdaroglu, with Erdogan expected to win rather handily.

In the first round, May 14, Erdogan had 49.5% and Kilicdaroglu 44.9%, and, as expected, Erdogan received the endorsement of Sinan Ogan on Monday, Ogan the presidential candidate of a far-right alliance that finished third with 5.2% of the vote, which is why I can say with confidence that Erdogan wins the runoff easily.  This is also not good for the West.

Iran: According to a report in the Associated Press, Iran is building an underground nuclear plant deep enough to withstand U.S. bunker-busters, AP citing experts and new satellite imagery.  The facility in the Zagros Mountains in central Iran, which Tehran says will replace an above-ground enrichment plant, is likely between 80 and 100 meters deep, judging by the piles of excavated dirt analyzed by the James Martin Center for Nonproliferation Studies.

That’s deeper than the purported 60-meter reach of the U.S. Air Force’s GBU-57 bomb.  “U.S. officials reportedly have discussed using two such bombs in succession to ensure a site is destroyed.  But it is not clear such a one-two punch would damage a facility as deep as the one at Natanz,” AP writes.

Iran has been enriching uranium to ever-higher purity since Donald Trump withdrew the United States from the 2015 agreement that limited enrichment to relatively low levels.  Yet completion of such a facility “would be a nightmare scenario that risks igniting a new escalatory spiral,” warned Kelsey Davenport, the director of nonproliferation policy at the Washington-based Arms Control Association.  “Given how close Iran is to a bomb, it has very little room to ratchet up its program without tripping U.S. and Israeli red lines.  So at this point, any further escalation increases the risk of conflict.”

Tuesday, tensions between Iran and Israel soared as both nations traded threats.  Lt. Gen. Herzi Halevi, the Israeli military’s chief of staff, stated that if Iran continues to develop its nuclear program, Israel would be left with no choice but to stage a pre-emptive attack.

“Iran has progressed in recent years with enriching uranium more than ever before,” he said.  “We are looking closely at the various arenas that are part of the path to nuclear capabilities.  There are negative potential trends on the horizon that could lead to [us] acting.  We have the capabilities.”

Responding to Israeli threats, an Iranian official stated that any military attack on Tehran would be met with a “broad and unprecedented response.”

Iranian officials argue that Israel would not be able to undertake any military action against Iran without American support or at least a clear position, irrespective of what actions Israel could take against Iran.  They added that if Iran misinterprets these threats, the situation could escalate, a scenario not in the best interest of either party.

The heightened tensions follow a simulation by Lebanon’s Hezbollah group of cross-border raids into Israel this past Sunday, showcasing its military power using live ammunition and an attack drone.

Thursday, France condemned Iran’s recent long-range ballistic missile test and said the move violated United Nations Security Council resolution 2231, which was adopted in 2015.

“These activities are all the more worrying in the context of the continuing escalation of Iran’s nuclear program,” a spokesperson for the French foreign ministry said.

The missile was capable of traveling 2,000 kilometers (1,240 miles).

Israel: Prime Minister Benjamin Netanyahu said the judicial reform legislation will now be brought back for a vote now that the national 2023-2024 budget has passed.

“This is the dawn of a new day. A good day for Israel’s citizens.  The judicial reform will return, and the coalition will be here for four years,” he said.

National Unity chairman and MK Benny Gantz responded soon after, “I understand that Netanyahu is once again drunk on power, after passing a budget that will blow up in all of our faces.  I remind Netanyahu that stupidity is to repeat the same actions and expect different outcomes.  If the coup d’etat returns to the table – we will rock the country and stop it,” Gantz said.

The contentious budget passed by a 64-56 margin in the Knesset.

Netanyahu did criticize some of the budget provisions that included large sums for haredi (ultra-orthodox) schools and religious academies (yeshivot) that do not teach core secular subjects, as well as other provisions that disincentivize haredi men from joining the workforce.

Opposition leader Yair Lapid accused the prime minister of being “disconnected from reality.” According to Lapid, some of what Netanyahu claimed was in the budget did  not actually appear there, such as free education for children aged 0-3, and a huge increase in the national security ministry budget.

Either the prime minister did not know what the budget included, or he did know and was intentionally misleading the public so as to maintain his grip on power, Lapid charged.

Understand, this haredi garbage, as Lapid describes (and I’ve agreed with since day one of StocksandNews), poses substantial damage long-term for the Israeli economy because a generation of haredi boys are not preparing for the workforce.  They literally don’t work.  They “study,” and receive subsidies to do so!  It’s outrageous.

Sudan: Sudanese refugees are streaming into Chad so quickly that it will be impossible to relocate them all to safer places before the start of the rainy season in late June, a senior Red Cross official said on Tuesday, flagging the risk of a disaster.

Some 60,000-90,000 people have fled into neighboring Chad since violence erupted last month, the UN refugee agency said this week.  Tens of thousands have converged in a makeshift camp, with the Red Cross saying it’s a race to relocate them because access to the area is expected to be difficult after the rainy season starts because large streams, known as wadis, are set to cut it off from supplies.  Some 80% of those arriving are women and children.

Overall since the war began, 1.1 million people have fled their homes.  There is mass looting in Khartoum, a collapse in health services, and little food, fuel, power and water.

Random Musings

--Presidential approval ratings….

Gallup: New numbers just released…39% approve of Biden’s job performance, 57% disapprove; 33% of independents approve (May 1-24). Prior split: 37-59, 31.

Rasmussen: 44% approve, 55% disapprove (May 26).

The above-mentioned CNN Poll has Biden’s approval rating at 40%, with 60% saying they disapprove.  That continues a downward trend since January when 45% approved of his performance.

--In a separate CNN poll of Republican and Republican-leaning voters, Donald Trump is the first choice of 53%, roughly doubling Ron DeSantis’ 26%.  Nikki Haley and Mike Pence are the choice of 6%, with Tim Scott at 2%, along with Chris Christie.

But the survey also finds that wide swaths of Republican-aligned voters are willing to consider either of the two, as well as other candidates.  More than 8 in 10 either support or say they’re open to considering Trump (84%) and DeSantis (85%), and smaller majorities say they support or would consider former Haley (61%), Scott (60%) and Pence (54%).

The survey also finds that most of the possible electorate has already ruled out a few names in the primary.  Sixty percent say they would not support Chris Christie for the nomination under any circumstances, and 55% say they’d never support Asa Hutchinson or New Hampshire Gov. Chris Sununu.  Who are these people already ruling these three out?  Well, we know who a large segment is.  I, on the other hand, would rule them all ‘in’.

Meanwhile, Trump maintains a 77% overall favorability rating among GOP-aligned voters, with just 18% viewing him unfavorably. 

--Gov. DeSantis made his long-awaited official entry into the 2024 presidential race Wednesday on Twitter…and it went haywire at the start in what ended up being a glitch-filled livestream.

It was embarrassing as the planned livestream with Twitter’s owner, Elon Musk, was marred by technical problems and dead air.  The audio cut in and out amid talk of “melting the servers,” hot mic whispering and on-the-spot troubleshooting.

When, after more than 25 minutes, DeSantis finally spoke, he declared, “I am running for president of the United States to lead our great American comeback.”

Donald Trump Jr. wrote a single word on Twitter: “#DeSaster.”  President Biden posted a donation button to his re-election campaign with the words, “This link works.”

But the DeSantis campaign is now officially underway, arguing his “Florida Blueprint” can be a model for reshaping the United States in a starkly conservative mold, especially on social issues.

“American decline is not inevitable,” DeSantis said.  “It is a choice. And we should choose a new direction, a path that will lead to American revitalization.”  He accused the president of taking “his cues from the woke mob.”

DeSantis didn’t mention Trump by name, but he drew some of the contrasts he is expected to sharpen in the coming months.  “We must look forward, not backwards,” he said on the Twitter Space livestream.  “We need the courage to lead and we must have the strength to win.” And “Governing is not entertainment, not about building a brand,” in decrying Republicans’ poor record in recent national elections.

But consider how DeSantis invited some large donors to watch his Twitter discussion on a large screen at the Four Seasons in Miami and then they waited and waited.

That said, it was only day one.  And it’s going to be all about Iowa and New Hampshire.

And the campaign announced it had raised $8.2 million in the 24 hours since entering the race, a massive sum.

--Former president Trump reacted to DeSantis’ launch, taking to Truth Social, calling the announcement a “catastrophe.”  “His whole campaign will be a disaster,” he added.  “WATCH!”

But he also wrote Wednesday evening, in a truly bizarre post: “‘Rob,’ My Red Button is bigger, better, stronger, and is working (TRUTH!), yours does not! (per my conversation with Kim Jung Un, of North Korea, soon to become my friend!).”

The post was later shared by the Trump campaign in an email to supporters.

What the heck was Trump saying with his Kim reference?!

--Editorial / Wall Street Journal

“The unfortunate political reality today is that the U.S. is marching toward a 2024 rematch between two aging Presidents, Joe Biden and Donald Trump, that most Americans say they don’t want. This great country can do better, but it’s up to voters to spare us from the divisive oldsters who desperately need each other to win a second term.

“At least for now, the Democratic Party is defaulting to 80-year-old President Biden. But even most Democrats prefer a new nominee, and early 30% are making that point by telling pollsters they support the vanity candidates Robert F. Kennedy Jr. or Marianne Williamson.  It’s not far-fetched that Mr. Biden will decide not to run, or that some serious candidate might challenge the President if there’s a deep recession, or he shows even more noticeable physical or mental decline.

“Republicans are at least getting a better choice as a variety of candidates enter the presidential race. They all have their merits and deserve a hearing as the campaign unfolds.  Florida Gov. Ron DeSantis joined the fray on Wednesday and, judging by the polls and his financial backing to date, he is the biggest threat to Mr. Trump….

“Mr. DeSantis’ record is undeniably conservative, and some critics fear it may be too far right to win a national election.  Mr. Trump seems to think so as he is attacking the Governor from the left on Social Security, abortion for Florida’s six-week ban, and the fight over Disney’s special Florida privileges.

“But Mr. DeSantis won re-election in 2020 by 19 points in a state that has traditionally been a nail-biter.  He won Hispanic counties and others that traditionally vote Democratic.  Mr. Trump hasn’t won anything for himself or the rest of his party since his inside electoral straight in 2016.

“A more serious concern for many is Mr. DeSantis’ fence-straddling on Ukraine and Russia.  He indulged a former Fox News host by calling the war a ‘territorial dispute,’ though he later said the phrase was misunderstood.

“But Mr. DeSantis hasn’t clarified his larger foreign-policy views, and the worry is that he will make the mistake of chasing Mr. Trump in retreating from U.S. global commitments.  Mr. DeSantis will need to explain how he defines being a foreign policy ‘Jacksonian’ in an increasingly dangerous world.

“The other rap against Mr. DeSantis is that he’s a cultural brawler more than a likable unifier.  There’s truth to this.  He’s no backslapper, and he’d benefit from even a little of Ronald Reagan’s self-deprecating humor.  The best candidates for President campaign with some poetry and optimism as well as policy grit and personal toughness.

“The Governor will also need a larger vision for America beyond his Florida success – not least how he’d lift the economy out of stagflation and the country out of its angry divisions.  Mr. Biden promised to do the latter but has made his Presidency hostage to the Bernie Sanders left.  Mr. Trump is promising a politics of ‘retribution,’ which means four more years of national trench warfare.

“Mr. Biden’s failures mean there’s an opportunity for Republicans to offer voters a better vision of national renewal. The country needs it, Americans want it, and the opening is there if a GOP candidate can seize the moment.”

--Another Republican formally jumped into the 2024 race on Monday, South Carolina Sen. Tim Scott.

Editorial / Wall Street Journal:

“Mr. Scott’s message of ‘freedom and hope and opportunity’ would be formidable in a general election if he can break through the GOP primaries.

“ ‘For those of you who wonder if it’s possible for a broken kid in a broken home to rise beyond their circumstances, the answer is yes,’ Mr. Scott said Monday.  His single mother worked 16-hour days while he was growing up, and a local Chick-fil-A franchisee took an interest in him. The 57-year-old Senator presented his mother and the wife of his mentor with flowers on stage.  ‘I chose personal responsibility over resentment,’ he said.

“Mr. Scott is connecting his story of upward mobility with an optimism that the right policies can make this possible for everyone: ‘I will be the President who destroys the liberal lie that America is an evil country.’

“He says America is ‘in a Biden retreat’ but ‘the good news is, all we need to do is turn around.’  He says he’ll ‘stop retreating from our own southern border’ and ‘rebuild a military so lethal and powerful that our adversaries will fear us and our allies will respect us.’  He called for ‘a revolution for excellence in our schools,’ including ‘less CRT and more ABCs.’  Sen. Scott is right that America is weathering a flight from the dignity of work.  His mother’s work ethic taught him that ‘if you’re able-bodied, you work. Period.’

“These are good policy themes, though still missing are the details that make an agenda. He’ll have to map out what he thinks on taxes and economic growth beyond touting the ‘opportunity zones’ for disadvantaged areas he helped craft as part of tax reform.

“Republican Sen. John Thune endorsed Sen. Scott, and the press is sniping that the South Dakotan’s imprimatur won’t mean much in a GOP primary. Yet Sen. Thune deserves credit for wading in even as so many others in his party worry about offending Donald Trump by endorsing someone else.

“Sooner or later Mr. Scott will have to take on Mr. Trump if he wants the nomination, and his vision of a ‘new American sunrise’ is a long way from Mr. Trump’s ‘American carnage.’….

“Sen. Scott has a point that he may be ‘the candidate the far left fears the most’ – a successful and inspiring Black Republican, whose life refutes the notion that America is a country of bigotry and hatred. Credit to Sen. Scott for offering American voters something more than a politics of ‘retribution.’”

Personally, I thought John Thune’s immediate endorsement of Scott was highly significant.  John Thune has long been my ideal of what a U.S. senator should be.

I think Tim Scott quickly emerges as No. 3 in the polls (by Fourth of July) and is in it well into next spring.

--A New York judge scheduled Donald Trump’s criminal trial in the hush-money case for March 25, 2024, putting Trump in the courtroom in the heat of next year’s primary season.  Trump, appearing by video conference at a pretrial hearing on Tuesday, glowered at the camera as Judge Juan Manuel Merchan advised him to cancel all other obligations for the duration of the trail, which could last several weeks.

Long before then, though, Trump is likely to be indicted for mishandling classified documents, and in August, it seems Fulton County, Georgia, prosecutor Fani Willis will be unsealing indictments from a grand jury in the 2020 Georgia meddling case.

--Stewart Rhodes, the leader of the far-right Oath Keepers militia, was sentenced on Thursday to 18 years in prison for his conviction on seditious conspiracy charges for the role he played in helping to mobilize the pro-Trump attack on the Capitol on Jan. 6, 2021.

The sentence, handed down in Federal District Court in Washington, was the most severe penalty so far in the more than 1,000 criminal cases stemming from the Capitol attack – and the first to be increased for fitting the legal definition of terrorism.

It was also the first to have been given to any of the 10 members of the Oath Keepers and another far-right group, the Proud Boys, who were convicted of sedition in connection with the events of Jan. 6.

At a dramatic, nearly four-hour hearing, Judge Amit P. Mehta chided Rhodes for seeking for years through his leadership of the Oath Keepers to have American democracy “devolve into violence.”

“You, sir,” Judge Mehta went on, directly addressing the defendant, “present an ongoing threat and a peril to this country, to the Republic and the very fabric of our democracy.”

Kathryn L. Rakoczy, one of the lead prosecutors in the case, noted that Rhodes had shown no remorse for undermining the lawful transition of power and continued to advocate political violence.  Just four days ago, she said, Rhodes gave an interview from jail, repeating the lie that the election had been marred by fraud and asserting that the government was “coming after those on the political right.”

“It’s not going to stop until it’s stopped,” Rhodes said during the interview, adding that the country needed “regime change.”

Rhodes gave a defiant address to the court, blaming the news media for demonizing the Oath Keepers for leading the Capitol attack, comparing himself to the Soviet-era dissident Aleksandr Solzhenitsyn, and saying, “I am a political prisoner.”

Stewart Rhodes is no Aleksandr Solzhenitsyn.  [Solzhenitsyn’s “The Gulag Archipelago: An Experiment in Literary Investigation” was published 50 years ago, a book many have called the 20th century’s greatest piece of nonfiction prose.]

Another Oath Keeper, Kelly Meggs, was sentenced to 12 years on Thursday.

And two more were sentenced today to 4 and 8 ½ years.

Ron DeSantis, working the right-wing media circuit in the aftermath of his announcement, stupidly said he would “pardon” some of the Jan. 6 rioters, in a pitiful attempt to win over Trump supporters.

And with this move, I would never vote for the governor.

--The South Carolina Senate passed a ban on abortion after six weeks of pregnancy on Tuesday, after a filibuster led by five women senators, including three Republicans, failed to block it.  The bill, signed by the governor Thursday, will drastically reduce access to abortion in a state that has become an unexpected destination for women seeking the procedure as almost every other Southern state has moved toward bans.

South Carolina joins Georgia in prohibiting the procedure after six weeks, ditto Florida.

[A South Carolina State Circuit judge temporarily blocked the new law, sending it to the state Supreme Court.]

--Americans in same-sex marriages and partnerships account for about 1% of households, according to newly released figures from the decennial census that show the changing composition of U.S. families.

Same-sex married couples made up 0.5% of the nation’s nearly 127 million households in 2020, five years after the Supreme Court legalized such unions nationwide.  Same-sex unmarried partners made up 0.4%.

Opposite-sex married couples made up 46% and opposite-sex unmarried partners made up 7%.  About 28% of households were occupied by someone living alone, up from about 27% in 2010.  Most of the remaining 19% lived with relatives in a variety of household types.  The share of opposite-sex married couples dropped 2 percentage points from 2010, while other types grew slightly.

--Seven states that depend on the overused Colorado River on Monday reached agreement to cut consumption and help save a river that provides drinking water for 40 million people and irrigation for some of the country’s most bountiful farmland.

Arizona, California and Nevada will reduce intake by an amount equal to 13% of their river allotment, under a deal brokered and announced by the Biden administration.  Those three make up the Lower Basin states of the century-old Colorado River Compact, which assigns water rights to them plus the four Upper Basin states of Colorado, New Mexico, Utah and Wyoming.

While the Upper Basin states draw their water directly from the river and its tributaries, the Lower Basin states depend on Lake Mead, the reservoir created by the Hoover Dam and whose spigot is controlled by the U.S. Bureau of Reclamation.

The river’s long-term health is particularly critical for the economies of Los Angeles, Las Vegas and Phoenix, as well as the agricultural industry.

The agreement was facilitated by the extraordinary deluge that filled reservoirs and packed the mountains with snow, along with $1.2 billion in grants under the Inflation Reduction Act that compensates local water districts, cities and Native American tribes for cutting back.

But now, the seven states need to work on a longer-term deal starting in 2027, most likely for 20 years, that must be reached without being able to count on rainy years or a flood of federal dollars, and with effects of climate change looming.

--The National Oceanic and Atmospheric Administration released its forecast for the 2023 Atlantic hurricane season and predicts anywhere from 12 to 17 named storms between June 1 and November 30, a “near normal” year.  As many as four could become major hurricanes, CAT 3, NOAA says.

The peak of the season is Aug. 20 to Oct. 1.  “Katia” will strike Sept. 30.

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

Pray for Ukraine.

God bless America.

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Gold $1946
Oil $72.78

Regular Gas: $3.57; Diesel: $3.96 [$4.60 / $5.53 yr. ago]

Returns for the week 5/22-5/26

Dow Jones  -1.0%  [33093]
S&P 500  +0.3%  [4205]
S&P MidCap  -0.5%
Russell 2000  -0.04%
Nasdaq  +2.5%  [12975]

Returns for the period 1/1/23-5/26/23

Dow Jones  -0.2%
S&P 500  +9.5%
S&P MidCap  +0.5%
Russell 2000  +0.7%
Nasdaq  +24.0%

Bulls 46.5
Bears 23.9

Have a safe holiday.

Brian Trumbore

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