Week in Review

---

Week in Review

05/20/2023

For the week 5/15-5/19

[Posted 5:15 PM ET, Friday]

Note: StocksandNews has significant ongoing costs and your support is greatly appreciated.  Please click on the gofundme link or send a check to PO Box 990, New Providence, NJ 07974.

Special thanks to J.N. for her longtime support.

Edition 1,257

President Biden said Wednesday that he is confident the U.S. will avoid an unprecedented and catastrophic debt default, saying talks with congressional Republicans have been productive as he prepared to leave for a G-7 summit in Japan.

“I’m confident that we’ll get the agreement on the budget and America will not default,” Biden said from the White House.  He said he and lawmakers will come together “because there’s no alternative.”

The president and House Speaker Kevin McCarthy tasked a handful of negotiators to try and close out a final deal, with negotiations beginning late Tuesday.

For his part, McCarthy told CNBC’s “Squawk Box” on Wednesday, “I think at the end of the day we do not have a debt default.  The problem is the timeline is short.”

Later in the day, though, McCarthy and other Republican lawmakers criticized Biden for his decision to travel, with the Speaker labeling the president “a big obstacle” to an agreement.

“Mr. President, stop hiding, stop traveling,” McCarthy said.

Biden said the smaller negotiating group had authority to make agreements in detail and hammer out differences between the two sides.  The president is returning home early instead of making further scheduled trips to Papua New Guinea and Australia.

“We’re going to continue these discussions with congressional leaders in the coming days until we reach an agreement,” Biden said.

But he added he was unwilling to increase work requirements for safety net programs providing Americans with health insurance, though notably did not draw the same red line on other programs.  House Republicans have also sought to toughen access to federal grocery assistance.

McCarthy, for his part, reiterated that he was unwilling to pass a clean debt ceiling bill that raised the nation’s borrowing limit without concessions, and would not consider Democratic proposals to raise revenues by closing tax loopholes.

And then Friday afternoon, we learned negotiations had been “paused,” which wasn’t a good sign, and it was the issue of work requirements that is providing a roadblock, the Freedom Caucus vs. Progressives.

“We’ve got to get movement by the White House and we don’t have any movement,” McCarthy said. “So yeah, we’ve got to pause.”

“Look, they’re just unreasonable,” Republican negotiator Rep. Garret Graves said, moments after he walked out of the session.

The Treasury Department and Secretary Janet Yellen have been saying for weeks the debt ceiling needs to be raised by June 1, which is when they argue the U.S. could begin defaulting on its obligations.

“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen wrote in a letter to congressional leaders.

“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests,” she added.

Yellen noted the date that “Treasury exhausts extraordinary measures” could be days or weeks later than their current estimate, but she still called on lawmakers “to protect the full faith and credit of the United States by acting as soon as possible.”

The national debt currently stands at $31.4 trillion. An increase in the debt limit would  not authorize new federal spending; it would only allow for borrowing to pay for what Congress has already approved.

I can’t help but note that Wednesday, New Jersey’s Treasury Department said state tax collections in April fell more than 14% from last year’s historically high levels, and collections for the current fiscal year came in more than 1% lower when compared with the previous year.

Extrapolate this nationally and its why Sec. Yellen months ago warned the date when the debt ceiling would be reached could be as early as June 1, compared to earlier estimates of September at the start of the year.

As for the G-7, Biden is meeting on Saturday with leaders of the so-called Quad group, including India, Australia and Japan.  He was to meet with them in Australia after the G-7 before announcing he would head home early for the debt ceiling negotiations.

---

The expiration of Title 42 did not lead to chaos at the border, that occurred earlier leading up to the expiration, and border crossings have fallen since last week.

When reporters asked President Biden how he felt things were going on Monday, he replied, “Much better than you all expected.”

Of course we’ve had nearly 2 ½ years of chaos at the border during his presidency, but what is behind the temporary decline?  Adam Isacson of the DC-based Washington Office on Latin America, said it was most “Likely that smugglers are in ‘wait and see’ mode, as has happened in the past.”  Similar-looking declines happened in 2014 after Mexico changed its policies, 2017 after President Trump was elected, and in mid-2020 shortly after Title 42 first went into effect.

---

This Week in Ukraine….

It’s been a whirlwind week for Ukrainian President Volodymyr Zelensky, who after a trip to Saudi Arabia today, was going to be heading to Hiroshima for the G-7, as he makes his case to anyone who will listen that he needs more arms and aid to defeat Russia.  After his travel earlier in the week, hopefully he’s getting some sleep on his long flights.

And so….

--President Zelensky asked Pope Francis last Saturday to back Kyiv’s peace plan, and the pope indicated the Vatican would help in the repatriation of Ukrainian children taken by Russians.

Zelensky met the pontiff at the Vatican, after earlier Saturday conferring with Italian Prime Minister Giorgia Meloni, who promised full military and financial backing for Ukraine and reiterated support for its EU membership bid.

Zelensky spoke with the pope for 40 minutes in his first visit to Rome since the war began.  Kyiv estimates nearly 19,500 children have been taken to Russia or Russian-occupied Crimea since February 2022, in what it condemns as illegal deportations.  “We must make every effort to return them home,” Zelensky tweeted afterwards.

Zelensky also said he asked the pope to “join Kyiv’s 10-point peace plan.  It calls for restoring Ukraine’s territorial integrity, the withdrawal of Russian troops and cessation of hostilities, and the restoration of Ukraine’s state borders.”  Zelensky has repeatedly said the plan is not open to negotiation.

Zelensky said on Sunday Kyiv and its allies could make a Russian defeat “irreversible” as early as this year as he secured a new military package on a trip to Germany.

The visit formed part of a whirlwind weekend tour of key European allies.  It was Zelensky’s first trip to Germany since Russia’s invasion.  He then traveled to Paris for a dinner meeting with French President Macron.

“Now is the time for us to determine the end of the war already this year, we can make the aggressor’s defeat irreversible,” Zelensky said during a joint news conference in Berlin with German Chancellor Scholz. 

Scholz underscored Germany’s pledge to continue to support Ukraine for as long as necessary, brushing aside a question about Kyiv’s hopes to join NATO. Germany, which is Europe’s largest economy, faced criticism at the start of the war for what some called its hesitant response, but it has become one of Ukraine’s biggest providers of financial and military assistance.  The government announced a $3 billion package of military aid on Saturday, its biggest such package since Russia’s invasion, and roughly as much as the entirety of Germany’s military aid contributions to date.

The package includes 30 Leopard 1A5 main battle tanks, 20 armored infantry fighting vehicles, 100 armored fighting vehicles and 200 drones.

Zelensky wrote in the guest book of the German presidency, after being greeted by President Frank-Walter Steinmeier: “In the most challenging time in the modern history of Ukraine, Germany proved to be our true friend and reliable ally. Together we will win and bring peace back to Europe.”

Zelensky said Kyiv was prepared to discuss external peace initiatives but said those proposals should be based on Ukraine’s position and its peace plan.  “The war is happening on the territory of our country and so any peace plan will be based on Ukraine’s proposals,” he said.

Kyiv has ruled out any idea of any territorial concessions to Russia and has said it wants every inch of its land back.  Russia annexed Crimea in 2014 and since last year has claimed to have annexed four other Ukrainian regions, which Moscow now calls Russian land.

“Ukraine is ready for peace.  But it demands rightly and with our support, that this cannot mean to freeze the war and have a form of dictated peace by Russia,” Scholz said.

Zelensky left open the prospect of a “risk that if the (counter)offensive is not very successful that there will be less support, but I don’t think this is the general view.”

--Two Russian jet fighters and two military transport helicopters crashed in southern Russian on Saturday, while Ukrainian forces struck deep into Russian-controlled territory in eastern Ukraine, moves that suggested Ukraine’s military capabilities were growing.

The crashes are the worst losses for Russia’s military aviation since the first week of its full-scale invasion in Feb. 2022, when Moscow mistakenly assumed that Ukrainian air defenses had been destroyed.  It has lost more than 70 planes since then.

Russian state news agency TASS said a Su-34 fighter and a Mi-8 helicopter went down Saturday in Russia’s Bryansk region. Another Mi-8 and a Su-35 also crashed, according to Russian military correspondents.

Nine crew members died in Saturday’s aircraft crashes, according to Russian military commentators.  Some Russian military correspondents suggested at least one of the aircraft could have been ambushed by Ukrainian special forces using shoulder-mounted missiles.

The U.S. has provided Stinger antiaircraft missiles, which are primarily useful against low-flying aircraft.  Poland, the U.K. and others have supplied similar systems.

Iryna Vereshchuk, Ukraine’s deputy prime minister, commented about the lost aircraft on Facebook.  “The Russians are very upset today,” she wrote.

Meanwhile, Russia claimed that Ukraine used UK-supplied cruise missiles in strikes on Luhansk, an area controlled by Russian forces in eastern Ukraine.

“Storm Shadow air-to-air missiles supplied to the Kyiv regime by Britain were used in the strike, contrary to London’s statement that these weapons would not be used against civilian targets,” the Russian defense ministry said, claiming the missiles hit two factories.

It’s all part of a crescendo of strikes that are reaching deeper into Russia or Russian-held territory, suggesting that Ukraine is seeking to degrade Moscow’s forces ahead of an expected offensive.

--Russia’s Defense Ministry said on Sunday that two of its military commanders were killed in eastern Ukraine, as Kyiv’s forces renewed efforts to break through Russian defenses at Bakhmut. In a daily briefing, the ministry said that Commander Vyacheslav Makarov and Deputy Commander Yevgeny Brovko were killed trying to repel Ukrainian attacks.

--Ukraine’s military on Monday hailed recent advances around Bakhmut as its first successful counterattack in the battle against Russian forces fighting for control of the eastern city.

But Kyiv also said the situation there was difficult. It cautioned that Moscow had not changed its goal of capturing the city and was sending assault troops to Bakhmut’s outskirts.

The Ukrainian military said last week it had started to push Russian forces back in and around Bakhmut after months of heavy fighting, and Moscow acknowledged that its forces had fallen back north of the city.

--Ukraine’s air force says it shot down all six hypersonic missiles Russia launched overnight, Monday, at cities like Kyiv.  Ukraine’s air-defense systems allegedly shot down a dozen other missiles as well, including nine Kalibr cruise missiles, three S-400 Iskander ground-launched missiles, and about nine drones during a two-hour period beginning at around 2:30 a.m. (Tues. morning).

“Thank you to our Air Force service members and our partner states, who invested in securing the skies over Ukraine and all of Europe,” Ukrainian military chief Oleksii Reznikov tweeted Tuesday morning following the attacks.

But Russia’s military claims its hypersonic missiles struck one of the Patriot systems in the overnight strikes.  Ukraine denied this.  Russia also (falsely) claimed all of its missiles hit their intended targets.

However, indeed, a Patriot system was hit in some fashion, a U.S. official conceded Tuesday, though the official said the Patriot system remained operational.

White House National Security spokesman John Kirby said he couldn’t confirm reports that a Patriot system had been damaged, but said weapons supplied by the U.S. have often been damaged in the fighting or worn out.

What we do know is that the early Tuesday attack was an intense one, “exceptional in its density – the maximum number of attacking missiles in the shortest period of time,” said Serhii Popko, the head of the Kyiv military administration.

--Wednesday, Ukraine’s foreign minister told a top Chinese envoy at talks in Kyiv that Kyiv would not accept any proposals to end the war with Russia that involved it losing territory or freezing the conflict, the Ukrainian foreign ministry said.  Li Hui, China’s special representative for Eurasian affairs and former ambassador to Russia, visited Ukraine on Tuesday and Wednesday, and met Ukrainian Foreign Minister Dmytro Kuleba, the ministry said in a statement.

The visit is the first to Kyiv by a senior envoy from China.

“Kuleba briefed the special envoy of the Chinese government in detail on the principles of restoring a sustainable and just peace based on respect for Ukraine’s sovereignty and territorial integrity,” the ministry said.  “He stressed that Ukraine did not accept any proposals involving the loss of its territories or the freezing of the conflict,” it said.

China has refrained from condemning Moscow or referring to its actions as an “invasion,” leading to criticism from European countries and the United States, which have questioned China’s credibility as a potential broker in the conflict.

--Thursday, Russia fired 30 more cruise missiles against different parts of Ukraine in the latest nighttime test of Ukraine’s air defenses, which shot down 29 of them, officials said.

One person died and two were wounded by a Russian missile that got through and struck an industrial building in the southern region of Odesa.

Loud explosions were heard in Kyiv as debris fell on two districts.

While the ground fighting is largely deadlocked along the front line, both sides are targeting each other’s territory with long-range weapons.

Meanwhile, Kremlin-installed authorities in Crimea reported the derailment of eight train cars Thursday due to an explosion, which could have been sabotage.  Russian state media reported the train was carrying grain.

Ukrainian Deputy Defense Minister Hanna Maliar said in a Telegram post that Kyiv’s forces had repelled day-long attacks by Russia in the embattled city of Bakhmut.

“The enemy gathered most of its reserves to Bakhmut and significantly strengthened the group,” she said.  “Today the enemy attacked Bakhmut for the entire day. All attacks were repelled.”

--Friday, Russia launched yet another new wave of overnight air strikes on Ukraine, setting ablaze several buildings in President Zelensky’s hometown, Kryvyi Rih, and seriously wounding a woman, 64, Kyiv said.

The Ukrainian military said it had shot down three of six cruise missiles, and 16 of the 22 attack drones that were fired, an unusually high proportion of the Russian missiles and drones getting through.

Separately, the Biden administration signaled to European allies that it will allow them to export American-made F-16 fighter jets to Ukraine, a huge step.

The U.S. has been reluctant to send any of its own fleet of F-16s to Ukraine. However, CNN reported that the White House has indicated to allies that it will not block any moves they may have to send their own aircraft to Ukraine.

U.S. government approval would be required for any re-export of F-16s to a third country given the American technology used in the aircraft.

And then in Hiroshima today, President Biden endorsed plans to train Ukrainian pilots on U.S.-made F-16s.

--Russia has shifted the focus of its missile strikes on Ukraine to try to disrupt preparations for a Ukrainian counterattack, a senior Ukrainian military intelligence official said today.  After months of attacks on Ukrainian energy infrastructure, Russian forces are now increasingly targeting military facilities and supplies, said Vadym Skibitskyi, Deputy Head of the Defense Ministry’s Main Intelligence Directorate.

“Previously, they failed to knock out our energy system, and now they have completely different priorities – to disrupt our plans and preparations for active (military) action during the spring-summer campaign,” he told the RBK-Ukraine news portal.

Skibitskyi said the Russians were striking decision-making centers, supply routes and places where large quantities of ammunition, equipment, fuel or troops were concentrated.

--The Ukraine Black Sea grain deal has been extended for two more months one day before Russia could have quit the pact over obstacles to its grain and fertilizer exports.  Turkish President Erdogan announced the extension in a televised speech and it was confirmed by Russia and Ukraine.

The flow of ships through the corridor had been grinding to a halt during the last few days with the deal apparently set to expire on Thursday.

Some 30.3 million tons of grain and foodstuffs has been exported from Ukraine under the Black Sea deal, including 625,000 tons in World Food Program vessels for aid operations in Afghanistan, Ethiopia, Kenya, Somalia and Yemen.

---

--The Washington Post reported that among the Discord leaks was one that had Yevgeny Prigozhin offering to tell Ukraine’s military where to attack Russian troops if they pulled their own forces back from Bakhmut, where Prigozhin’s Wagner forces were taking heavy losses.

According to the document, in late January, with his forces dying by the thousands in a fight for the ruined city, Prigozhin made his offer.  If Ukraine’s commander withdrew their soldiers, he would give Kyiv the info on Russian troops position. Prigozhin conveyed the proposal to his contacts in Ukraine’s military intelligence directorate, with whom he has maintained secret communications during the course of the war.

--The hometown of Ukraine’s Eurovision act was hit by Russian missiles moments before the band took to the stage in Liverpool, officials said.

The head of Ternopil regional state administration, Volodymyr Trush, confirmed two people had been injured, while some warehouses were damaged.

Ukraine’s foreign ministry accused Russia of attacking Kyiv and Ternopil regions before and during Tvorchi’s Eurovision performance.

Tvorchi posted on Instagram after performing: “Ternopil is the name of our hometown, which was bombed by Russia while we sang on the Eurovision stage about our steel hearts, indomitability and will.

“This is a message for all cities of Ukraine that are shelled every day.  Kharkiv, Dnipro, Khmelnytsky, Kyiv, Zaporizhzhia, Uman, Sumy, Poltava, Vinnytsia, Odesa, Mykolaiv, Chernihiv, Kherson and all others.

“Europe, unite against evil for the sake of peace!”

--Belarus’ leader Alexander Lukashenko missed a major state celebration, further fueling health speculation.

The autocratic politician, 68, usually speaks publicly at the annual National Flag, Emblem and Anthem Day event but his prime minister read a message on his behalf on Sunday.

Last week, Lukashenko left Moscow soon after the Victory Day parade, skipping lunch with President Putin.  Lukashenko looked visibly tired, and his right hand was bandaged.

Lukashenko has ruled Belarus since 1994.

--The U.S. accused South Africa of arming Russia by sending a sanctioned cargo ship loaded with artillery to Russia this past December, according to Washington’s ambassador to South Africa, Reuben Brigety.  “The presence of the ship, the Lady R, had seemed curious at the time and raised questions from some local politicians,” the BBC reported.

The Financial Times reconstructed the known details of the ship’s voyage and discovered that the crew appears to have turned off the transponder briefly just southeast of Cape Town.  It then traveled up the eastern coast of Africa, through the Suez Canal, and back to its point of origin in Russian territory southeast of Crimea.

South Africa’s foreign ministry responded by proclaiming its “utter displeasure” over the allegations.  However, South African officials did not directly deny the claims.

--The flow of U.S. military aid to Ukraine will slow – or even stop – by as early as August unless Congress approves new funds, according to a Defense One review of Pentagon data.

Since the invasion of Feb. 2022, lawmakers have approved the disbursement of $48.9 billion in military aid to Ukraine.  As of May 15, $36.4 billion of that total has been delivered, contracted or otherwise committed.  At the average rate of disbursement since the invasion began, the remaining $11.3 billion will run out in about four months.

Including humanitarian and financial aid, the U.S. total is about $70 billion, not the “$170bn” figure Donald Trump used in his CNN town hall that pissed me off to no end, another example of him just spouting off some figures that 99.5% of America wouldn’t know is false.

---

Wall Street and the Economy

Various Federal Reserve governors spoke this week, with opinion seemingly split on whether to pause or hike interest rates one more time at the next Open Market Committee meeting June 13-14.

One respected voice, St. Louis Fed President James Bullard, who is not a voting member on the FOMC this year, reaffirmed his support for lifting interest rates further as an “insurance” policy against inflation. Bullard told the Financial Times he would keep an “open mind” going into the next policy meeting in June, but suggested he is inclined to back another rate rise after 10 successive increases since last year. 

“I do expect disinflation, but it’s been slower than I would have liked, and it may warrant taking out some insurance by raising rates somewhat more to make sure that we really do get inflation under control,” Bullard told the FT.

Lorie Logan, president of the Dallas Fed and a voting member, said she believes that the economic data so far doesn’t support a pause in the funds rate next month.

“The data in coming weeks could yet show that it is appropriate to skip a meeting,” Logan told the Texas Bankers Association.  “As of today, though, we aren’t there yet?”  On inflation, “We haven’t made the progress we need to make.”

And then Fed Chair Jerome Powell made some comments today at a conference in Washington, indicating the Fed could forego an increase in the benchmark interest rate June 14.

“Having come this far, we can afford to look at the data and the evolving outlook and make careful assessments,” Powell said, referring to the 10 straight rate hikes.  He said the funds rate was high enough to restrain borrowing, spending and economic growth.  “We face uncertainty about the lagged effects of our tightening so far.”

Powell also suggested that “the risks of doing too much versus doing too little are becoming more balanced.”  That marks a shift from earlier this year, when Powell often said the risk of raising rates too little to combat inflation outweighed the risk of raising them so high as to cause a deep recession.

Powell further noted turmoil in the banking sector will likely cause banks to reduce the pace of lending, which would weaken the economy.

But it’s still all about the data, and on that front, we are going to receive a critical reading on the Fed’s preferred inflation benchmark, the personal consumption expenditures index, next Friday, and then the Fed conveniently will receive consumer price data the Tuesday it gathers, June 13.

This week we had a reading on April retail sales, a little less than expectations at up 0.4%, but in line ex-autos, also 0.4%.  April industrial production was 0.5%, better than forecast.

April housing starts were in line, 1.4 million seasonally adjusted, while existing home sales in the month were at 4.28 million, down 3.4% from March, with total sales down 23.2% from a year ago.  The median home price fell 1.7% year-over-year to $388,800, the biggest price decline since Jan. 2012.

The April leading economic indicators index from the Conference Board was down 0.6%, the LEI viewed as a recession barometer.

The Atlanta Fed’s GDPNow reading on second-quarter growth is at 2.9%.

Freddie Mac’s 30-year fixed-rate mortgage is at 6.39%.

But it’s all about the debt-ceiling impasse as the market had responded positively thus far to the optimistic comments from House Speaker McCarthy and President Biden.  But then we had the pause in negotiations this afternoon and the market gave up some of its gains from Wednesday and Thursday.  Everything comes to a head early next week.

And while for today, a devastating debt default does not seem to be in the cards, many are pointing out that the Treasury will need to scramble to replenish its dwindling cash buffer to maintain its ability to pay its obligations, and that will come through a deluge of T-bill sales, estimated at well over $1 trillion by the end of the third quarter, which will drain liquidity from the banking sector, raise short-term funding rates and tighten the screws on an economy probably on the cusp of recession.  Bank of America’s estimate is this would have the same economic impact as a quarter-point interest-rate hike.

Europe and Asia

Some important economic data out of the eurozone this week, and for one, the European Central Bank received further ammunition to continue raising interest rates with the April report on inflation.

The euro area inflation rate was 7.0%, up from 6.9% in March.  Ex-food and energy the April figure is 7.3% vs. March’s 7.5%.

Annual inflation rates in April 2023:

Germany 7.6%, France 6.9%, Italy 8.7%, Spain 3.8%, Netherlands 5.8%, Ireland 6.3%

Separately, in the first quarter of 2023, GDP in the eurozone increased by 0.1% compared with the previous quarter, and up 1.3% compared with the same quarter a year earlier.

Q1 2023 vs. Q1 2022

Germany -0.1%, France 0.8%, Italy 1.8%, Spain 3.8%, Netherlands 1.8%, Ireland 2.6%

Industrial production in March compared with February was down by 4.1% in the euro area, and down 1.4% over March 2022.

Turning to Asia…China reported key figures for April that were all below expectations, and significantly so.

April industrial production was up 5.6% year-over-year; retail sales increased 18.4% Y/Y (but again well below consensus); and fixed asset investment year-to-date was up 5.7% over a year ago.

The April unemployment rate was 5.2%.

In Japan, we had a pleasant surprise for first-quarter GDP, a preliminary reading of 0.4% growth quarter-over-quarter, and 1.6% annualized, both well above expectations.  A recovery in tourism helped a lot.  Tokyo had waited until last October to remove border controls for overseas tourists and lifted restrictions on big events earlier this year.

April producer prices were up 5.8% year-over-year, but this is way down from recent double-digit rates of increase.

Japan’s consumer price inflation, however, was 3.5%, and when you strip out food and energy, 4.1%, government data showed, marking the fastest annual pace since September 1981! With inflation having stayed above its 2% target for a year, markets are speculating the Bank of Japan will soon phase out its massive stimulus that critics say is distorting markets and hurting financial institutions’ profits. BOJ Governor Kazuo Ueda maintains core inflation will slow back below 2% toward the latter half of the current fiscal year ending in March 2024.

March industrial production was down 0.6% Y/Y.

April exports rose 2.6% Y/Y.

Street Bytes

--Stocks advanced on optimism the debt ceiling issue will be resolved.  Even this afternoon’s announcement there was a “pause” had minimal impact.  For the week the Dow Jones added 0.4% to 33426, while the S&P 500 gained 1.6% and Nasdaq broke out of its lethargic stretch with a 3.0% gain, pushing its year-to-date return back to 20.9%.

The S&P on Thursday closed at its high for the year, 4198, and its highest level since Aug. 25, before backing off some today.

--U.S. Treasury Yields

6-mo. 5.31%  2-yr. 4.28%  10-yr. 3.68%  30-yr. 3.93%

Yields rose sharply this week on both debt ceiling concerns and the possibility, despite Fed Chair Powell’s comments today, that another rate hike in June is on the table.  The 10-year is at its highest yield in 10 weeks, and next week’s Freddie Mac 30-year mortgage rate is likely to spike as a result.

--Walmart Inc. raised its annual sales and profit targets on Thursday as the retail behemoth drew from price-conscious shoppers trading down to cheaper meat products and store brands, easing worries of consumer spending softening due to inflation.  The company also reported better-than-expected results for the first quarter.

Walmart has been keeping grocery prices low to fend off competition from Target and Kroger even as the industry struggles with higher costs, especially for labor.  As a result, sales at Walmart’s U.S. stores open at least a year rose 7.4%, excluding fuel, in the quarter ended April 30, beating expectations of a 5.25% increase.

“We see a continuation of trade down certainly as consumers focus on maybe lower price proteins or lower pack sizes, but we also see private brand penetration continue to do really well for us in the quarter,” CFO John David Rainey told reporters.  Rainey added that Walmart also saw higher demand for health and wellness products.

WMT now expects full-year earnings per share in the range of $6.10 to $6.20 compared to the prior outlook of $5.90 to $6.05.  But analysts were at $6.16, according to Refinitiv data.

The company also forecast net sales to rise about 3.5%, higher than its prior outlook.

Operating income rose 17.3% in the first quarter, in part due to higher contributions from its advertising, delivery and fulfillment services businesses.  Walmart’s adjusted earnings per share came in at a better-than-expected $1.47.  Net revenue rose 7.6% to $152.30 billion, also beating forecasts of $148.76bn.

Online sales rose 26% in the first quarter, an acceleration from the 17% in the previous quarter.

Walmart’s strong results were in stark contrast to smaller rival Target.

Speaking of which….

--Target Corp. on Wednesday forecast a grim second quarter as the retailer struggles with consumers shunning non-essentials such as electronics and home goods in the face of persistently high prices, but maintained its full-year profit expectations.

The company’s merchandise is skewed more towards discretionary products and it has been shifting focus to household essentials and groceries due to sticky inflation and higher interest rates.

“Right now (the American consumer is) spending more due to inflation, saving less and delaying major purchases,” Senior Target executive Christina Hennington said in a call with analysts.

Target reported adjusted fiscal first-quarter earnings of $2.05 per share, down from $2.19 a year earlier.  Consensus was at $1.76.

Revenue for the quarter ended April 29 was $25.32 billion, compared with $25.17bn a year earlier.

First-quarter comparable sales grew by a better-than-expected 0.7%, but digital sales posted a surprise drop.  Overall comp sales were flat.

Gross margins increased to 26.3%, compared to 25.7% a year earlier, largely due to reduced freight costs and fewer clearance discounts.  Quarter-end inventory was 16% lower than last year, reflecting more than a 25% reduction in discretionary items.

Target projects adjusted current quarter profit between $1.30 and $1.70 per share, below estimates of $1.93 and forecast comparable sales to decline in the low-single digits.

The company also said theft and organized crime could reduce this year’s profitability by more than $500 million compared to 2022.

But the shares rose 2.5% on Wednesday.

[Speaking of retail theft, it’s such a depressing topic, with heavy organized crime efforts as noted by Target.  The ultra high-end Short Hills Mall, two minutes from yours truly, had a big robbery on Monday.  Masked men stole $125,000 in luxury handbags from the Dior store…25 bags at $5,000 per.  And it was at 11 a.m. No one was hurt.]

--Home Depot lowered its fiscal 2023 outlook as the home improvement retailer reported weaker-than-expected first-quarter sales, weighed down by lumber deflation and unfavorable weather.

Per-share earnings are anticipated to fall between 7% and 13% on an annual basis, the company said Tuesday, compared with the previous forecast for a mid-single digit decline.  Revenue and comparable sales growth are set to decrease by 2% to 5%, instead of remaining flat as the retailer had guided for in February.

The consensus is for EPS of $15.74, revenue of $156.56 billion and a same-store sales decline of 0.8% for the fiscal year.

The downbeat outlook is based on continued uncertainty regarding consumer demand, which further softened in the first quarter relative to the company’s expectations, said CFO Richard McPhail.  “While the near-term environment is uncertain, we remain very positive on the medium-to-long term outlook for home improvement and our ability to grow share in a large and fragmented market,” CEO Ted Decker said in a statement.

For the three months through April 30, net income dropped 6.6% to $3.82 a share, beating the Street by a few cents.  Sales slipped to $37.26 billion from $38.91 billion a year ago, trailing consensus.

Comparable sales sank 4.5%, more than the 1.7% decrease analysts’ expected.  They slumped 4.6% in the U.S., with CEO Decker blaming the lumber deflation and poor weather in California in particular.

--Pilots of FedEx Express, a unit of FedEx Corp., have voted “overwhelmingly” in support of a strike, the Air Line Pilots Association said on Wednesday.  From over 97% of members who participated in the vote, 99% authorized union leaders to call a strike, if needed, to achieve a new contractual agreement with the delivery firm.

“At this time, we are still in productive negotiations with our pilots under the supervision of a government-appointed mediator and will return to the bargaining table next week,” FedEx said in a statement.

FedEx pilots are currently working under contractual provisions and benefits arrived at in 2015, after negotiations for a new agreement began in 2021.

Under U.S. law, pilots cannot walk off the job until the National Mediation Board grants them permission.  And there are other means for dragging the process out, including entering a 30-day “cooling off” period, after which pilots and management can engage in self-help – a strike by the union or a lockout by management.

--American Airlines has reached an agreement in principle on a new collective bargaining agreement with the Allied Pilots Association Negotiating Committee, the union and the company said Friday.

The union said it will now proceed with completion of contractual language for all sections of the agreement and the implementation schedule.

American said it’s a four-year contract “that provides our pilots with pay and profit sharing that match the top of the industry with improved quality-of-life provisions unique to American’s pilots.”

--Late this afternoon, a U.S. judge ruled on Friday that American Airlines Group must end its alliance with JetBlue Airways Corp. agreeing with the U.S. Justice Department that it means higher prices for consumers.  I may have more on this next time.

--TSA checkpoint numbers vs. 2019

5/18…98 percent of 2019 levels
5/17…93
5/16…94
5/15…99
5/14…95
5/13…101
5/12…95
5/11…99

--Walt Disney Co. is scrapping plans to relocate 2,000 jobs to Florida in part because of “changing business conditions” in the state, according to an email to employees on Thursday.  The announcement came amid a widening legal battle between Florida Gov. Ron DeSantis and the entertainment giant.

Disney parks chief Josh D’Amaro said “leadership changes” and “changing business conditions” prompted Disney to reconsider its 2021 plan to relocate employees, including its Imagineers who design theme park rides, to a new campus in Lake Nona.  Disney was expected to spend as much as $864 million on the project, according to the Orlando Sentinel.

The original decision to relocate employees to Florida from California had prompted complaints from many employees who did not want to move across the country.

But, Disney still plans to invest $17 billion and create 13,000 jobs over the next ten years in expanding Walt Disney World.

--Deere & Co. reported fiscal Q2 earnings Friday of $9.65 per share, up from $6.81 a year earlier. Analysts were at $8.64.

Net sales and revenue for the quarter ended April 30 were $17.39 billion, up from $13.37 billion a year earlier, with consensus at $14.87 billion.

The company said it now expects fiscal 2023 net income of $9.25 billion to $9.50 billion, compared with the previous guidance of $8.75 billion to $9.25 billion.

The shares surged 4% in response, and then cratered on concern that increased production levels would lead to oversupply.

--Cisco Systems late Wednesday reported record revenue in the fiscal third quarter, buoyed by product sales, while the provider of networking, cloud and security solutions lifted its full-year profit guidance.

Revenue gained 14% annually to $14.57 billion during the three months ended April 29, higher than the consensus on Capital IQ for $14.36 billion.  Adjusted per-share earnings rose to $1 from $0.87 a year earlier, compared with Wall Street’s $0.97 view.

Product sales rose 17% to $11.09 billion while services added 3% to $3.48 billion.  Software revenue increased 18% year-over-year.

The company forecast 2023 adjusted EPS of $3.80 to $3.82, up from the previous outlook for $3.73 to $3.78. The company expects 10% to 10.5% annual revenue growth, compared with prior expectations for a 9% to 10.5% increase.

Despite the seeming good news, the shares fell when the company said during the earnings call that orders were down 23%.  CFO Scott Herren told Barron’s that one factor is lead times have come down sharply as component availability has improved.  With shorter lead times, he says customers are less aggressive in their orders.  Other customers are working through inventory they built up over supply chain concerns that are now being rectified.   And Herren noted the company is seeing an elongated sales cycle for both service providers and other large customers.  “It’s time to be prudent,” he says.

--Tesla’s annual shareholder meeting was held on Tuesday and the biggest surprise wasn’t about Twitter, or even about products, but rather advertising.  In response to a shareholder question, CEO Elon Musk said his company would try running some ads.  The crowd at the shareholder meeting Austin, Texas, went wild.

Advertising is an example of Tesla’s metamorphosis into a larger auto maker, with first-quarter operating profit margins coming in at about 11%, down from north of 19% a year ago.  Toyota Motor’s, for example, is about 10%.

In the past, Musk said Tesla didn’t need to advertise because demand always exceeded supply.

Ford and General Motors spent $2.2 billion and $4 billion on advertising, respectively, in 2022.

Musk told CNBC’s David Faber that ads should be truthful and aesthetically pleasing.

Musk said in response to a question about pricing that Tesla adjusts price, essentially, based on real-time information about order rates.  Tesla delivered a record amount of cars in the first quarter. Musk believes the Tesla Model Y will be the best-selling car in the world, electric or traditional, in 2023, but the price had to come down to do it.

But back to Musk and his division of time, that’s what investors wanted to know more about, especially after he named a new Twitter CEO to replace him.  He said Twitter was a short-term distraction and that it was in a stable place, adding he doesn’t need to devote a lot of “incremental time” to his social media platform.  He said he plans to stay Tesla CEO.

As for the absolutely terrific CNBC interview with Faber Tuesday evening, I picked it up ten minutes in and was riveted until the end.  Parts of it I thought were highly disturbing, such as when Faber asked him about whether or not he worried about the impact of his tweets and Musk paused a full 12 seconds, with a real pissed off look on his face, before comparing his tweeting to a scene out of the film “The Princess Bride,” after which it was clear he couldn’t give a damn what people think of his tweets and he’s going to continue to do it regardless of the consequences.

“I’ll say what I want to say…and if the consequences of doing that is I lose money, so be it.”

He also lambasted remote working as “bulls---” and “morally wrong; referring to Silicon Valley’s tech workers as the “laptop classes living in la-la-land.”

He told Faber he believes working in the office boosts productivity – and that employees who refused to return to an in-person setting after Covid-19 restrictions ended need to “get off their moral high horse” and get back to work like everyone else.

“The whole work-from-home thing, it’s sort of like, I think it’s, like, there are some exceptions, but I kind of think that the whole notion of work-from-home is a bit like, you know, the fake Marie Antoinette quote, ‘Let them eat cake,’” Musk said.

“It’s like… You’re gonna work from home and you’re gonna make everyone else who made your car come work in the factory?  You’re gonna make people who make your food that gets delivered – they can’t work from home?  The people that come fix your house? They can’t work from home, but you can?  Does that seem morally right?  That’s messed up.”

When Faber asked him if he believes it’s a moral issue, Musk replied “Yes.”

--Speaking of the ‘return to the office,’ that movement has stalled out.  According to Scoop Technologies, a software firm that developed an index monitoring workplace strategies of close to 4,500 companies, about 58% of companies allow employees to work a portion of their week from home.

The number of companies that require employees to be in the office full time has actually declined to 42%, from 49% three months ago, Scoop said.  Employees at companies with hybrid strategies work an average of 2.5 days a week in the office.

Frustration is growing in cities suffering from declining real-estate values, which leads to lower property tax revenues and pressuring small businesses that relied on five-day-a-week office workers.  In New York, each employee working at home rather than going into the office costs city businesses about $4,600 in sales annually, according to WFH Research, a think tank that tracks workplace arrangements.

The average office usage rate, which crossed 50% of prepandemic levels in late January, has stalled out at that level. I keep telling you that certainly is the case for commuter parking lots in my area.

--The Supreme Court handed internet and social media companies a pair of victories on Thursday, leaving legal protections for them unscathed and refusing to clear a path for victims of attacks by militant groups to sue these businesses under an anti-terrorism law.

The justices in a case involving Google’s YouTube sidestepped making a ruling on a bid to weaken Section 230 of the Communications Decency Act that safeguards internet companies from lawsuits for content posted by users.  The justices in a second ruling shielded Twitter from litigation seeking to apply a federal law called the Anti-Terrorism Act.  In both cases, families of people killed by Islamist gunmen overseas had sued to try to hold internet companies liable because of the presence of militant groups on their platforms or for recommending their content.

--Telecom operator Vodafone plans to axe 11,000 jobs from its global operation as new CEO Margherita Della Valle warned the company “must change” to end a period blighted by a poor performance in its largest market and a slumping share price.

The cuts will come both at Vodafone’s UK headquarters and in local markets, the group said on Tuesday.

--And then telecom giant BT (formerly British Telecom) announced it would shed up to 55,000 jobs by the end of the decade, mostly in the UK, as it cuts costs.

Up to a fifth of those cuts will come in customer services as staff are replaced by technologies including artificial intelligence.

The headcount reduction is from the current workforce of 130,000, including staff and contractors.

“Whenever you get new technologies you can get big changes,” said CEO Philip Jansen.

Jansen said AI would make services faster, better and more seamless, adding that the changes would not mean customers will “feel like they are dealing with robots.”

BT is the UK’s largest broadband and mobile provider.

--The amount of U.S. power generated by wind this week was on track to drop to just 7% of the total versus a recent high of 17% during the week ended April 21, according to federal energy data.  The cause?  Err, lack of wind.

This benefited natural gas, which earlier today hit a 10-week high at $2.66 mmBtu.

--Morgan Stanley CEO James Gorman told shareholders Friday that the company will likely appoint its next CEO in the next 12 months.  Gorman, 64, said the bank’s board has identified three strong candidates to succeed him and that he will become executive chairman once a new CEO is chosen.  MS co-presidents Ted Pick and Andy Saperstein, and head of investment management Dan Simkowitz, are widely seen as the top candidates.

--I subscribe to the Irish Times newspaper and the other day in my inbox was a confession from the editor, Ruadhan Mac Cormaic.

It turns out they published an opinion column online under the headline “Irish women’s obsession with fake tans is problematic,” which as the editor said, was “written by someone purporting to be a young immigrant woman in Ireland.  It made an argument that has been aired in other countries but related it to the Irish context.

“Over the course of several days, the author engaged with the relevant editorial desk – taking suggestions for edits on board, offering personal anecdotes and supplying links to relevant research. All of this was taken in good faith, and the article was published online on Thursday morning.

“Less than 24 hours after publication on our digital platforms, The Irish Times became aware that the column may not have been genuine. That prompted us to remove it from the site and to initiate a review, which is ongoing.  It now appears that the article and the accompanying byline photo may have been produced, at least in part, using generative AI technology.  It was a hoax; the person we were corresponding with was not who they claimed to be. We had fallen victim to a deliberate and coordinated deception.”

Wow.  Needless to say, the paper is addressing the gap in its pre-publication procedures.  “It has also underlined one of the challenges raised by generative AI for news organizations. We, like others, will learn and adapt,” wrote the editor.

--Speaking of artificial intelligence, according to a new Reuters/Ipsos poll published on Wednesday, more than two-thirds of Americans are concerned about the negative effects of AI and 61% believe it could threaten civilization.

The poll found that the number of Americans who foresee adverse outcomes from AI is triple the number of those who don’t.  Those who voted for Donald Trump in 2020 expressed higher levels of concern; 70% of Trump voters compared to 60% of Joe Biden voters agreed that AI could threaten humankind.

--China’s war on foreign consulting companies continues, with the Chinese Communist Party’s flagship newspaper warning such outfits to beware of the country’s laws on spying and national security following the raid on the international consulting firm Capvision.

In an editorial published after the raids, People’s Daily said an investigation had found the U.S. and Shanghai-based company took on projects from “a large number of companies that are related to China’s sensitive industries.”

The opinion piece described national security as “the root of the country’s interest” and said some of the company’s clients had close links with “foreign governments, militaries and intelligence units.”

“Under normal logic, Capvision – a leading consulting firm in the industry – should understand the concepts of risks and baselines,” the article said.

“There are 300,000 experts in Capvision’s database.  If it isn’t aware of the red line, how many possible risks are hovering out there?”

Wohh. 

The firm has been accused in state media of helping to leak information about the Chinese military technology industry to foreigners.

One Shanghai-based consultant told the South China Morning Post that the meaning of national security was “ambiguous” and companies would need to have a “world-class government relations team to understand areas of concern and sensitive information.”

The Wall Street Journal reported today that Chinese President Xi Jinping has put state-security czar Chen Yixin in charge of the crackdown on overseas firms.

--Somewhat related, Montana became the first state to ban TikTok over security concerns.

Montana’s ban is the most restrictive measure on TikTok, which is owned by a Chinese tech company, in the United States.  It is scheduled to take effect on Jan. 1, 2024, and is expected to be challenged in court.

Republican Gov. Greg Gianforte said in a statement: “Today, Montana takes the most decisive action of any state to protect Montanans’ private data and sensitive personal information from being harvested by the Chinese Communist Party.”

TikTok spokesperson Brooke Oberwetter said the law infringes on people’s First Amendment rights and is unlawful.

“We want to reassure Montanans that they can continue using TikTok to express themselves, earn a living, and find community as we continue working to defend the rights of our users inside and outside of Montana,” Oberwetter said in a statement to the AP.

In March, Republican Sen. Rand Paul of Kentucky blocked a bill that would ban TikTok nationally.  Paul said the bill would violate the Constitution and anger voters who use the app.

--U.S. regulators are urging a recall of 67 million air bag inflators they say could explode in a crash, a major escalation of a safety issue that has plagued the auto industry for years.

The National Highway Transportation Safety Administration identified at least nine cases of ruptured air bag inflators that led to injuries, including two deaths, dating from 2009 to as recently as this past March. The parts, made by Knoxville, Tennessee-based ARC Automotive Inc., should be immediately recalled, the agency said in a letter to the company posted online last weekend.

The air bags are used by at least a dozen car manufacturers, including GM, Stellantis, Volkswagen and Hyundai.  GM is recalling almost 1 million vehicles from 2014 to 2017 that are equipped with ARC inflators.

ARC said it’s premature to begin a large-scale withdrawal, and in a letter to the NHTSA said it doesn’t believe the agency can compel it to conduct a safety recall. 

It was just a few years ago that 100 million defective air bag inflators made by the now-defunct Takata Corp., led to the biggest auto recall in U.S. history.

--Manhattan rents hit another record in April, the median apartment at $4,241, according to a report from Douglas Ellliman and Miller Samuel.  It was the second month in a row it hit a record high.

--It’s not just retail theft that is depressing, but New York’s Metropolitan Transportation Authority lost $690 million last year due to fare evasion, according to a new report.

The transit operator is losing revenue as it works to restore ridership and farebox collections to prepandemic levels.  Weekday subway ridership is about 70% of 2019 usage and the report estimates that 400,000 riders enter the subway system every day without paying.

“Fare evasion is at crisis levels across the transit system, and the problem is much bigger than everyone thinks,” Rosemonde Pierre-Louis, co-chair of a panel that authored the report.  “Turning the tide on these sobering numbers is mission critical.”

About 13.5% of subway riders failed to pay in the last quarter of 2022, up from 3% to 6% before the pandemic, according to the report.

Of the estimated $690 million annual loss, buses accounted for the largest share with $315 million, subway evasion cost $285 million, and the balance was drivers avoiding tolls and commuter rail evasion.

The MTA is hoping to cut fare and toll evasion losses by half in three years.

One big item the MTA is going after is super-luxury automobiles with obscured or fake license plates.  The agency has impounded “dozens and dozens” of such vehicles who each owe in excess of $50,000 or $100,000 in tolls.

--According to the Wall Street Journal, ESPN is laying the groundwork to sell its channel directly to cable cord-cutters as a subscription-streaming service in coming years, a shift with profound implications for the company and the broader television business.  The company has set no firm timeline for the change.

ESPN would continue to offer the TV channel after launching a streaming option, the Journal said.

--Shares in Foot Locker cratered 25% after the company reported fiscal Q1 adjusted earnings of $0.70 per share, down from $1.60 a year earlier.  Analysts expected $0.78.

Sales for the quarter ended April 29 were $1.93 billion, compared with $2.18bn a year earlier.

Comparable store sales during the quarter fell 9.1%, also worse than expected.

Foot Locker then said it expects fiscal 2023 adjusted EPS of $2 to $2.25, way below the $3.35 to $3.65 anticipated previously.  Sales during the year are expected to fall 6.5% to 8%, also worse than initially projected.

Good lord this report blows.

--Bud Light suffered its fifth straight week of worsening sales drops since the Dylan Mulvaney controversy began – stoking doubts about whether the mega-brand can recover as the crucial summer beer-drinking season begins.

Nationwide retail sales of Bud Light dropped 23.6% versus a year ago during the week ended May 6 – slightly worse than the 23.3% decline for the week ended April 29, according to NielsenIQ data.

Sales of other Anheuser-Busch brands also continued to drop, albeit at a slower rate than the week before. Those included Budweiser, down 9.7% versus an 11.4% drop a week earlier; Michelob Ultra, down 2.9% versus 4.3%, and Natural Light, down 2.5% versus 5.2% the previous week.

So other brands are gaining market share, as Anheuser-Busch grapples with the fallout over its ill-fated tie-up with the transgender influencer that launched April 1.

Sales of Pabst Blue Ribbon were up 21.6% in the week ended May 6 – slightly more than the 18.9% spike the previous week.  Miller High Life gained 10.4% in sales compared to an 8.3% bump over the same time period the previous week.

Bump Williams, chief executive of Bump Williams Consultancy, said: “I think the Bud Light drinker is waiting for a genuine and sincere apology from [Anheuser-Busch] and a crystal clear communication on exactly what happened and how important the Bud Light drinkers are to the [company],” Williams said.

--Finally, we note the passing of billionaire real-estate investor Sam Zell, who made a fortune buying distressed commercial properties. He was 81.

Zell, a real-estate investor since the 1960s, started a company while he was a student at the University of Michigan.  He was also a corporate raider who invested across industries – including a disastrous buyout of Tribune Co. – and was known for his blunt talk and contrarian tack.  Zell called himself the “Grave Dancer” because of his interest in troubled companies.

Zell had an estimated net worth of $5.9 billion, putting him among the top 500 richest people in the world, according to the Bloomberg Billionaires Index.

He was a terrific guest on CNBC, I can’t help but add. RIP.

Foreign Affairs, Part II

China: Not a lot of big news on the China front this week, though there could be with the G-7 going on in Hiroshima this weekend.

A U.S.-based Hong Kong permanent resident – who is believed to have actively promoted business and cultural exchange between China and the U.S. – was sentenced to life in prison on Monday after being convicted on spying charges in China.

The move came as China stepped up its efforts to be rid of spies, especially those from the U.S. and its allies.

But a lack of transparency around China’s national security cases and “an endless cycle of mutual recriminations over perceived espionage activities” contradict Beijing’s desire to court foreign investment in the country again, experts warn.  Just look at the above story on the crackdown on consulting firms.

John Shing-wan Leung, 78, was arrested in April 2021 by the National Security Bureau in Suzhou in eastern China.  I have no clue what the guy’s crime is.

And China asked nations with embassies on Chinese soil to stop publicly showing their support for Ukraine, referring to such support – like displaying the blue and yellow colors of the Ukrainian flag – as unwanted “propaganda.”  China’s Foreign Ministry distributed the request.

Lastly, Taiwan’s top-ranking lawmaker says the international community’s support for Ukraine is helping deter a Chinese invasion of Taiwan.  “I believe that after Xi Jinping sees how difficult it has been to conquer Ukraine because of the collective support from the international community, this will deter Xi from becoming like Putin and prevent him from taking any reckless action.  This is helpful for Taiwan,” said You Si-kun, president of Taiwan’s legislative assembly, during an event hosted by the Washington-based Hudson Institute on Tuesday.

North Korea: Is Kim Jong-un in trouble?  There are increasing reports he faces a critical challenge to his leadership, which could decide the fate of North Korea as a sovereign state.  The country is looking at its worst socioeconomic crisis since the 1990s and the “Arduous March,” which resulted in the deaths of millions.  Some say there is acute insecurity in the regime.

For starters, the severe sanctions levied on Pyongyang, which go back to its sixth nuclear test in 2017, have devastated the economy.  A prolonged decline in exports has hit hard and the country’s foreign exchange reserves have been depleted, impeding its ability to import.

Shrinking imports of raw materials and consumer necessities, including food, jeopardized the output of the state manufacturing sector, inducing food insecurity and instigating inflation.

It’s curious that Kim hasn’t conducted his seventh nuclear test, even though for basically a year now, we’ve known the site is prepared for same.

Turkey: Turkey is headed for a runoff presidential election, May 28, after neither President Tayyip Erdogan nor rival Kemal Kilicdaroglu cleared the 50% threshold to win outright last Sunday, though Erdogan performed better than expected in his battle to extend his 20-year rule.

Erdogan picked up 49.4% of votes and Kilicdaroglu had 45.0%, according to official figures.  Opinion polls before the election had pointed to a very tight race but gave Kilicdaroglu, who heads a six-party alliance, a slight lead.

But a third nationalist presidential candidate, Sinan Ogan, polled 5.3% and his votes will go to Erdogan, so Erdogan should win the runoff rather handily.  And Erdogan’s ruling AKP, with its ultranationalist partner, is on course to secure a majority in parliament, which strengthens Erdogan’s hand in advance of the run-off

The vote is critical not only in deciding who leads NATO-member Turkey, but also whether it reverts to a more secular, democratic path; and how it handles a severe cost of living crisis; and how it manages key relations with Russia, the Middle East and the West.

Turkey has become one of Vladimir Putin’s most important allies, and a defeat for Erdogan would unnerve the Kremlin.

Sudan: Heavy air strikes pounded southern areas of Sudan’s capital on Thursday, as clashes flared anew in fighting that has displaced nearly 1 million people (220,000 fleeing to neighboring countries) and left residents of Khartoum struggling to survive.

The air strikes by the army targeted the paramilitary Rapid Support Forces (RSF).

The people who remain have nothing…no money, no food, water, there is no access to medical care.  Armed gangs rove the streets.

The UN’s World Food Program said in a statement: “The fighting in Sudan is devastating lives and livelihoods and forcing people to flee their homes with nothing but the clothes they are wearing.”  More than half of Sudan’s 46 million population needed humanitarian assistance and protection, the UN said on Wednesday.  The UN said it had received reports of “horrific gender-based violence” in the country.

Talks mediated by the United States and Saudi Arabia in Jeddah have so far failed to secure a ceasefire.

Syria: President Bashar al-Assad was given a warm welcome at an Arab summit on Friday, winning a hug from Saudi Arabia’s Crown Prince Mohammed bin Salman at a meeting of leaders that had shunned him for years, in a policy shift opposed by the U.S. and other Western powers.

Assad, long ostracized by Arab states as he turned the tide of Syria’s civil war with Russia’s help, was joined at the summit by Ukrainian President Zelensky, who wants to build support for Kyiv’s battle against Russian invaders.  Gulf states have tried to remain neutral in the Ukraine conflict despite Western pressure on Gulf oil producers to help isolate Russia, a fellow OPEC+ member.

Having welcomed back Assad, Arab states want him to rein in Syria’s flourishing drugs trade in exchange for closer ties.

But around 6.8 million Syrians remain internally displaced in their own country where 90 percent of the population live below the poverty line.  More than 350,000 were killed in the war. Approximately 5.5 million Syrian refugees live in the five countries neighboring Syria – Turkey, Lebanon, Jordan, Iraq and Egypt.

Thailand: Thai voters delivered a stunning verdict in favor of an opposition party that is calling for radical reform of the country’s institutions.

“Move Forward” has exceeded all predictions to win a large share of the 500 seats in the lower house, and ahead of what was the frontrunner, Pheu Thai, led by ex-prime minister Thaksin Shinawatra’s daughter.

The vote is a clear repudiation of the two military-aligned parties of the current government, and Prime Minister Prayuth Chan-ocha, who led a coup that ousted an elected government in 2014. The governing coalition won only 15% of the seats.

Pheu Thai, the second-largest party, has said it has agreed to join Move Forward and four smaller opposition parties, giving them a coalition of more than 60% of seats in the new parliament.

However, the 250-srong unelected senate stands in the way of Move Forward’s progressive agenda, and in the political negotiations that lie ahead, many Thais fear the military and its backers may yet try to block the winning parties from taking office.

Random Musings

--Presidential approval ratings….

Gallup: 37% approve of Biden’s job performance, 59% disapprove; 31% of independents approve (Apr. 3-25).

Rasmussen: 41% approve, 57% disapprove (May 19).

Elon Musk told David Faber that when it comes to 2024, “We just want a normal human being” for president.

--Florida Gov. Ron DeSantis is expected to officially enter the 2024 presidential race next week.  In a Reuters/Ipsos poll this week, he trailed Donald Trump among Republican primary voters 49-19 percent.

South Carolina Sen. Tim Scott is officially running for the GOP nomination as of today by filing the appropriate paperwork. He’d have my vote.

--Editorial / Wall Street Journal

“Three times in a row, since 2018, Republicans have been disappointed on election night in November, in large part because they lost the suburbs.  More defeats Tuesday for the GOP in Pennsylvania, Colorado and Florida suggest the erosion is continuing.

“After a special election Tuesday outside Philadelphia, Democrats will retain their one-seat majority in the Pennsylvania House that they captured last fall.  The 163rd district in Delaware County was long held by the GOP, but Democrat Mike Zabel flipped it in 2018.  Mr. Zabel resigned after three women accused him of sexual harassment, giving Republicans another chance to retake the seat.

“Democrat Heather Boyd focused on abortion. She won, 60% to 39%... Compare that to the registration data; 51% of the district’s voters are Democrats, 37% are Republicans, and 12% are unaffiliated.  Ms. Boyd’s Republican opponent was massively outspent, but the GOP can’t win statewide without a better showing in the Philadelphia suburbs.”

[The GOP also lost mayoral races in Jacksonville, Fla., and Colorado Springs, where the GOP had run both for over three decades.]

“With Mr. Trump trying again in 2024, there’s a significant risk of hitting a suburban wall next November….

“Electability matters. That means giving up Mr. Trump’s 2020 conspiracy theories, looking to the future, and finding an abortion compromise* that Republicans can sell to the voters they used to take for granted.”

*This week legislation banning most abortions after 12 weeks of pregnancy will become law in North Carolina after the state’s Republican-controlled General Assembly successfully overrode the Democratic governor’s veto late Tuesday.

Republicans pitched the measure as a middle-ground change to state law, which currently bans nearly all abortions after 20 weeks of pregnancy, without exceptions for rape or incest.

The votes came as abortion rights in the U.S. faced another tectonic shift with lawmakers in South Carolina and Nebraska considering new abortion limits.  North Carolina and its neighbor have been two of the few remaining Southern states with relatively easy access.

And then Wednesday, South Carolina approved legislation banning abortion after six weeks of pregnancy – before women often know they’re pregnant.

--After moderating a widely panned town hall with former President Trump, Kaitlan Collins is moving up to prime time at CNN, taking the 9:00 p.m. slot this fall, though she will be seen at that hour beginning next month. 

The program will feature interviews with newsmakers and panel discussions, and CNN Chairman Chris Licht is stressing it won’t be an opinion show, setting it apart from the competition on MSNBC and Fox News.

--The Durham Report…two views….

Editorial / Wall Street Journal

“Two special counsels, several inspector general reports and six years later, the country finally has a more complete account of the FBI’s Russia collusion probe of the 2016 Donald Trump campaign.  Special counsel John Durham’s final report makes clear that a partisan FBI became a funnel for disinformation from the Hillary Clinton campaign through a secret investigation the bureau never should have launched.

“The 306-page Durham report released Monday afternoon is far more comprehensive than anything issued by original special counsel Robert Mueller.  Mr. Durham had already unfurled some of the narrative with his prosecutions of Russian Igor Danchenko and Democratic lawyer Michael Sussman. He lost those cases, though the indictments laid out how the Clinton campaign used foreign nationals, an oppo-research outfit, and political insiders to feed the FBI and the media lies about Trump collusion.

“The Durham report gives a fuller picture of the FBI’s complicity under former director James Comey and deputy Andrew McCabe. It scores an FBI that ‘failed to uphold their important mission of strict fidelity to the law.’  Here are some of the specific findings:

“No basis for investigation. The FBI lacked ‘any actual evidence of collusion’ between the Trump campaign and Russia when it violated its standards and jumped over several steps to initiate a full investigation, including probes into four members of the Trump campaign.

“The pretext for the probe – a random conversation between unpaid Trump adviser George Papadopoulos and an Australian diplomat – was so flimsy that FBI agents complained it was ‘thin’ and British intelligence was incredulous. The FBI opened the probe without doing interviews, using any ‘standard analytical tools,’ or conducting intelligence reviews – which would have shown that not a single U.S. agency had evidence of collusion.

“Bias. The Durham report makes clear that partisan hostility played a role in the probe. The report cites a ‘clear predisposition’ to investigate based on a ‘prejudice against Trump’ and ‘pronounced hostile feelings’ by key investigators, including former agent Peter Strzok, and former FBI attorneys Lisa Page and Kevin Clinesmith….

“Russian disinformation: The report says that two members of Russia’s intelligence service ‘were aware of (Christopher) Steele’s election investigation in early July 2016’ – when the former spook first contacted the FBI with his dossier – and that as a result his sources may have been ‘compromised.’ This means the FBI probe that disrupted American politics for three years may have begun as a Russian intelligence operation….

“The press corps was also an all-too-willing accomplice to the collusion con, yet there has been little to no outrage or even self-reflection at having been played for dupes.  Most coverage largely dismisses the Durham report because no one new was indicted. The press performance in the collusion story has done untold damage to its credibility, and it’s a major reason that much of the country believes nothing it reads or hears about Donald Trump….

“The report notes that if the findings ‘leave some with the impression that injustices or misconduct have gone unaddressed, it is not because the Office concluded that no such injustices or misconduct occurred,’ but rather that ‘the law does not always make a person’s bad judgment, even horribly bad judgement’ a crime….

“The Russia collusion fabrication and deceptive sale to the public is a travesty that shouldn’t be forgotten. That Washington’s establishment refuses to acknowledge its role in this deceit is one reason so many Americans don’t trust public institutions. It will take years for honest public servants to undo the damage, but the Durham accounting is a start.”

Editorial / Washington Post

“John Durham has at long last released his report on the FBI’s 2016 Russia probe, which conservative conspiracy theorists once anticipated would expose a ‘deep state’ scheme to undermine then-candidate Donald Trump.  But, despite some commentators’ efforts to portray the actual result of the four-year investigation as damning, the reality is that the Justice Department special counsel uncovered next to nothing.

“When then-Attorney General William P. Barr appointed Mr. Durham to investigate the investigators of Trump-Russia ties, Mr. Barr appeared determined to uncover a vast plot on the part of government officials who could be criminally prosecuted for their misdeeds.  Instead, Mr. Barr’s handpicked special counsel confirmed only what the public already learned in a previous report from Justice Department Inspector General Michael E. Horowitz.

“The upshot: There were flaws in the FBI’s handling of the matter, especially involving dubious Foreign Intelligence Surveillance Act (FISA) applications to surveil 2016 Trump adviser Carter Page, but they flowed from confirmation bias rather than politically motivated misconduct. Though Mr. Durham continues to disagree that it was appropriate for the FBI to open a full investigation, rather than a preliminary one, he makes no finding that doing so was prohibited under agency rules.  There was no involvement by the CIA, National Security Agency or any other snoops. And there is no reason to send anyone to prison. Indeed, the special counsel faced two acquittals in the cases he developed and a guilty plea resulting from a referral by the Justice Department’s inspector general.

“So what has this $6.5 million process accomplished?  Plenty – but none of it good.  Even now, conservatives are seizing on Mr. Durham’s report, which contains indignant rhetoric that suggests dramatically more wrongdoing than its substance backs up, to assert a deep-state plot. The probe’s very existence during an election cycle already served as a talking point for Mr. Trump’s allies, who promised time and time again that Mr. Durham was going to lay bare the ‘crime of the century.’….

“The special counsel’s only recommendation for reform is narrow – to create a sort of devil’s advocate role within the FBI to challenge investigators’ assumptions in politically sensitive investigation.  And even this suggestion does less to address flaws in the FISA process and in high-profile FBI investigations more generally than others that were in the Horowitz report, many of which the agency has already implemented….

“But all this speaks to a bigger problem: Matters such as these shouldn’t even be in the purview of a special counsel, whose role is to decide whether to bring charges, then pack up and go home.  These individuals operating under the Justice Department’s purview yet imbued with extra independence have a history of overspending resources and reaching beyond their mandates. The attorney general, technically still in charge, has some power to constrain them – yet this case shows clearly what happens when he does the opposite instead.

“The current attorney general, Merrick Garland, overseeing two separate special counsel investigations into Mr. Trump and President Biden, should take note.”

For his part, Donald Trump called the evidence in Durham’s report proof that “the American Public was scammed” when the FBI opened an investigation into his campaign over since debunked allegations that it was colluding with Russia.

“WOW! After extensive research, Special Counsel John Durham concludes the FBI never should have launched the Trump-Russia Probe!  In other words, the American Public was scammed, just as it is being scammed right now by those who don’t want to see GREATNESS for AMERICA!” Trump wrote on Truth Social.

But related to the Durham Report, I could not agree more with Peggy Noonan of the Wall Street Journal, who wrote of Trump’s relationship with Vladimir Putin, which is getting obscured in all the discussion.

Go back to July 2018, and the famous news conference between Trump and Putin in Helsinki.

“Mr. Trump took that moment to denounce the FBI, implying the bureau was incompetent or corrupt.  He then said he had been told by the director of national intelligence Dan Coats, that Russia had interfered (in the 2016 election).  But Mr. Putin denied it: ‘He just said it’s not Russia.  I will say this, I don’t see any reason why it would be….I will tell you that President Putin was extremely strong and powerful in his denial today.’  Mr. Trump thanked Mr. Putin for cooperating with the investigation.  ‘I have confidence in both parties.’  (Mr. Trump later said he misspoke and meant to say he didn’t say ‘why it wouldn’t be.’)

“It was chilling: An American president, on foreign soil, was denigrating America’s own intelligence and law-enforcement agencies, undermining his own country, and in front of a dictator he would have known was guilty of interfering with a U.S. election. Russian entities had attempted to contact his campaign in 2016; his own campaign manager had offered polling information to Russian operatives.

“In 2016 Russia had hacked the computer servers of the Democratic National Committee and arranged for the leaking of its emails.  Mr. Trump didn’t publicly call this unacceptable or vow that Moscow would pay a price.  Instead he gave a news conference in which he said, ‘Russia, if you’re listening, I hope you’re able to find the 30,000 emails that are missing’ from Mrs. Clinton’s private email server.

“Sen. John McCain called Helsinki, ‘one of the most disgraceful performances by an American president in memory.’  It was.

“I’m glad for the Durham report, respect it, and have no reason to doubt any of its conclusions.  But it’s purpose wasn’t to answer every question about Donald Trump and Russia.  To my mind there’s still a lot of mystery there.

“What was that strange thing between Messrs. Trump and Putin?  People say Mr. Trump just likes dictators, but I don’t know.  He’ll trash anyone and has – his own vice president, ‘Little Rocket Man,’ China during the pandemic.  He never trashes Mr. Putin.

“What was that?  What is it?”

--Gerard Baker / Wall Street Journal

“Over a long career Joe Biden has delivered more than a few speeches that will take their place in the annals of cheap demagoguery. But he may have surpassed himself last weekend with his commencement address at Howard University in Washington.

“In keeping with the current tenor of political oratory, it was a low, dispiriting affair, one that aptly captured the low, dispiriting nature of his presidency: acerbic rhetoric from a partisan who demonizes opposition and divides Americans from one another; bottomless self-unawareness from a politician elected president almost accidentally in a moment of crisis, who continues to see himself as some sort of historical savior; cynical cant from a serial fabulist whose distortions are becoming as loathsome as the endless malign fictions of the predecessor he despises and whom he desperately needs as a foil….

“From the tone and content you might have thought (the president) was addressing a graduating class in Alabama around the time Mr. Biden himself was in college in 1960, or maybe the brave graduates of a black university in South Africa in 1980.

“ ‘When it comes to race in America, hope doesn’t travel alone,’ he said. ‘It’s shadowed by fear, violence and by hate….Fearless progress towards justice often meets ferocious pushback from the oldest and most sinister of forces.  That’s because hate never goes away.’

“Mr. Biden waxed about the ‘poison of white supremacy,’ which he claimed is the ‘most dangerous threat to our homeland security.’

“On it went in that vein.  A reader emailed me to speculate that Martin Luther King would probably be sobbing.  There was no suggestion that the nation has made any progress toward King’s dream 60 years ago of a nation united through equality, unity and reconciliation.  In Mr. Biden’s telling, the main advances black Americans have made all seem to have come in the past two years. He rattled off a list of his African-American senior appointees.

“In an age when many American universities seem to be discarding the idea of objective truth, the president treated a graduating class to a blithe array of falsehoods, repeating popular inflammatory fictions his party and the media routinely claim….

“Then, without irony, Mr. Biden denounced those ‘who demonize and pit people against one another.’

“While more progress is always needed toward racial equality, there is no effort from today’s left to consider how much progress has been made already – before Mr. Biden came to office.  Attitudes and prejudices that were commonplace even a generation ago are now rejected by most Americans.  The president likes to bracket himself with Barack Obama on race matters, without mentioning that 15 years ago Mr. Obama won election to the presidency with the highest share of the vote any candidate has received in more than 30 years.  America is probably less racist than most other countries on earth – ask the millions of people of all races who seek to emigrate here every year.

“Ten years ago this is the kind of speech you would expect to hear from a far-left extremist, an agitator for renewed domestic strife. Now it’s the language the president of the U.S. uses as he sends a class of promising young graduates off into the world to explore their opportunities.  It’s a pathology of our modern politics, as threatening to our cohesion as the election deniers, the white supremacists and the conspiracy mongers.”

--The New York Times reported on Thursday that Sen. Dianne Feinstein (D-Calif.), who returned to Washington in May after a monthslong absence due to shingles, suffered more complications from the illness than were publicly disclosed.  The shingles caused a rare complication known as encephalitis, inflammation of the brain, the Times said, citing two people familiar with the senator’s diagnosis.

Feinstein on Thursday said she did not have encephalitis, saying it “really has never been diagnosed.”  Her staff then conceded she did.

In brief clips with reporters since her return, it is truly pathetic. Feinstein really doesn’t know where she is, as she told one reporter for the Los Angeles Times she’s been working in Washington the whole time.

--A former associate of Rudy Giuliani sued him Monday for alleged abuse of power and harassment, claiming he hired her off-the-books for sexual favors.

Noelle Dunphy, who said she began working for Giuliani in 2019, said in a lawsuit filed in New York state court that she has tapes of Giuliani making sexist, racist and anti-Semitic remarks.

In a lawsuit filled with salacious allegations, Dunphy said Giuliani would request sexual favors from Dunphy while he was on the phone because it made him “feel like Bill Clinton.”

“In addition to his sexual demands, Giuliani went on alcohol-drenched rants that included sexist, racist, and antisemitic remarks, which made the work environment unbearable,” the lawsuit said.  “Many of these comments were recorded.”

The comments listed in the suit are disgusting and despicable.  Dunphy also claims Giuliani demanded she perform oral sex while he was on the phone with Trump and to lie to the FBI.

--The Centers for Disease Control and Prevention on Wednesday released a provisional count of overdose deaths last year that indicated the toll of the fentanyl crisis leveling off after two years of surges during the Covid-19 pandemic. The CDC counted 109,680 overdose deaths in 2022 compared with 109,179 deaths from a similar 2021 projection.

“I’m glad to see us not get worse, but it’s hard to celebrate,” said Dr. Chad Brummett, co-director of the Opioid Research Institute at the University of Michigan.

The CDC will reduce the number in a latter count for the year, removing deaths that ultimately weren’t verified and those among non-U.S. residents.  The revised count for 2021 was 106,699.

The plateau follows a 16% increase in overdose deaths in 2021 and a 30% surge in 2020.  The U.S. has only recorded two years in which drug fatalities declined in the past several decades, 1990 and 2018.

--A survey by the Pew Research Center of 10,701 U.S. adults conducted between March 13 to 19, published Tuesday, found that Americans “remain steadfast in their belief in the overall value of childhood vaccines,” with no change over four years “in the large majority who say the benefits of childhood vaccines for measles, mumps and rubella outweigh the risks.”  This view was endorsed by 88 percent of those questioned, which is good.  Ninety percent is considered the figure that gets you to herd immunity, and where measles, for example, would have nowhere to go if a case was discovered in a community.

BUT…the same report documents deepening vaccine hesitancy in the United States – the tendency of people to hold back out of suspicion, disinformation and anti-vaccine lobbying.  In response to a question about whether healthy children should be vaccinated as a requirement for attending public school, a surprising 28 percent of those responding said parents should be able to decide not to vaccinate their children, up 12 points from just four year ago.  And it’s Republicans who are responsible for this change. In 2019, 79 percent of them said they supported requiring children to be vaccinated to attend public schools; that has shrunk to 57 percent.  And White evangelical Protestants backed such school requirements by 77 percent to 20 percent four years ago, but in the latest survey, the support was 58 percent to 40 percent.

--Forecasters at the World Meteorological Organization said on Wednesday that global temperatures are likely to soar to record highs over the next five years, driven by human-caused warming and El Nino.

The record for Earth’s hottest year was set in 2016. There is a 98 percent chance that at least one of the next five years will exceed that, the forecasters said, while the average from 2023 to ’27 will almost certainly be the warmest for a five-year period ever recorded.

“This will have far-reaching repercussions for health, food security, water management and the environment,” said Pettei Taalas, the secretary general of the meteorological organization. “We need to be prepared.”

Due to El Nino, the meteorological organization said it expected increased summer rainfall over the next five years in places like Northern Europe and the Sahel in sub-Saharan Africa and reduced rainfall in the Amazon and parts of Australia.

Separately, the National Oceanic and Atmospheric Administration reported this week that global average surface sea temperatures set a record high for April at 60.8 degrees F., which is 1.55 degrees above the long-term average and just 0.02 degrees below the record month of January 2016.

On land, the April 2023 global average surface temperature was 1.80 degrees above the 20th-century average of 56.7 degrees, the fourth-warmest April in the 174-year record, NOAA said.

--Meanwhile, in our latest example of extreme weather, parts of northern Italy have suffered bouts of torrential rain this week, killing at least 13 people, leaving thousands homeless and forcing the cancelation of the Italian Grand Prix Formula One race, which is a huge deal.

Some areas received 20 inches of rain as Italy is in the midst of its wettest May in 60 years and is on pace to be the wettest month on record.  Flooding has washed out power and communications infrastructure in addition to roads.

--Lawmakers on Capitol Hill are pushing to keep AM radio in the nation’s cars.  The bill calls on the National Highway Traffic Safety Administration to require automakers to keep AM radio in new cars at no additional cost.

The legislation would also require automakers selling cars manufactured before the proposed regulation takes effect to let buyers know if the vehicles don’t come with AM radios.

It’s outrageous some carmakers have been dropping broadcast AM radio from their new models.  According to Sen. Ed Markey (D-Mass.), eight out of 20 major car companies, including Tesla, BMW and Ford, have removed it from their electric vehicles.

Sponsors of the bill note AM radio’s historic role in transmitting vital information during emergencies, such as communication during natural disasters, especially to people in rural areas.

Carmakers cite interference from electric motors that can cause static and noise on AM transmissions.  Internet radio or other communication tools could replace AM radio, but Markey and others have pushed back, pointing to situations where drivers might not have internet access.

“The truth is that broadcast AM radio is irreplaceable,” Markey said recently.

Damn right!

According to the National Association of Broadcasters and Nielsen data, more than 80 million people in the U.S. listen to AM radio every month.

--It would seem my ‘rogue robin’ issue is really the result of a mockingbird, according to the above-mentioned J.N.  And upon further analysis and after listening to a YouTube clip, it is indeed a freakin’ mockingbird, who is known to sing all night.

After I posted last Friday, it got worse.  I was never in my life more exhausted than I was on Saturday.  I then realized I had some ear plugs from attending NASCAR races.  And now I’m as peppy as Scrooge on Christmas morning, who in hindsight should not have been as peppy given his own rather fitful night.

---

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

Pray for Ukraine.

God bless America.

---

Gold $1978
Oil $71.77

Regular Gas: $3.54; Diesel: $4.00 [$4.58 / $5.57 yr. ago]

Returns for the week 5/15-5/19

Dow Jones  +0.4%  [33426]
S&P 500  +1.6%  [4191]
S&P MidCap  +0.9%
Russell 2000  +1.9%
Nasdaq  +3.0%  [12657]

Returns for the period 1/1/23-5/19/23

Dow Jones  +0.8%
S&P 500  +9.2%
S&P MidCap  +1.0%
Russell 2000  +0.7%
Nasdaq  +20.9%

Bulls 45.2
Bears 24.7

Hang in there.

Brian Trumbore

---