Week in Review

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Week in Review

09/17/2022

For the week 9/12-9/16

[Posted 8:00 PM ET, Friday]

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Edition 1,222

I wrote last time: “Stocks ended their three-week losing streak, traders seemingly comfortable with another looming hefty rate hike from the Fed, which is kind of stupid.”

Indeed it was.  Very stupid.  Inflation figures Tuesday (and then Wednesday) were ugly, as spelled out below, and the Dow Jones fell 1276 points that day, 3.9%, Nasdaq down 5.2%, with the realization that the Fed not only will be hiking rates this coming week another 75 basis points (0.75 percent), but it’s hardly stopping there.

It didn’t help when last night, bellwether FedEx Corp. warned of a global recession, its shares having their worst day, Friday, ever…down 21%.

And it’s clear the housing market is on a precipice, with the yield on a 30-year fixed-rate mortgage over 6.00% for the first time since late 2008 (per Freddie Mac’s weekly barometer), or double last year’s rate.  That’s a huge difference for prospective home buyers, housing also representing about 10% of economic activity.

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Ukraine’s counteroffensive has been successful in retaking control of some major areas, forcing Russian forces to flee.  But in the past, Russian President Vladimir Putin has turned to a ‘scorched earth’ strategy, such as in Chechnya and Syria, and he can easily do the same in Ukraine, bombing gas pipelines, destroying the electrical grid, wreaking havoc at nuclear plants, knocking out water systems, much of which he has already done in one form or another.

Russia claimed its forces withdrew from Kharkiv to regroup, but analysts at the Institute for the Study of War wrote, “Kremlin sources are now working to clear Putin of any responsibility for the defeat, instead blaming the loss of almost all of occupied Kharkiv Oblast on under-informed military advisors within Putin’s circle.”

For his part, Ukrainian President Volodymyr Zelensky today played down any suggestion that the war was entering some kind of end game.  “It’s early to talk about an end to this war,” he said.

Speaking in Uzbekistan on Friday, Putin brushed off Ukraine’s counteroffensive with a smile, but warned that Russia would respond more forcefully if its troops were put under further pressure.

Earlier, Putin met with his Chinese counterpart Xi Jinping and as I get into below, it was a further test of their “limitless partnership.”

Dissent has been growing in Russia, public dissent, municipal petitions calling for Putin to resign, but it would be dangerous to make too much of it just yet.

Former CIA director and defense secretary Leon Panetta said in an interview with Bloomberg on Monday that he worries Russia could escalate, including with a potential tactical nuclear strike, if it feels at risk of losing.  “It’s dangerous because Putin, if he’s boxed in, he has to strike back,” Panetta said.

I’ve told you more than once of the terrific PBS “Frontline” documentary on Putin and the 1999 Moscow apartment bombings.  Putin had an episode with a rat in his room when he was growing up, and it made an impression on Vlad how the rat fought back when cornered.

That’s what Putin is now…a cornered rat.

And so this week in the war in Ukraine….

Saturday, at a Ukraine-focused conference known as Yalta European Strategy, Ukrainian President Zelensky stated: “There are 90 days ahead, which will be more crucial than 30 years of Ukraine’s independence; 90 days that will be more crucial than all the years of the existence of the European Union.

“This will be the most difficult winter in the whole world.  These will be 90 days that will be a test for our faith in victory.  A test for our endurance and unity, for our ability to protect ourselves, the whole world, freedom and fundamental values for any person in the world.”

Zelensky’s plea to European capitals: “You need to be ready to prevent any Russian sabotage – armed or political, and it is very important to prevent disinformation steps by Russia. And therefore, we need even more coordination, firmness and pressure on Russia.” That means more “sanctions on Russia, officials, banks, and companies as much as possible.  You know all this,” he said.

“Russia has already embarked on the path of its historic defeat,” Zelensky continued, “and the clarity of this path, the contours of its defeat will become obvious after these 90 days,” he promised, but conditioned that saying it will only happen, “if we are all honest and persevere.  All who value peace more than war.  Ukrainians, Europeans, the whole world.”

And so it was that lightning advances by Ukrainian forces over the weekend left observers wondering whether this might be a turning point.

Sunday, military officials in Kyiv said Ukraine had clawed back 3,000 kilometers of territory previously held by Russia’s invading forces; by Monday evening, President Zelensky said that number had doubled.

“From the beginning of September until today, our warriors have already liberated more than 6,000 square kilometers of the territory of Ukraine in the east and south,” the president said in his nightly address, before adding, “The movement of our troops continues.”

Most of the gains reportedly have been achieved along the northeastern front, around Kharkiv, where Russians “largely ceded their gains to the Ukrainians and have withdrawn,” according to Pentagon officials, speaking to reporters Monday.  Slower gains are apparently being made to the south, where Russian forces are believed to have concentrated a larger number of elements in defense of key territories including the port city of Mariupol and the nuclear power plant in Zaporizhzhia.

According to the latest from the Institute for the Study of War, Ukraine’s recent successes “may be impacting the will or ability of the Russian military command to use newly formed volunteer units in Ukraine in a timely fashion.”

“The deployment of these newly formed units to reinforce defensive lines against Ukrainian counteroffensives would be an operationally-sound decision on the part of Russian military leadership; and the delay or potential suspension of these deployments will afford Ukrainian troops time to consolidate and then resume the offensive, should they choose to do so,” the ISW said.

Ukraine’s intention is to liberate “all the territories occupied by the Russian Federation,” Deputy Defense Minister Hanna Malyar told Reuters on Tuesday.  A close presidential adviser, Mykhailo Podolyak, tweeted Tuesday: “First, Russia fights against civilians, so critical infrastructure facilities protection with air defense is obligatory,” he wrote.  “Second, Luhansk/Donetsk liberation will cause [a] domino effect, collapse [Russian]-frontline and lead to political destabilization.  It is possible.  Weapons required.”

According to the Wall Street Journal, Congress is reportedly considering Ukraine long-range missiles, the Army Tactical Missile System, or ATACMS.

ATACMS would give Ukraine the ability to strike targets inside occupied Crimea with much greater ease.  But Ukraine could also strike ammo depots and command headquarters even farther back from the present front lines.

Tuesday evening, Zelensky said about 8,000 square kilometers had been liberated so far, apparently all in the northeastern region of Kharkiv.

“Stabilization measures had been completed in about half of that territory,” Zelensky said, “and across liberated area of about the same size, stabilization measures are still ongoing.”

Zelensky added: “We have already built together with our partners a powerful anti-war coalition that includes dozens of different countries.  And now we are working to turn the most powerful states that are already helping us into a coalition of peace that will last forever.”

Russia’s abandonment of Izyum, a key staging point for troops and weapons, was widely seen as critical.

Wednesday, President Zelensky raised Ukraine’s national flag over Izyum.  “Earlier, when we looked up, we always looked for the blue sky, the sun,” he said from the city’s central square.  “And today, looking up, we and especially the people in the temporarily occupied territories are looking for only one thing – the flag of our state.  It means that the heroes are here. It means that the enemy is gone – ran away.”

Zelensky: “It is possible to temporarily occupy the territories of our state. But it is definitely impossible to occupy our people, the Ukrainian people.”

And for folks living in Ukraine’s Russian-occupied Crimean Peninsula: “It is a terrible tragedy that they have been under occupation for more than eight years,” Zelensky said, then promised, “I don’t know when exactly.  But we have plans, and we will return there, because this is our land and our people.”

President Joe Biden said it was hard to tell if Ukraine had reached a turning point in the six-month war.  Asked about the situation on Tuesday, he said: “It’s clear the Ukrainians have made significant progress, but I think it’s going to be a long haul.”

The White House announced a new military aid package for Ukraine in the amount of $600 million, including HIMARS and artillery shells.

But Thursday, President Zelensky announced that a mass grave containing 440 bodies in Izyum had been found, including some people killed by shelling and air strikes.  Zelensky compared the discovery to alleged war crimes by Russian forces against civilians in Bucha, on the outskirts of Kyiv, in the early stages of war.

“Russia is leaving death behind it everywhere and must be held responsible,” Zelensky said in his video address late on Thursday.

Multiple bodies have been found with rope round their necks and hands tied.

Separately, Ukrainian officials claimed 9,000 sq. km have been retaken.

--U.S. and Western officials said Monday that a Ukrainian counteroffensive that has sent Russian forces into a hasty retreat could mark a turning point in the war and raise pressure on Moscow to call up additional forces if it hopes to prevent further Ukrainian advances.

Whether the gains are permanent depends on Russia’s next moves, especially whether Vladimir Putin implements a military draft or orders reinforcements from elsewhere to offset heavy losses in Ukraine.

“The Russians are in trouble,” one U.S. official, who spoke on the condition of anonymity to share recent intelligence analyses, told the Washington Post.  The rapidity of the pullback appears to have stunned Russian military troops and commanders.  “The question will be how the Russians will react, but their weaknesses have been exposed and they don’t have great manpower reserves or equipment reserves.  Some Russian forces abandoned tanks, armored vehicles and ammunition as they fled.

The officials were skeptical that Putin, who has resisted calling up additional forces, would resort to extreme tactics such as the use of chemical or tactical nuclear weapons.  For all their shortcomings, the Russians still have the capability to regroup and hit back hard, some officials cautioned.

One U.S. official said, “Certainly it’s a military setback.  I don’t know if I could call it a major strategic loss at this point,” echoing others who said it was too soon to say if the momentum had fully shifted in Kyiv’s favor and that heavy fighting was likely to continue.

Retaking Mariupol and Kherson would be more significant that the gains of recent days, officials said.  And fighting in the east and south has taken a heavy toll on Ukrainian forces.

--Ukraine said on Tuesday it feared Russia would step up attacks on its energy system to turn the screws on Kyiv this winter and that it was pleading with Western powers for air defense technology to avert this.

A series of devastating strikes hit Ukraine’s power and heating infrastructure Sunday and Monday, causing mass blackouts across several eastern regions.

And then Russia sent eight cruise missiles to destroy a dam and water systems at the largest city in central Ukraine, Kryvyi Rih, Zelensky’s home city that had a pre-war population of 650,000.

The water system had “no military value” and hundreds of thousands of civilians depend on it daily, Zelensky said.

“We expect the quantity of such attacks to grow, and are ready for various scenarios,” senior adviser Podolyak told Reuters.  Podolyak added that Ukrainians should be prepared for problems with power and heat this winter.

Russia said it was carrying out “massive strikes” across the Ukrainian frontline and accused Kyiv’s soldiers of abusing civilians in territories recaptured in the counteroffensive.

“Air, rocket and artillery forces are carrying out massive strikes on units of the Ukrainian armed forces in all operational directions,” the Russian defense ministry said in its daily briefing on the conflict on Tuesday.

President Putin’s spokesman, Dmitry Peskov, said reports were emerging of “outrageous” treatment of civilians.

“There are a lot of punitive measures…people are being tortured, people are being mistreated and so on,” Peskov said.

Russia’s allegations came after Ukrainian authorities claimed to have found four bodies of civilians with “signs of torture” in the recaptured eastern village of Zaliznychne.

--Russia’s foreign ministry said on Thursday that if the United States decided to supply Kyiv with longer-range missiles (the ATACMS), it would cross a “red line” and become “a party to the conflict.”

In a briefing, Foreign Ministry spokeswoman Maria Zakharova added that Russia “reserves the right to defend its territory.”

The Biden administration has supplied Ukraine with advanced rockets that can hit targets up to 50 miles away, while so far holding back from publicly announcing it would send rockets with more than double that range, that could have an even more devastating impact on Russia’s supply lines.

--The leader of the European Union, Ursula von der Leyen, visited Kyiv on Thursday, her third trip to see President Zelensky and his advisers.

“I want to make it very clear, the sanctions [against Russia] are here to stay,” von der Leyen told the European Parliament in Strasbourg, France, on Wednesday – clad in the blue and yellow colors of Ukraine’s flag.  “This is the time for us to show resolve, not appeasement,” she declared.

“Fifteen years ago, during the financial crisis, it took us years to find last solutions,” von der Leyen said Wednesday.  “A decade later, when the global pandemic hit, it took us only weeks.  But this year, as soon as Russian troops crossed the border into Ukraine, our response was united, determined and immediate.  And we should be proud of that.”

“This is not only a war unleashed by Russia against Ukraine; this is a war on our energy, a war on our economy, a war on our values and a war on our future,” she continued.  “This is about autocracy against democracy. And I stand here with the conviction that with courage and solidarity, Putin will fail and Europe will prevail.”

--All three of the backup power lines at the Russian-held Zaporizhzhia nuclear plant have been restored, the International Atomic Energy Agency said in a statement.  One of them provides the external electricity the ZNPP needs for cooling and other essential safety functions.

--The World Bank put the cost of rebuilding Ukraine at $349 billion – more than one and a half times the country’s GDP last year.  In the short term, the bank said, $105 billion would be required to prepare for the coming winter and planting season and to repair transport systems, among other necessities.  The number of Ukrainians in poverty, or those living on less than $5.50 a day, is projected to rise tenfold, to about a fifth of the population.

--The United States is deeply concerned by the Russian government’s treatment of jailed opposition leader Alexei Navalny, the State Department said over the weekend.

Russian prison authorities have interfered with Navalny’s preparation of his defense and communication with his lawyer, spokesman Ned Price said in a statement.  He also said Navalny has been repeatedly placed in solitary confinement for minor alleged infractions.  The U.S. continues to call for his immediate release.

President Putin’s most vocal critic inside Russia is serving an 11-1/2-year sentence after being found guilty of parole violations and fraud and contempt of court charges.

--Democratic and Republican senators introduced legislation on Wednesday that would designate Russia as a state sponsor of terrorism, a label pushed by Ukraine but opposed by the Biden administration.

“The need for this measure is more pressing now than ever before,” Democratic Senator Richard Blumenthal, one of the bill’s sponsors, told a news conference, citing the killings of civilians and other “brutal, cruel oppression” in Ukraine since Russia’s invasion.

Republican Sen. Lindsey Graham, another bill sponsor, said the designation would send a strong signal of support for Ukraine to Kyiv but also to U.S. allies, while imposing stiff penalties on Russia like allowing it to be sued in U.S. courts for its actions in Ukraine and tightening sanctions.

The two senators have been advocating for the designation for months, but it’s unclear when or whether it will come up for a vote.  Democratic House Speaker Nancy Pelosi said in July the designation was “long overdue.”

The administration is concerned that the designation would hinder deliveries of humanitarian assistance to Ukraine.  Moscow has told Washington that diplomatic ties would be badly damaged and could even be broken off if Russia were added to the State Sponsor of Terrorism list, which currently includes Iran, North Korea, Cuba and Syria.

--Pope Francis on Thursday finally gave his blessing to nations sending weapons to Ukraine.  Self-defense in such circumstances is “not only lawful but also an expression of love of country.”

On a plane after a three-day trip to a religious conference in Kazakhstan, Francis told reporters that sending Ukraine weapons could be morally wrong, though, “if it is done with the intention of provoking more war.”

This was the conference that Francis was to meet Putin’s own pope, Patriarch Kirill of the Russian Orthodox Church, but Kirill backed out last month.

Opinion….

Editorial / Wall Street Journal

“Russia’s war against Ukraine seems to have taken a modest turn in Ukraine’s favor, and one sign is Vladimir Putin’s new threats and his scramble for arms from his own client states.

“Russia expected its February blitzkrieg to end in a quick victory, but the conflict has bogged down and Ukraine is now pressing an offensive in the south aimed at busting up Russian logistics and taking back territory.  Russia has had to spend down its munitions stores.  It is having a hard time replenishing smart weapons in particular because of the West’s embargo on selling computer chips and other components that go into modern weapons.

“Thus the Kremlin’s Operation Tin Cup toward Iran and North Korea, two of the world’s worst rogues… Countries claiming great power status typically provide client states with weapons, not vice versa….

“The Ukraine war is far from over, and Mr. Putin may escalate his brutality and extortions.  But Moscow’s sound and fury show that Ukraine’s resistance and foreign support are making a difference. Continuing the supply of advanced weaponry is crucial to stopping Mr. Putin’s designs on Kyiv, and on the front-line nations of NATO if he isn’t stopped.  Ukraine is under pressure but so is Russia.”

Walter Russell Mead / Wall Street Journal

“Ukraine scored a stunning victory in the Kharkiv region over the weekend.  Routed Russian forces ditched valuable weapons and tons of badly needed munitions and supplies in a chaotic rush to safety.  This signals a new stage in Vladimir Putin’s disastrous war. The Ukrainian army is better armed, better led and more committed to the war than its Russian opponents, and morale among Ukraine’s defenders will now be higher than ever.

“Mr. Putin’s choices look bleak.  As he struggles to stabilize the military situation while fending off critics at home, he must choose between accepting a humiliating defeat in Ukraine and doubling down in pursuit of a military victory that, as more Western weapons reach Ukraine’s energized defenders, looks very difficult to achieve….

“Yet Ukraine’s northern victory, however welcome, isn’t the end of the war.  As Mr. Putin contemplates his options, we may be approaching a moment of maximum danger.

“For Mr. Putin, the war in Ukraine began as what Council on Foreign Relations President Richard Haass has called a ‘war of choice.’ Mr. Putin could have left Ukraine undisturbed and gone on to rule Russia for many years to come.  But having chosen to start the war, he can’t afford to lose it.  Radical Russian nationalists are already blaming him for the military failures in Ukraine.  The Kremlin is no place for the weak, and the hard men who run Russia could turn on a politically wounded Mr. Putin in a heartbeat.  Regardless of public sentiment across Russia, the people closest to Mr. Putin likely still want him to win the war.

“The question is what Mr. Putin does next.  If he can stabilize the military front until winter sets in, he has several months to prepare for the spring.  He might use that time to organize a general mobilization, building a much larger conscript army for another year of conventional combat. But if the front door doesn’t stabilize, or if he feels that public resistance to a general mobilization could endanger the stability of the regime, he might look to more drastic options, such as the use of nuclear weapons in Ukraine.

“It is anything but clear how the West would respond. Allowing Mr. Putin to use nuclear blackmail to assert his control over Ukraine would be such a craven act that the moral and political foundations of the North Atlantic Treaty Organization would be shaken to the core – and nuclear-armed aggressors elsewhere would take note.  Yet the obvious countermove, placing Ukraine under an American nuclear umbrella, risks the greatest nuclear crisis since John F. Kennedy and Nikita Khrushchev squared off  over Cuba in October 1962….

“(If) continued Ukrainian success turns Mr. Putin into a cornered rat, what then?

“Difficult as it may be, President Biden should not blink.  The use of nuclear weapons in Ukraine would imperil the security of our NATO allies and set an example of nuclear-backed aggression that it would profoundly destabilize the international system.  With the support of congressional leaders in both parties, Mr. Biden needs to tell Russia that a nuclear attack on Ukraine would be an act of war against the U.S.  If Vladimir Putin chooses the path of Nikita Khrushchev, Joe Biden needs to stand like JFK.”

David Ignatius / Washington Post

“Let’s try now to put ourselves in the mind of Russian President Vladimir Putin. He is the loser in this latest round, but he is also the man who cannot be seen to lose.  What was Putin doing as his troops fled the Kharkiv battle in panic this past weekend?  He was opening a new Ferris wheel at a celebration of the anniversary of Moscow.

“Putin has always wanted to make Ukraine a living-room war, something Russians could watch on television while Chechens and Dagestanis did the fighting.  It wasn’t even a real war, it was a ‘special military operation’ against a country that Putin claimed didn’t really exist.  Most Russians seemed to cheer the war because they shared Putin’s grievance that it was all the fault of NATO and the Americans.

“Putin’s problem now is that all those television watchers in Moscow and St. Petersburg can see that the Russian leader’s non-war is a total mess.  His strongest backers on the Telegram channel, and even some commentators on state television, are saying that Russian forces have suffered a severe defeat.  The finger-pointing has begun in earnest, and the daggers are out for Gen. Valery Gerasimov, Russia’s chief of staff, and Sergei Shoigu, the defense minister.

“But not yet for Putin, and probably not ever.  That’s the beauty of the system he has created.  There is no one to succeed him, almost literally. If he keeled over tomorrow, Russia’s interim leader would be Prime Minister Mikhail Mishustin, a former head of the Russian Taxation Service.  Have you ever heard of him?  Of course not. That’s the point….

“But what now?  That’s one reason Zelensky would be wise to avoid strategic overreach.  As reckless and destructive as Putin has been, there is worse he could deliver.  That might be one reason Ukraine’s chief of staff, Gen. Valery Zaluzhny, warned last week that Russia might escalate the conflict to a ‘limited’ nuclear war.  He was front-running, and perhaps disrupting, the Russian leader’s options.  Zaluzhny also spoke of the decisive battles ahead in 2023.  His message seemed to be that Ukraine is preparing for a long war.

“The Biden administration has consistently stressed three points about this war. It is committed to support Ukraine with the weapons it needs to defend itself; it doesn’t want a war with Russia; and it believes that, eventually, this conflict must be settled by diplomacy.  All three goals should come into sharper focus after Ukraine’s successful offensive.

“With its courage in battle, Ukraine is rewriting the history of the 21st century. In stopping a dictator’s brazen invasion, it has become a symbol of the values that the West cherishes.  We can only salute Ukraine’s heroism and hope for more victories and, when the time is right, an honorable end to this dreadful war.”

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Wall Street and the Economy

The market was slammed Tuesday as a result of the worse than expected data on consumer prices in August, 8.3% annualized on headline, 6.3% ex-food and energy, which is versus a prior 8.5% and 5.9% for July.   The market was looking for 8.1% and 6.1% on core.

In other words, the Federal Reserve has the ammunition it needs to hike its benchmark funds rate by another 75 basis points next Wednesday after its latest Open Market Committee meeting, that begins Tuesday.

Wednesday, data on producer prices just offered confirmation for Chair Jerome Powell & Co., up 8.7% year-on-year, and a far greater than expected 8.1% on core.

While gas prices continue to fall, with the nationwide price for regular gas down to $3.69 from a high of $5.01, food prices rose 11.4%, the most since May 1979, with grocery prices up 13.5%.  I was shocked the other day at the price of butter, and it rose 1.9% just in August.  [I have a commentary on how idiotic the Biden administration looks on the topic of inflation down below.]

Separately, August retail sales rose 0.3%, but were down 0.3% ex-autos, far worse than forecast.  And August industrial production was off 0.2% when a gain was expected.

Put it all together and the Atlanta Fed’s GDPNow barometer for third-quarter growth fell to just 0.5% annualized. We have our first official look at Q3 on Oct. 27, just ahead of the midterms, and the administration better hope this reading improves over the next five weeks.

On the food price front, Curt Covington of AgAmerica told Barron’s: “High fuel cost is just one factor at play, creating high food prices.  Increased input costs and rising interest rates cut into the already thin revenue margins for the farmer and the additional costs are passed along to the consumer.”

To beat a dead horse, until diesel comes down*, the cost of groceries is remaining high.   That’s been my point all along.

*Diesel is at $4.97, nationally, which is still well above the $3.29 level of a year ago, but at least it’s come down some, finally.

To wit…in Barron’s, Patrick De Haan, head of petroleum analysis at GasBuddy, told the publication:

“Fuel prices have continued to be a major component in inflation figures, but while gasoline prices have cooled considerably over the last 3 months, diesel prices have remained fairly elevated.”  Diesel prices are a “major component of inflation in other areas of the economy, such as the cost of groceries.”

Here are other facts about diesel. Diesel engines power about 75% of U.S. farm equipment and transport 90% of farm products, according to data from the Diesel Technology Forum.

De Haan believes diesel prices, which are high compared to historical norms, “will likely drag on for some time, given diesel’s ability to be a substitute for pricey natural gas.”

De Haan also warned that there could be more of a disconnect between gasoline and diesel “if this winter is cold due to diesel and heating oil being essentially the same product, keeping demand elevated.”

Rail strike: As we rolled into Wednesday night, Amtrak said it would cancel all of its long-distance trains starting on Thursday because of a potential freight rail work stoppage.  Amtrak workers are not involved in the labor dispute, but the railroad operates almost all of its 21,000 route miles outside the Northeast Corridor on track owned, maintained and dispatched by freight railroads.

Northeastern states would face disruptions to fuel supplies if rail transport had shut down.  The northernmost East Coast states rely on railroad shipments to supplement pipeline deliveries from the U.S. Gulf.

Railroads including Union Pacific, Berkshire Hathaway’s BNSF and Norfolk Southern then had until a minute after midnight on Friday to reach tentative deals with three holdout unions representing  about 60,000 workers.

And then early Thursday morning, a tentative labor agreement was reached, averting what no doubt would have been a disaster for the economy. “Catastrophic,” a word used by the administration, is not an exaggeration.

President Biden said the deal, which is expected to be ratified, “will keep our critical rail system working and avoid disruption of our economy.”

The agreement is “an important win for our economy and the American people,” Biden said in a statement.  “It is a win for tens of thousands of rail workers who worked tirelessly through the pandemic to ensure that America’s families and communities got deliveries of what have kept us going.”

He also called the agreement “a victory for railway companies” as they would be able to “retain and recruit more workers for an industry that will continue to be part of the backbone of the American economy for decades to come.”

It was a difficult position for the president, espousing the virtues of unionization, while needing the railroad CEOs’ help to avert a shutdown that could have been a killer come the midterms.  As in any potential momentum on behalf of the Donkeys would have gone out the window.

From what I’ve seen of the terms, it looks like a fair deal, and in terms of wage increases, with inflation where it is, there isn’t a single American who can complain about such a contract.

$22 an hour for fast-food workers, though, as will be the case in California in the near future?  That’s a different topic, as I discussed last week.

Big picture, the World Bank said in a report this week that the global economy may face a recession next year caused by an aggressive wave of policy tightening that could yet prove inadequate to temper inflation.

Policy makers around the world are rolling back monetary and fiscal support at a degree of synchronization not seen in half a century, according to a study released in Washington on Thursday.  That sets off larger-than-envisioned impacts in sapping financial conditions and deepening the global growth slowdown, the WB said.

Europe and Asia

We had the August readings on inflation for the eurozone from Eurostat and it was more bad news.  The annual inflation rate came in at 9.1%, up from 8.9% in July.  A year earlier it was 3.0%.  Ex-food and energy, the figure was 5.5%, up from 5.1% in July and 1.6% a year ago.  Needless to say, way above the European Central Bank’s 2% target.

Germany 8.8%, France 6.6%, Italy 9.1%, Spain 10.5%, Ireland 9.0%, Netherlands 13.7%!

Inflation in the UK is running at 9.9%, down slightly from July’s 10.1%, according to the Office for National Statistics.

July industrial production in the EA19 was down 2.4% year-over-year.

Turning to Asia…China reported better than expected numbers on some key metrics for August, per the National Bureau of Statistics. 

Industrial production rose 4.2% year-over-year, retail sales 5.4% and fixed asset investment 5.8% (for Jan.-Aug.).

The unemployment rate for the month was 5.3%.

In Japan, the August producer price index was up 9% year-over-year, unchanged for July…yet another example of the global inflation problem.

August exports were better than forecast, up 22.1% Y/Y (up 33.8% to the U.S.), while imports rose 49.9% year-over-year (think petroleum and coal).

July industrial production fell 2.0% Y/Y.

Street Bytes

--Stocks fell hard after last week’s rally, the Dow Jones down 4.1% to 30822, while the S&P 500 and Nasdaq cratered 4.8% and 5.5%, respectively.  Virtually all the losses were actually on Tuesday after the release of the CPI data.

And then today, the news from FedEx and talk of a global recession killed any prospects for a little rally.  The S&P also fell below a key technical level at 3900 (3873).

--A Bank of America Corp. survey showed that investors are fleeing equities en masse amid the specter of a recession, with allocations to stocks at record lows and cash exposure at all-time highs.

A historically high 52% of respondents said they are underweight equities, while 62% are overweight cash, according to the bank’s global fund manager survey.

The number of investors expecting a recession has reached the highest since May 2020, strategists led by Michael Hartnett wrote in a note on Tuesday.  Sentiment is “super bearish,” with the energy crisis further weighing on risk appetite, they said.  A net 42% of global investors are underweight European equities, the largest such position on record.

--I missed last Friday that U.S. household net worth declined in the second quarter by the most on record amid the aggressive Fed action.

Household net worth decreased by $6.1 trillion in the April-June period, or 4.1%, after falling about $147 billion in the first quarter, a Fed report showed.

The value of equity holdings slumped $7.7 trillion, while the value of real estate held by households rose by $1.4 trillion.

--U.S. Treasury Yields

6-mo. 3.79%  2-yr. 3.87%  10-yr. 3.45%  30-yr. 3.51%

The short end of the yield curve got crushed again with the bad news on inflation, while the yield on the 10-year keeps edging up, which isn’t good for mortgage rates, sports fans.

Just a reminder.  At the end of last year, the 2-year was at 0.72%, the 10-year 1.51%.

--Oil rose some on Wednesday as the International Energy Agency said it expects an increase in gas-to-oil switching due to high prices this winter, even though the outlook for demand remains gloomy, and crude ended the week a little lower at $85.40 on West Texas Intermediate.

The IEA expects the deepening economic slowdown and a faltering Chinese economy to cause global oil demand to grind to a halt in the fourth quarter of the year.

However, the IEA also said it expects widespread switching from gas to oil for heating purposes, saying it will average 700,000 barrels per day in October 2022 to March 2023 – double the level of a year ago.

OPEC said Tuesday global oil demand in 2022 and 2023 will come in stronger than expected, citing signs that major economies are faring better than expected despite challenges such as surging inflation.  This comes as the market has been fretting over demand concerns with global central banks continue to raise interest rates to curb inflation.

--Wall Street giants are forecasting deep declines in investment-banking fees for the current quarter with investors still spooked by inflation, Fed rate hikes and the potential for a recession.

Citigroup warned the fees the bank collects from deal making and capital markets origination are likely to plummet 50%, in line with the broader slowdown hitting Wall Street.  That mirrors earlier comments from JPMorgan Chase, which said investment-banking fees may fall by half as clients stay on the sidelines. 

Bank of America Corp. CEO Brian Moynihan said this week, “The pipelines are very full.  And there is a lot of activity that has been held in abeyance waiting for some stability in the market to push it through.”

The industrywide slump in revenue has already prompted Goldman Sachs Group to embark on its biggest round of job cuts since the start of the pandemic as it plans to eliminate several hundred roles starting this month.  During its earnings call in July, the bank warned investors that it would slow hiring while it re-examined its spending and investment plans.

“Investment banking has remained muted through the summer,” Andy Saperstein, co-president of Morgan Stanley, said at a conference this week.  “At some point, that will change.  Markets will settle down and clients will transact, but that’s not imminent.”

Separately, global equity issuance and junk-bond issuance is off by 75% or more, as reported by Crain’s New York Business.

And the likes of Citi, JPMorgan and Wells Fargo have been letting go of hundreds in their home-lending divisions.

--Ryanair was among the airlines having to cancel scores of flights due to an air traffic control strike in France, 420 in their case, while more than halving Air France’s scheduled short and medium-haul services.  The strike mainly impacts overflights.

Meanwhile, due to severe staffing shortages, from baggage handlers to security staff, major airports, including London’s Heathrow and Amsterdam’s Schipol, have extended caps on passenger numbers into the fall.

Schipol said today it would reduce daily passenger numbers by 18% until at least Oct. 31 due to labor shortages.  One of Europe’s busiest airports, Schipol agreed to pay 15,000 cleaners, baggage handlers and security staff $5.25 extra per hour during the summer.

--TSA Checkpoint travel numbers vs. 2019 levels….

9/15…95 percent of 2019 levels
9/14…92
9/13…90
9/12…92
9/11…94
9/10…97
9/9…89
9/8…86

--FedEx Corp. said after the market closed Thursday that its fiscal first-quarter results were hit by global volume softness that accelerated at the end of the period, and withdrew its financial forecast as it expects business conditions to worsen in the second quarter.

Factors affecting FedEx’s business included “macroeconomic weakness in Asia and service challenges in Europe,” the company said in a statement.

The warning lands as investors, including activist D.E. Shaw, pressure FedEx’s new CEO, Raj Subramaniam, to improve margins and close a widening profitability gap with rival United Parcel Service Inc. 

Analysts had already tempered expectations for the quarter. Hoping to fight the market weakness, FedEx implemented a string of cost-cutting measures, but “the impact of cost actions lagged volume declines, and operating expenses remained high relative to demand,” the company said.  FedEx is cutting back on flights, reducing Sunday operations at some locations, freezing hiring and closing more than 90 locations.

UPS and Amazon.com shares dropped after the news.

--Soaring borrowing costs are hitting real estate globally, maybe not to the extent of the 2007-09 financial crisis and the housing bubble, but buyers are pulling back as rates go up, while those who bought homes during the pandemic face higher payments as their loans reset. 

But this will play out over time, and as a former Bank of Japan economist, Hideaki Hirata, told Bloomberg, “We will observe a globally synchronized housing market downturn in 2023 and 2024.”

--Oracle Corp. posted mixed numbers for the quarter. Revenue edged out guidance, but profits fell short of the company’s target, largely due to the strength of the dollar against foreign currencies.

For the fiscal first quarter ended Aug. 31, Oracle posted revenue of $11.4 billion, up 18%, or up 23% when adjusted for currency.

Adjusted profits were $1.03 a share, below the company’s guidance range of $1.09 to $1.13.

Oracle continues to make progress on shifting customers to cloud-based versions of its database and application software.  The company said cloud revenue was $3.6 billion, up 45%.

Revenue in the quarter included $1.4 billion from the company’s recent acquisition of Cerner, an electronic healthcare-records company.  Oracle said revenue was up 8% in constant currency from a year ago excluding the Cerner acquisition, and driven by growth in its cloud applications and infrastructure businesses, which Oracle said now account for more than 30% of revenue.

For the November quarter, Oracle sees revenue up between 21% and 23% in constant currency.  Oracle expects cloud growth in fiscal 2023 of more than 30%.

--Adobe Inc. agreed to buy collaboration-software company Figma for around $20 billion, as it acquires a small-but-fast-growing rival that the tech giant hopes can give it access to a broader group of customers.

Figma’s cloud-based tools have gained a loyal following among software developers and product managers who build apps and other tech products.

But investors are wondering why Adobe is paying such a high price for a smaller company that was valued at $10 billion in a funding round last year and has been expected to surpass recurring revenue of $400 million for 2022 – about one-50th of its sale price.

At the same time, Adobe released its fiscal third-quarter earnings, with net income of $1.14 billion and revenue of $4.43 billion, which was up 13% year-over-year.  It also issued fourth-quarter revenue guidance that fell below Wall Street expectations.

The shares fell 17% in response Thursday, and are now off 45% this year.

--A high-level United States delegation on Monday invited Mexico to participate in a push to shift semiconductor production from Asia to North America and expand production of electric vehicles.

Secretary of State Antony Blinken spoke to President Andres Manuel Lopez-Obrador about recently passed legislation that would provide $28 billion in incentives for semiconductor production, $10 billion for new manufacturing of chips and $11 billion for research and development.

Lopez Obrador said his plan is to make the northern border state of Sonora a leader in lithium, electric vehicle and solar energy production; lithium a key component of batteries for EVs.

--Netflix Inc. expects its upcoming ad-supported subscription plan to reach about 40 million viewers worldwide by the third quarter of 2023, the Wall Street Journal first reported, citing a document shared with ad buyers.  The streaming pioneer told ad executives in a preliminary projection that 4.4 million “unique viewers” globally are expected to sign up for the new tier by year-end, with 1.1 million coming from the United States, the report said.  The unique viewers metric is estimated to be higher than the number of subscribers for the ad-supported Netflix plan, since more than one person in a subscribing household will likely be able to watch the service.

Netflix lost 970,000 subscribers from April through June in a sign that the world’s dominant streaming service was cracking under unruly inflation, the Ukraine war and fierce competition.  That prompted the company to announce plans for a cheaper, ad-supported subscription option next year, as well as carry out job cuts.  The company had let go of 300 employees, or 4% of its workforce, in June.

--Software developer Twilio is cutting approximately 11% of its workforce in a bid to boost margins, the company said Wednesday, becoming the latest tech company to announce layoffs.

Over the course of the year, tech giants, including Microsoft, Snap, Netflix and Shopify, have all made similar announcements.

--Twitter shareholders reportedly voted to ratify Elon Musk’s $44 billion buyout offer.

Musk’s April acquisition offer, which he rescinded in July, required stockholder approval before it could be finalized.  On a brief shareholder call Tuesday, Twitter said the preliminary vote-count was enough to approve the deal.

But now it’s about the court fight.

--UPS plans to hire more than 100,000 workers to help handle the holiday rush this season, in line with hiring the previous two years. [FedEx’s issues be damned.]

Holiday season volumes usually start rising in October and remain high into January.

Seasonal drivers with UPS start at $21 per hour, with tractor-trailer drivers making as much as $35 per hour.  Package handler starting wages can range from $15-$21 per hour.

UPS tractor-trailer drivers are the most courteous on the highways, I hasten to add, almost always going the speed limit, and I for one greatly appreciate it.  [As I sit in my little Honda Civic.]

--New York City officials have been waiting for this news, but it appears that commuters are flocking back to the subway following a sluggish August.  Turnstiles logged more than 3.6 million straphangers last Thursday – the start of the academic year for the city’s public schools – the most since March 13, 2021.

The ridership milestone was a more than 35% increase from the same day in 2021, and was followed by the system’s highest ridership on any given Friday and Saturday since the pandemic began, MTA data shows.

--But while folks are going back to the office (and the commuter parking lots I monitor daily reflect this as well), the New York Times had announced it expected employees to start returning to the office three days a week starting this week, but more than 1,300 journalists are saying hell no, they won’t go.

It’s the latest blow in a bitter contract dispute between the News Guild journalists union – which includes reporters and photographers, as well as some editors and business-side employees – and upper management, over wages.

As of Monday, 1,316 Times workers had signed a pledge not to return to the office, including 879 members of the News Guild.

One individual, Tom Coffey, a 25-year veteran editor at NYT told the New York Post, “people are livid.”  He added that being forced to return to the office during a period of high inflation means workers will have to spend more money on gas, mass transit, clothing and lunches, despite the lack of a salary increase.

The workers have been operating under an old contract that expired at the end of March 2021, and the negotiating committee finally offered a 4% pay hike a few weeks ago.

--In its latest annual survey on ‘retirement security’ by Natixis, working with CoreData Research, Norway came out number one, when ranking metrics that cover finances in retirement, material wellbeing, health and quality of life.

1. Norway
2. Switzerland
3. Iceland
4. Ireland
5. Australia
6. New Zealand
7. Luxembourg
8. Netherlands
9. Denmark
10. Czech Republic
11. Germany
15. Canada
16. Israel
18. U.S.
19. UK

--The audience for the 74th Emmy Awards hit a new low for the trophy show celebrating the TV industry. 

NBC’s telecast hosted by “Saturday Night Live” favorite Kenan Thompson scored 5.9 million viewers Monday, according to Nielsen data, down 20% from last year’s telecast on CBS (7.4m), which was up slightly over 2020, when the previous low of 6.37 million viewers was set on ABC.

--It was announced today that “Phantom of the Opera” will perform for a last time this coming Feb. 18, just weeks after celebrating its 35th anniversary. It is the longest-running show in Broadway history.  The original cast recording has sold over 40 million copies worldwide.

The Pandemic

--China’s metropolis of Chengdu, population 21 million, was still in lockdown mode in some areas while officials completed another round of mass testing, this as a whopping 20 new cases were reported on Thursday.

In the Ili prefecture in China’s northwestern Xinjiang region, residents told the Washington Post, “We’ve been locked up in our home for more than 40 days. We are short of everything, especially food,” one said.  “There are so many difficulties, I feel like crying just by mentioning them.”

The person said “local authorities locked their apartment door from the outside and opened it only when medical workers came to do coronavirus testing.”

Tibet’s capital, Lhasa, population 860,000, began locking down parts of the city early last month, with widespread infections and food shortages, according to online posts and confirmed by residents, the South China Morning Post reported today.

Food is running out, and one resident said he had been locked in his home for 36 days.

“It is extremely difficult to get food and many people have run out of food.  I feel we are in the same situation as Ili,” a man who identified himself as Sam Wang to the Post.

Meanwhile, in Beijing, the government announced on Monday that employees and students must show a negative Covid test taken within the previous 48 hours to return to work and school on Tuesday after the three-day Mid-Autumn Festival holiday.

Which led to chaos on Tuesday morning when commuters found subway gates would not open because they could not verify their Covid-19 tests.  Picture that during morning rush hour, commuters had to queue up and missed their trains since everything had to be checked manually.

Beijing reported 10 local confirmed cases on Tuesday.  Ten.

The South China Morning Post had this account from a resident.

“I feel shocked, angry and sad,” the person said.  “One positive case was found and hundreds of thousands of people cannot go to work.”

But authorities in Beijing are worried about the upcoming Communist Party congress in the city next month.

--The Wall Street Journal reported the U.S. is still averaging about 320 new Covid-19 deaths each day, above 400 before the Labor Day holiday weekend, data from the Centers for Disease Control and Prevention show.  The rate is far below pandemic peaks, including levels above 2,500 a day during the Omicron wave early this year.  But the country hasn’t matched lows closer to 200 a day reached during a lull last year.

Roughly 85% of people who died from Covid-19 through mid-August this summer were 65 or older, a Journal analysis of death-certificate data show.

Covid-19 death tolls, as of early tonight…

World…6,527,341
USA…1,078,385
Brazil…685,350
India…528,273
Russia…385,837
Mexico…329,868
Peru…216,235
UK…189,484
Italy…176,508
Indonesia…157,876
France…154,672

Canada…44,347

[Source: worldometers,info]

U.S. daily death toll…Mon. 92; Tues.439; Wed. 355; Thurs. 295; Fri. 206.

Foreign Affairs, part II

China / Taiwan: Nearly 1,000 days after he last left China, President Xi Jinping arrived in Central Asia on Wednesday.  A summit of the Shanghai Cooperation Organization in Uzbekistan on Thursday and Friday offered Xi an opportunity to support a fellow delegate: Vladimir Putin.

Xi’s first stop, though, was Kazakhstan, a country in which China has invested heavily, which sends back oil and gas.  It was from Kazakhstan that Xi in 2013 launched the Belt and Road initiative, a global infrastructure binge.  The country also borders China’s Muslim-majority Xinjiang province, where more than 1m Uyghurs have been thrown into “re-education” camps.  Kazakhstan’s government has remained quiet on the matter.

But while Xi is expected to secure an unprecedented third term as chief at next month’s Communist Party congress, he faces big challenges at home, not least over frustration with his “zero-Covid” policy.

But in the meeting with Putin on Thursday, Vlad said he understood that Xi had questions and concerns about the situation in Ukraine but praised China’s leader for what he said was a “balanced” position on the conflict.

At their first face-to-face meeting since the war, Xi said he was very happy to meet “my old friend” again after Putin said crude attempts by the United States to create a unipolar world would fail.

“We highly value the balanced position of our Chinese friends when it comes to the Ukraine crisis,” Putin told Xi.  “We understand your questions and concern about this.  During today’s meeting, we will of course explain our position.”

It’s not exactly the warm and fuzzy talk of last winter between the two, weeks before Russia invaded Ukraine, when they declared a “no limits” partnership and inked a promise to collaborate more against the West. A Chinese readout of the meeting did not even mention Ukraine.  It said China is willing to give strong support to Russia for matters related to its core interests, state broadcaster CCTV reported.

China has refrained from condemning Russia’s operation against Ukraine or calling it an “invasion” in line with the Kremlin, which casts the war as “a special military operation.”

Instead, Beijing is perturbed by the impact on the global economy and has been careful not to give material support to Russia that could trigger Western sanctions on China’s own economy.

Bottom line…the Ukraine war has underscored the different trajectories of China and Russia; one a rising superpower whose economy is forecast to overtake the United States in a decade; the other, a former superpower struggling with a draining war.

Once the leader in the global Communist hierarchy, Russia is now a junior partner to China.

“In the face of changes in the world, in our times and of history, China is willing to work with Russia to play a leading role in demonstrating the responsibility of major powers, and to instill stability and positive energy into a world in turmoil,” Xi told Putin.

Putin and Xi do share a view of the world which sees the West as decadent and in decline just as China challenges the United States’ supremacy.  Putin explicitly backed China over Taiwan.

“We intend to firmly adhere to the principle of ‘One China,’” Putin said.  “We condemn provocations by the United States and their satellites in the Taiwan Strait.”

On the Taiwan front, Lithuania announced it would open a representative office in Taiwan amid rising tensions with Beijing.  I admire the Lithuanians’ guts.

Taipei has seen a constant stream of aircraft crossing the median line of the Taiwan Strait, which normally serves as an unofficial barrier between the two sides, according to the defense ministry.  Seventeen planes on Saturday.

North Korea: Pyongyang promised to “automatically and immediately” launch its nuclear weapons if the country’s leader, Kim Jong Un, is killed or incapacitated in an attack, according to a new law.

The legislation, which passed the country’s rubber stamp parliament, also grants the country’s leaders authority to use nuclear weapons in a pre-emptive strike if the dictatorship feels an attack by foreign powers is imminent.

“The nuclear posture of the [Democratic People’s Republic of Korea] is guaranteed by the reliable, effective and matured nuclear deterrence, defensive and responsible nuclear forces policy and flexible and purposeful strategy for using nuclear weapons capable of actively coping with any existing and developing nuclear threats in the future,” the law reads.

The new law potentially heightens the risk of conflict, experts say.

“This raises serious questions about the North’s ability to get accurate intelligence and what the threshold of evidence will be to make those judgment calls,” Jenny Town, a senior fellow and director of the 38 North program at the Stimson Center told Politico.

Iran: The United States told a meeting of the UN nuclear watchdog’s Board of Governors on Tuesday that Iran is not “a willing partner” in indirect talks on reviving the 2015 Iran nuclear deal, officially called the Joint Comprehensive Plan of Action.

“We stand ready to quickly implement a deal on a mutual return to full implementation of the JCPOA.  What we lack is a willing partner in Iran,” a statement to the International Atomic Energy Agency’s 35-nation board said.

German Chancellor Olaf Scholz said there was no reason to expect an imminent revival of the accord.

“It certainly won’t happen soon, although it looked for a while like it would,” Scholz conceded at a meeting with Israel’s prime minister, who called any attempt to revive the agreement a “critical mistake.”

Last weekend, France, Britain and Germany vented their frustration at Iran’s demand that the IAEA close a probe into uranium particles found at three sites, adding that it was jeopardizing the talks.

Armenia / Azerbaijan: Fighting between the two erupted this week, with almost 100 soldiers killed; Armenia announcing 49 of its soldiers died in clashes Monday night, while Zaerbaijan’s defense ministry said 50 of its servicemen were also killed.

The neighboring countries have fought two wars and seen regular clashes span three decades.

On Tuesday, Russia said it brokered a ceasefire for the latest outbreak, but there were reports Wednesday of further clashes.

At the core of the dispute is the region of Nagorno-Karabakh.  It is, according to internationally-recognized borders, firmly a part of Azerbaijan – but is populated by ethnic Armenians.

Armenia is also a majority-Christian country, while Azerbaijan is mostly Muslim.

Both countries were part of the Soviet Union before its dissolution at the end of 1991.

Azerbaijan is backed by Turkey, Armenia by Russia.

A full-fledged conflict would not only risk dragging in Russia and Turkey, but it would destabilize an important corridor for pipelines carrying oil and gas just as war in Ukraine disrupts energy supplies.

Finally, today we learned of “intense battles” between Kyrgyzstan and Tajikistan, with at least 17 dead thus far, according to RIA.  Both of the small impoverished landlocked nations have accused each other of restarting fighting in a disputed area, despite a ceasefire deal.  Both countries host Russian military bases.

Random Musings

--Presidential approval ratings….

Gallup: 44% approve of President Biden’s job performance, 53% disapprove; 40% of independents approve (Aug. 1-23).

Rasmussen: 42% approve of Biden’s performance, 55% disapprove (Sept. 16).

A new Associated Press-NORC Center for Public Affairs Research poll has the president’s approval rating up to 45% from 36% in July, driven in large part by a rebound in support from Democrats just two months before the midterm elections.

Granted, 53% of U.S. adults still disapprove of Biden, and the economy continues to be a weakness, as only 38% approve of his economic leadership as the country faces stubbornly high inflation and Republicans try to make household finances the axis of the upcoming vote.

But the poll suggests Biden and the Democrats are gaining momentum.  Tumbling gas prices help immensely.

Among Democrats, 78% approve of Biden’s job performance, up from 65% in July.

Overall, just 29% of U.S. adults say the economy is in good shape, while 71% say it’s doing poorly.  In June, the split was 20-79.

About a quarter of Americans now say things in the country are headed in the right direction, 27%, up from 17% in July.  Seventy-two percent say things are going in the wrong direction.

--Biden Agenda

Karl Rove / Wall Street Journal

“When Democrats have spoken recently, it’s often sounded as they’re living in a different reality than most Americans.

“A good example is President Biden’s response Tuesday when asked if he was worried about the August inflation report: ‘No, I’m not, because we’re talking about one-tenth of 1%.’ Actually, we’re talking about an 8.3% year-over-year increase in the consumer-price index.  Mr. Biden focused on the monthly inflation rate and ignored that economists had expected prices to decline in August.

“Maybe the president thinks by saying it was one-tenth of a percent, he can comfort families who in August spent 23.8% more for energy than they did last year, 6.2% more for shelter and 11.4% more for food – buffeted by the largest 12-month increase in grocery prices since 1979.  If so, he vastly overestimates his persuasive skills and greatly underestimates American common sense.

“Also on Tuesday morning, Mr. Biden heralded the Inflation Reduction Act’s passage at a White House celebration, complete with a concert by James Taylor.  There the president hailed the act as ‘the single most important legislation passed in the Congress to combat inflation,’ claiming it will ‘lower the cost of healthcare, prescription drugs and energy.’

“No serious economist outside the White House payroll seems to think the new law will reduce inflation. It’s pumping $485 billion more demand into the economy.  Nor are any promised reductions in healthcare, drugs and energy prices coming soon, if they arrive at all.  The president is gloating about the predicted results of price controls that don’t kick in for years and of green energy programs far from completion.  Unsurprisingly, Mr. Biden made no mention of the August inflation report, which was issued shortly before his celebration began….

‘Mr. Biden was joined in political la-la land by House Speaker Nancy Pelosi, who revved up the crowd on the White House lawn by praising the ‘landmark law’ that’s ‘driving down costs for kitchen-table items for America’s working families.’  With the price of meat, poultry, fish and eggs up 10.6%, dairy up 16.2%, and fruit and vegetables up 9.4%, it’s unclear to what ‘kitchen-table items’ she was referring.  Maybe Mrs. Pelosi was thinking of the clearance table at her local Napa Valley luxury home-goods store.

“Democrats haven’t limited their fantastical declarations to inflation.  Prominent party members seem intent on insisting that everything is fine, even as numerous policy issues spin out of control.

“Vice President Kamala Harris claimed Sunday that ‘we have a secure border.’  This is belied by Customs and Border Protection apprehension numbers.  Through July, they already reached a record 1,946,780 at the southern border – and there are still two months left to count. [Ed. in the fiscal year.] ….

“Democrats can keep spinning fantasies, but the problem is that voters will still encounter reality every day.”

Speaking of the border, President Biden accused Republican governors, specifically Greg Abbott of Texas and Ron DeSantis of Florida for “playing politics with human beings” by sending immigrants on buses and planes to Democratic strongholds, like New York City, Martha’s Vineyard and Washington, D.C.

“Republicans are using them as props,” Biden told the Congressional Hispanic Caucus Institute Gala Thursday.  “What they’re doing is simply wrong.  It’s un-American, it’s reckless.”

--The president is lucky other news events garnered the headlines this week because it was beyond outrageous that he flew Air Force One to his home state of Delaware on Tuesday to cast a primary election ballot in-person.

The White House didn’t publicly announce the trip until just before he left.  Asked before boarding his plane why he was traveling to his home state on short notice, the president answered: “To vote.”

He didn’t answer when asked why he hadn’t simply requested and returned an absentee ballot.  Delaware also offered in-person early voting on Saturday, when Biden was at his home in Wilmington.

Instead, the president employed two motorcades, local police protection and the Boeing 757 version of Air Force One to vote in an election with no high-profile races on the ballot.

--Trump World:

The Justice Department said it would accept one of the Trump team’s proposed candidates to serve as a third-party arbiter (special master) to review documents the FBI seized from his Mar-a-Lago home last month.

Raymond J. Dearie, a former chief federal judge in New York, has the qualifications to do the job, prosecutors wrote in a court filing Monday.

A federal judge then appointed Dearie to sort through the more than 11,000 documents – including classified materials.

The decision could significantly slow the investigation, one that prosecutors say has already been paused at a key juncture by the judge’s skepticism that the Justice Department has treated Trump fairly.

In her Thursday night ruling, Judge Aileen Cannon rejected DOJ arguments that her decision will cause serious harm to the national security investigation.  Evenhanded application of legal rules “does not demand unquestioning trust in the determinations of the Department of Justice,” the judge wrote in a decision that is almost certain to be appealed by the government.

Cannon, a Trump appointee confirmed by the Senate just days after Trump lost his bid for reelection, added that she still “firmly” believes that the appointment of a special master, and a temporary injunction against the Justice Department using the documents, is in keeping “with the need to ensure at least the appearance of fairness and integrity under unprecedented circumstances.”

Today, Judge Dearie said he wanted to meet with the DOJ and Trump’s lawyers next Tuesday.

Appearing on Hugh Hewitt’s radio program Thursday, Trump said the nation would face “problems…the likes of which perhaps we’ve never seen” if he is indicted over his handling of classified documents, a clear suggestion that such a move by the DOJ could spark violence from Trump supporters.

Trump said an indictment wouldn’t stop him from running for the White House again and repeatedly said Americans “would not stand” for his prosecution.

“If a thing like that happened, I would have no prohibition against running,” Trump said.  “I think if it happened, I think you’d have problems in this country the likes of which perhaps we’ve never seen before. I don’t think the people of the United States would stand for it.”

Hewitt asked Trump what he meant by “problems.”

“I think they’d have big problems.  Big problems.  I just don’t think they’d stand for it.  They will not sit still and stand for this ultimate of hoaxes,” he said.

Nothing like inciting a little violence.

--The BBC took a look at Donald Trump’s performance in the primaries and how he did with his endorsements, and it turns out he did quite well.  Candidates endorsed by Trump won their races 92% of the time.

Trump weighed in on nearly 200 races, compared with just under 90 candidates during the 2018 midterms.

So now it’s Trump’s picks representing the GOP on ballots come November.

Candidates such as Ret. Army Brig. Gen. Donald Bolduc, who edged out state Senate President Chuck Morse for the New Hampshire Republican Senate nomination.  Bolduc has become a Trump-like conspiracy theorist, while Morse was endorsed by Gov. Chris Sununu and helped by $4.5 million from national Republicans, who were worried that a victory by Bolduc would forfeit what they saw as a winnable seat in the quest for Senate control this fall.

But as I alluded to the other week, incumbent Democratic Sen. Maggie Hassan has a clear lead at this point.

Trump-aligned candidates also won their races to take on New Hampshire’s two Democratic incumbent House members.

--Dave Seminara / Wall Street Journal…former diplomat

“The media typically divides the GOP into two camps, Trump supporters and Never Trumpers.  Many Republicans I know fall into neither one. We oppose Never Trumpers on ideological grounds, but we’re also exhausted with Donald Trump, convinced he’s damaging our side’s chances in the midterms and will lose in 2024 if he’s the GOP nominee.

“I left the country for nearly a month this summer and came back to find that Democrats were rising in generic polls and President Biden’s approval rating had ticked up.  That shouldn’t be possible given the state of dysfunction in which we now live.  If the Republicans can’t make big gains in the midterms and recapture the White House in 2024 with the hapless Mr. Biden at the helm, the GOP needs a revolution, starting at the top.

“I’m about to turn 50 and can’t recall ever feeling so pessimistic about our leaders and the direction of the country.  The stock market had its worst first half of a year in my lifetime, and I don’t have the stomach lately to check and see what’s left of my investment portfolio.  Inflation is higher than it has been since I was in elementary school, and mortgage rates are around 6%.

“Under Mr. Biden’s watch, disorder reigns. America has lost control of its southern border, drug overdoses have reached an all-time high, and violent crime has increased thanks to soft-on-crime policies and a lack of support for the police.  His party’s commitment to teachers unions and pandemic school closures have led to declining test scores and an epidemic of chronic absenteeism.  Abroad, the U.S. has bumbled into disaster after disaster. We gifted the Taliban billions in weaponry during a chaotic withdrawal in Afghanistan, which – along with other administration ineptitudes – emboldened Vladimir Putin to launch an invasion of Ukraine.

“Yet our president blames his failures on ‘ultra-MAGA’ Trump voters, whom he often likens to domestic terrorists…. Independents and moderate Democrats should be flocking to the GOP, given Mr. Biden’s commitment to radical and haphazard progressive policy.  But many voters don’t want anything to do with a party that’s clueless enough to keep Mr. Trump as the headliner of its show.

“The former president’s most ardent fans fail to grasp the depths of his unpopularity.  Some seem to live in a fantasy land, still believing he won 2020 in a landslide. Many Republicans who should know better continue to indulge these delusions to the detriment of their party and the country.

“Only 27% of Americans want Mr. Trump to run again, and there are better options for 2024.”

[Mr. Seminara goes on to tout Florida Gov. Ron DeSantis.]

“And yet we’ve seen no indication that Mr. DeSantis or any other leading Republican with a serious chance of beating Mr. Trump is willing to engage in the brass-knuckle brawl necessary to dethrone him. (Rep. Liz Cheney has a 17% approval rating among Republicans, so she can make lots of noise but won’t get anywhere.)  And so, anti-Trump and anti-Never-Trump Republicans like me are stranded in the political wilderness….

“If Republicans want to escape the nightmarish conditions Mr. Biden has inflicted on the country, they can’t allow Mr. Trump to continue to lead the party.  Mr. DeSantis and other conservative leaders don’t have to denounce the former president.  But they must distance themselves from him and talk Mr. Trump’s most ardent supporters off the ledge, making the case that competency and substance are more important than bluster and bravado.

“The best-case scenario for the left is for Republicans to succumb to their fears and stick with an unpopular, polarizing candidate who would re-enter the White House at 78 if elected. The Democrats made a similar mistake in 2016, making the unpopular and polarizing Hillary Clinton their candidate, essentially because it was ‘her turn’ and they didn’t want to offend her supporters.  We all saw how that turned out.”

--South Carolina Republican Sen. Lindsey Graham introduced legislation on Tuesday that would ban abortion after 15 weeks nationwide, with some exceptions.

“I think we should have a law at the federal level that would say, after 15 weeks, no abortion on demand except in cases of rape, incest or to save the life of the mother,” Graham said at a news conference.  “And that should be where America is at.”

While Graham’s bill is unlikely to receive a vote in the Democratic-controlled Senate, Graham said that if Republicans took back the House and Senate in the midterm elections, there would be a vote on his bill.

The White House criticized the legislation as out of step with the views of most Americans.

After the Supreme Court in June overturned Roe v. Wade, eliminating the federally protected right to abortion procedures, multiple states quickly moved to criminalize it.

Editorial / Wall Street Journal

“Democrats want to make the midterms about abortion, not inflation, and on cue Tuesday Sen. Lindsey Graham introduced legislation to enact a nationwide ban at 15 weeks of pregnancy.  This is constitutionally dubious, and although Mr. Graham is right that Democratic abortion absolutists too often get a pass, he is taking a big political gamble.

“As a policy, 15 weeks of abortion on demand is about on par with the laws in Western Europe. That would continue to permit most of the abortions done in the U.S.  In 2019, 92.7% were performed at 13 weeks or before, according to a study by the Centers for Disease Control and Prevention.  That’s why Mr. Graham styles his bill a ban on later abortions, which the legislative text describes as procedures that often ‘involve the use of surgical instruments to crush and tear an unborn child apart.’…

“Mr. Graham’s goal is to draw a line that the GOP can defend to the public.  According to the Gallup figures, 67% of Americans want abortion to be ‘generally legal’ in the first 12 weeks.  That falls to 36% in the first 24 weeks.

“But the nuances might be lost on voters, and Democrats are trying to ensure that they are.  Speaker Nancy Pelosi’s statement Tuesday was illustrative. ‘The nationwide abortion ban proposal put forth today,’ she said, ‘is the latest, clearest signal of extreme MAGA Republicans’ intent to criminalize women’s health freedom in all 50 states and arrest doctors for providing basic care.’

“That’s demagogic, but notice how Mrs. Pelosi refers to it as a ‘nationwide abortion ban,’ without mentioning anything about 15 weeks.

“The Democrats’ bill in Congress is far more extreme.  Their bill would protect abortion on demand through fetal viability, about 23 weeks.  After that line, it would also guarantee abortion access whenever the pregnancy is a risk to the patient’s ‘health,’ which isn’t defined and is often interpreted to include emotional factors.  The bill appears to protect sex-selective abortions, if parents who wanted a boy decide they would prefer to terminate a girl.

“Republicans already had plenty of political ammunition, and signing on to Mr. Graham’s bill leaves them open to charges of hypocrisy. After Roe v. Wade, conservatives spent five decades arguing that the Supreme Court had inflamed the country by nationalizing the debate on abortion, which is properly a state issue.  This summer the Justices reversed that mistake in Dobbs, and the result has been hurly-burly democratic arguments in state legislatures.

“There’s no need to re-nationalize the question, and it isn’t clear Congress has the authority to do so….

“Fighting for policy change in all 50 states is arduous, with victories offset by defeats and unsatisfying compromises. Democrats and some Republicans don’t want to bother, since it’s easier to pass one bill in Congress, constitutional or not.

“But by Mr. Graham’s political logic, if voters in Colorado, Pennsylvania or Arizona think 15 weeks is too restrictive, they now have a reason to vote against those GOP Senate candidates. Every Republican candidate will be asked to take a stance, and a Senate majority is made by swing states.”

--Kenneth Starr, the prosecutor whose investigation led to then-President Bill Clinton’s impeachment, has died at the age of 76, his family said.   Starr died at a Houston hospital of complications from surgery, which is the last thing the rest of us want to see.  It happens.

As the independent counsel investigating Clinton, Starr became a household name.  More recently he served on the team defending former President Trump’s impeachment in 2020.

Starr was appointed by the Department of Justice in 1994 to investigate Whitewater, a scandal-plagued 1980s land venture that involved both Bill and Hillary Clinton.

While conducting the investigation, Starr found evidence that Bill Clinton was having an affair with a White House intern, Monica Lewinsky.

It resulted in Clinton being impeached by the House in 1998, but he was later acquitted in the Senate.  Starr wrote about the inquiry in a bestselling book, “Contempt: A Memoir of the Clinton Investigation.”

He said while promoting the book in a CBS interview in 2018 that he regretted “the pain that resulted to so many, including to the nation: from the Lewinsky phase of the probe.”

--If you even just casually watch CNN, you would be familiar with Atlanta, Ga.-based prominent attorney Page Pate.  I saw him in reference to the Mar-a-Lago investigation last Friday.

Sunday, he died. In an awful tragedy, Pate and his teenage son were swimming off the coast of St. Simons Island, when both were caught in a rip current.

After responding to a call about “two swimmers in distress” at Gould’s Inlet, a water rescue team pulled Pate out of the water and into a boat, but he was pronounced dead at the hospital.

Pate’s son reached the shore safely before first responders arrived at the scene.

Our sympathies to the Pate family.  Just so sad. 

--Heavy rains and floods hit a region in central Italy on Thursday, some 15 inches within two to three hours, inundating several towns while killing at least seven people.

Local authorities said they did not expect such a sudden “water bomb.”

--Gerard Baker / Wall Street Journal

“As many obituaries have noted, (Queen) Elizabeth earned, and over 70 extraordinary years steadily burnished, a place in the hearts of her people to the point that at her death, even the dwindling band of British republicans were reduced to dabbing moist eyes at the news….

“The main significance of the queen’s death is this: The end of the country’s longest reign demands from the British and their leaders – and perhaps even the rest of us – a fundamental reappraisal of the role of monarchy in the 21st century.

“For seven decades the British people have never needed to think too deeply about the purpose of the monarchy, because they never really needed to while the queen reigned.

“Elizabeth was not simply the monarch.  She was the monarchy.  She did the job so well for so long, proved so adept at navigating the balance of legitimacies that derive from the interaction of continuity and change, that she became the institution itself.  Her genius in adapting her role to a nation transforming during her reign beyond recognition, while at the same time upholding the relevance of the institution that most tangibly links the British with their long history was an act of statesmanship unrivaled in the modern era.

“Over time, person and institution fused so tightly that the meaning and functions of the crown came to be understood by whatever Elizabeth did.

“This offers a sense of the uncharted landscape in which Britain now finds itself.  It is not to say that Charles III is inevitably doomed to fail in the wake of his mother’s greatness – though there is cause for disquiet.  It is devoutly to be wished that now that he is king he will, as he promises, restrain himself from continuing to express the predictable progressive nostrums that emanated from his princely mouth for decades.

“The signs aren’t encouraging.  As recently as three months ago – when it was already obvious that his ascension was imminent – he was widely reported to have expressed (not very private) dismay at the immigration policies of the democratically elected Conservative government.

“The larger challenge is more complex than simply avoiding controversy. It won’t be enough for Charles to try to emulate his mother.  He wouldn’t be able to.  How many men change their views, behavior, outlook and ambitions at 73? ….

“Elizabeth’s remarkable legacy is to have left the monarchy as one of the very few major institutions in public life still trusted by the people. But she was wise enough to know that trust can be squandered more quickly than it is earned.”

--Count me in as a member of the Princess Anne fan club, after observing her since her mother’s death.  I was listening to CNN’s Richard Quest (who on business news is as good a commentator as there is in providing real value) and his thoughts on her and he said, “She doesn’t suffer fools gladly.” 

That’s my girl!

By the way, the funeral music for the procession to Westminster Hall was by Beethoven, Mendelssohn, and Chopin.

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

Pray for Ukraine.

God bless America.

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Gold $1684…2+ year low, so much for it being an inflation hedge
Oil $85.40

Regular Gas: $3.69, nationally; Diesel: $4.97 [$3.19 / $3.29 yr. ago]

Returns for the week 9/12-9/16

Dow Jones  -4.1%  [30822]
S&P 500  -4.8%  [3873]
S&P MidCap  -4.7%
Russell 2000  -4.5%
Nasdaq  -5.5%  [11448]

Returns for the period 1/1/22-9/16/22

Dow Jones  -15.2%
S&P 500  -18.7%
S&P MidCap  -16.2%
Russell 2000  -19.9%
Nasdaq  -26.8%

Bulls 32.4
Bears 28.2

Hang in there.

Brian Trumbore

 

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