Week in Review

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Week in Review

10/28/2023

For the week 10/23-10/27

[Posted 5:00 PM ET, Friday]

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Edition 1,280

Another crappy week on Planet Earth, from a Cat 5 hurricane destroying a beloved Mexican resort, to a devastating mass shooting in Maine, to further death and destruction in the Middle East and Ukraine.

But we do finally have a new Speaker of the House, Rep. Mike Johnson of Louisiana.  I get into his election below, but he has his work cut out for him, including a looming government shutdown Nov. 17 unless he can get his still fractious conference to settle on some budget and foreign policy issues, namely funding for Israel, Ukraine and Taiwan, as America’s enemies circle, looking for an opening.

And I can’t help but note that with the United Auto Workers settling with Ford, and likely with General Motors shortly, that these new labor agreements are immensely costly.

Such as the agreements signed in the last few months with some of the major airlines and package delivery behemoth UPS.

When the economy eventually comes to a screeching halt, and it will…really…these new contracts are absolute killers, including the provisions concerning job security.

But as to the Big Picture and America’s role in today’s dangerous world….

Editorial / The Economist

“America’s allies around the world, especially in Asia, ask two seemingly contradictory questions, says Kori Schake of the American Enterprise Institute [a Washington think-tank]. First, will American resources and attention be diverted to the Middle East?  Second, will America’s resolve in one or the other crisis fail? ‘If we allow the security of Europe to be destabilized by Russian aggression, or allow Israel to suffer a terrible terrorist attack, they will believe that we don’t care about any other problem,’ she argues.

“America’s reliability as an ally comes down to both credibility and capacity. Given America’s many alliances, academics have long debated the importance of credibility: does a failure to live up to obligations to one ally affect commitments to others?  America’s abandonment of the war in Vietnam, for instance, did not much damage its will to defend western Europe.  The West went on to win the Cold War.

“These days the question is whether America’s pell-mell departure from Afghanistan undermined American credibility and encouraged Russia to invade Ukraine.  Tod Wolters, the former military commander of NATO forces, suggested last year that it was one of several factors.  But (national security adviser Jake) Sullivan insists that, in fact, leaving Afghanistan ‘improved our strategic capacity’ to respond to an invasion of Ukraine and the threat to Taiwan….

“(Regarding the crisis in the Middle East) China and Russia may offer no substitute for America’s diplomacy, but they will be more than happy to see American discomfiture and will play up the claims of American double standards.  Ahead of his visit to Washington this week, Wang Yi, China’s foreign minister, described Israel’s actions as ‘beyond the scope of self-defense’ and did not mention Hamas….

“(In his televised address last week), Mr. Biden made the case for America as the world’s ‘essential nation.’ In Europe and the Indo-Pacific his administration has acted nimbly, knitting existing alliances more tightly and creating new partnerships, helped by the aggression of Russia and China.  In the Middle East, though, America is more alone in its defense of Israel, and more liable to lose friends and partners than win over new ones.

“In an age of great-power competition that makes a difference. The pay-off to Mr. Biden’s address – ‘May God protect our troops’ – is a common refrain of his.  But right now, with America supporting two friends at war, and perhaps Taiwan in years to come, his words carry an ominous new ring.”

War in Israel / Gaza….

--The Israel Defense Forces said that as of Sunday evening, 222 were being held hostage by Hamas, more than previously estimated.  America promised a “continued flow” of aid into the Gaza Strip after a second day of trucks carrying humanitarian supplies entered on Sunday.

Saturday the first 20 trucks carrying aid moved through the Rafah border crossing into Gaza from Egypt.  On a normal day, 500 trucks pass through, so 4% of the normal flow of goods.

The UN said that Gazans need “much more” help as Israel continued its bombardment in preparation for the ground offensive.  The IDF said it will come “soon.”

--Israeli warplanes struck 320 ‘military targets,’ including tunnels and command centers in Gaza on Sunday, as well as two airports in Syria* and a mosque in the occupied West Bank allegedly used by militants.

*Syria’s state news agency said Israel had struck the Damascus and Aleppo international airports in early-morning attacks, damaging runways.

The Palestinian Health Ministry said Sunday that the death toll in Gaza had reached at least 4,651 people, with another 14,254 people wounded.  But, again, the health ministry is run by Hamas so there is no way to verify the authenticity of the counts being released.  [The IDF said that failed Hamas rocket launches have also led to deaths inside Gaza, including the blast at the hospital ten days earlier.]

The ministry also said 90 Palestinians were killed in violence and Israeli raids in the occupied West Bank since Hamas militants stormed Israel on Oct. 7.

“We are extremely alarmed by the rapidly deteriorating human rights situation in the occupied West Bank and the increase in unlawful use of lethal force,” said Ravina Shamdasani, a spokeswoman for the UN human rights chief, Volker Turk.

More than 1,400 Israelis have been killed, mostly in the initial Hamas attack, as of Sunday.

--The surge in violence in the West Bank is very disturbing, as its known Iran and its allies have accelerated efforts to smuggle weapons into different parts of it.

It also poses a growing threat to Jordan, which borders Israel and the West Bank and has been struggling to contain a growing flow of drugs and arms.

“Iran wants to turn Jordan into a transit area for weapons going into Israel,” said Amer Al-Sabaileh, founder of Security Languages, a counterterrorism think tank in Amman.  “But my fear is that the weapons might be used in Jordan as well.  Where is the easiest place in the Middle East to punish the U.S. and the West?  Jordan,” he said.

--Fears mounted Sunday that the conflict could spread amid rising cross-border attacks on Israel’s north from Hezbollah militants in Lebanon.  The IDF continued to evacuate towns in the face of “more and more attacks” from Hezbollah, an IDF spokesperson said.

About 100,000 Israelis have been evacuated nationwide, an Israeli government spokesperson said Sunday, and another 100,000 have moved voluntarily.

Hezbollah admitted that about two dozen of its fighters had been killed in cross-border action.

During a visit to soldiers in northern Israel, Prime Minister Benjamin Netanyahu warned Hezbollah that it would be making “the mistake of its life” if it chose to enter the conflict.  “We will cripple it with unimaginable force,” he continued, saying the result would be “devastating” for Lebanon.

Netanyahu added: “We’re in a battle for our lives. A battle for our home, this is not an exaggeration, this is the war.  It’s do or die – they need to die.”

Israel has fought two wars with Lebanon over the past four decades – the most recent in 2006 – and tensions have simmered for years with Hezbollah, which the United States and others have designated a terrorist organization.

The concerns were echoed Sunday by Defense Secretary Lloyd Austin.  “What we’re seeing is a prospect of a significant escalation of attacks on our troops and our people throughout the region,” he said on ABC’s “This Week.”  “Because of that, we will do what’s necessary to ensure our troops are in a good position, they’re protected and we have the ability to respond.”

On Saturday, Austin announced the U.S. was sending additional air defense systems to locations throughout the Middle East and will transfer the USS Dwight D. Eisenhower aircraft carrier strike group to the Persian Gulf.

Late Sunday, the U.S. Embassy in Beirut told American citizens who wish to depart Lebanon that they “should leave now, due to the unpredictable security situation.”

--Iran’s Foreign Minister Hossein Amirabdollahian* warned Israel that the Middle East could spiral out of control if it does not stop strikes on Gaza.  He said the U.S. was also “to blame” for providing military support to Israel.

*This is how the Iranian foreign ministry spells it, in case you were wondering.

“I warn the U.S. and its proxy Israel that if they do not immediately stop the crimes against humanity and genocide in Gaza, anything is possible at any moment and the region will go out of control,” Amirabdollahian said at a news conference in Tehran.

He said that the results could be “severe, bitter” and “have far-reaching repercussions,” both regionally and for those advocating for war.

The foreign minister added that U.S. military support for Israel was evidence that the ongoing conflict in Gaza was “a proxy war carried out by Israel on behalf of the United States.”

--Late Monday, Hamas announced it had released two elderly female captives for humanitarian reasons and in response to a Qatari-Egyptian mediation, according to a statement attributed to a Hamas spokesman.

One of the two, 85-year-old Yocheved Lifshitz, told reporters in Tel Aviv that she had “gone through hell” and that she was beaten and held in tunnels for 17 days.

--Tuesday, the Palestinian health ministry said that Israeli air strikes had killed more than 700 Palestinians in Gaza overnight, which a ministry spokesman said was the highest 24-hour death toll in the two-week-old siege.  The health ministry said that since Oct. 7, at least 5,791 Palestinians had been killed in Israeli bombardment, including 2,360 children. 

--French President Emmanuel Macron flew to Israel Tuesday, Macron telling Netanyahu that France stood “shoulder to shoulder” with Israel in its war with Hamas but that it must not fight “without rules.”

UN Secretary-General Antonio Guterres pleaded on Tuesday for civilians to be protected, voicing concerns about “clear violations of international law” referring to Israel’s airstrikes in the Gaza Stripp as “collective punishment” of Palestinians. 

Guterres outraged Israelis with the following:

“It is important to also recognize the attacks by Hamas did not happen in a vacuum. The Palestinian people have been subjected to 56 years of suffocating occupation.  They have seen their land steadily devoured by settlements and plagued by violence; their economy stifled; their people displaced and their homes demolished. Their hopes for a political solution to their plight have been vanishing.”

Terrorists have been running Gaza since 2007.

Israeli officials called for Guterres to resign.  He said he was not in any way supporting Hamas.

--The Israeli military said on Wednesday that it had bombed Hamas positions in “wide-scale” strikes in Gaza and had fended off rocket attacks from Syria, hours after the UN secretary general had called for a cease fire.

Striking more than 400 Hamas targets in the past 24 hours, including dozens in the northern section of the Gaza Strip and operatives located in mosques, the Israeli military said it had killed some top Hamas fighters.

--The United States rejected calls for a cease-fire, saying the move would only benefit Hamas.  White House spokesman John Kirby said the administration supported pauses for humanitarian aid, but that civilian casualties were all but inevitable as Israel tries to defeat Hamas in Gaza.  “It is ugly and it’s going to be messy, and innocent civilians are going to be hurt,” Kirby said.

--Six hospitals across the Gaza Strip had to shut down because they are out of fuel, the World Health Organization said on Tuesday.

--Israel said it will not put a hold on a possible ground invasion of Gaza over the issue of captives being held there, the energy minister told German tabloid Bild.

But Wednesday, it seemed, Israel was putting a hold, while at the same time intensifying airstrikes, the Palestinian Health Ministry upping the death toll to over 6,500.  I have to keep repeating, it is impossible to begin to verify this, though the video is grim.  Hamas has entrenched itself among the civilian population everywhere.  Israel said its latest strikes had eliminated more Hamas operatives including the head of the Islamist group’s battalion for Khan Younis.  It said Hamas tunnel shafts, command centers, weapons caches and rocket launch positions were targeted, plus a cell of Hamas divers trying to infiltrate Israel by sea near a kibbutz.

--Israeli warplanes also struck Syrian army infrastructure in response to rockets fired from Syria, the Israeli military said, though it did not blame the Syrian army for the rocket attacks.  Syrian state media said Israel had killed eight soldiers near the southwestern city of Deraa, and hit Aleppo airport in the northwest, already out of action from previous strikes.

--Wednesday, limited supplies of aid were getting through the Rafah crossing, UN agencies say more than 20 times as much aid as is getting through is needed at a minimum.

--Turkish President Erdogan told lawmakers Wednesday: “Hamas is not a terror organization; it is an organization of liberation, of mujahedeen who fight to protect their land and citizens.”

--Jordanian King Abdullah II warned his French counterpart the war on Gaza “may lead to an explosion of the situation in the area.”

--The Israeli government Wednesday said there were an estimated 220 hostages from 25 different countries, including 54 Thai nationals.  The government also said 328 people from 40 countries were confirmed as dead or missing after the Oct. 7 attack.

--In a televised statement on Wednesday evening, Prime Minister Netanyahu said Israel is preparing a ground invasion of Gaza, but he declined to provide any details on the timing or other information about the operation.  He said all decisions will be taken by the government’s special war counsel, which is clearly bickering behind the scenes. 

Netanyahu, who has so far not taken responsibility for the security failures that led to the Hamas attack, said all involved would be called to account.  “The scandal will be fully investigated,” he said.  “Everyone will have to give answers, me too. But all this will happen only after the war.”

Earlier, the Wall Street Journal reported that Israel had agreed to delay the invasion of Gaza for now, so the United States could rush missile defenses to the region.   Reuters reported on Monday that Washington advised Israel to hold off on a ground assault and is keeping Qatar – a broker with the Palestinian militants – apprised of those talks as it tries to free more hostages and prepare for a possible wider regional war.

The air defense systems could be in place by the latter part of this week, defense officials say.

Later that evening, Israel conducted a raid of northern Gaza but withdrew after the operation was complete.

--A delegation from Hamas visited Moscow on Thursday for talks on the release of foreign hostages including Russian citizens that are being held in Gaza, Russian news agencies reported.  Senior Hamas member Abu Marzouk was among those attending the talks, TASS reported.

Lovely.

--Iranian Foreign Minister Amirabdollahian warned at the UN on Thursday that if Israel’s retaliation against Hamas doesn’t end then the United States will “not be spared from this fire.”

“I say frankly to the American statesmen, who are now managing the genocide in Palestine, that we do not welcome (an) expansion of the war in the region. But if the genocide in Gaza continues, they will not be spared from this fire,” he told a meeting of the General Assembly.

--Hamas said Thursday that Israeli air strikes killed approximately 50 hostages. Hamas wrote on their Telegram channel that the captives were killed “because of the Zionist bombardment on the areas they were staying in.”

An Al Jazeera report noted that the 50 had been executed by Hamas, standard procedure by the group…then blame others.

--Israel conducted its second “targeted raid” in Gaza Thursday night, as it continues to prep the ground for a full-fledged invasion.

--And then late today, Friday night Israel time, the IDF announced it was “expanding their operations” with the military launching its ground invasion, to what extent is unknown as I go to post.

Hours earlier, Israeli Defense Minister Yoav Gallant vowed that the Jewish state would launch a “long and difficult” ground offensive soon in its efforts to destroy Hamas.

There was a definite pickup in air and artillery strikes on Gaza early in the evening.

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This Week in Ukraine….

--With the reporters who were covering this conflict largely in Israel these days, the coverage has decreased, at least the network news version, but the action on the battlefield certainly has not and as I noted in recent weeks it has become all about the devastated eastern city of Avdiivka, as Russian forces pressed their attacks on it, seeking to sever the lone supply route into the city of formerly 30,000, now 1,600 residents who refuse to leave.

The Russians are seeking to break through and advance on the key town of Kupiansk farther north.

The General Staff of Ukraine’s armed forces said its troops had repelled about 10 Russian attacks on Avdiivka.  The head of the city’s military administration said there were round-the-clock strikes on the town center and on the sole supply road.

Avdiivka has become a symbol of Ukrainian resistance after months of attacks.  It was briefly captured in 2014 by Russian-backed separatists who overran large stretches of territory in the east, and Ukrainian forces have erected solid fortifications in the intervening nine years.  President Volodymyr Zelensky paid tribute to those defending the town in his nightly video message, saying: “Their resilience is the strength for all Ukraine now.”

General Oleksandr Syskyi, commander of Ukrainian ground forces, described conditions along the entire 600-mile front as “challenging.”  He singled out Bakhmut, seized by Russia in May after months of battles, and Kupiansk, both northeast of Avdiivka, for facing the greatest difficulties.  “The enemy is sustaining significant losses, primarily in terms of personnel, but is constantly replenishing its forces by bringing in reserves, including from Russia,” Syrskyi told the UNIAN news agency.

--Local officials also said Russian forces had again shelled areas in the southern Kherson region that are under Kyiv’s control.  Russia has focused on gaining control of the eastern Donbas region, made up of Donetsk and Luhansk cities and surrounding areas, since failing to move on Kyiv in the opening days of the February 2022 invasion.

The U.S.-based Institute for the Study of War has reported that Ukrainian forces in Kherson have crossed from their side of the Dnipro river to take up new positions and pursue Russian forces.

The Russians occupy the east bank at Kherson while the west bank remains free and under Ukrainian control, though regularly shelled by the Russians.  Russia has admitted Ukrainian crossing attempts took place.

Russian forces launched a record aerial assault on the Kherson region last Saturday, destroying fuel and ammunitions depots near Kryvyi Rih’s local airport, one civilian killed in the “mass shelling,” the governor reported.

--Six people were killed in a Russian missile strike on a postal distribution center in Kharkiv district on Saturday, all the victims postal workers aged 19 to 42.  Seventeen were injured, seven in serious condition and said to be “fighting for their lives.”  Just sick.

The company, a private Ukrainian postal and courier service Nova Poshta, said the air raid siren had sounded just moments before the attack, leaving those inside the depot with no time to reach shelter.

President Zelensky said: “We need to respond to Russian terror every day with results on the front line.  And, even more so, we need to strengthen global unity in order to fight against this terror,” he wrote on social media.  “Russia will not be able to achieve anything through terror and murder. The end result for all terrorists is the same: they need to face responsibility for what they have done.”

In a separate address to Czech lawmakers Tuesday, President Zelensky made a bold claim: “The Russian fleet is no longer capable of operating in the western part of the Black Sea, and is gradually retreating from Crimea,” without supporting evidence – though Ukraine has claimed occasional drone and missile strikes on Russian occupying and naval forces in Crimea over the past several weeks.

Going further, Zelensky said: “There are no longer any safe bases or entirely reliable logistical routes for Russian terrorists in Crimea and the occupied parts of the Black Sea and Azov coast.  As of now, we have not yet achieved full fire control over Crimea and its adjacent waters,” he cautioned.  “But we will.  It’s just a matter of time.”

--Russia’s military said on Wednesday its air defense forces had shot down two long-range U.S.-made ATACM missiles fired by Ukraine at Russian targets in what state media said was the first downing of its kind.  The claim hasn’t been verified, Ukraine not commenting.

--The U.S., South Korea and Japan have condemned what they say are multiple confirmed shipments of North Korean arms for Putin’s war.

Although it was not possible to confirm the contents of the shipments, reports said containers from the North were later seen delivered to a Russian munitions storage facility near the border with Ukraine.

--The U.S. alleged that the Kremlin is executing Russian soldiers who are not following orders. The White House also said that Russia is using “human-wave tactics” in its attacks by deploying poorly trained soldiers as cannon fodder.  Ukraine claimed some Russian units attempting to take Avdiivka have mutinied over heavy losses.  Russia did not respond to either allegation.

--Meanwhile, winter is fast approaching and conditions are deteriorating on both sides. Rainy weather affects the work of drones, reconnaissance equipment and aviation.  But no let-up in the fighting as yet.

There are real concerns, however, that during the winter, Ukraine’s air defense stockpiles will rapidly dwindle, with more deadly and tragic consequences.

President Zelensky has said Ukraine is preparing for renewed Russian attacks on its energy infrastructure ahead of the second winter of Putin’s full-scale invasion.

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--Turkish President Tayyip Erdogan on Monday submitted a bill approving Sweden’s NATO membership bid to parliament for ratification, his office said, a move welcomed by Stockholm as it clears the way for it to join the defense alliance.  This is good.

Hungary’s parliament still has to ratify Sweden’s application before it can become a member.  And Turkey could delay the vote on their end for a lengthy spell, and one has yet to be scheduled.

--Russia and Iran are firming up bilateral relations in a ‘trusting’ atmosphere, Russia’s foreign ministry said early on Tuesday after its chief, Sergei Lavrov, was received by Iranian President Ebrahim Raisi during a visit to Tehran.

Lavrov went to Tehran after a trip to China and North Korea.  Iran continues to supply Russia with deadly Shahed kamikaze drones.

--On Wednesday, Russia announced it had successfully tested its ability to deliver a massive retaliatory nuclear strike by land, sea and air, a Kremlin statement said, a display of force that coincides with Moscow de-ratifying the landmark nuclear test ban treaty.

The exercise involved the test launch of missiles from a land-based silo, a nuclear submarine, and from long-range bomber aircraft.

Russia does carry out such exercises to test its so-called nuclear triad from time to time.

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Wall Street and the Economy

It was funny how in the beginning of the third quarter, the Atlanta Fed’s GDPNow barometer for growth immediately registered 5% and basically held that level throughout Q3.  Economists for the first 6-8 weeks or so scoffed at the calculation, talking about 2% instead.

But then the last few weeks as we approached the official first look at third-quarter growth, economists scrambled to raise their outlook to 4% and higher, afraid of looking like a fool.

And so the good folks at the Bureau of Economic Analysis released the advance estimate for Q3 Thursday morning and it was a solid 4.9%, beating Econoday’s consensus forecast of 4.2% and above the prior quarter’s 2.1% pace.

The Atlanta Fed?  Their last look, Wednesday, was 5.4%.  Pretty good, I think you’d agree.

You can thank the American consumer for the big number, consumption growing 4%, helped along by “Barbenheimer,” Taylor Swift and Beyonce.

But no one expects a replay in the fourth quarter, and early forecasts are for GDP to be halved.

Meanwhile, as we gear up for the Fed’s big Open Market Committee meeting next week, Tuesday and Wednesday, no one expects Chair Jerome Powell and his band of merry pranksters to hike the benchmark funds rate anew, but as usual the focus will be on the comments he makes in the press conference, and the Fed received some important data not just in the GDP report, but also Friday’s personal consumption expenditures index for September, the Fed’s preferred inflation benchmark.

And the figures were exactly in line, the headline PCE up 0.4%, 3.4% year-over-year, while the number Chair Powell will no doubt refer to in his press conference on Wednesday, core PCE, ex-food and energy, was 0.3%, 3.7% Y/Y.

Powell will say something like the following: ‘There is good news, inflation has been trending down, such as last week’s core PCE, 3.7%, but that’s still not 2%, and it could be tough getting there from here…’

[Separately, personal income for September was up 0.3%, while consumption was stronger than forecast, 0.7%.]

In other data releases, September new home sales were much better than expected, a 759,000 annualized pace, up 12.3% month-over-month, while the median sales price of $418,800 was well off the year ago level of $477,700.

September durable goods were in line, 1.0%, with ex-transportation up 0.5%, stronger than forecast.

Freddie Mac’s 30-year fixed-rate mortgage rose a seventh straight week to 7.79%.

I mentioned the $1.7 trillion budget deficit for fiscal 2023 that was reported last Friday, and the record net interest on the debt of $659 billion for the year. Fiscal watchdog The Peterson Foundation noted that the $10.6 trillion in projected net interest costs over the next decade would be more than twice as much as what the U.S. has spent on interest over the last 20 years.

“I believe we’ve reached a defining moment – our fiscal affairs are completely off track,” Kent Conrad, a senior fellow at the Bipartisan Policy Center, told lawmakers last week in a congressional hearing about the need for a new fiscal commission.  “Rising deficits and debt are an economic and a national security concern.”

Europe and Asia

We had flash PMIs for October in the eurozone and everything remains under 50, the dividing line between growth and contraction.

The flash composite reading was 46.5, a 35-month low, with manufacturing at 43.1 and services 47.8.

The flash readings also look at Germany and France, and non-euro UK.

Germany: mfg. 41.4, services 48.0
France: mfg. 41.7, services 46.1

UK: mfg. 45.3, services 49.2

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

“In the Eurozone, things are moving from bad to worse.  Manufacturing has been in a slump for sixteen months, services for three, and both PMI headline indices just took another hit. In addition, all subindices point very consistently downwards, too, with only a few exceptions.  Overall, this points to another lackluster quarter.  We wouldn’t be caught off guard to see a mild recession in the Eurozone in the second half of this year with two back-to-back quarters of negative growth.”

Meanwhile, after an historic run of 10 consecutive rate increases, the European Central Bank paused Thursday at 4%, a record high for the institution created in 1998.

ECB President Christine Lagarde signaled that eurozone borrowing costs may have peaked as past rate increases increasingly weigh on the region’s housing market and bank lending.

Turning to Asia…China didn’t have any important economic data this week after last week’s deluge, but the government, read President Xi Jinping, is trying to stimulate the economy, Xi signaling that a sharp slowdown in growth and lingering deflationary risks won’t be tolerated, making a series of rare policy moves to boost the economy while refraining from massive stimulus.

The government increased its headline deficit on Tuesday to the largest in three decades and unveiled a sovereign debt package that marked a shift from its traditional model for fiscal support.  Xi also made an unprecedented trip to the central bank – sending a strong message about his focus on the economy.

The $137 billion budget boost and willingness to exceed a long-adhered to 3% limit to the deficit-to-GDP ratio suggests a determination by Beijing to shore up growth for 2024, though the government is on target to hit its goal of 5% growth this year.

The Communist Party meets next week for its twice-a-decade financial policy gathering that will provide more policy clarity.

Separately, giant property developer Country Garden Holdings Co. was deemed to be in default on a dollar bond for the first time, not paying interest on a $15.4 million bond by the end of the 30-day grace period. 

China’s property sector with related industries accounts for about 20% of GDP.

Japan’s flash PMI readings for October came in…manufacturing 47.6, services 51.1 (down from 53.8).

Street Bytes

--It was another sloppy week, all the major averages down 2%, the S&P 500 now 10% off its July 31 closing cycle high of 4588.  As described below, until Friday’s selloff influenced by action in the Middle East, the reaction to the mega cap earnings was decidedly mixed.

The Dow Jones lost 2.1% on the week to 32417, the S&P lost 2.5% and Nasdaq 2.6%.

Next week it’s about the Fed, Apple earnings and the October jobs report.

--U.S. Treasury Yields

6-mo. 5.54%  2-yr. 5.00%  10-yr. 4.83%  30-yr. 5.01%

The 10-year hit 5.02% early Monday morning, but closed the day at 4.82%, another whopping intraday move, after ending last Friday at 4.91%.  By Thursday morning, it was back up to 4.97%, and then finished the week at 4.83%, I would argue on a late-day flight to safety over the increased activity in Gaza and the potential for further expansion of the war over the weekend.

--Chevron Corp. said on Monday it will buy smaller rival Hess Corp. in a $53 billion all-stock deal, as the oil major looks to increase its footprint in oil-rich Guyana.

The deal puts two of the top oil giants, Chevron and Exxon Mobil, head-to-head in two of the world’s fastest growing oil basins – shale and Guyana.

Guyana has become a major oil producer in recent years after huge discoveries by Exxon, its partner Hess and China’s CNOOC, which together produce 400,000 barrels of oil per day from two offshore vessels and have said they could develop up to 10 offshore projects.  Guyana’s booming oilfields are expected to generate 1.2 million bpd by 2027, and now Chevron will participate in the spoils.

To buy Hess, Chevron is offering $171 for every Hess share, implying a premium of about 4.9% to the share’s last close.

CEO John Hess of Hess Corp. is expected to join Chevron’s board of directors once the deal closes around the first half of 2024.

The combined company is expected to grow production and free cash flow faster and for longer than Chevron’s current five-year guidance, the companies said.

The deal comes weeks after rival Exxon made a $60 billion offer for Pioneer Natural Resources that would make it the biggest producer in the largest U.S. oilfield.

But the Hess share price floundered and is nowhere near $171, all the way down to $143 today.

--Chevron then reported Q3 adjusted earnings Friday of $3.05 per share, down from $5.56 a year earlier.  Analysts were at $3.33.

Revenue for the quarter ended Sept. 30 was $54.08 billion compared with $66.64bn a year earlier, with consensus at $53bn.

The company’s global oil-equivalent production advanced to 3.15 million barrels per day, with U.S. production at 1.41 million bpd.

Chevron shares plunged 7% today.

--Exxon Mobil’s third-quarter profit and revenue declined compared with the same time last year when the company put up enormous numbers, but the oil giant had its strongest ever refinery throughput for the period and raised its quarterly dividend.

Exxon earned $9.07 billion, or $2.25 per share in the period, compared with $19.66bn, or $4.68 per share, a year earlier.

Revenue slipped to $90.76 billion from $112.07 billion, but topped Wall Street’s forecast.

Production dipped 0.8% to 3.7 million oil-equivalent barrels per day.  But Exxon said it delivered its best ever third-quarter global refinery throughput at 4.2 million barrels per day.

Editorial / Wall Street Journal

“(Oil and gas) are yielding a higher return on capital than renewables, even with government’s enormous green subsidies. This is why BP and Shell are scaling back wind and solar investments and sinking more capital into fossil fuels.  Chevron CEO Mike Wirth says the company will make a double-digit return on capital (with the Hess purchase).

“Offshore wind projects around the world are being scrapped because they aren’t expected to be profitable amid higher interest rates and material costs. Ford and General Motors are putting their electric-vehicle manufacturing plans to neutral amid slowing consumer demand.  Tesla also recently dialed back plans to expand production.

“Demand for green energy and EVs could peak sooner than demand for fossil fuels.  Population and energy demand are growing mostly in low-income countries. Nigerians aren’t going to drive Teslas or power their homes with solar panels.  High costs and technological challenges also limit the widespread deployment of green energy and EVs in wealthy countries.

“The climate lobby still isn’t paying attention. The IEA last month proclaimed that the world is witnessing ‘the beginning of the end of the fossil fuel era.’  Green activists are demanding that companies disclose their ‘climate risks.’  The real threat to a more prosperous future, as Chevron well knows, is a world with too little oil and gas, not too much.”

--Microsoft and Alphabet both beat earnings expectations after the close on Tuesday, but the stocks moved in opposite directions – the Google parent fell sharply while Microsoft advanced.  The divergence is down to performance in their cloud businesses, where IT services are provided remotely over the internet – which both tech giants have been furnishing with AI-powered tools.

Microsoft reported higher than expected fiscal first-quarter results, as per share earnings jumped 27% year on year to $2.99, higher than consensus for $2.65.  Revenue rose 13% to $56.52 billion, also exceeding Wall Street’s $54.55 billion.  Net income rose 27% to $22.3 billion.

Cloud revenue advanced 24% to $31.8 billion, CFO Amy Hood said in a statement. The intelligent cloud segment’s sales jumped 19% annually to $24.26 billion, driven by a 29% surge in cloud-computing platform Azure and other cloud services.  It’s Azure investors were focusing on.

“With co-pilots, we are making the age of (artificial intelligence) real for people and businesses everywhere,” CEO Satya Nadella said.  “We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers.”

--Alphabet shares fell nearly 10% on Wednesday after the earnings news. For the September quarter, the company reported revenue of $76.69 billion, up 11% from a year ago and slightly ahead of Street consensus.  Earnings per share were $1.55, nine cents ahead of estimates at $1.46 a share.

Ad revenue was $59.6 billion, in line with forecasts, while YouTube ad revenue was $8 billion, ahead of the Street at $7.8 billion.  But Google Cloud revenue in the quarter was $8.4 billion, up 22%, but short of consensus of $8.6 billion, and slowing from 28% in the previous quarter, which is what investors focused on.

--Meta Platforms beat expectations for third-quarter profit and revenue on Wednesday, helped by its ongoing austerity drive and a recovery in digital advertising ahead of the holiday season.

The owner of social media platforms Facebook and Instagram forecast 2024 spending that will exceed Wall Street estimates, though, as it pushed hiring needs from this year to the next and continued to invest in AI infrastructure.  It also suggested the conflict in Israel and Gaza could dampen fourth-quarter sales.

Shares of Meta, which were down 4% on Wednesday prior to the earnings release after the market close, then fell another 3% on the expense and sales outlooks.

CEO Mark Zuckerberg said Meta planned to end 2024 with “meaningfully higher” headcount than its approximately 66,000-peron workforce as of the end of September.

Revenue grew at its quickest pace in two years, up 23% to $34.15 billion for the quarter.   The company forecast fourth quarter revenue between $36.5 billion and $40 billion, in line with current expectations.

Facebook’s daily active users grew by 5%, while ad impressions across Meta’s apps grew 31%.

Total expenses for 2023 are expected to be in a range of $87 billion to $89 billion, with 2024 expected expenses in the range of $94bn to $99bn.  The company declined to give new explanations for the expenditures, citing the same higher AI infrastructure investments.

--After the market closed Thursday, Amazon.com reported its third-quarter net income was $9.88 billion, up from $2.87bn a year earlier.  On a per-share basis, adjusted EPS of 85 cents were well over consensus of 58 cents.

The online retailer posted revenue of $143.08 billion, which also topped forecasts, up 13% vs. a year earlier.

For the current quarter ending in December, Amazon said it expects revenue in the range of $160 billion to $167 billion.  Analysts were expecting $166.62 billion for the holiday quarter.

The critical Amazon Web Services cloud-computing division saw revenue of $23.1 billion, basically in line with expectations, up 12%, as growth has slowed in recent quarters.

--An off-duty Alaska Airlines pilot riding in a cockpit jump seat on a regional flight was arrested on suspicion of attempted murder after he allegedly tried to disable the aircraft’s engines during a flight.

Alaska Flight 2059, operated by Horizon Air, was diverted Sunday evening to Portland, Ore., after the off-duty pilot “unsuccessfully attempted to disrupt the operation of the engines,” during a flight from Seattle to San Francisco, according to Alaska Air Group, the parent of both Horizon and Alaska Airlines.

The Horizon captain and first officer quickly responded and secured the plane, and engine power wasn’t lost, Alaska said.

Joseph D. Emerson was arrested in Portland without incident once the flight landed.  He was then charged with 83 counts of attempted murder, among other very serious charges.

Emerson had been a captain at the airline since 2019.  He tried to shut down the engines by engaging the fire suppression system, which consists of a T-shaped handle for each engine.  If the handle is fully deployed, a valve in the plane’s wing closes to shut off the flow of fuel to the engine.

The Horizon pilots quickly acted and reset the handles, according to Alaska.

Emerson then told police he had taken psychedelic mushrooms and that he had been depressed.  He pleaded not guilty to the charges in an Oregon court on Tuesday.

Emerson told the pilots “I am not okay” before reaching for the shutoff handles, according to court documents.

--Boeing on Wednesday reported a loss of $1.64 billion in its third quarter, or $3.26 per share on an adjusted basis, the results falling short of Wall Street expectations.

The airplane builder posted revenue of $18.1 billion, which also missed consensus of $18.25 billion.

And Boeing cut its 737 delivery forecast for this year due to quality issues at supplier Spirit Aerosytems.  The company was aiming to deliver 400 to 450 737 jets, but as I noted in prior weeks was forced to temper that goal to 375 to 400 after two separate quality issues at Spirit, which makes fuselages for the cash-cow narrowbody aircraft.

All the above was known and so shares initially rallied strongly before selling off as the overall market did Wednesday.

Boeing stuck to its goal of generating $3 billion to $5 billion in free cash flow and intends to keep its 737 production ramp up plan intact.

--Southwest Airlines’ third-quarter profit fell 30% to $193 million despite record revenue as leisure travel boomed over the summer.

The airline’s labor costs rose sharply, however, more than offsetting the increase in revenue.

Southwest predicted Thursday that a key measure of pricing power will fall sharply in the fourth quarter and it will scale back its aggressive growth plans early next year.

The results, and particularly Southwest’s plans to throttle back on growth, are likely to add to concerns that demand for domestic travel, the heart of the airline’s business, could weaken.

Revenue rose $305 million, or 5%, to $6.52 billion, just short of projections for $6.56bn.

Southwest said revenue for each seat flown one mile, a closely watched measure of pricing power in the industry, will decline 9% to 11% in the fourth quarter compared with the same period last year. A much sharper drop than those anticipated by its larger rivals.

Labor costs rose by $406 million, an increase of more than 17%.  The airline saved $186 million because fuel was cheaper than a year earlier.

All of the airlines face higher labor costs, but unlike its three closest rivals, Southwest has not reached agreement with its pilots on a new labor contract.

--TSA checkpoint numbers vs. 2019

10/26…128 percent of 2019 levels…not a misprint…
10/25…109
10/24…112
10/23…111
10/22…111
10/21…112
10/20…103
10/19…106

--After saying last Friday that progress had been made in labor talks with the Big Three automakers, UAW president Shawn Fain said Monday that 6,800 workers had joined the union’s strike at Stellantis’ Sterling Heights Assembly plant in Michigan.

Sterling Heights is the company’s largest plant.

Stellantis then issued a statement: “We are outraged that the UAW has chosen to expand its strike action against Stellantis.  Last Thursday morning, Stellantis presented a new, improved offer to the UAW, including 23% wage increases over the life of the contract, nearly a 50% increase in our contributions to the retirement savings plan, and additional job security protections for our employees.  Following multiple conversations that appeared to be productive, we left the bargaining table expecting a counterproposal, but have been waiting for one ever since….

“The UAW’s continued disturbing strategy of ‘wounding’ all the Detroit 3 will have long-lasting consequences.  With every decision to strike, the UAW sacrifices domestic market share to non-union competition. These actions not only decrease our market share, but also impact our profitability and therefore, our ability to compete, invest and preserve the record profit sharing payments our employees have enjoyed over the past two years.”

So Tuesday, the UAW went further, another expansion of its six-week long strike, the union telling 5,000 workers at General Motors’ largest U.S. plant in Arlington, Texas, to stop working.

The Arlington plant is home to GM’s profitable Chevy Tahoe, Chevy Suburban, GMC Yukon and Cadillac Escalade large SUVs.  The UAW has now shut down three of the most profitable auto factories in the world, including Ford’s Kentucky Truck heavy-duty pickup factory and the Stellantis plant in Michigan.

The union expanded the strike on the same day that GM announced earnings, details below, but for this space, the company said the work stoppages had cost it $800 million so far, before the strike at its most profitable factory.

Shawn Fain said in a statement: “Another record quarter, another record year.  As we’ve said for months: record profits equal record contracts.  It’s time GM workers, and the whole working class, get their fair share.”

GM had said earlier on Tuesday that they hoped to reach a tentative agreement with the union soon.

--So GM withdrew its previous guidance for 2023 profits and near-term vehicle production as costs related to the UAW strikes jumped to $200 million a week during October.  GM’s third-quarter net income fell 7.3% to $3.06 billion, while revenue rose 5.4% to $44.1 billion.  Adjusted earnings per share were $2.28, ahead of Wall Street’s expectations, and up from $2.25 a year ago because of the effect of share buybacks.

The rising toll of the strikes, the outlook for higher labor costs once a new contract is reached, rising warranty expenses and an uncertain macro-economic outlook, have forced GM to abandon previous targets for full-year financial performance that it had lifted in July.

GM said profits for the quarter were pulled down by $1.5 billion because of higher costs and the impact of selling more EVs.  Unlike rival Ford, GM does not break out losses from its EV operations.  GM said losses at its Cruise robotaxi unit widened to $732 million in the quarter, “in line with expectations” as operations expanded to 15 cities.

But then California’s auto regulator said on Tuesday it has suspended GM’s Cruise autonomous vehicle deployment and driverless testing permits, effective immediately, citing “an unreasonable risk to public safety.”

Cruise issued a statement saying it “will be pausing operations of our driverless AVs in San Francisco.”

Cruise AVs have been involved in numerous accidents in San Francisco.

California’s Department of Motor Vehicles said it has determined “the manufacturer’s vehicles are not safe for the public’s operation” and “the manufacturer has misrepresented any information related to safety of the autonomous technology of its vehicles.”  It added, “This decision does not impact the company’s permit for testing with a safety driver.”

--And then Wednesday night, the UAW reached a tentative labor agreement with Ford Motor, putting pressure on the other two rivals to end a protracted strike that cost the industry $billions.

Ford agreed to a record 25% hourly wage hike over the life of the contract, which exceeds four years. With cost-of-living allowances, the top wage rate is expected to increase by 33%. The top pay will be over $40 an hour, the union said.

UAW leadership will vote on the deal Oct. 29.  It then must be ratified by Ford’s 57,000 U.S. hourly workers, a process that could take weeks.

But UAW President Fain told Ford workers to get back to work Thursday to help apply pressure on GM and Stellantis to offer the same deal.

“We won things nobody thought was possible,” Fain said Wednesday night in a video posted on X.  “Since the strike began, Ford put 50% more on the table.”

Ford said it was “pleased” to reach a deal with the UAW and restart its plants.

[GM and the UAW are apparently close to a deal as I go to post.]

--Ford then announced its third-quarter earnings and, like GM, withdrew its full-year results forecast due to the strike and, in Ford’s case, pending ratification, which will obviously have a major impact on expenses.

Ford said Q3 revenue rose 11% to $44 billion, with profit of $1.2 billion compared with a year-earlier loss of $827 million.  The automaker warned it may experience a higher-than-expected loss in its Ford Model e electric-vehicle business due to ongoing price wars.

--Chipmaker Texas Instruments forecast fourth-quarter revenue and profit below estimates, as the company was forced to slash some production after demand across its key industrial market worsened.  The shares fell 4%.

Sales from the industrial market, TI’s biggest by revenue share, was down in the mid-teens percentage in the third quarter, with the weakness pervading all regions except Japan.

“As China came out of Covid, I think most of us would have expected there to be a more significant rebound, which just hasn’t materialized,” a company spokesman said.

TI forecast current-quarter revenue between $3.93 billion and $4.27 billion, compared with analysts’ average estimates of $4.49bn.

TI forecast profit per share between $1.35 and $1.57, below estimates of $1.76 per share.

For the third quarter, TI reported revenue of $4.53 billion, below expectations of $4.6 billion.  Earnings per share of $1.85 beat consensus of $1.82, but it was about the guidance.

--Intel shares surged 7% as the company’s results and outlook topped analyst expectations amid signs that a PC recovery is starting to take hold and interest in AI is growing.

Granted, the company’s sales of $14.2 billion in the third quarter were 8% below the year-earlier period but they were ahead of the Street’s projections, ditto net income, $310 million, sharply lower but beating expectations.

Overall PC shipments fell 7.6% year-over-year in the third quarter, according to the International Data Corporation, which is expecting a return to growth next year.  But Intel said sales in the division that houses its PC chips fell 3% in Q3 to $7.9 billion, faring better than the wider market.

Intel said it was expecting around $14.6 billion to $15.6 billion of sales for the current quarter, ahead of current consensus and the $14 billion posted in the year-ago fourth quarter.

--IBM’s third-quarter earnings edged Street estimates, and its CEO says the company’s push into AI is starting to pay off.

Results were marked by continued solid growth in software, moderating expansion of the consulting business, and better-than-expected performance by IBM’s mainframe business.  The company also confirmed its previous full-year guidance for revenue and cash flow growth.

For the quarter, IBM posted revenue of $14.75 billion, up 4.6% from a year ago, ahead of consensus of $14.73bn.  The company reported adjusted earnings of $2.20, 8 cents ahead of consensus of $2.12.

Revenue in IBM’s software segment – which includes its AI platform – rose 7.8% from a year ago to $6.3 billion.

The shares rose about 2% in response to the report.

--China reportedly launched an investigation into Foxconn, the Taiwanese firm that manufactures Apple’s iPhones.  According to Chinese state media, authorities have conducted ‘normal’ tax audits and land-use investigations at the firm’s factories in four Chinese provinces.  Foxconn said it would “actively cooperate” with the authorities.

Terry Gou, the company’s China-friendly founder, is running as an independent candidate in Taiwan’s presidential election in January.

--Bitcoin hit a three-month high on Monday, rising to over $31,000 amid investor enthusiasm about the possibility of a spot bitcoin exchange-traded fund.  And then overnight it hit $35,000, highest since May 2022. Bitcoin generally traded between $34,000 and $35,500 the rest of the week, before trading down to $33,700 this afternoon.

--Coca-Cola Co. on Tuesday raised its annual sales and profit forecasts for a second time this year, riding on resilient demand from consumers for its soda juices and energy drinks as well as higher prices.  Rival PepsiCo beat expectations last week.

Coca-Cola’s average selling prices rose 9% in the third quarter, the company said, while overall unit case volumes increased 2%.

The company now sees full-year organic revenue growth of 10% to 11%, compared with its prior forecast of an increase of 8% to 9%.  The maker of Sprite and Fanta forecast annual core EPS to rise between 7% and 8%, compared to previous expectations of 5% to 6%.  Third-quarter net revenue rose nearly 8% to $11.91 billion, topping consensus of $11.44bn. Adjusted earnings of 74 cents also beat forecasts of 69 cents. Coke shares rose nearly 3% on the news.

--Share in 3M rose 5% as the company raised its full-year guidance after the industrial conglomerate logged stronger-than-expected Q3 results, aided by its efforts to control costs.

Adjusted earnings are now expected to be in a range of $8.95 to $9.15 per share for 2023, up from prior projections of $8.60 to $9.10.  Adjusted sales are set to decline by 5% for the full year, compared with the previous outlook for a 1% to 5% decrease.  Sales in the quarter fell 3.6% to $8.31 billion but topped analyst expectations.

--United Parcel Service cut its 2023 revenue forecast due to lower e-commerce delivery demand as it fights to win back customers lost during the tumultuous labor talks, sending its shares down sharply Thursday morning.

The Atlanta company is caught in a profit squeeze in the wake of contract talks with its Teamsters-represented workforce. It is absorbing 46% of wage and benefit costs of the new five-year contract in the first year even as it tries to win back 1.2 million daily packages that customers diverted to rivals when UPS workers threatened to strike.

The world’s biggest package delivery firm now expects full-year revenue between $91.3 billion and $92.3 billion, compared with a prior forecast of about $93bn.

Meanwhile, the entire industry is fighting for market share as e-commerce delivery demand continues to sag.

UPS, often seen as a bellwether for the U.S. economy, and other logistics companies have been racing to match costs to global demand that has fallen back to pre-pandemic levels.  UPS has been cutting jobs and leaning on technology to help offset falling e-commerce demand, weak export and industrial production and the cost hit from its new labor contract.

Q3 adjusted earnings were $1.57 per share, down from $2.99 a year earlier.  Consensus was at $1.56.

Revenue for the quarter ended Sept. 30 was $21.06bn, down from $24.16bn a year earlier.  The Street was at $21.47bn.

--The Washington Post had a troubling lengthy piece on how the bankruptcy of drugstore chain Rite Aid, and the subsequent announcement of store closures, along with the prior closures announced by CVS and Walgreens, more than 1,500 stores nationwide, has led to a ‘pharmacy desert’ in many vulnerable communities, both rural and urban.

According to Dima Qato, an associate professor at the University of Southern California, who studies pharmacy access and health equity, “According to our estimates, about one in four neighborhoods are pharmacy deserts across the country.  These closures are disproportionately affecting communities that need pharmacies most.”

Not good.

--Morgan Stanley named Ted Pick as its next CEO to succeed longtime chief James Gorman.  Pick heads up MS’s investment banking and trading operations.  He was one of three finalists selected as possible successors for Gorman, who said in May that he would step down from the CEO role he has held since 2010.

Pick will take over as CEO on Jan. 1, 2024.  The other executives being considered, Andy Saperstein and Dan Simkowitz, were given new roles.

Gorman told the Wall Street Journal when asked to describe Pick: “He’s wicked smart and he’s very street smart.”

--Royal Caribbean Group lifted its full-year profit forecast for a third time on Thursday, banking on elevated ticket prices as well as steady demand from affluent customers for leisure travel.

The cruise company said occupancy in the third quarter was 109.7%, up from 105% reported in the second quarter. The company expects annual adjusted profit between $6.58 and $6.63 per share, compared with its earlier forecast of $6.00 to $6.20.

--Chipotle Mexican Grill surpassed market expectations for the third quarter on Thursday and the shares rose 3%. 

Chipotle raised prices by 3% in October after pausing hikes for over a year, but margin benefits would be offset by higher dairy and beef costs, it said.

With the minimum wage for fast-food workers in California set to rise to $20 an hour by April next year, Chipotle said that would add 2.5%-3% to its cost inflation.

Comparable sales climbed 5% in the third quarter.  Ex-items, Chipotle earned $11.36 per share, topping estimates of $10.55.  The company forecast fourth-quarter comp sales growth in the mid- to high-single digit range.

--In its second weekend, “Taylor Swift: The Eras Tour,” released through a direct distribution deal with AMC Theatres, proved that Swift’s star power was too much for Paramount Pictures and Apple’s debuting epic drama “Killers of the Flower Moon.”

Swift’s record-breaking concert film scored $31 million for a North American total of $129.8 million, while Martin Scorsese’s Leonardo DiCaprio-led “Killers of the Flower Moon” pumped out $23 million ($44 million including international), according to Comscore.

--Lastly, we note the passing of longtime Wall Street strategist Byron Wien, 90.  He was widely known for his annual Ten Surprises lists, but he had a long and distinguished career with a number of investment banks and hedge funds.

At the age of 80, Wien wrote down 20 Life Lessons and he declared in his final one: “Never retire.  If you work forever, you can live forever.  I know there is an abundance of biological evidence against this theory, but I’m going with it anyway.”

Foreign Affairs, Part II

China: President Xi Jinping said on Wednesday that China is willing to promote cooperation with the United States as both sides manage their differences and work together to respond to global challenges, according to Chinese state media.  Whether or not the United States and China could establish the “right” way of getting along would be crucial to the world, Xi said in a letter delivered at an annual dinner of New York-headquartered National Committee on United States-China Relations.

Xi called for stable relations with America built on “mutual respect, peaceful co-existence and win-win cooperation.”

Xi met with California Gov. Gavin Newsom in Beijing this week, the focus on climate change ahead of Xi’s visit to the state in November for a regional summit and probable meeting with President Biden. 

At the same time, China’s Taiwan Affairs Office on Wednesday stepped up its attacks on Taiwan presidential frontrunner Lai Ching-te, saying he was transforming from a Taiwan independence “maniac” into a Taiwan independence “liar.”

If you had a choice of either, I think I’d rather be called a maniac, but that’s just me.

And then we have the incident between China and the Philippines last Sunday, when a Chinese coast guard ship and an accompanying vessel rammed a Philippine coast guard ship and a military-run supply boat Sunday off a contested shoal, Philippine officials said, in an encounter that heightened fears of an armed conflict in the disputed South China Sea.

There were no injuries among the Filipino crew members but the damage to the vessels was unknown.  Officials say it could have been a lot worse had the Philippine boats not been able to maneuver away quickly.

Walter Russell Mead / Wall Street Journal

“While the world’s eyes were fixed on the unfolding horrors of the latest Middle East war, China was busy pushing the envelope in the South China Sea….

“As readers of this column know, the most important international development on President Biden’s watch has been the erosion of America’s deterrence. The war in Ukraine and the escalating chaos and bloodshed across the Middle East demonstrate the human and economic costs when American power and policy no longer hold revisionist powers in check.

“Washington’s attention is understandably fixed on the threat of a wider Middle East war… But if the erosion of America’s deterrent power leads China and North Korea to launch wars in the Far East, it would be a greater catastrophe by orders of magnitude.

“For the past two weeks I’ve been on the road – in Pearl Harbor, Tokyo and Seoul – and the American, Japanese and Korean officials and think-tankers I met with kept hammering two thoughts into my head.  First, a war over Taiwan would be far more serious for the world economy than the war in Ukraine or even a wider regional war in the Middle East. Second, our margin of safety is shrinking: The power of American deterrence in the Far East is declining. While there are some favorable long-term trends, for the next few years at least, China and North Korea are likely to see more reasons to test the will and the power of the U.S. and its allies.

“If China decides on forcible unification with Taiwan, it has two principal options.  It can invade the island directly, or it can try to blockade it.  Taiwan, which imports 97% of its energy supply and also depends on food imports, is vulnerable to such a blockade.  But Taiwan would not be the only country affected. Whether China invades or blockades, the regional and global consequences would be the gravest shock to the global economy since World War II.

“Regionally, the effect of closing the South China Sea and the waters around Taiwan to international trade would be calamitous.  South Korea and Japan are both heavily dependent on imported fuel and food. Both economies depend on the ability of their great manufacturing companies to import raw materials and export finished goods. A suspension of maritime trade would effectively put both economies on life support, while making it difficult for tens of millions of people to heat their homes, run their cars or feed their children.

“It isn’t unlikely that North Korea, seeing an opening in the global and regional chaos, would take the opportunity to attack at a time when U.S. forces would have enormous difficulty reinforcing and resupplying the South.

“China would also be hit. Ships wouldn’t travel through war zones to Shanghai, Qingdao or Tianjin. The U.S. would likely, in addition to sanctions, enforce a blockade against ships seeking to supply China with goods deemed important for war.

“For the rest of the world this would mean a massive supply-chain headache….

“Lulled into complacency by a long era of peace, most of us have yet to appreciate fully the dangers we face.  Vladimir Putin’s invasion of Ukraine and the Hamas attack on Israel should have made clear that we live in an era when the unthinkable can happen overnight.  These days, we must not only learn to think about the unthinkable, in nuclear strategist Herman Kahn’s phrase.  We also need to prepare for it.”

Lastly, on a related topic, a new Pentagon report points to the People’s Liberation Army’s growing nuclear capabilities and more advanced weapons, which experts believe may be used by Beijing as deterrence and bring pressure to bear on Taipei.

According to a U.S. Department of Defense report titled “2023 Report on Military and Security Developments involving the People’s Republic of China” released last Thursday, Beijing is “on track to exceed previous projections” in boosting its nuclear capabilities.

The report said China was likely to have more than 500 operational nuclear warheads, with the number expected to exceed 1,000 by 2030, adding it has been expanding its quantity of “land-, sea-, and air-based nuclear delivery platforms” in the past decade by investing in infrastructure to support its nuclear forces.

China also launched its first nuclear-powered guided missile submarine, according to the report, giving China’s military land and sea attack options once the sole province of U.S. and Russian vessels.

And former Premier Li Keqiang died of a heart attack in Shanghai at the age of 68 on Friday.

Li was China’s No. 2 leader from 2012-23 under Xi Jinping, an economic reformer who advocated for private business but was left with little authority after Xi made himself the most powerful Chinese leader in decades and tightened control over the economy and society.

Li was reasonable.  All Chinese leaders should be like him.  Alas, President Xi is no Li.

Iran: Secretary of State Antony Blinken warned that the U.S. would respond “decisively” if Iran or its proxies attack Americans, the sternest warning yet as the Biden administration tries to keep Tehran from joining the war between Israel and Hamas.

“The United States does not seek conflict with Iran,” Blinken told a UN Security Council meeting Tuesday.  “We do not want this war to widen. But if Iran or its proxies attack U.S. personnel anywhere, make no mistake.  We will defend our people, we will defend our security, swiftly and decisively.”

Blinken also urged others on the 15-member Security Council, including Russia and China, to tell Iran not to open another front against Israel or attack its partners, and to hold them accountable if it does so.

“To all the members of this council: If you, like the United States, want to prevent this conflict from spreading, tell Iran, tell its proxies – in public, in private, through every means – do not open another front against Israel in this conflict.  Do not attack Israel’s partners.”

At least two-dozen American military personnel based in Iraq and Syria were injured in drone attacks last week that officials said were launched by Iran-backed proxy groups.

The largest attack carried out against a U.S. base was on Oct. 18 when 20 troops suffered “minor injuries,” after numerous one-way drones targeted al-Tanf Garrison in southeastern Syria, U.S. military officials said, according to the Washington Post.

On the same day, multiple drones also targeted the U.S. and its allies in two different attacks on Ain al-Asad Air Base in western Iraq that left four people with minor injuries, the Post reported.

Charles Lister of the Middle East Institute said Thursday on social media: “U.S. bases in Iraq and Syria have been attacked 19 times in the past eight days, by Iran-directed militants.”  Those attacks have been delivered using suicide drones, rockets and mortars.

According to Lister: “Iran-directed militants have attacked U.S. bases 103 times since Joe Biden became President,” and nearly 20 percent of those have occurred in the last eight days.

And as far as what’s publicly known, “the U.S. has responded five times,” to those attacks, Lister said, and all responses have taken place inside Syria, he added.  [Defense One]

Well, Thursday night the U.S. responded, carrying out airstrikes on facilities in Syria used by Iran and its allies in the region.  U.S. officials said they targeted weapons and ammunition storage facilities.

Editorial / Wall Street Journal

“Secretary of State Antony Blinken warned Tuesday that the U.S. would respond ‘swiftly and decisively’ to any attack on American forces from Iran or its proxies.  That’s a welcome message aimed at deterring the mullahs in Tehran and their agents. But will the President enforce the red line he appears to be drawing? He hasn’t so far….

“Clearly the White House is worried, and it should be. Even the Administration has been obliged to acknowledge that Iranian clients have used drones and rockets to attack U.S. forces in the Middle East more than a dozen times in the past week….

“The obvious implication of Mr. Blinken’s remarks is that if American forces are attacked, the U.S. will respond with military force.  Multiple reports suggest that Iran’s clients are planning more attacks on U.S. positions in the Middle East.  The Pentagon has dispatched more air defenses and on Tuesday announced an F-16 deployment to complement other fighter aircraft in the region. One carrier strike group is already operating in the region and another is on the way.  So when will the swift and decisive U.S. response arrive?

“Mr. Biden no doubt remembers Barack Obama’s ‘red line’ warning to Syria in 2012 over the use of chemical weapons that went unenforced when Bashar al-Assad crossed it.  The fallout from that failure of deterrence and follow-through included Vladimir Putin’s intervention to save the Assad regime, then his invasions of Crimea and eastern Ukraine.

“The Biden Administration wants to deter a second front against Israel from Iran’s proxies in Lebanon and Syria.  But failing to respond to Iran’s many attacks, even when there are so far no U.S. troop casualties, is an invitation to Iran to keep calling the U.S. bluff.

“This could invite the provocation the White House is trying so hard to avoid.  One risk is that Iran or its proxies will eventually kill Americans in these attacks, which might require an even greater use of U.S. force and would be damaging politically. Or the U.S. might have to intervene to help Israel defeat Hezbollah.

“Iran is using its proxies to test U.S. resolve.  The more they attack without Iran paying a price, the more likely that Iran will raise the stakes.  The paradox Mr. Biden has to appreciate: The most stabilizing move for the region would be restoring America as a deterrent power.”

Iceland: Schools, shops, banks and Iceland’s famous swimming pools shut down on Tuesday as women on the island nation – including the prime minister – went on strike to push for an end to unequal pay and gender-based violence.

Icelanders awoke to a changed world, with public transport delayed, hospitals understaffed and hotel rooms uncleaned.  Trade unions, the strike’s main organizers, called on women to refuse paid and unpaid work, including chores.  About 90% of the country’s workers belong to a union.

Prime Minister Katrin Jakobsdottir said she would stay home as part of the strike – and expected other women in the Cabinet would do the same.

Iceland, a rugged island of around 380,000 people, has been ranked as the world’s most gender-equal country 14 years in a row by the World Economic Forum, which measures pay, education, healthcare and other factors.

No country has achieved full equality, and a gender pay gap remains in Iceland.

The 24-hour strike was billed as the biggest since Iceland’s first such event in 1975, when 90% of women refused to work, clean or look after children, to voice anger at discrimination in the workplace.

Random Musings

--Presidential approval ratings….

Gallup: New numbers, and they are ugly…37% approve of President Biden’s job performance (tying his low), 59% disapprove; 35% of independents approve (Oct. 2-23).

Rasmussen:  43% approve, 55% disapprove (Oct. 27).

--The House of Representatives finally elected Republican Mike Johnson of Louisiana as the next speaker after a turbulent three weeks that left the chamber rudderless at a most tumultuous time in the world.

Republicans coalesced around Johnson after failing to elect Jim Jordan, while nominees Steve Scalise and Tom Emmer never went to the floor for a vote, Johnson winning by a 220-209 margin, and gaining every single GOP vote, while Hakeem Jefferies again captured every Democrat’s.

Johnson is conservative, best known as the author of an unsuccessful appeal by 126 House Republicans after the 2020 presidential election to get the Supreme Court to overturn election results in states that Trump had lost.  Johnson declined to answer a question about that effort shortly after his nomination on Tuesday night.  He has never repudiated his part in any of it.  Donald Trump of course supported him, after flaming out with Jim Jordan.

In a letter to colleagues, Johnson has vowed to advance overdue spending legislation and ensure that the U.S. government does not shut down when current funding expires on Nov. 17.

Johnson faces the same challenges in the conference as Kevin McCarthy faced.

Emmer had won a Republican conference vote Tuesday by 117 to 97 over Johnson, but he voted in 2020 to certify the election results and for that, there was no way he could win 217.  Donald Trump piled on when Emmer was nominated, calling him a “Globalist RINO” whose elevation would be a “tragic mistake.”

“I have many wonderful friends wanting to be Speaker of the House, and some are truly great Warriors,” Trump wrote on Truth Social.  “RINO Tom Emmer, who I do not know well, is not one of them.  He never respected the Power of a Trump Endorsement, or the breadth and scope of MAGA – MAKE AMERICA GREAT AGAIN!”

--President Biden won Michigan in 2020 by a 50.6% to 47.8% margin over Donald Trump.  But Arab Americans account for 5% of the state’s population, and while they are unlikely to back Trump, according to some experts, such as Jim Zogby of the Arab American Institute, they could just sit out the election, which could cost Biden the state.  Other battleground states, namely Pennsylvania and Ohio, have Arab American populations of about 2% and Biden took Pennsylvania 50.01% to 48.84%.

Arab and Muslim Americans are highly critical of Biden’s response to the Israel-Hamas war, asking him to do more to prevent a humanitarian catastrophe in Gaza.

--Pro-Trump lawyer Jenna Ellis, who amplified Donald Trump’s baseless claims of election fraud as part of what she called a legal “elite strike force team,” pleaded guilty on Tuesday as part of a deal with prosecutors in Georgia.

During a public hearing, Ellis pleaded guilty to a charge of aiding and abetting false statements and writings.  She was the fourth defendant to plead guilty in the Georgia case, out of 19, including Trump, charged with conspiring to overturn the 2020 presidential election in Trump’s favor.

Ellis agreed to be sentenced to five years of probation, pay $5,000 in restitution and perform 100 hours of community service.  She has already written an apology letter to the citizens of Georgia, and she agreed to cooperate fully with prosecutors as the case progresses.

--Former Whitie House Chief of Staff Mark Meadows was granted immunity to testify under oath in U.S. Special Counsel Jack Smith’s Jan. 6 case over the 2020 presidential election, ABC News reporting on Tuesday, citing unnamed sources.

ABC reported Meadows informed Smith’s team he repeatedly told the then president following the election that allegations of significant voting fraud were baseless.  And he told investigators that Trump was being “dishonest” with voters when he proclaimed victory on election night, according to ABC.

To say the least, this could be significant.  Meadows was at the forefront of everything.

Trump responded to the report on Truth Social:

“I don’t think Mark Meadows would lie about the Rigged and Stolen 2020 Presidential Election merely for getting IMMUNITY against Prosecution (PERSECUTION!) by Deranged Prosecutor, Jack Smith,” Trump wrote.

“BUT, when you really think about it, after being hounded like a dog for three years, told you’ll be going to jail for the rest of your life, your money and your family will be forever gone, and we’re not at all interested in exposing those that did the RIGGING…Some people would make that deal, but they are weaklings and cowards, and so bad for the future of our Failing Nation,” Trump continued. “I don’t think that Mark Meadows is one of them, but who really knows?”

Trump also claimed Meadows never told him that the 2020 election was not rigged or fraudulent, pushing back on a key part of the ABC News report.

Special Counsel Smith then implored a judge to revive the partial gag order against Trump, citing his “threatening” social media posts.

--Donald Trump was fined $10,000 on Wednesday after the judge overseeing his civil fraud trial found that Trump violated a gag order in the case for a second time.  Justice Arthur Engoron last week fined Trump $5,000 after finding that he had not taken down a post disparaging the judge’s law clerk.

Also on Wednesday, Trump’s onetime lawyer and fixer Michael Cohen acknowledged under questioning by an attorney for the former president that he has a financial incentive to criticize his ex-boss (i.e. a podcast and two books) but defended his credibility as he testified in the trial.  Cohen came face-to-face with Trump for the first time in five years on Tuesday as he began his two days of testimony.  Tuesday, he said Trump “arbitrarily” inflated the value of the Trump Organization’s real estate assets to secure favorable insurance premiums. Cohen said he doctored financial statements so the property values matched “whatever number Mr. Trump told us.”

This trial largely concerns damages Trump will have to pay as before the proceedings began on Oct. 2, Judge Engoron had found that Trump fraudulently inflated his net worth and ordered the dissolution of companies that control crown jewels of his real estate portfolio, including Trump Tower in Manhattan.  That ruling is on hold while Trump appeals.

--The overwhelming majority of New York voters blame President Biden for letting the migrant crisis spiral out of control, a new poll released Tuesday reveals.

The Siena College survey was startling and an awful sign for Democrats in 2024, as 84% of voters consider the influx of migrants a serious problem, with 57% identifying it as a “very” serious problem.  Only 12% of respondents said the problem is not serious.

Nearly two-thirds of voters – 64% - flunked the Biden administration’s handling of the migrant influx, while only 29% approved.  Understand this is a state where Democrats outnumber Republicans by more than 2-1 and the last GOPer to carry New York in a presidential race was Ronald Reagan in 1984. But last year, Republican Lee Zeldin ran a competitive race for governor against Democratic Gov. Kathy Hochul and the GOP picked up congressional seats.

Fifty-two percent of New York Democrats say they want a different presidential nominee in 2024, according to the Siena survey.

--Indicted Congressman George Santos faces a vote next week by fellow lawmakers on expelling him from the House.

--Hurricane Otis slammed Mexico’s Pacific coast, right over Acapulco early Wednesday as a Cat 5, the most powerful on record to hit the Pacific side of the country.

Otis went from a Tropical Storm to Cat 5 in less than 24 hours, staggering*, and caught Acapulco and Mexican authorities largely by surprise.  With power and phone service out to the area, it has been difficult to ascertain the scope of the damage, and any casualties, but we know the resort was hit with 165-mph winds and torrential rains, causing landslides, debris blocking major highways, airports shut and rivers raging over their banks.

Many of Acapulco’s 1 million permanent residents reside in precarious cliff-side communities vulnerable to landslides during downpours.

*The standard definition of rapid intensification of a tropical storm is when a storm grows by 35 mph in 24 hours. Otis “explosively intensified” by 110 miles per hour in 24 hours.

Thursday, Mexico’s government then announced that at least 27 had died as a result of the hurricane, with four missing.

“What Acapulco suffered was really disastrous,” President Andres Manuel Lopez Obrador told a press conference.  Those missing are believed to be members of the navy, he said.

Acapulco is a poor place, despite the beauty of the setting, and most of the residents rely on the resorts for employment and the resorts were crushed, according to initial reports.  Hospitals were flooded, patients having to be removed.  There is no food or water.

The first pictures emerging from the place are awful.  Recovery will take years and years.  This isn’t the U.S. in that regard.

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

Pray for Ukraine, Israel and the innocents in Gaza, as well as the victims of the Lewiston, Maine mass shooting.

God bless America.

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Gold $2017
Oil $85.20

Regular Gas: $3.51; Diesel: $4.49 [$3.76 / $5.30 yr. ago]

Returns for the week 10/23-10/27

Dow Jones  -2.1%  [32417]
S&P 500  -2.5%  [4117]
S&P MidCap  -2.8%
Russell 2000  -2.6%
Nasdaq  -2.6%  [12643]

Returns for the period 1/1/23-10/27/23

Dow Jones  -2.2%
S&P 500  +7.2%
S&P MidCap  -4.3%
Russell 2000  -7.1%
Nasdaq  +20.8%

Bulls 50.0
Bears 24.3

Hang in there.

Brian Trumbore

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