Week in Review

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Week in Review

06/10/2023

For the week 6/5-6/9

[Posted 5:30 PM ET, Friday]

Edition 1,260

Ukraine’s counteroffensive is underway and it’s impossible to tell how it’s going, though there are reports that in some parts it was not going well for Ukraine.

We’ve seen for months and months how Russia was digging in, along hundreds of miles of front, layers of trenches, mines laid between the lines, all for counteracting an armored offensive by Ukraine.  Russia’s mobilization drive has replenished the supply of cannon-fodder.  What if the counteroffensive peters out, Ukraine spread too thin?  The voices urging Ukraine to stop fighting and start talking would grow louder, even though a ceasefire would leave Russia with nearly 20% of Ukraine and Russian promises of peace would be worthless.

That is why these next few weeks are highly critical in determining the outcome.  The whole action is likely to take months, but we’ll learn a ton in just weeks.  The good guys must win.

Today, President Vladimir Putin told his Belarusian counterpart, Alexander Lukashenko, that Russia will start deploying tactical nuclear weapons in Belarus after the facilities are ready on July 7-8.

At a meeting in Sochi, Putin said: “So everything is according to plan, everything is stable,” according to a readout from the Kremlin.

Much more below.

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The Justice Department charged Donald Trump in the documents case and the first one to announce it was, of course, the man himself.

“I have been summoned to appear at the Federal Courthouse in Miami on Tuesday, at 3 PM,” Trump wrote on Truth Social.  “I never thought it possible that such a thing could happen to a former President of the United States, who received far more votes than any sitting President in the History of our Country, and is currently leading, by far, all Candidates, both Democrat and Republican, in Polls of the 2024 Presidential Election.  I AM AN INNOCENT MAN!”

The DOJ has lodged federal criminal charges against the former president, accusing him of mishandling classified documents he kept upon leaving office and then obstructing the government’s efforts to reclaim them.  The charges against him include willfully retaining national defense secrets in violation of the Espionage Act, making false statements and a conspiracy to obstruct justice, according to multiple reports.

It is the first time a former president has faced federal charges, and this is an extraordinary time for the nation, given Trump’s status as the clearcut leader in the race for the Republican nomination for 2024, where he would face President Joe Biden, whose administration is now seeking to convict his potential rival of multiple felonies.

The indictment remained sealed for about 16 hours and then was unsealed this afternoon. 

And we learned Trump faces 37 criminal counts that include charges of unauthorized retention of classified documents and conspiracy to obstruct justice after he left the White House in 2021.

According to the indictment, those documents include some of the most sensitive U.S. military secrets, including information on the U.S. nuclear program and potential domestic vulnerabilities in the event of an attack.  One document concerned a foreign country’s support of terrorism against U.S. interests.  Materials came from the Pentagon, the CIA, the National Security Agency and other intelligence agencies, the indictment said.

Among the items in the 49-page indictment, Trump showed another person a Defense Department document described as a “plan of attack” against another country.

The indictment includes photographs of Trump’s boxes on a ballroom stage, in a club bathroom and in a storage room, where some were laying on the floor.  Trump kept the documents at Mar-a-Lago and his golf club in New Jersey.  Mar-a-Lago hosted tens of thousands of guests at more than 150 events during the time they were there, the indictment alleges.

The indictment also alleges Trump discussed with lawyers the possibility of lying to government officials seeking to recover the documents.  “Wouldn’t it be better if we just told them we don’t have anything here?”

Prosecutors said the unauthorized disclosure of the classified documents could risk U.S. national security, foreign relations, and intelligence gathering.

The case does not prevent Trump from campaigning or taking office if he were to win in November 2024.  And most legal experts say there is no basis to block his swearing-in even if he were convicted and sent to prison. 

Today, two lawyers defending Trump in the documents case resigned from it and a former aide was charged as well in surprise developments.  Trump said on Truth Social that his former military valet, Walt Nauta, had been charged.  Nauta went to work at Mar-a-Lago after working in the Trump White House.  We then learned today he was charged with making false statements. 

Nauta was seen on surveillance footage moving boxes from a storage room before and after investigators issued a May subpoena seeking the return of all government documents in Trump’s possession.  Nauta told investigators that he did so at Trumps request.

Trump also wrote today on Truth Social that he would be represented in the case by white collar defense lawyer Todd Blanche, who is representing him in a separate criminal case in Manhattan.  Trump lawyers John Rowley and Jim Trusty quit the case for reasons that were not immediately clear.

The criminal case against Trump has been initially assigned to a judge he appointed who faced criticism over her decision to grant the Republican’s request for an independent arbiter to review documents obtained during the FBI raid on Mar-a-Lago.  Judge Aileen Cannon, a former federal prosecutor who was nominated to the bench by Trump in 2020 and sits in Fort Pierce.

The move seems a rare bit of good news for the former president given rulings last year she issued in his favor and in opposition to the Justice Department.

But Mr. Trump still faces all number of other legal challenges, including for Jan. 6, also overseen by Special Counsel Jack Smith, and the case I always thought was the easiest to prosecute, the Georgia probe over Trump’s and some of his allies’ efforts to interfere with the results of the 2020 election in the state.

The call urging secretary of state Brad Raffensperger to “find 11,780 votes” is as blatant, and clear cut, as it gets, until today.

In a brief statement at 3:00 p.m., Jack Smith said: “Our laws that protect national defense information are critical to the safety and security of the United States, and they must be enforced.”

“We have one set of laws in this country, and they apply to everybody,” Smith added.

But as pollster Frank Luntz said, Trump has benefitted among Republicans from previous legal actions against him.

“Every legal action has only made his numbers go up,” Luntz told USA TODAY.

Saying he has never seen a politician play “the victim card” better than Trump, Luntz said that supporters see him “not as a criminal, but as a victim, a victim of persecution.”

But come primary season, Trump could be on trial in two states, at least.  How will voters react then?

We are just starting the process and this will be a lengthy one.

After the indictment was unsealed, Trump wrote on Truth Social of Special Counsel Smith: “He is a Trump Hater – a deranged ‘psycho’ that shouldn’t be involved in any case having to do with ‘Justice.’”

Some of the early comments from Republican elected officials in defense of Trump are outrageous.

Next Tuesday is the day before Trump’s 77th birthday.  Happy Birthday, Mr. President.  Have a cheeseburger.  I like mustard on mine.

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This Week in Ukraine….

--Russia claimed on Monday that its forces had thwarted a major Ukrainian offensive at five points along the front in the southern Ukrainian region of Donetsk and killed hundreds of pro-Kyiv troops.  It was not immediately clear whether or not the reported attack represented the start of a Ukrainian counteroffensive which Kyiv has been promising for months.

Ukrainian President Volodymyr Zelensky told the Wall Street Journal in an interview published on Saturday that he was ready to launch the counteroffensive but tempered a forecast of success with a warning that it could take some time and come at a heavy cost.

“I don’t know how long it will take,” he told the Journal.  “To be honest, it can go a variety of ways, completely different.  But we are going to do it, and we are ready.”

Ukraine has readied 12 brigades, an estimated 60,000 troops, to spearhead an attack it hopes to show it can force the Russian invaders, who total about 300,000, from its territory.  ‘Shaping operations,’ such as long-range missile strikes on Russian military hubs, have been ongoing for weeks, but Kyiv is concerned that many Ukrainian lives will be lost in an attack that is seen as politically and militarily necessary.

Zelensky said he feared “a large number of soldiers will die” and that he still wanted more air defense systems to protect troops from the larger Russian air force, still largely intact.

Russia now controls at least 18 percent of what is internationally recognized to be Ukrainian territory, and has claimed four regions of Ukraine as Russian territory.

For months, tens of thousands of Russian troops have been digging in along a front line which stretched for around 600 miles (1,000km), bracing for a Ukrainian attack, which is expected to try to cut Russia’s so-called land bridge to the Crimean peninsula, which Russia annexed in 2014.

Ukraine says it will not rest until it has ejected every last Russian soldier from its territory.

Russia says the war is escalating and says the West is fighting what amounts to a hybrid war against Russia.

--Ukrainian forces continued to shell Russia’s border region of Belgorod overnight into Sunday after two people were killed the previous night and hundreds of children were evacuated away from the border.

--A huge dam in the Russian-occupied area of southern Ukraine was breached Tuesday, unleashing a flood of water downstream.  Ukraine accused Russian forces of blowing up the Kakhovka dam and hydroelectric power station sending water gushing from the breached facility and threatening what officials called an “ecological disaster” due to possible massive flooding.  Officials from both sides in the war ordered hundreds of thousands of residents downriver to evacuate.

Kyiv vowed the destruction of the dam and flooding of frontline areas in southeastern Ukraine will not derail its planned counteroffensive as it accused Russia’s occupation force of destroying the facility in a “panic.”

The Kremlin denied responsibility for the breach early on Tuesday, and accused Ukraine of sabotaging the dam and its hydroelectric power plant to restrict water flow to occupied Crimea and distract public attention from what it called the counteroffensive’s lack of early success.

“The destruction of the Kakhovka hydroelectric power plant dam only confirms for the whole world that (Russia) must be expelled from every corner of Ukrainian land…It’s only Ukraine’s victory that will return sovereignty. And this victory will come.  The terrorists will not be able to stop Ukraine with water, missiles or anything else,” said President Zelensky.

Russia’s army seized the dam and surrounding Kherson region shortly after launching its full invasion of Ukraine in February 2022.  It was forced out of areas on the western side of the Dnipro last November and Ukraine is poised to cross the river and retake swathes of territory on the eastern bank.

“This terrorist act is a sign of the panic of the Putin regime and an attempt to complicate the actions of the Ukrainian security and defense forces,” said Ukraine’s military intelligence agency.  “It will become a powerful piece of evidence at the international tribunal that undoubtedly awaits everyone involved in committing war crimes on the territory of Ukraine.”

The Ukrainian armed forces said they had planned for possible Russian destruction of the dam, and were “equipped with all watercraft and pontoon bridges needed for crossing water obstacles” and were “ready to liberate the occupied territories of Ukraine.”

Russia denied responsibility for the destruction of the dam.

“We can state unequivocally that we are talking about deliberate sabotage by the Ukrainian side.  The Kyiv regime should bear full responsibility for all the consequences,” said Kremlin spokesman Dmitry Peskov.  “Apparently this sabotage is also connected with the fact that, having started large-scale offensive action two days ago, now the Ukrainian armed forces are not achieving their goals – these offensive actions are faltering.”

“Clearly one of the aims of this act of sabotage was to deprive Crimea of water – the water level in the reservoir is dropping and, accordingly, the water supply to the canal is being drastically reduced,” Peskov said.

Crimea’s Russian-installed governor said the region’s reservoirs were about 80 percent full, meaning there was no immediate threat of a water shortage.

Most experts believe a deliberate explosion inside the dam most likely caused its collapse.  It was also just last week that Ukrainian officials said the Russians wanted to create an emergency at the Zaporizhzhia Nuclear Power Plant, which uses river water for cooling, to stall an expected Ukrainian offensive.

Ukraine’s nuclear operator Energoatom said in a Telegram statement that the blowing up of the dam “could have negative consequences” for the nuclear plant, Europe’s biggest, but wrote that for now the situation is “controllable.”

The International Atomic Energy Agency wrote on Twitter that its experts were closely monitoring the situation at the plant, and there was “no immediate nuclear safety risk.”

NATO’s Secretary General Jens Stoltenberg: “The destruction of the Kakhovka dam today puts thousands of civilians at risk and causes severe environmental damage. This is an outrageous act, which demonstrates once again the brutality of Russia’s war in Ukraine.”

“It is the children, women and men of Ukraine who will suffer the consequences of the terrible destruction of the Nova Kakhovka hydroelectric power plant,” said Roberta Metsola, president of the European Parliament, on Twitter.  She added, “This is an act against humanity.  A war crime which we cannot leave unanswered.”

Ukrainian officials warned that environmental damage from the disaster could last for years or decades, and that threats to human and animal life ranged from chemicals washed into the river to landmines dislodged by the flood.

The U.S. said it knows there have been deaths as a result of the flooding, they just don’t know how many casualties there are.  The figures are trickling in, five dead here, eight dead there…

From the BBC: “The breaching of the Kakhovka dam needs to be seen in the wider context of the Ukraine war and more specifically in the light of Ukraine’s summer counteroffensive, which shows signs of already being under way.

“In order for this counteroffensive to succeed, it needs to break Russia’s stranglehold over a swathe of territory it seized last year that connects Crimea to Ukraine’s eastern Donbas region.  If Ukraine can find a way to break through Russian defensive lines south of Zaporizhzhia and split that territory in two then it can isolate Crimea and achieve a major strategic victory.

“But the Russians have learnt a lot of lessons since their full-scale invasion in February last year.  They’ve looked at the map, worked out where Ukraine is most likely to attack and spent the last few months building truly formidable lines of fortifications to block any Ukrainian advance towards the Sea of Azov….

“With the dam across (the Dnipro) now breached and huge swathes of land downstream flooded the area on the left (eastern) bank opposite Kherson has effectively become a no-go area for Ukrainian armor.”

There is historical precedence for Russia’s action, if indeed they were responsible. In 1941, Soviet troops blew up a dam over the same River Dnipro to block the advance of Nazi troops. Thousands of Soviet citizens died in the ensuing floods.

Bottom line, the strategic chessboard in southern Ukraine has been upset, forcing both sides to make a number of major adjustments.

--Moscow said on Tuesday it had thwarted another major offensive by Ukraine in Donetsk, destroying military equipment and inflicting huge personnel losses, a statement that the head of the Wagner Group, Yevgeny Prigozhin, cast doubt on.  Moscow claimed it had killed 1,500 Ukrainian troops, to which Prigozhin said that to kill that many people would require daily gains of 150 kilometers (93 miles), “I therefore believe that this is simply wild and absurd science fiction.”

--Thursday, President Zelensky hailed what he described as “results” in heavy fighting in Donetsk region in eastern Ukraine.  “There is very heavy fighting in Donetsk region,” Zelensky said in his daily video message, delivered on a train after visiting areas affected by the breach of the Kakhovka dam.  “But there are results and I am grateful to those who achieved these results.  Well done in Bakhmut.  Step by step.”

Earlier in the day, Zelensky arrived in the Kherson area to evaluate the damage caused by the dam breach.

--Friday, Russia’s army reported heavy fighting in the Donetsk and Zaporizhzhia regions, saying over 21 Ukrainian tanks had been destroyed in battles across key sections of the front line.

The claims couldn’t be verified, but fit with a description given by CNN.

Russian military bloggers said there were intense battles on the Zaporizhzhia front as Ukraine sought to pierce Russian defenses and drive a wedge through Russian forces.

Meanwhile, relief workers and Ukrainian soldiers attempting to rescue and evacuate tens of thousands trapped by floodwaters from the Kakhovka dam breach are coming under Russian fire, the Russians doing little to rescue civilians in their sectors.  About two-thirds of the flooded areas are in territories occupied by Russia, officials said.

--The White House said Friday that Russia appeared to be deepening its defense cooperation with Iran and had received hundreds of one-way attack drones that it is using to strike Ukraine.

Support between Iran and Russia was flowing both ways, White House spokesman John Kirby said, with Iran seeking billions of dollars worth of military equipment from Russia including helicopters and radars.  “Russia has been offering Iran unprecedented defense cooperation, including on missiles, electronics, and air defense,” he said.  “This is a full-scale defense partnership that is harmful to Ukraine, to Iran’s neighbors, and to the international community.”

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--Russia’s foreign ministry said on Monday that it saw no prospects for extending the Black Sea grain export deal, which is set to expire in mid-July, Russian news agencies reported.  RIA news agency said a new round of Russia-UN talks would take place in Geneva on June 9.

Separately, Ukrainian Danube river ports exported a record 3 million tons of food in May amid a significant slowdown in exports through its key Black Sea ports, the Ukrainian seaport authority said.  The push for alternative export routes has taken on urgency during the war after Russia blocked Ukraine’s traditional export route via the Black Sea and only a limited volume is shipped under the above-mentioned deal.

A quarter of Ukraine’s agricultural exports currently pass through its Danube ports, while half exits via its Black Sea ports and another quarter traverses Ukraine’s western land border.

But at week’s end, a pipeline used to transport ammonia fertilizer from Russia via Ukraine could be central to the future of the Black Sea grain deal as it has been damaged.  Russia said a “Ukrainian sabotage group” had blown up a section of the pipeline Monday night near a village in the Kharkiv region; the village, Masyutivka, being on the frontline between Russian and Ukrainian troops. 

Ukraine claims Russia shelled the pipeline.

While parts of the pipeline are secure, resumption of supplies via the world’s longest ammonia pipeline will be key to the renewal of the grain deal.  The pipeline has been closed since Russia invaded Ukraine. 

--The Biden administration received an intelligence report that Ukraine had a plan for an attack on the Nord Stream pipelines three months before an underwater explosion disabled the natural gas link from Russia to Germany, the Washington Post reported.

The six-person team reported directly to Gen. Valerii Zaluzhnyi, the report claimed, to shield President Zelensky from culpability.

The Post report was based on a larger leak of secret documents that was shared by Jack Teixeira on the chat platform Discord.  The reports first came from a European intelligence agency later shared with the U.S. and then Germany and then were corroborated by security officials from a number of countries, the Post reported.

--Russia warned the United States on Saturday it should stop brandishing ultimatums over the collapse of arms control agreements, saying Moscow would only return to a nuclear arms reduction treaty if Washington abandons its hostile stance.

Amid the crisis triggered by the Ukraine conflict, President Putin announced in February that Russia was suspending participation in the New START treaty – an agreement signed in 2010 that limits the number of Russian and U.S. deployed strategic nuclear warheads. The United States said last week it would stop providing Russia some notifications required under the treaty, including updates on its missile and launcher locations, to retaliate for Moscow’s “ongoing violations” of the accord.

The U.S. is eager, however, to begin discussions with Russia on a strategic arms limitation pact to replace New START when it expires in 2026, national security adviser Jake Sullivan said last week.

--The Kremlin said on Saturday that journalists from “unfriendly countries” would not be allowed into the St. Petersburg International Economic Forum, which Vladimir Putin has used to showcase the Russian economy to global investors.  “Unfriendly countries” is a definition used by Moscow to describe those who have sanctioned it over the war in Ukraine.

--Opinion….

Editorial / The Economist

“On the eve of the commemoration of the Allies’ D-Day landings in Normandy, General Mark Milley, America’s most senior general, drew a direct parallel with the Ukrainian counteroffensive starting some 2,800km to the east. The goal, he said, was the same as it had been nearly eight decades ago: ‘To liberate occupied territory and to free a country that has been unjustly attacked by an aggressor nation, in this case, Russia.’

“Then as now, the battles will determine the future security order in Europe.  But for Ukraine’s Western supporters, at least, the ultimate aim of the war is much less clear than it was for the Allies in 1944.  Unlike Nazi Germany, Russia is a nuclear power.  It is hard to imagine its complete capitulation.  Ukraine’s professed goal is to reconquer all of the land Russia has seized since 2014, restoring the borders that were set in 1991, when the Soviet Union broke up.  But even if the Ukrainian army can achieve that (and many Westerners, especially, have their doubts), there are fears that Russia might view such an outcome as a humiliation so abject that it would be worth using nuclear weapons to avoid it.

“The upshot is a much vaguer aim: for Ukraine to inflict as many losses and make as many territorial gains as possible to strengthen its hand as it tries to reach a modus vivendi with a weakened Russia.  By this way of thinking, a positive outcome would be for Ukraine’s new Western-armed brigades to sever the land bridge between Russia and the Crimean peninsula or to get close enough to endanger Russian positions in Crimea.  Most Western officials expect more modest gain, however, with Ukraine taking back and holding less strategic slices of the territory it has lost in the past year, but at least demonstrating that it can still make headway on the battlefield.  In the pessimistic view, the Ukrainians struggle to get past Russian defenses, make only minor gains and end up in a stalemate.  Hearteningly, the prospect of Ukrainian forces failing, exposing themselves to a counter-attack and retreating can be all but ruled out, because Russia lacks the means to stage a big advance and because Western allies would no doubt quickly step up support to Ukraine.”

As for China:

“China’s leader, Xi Jinping, appears to have set boundaries, according to American and European officials.  He wants to prevent the complete defeat of Russia, a close partner; he wants to prevent a breakdown in relations with Europe; and he wants to prevent the use of nuclear weapons. So even though he and Russia’s president, Vladimir Putin, have declared that their countries’ friendship has ‘no limits,’ there have been limits so far in the help China has been prepared to offer Russia.  It buys Russian exports of oil and gas at a discount, and sells Chinese goods, some of which might be useful in the war effort.  But he has so far declined to provide large-scale deliveries of weapons, of the kind the West has given Ukraine. That may change if China thinks the Russians are about to be routed, Western officials worry.”

Marc A. Thiessen / Washington Post:

Thiessen builds an extensive case for Republicans who say the United States is providing too much aid to Ukraine.  In conclusion:

“Of course, the most powerful argument is the one I have not made yet: Helping Ukraine is the right thing to do. It is the American thing to do.  As (Ronald) Reagan explained 40 years ago during his ‘Evil Empire’ speech, the United States cannot remove itself ‘from the struggle between right and wrong and good and evil’ because ‘America has kept alight the torch of freedom, not just for ourselves, but for millions of others around the world.’  Those words ring as true today as they did in Reagan’s time. The war in Ukraine is a struggle between right and wrong and good and evil, and in that struggle, America must not remain neutral.

“Even this is a matter of self-interest.  Since the end of the Cold War, democratic self-government has spread throughout the world. The dramatic expansion of human freedom has unleashed an unprecedented expansion of peace, stability and prosperity at home and abroad.

“But even those unpersuaded by Reagan’s call to oppose evil can still agree with him that the United States must pursue ‘peace through strength.’

“The ‘America First’ isolationists of the 1930s hoped to avoid a repeat of the carnage of the First World War, which took some 20 million lives.  Instead, their failure to resist Adolf Hitler’s rise invited the Second World War, which took 60 million lives.  Allowing Hitler to seize the Sudetenland in Czechoslovakia did not appease the dictator nor deliver ‘peace for our time.’ It only whetted Hitler’s appetite, and the appetites of other expansionist powers for conquest.  The same will be true if we allow Putin to seize Ukraine.

“The lesson of the 20th century is that putting ‘America First’ requires us to project strength and deter our enemies from launching wars of aggression – so that U.S. troops don’t have to fight and die in another global conflagration.  The invasion in Ukraine was failure of deterrence. Only by helping Ukraine win can we prevent further deterrence failures.

“If we help Ukraine prevail, we can rewrite the narrative of U.S. weakness; restore deterrence with China; strike a blow against the Sino-Russian alliance; decimate the Russian threat to Europe; increase burden-sharing with our allies; improve our military preparedness for other adversaries; stop a global nuclear arms race; dissuade other nuclear states from launching wars of aggression; and make World War III less likely.

“The ‘America First’ conclusion: Helping Ukraine is a supreme national interest.”

[In a new Reuters/Ipsos poll, 56% support sending more U.S. weapons and financial aid to Ukraine, about the same share as in a February poll.  But the backing isn’t evenly distributed. Some 73% of Democrats said they backed more aid, compared to 44% of Republicans.]

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Wall Street and the Economy

With Thursday’s close in the markets, Wall Street had entered a new bull market, the S&P 500 up over 20% from its Oct. 12, 2022, low of 3577.03, finishing Thursday at 4293.93.  About seven stocks have almost singlehandedly powered the rally, and I’ve been skeptical, but here we are.

It is, however, all about next week’s Federal Reserve Open Market Committee meeting, June 13-14, and the expected ‘pause’ in its rate-hiking regime.  But most Fed watchers believe the board is still open to a hike in July, should the ongoing inflation data remain troublesome on core (ex-food and energy), and we will receive a reading on May CPI Tuesday morning as the FOMC convenes.

So we’ll see what Chair Jerome Powell says in his Wednesday presser after the statement is released.

Just a few items of note this week…the May ISM services reading was a weaker than expected 50.3, consensus at 52.0 (50 the dividing line between growth and contraction).  April factory orders rose less than expected, 0.4%.

But jobless claims rose a third straight week in a sign of weakness, many believing last week’s strong jobs report for May was a fluke.

The Atlanta Fed’s GDPNow barometer for second-quarter growth is at 2.2%.

Freddie Mac’s 30-year fixed-rate mortgage fell a bit to 6.71%.

The Organization for Economic Cooperation and Development, or OECD, said the global economy is expected to grow this year at a slightly better rate than previously forecast though the recovery is likely to be “weak” amid macro uncertainty.

The organization raised its world gross domestic product growth outlook for 2023 to 2.7% from 2.6% projected in March, but left its 2024 expectations unchanged at 2.9%.  The latest 2023 and 2024 projections are still “well below” the average growth rate seen in the decade preceding the pandemic.  Last year, world GDP grew at an estimated 3.3% rate, according to the report.

In the U.S., the OECD projects growth of 1.6% this year, before slowing to 1% in 2024, in response to tight monetary and financial conditions. The eurozone is expected to grow 0.9%.  China is projected to grow at a 5.4% pace in 2023 and 5.1% in 2024, but the former appears to be a stretch.

However, the projected upturn in the global economy continues to be “fragile and risks are tilted to the downside,” with the impact from the uncertainty around Russia’s war against Ukraine still a key concern, the OECD said.  Continued elevated prices also pose downside risks as core inflation is proving to be “sticky,” according to the report.

Earlier in the week, the World Bank lifted its global economic growth outlook for 2023 to 2.1%, up from the 1.7% it forecast in January.  It estimates 2022 was at 3.1%.

The bank forecasts growth at 2.4% in 2024, down from its January estimate of 2.7%.

The U.S. will grow 1.1% this year and 0.8% in 2024, according to the WB.  The euro area will grow just 0.4% in 2023, 1.3% in 2024.  China 5.6% this year, 4.6% in 2024.

Europe and Asia

We had a final reading on first-quarter GDP for the eurozone, down 0.1% compared with the previous quarter, according to Eurostat, the statistical arm of the European Union.  In the fourth quarter of 2022, GDP also decreased by 0.1%, so the classic definition of a recession, two down quarters in a row, albeit minimally.

Compared with the same quarter of the previous year, seasonally adjusted GDP increased by 1.0% in the euro area.

2023Q1 vs. 2022Q1

Germany -0.5%
France 0.9%
Italy 1.9%
Spain 3.8%
Netherlands 1.8%
Ireland -0.3%

Separately, April retail trade was unchanged in the EA20 compared with March, down 2.6% from a year ago.

And then we had April industrial (producer) prices, down 3.2% over March, and up just 1.0% over April 2022.  Quite a comedown from August’s peak of 43.4% when energy prices were spiking on fears the Ukraine war would severely impact winter supplies of same.  Europe, particularly Germany, then did a great job of stockpiling and coupled with a mild winter, all was good on that front.

Britain: Former Prime Minister Boris Johnson is stepping down as a member of parliament with immediate effect, triggering a by-election in his marginal seat.  Johnson had been fighting for his political future with a parliamentary inquiry investigating whether he misled the House of Commons when he said all Covid-19 rules were followed.  Johnson said in a statement: “I am being forced out by a tiny handful of people, with no evidence to back up their assertions, and without approval even of Conservative party members let alone the wider electorate.”

Johnson is a lying, bombastic piece of crap, responsible for Brexit, the case for which was built on a pile of lies, and for which the British people have paid a painful price.

Turning to Asia…China’s Caixin services PMI for May came in at 57.1 for May vs. 56.4% prior, the 5th straight month of expansion.

But May exports were awful, -7.5% year-over-year when consensus was at -0.4%, and reversing from a reading of 8.5% growth in April while pointing to the first fall since February.  Global demand was insufficient to sustain a recovery in outbound shipments, according to China’s Customs Bureau.

Exports to the U.S. plunged by 18.2% from a year earlier, while those to the EU slumped by 26.6%.  By contrast, shipments to Russia surged by 114%, particularly energy.

China is clearly going to have a difficult time hitting its 5% growth target this year, while local governments struggle with massive debt obligations, and a youth unemployment rate of 20%.  It needs to rely on domestic demand as well as the global economy slows.

Thursday, we had inflation readings for May and consumer prices rose just 0.2% from a year ago.  China’s factory gate (producer) prices fell 4.6% year-over-year, the fastest pace in seven years and quicker than forecasts, according to the National Bureau of Statistics, as faltering demand weighed on manufacturing and the fragile economic recovery.

Japan reported its May services PMI was a solid, and record, 55.9, helped by increases in tourism.

April household spending was down 4.4% year-over-year.

But Wednesday, we had a final reading on GDP for the first quarter and it was a much higher rate than expected, 2.7% year-on-year.  Government data showed that hearty domestic and corporate spending after the lifting of Covid-19 restrictions fueled growth.  Japanese stocks have also been on a tear, the Nikkei 225 index closing at its highest level since 1990 and ending the week up 2.4%, 23.7% for the year.

Street Bytes

--Stocks ended the week higher, the Dow Jones up 0.3% to 33876, the S&P gaining 0.4%, finishing just shy of the key 4300 level (4298), and Nasdaq eking out a 0.1% gain to run its winning streak to seven consecutive weeks.

--U.S. Treasury Yields

6-mo. 5.36%  2-yr. 4.60%  10-yr. 3.74%  30-yr. 3.88%

The yield on the 2- and 10-year rose a bit this week.

More than $1 trillion of Treasury bills are going to hit the market in the wake of the debt-ceiling resolution, roughly $850 billion of which will occur between now and the end of September, which has the potential to jolt markets and raise short-term borrowing costs.  It’s about liquidity when so much paper hits at once.

Short rates have already been rising.

--Saudi Arabia is cutting oil production by another one million barrels a day in July as OPEC and its allies agreed to stick to their current oil-production target through 2024.  Producing nations meeting in Vienna clashed over slowing global energy demand.  The oil price jumped Monday but then fell off to finish the week at $70.32…down almost $2 from last Friday.

OPEC+ (including Russia and others) met amid growing tensions between Saudi Arabia and Russia over a previous agreement on production cuts.  Russia’s continued pumping of cheaper crude has added to a global surplus and undermined Saudi Arabia’s efforts to boost energy prices.

OPEC+ in October slashed output by two million barrels a day, despite the U.S. asking the Saudis and their allies to increase production to help cut energy prices and high inflation.  In April, some members, including Saudi Arabia and Russia, cut an additional 1.6 million barrels a day.

But crude has been falling since October amid concerns over the global economic outlook, which wasn’t helped this week by China’s trade numbers.  Each time OPEC has cut, the gains are temporary before the price goes right back down.

Here’s the key.  According to the International Monetary Fund, the Saudis need $80.90 a barrel (Brent, higher than West Texas Intermediate) to meet its envisioned spending commitments, which include a planned $500 billion futuristic desert city called Neom.  Saudi economic advisers have warned senior policy makers that the kingdom needs higher oil prices for the next five years to keep spending on ambitious projects, as the Wall Street Journal has reported.

The Saudis are not happy tonight.

--The Securities and Exchange Commission on Monday accused Binance, the world’s largest cryptocurrency exchange, of mishandling customer funds and lying to American regulators and investors about its operations, in a sweeping case that has the potential to remake the landscape of power and wealth within crypto.

The SEC’s lawsuit was the second time this year that federal regulators have accused Binance of evading laws designed to protect investors in the United States.  Regulators have long seen the exchange, which has said it does $65 billion in average daily trading volume, as a major target in their quest to bring to heel a crypto industry that has been built around an explicitly anti-government ethos.

In the 136-page complaint, the SEC said Binance had mixed billions of dollars in customer funds and secretly sent them to a separate company, Merit Peak Limited, which is controlled by Binance’s founder, Changpeng Zhao, who was also named as a defendant.

The complaint also said Binance had misled investors about the adequacy of its systems to detect and control manipulative trading and about its effort to restrict U.S. users from trading on its international platform.

Binance engaged in “blatant disregard of the federal securities laws and the investor and market protections these laws provide,” the SEC wrote in its court complaint.

The SEC quoted Binance’s chief compliance officer as saying in 2018, “we are operating as a fking unlicensed securities exchange in the USA bro.”

“Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure and calculated evasion of the law,” SEC Chair Gary Gensler alleged in a statement.  “The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”

--The next day, Tuesday, the SEC sued Coinbase, the largest crypto exchange in the U.S., alleging it violated rules that require it to register as an exchange and be overseen by the federal agency.

Unlike the Binance lawsuit, the SEC didn’t name Coinbase CEO Brian Armstrong as a defendant or accuse the company of mishandling customer funds.

With all the above, the price of bitcoin fell marginally to $26,400 as I go to post (it never stops trading, which is very inconsiderate).

--Apple lived up to months of expectations on Monday when it introduced new high-tech goggles that blend the real world with virtual reality.  The $3,500 device, called the Vision Pro, will offer “augmented reality” and introduce “spatial computing,” Apple said.

Yup, $3,500.

Conspicuously absent from the company’s carefully choreographed announcement were the words “virtual reality,” underscoring the challenges the tech giant is likely to face in marketing the device to a mass audience.

The concept of virtual reality lost steam after the idea of the metaverse was first introduced during the pandemic as people returned to their prepandemic lives, pivoting to artificial intelligence.

Past virtual reality offerings, including Google Glass, Microsoft’s HoloLens and Meta’s Quest Pro, have either been commercial failures or only modest successes.

Analysts do not expect Vision Pro, which is available early next year, to have significant mainstream appeal…for now.

--Boeing said on Tuesday it is slowing deliveries of its 787 Dreamliner after the company discovered a new production flaw, but expressed optimism that it can still deliver 70-80 of the widebody jets this year as planned.

The problem, which does not pose a flight safety concern, involves a fitting for the 787’s horizontal stabilizer installed at a Boeing production facility in Salt Lake City, Utah, the company said.  Boeing will need to inspect all 90 Dreamliners in its inventory before they can be delivered, and it expects it will take two weeks to fix each aircraft, the company added.

The Federal Aviation Administration said it has validated Boeing’s assessment that there is no immediate safety issue for 787s already in service.

--The United States is in a “business recession” but the consumer is “strong,” said Scott Kirby, CEO of United Airlines.  Speaking at an aviation conference in Istanbul on Monday, Kirby said this can be seen as leisure air travelers come back stronger and faster than business travelers.

“Leisure demand is really, really strong. Premium leisure demand is much higher.  Business demand hasn’t fully recovered yet…that’s taking more time,” he said.  “We’re probably in either a mild recession or moderate economy, we can see that.  I think actually, in the U.S., we’re in a business recession, and the consumer is just fine, the consumer is strong.”

The chief of the world’s biggest airline also raised concerns over competing carriers flying over Russia.  “What’s going to happen if an airline lands in Russia with some prominent U.S. citizens on board? That is a potential crisis in the making.  I think we should solve it before the crisis happens,” he said.

Russia has barred U.S. airlines and other foreign carriers from flying over its airspace, in retaliation for Washington banning Russian flights over the U.S. in March 2022 after Moscow sent troops into Ukraine.

United was forced to temporarily suspend flying over Russian airspace, joining other major U.S. carriers, in a move that has impacted the airline’s ability to offer competitive non-stop flights to India and other places.

“It’s clearly a big impact for us,” Kirby said, noting pre-pandemic United had multiple daily flights between the U.S. and India.  “Now we fly one and it’s an extra two hours,” he said, adding that even with the extra time it cannot fly the other routes non-stop.

Air India and some Gulf-based, Chinese and African carriers continue to fly over Russian airspace, making flying times shorter.

--Speaking of Air India, an Air India plane flying from New Delhi to San Francisco landed in Russia after it developed an engine problem, officials said on Wednesday.

The plane, a Boeing 777 carrying 216 passengers and 16 crew members, landed safely at Russia’s Magadan airport in Siberia in the country’s far east on Tuesday, Air India said in a statement.

The flight “developed a technical issue with one of its engines,” the statement said, adding that the aircraft was undergoing safety checks and the passengers were being provided support on the ground.

Air India then sent an aircraft on Wednesday to pick up the passengers.  The diversion raised questions over how quickly the U.S.-built plane, whose engines are made by General Electric, could be repaired amid U.S. and European Union sanctions on exports of aviation items to Russia.

The State Department said less than 50 Americans were on board the Air India flight, but no incidents have been reported given the tension between Russia and the U.S., as Scott Kirby alluded to.  One passenger told an Indian broadcaster that “there are a lot of nervous people here.”  The supply of food was said to be sparse.

The rescue plane then flew the passengers to the U.S. on Thursday without apparent incident.

--Airbus is close to closing a deal to sell 500 narrow-body A320-family jets to India’s largest carrier IndiGo, industry sources said over the weekend.  In February, Air India agreed to purchase 470 such jets. 

IndiGo has a 56% share of the domestic Indian market.

Airbus and Boeing have been racking up billions of dollars of new orders stretching beyond 2030 as airlines lock in supplies well ahead amid looming shortages.  Indian carriers now have the second-largest order book, with over 6% share of the industry backlog, behind only the United States, according to a June 1 report by Barclays.  The bullish outlook by IndiGo comes as the world’s third-largest aviation market is seeing a strong rebound in travel post-Covid, with domestic and international passenger numbers surging.

--As in…the airline industry is recovering at a faster pace than the International Air Transport Association predicted in December, prompting the trade organization to raise its expectations for 2023 industry profitability.

Airline industry net profits are expected to reach $9.8 billion this year, more than double the IATA’s previous forecast of $4.7 billion.

“Airline financial performance in 2023 is beating expectations,” supported by a number of positive developments, said IATA Director General Willie Walsh.  China lifted Covid-19 restrictions earlier than anticipated, while cargo revenues remain above pre-pandemic levels, Walsh said.

The IATA now expects about 4.35 billion people to travel by air in 2023, which is above its 4.2 billion prior projection and closes in on the 4.54 billion tally from 2019.  It anticipates total revenues to grow 9.7% year over year to $803 billion, up from $779 billion previously anticipated.  This would mark the first time industry revenue crosses $800 billion since 2019.

Passenger revenue is continuing to rebound with Covid restrictions removed “in all major markets,” the IATA said.  They are on pace to rise 27% year-over-year to $546 billion in 2023, 10% shy of 2019 levels. The industry is on track to reach 87.8% of 2019 revenue passenger kilometers amid increases in passenger traffic.  Average passenger load factor is forecast to be 80.9%, which IATA said is “very near” the record 2019 performance of 82.6%.

Cargo revenues, however, are forecast at $142.3 billion for 2023, down sharply from $210 billion in 2021 and $207 billion in 2022, though well above the $100 billion earned in 2019.

--TSA checkpoint numbers vs. 2019

6/8…98 percent of 2019 levels
6/7…93
6/6…91
6/5…97
6/4…99
6/3…100
6/2…96
6/1…94

The smoke enveloping the east coast led to numerous ground stops at the airports this week.

--The sports world was shocked to its core with the following this week:

Editorial / Wall Street Journal

“Is Saudi Arabia’s Crown Prince Mohammed bin Salman trolling President Biden? Over the weekend Riyadh cut its oil production to lift prices.  On Tuesday the Saudi-backed LIV Golf announced a merger with the PGA Tour and Europe’s DP World Tour.  Call it the revenge of the ‘pariah,’ to borrow Mr. Biden’s epithet for MBS.

“The golf tour merger may rank as the biggest in the sporting world and will benefit all parties involved. Golfers will no longer have to choose between playing in the LIV and other tour tournaments.  The PGA and DP World Tour will lose a formidable competitor, and the Crown Prince will have help to rehabilitate his international standing.

“Saudi Arabia made a splash last summer by launching the LIV, backed by its $620 billion Public Investment Fund (PIF), to ‘reinvigorate golf’ with team competition, more prize money and signing bonuses.  PGA Tour Commissioner Jay Monahan accused the Saudis of trying to ‘buy the game of golf,’ and suspended top golfers who signed with the rebel league.

“Golfers groused about the PGA’s punishment and backed an antitrust lawsuit by LIV against the PGA, which counter-sued.  It’s hard to feel sorry for players making eight figures. But the Justice Department’s antitrust cops launched an investigation into whether the PGA was manipulating the sport’s labor market.

“The LIV antitrust suit hit the skids this year as it lost support from golfers who didn’t want to be deposed.  Nor did Saudi officials.  Now the PGA and LIV have decided it’s in their mutual business interest to settle their feud.

“The tours will drop their litigation.  Golfers will no longer have to choose between the tours.  LIV golfers who were suspended will be allowed to re-apply with the PGA at the end of this season. The Public Investment Fund will make a capital infusion into the new entity, which will be chaired by its head Yasir Al-Rumayyan.  Mr. Monahan will stay on as CEO.

“But the biggest winner may be the Crown Prince, who has been seeking to improve his reputation in the wake of the murder of Washington Post columnist Jamal Khashoggi in 2018 by Saudi assassins.  While campaigning in 2019, Mr. Biden promised to isolate and ostracize MBS, despite his value as an ally in the rough Middle East.  MBS has been returning the disfavor ever since.

“MBS is using the Kingdom’s massive oil-funded sovereign wealth fund to buy businesses and influence in the West.  In 2021 the PIF purchased the English Premier League soccer club Newcastle United. It has invested in Saudi luxury resorts to draw wealthy Western tourists, including golf courses where one LIV tournament is played….

“Meantime, the Saudis are making decisions about oil production without concern for U.S. interest. Its latest cut will benefit Russia, which has been ramping up exports.  In March Saudi Aramco invested in Chinese refineries, which process Russian crude that the West has sanctioned. It has floated selling oil to China in yuan, a dig at the U.S. dollar.

“MBS sidelined the President in April by agreeing to a rapprochement with Iran brokered by China.  On Monday the Crown Prince welcomed Venezuela’s Nicolas Maduro to discuss how to strengthen their relations.  Pariahs of the world are uniting while Mr. Biden diminishes America’s foreign influence with a war on U.S. oil and gas production.

“Mr. Biden’s antitrust cops could try to block the golf tour merger, but it’s hard to see who will be harmed by it. The President would be wiser to follow the PGA’s lead and patch things up with the Saudis.”

Much more in my Bar Chat column.  And not for nothing, but Donald Trump’s involvement in LIV looks even worse today. Two more LIV events are at his courses this year, including now infamous Bedminster.

--U.S. regulators are preparing to force large banks to shore up their financial footing, moves they say will help boost the resilience of the system after a number of midsize bank failures this year.

The changes, which regulators are on track to propose as early as this month, could raise overall capital requirements by roughly 20% at larger banks on average.  The precise amount will depend on a firm’s business activities, with the biggest increases expected to be reserved for U.S. megabanks with big trading businesses.

The industry says more stringent requirements aren’t needed, could force more banks to merge to stay competitive and could make it harder for Americans to get loans from banks.

--General Motors said its future electric vehicles will use the same charging hardware as Tesla, a move aimed at giving GM owners more access to charging and further endorsing Tesla’s charging-port technology as the industry standard.

GM said Thursday that Tesla agreed to give GM customers access to 12,000 of Tesla’s fast chargers, known as Superchargers, starting next year.  Those GM customers will need an adapter to use the chargers, because the GM vehicles use a different charge port.

Starting in 2025, GM will start making EVs with the Tesla charge port instead.  GM CEO Mary Barra said that giving the company’s customers access to Superchargers will accelerate EV adoption and that switching to the Tesla charge port on future models “could help move the industry toward a single North American charging standard.”

The deal is similar to one Ford and Tesla outlined last month, under which Ford’s customers will be able to use more than 12,000 Superchargers.  Ford also said it would adopt the same charging hardware that Tesla uses when it begins introducing a new line of EVs in about two years.

All of this is good news for Tesla, whose shares have been soaring; up eleven straight days, a whopping 34% in just that time.  Good lord!  Or as my grandfather would say, “Gee willikers!”

--A former executive at ByteDance, the parent company of video-sharing app TikTok, alleges in a legal filing that a committee of China’s Communist Party members accessed the data of TikTok users in Hong Kong in 2018 – a contention the company denies.

The former executive claims the committee members focused on civil rights activists and protesters in Hong Kong during that time and accessed TikTok data that included their network information and IP addresses, in an effort to identify and locate the users.

The former executive, Yintao Yu, filed the lawsuit in San Francisco Superior Court.  Yu served as the head of engineering for ByteDance’s U.S. offices and is a resident of California.  She spent time in ByteDance’s Menlo Park, Calif., office, as well as offices in Los Angeles and Beijing.

ByteDance denies the “baseless claims and allegations” in the complaint.

--Californians have a serious problem finding property insurance these days.

State Farm said last week that it’s no longer accepting new applications for property and casualty coverage in California because of soaring wildfire and construction costs and “a challenging reinsurance market.”

Then Allstate Corp. told the state Department of Insurance that it stopped selling new home insurance policies last year.    The notice was part of a recent request for a nearly 40% rate increase for home and business property and casualty insurance.

State Farm was California’s largest property insurer and Allstate was fourth as of 2021.

There is a state-mandated insurance pool, the FAIR Plan, but it offers minimal coverage at high rates and is meant to be a provider of last enrollment.

California has, however, been insurance friendly, with the average homeowner’s annual insurance premium just $1,300, compared with more than $2,000 in other states with wildfire risks and $4,000 in hurricane-prone Florida, according to the Insurance Information Institute.

--Elon Musk recently said Twitter’s advertising business was on the upswing.  “Almost all advertisers have come back,” he asserted, adding the social media company could soon become profitable.

But an internal presentation obtained by the New York Times showed that Twitter’s U.S. advertising revenue for the five weeks from April 1 to the first week of May was $88 million, down 59 percent from a year earlier.  The company has regularly fallen short of its U.S. weekly sales projections, sometimes by as much as 30 percent, the document said.

Twitter’s ad sales staff is concerned that advertisers may be spooked by a rise in hate speech and pornography on the social network, as well as more ads featuring online gambling and marijuana products, the people said.

--Campbell Soup announced better-than-expected fiscal third-quarter earnings on Wednesday, while the food and snack company maintained its full-year outlook, with the expected bottom line range below Wall Street’s estimates.

Adjusted earnings declined 3% to $0.68 a share for the three months through April 30, but were above consensus.  Sales grew to $2.23 billion from $2.13 billion a year earlier, in line with the Street’s view.

Sales in the meals and beverages segment edged down 2% to $1.11 billion, due to a decline in U.S. soup and lower volume and mix, among other factors.

The shares fell on the company’s less than exciting guidance for fiscal 2023.

--Google had asked workers to come in three days a week, luring them with free food and other perks.  Now, the company said on Wednesday that workers must comply with the three-day requirement or their nonattendance could show up on their performance reviews, according to a memo sent to employees by a Google executive.

The requirement to come into the office three days a week started in April 2022, but many have simply ignored the requirements, with attendance being enforced in a spotty way depending on the manager and department.

--Chris Licht, who had a brief and chaotic run as the chairman of CNN, is out.

David Zaslav, the chief executive of CNN’s parent, Warner Bros. Discovery, informed staff on Wednesday morning that he had met with Licht and that he was leaving, effective immediately.

Licht’s 13-month run was marked by one controversy after another.  He got off to a bumpy start even before he had officially started when he oversaw the shuttering of the costly CNN+ streaming service at the request of its network’s new owners, who were skeptical about a stand-alone digital product.  The cuts resulted in scores of layoffs.

“For a number of reasons things didn’t work out, and that’s unfortunate,” Zaslav said, according to a recording of his remarks. “It’s really unfortunate, and ultimately that’s on me. And I take full responsibility for that.”

Ratings plummeted during Licht’s management amid a series of programming miscues, and then things deteriorated last week when The Atlantic published a 15,000-word profile extensively documenting Licht’s stormy tenure, including criticism of the network’s pandemic coverage that rankled the network’s rank-and-file.

The network generated $750 million in profit last year, including one-time losses from the CNN+ streaming service, down from $1.25 billion the year before.

--Chuck Todd is leaving “Meet the Press,” where he has served as moderator since 2014.  Todd, 51, said he was motivated by a desire to spend more time with his family and focus on long-form projects like documentary series and documentary dramas.  The baton is being passed to colleague Kristen Welker in September.

Foreign Affairs, Part II

China: The “biggest risk” in preventing China-U.S. relations from sliding into a conflict is the “pressing” task of bringing the Taiwan issue under control, Beijing’s top envoy to Washington said on Wednesday.

Amid growing optimism for a rescheduled, long-awaited visit by Secretary of State Antony Blinken to the Chinese capital, which could be next week, Xie Feng, China’s new ambassador, made the remarks in an address to U.S. business leaders.

“The Chinese side has always been open to dialogue,” Xie said.

China and the United States are at a “crossroads” between allowing their bilateral relationship to spiral downward further into confrontation and finding the right way to get along, Xie told the U.S.-China Business Council.

“A pressing task is to bring the Taiwan question, the biggest risk, under control,” Xie said.  “No one wants peaceful reunification more than China does. We are also the last that wants tensions or warfare across the Taiwan Strait.”

But such remarks come as the White House said on Monday that actions by China in the Taiwan Strait and South China Sea reflect a “growing aggressiveness” by Beijing’s military that raises the risk of an error where someone gets hurt.  The U.S. Navy on Sunday released a video of what it called an “unsafe interaction” in the Taiwan Strait, in which a Chinese warship crossed in front of a U.S. destroyer.

White House spokesman John Kirby said, “I sure would like to hear Beijing justify what they’re doing.”  Kirby said if Beijing wanted to deliver the message that the United States was not welcome in the area or that it wanted U.S. aircraft and vessels to stop flying and sailing in support of international law, that would not succeed.

Last weekend the U.S. and Canada conducted rare joint drills in the Taiwan Strait, at the same time U.S. and Chinese defense chiefs were attending a major regional summit in Singapore, which I wrote of last time.  Over the weekend, Defense Secretary Lloyd Austin rebuked China for refusing to hold military talks, leaving the superpowers deadlocked over Taiwan and territorial disputes in the South China Sea.

China’s Defense Minister Li Shangfu then used his speech in Singapore to attack U.S. strategy toward the Indo-Pacific, saying Washington is seeking to stoke confrontation through its support for Taiwan, military deployments and building alliances in the region.

And Li vowed that China would defend its interests – particularly over Taiwan.

“We will never hesitate to defend our legitimate rights and interests, let alone sacrificing the nation’s core interests,” Li said Sunday.  “As the lyrics of a well-known Chinese song goes, when friends visit us, we welcome them with fine wine.  When jackals or wolves come we will face them with shotguns.”

This is the real China. 

Pressed on what the U.S. called “unprofessional” and dangerous conduct toward the ship transit in the Taiwan Strait, Li pushed back, saying the vessels weren’t there “for innocent passage, they’re here for provocation.”

On Taiwan, Li said China’s position was clear: “Taiwan is an inalienable part of China. The Chinese government and the Chinese military will never tolerate any incident that could lead to a divided China.”

Secretary Austin said: “For responsible defense leaders, the right time to talk is anytime. The right time to talk is every time, and the right time to talk is now.

“And the more that we talk, the more we can avoid the misunderstandings and miscalculations that could lead to crisis or conflict.”

Austin said the U.S. network of friendly countries in Asia would defend against coercion, especially in the Taiwan Strait.

“To be clear, we do not seek conflict or confrontation, but we will not flinch in the face of bullying or coercion,” he said.

On Taiwan: “And we will continue to categorically oppose unilateral changes to the status quo from either side, and also highlight that conflict is neither imminent or inevitable.  Deterrence is strong today, and it’s our job to keep it that way.”

Senior Chinese Lieutenant General Jing Jianfeng lashed out at Austin on Saturday, accusing him of “seriously distorting the facts and truth” of Taiwan’s status.

Speaking in Singapore, Jing said: “The U.S.’ comments on Taiwan ignore the facts, distort the truth and are completely wrong.

“First, there’s only one China in the world, and Taiwan is a sacred and inalienable part of Chinese territory.

“Second, the one-China principle represents the consensus of the international community.

“Third, it is the common aspiration and sacred responsibility of all Chinese people, including our Taiwan compatriots, to complete the reunification of the motherland.”

Taiwan activated its defense systems on Thursday after reporting 37 Chinese military aircraft flying into the island’s air defense zone, some of which then flew into the western Pacific, in Beijing’s latest air incursion.

Lastly, the Wall Street Journal reported on Thursday that China has reached a secret deal with Cuba to place an electronic eavesdropping facility on the island roughly 100 miles from Florida, citing U.S. officials familiar with classified intelligence.

Such a facility would allow Beijing to gather electronic communications from the southeastern United States, which houses many U.S. military bases, as well as monitor ship traffic, the Journal reported.

China will pay Cuba “several billion dollars” to allow the eavesdropping station.  The agreement has caused alarm in the Biden administration, posing a new threat in the country’s back yard.

The intelligence on the plans for a Cuba station was gathered in recent weeks and was convincing, the Journal reported.  The officials said it would allow China to conduct signals intelligence including emails, phone calls and satellite transmission.  The U.S. Central Command headquarters is based in Tampa, Florida.  Fort Liberty, formerly Fort Bragg, the largest U.S. military base, is based in North Carolina.

The Pentagon and the White House denied the Journal’s report on the listening post.  Department of Defense spokesman Brig. Gen. Pat Ryder called the report “inaccurate” and that “we are not aware of China and Cuba developing any type of spy station.”

White House National Security Council spokesman John Kirby also cast doubt on the reports.  But Kirby said in an interview, regarding China’s influence activities around the world: “We’re watching this very, very closely. And we will and we have and will continue to take steps to mitigate any potential threat that those activities might pose so that we can make sure and we’re positive that we can continue to defend this nation.”

North Korea: Pyongyang’s admission to the World Health Organization’s executive board was met with condemnation from a majority of Western observers, but former president Donald Trump took a different tack.

“Congratulations to Kim Jung Un!” [sic] Trump wrote on Truth Social.

Nikki Haley responded: “Kim Jong Un starves his own people. It’s a total farce that North Korea has a leading role at the World Health Organization.”

Georgia Gov. Brian Kemp also derided Trump: “Taking our country back from Joe Biden does not start with congratulating North Korea’s murderous dictator,” he tweeted.

In a CNN interview last month, Trump’s former national security adviser John Bolton shed light on Trump’s thinking.

“Trump has the impression that foreign leaders – especially adversaries – hold him in good regard, that he’s got a good relationship with Xi Jinping, Vladimir Putin, Kim Jong Un. In fact, the exact opposite is true.  I have been in those rooms with him when he’s met with those leaders.  I believe they think he’s a laughing fool,” Bolton said.

Iran: International Atomic Energy Agency Director-General Rafael Grossi on Monday told the agency’s Board of Governors that Iran is only cooperating with a “fraction” of the nuclear inspection requirements he expected them to comply with under a deal between the sides made on March 4.

After detailing to the board some positive steps Iran had made in restoring some aspects of the agency’s nuclear monitoring, he said, “But this is a fraction of what we envisaged, and what needs to happen now is a sustained and uninterrupted process that leads to all the commitments contained in the Joint Statement being fulfilled without further delay.”

Grossi said “the Agency has not been able to perform verification and monitoring activities in relation to the production and inventory of centrifuges, rotors and bellows, heavy water and uranium ore concentrate [all materials related to nuclear weapons] for two and one quarter years, including the period after June 2022 when no surveillance and monitoring equipment related to the JCPOA was installed and operating.”

Meanwhile, Iran announced it had a hypersonic missile, claiming it can hit Mach 14 and fly 1,400km while maneuvering to “bypass the most advanced anti-ballistic missile systems of the United States and the Zionist regime, including Israel’s Iron Dome,” Iran’s state TV said.

Saudi Arabia: Secretary of State Antony Blinken had an “open, candid” conversation with Saudi Crown Prince Mohammed bin Salman on Wednesday in Jeddah, amid frayed ties due to deepening disagreements on everything from Iran policy to regional security issues, oil prices and human rights.

A U.S. official said the two met for an hour and 40 minutes, covering topics including Israel, the conflict in Yemen, and unrest in Sudan.

And there’s the issue of Riyadh’s growing relationship with China.  This weekend, Riyadh is hosting a major Arab-Chinese investment conference.

Poland: Hundreds of thousands of protesters gathered last weekend in Warsaw for one of Poland’s largest demonstrations since the fall of communism in 1989.

Most opposition parties have called on supporters to join the march against the nationalist Law and Justice party (PiS), led by Jaroslaw Kaczynski.

Among those who attended was former Prime Minister Donald Tusk, and former President Lech Walesa.

The PiS condemned the gathering as a “march of hate.”

A wide variety of issues brought protesters together, including frustrations over inflation, costs of living, and rights for women and LGBT.

Concerns have also been raised against a new law accused of undermining Poland’s democracy.

The law, criticized by the EU and the U.S., sets up a commission to investigate undue Russian influence in Polish politics, and has the power to ban people from assuming public office for 10 years.

The government denies it is subverting democracy and President Andrzej Duda has proposed amendments to remove these powers.

Random Musings

--Presidential approval ratings….

Gallup: 39% approve of Biden’s job performance, 57% disapprove; 33% of independents approve (May 1-24).

Rasmussen: 43% approve, 55% disapprove (June 9).

--Federal prosecutors had informed the legal team for Donald Trump that he was a target of their investigation into his handling of classified documents after he left office earlier in the week.

On Wednesday night, before word of the formal indictment, former vice president Mike Pence said that Trump should not be prosecuted over his handling of classified documents.

Pence said that “no one is above the law.”  However, he maintained that indicting Trump would be “terribly divisive to the country at a time when the American people are hurting.”

“This kind of action by the department of justice I think would only fuel further division in the country,” he said.

Some Republicans mocked Pence for his take on Trump’s legal troubles.  Another presidential candidate, Asa Hutchinson, tweeted that “the @GOP should clarify that there is no pledge to support a nominee if they are found guilty of espionage or a serious felony.”

--Chris Christie kicked off his campaign on Tuesday, accusing recent presidents of both parties of “dividing us” with the intention of locking people into their ideological tribes. He referred to leaders that do that as “pretenders” who want to “divide you further and to make it easier” for the country to be “dominated by a single leader.”

Christie made it clear who will be in his crosshairs.

“Well, let me be clear, in case I have not been already, the person I am talking about who is obsessed with the mirror. Who never admits a mistake. Who never admits a fault at all, and who finds someone else and something else to blame for whatever goes wrong, but finds every reason to take credit for anything that goes right is Donald Trump,” Christie said.

He concluded Trump is in “the last throes of a bitter, angry man who wants power back for himself” and pitched himself as a sometimes flawed person, but somebody who would say it as it is.

--While some of us want to see Christie on the debate stage, Republican presidential candidates will need to meet polling and fundraising requirements and agree to back the eventual nominee to join the first primary debate on Aug. 23, and the requirements are pretty stringent.

The Republican National Committee is requiring at least 1% support in three RNC-recognized national polls or 1% in two national polls and 1% in a poll covering two of the early-voting states of Iowa, New Hampshire, Nevada and South Carolina after July 1 and no later than 48 hours prior to the first debate.

What could be a problem for candidates like Christie, however, is candidates must also have a minimum of 40,000 unique donors with at least 200 unique in each of 20 or more states and territories plus sign pledges to share data with the RNC, to support the eventual nominee and not to participate in any debates not sanctioned by the party.

It’s that 200 unique donors in 20 or more states that could be a hurdle.

Editorial / Wall Street Journal

“Mr. Christie’s job No. 1 is to get a hearing. The first GOP debate is scheduled for August, (and the RNC) says candidates who want to participate (must meet the above requirements).  Assuming he pulls that off, Mr. Christie might need to goad Mr. Trump into showing up. If the former President is still leading the polls by 30 points, he might try to skip. We doubt Mr. Christie will let him get away with it.”

--Chris Sununu, governor of New Hampshire who opted not to run for the GOP nomination in 2024, had some of the following thoughts in a Washington Post op-ed:

“In 2024, millennials and Gen Zers will be a significant voting bloc. Republicans must not cede this ground.  Too often, we have terrible messengers who are focused on the wrong issues.  Instead of pushing deeply unpopular and restrictive nationwide abortion bans, Republicans should recognize that every time they open their mouths to talk about banning abortion, an independent voter joins the Democrats.

“We need to expand beyond the culture wars that alienate independents, young voters and suburban moms.  Republicans must offer an optimistic blueprint to prioritize issues that connect with these voters – addressing the homelessness crisis, imposing fiscal responsibility, reducing inflation, securing our borders, becoming energy independent – all while championing their personal freedoms, before they permanently move away from the Republican Party.

“No one can stop candidates from entering this race, but candidates with no path to victory must have the discipline to get out. Anyone polling in the low single digits by this winter needs to have the courage to hang it up and head home.

“Too many other candidates who have entered this race are simply running to be Trump’s vice president.  That’s not leadership; that’s weakness. Too many candidates are afraid to confront Trump, surrendering to his attacks. I will have more credibility speaking out against Trump as a non-candidate to help move the conversation toward the future I believe the Republican Party should embrace.”

--The Supreme Court on Thursday issued a surprise 5-4 ruling in favor of Black voters in a congressional redistricting case from Alabama, two conservative justices joining liberals in rejecting a Republican-led effort to weaken a landmark voting rights law.

Chief Justice John Roberts and Justice Brett Kavanaugh aligned with the court’s liberals in affirming a lower court ruling that found a likely violation of the Voting Rights Act in an Alabama congressional map with one majority Black seat out of seven districts in a state where more than one in four residents is Black. The state now will have to draw a new map for next year’s elections.

Because of the ruling, new maps are likely in Alabama and Louisiana that could allow Democratic-leaning Black voters to elect their preferred candidates in two more congressional districts, a huge deal when it comes to control of the House of Representatives given the existing narrow margin.

The outcome was unexpected in that the court had allowed the challenged Alabama map to be used for the 2022 elections.

--Religious broadcaster Pat Robertson died.  He was 93.

Robertson turned a tiny Virginia television station into the global Christian Broadcasting Network, tried a run for president and helped make religion central to Republican Party politics through his Christian Coalition.

For more than a half-century, Robertson was a familiar presence in American living rooms, known for his “700 Club” television show, and in later years, his televised pronouncements of God’s judgment on America for everything from homosexuality to the teaching of evolution.

The money poured in and his influence soared, leading to him seeking the GOP presidential nomination in 1988.

Robertson pioneered a now-common strategy of courting Iowa’s network of evangelical Christian churches, and finished in second place in the Iowa caucuses, ahead of Vice President George H.W. Bush.

As the Associated Press reported: “At the time, Jeffrey K. Hadden, a University of Virginia sociologist and a Robertson biographer, said Robertson’s masterstroke was insisting that three million followers across the U.S. sign petitions before he would decide to run.  The tactic gave him an army.

“ ‘He asked people to pledge that they’d work for him, pray for him and give him money,’ Hadded told the AP in 1988.  ‘Political historians may view it as one of the most ingenious things a candidate ever did.’”

Robertson later endorsed Bush, who won the presidency.  And all these years later, you see what the big Republican field for 2024 is doing…courting Iowa’s evangelicals.

--On Wednesday, my state of New Jersey had its worst air quality in at least 43 years (ditto New York City), blowing away previous marks and nearly maxing out the index used to track pollution.

We are all suddenly looking at AirNow.gov for readings.

The worst previous air quality day came on July 21, 1980 – the earliest year for which federal data is available – when the index topped out at 286, on a scale of 0 to 500.

By 4 p.m., Hillsborough, about 40 minutes from yours truly, reported an air quality index of 486.  My county saw a high of 476.  Anything above 300 is considered “hazardous,” meaning everyone should stay inside, according to the EPA.

Thankfully, it was better on Thursday, and much better Friday.  But we’re worried this is the new normal for this summer as long as the fires rage in the Great White North (Canada); one or two days a week where your home and neighborhood smells like a campfire…and worse.

--In Canada some of the biggest fires are breaking out in the boreal forests of the Northern Hemisphere, which is because the Arctic region has warmed nearly four times faster than the rest of the world, said Carly Phillips of the Union of Concerned Scientists.

In the boreal areas – mostly conifer forests with long winters and short summers – of Canada and Alaska, she said the annual area burned has nearly doubled in the past 60 years, along with an increase in the frequency of large fires.  Russia’s vast Siberian forests have been consumed by giant fires, too.  Phillips said this year’s outbreak, while unprecedented in size, is just following the trend.

Nathan Gillett, a research scientists for Environment and Climate Change Canada, has published several studies on the link between a warming climate and the risk of wildfire.  He said he’s concerned but not surprised about the fires currently burning across Canada.

“The acreage burnt is more than 10 times the average,” Gillett said.  “But it is consistent with long-term trends that we are already seeing and projecting.”

The U.S West, in the meantime, is experiencing a slow start to its fire season after an unusually wet winter and cool spring.

Half of forest fires are caused by humans, mostly accidental such as from campfires, while the other half are ignited by lightning strikes, said Piyush Jain, an adjunct professor at the University of Alberta in Edmonton, and a research scientist at the Canadian Forest Service.  “Overlaying all of that is climate,” he said. 

He added that last month was the hottest May on record in western Canada.

As of Wednesday, Canadian authorities said there are roughly 414 wildfires burning across the country, with 239 deemed out of control. [Wall Street Journal]

--Editorial / Wall Street Journal

“(Global CO2 emissions will) rise for decades owing to growing coal production in India and China. Another inconvenient truth is that government policies to reduce CO2 emissions will be swamped by wildfire emissions.

“University of California researchers last year calculated that wildfire emissions in 2020 were two times higher than the state’s greenhouse gas reductions from 2003 to 2019.  California wildfires in 2020 were the state’s second largest source of CO2 emissions after transportation and generated double the greenhouse gases of all the state’s power plants.

“Another study this spring in the journal Science estimated that burning boreal forests in North America and Eurasia in 2021 released 1.76 billion tons of CO2, nearly twice as much as global aviation that year. That’s also more than four times New York State’s annual emissions and about three times as much as the Inflation Reduction Act’s projected reductions in 2030.

“Government land management policies that prevent wildfires from spreading out of control, such as prescribed burns, would reduce CO2 emissions more than offshore wind or electric-vehicle mandates.  Alas, this doesn’t fit with the climate left’s book of Revelation.”

--Robert Hanssen, a former FBI agent who took more than $1.4 million in cash and diamonds to trade secrets with Russia and the Soviet Union in one of the most notorious spying cases in American history, died in prison Monday.  He was 79.

--I went to post last Friday as the story of the Indian train catastrophe was breaking.  The final death toll was at least 275, a figure revised down slightly after some bodies had been counted twice.  Nearly 1,200 were injured, but as of Sunday, just a few were in critical condition.

The cause was one train, the Coromandel Express, heading to Chennai from Kolkata, moved off the main track and entered a loop track at 80 mph, when it crashed into a parked freight train loaded with steel on the same track.  That crash caused the first four or five coaches of the Coromandel Express to jump the tracks, topple and hit the last two coaches of another train heading in the opposite direction at 80 mph. 

The probe is focused on the computer-controlled track management system, which had to have malfunctioned, allowing the Coromandel Express to take the loop track.

--The Wall Street Journal reported today that “Homicides in some of America’s largest cities are falling after soaring during the first two years of the pandemic.

“So far this year, killings are down 12% overall in nine of the 10 most populous cities compared with the same time frame last year, according to local government data.

“Homicides are down in six of those cities, including 27% in Los Angeles, 22% in Houston, and 16% in Philadelphia.  In Texas, the cities of Dallas, San Antonio and Austin reported slight upticks.”

The FBI isn’t expected to release national crime figures for 2022 until later this year.  Murders rose 4% in 2021 after spiking by nearly 30% in 2020, according to the agency’s most recent data.

--Monsoon rains have reached India’s southernmost Kerala state on Thursday, after a delay of more than a week, marking its latest arrival in four years.  But relief to farmers.

The monsoon is the lifeblood of India’s $3 trillion economy, delivering nearly 70% of the rain needed to water its farms and recharge reservoirs and aquifers.  It also brings relief from the worst of the hot weather.

In the absence of irrigation systems, nearly half of India’s farmland depends on the June-September rains and their late arrival could delay the planting of rice, cotton, corn, soybean and sugar cane, traders said.

But with the probable formation of an El Nino weather phenomenon, India has sometimes suffered severe droughts in El Nino years.

And that, boys and girls, is your India weather update.

--Pope Francis was doing “well” after undergoing abdominal surgery Wednesday.  The pope was expected to take “5-7 days” to recover. Once his recovery was complete, the pope was not expected to have any limitations on his travels or other activities, the doctor told reporters, saying Francis had no other illnesses.

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Gold $1975
Oil $70.32

Regular Gas: $3.58; Diesel: $3.91 [$4.97 / $5.74 yr. ago…as we neared record highs set one week later.]

Returns for the week 6/5-6/9

Dow Jones  +0.3%  [33876]
S&P 500  +0.4%  [4298]
S&P MidCap  +1.5%
Russell 2000  +1.9%
Nasdaq  +0.1%  [13259]

Returns for the period 1/1/23-6/9/23

Dow Jones  +2.2%
S&P 500  +12.0%
S&P MidCap  +4.6%
Russell 2000  +5.9%
Nasdaq  +26.7%

Bulls 47.9
Bears 23.3…no update this week.

Hang in there.

Brian Trumbore

***I will likely be posting a midweek review late next Wednesday evening, as I will be traveling all Thursday and out of pocket Friday.  I will add in market returns and another comment or two next Saturday morning.  At least that’s the plan.

 

 

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