Week in Review

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Week in Review

11/30/2024

For the week 11/25-11/29

[Posted 1:30 PM ET, Friday]

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Edition 1,336

I hope you all had a good Thanksgiving.  I have to admit, I was here working, though catching some sports, and I did have the parade and dog show on in the background at times.  [I love the dog agility test...if that doesn’t put a smile on your face, I don’t know what will.]

But while we all give thanks for our many blessings here in America, I hope some of you thought about Ukraine, and the fate of Europe, as well as praying the cease-fire holds in Lebanon.

While I cover these topics in detail, I can’t help but open with a tidbit from across the pond.

A top military official at NATO warned Europe’s “businesses need to be prepared for a wartime scenario and adjust their production and distribution lines accordingly,” NATO Military Committee Chief Dutch Admiral Rob Bauer said Monday in Brussels. “While it may be the military who wins battles, it’s the economies that win wars,” he said.  “If we can make sure that all crucial services and goods can be delivered no matter what, then that is a key part of our deterrence,” Bauer said.

Referring to China and Russia, “Business leaders in Europe and America need to realize that the commercial decisions they make have strategic consequences for the security of their nation,” the admiral said.  [Defense One]

Today, Vladimir Putin threatened to use Russia’s new ballistic missile, Oreshnik, to turn “decision-making centers” in Kyiv into “dust.” Putin said Oreshnik was “comparable in strength to a nuclear strike.”

Vlad the Impaler continues to launch wave after wave of attacks on Ukraine’s energy system.

Pure evil.

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Israel-Hezbollah

--Monday, the Israeli ambassador to the U.S., Michael Herzog, told Israel’s Army Radio, “We are close to a deal.  It could happen within days.”

On Sunday, Hezbollah fired at least 250 rockets and drones into Israel, wounding several people, while the Israeli air force struck targets in Lebanon.

Saturday, a massive Israeli air strike on central Beirut killed at least 20 people, Lebanese official said.  Israeli media reported it was an attempt to assassinate a senior Hezbollah official.  The attack was heard and felt across the city, destroying at least one eight-story residential building in the densely populated Basta district.

Air strikes in the east of the country killed at least 15 people in the city of Baalbek, including four children, the Lebanese health ministry said.

Over the weekend, at least 36 people were killed in Israeli air strikes on residential buildings and an industrial area in the central Syrian town of Palmyra, Syrian state media reported.

A UK-based monitoring group, the normally reliable Syrian Observatory for Human Rights, reported that the strikes hit a weapons depot and other locations in and around an area where families of Iran-backed militia fighters were, killing 68 Syrian and foreign fighters (revising its earlier estimate).  The Israeli military (IDF) did not comment on the foreign reports.

Israel has been striking smuggling routes between Syria and Lebanon that were used to deliver weapons from Iran to Hezbollah.

--Tuesday, Israel’s security cabinet met to discuss a potential 60-day cease-fire deal with Hezbollah.

Israel launched extensive air strikes on Beirut’s southern suburbs after the IDF issued evacuation orders for entire towns in southern Lebanon.

--So then Tuesday night, Prime Minister Benjamin Netanyahu put his weight behind the cease-fire proposal, mediated by U.S. and French diplomats, that would suspend fighting between Israel and Hezbollah after more than a year of conflict.

“The length of the cease-fire will depend on what happens in Lebanon,” Netanyahu said in a televised address.  “With the full understanding of the United States, we are preserving full military freedom of action – if Hezbollah breaks the agreement and seeks to arm itself, we will attack.”

Netanyahu urged Israeli ministers to accept the deal, saying there were three main reasons to support it.  A cease-fire, he said, would allow Israel to focus on Iran, which backs Hezbollah and Hamas: give the Israeli military an opportunity to rebuild its stockpiles; and isolate Hamas.

Lebanon’s government, which does not control Hezbollah but whose approval is also essential for the deal to move forward, then met to discuss the agreement.

The cease-fire proposal starts a 60-day process during which both sides would stop fighting and withdraw from southern Lebanon.  Israeli forces would return south of the Israel-Lebanon border, while Hezbollah would retreat north of the Litani River (about 30 kilometers, 19 miles, away from the Israeli border), allowing the Lebanese Army – which is not a combatant in the Israel-Hezbollah conflict – to fill the vacuum.

But many questions remained, such as how the Lebanese Army would exert authority over the powerful militia.

The cease-fire deal went into effect early Wednesday, offering both sides an off-ramp from the hostilities that have driven more than 1.2 million Lebanese and 60,000 Israelis from their homes.

The intense bombing campaign by Israel has left more than 3,700 dead, many of them civilians, Lebanese officials said.  Over 130 people have been killed on the Israeli side.

But while the deal could significantly calm the tensions that have inflamed the region, it does not directly resolve the deadlier war in Gaza.

Hezbollah, which began firing scores of rockets into Israel the day after Hamas’ Oct. 7 massacre of Israelis, had previously said it would keep fighting until there was a stop to the fighting in Gaza.  With the new cease-fire, it has backed away from that pledge, in effect leaving Hamas isolated and fighting a war alone.

Aside from a stepped-up presence of Lebanese Army soldiers in southern Lebanon, under the deal UN peacekeepers are to deploy to the region south of the Litani River.  The U.S. will lead a commission to monitor the cease-fire in the south.

Hezbollah said the group’s support for the deal hinged on clarity that Israel would not renew its attacks.  An official for the group said, “We want an end to the aggression, of course, but not at the expense of the sovereignty of the state” of Lebanon.

The European Union’s top diplomat, Josep Borrell, said Tuesday that Israel’s security concerns had been addressed in the deal.

For all the damage Israel inflicted on Hezbollah, including the killing of top leader, Hassan Nasrallah, most of his senior commanders and the destruction of extensive militant infrastructure, its fighters still managed to put up heavy resistance on the ground, slowing Israel’s advance while continuing to fire scores of rockets, missiles and drones across the border each day.

The ceasefire offers relief to both sides, giving Israel’s overstretched army a break and allowing Hezbollah leaders to tout the group’s effectiveness in holding their ground despite Israel’s massive weaponry.

But the group faces a reckoning, with many Lebanese accusing it of tying their country’s fate to Gaza’s at the service of key ally Iran, as well as inflicting great damage on a Lebanese economy already in deep trouble before the conflict.

--Wednesday morning, Lebanon’s highways were jammed with people returning to their homes, Lebanon’s caretaker cabinet meeting to formally approve the deal with Israel.

--The Lebanese Army said on Thursday that it had moved troops into Hezbollah strongholds outside Beirut and the country’s south and east to pave the way for people to return, while Israel’s military said its fighter jets struck a Hezbollah site in the south and warned Lebanese civilians not to come back to villages near the border yet.

--As for Hamas, it is likely to continue to demand a lasting truce and a full Israeli withdrawal from Gaza, while Netanyahu on Tuesday reiterated his pledge to continue the war until Hamas is destroyed and all hostages are freed.

--Editorial / Wall Street Journal

“The (cease-fire) deal is no panacea, and it may prove fragile.  Some fighting could restart as Hezbollah tries to rearm in southern Lebanon. The Lebanese Armed Forces have agreed to prevent that, with a U.S.-led committee adjudicating compliance.  But behind these polite fictions and paper commitments lies the real achievement of the war: a change in the balance of power.

“Hezbollah had been deterring Israel.  Even as the terrorists expanded their arsenal, fired on northern Israeli towns and ultimately forced more than 60,000 Israelis from their homes, Israel feared escalation.  Hezbollah might launch thousands of missiles a day and topple buildings in Tel Aviv.  The threat of an Oct. 7-style raid on the Galilee loomed.

“But once Israel took the initiative with air strikes and daring sabotage, Hezbollah couldn’t deliver on its threats.  Israel suffered little damage after it killed Hezbollah’s leader, Hassan Nasrallah, and tore through its chain of command.  Israel lost 80 soldiers, but the ground invasion cleared weapons stores and tunnels in the border villages.

“ ‘Only three months ago, this all would have sounded like science fiction,’ Prime Minister Benjamin Netanyahu said Tuesday.  His former defense minister, Israel’s military leadership and the Biden Administration had all pushed for a deal before the escalation, with Hezbollah at the height of its power.  ‘This is no longer the same Hezbollah,’ Mr. Netanyahu said.  ‘We set it back decades.’

“The test of the cease-fire isn’t whether Hezbollah is finished.  It isn’t.  Unlike in Gaza, whose borders Israel could surround, Israel’s objectives in Lebanon were limited. The test is whether Israelis return to their homes in the north....

“The agreement is unpopular among the Israeli government’s supporters and is a political gamble for Mr. Netanyahu.  Yet he brought along his right-wing partners, in defiance of their base.  Meanwhile, the moderate opposition leaders preferred by President Biden now call the cease-fire a sellout.

“If the deal survives the 60-day transition period, Israel will be able to greet the second Trump Presidency with Iran newly vulnerable, Hamas isolated in Gaza, and a major diplomatic opportunity for a deal with Saudi Arabia.  Second-guessed at every point, Israel has fought through to its strongest strategic position in at least a decade.”

--The World Bank estimates the cost of the war in Lebanon at $8.5 billion in damage and economic losses, with entire villages razed in the south.

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Russia-Ukraine

--Russia launched its largest-ever number of drones, 188, against most regions of Ukraine overnight Monday into Tuesday morning, Ukraine’s air force said.

Most of the drones were intercepted, but apartment buildings and critical infrastructure such as the national power grid were damaged.  No casualties were immediately reported in the 17 targeted regions.

Meanwhile, the Russian Defense Ministry issued a rare official acknowledgement of its assets recently being hit on its own soil by U.S.-made ATACMS missiles, after President Biden authorized Ukraine to use the longer-range weapons to strike deeper inside Russia.

Russia has been hammering civilian areas of Ukraine with increasingly heavy drone, missile and glide bomb attacks since the middle of the year.

And at the same time, Russia’s army has been gaining ground for the past year and has been pushing hard in the eastern Donetsk region.

Ukraine faces a very difficult winter, with concerns about the reliability of the electricity supply amid Russia’s attacks and how much U.S. support it can count on when Donald Trump takes office in January.

The Russian Defense Ministry said five U.S.-made ATACMS were fired at one of its air defense missile systems in the Kursk border region on Saturday.

It said three of the missiles were downed by a short-range air defense system protecting the position but that two other missiles hit, injuring an unspecified number of servicemen and damaging the system’s radar.

In another attack with ATACMS on Monday, eight of the missiles were launched at the Kursk-Vostochny military air base near Khalino.  Seven of them were shot down and one hit the facility, injuring two servicemen and causing minor damage, the ministry said.

President Zelensky said that each Iranian Shahed drone has 85 foreign components and that Russia obtained them by circumventing international sanctions.  He said on the Telegram messaging app that “we need more joint effort so that the sanctions work and force Russia to stop this war.”

A drone attack early Monday morning caused at least 23 casualties in Kharkiv, according to President Zelensky, with ten different regions being targeted. Odesa’s emergencies department said 10 people had been injured in a missile attack, which damaged residential buildings, schools and a university sports hall.

--The Ukrainian military said that overnight Sunday they struck an oil depot in Kaluga region southeast of Moscow with drones.

Russian military bloggers said that an air base in Kursk region had been struck in an attack by eight U.S.-supplied ATACMS.

--Russia conducted another “massive” attack against Ukraine’s energy infrastructure on Thursday, firing nearly 200 missiles and drones and leaving more than a million households without power, Ukrainian officials said.

In the Lviv region, as many as 523,000 homes and businesses are without electricity, according to the regional head.

Ukrainian officials have been warning for some time that Russia has been stockpiling cruise and ballistic missiles to launch country-wide attacks on the energy system.

Russia’s second major aerial attack on Ukraine’s power grid in days, third in two weeks, amplified fears that the Kremlin aims to cripple the country’s power generation capacity as winter sets in.  For example, the long-range forecast in Kyiv shows a daily high of 30-35 degrees for weeks to come, let alone nightly temperatures in the 20s.

In some regions, Kalibr cruise missiles with cluster munitions smashed into civilian targets, President Zelensky said, calling it “an insidious escalation.”  Cluster munitions release numerous small bombs over a wide area, making them dangerous to civilians both during and after an attack.

Around half of Ukraine’s energy infrastructure has been destroyed during the almost three years of war with Russia and rolling electricity blackouts are common.

It’s not just the denial of heat for the civilians, but also drinking water supplies.  And the attacks seek to hobble Ukraine’s defense industry that is now producing missiles, drones and armored vehicles, among other military assets.

--Ukraine’s General Staff said Tuesday that over the past 24 hours roughly half of the clashes along the 1,000-kilometer (600 mile) front line occurred near Pokrovsk and Kurakhove in the Donetsk region.

The Washington-based Institute for the Study of War reported last Sunday that Russia’s invasion forces are “advancing at a significantly quicker rate than they did in the entirety of 2023, especially around Vuhledar and Velyka Novosilka in Donetsk.

The ISW forecast that Russia could achieve “its longstanding objective to seize all of Donetsk Oblast.”

According to alleged Russian documents viewed by Ukrainian intelligence, Russia’s military may be trying to split Ukraine into at least different parts.  The ISW says this includes:

“One, acknowledging the full Russian annexation of occupied Luhansk, Donetsk, Zaporizhia, and Kherson oblasts and occupied Crimea”;

“another establishing a pro-Russian puppet state centered in Kyiv under Russian military occupation”;

“and a third part designating Ukraine’s western regions as ‘disputed territories’ to be divided among Ukraine’s westernmost neighboring countries.”  [Defense One]

--The Financial Times reported that Russia has lured “hundreds” of men from Yemen to fight in Ukraine.  The men were reportedly promised jobs in “security” and “engineering,” and then forcibly inducted into the Russian army and sent to the front lines.

The FT writes that his now means Russia has employed North Koreans, Yemenis, as well as “mercenaries from Nepal and India” for its invasion of Ukraine.

--In Russia’s Kursk region, north of Sumy, Ukraine, the Russian assaults are said to be so intense that “their infantrymen sometimes step on the bodies of fallen comrades, according to Ukrainian soldiers opposing from there,” as reported by the Wall Street Journal.

The Journal added: “The battle for control of (Kursk) has reached an intensity rarely seen during 2 ½ years of war, as each side tries to strengthen its position before President-elect Donald Trump, who wants both sides to negotiate, takes office in January.”

Moscow has deployed some 45,000 troops to the region, according to Ukrainian officials, including some of its best forces in endless waves.  And despite enormous casualties, “the strategy appears to be working: In recent weeks, Russia has retaken nearly half the territory that Ukraine seized during its August incursion. Analysts say Russia may be planning an even bigger offensive there.”

Ukraine also sent some of its best forces to Kursk, and the ability to use the long-range ATACMS has helped to disrupt Russian supply lines.

--President Putin, a day after his country fired a new ballistic missile at the Ukrainian city of Dnipro last week, said his country has a stockpile of the “Oreshnik missile” that could not be intercepted (U.S. experts dispute this last bit), with Putin vowing to carry out more tests, including in “combat conditions.”

President Zelensky has asked the West for updated air defense systems.

Kyiv is seeking to obtain the U.S. Terminal High Altitude Area Defense (THAAD) or to upgrade its Patriot anti-ballistic missile defense systems.

Last weekend, in an unscheduled TV address, Putin said the Oreshnik hypersonic missiles flew at 10 times the speed of sound and ordered them to be put into production.

A week ago, Thursday, when Dnipro was struck with the Oreshnik, eyewitnesses said it triggered explosions that went on for three hours.

The attack included a strike by a missile so powerful that in the aftermath Ukrainian officials said it resembled an intercontinental ballistic missile (ICBM), but was likely an intermediate-range weapon.

The Pentagon said Oreshnik is based on the “RS-26 Rubezh” ICBM.  It can have three to six warheads, which video showed as the case when it hit multiple locations in Dnipro.  These looked to be multiple independently guided warheads.  A Russian military expert, Anatoly Matviychuk, said Oreshnik could carry six to eight conventional or nuclear warheads.

--President-elect Trump said Keith Kellogg, a retired general who served in his first administration, would be his special envoy to Russia and Ukraine, a new position.

--A Boeing 737-400 DHL cargo plane crashed upon landing in Lithuania, killing one Spanish crew member and injuring three others on board, authorities in Vilnius said Monday.  The crash was notable as it occurred three weeks after European authorities publicly alleged Russian operatives appear to have been behind at least two apparent bomb plots this summer targeting DHL cargo planes flying to the U.S. and Canada.

The plane had departed Leipzig, Germany, for a 5:30 a.m. arrival Monday morning.  Leipzig is also one of the locations where an incendiary device exploded over the summer, raising suspicion among European and U.S. authorities.

Lithuania’s aviation authority said: “The pilots until the very last second did not tell the tower of any extraordinary event.”

One witness told Reuters, “The right wing of the plane turned down before it crashed, as if it was trying to turn,” and “There was something shiny coming out of the right side of the plane, like sparks or a flame, before it hit the ground.”

--A Chinese commercial vessel was surrounded by European warships in international waters for a week as it is central to an investigation of suspected sabotage that threatens to test the limits of maritime law – and heighten tensions between Beijing and European capital.

Investigators suspect that the crew of the Yi Peng 3 bulk carrier, loaded with Russian fertilizer, deliberately severed two critical data cables last week as its anchor was dragged along the Baltic seabed for over 100 miles.

But the reason why I have this update to the story in this space is because the probe is now centered on whether the captain of the Chinese-owned ship, which departed the Russian Baltic port of Ust-Luga on Nov. 15, was induced by Russian intelligence to carry out the sabotage.  This would be the latest in a series of attacks on Europe’s critical infrastructure that law-enforcement and intelligence officials say have been orchestrated by Russia.

“It’s extremely unlikely that the captain would not have noticed that his ship dropped and dragged its anchor, losing speed for hours and cutting cables on the way,” said a senior European investigator involved in the case.

As always, Russia denies any wrongdoing.

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Wall Street and the Economy

Prior to a slew of economic reports, President-elect Trump threatened to impose sweeping new tariffs on Mexico, Canada, and China on his first day in office.

All three are the top three suppliers of imports to the U.S., but Trump said he would impose a 25% tax on all products entering the country from Canada and Mexico, and an additional 10% tariff on goods from China, as one of his first executive orders.  He said the new tariffs would remain in place “until such time as Drugs, in particular Fentanyl, and all illegal Aliens stop this invasion of our Country!”  The tariffs, if implemented, could dramatically raise prices for American consumers on everything from gas to automobiles to agricultural products.

But it is unclear whether Trump will actually go through with the threats or if he is using them as a negotiating tactic before he returns to the White House.  The Chinese Embassy in Washington cautioned on Monday that there will be losers on all sides if there is a trade war.

Mexico’s President Claudia Sheinbaum responded angrily Tuesday to Trump’s pledge, making clear that Mexico was prepared to respond with its own tariffs.

“President Trump, it isn’t with threats or tariffs that we resolve the migratory phenomenon or the abuse of drugs in the United States,” Sheinbaum said at her morning news conference, reading a letter she had written to Trump. “What’s needed to confront these great challenges is cooperation and understanding.”

She also blamed the U.S. for contributing to the narco violence that has riddled the country for more than two decades.  Around 70 percent of the weapons captured in Mexico are U.S.-made, she said.

Canadian Prime Minister Justin Trudeau said Tuesday he had talked to Trump and talked about some of the challenges the countries could work through together.  “We obviously talked about laying out the facts,” he told reporters.  “Talking about how the intense and effective connections between our two countries flow back and forth. We talked about some of the challenges that we can work on together.”

Others in Canada reacted with greater worry.  Perrin Beatty, former head of the Canadian Chamber of Commerce, said, “We need to recognize that it’s not going to be business as usual.  We have a president who, instead of seeing this as being the special relationship between Canada and the United States, sees the relationship much more on a transactional basis.”

Wednesday, President-elect Trump then said that he has received assurances from President Sheinbaum that she will “stop migration” through her country and into the U.S.

“Just had a wonderful conversation with the new President of Mexico, Claudia Sheinbaum Pardo,” Trump wrote on Truth Social.

“She has agreed to stop Migration through Mexico, and into the United States, effectively closing our Southern Border,” he added.

Trump also noted that he and Sheinbaum also discussed illegal drugs coming into the U.S. during their “very productive conversation.”

“We also talked about what can be done to stop the massive drug inflow into the United States, and also, U.S. consumption of these drugs,” he wrote.

In a social media post, Sheinbaum confirmed that she informed Trump that migrant caravans racing to the U.S. border “are being taken care of.”

“I had an excellent conversation with President Donald Trump,” Sheinbaum wrote on X.

“We discussed Mexico’s strategy on the migration phenomenon and I shared that caravans are not arriving at the northern border because they are being taken care of in Mexico.

“We also discussed strengthening collaboration on security issues within the framework of our sovereignty and the campaign we are carrying out in the country to prevent the consumption of fentanyl,” she added.

So before the key data on the personal consumption expenditures index (PCE) Wednesday, Barron’s had an interview with John Williams, President of the New York Fed and a permanent voting member on the Open Market Committee, in the weekend edition, and when asked about the current economic landscape, Williams replied:

“Economic growth has been very good.  At the same time, we’ve seen a pretty steady cooling of the labor market.  We’re seeing inflation steadily come down from its very high levels.  We’re probably around 2.25% on PCE inflation over the past year – so, a significant decline in inflation toward our 2% goal.  Obviously, we’re not quite there yet.  The big story here is, how do you get strong growth, a cooling labor market, [and] inflation coming down all at the same time?

“I expect (GDP) for the year to probably be around 2.5%, or maybe a little higher. I expect the labor market to continue where it is, and maybe [show] a little further cooling.  The current unemployment rate is 4.1% [in October].  Maybe it will get up to 4.25%.  And I expect inflation to continue to gradually come down. I’m expecting the inflation rate to be around 2.25% for the full year.”

Williams has similar projections on growth and the unemployment rate for 2025, with “the disinflationary process” continuing.  “Inflation has also come down in countries around the world, and that’s a good factor for restraining our input-price inflation.  Wage inflation has come down quite a bit.  I would expect [the decline in inflation] to continue.”

On the direction of the fed-funds rate next year, Williams said:

“I expect it will be appropriate, over time, to bring the fed-funds rate down closer to more-normal or neutral levels... What is normal?  The honest answer is, we don’t know.”

On the risk of inflation reaccelerating next year, Williams offered:

“There are a lot of factors that could cause inflation to move in ways that are different than we currently expect.  If there were factors that would cause inflation to sail a little higher than I currently expect, then that would guide the policy decisions.  We’re pretty well positioned for risks.  If inflation stays higher than I expect, we can slow the pace of normalization.  If inflation comes down more quickly, or the economy slows more than is consistent with maximum employment, then we have plenty of room to adjust to that.”

Tuesday, we had the minutes of the Federal Open Market Committee’s meeting ended Nov. 7, and Fed officials indicated broad support for a careful approach to future interest-rate cuts as the economy remains solid and inflation slowly cools.

“Participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2% and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” the minutes read.

Fed Chair Jerome Powell said earlier in the month that the economy is not sending signals policymakers need to be in a hurry to lower rates.

Ergo, sports fans, it remains all about the data, and we got the bulk of it Wednesday morning, with the October PCE exactly as expected, 0.2%, 2.3% year-over-year on headline (which is what John Williams was referring to), but more importantly, 0.3%, 2.8% Y/Y on core, ex-food and energy.

And the 2.3% and 2.8% figures, while what the Street forecast, were above the 2.1% and 2.7% prior numbers.  And not the Fed’s targeted 2%, so further evidence inflation is sticky.

Because the figures were as expected, however, the bond market did little, initially, and then rallied further as it still largely expects the Fed to cut rates again come the Dec. 17-18 meeting, but we still have another CPI and jobs report for the Fed to chew on before then. 

As for the other data for the week, we had a second look at third-quarter GDP, and it was unchanged at 2.8%.

Personal income for October was twice the anticipated pace, 0.6%, while consumption was as expected, 0.4%.

October durable goods were less than forecast, 0.2%, 0.1% ex-transportation.

October new home sales were far less than the Street expected, a 610,000 annualized pace vs. consensus of 725,000.

The Case-Shiller Home Price Index for September was up 0.2% on the 20-city index, and 4.6% year-over-year, which was vs. 5.2% prior.

And the November Chicago PMI, a look at manufacturing, was once again putrid, 40.2, 50 the dividing line between growth and contraction.

The Atlanta Fed’s GDPNow barometer for fourth quarter growth is at 2.7%.

Freddie Mac’s 30-year fixed-rate mortgage is 6.81%, down a few ticks from last week, and should be lower still next week given the rally in the 10-year Treasury.

Back to the potential tariffs....

Jason Douglas, Anthony Harrup and Jose de Cordoba / Wall Street Journal

“Donald Trump’s new tariff pledges send a clear signal that he wants to rewrite the terms of North America’s free-trade pact and follow through with plans to hit China with tariffs, demonstrating to allies and adversaries alike that he is serious about renewing confrontation over a global trading system that he believes costs the U.S. dearly....

“The major question is whether the threats are a negotiating ploy to wring concessions on trade and other policy priorities from U.S. trading partners, or the start of a sustained campaign to reshape global trade and the American economy.

“Either way, foreign leaders, business executives and economists are bracing for fresh disruption to a world economy that has just emerged from a searing encounter with high inflation and rocketing interest rates, as well as continued friction over trade....

“On the campaign trail, Trump said he would hit imports from China with tariffs of 60% or more. Most analysts expect Trump to ratchet up tariffs on Chinese goods, further tighten restrictions on the export of U.S. technology to China, and curtail Chinese investment in the U.S. in an effort to drastically reduce economic ties between the world’s biggest economies and geopolitical rivals....

“The threatened tariffs on Mexico and Canada are the bigger surprise, and suggest Trump is eager to reopen the U.S.-Mexico-Canada Agreement, a free-trade accord that came into force in 2020.  The USMCA replaced the decades-old Nafta pact, which Trump repeatedly described as the ‘worst trade deal ever made’ for widening the U.S. trade deficit and costing America millions of manufacturing jobs, especially in the auto sector....

“Tariffs would likely drive up the price of steel* and aluminum in the U.S. because Canada and Mexico are major suppliers of those metals to the U.S. market. The U.S. also buys almost all of Canada’s oil.

[*A longtime friend, and supporter, B.K., owns a company that manufactures steel pools, and he told me Wednesday that he had spoken to his Canadian steel mill contact. They planned for a 10% tariff if Trump won and were meeting on how to address that with U.S.-based customers.  But they definitely didn’t see the 25% tariff coming.  The contact agreed with B.K. that U.S. mills would immediately raise their own price to market.  But the 25% is still just a threat, as of today.]

“U.S. automakers including General Motors and Ford Motor have spent decades planning their factory footprints around free trade between the three countries. About 16% of vehicles that will be sold in the U.S. this year will have been built in Mexico, or roughly 2.5 million cars, trucks and SUVs, according to a forecast from research firm Wards Intelligence.  Vehicles manufactured in Canada will account for about 7% of U.S. sales.

“Tariffs could hit the automotive supply base hard, potentially pushing up prices in the U.S.  Hundreds of parts suppliers operate in Mexico, feeding both local factories and U.S. plants.  Some parts cross the border several times in various stages of production before landing in a finished vehicle, said Mark Barrott, head of the automotive and mobility practice at consulting firm Plante Moran.”

Mexico could retaliate by slapping tariffs on U.S. corn growers, milk and pork exporters, say experts.

Canada buys more from the U.S. than China, Japan, France and the UK combined, as well as providing about 60% of all the oil the U.S. imports from foreign countries.

Editorial / Wall Street Journal

“It’s also possible that Mr. Trump views tariffs not merely as a tool for ad hoc negotiation but as a lever to remake the entire global trading system.  In that case he’ll try to build high tariff walls in an attempt to force U.S. and foreign companies to build nearly everything in America.  The economic and political harm from that strategy is for another day, but investors can’t rule it out and members of Congress would be wise not to give him that power.

“As we wrote during the campaign, tariffs were the main economic risk of his candidacy.  Mr. Trump campaigned as the Tariff Man, and he aims to impose them early and often.  Get ready for a wild ride.”

Meanwhile, back to Treasury selection Scott Bessent, as the Wall Street Journal editorialized:

“Mr. Bessent will also have to watch his back for the knives of Howard Lutnick, the nominee for Commerce Secretary, who lobbied hard against Mr. Bessent for the Treasury role.  Mr. Lutnick could have more power than most Commerce chiefs because Mr. Trump inexplicably also gave him the responsibility for the U.S. Trade Representative’s shop.  Typically the trade role fights for open markets, but in Trump II it might be another lobby for tariffs.

“Mr. Bessent campaigned hard for the Treasury job himself, including in op-eds that tried to show he’s come around to the virtue of tariffs.  His theory is that the threat of tariffs will cause countries to reduce their trade barriers – escalate to de-escalate.  That diminishes the benefit of freer trade for Americans in lower cost consumer goods and higher incomes from jobs created by making goods for export.  It is also a fraught gamble that other countries won’t dare retaliate because they can’t lose the U.S. market....

“Mr. Bessent’s campaign conversion on tariffs raises the question about how willing Mr. Bessent will be to tell the President when he’s making a policy mistake.  If Mr. Bessent won’t, it’s not clear who on the economic team will.  But if his lodestar is growth, he’ll do well for the President and the country.”

Europe and Asia

Slow week on the data front in the eurozone, but today we did have a flash estimate on November inflation for the EA20, 2.3%, up from 2.0% in October, and 2.8% ex-food and energy, these two figures exactly the same as our PCE numbers on headline and core.  Not great news for the European Central Bank, which next meets Dec. 12.  But euro bonds have been rallying on the bleak economic news across the continent.

Headline inflation....

Germany 2.4%, France 1.7%, Italy 1.6%, Spain 2.4%, Netherlands 3.8%, Ireland 0.5%.

France: The future of French Prime Minister Michel Barnier’s government looks bleak, as he struggles to push a budget for 2025 through a polarized parliament increasingly likely to end in the toppling of his fragile coalition.

Barnier’s government could fall before Christmas, or next week, if far-right and leftist foes force a no-confidence motion that he is likely to lose.

The only way he survives is by caving into demands to soften spending cuts, which only further weakens the country’s fragile finances and further dampens investor sentiment.

France could thus be in its second political crisis in six months.

Turning to Asia, once again, nothing from China.

In Japan, October industrial production and retail sales were both up 1.6% year-over-year.

Street Bytes

--The market responded positively Monday to the news over the weekend that President-elect Trump had selected the aforementioned Scott Bessent for Treasury.

Bessent, who said his policy priority will be to deliver on Trump’s tax-cut pledges, is seen as tough on government spending, and more balanced on tariffs.  Bessent also wants to cut taxes and cancel Joe Biden’s green-energy subsidies. 

Elon Musk called him a “business-as-usual choice,” Musk favoring Howard Lutnick, who could “actually enact change.”  [Lutnick was tapped to be Commerce Secretary, and that creates its own set of problems, as noted below.]  Musk added that business-as-usual was driving America bankrupt.

Markets interpreted Bessent as a positive for the economy, focusing on more growth-oriented matters as opposed to more controversial initiatives, Wall Street viewing him as a safe pair of hands...the proverbial ‘adult in the room,’ as market watcher David Rosenberg noted.

Bessent runs macro hedge fund Key Square Group, and he has warned about the huge federal deficit.   A former protégé of George Soro, he has touted a “3-3-3” economic policy – aiming to cut the budget deficit to 3% of GDP by 2028, achieving GDP growth of 3%, and increasing U.S. oil production by 3 million barrels a day.

So for the holiday-shortened week, the Dow Jones hit a new record Monday, and then again Tuesday, along with the S&P 500, and after a breather Wednesday, today the Dow and S&P hit records again, Nasdaq just shy of its all-time mark.

For the week the Dow gained 1.4% to 44910, the S&P 1.1% to 6032, and Nasdaq 1.1%.

--U.S. Treasury Yields [as of 1:00 PM ET, Friday...an hour before the official close for this market on the holiday.]

6-mo. 4.45%  2-yr. 4.18%  10-yr. 4.20%  30-yr. 4.38%

The bond market celebrated the selection of Scott Bessent, expecting him to rein in deficits and bring a more strategic approach to fiscal policy, the yield on the 10-year closing Monday’s session at 4.26%, reversing all of its gains since the announcement of Trump’s election and marking the biggest one-day decline since August.  It was a total U-turn from last Friday, when yields briefly topped 4.50%, the highest in more than five months.

The rest of the week the rally continued, the 2-year yield down 19 basis points, and the 10-year down 21 bps.

--The price for natural gas has been rising, especially in Europe, where rapidly depleting gas reserves and looming supply cuts from Moscow have the makings of a fresh energy crisis for the continent, which is still reeling from the extreme shocks of two years ago, now almost three years, since Russia’s full-scale invasion of Ukraine.

Escalating tensions there contributed to a 45% surge in gas prices this year.  While levels are still far below 2022 records, they are high enough to risk deepening a cost-of-living crisis for households and intensifying competitive pressure on strapped manufacturers.

Gas storage is a lifeline during the coldest periods but inventories this year are rapidly declining after cold temperatures increased demand for heating and wind drought required more usage for power generation.

Meanwhile, OPEC+ is holding a key meeting in the coming days, with OPEC members plus Russia and other smaller oil producers set to discuss potentially easing production cuts, though soft demand has put those expectations into some doubt.

Oil fell to the $68.50 level after the cease-fire was declared in Lebanon.

--Tesla’s electric vehicles would be shut out from consumer rebates under a proposal by California Governor Gavin Newsom, pitting the prospective Democratic presidential hopeful against Republican power player Elon Musk.

Newsom on Monday unveiled plans to offer rebates to EV buyers if Donald Trump repeals a federal subsidy.  A program California phased out in 2023 could be rebooted in lieu of the $7,500 tax credit, the governor said.

The current proposal includes market-share limitations that would exclude Tesla’s popular EV models, though the details, including Tesla’s possible omission from the credits, will be negotiated with the state legislature and could change, Newsom’s office told Bloomberg News.

--Dell Technologies Inc. and HP Inc. reported quarterly financial results that suggest the long-awaited recovery of the personal computer market is stalling.  The shares of each company dropped 12% and 11%, respectively, in trading on Wednesday.

Revenue generated by Dell’s PC business declined 1% to $12.1 billion in the fiscal third quarter, falling short of estimates, while sales in HP’s PC unit rose 2% to $9.59 billion in the similar three-month period, also missing consensus.  [Sales of consumer PCs fell 4%, while commercial sales improved 5% for HP.]

“The PC refresh cycle is pushing into next year,” Dell CFO Yvonne McGill said Tuesday on a call with analysts after the results.  HP CEO Enrique Lores said in an interview that the release of Microsoft’s new edition of Windows software hasn’t fueled PC sales from corporate clients as quickly as in previous releases.

The market had seen a historic decline in recent years after a burst of demand for new laptops in the early months of the pandemic when students and corporate employees were stuck at home.  While signs of a rebound began to materialize this year, shipments again dipped in the third quarter, industry analyst IDC said in October.

Worldwide shipments of traditional PCs in the calendar year third quarter hit 68.8 million, down 2.4% year-on-year, according to IDC.

PC makers had hoped that new machines touted as better for artificial intelligence workloads would spur demand.  But “buyers have yet to see clear benefits or business value,” said Mikako Kitagaw, an analyst at Gartner Inc.

Dell has done well with its infrastructure unit including high-powered servers for AI, with sales rising 34% in the period ended Nov. 1, the company said in a statement.  That’s just ahead of the $11.3 billion anticipated by the Street.  Total revenue increased 10% to $24.4 billion, missing the average analyst estimate of $24.6 billion.

“AI is a robust opportunity for us with no signs of slowing down,” Dell Chief Operating Officer Jeff Clarke said in a statement.  He touted orders of AI servers in the quarter hitting $3.6 billion and growth “across all customer types.”

For the quarter ending in February, Dell gave a revenue outlook of about $24.5 billion.  Analysts, on average, projected $25.4 billion.  Adjusted earnings will be $2.40 a share to $2.60, compared to the average estimate of $2.66.

HP also failed to impress. Adjusted earnings will be 70 to 76 cents in the period ending in January, less than the Street was forecasting.

“Weaker-than-expected Personal Systems sales and profit were the biggest drag on HP’s fiscal 4Q results, and its below-consensus 1Q EPS guidance suggests little improvement in PC demand in the seasonally stronger December quarter,” Woo Jin Ho, an analyst at Bloomberg Intelligence, wrote in a note after the results.

HP CEO Lores said in an interview that regarding AI and PC demand, tariffs could be an issue.

“Some of that [cost of potential tariffs] will have to go to consumers given what is the overall margin that we have in the categories.  But again, we need to wait and see what the final tariffs are for us to define what the exact plan is going to be.”

Lores said he is looking forward to working with the incoming Trump administration and prefers smooth trading relationships between countries.

“We are a global company that does business in many parts of the globe, and that does development in many parts of the globe, and that has manufacturing in many parts of the globe.  So for us, an easy way of trading across countries is the preferred option,” Lores added.

--Global smartphone sales rebounded strongly in 2024 after two successive years of decline, but Apple Inc. barely managed growth, according to market tracker IDC, underscoring the speed with which Android-based rivals are gaining ground in China and emerging markets.

Apple and its rivals will ship 6.2% more phones or an estimated 1.24 billion units in 2024.  But iPhone volumes likely edged just 0.4% higher.  Still, Apple remains by far the profit leader with an average selling price surpassing $1,000, while Android rivals collectively came in at around $295, IDC estimates.

Similar to the dynamics in the personal PC market, the addition of artificial intelligence enhancements, a big theme among the likes of Samsung Electronics, Apple and Alphabet’s Google, failed to excite consumers.

“While GenAI continues to be a hot topic and top priority for many vendors, it is yet to impact demand significantly and drive early upgrades,” said Nabila Popal, research director at IDC.  “More investments are needed to increase consumer awareness and introduce a ‘must have’ feature that will rush consumers to the store and create that super cycle which everyone is waiting for.”

In China, brands like Xiaomi Corp. and Huawei Technologies Co. are pouring investment into hardware and designing their own processors – in a bid to mitigate the threat or effects of U.S. sanctions while customizing their designs for AI use cases.  Huawei is clearly hurting Apple as it introduced its latest smartphone powered by its made-in-China chips, Huawei unveiling the new model on Tuesday.

--Service workers at Charlotte Douglas International Airport went on strike Monday to protest what they say are unlivable wages.

Officials with Service Employees International Union announced the impending strike in a statement early Monday, saying the workers would demand “an end to poverty wages and respect on the job during the holiday travel season.”

ABM and Prospect Airport Services contract with American Airlines to provide services including cleaning airplane interiors, removing trash and escorting passengers in wheelchairs.

Several hundred workers walked off the job and the action was supposed to be for just one day.  Most of them earn between $12.50 and $19 an hour, which is well below the living wage for a single person with no children in the Charlotte area, union officials said.

An estimated 1.02 million passengers were expected to depart the airport between last Thursday and the Monday after Thanksgiving.

--United Airlines said Tuesday that an acute shortage of air traffic controllers was causing “significant disruption” for travelers at its busy Newark, NJ, hub.

The airline said the Federal Aviation Administration has been forced to reduce traffic flows to Newark because of low staffing on 12 of the first 25 days of November, disrupting more than 343,000 United travelers by delays, cancellations, long taxi times and longer flight times related to air traffic control delays for Newark.

United said that on Nov. 15 alone, air traffic control staffing issues resulted in canceled flights that disrupted 1,880 customers; gate and other delays disrupted an additional 24,558.

The FAA said in “the Newark airspace, the FAA is addressing a decades-long issue of staffing and has been transparent with airlines and travelers about our plan.”

The FAA is about 3,000 controllers behind staffing targets and the agency said last year it had 10,700 certified controllers, about the same as a year earlier.

--TSA checkpoint numbers vs. 2023

11/28...68 percent of 2023 levels
11/27...140
11/26...124
11/25...95
11/24...91
11/23...96...this was Thanksgiving last year
11/22...125
11/21...165

Yes, volatile numbers around Thanksgiving with the changing date each year.  We’ll see what Sunday’s figure is, TSA predicting a record.

--Macy’s said on Monday that an employee had “intentionally” misstated and hidden up to $154 million in delivery expenses over the past few years, forcing the retailer to delay a much-anticipated earnings report that Wall Street uses to gauge the strength of holiday shopping.

The department store chain rushed to release an abridged set of financial results, which were a mixed bag, with signs of weakness and pockets of strength.

Macy’s shares lost 8% initially but pared back some of the losses, as investors tried to make sense of the results along with the company’s reassurance that the employee error, which Macy’s said spanned three years, through the most recent quarter, did not affect its cash flow management or vendor payments.

Macy’s sales in the third quarter fell 2.4% - below analysts’ expectations – to $4.74 billion.  The company’s overall sales were dragged down by weak performance at Macy’s stores and its digital business.

But sales at the 50 locations that the company has identified as key to its future – based on geography, staffing and other factors – rose 1.9%, the third consecutive quarter of growth.  Comparable sales rose at both Bloomingdale’s and Bluemercury, the company’s luxury brands.  Those results offer hope Macy’s latest strategy of investing in these parts of the business may be working.

Macy’s said it found the accounting error while preparing its results for the quarter, which ended Nov. 2.  It was to release the results Tuesday.  The employee, who is no longer with the company, was responsible for small package delivery expense accounting.  No other employee was identified as part of the investigation.

In the 3-year period of the accounting issue, the $154 million needs to be weighed against about $4.36 billion in delivery expenses over that time – the cost to a business in order to transport goods to customers.

But while the amount is a small percentage of the retailer’s total delivery expenses, the amount is comparable to Macy’s total net income in 2023; roughly $105 million.

The chain said it would report earnings by Dec. 11.

Macy’s previously said it would close 150 of its stores over the next three years.  The company said it had recorded asset gains of $66 million from the sale of closed stores, more than the company expected.

--Kohl’s shares fell sharply on Tuesday after a bigger drop in annual sales than previously expected, a sign the department store chain is struggling to draw in shoppers ahead of the promotion-heavy holiday shopping season.

Higher prices of groceries and other essentials have stretched consumer budgets, particularly among middle-income shoppers, keeping them from visiting shopping centers and splurging on apparel and footwear.

Kohl’s announced the exit of its CEO Tom Kingsbury a day earlier. He will be succeeded by Ashley Buchanan, a retail veteran and Michaels Companies chief, in January.

The surprise departure comes as the company enters the critical holiday shopping period including Black Friday.

“Our third-quarter results did not meet our expectations, as sales remained soft in our apparel and footwear businesses,” Kingsbury said.

I was in Kohl’s on Monday for a major purchase...a pillow, using a store coupon.  Now, granted, it was 10:00 a.m., and it wasn’t quite Black Friday, but the place was empty.  Just not a good sign.  I then immediately went to Walmart for a pair of jeans, Kohl’s jeans not marked down enough, and Walmart was crowded, just like their results show.

Kohl’s logged a sickening decrease in comparable sales of 9.3% for the quarter ended Nov. 2, its eleventh consecutive quarter of declines.  Analysts on average estimated a 5.1% drop.

Earnings per share missed expectations, coming in at 20 cents per share compared to the Street’s 28 cents.

The company now expects full-year net sales in the range of a 7% to 8% decline, compared to its prior forecast of a drop between 4% and 6%.  This is Kohl’s third straight quarter with a lowered sales forecast.  Just miserable.

--Best Buy cut its annual profit and sales forecasts on Tuesday, signaling a muted holiday shopping season amid sluggish demand for pricey electronics such as televisions and home theater systems.

The shares fell sharply before the bell, and ended down 5%, as the company also missed market expectations for third-quarter profit. 

“During the second half of the quarter, a combination of the ongoing macro uncertainty, customers waiting for deals and sales events, and distraction during the run-up to the election, particularly in non-essential categories, led to softer-than-expected demand,” CEO Corie Barry said in a statement.

Best Buy now expects annual comp sales to decline between 2.5% and 3.5%, compared with its earlier forecast of a decline between 1.5% and 3%.

The company projected annual adjusted profit per share of $6.10 to $6.25, compared to an earlier target of $6.10 to $6.35.

Adjusted third-quarter earnings per share of $1.26 were vs. expectations for $1.29.

Third-quarter comp sales in the U.S. declined 2.8%, also worse than analysts’ forecast.

--Dick’s Sporting Goods shares bucked the trend and rose sharply as the company lifted its comparable sales growth outlook for the full fiscal 2025.

The chain reported earnings of $2.75 per share for the third quarter, beating consensus of $2.67.  Revenue came in at $3.06bn, slightly ahead of expectations.

Comp sales increased by 4.2%, also outperforming the forecasted growth of 2.5%.

CEO Lauren Hobart said, “We had an excellent back-to-school season and continued to gain market share.”

For fiscal year 2025, Dick’s expects EPS to range between $13.65 and $13.95, compared with the consensus estimate of $13.88.

Revenue is projected between $13.2 billion and $13.3 billion, with the Street at $13.25bn.

The company revised guidance for comp sales growth upward to a range of 3.6% to 4.2%, vs. its previous projection of 2.5% to 3.5%.

--Speaking of Walmart, they became the latest – and biggest – company to roll back DEI (diversity, equity, and inclusion) policies, joining a growing list of major corporations that have done the same after coming under attack by conservative activists.

The changes, confirmed by Walmart on Monday, are sweeping and include everything from not renewing a five-year commitment for an equity racial center set up in 2020 after the police killing of George Floyd, to pulling out of a prominent gay rights index.  And when it comes to race or gender, Walmart won’t be giving priority treatment to suppliers.

--German car-parts supplier Robert Bosch plans to cut thousands of jobs across its operations in coming years as the automotive sector looks to downsize in response to a tougher outlook.

The company last weekend outlined plans to cut up to 5,500 jobs, becoming the latest auto-parts supplier to trim headcount at a difficult time for the industry.  Peers Michelin and Schaeffler earlier this month said they planned to close factories and cut thousands of jobs in Europe.

The mobility sector is undergoing a deep transformation and the auto sector has significant overcapacity, Bosch said.

--The Biden administration, in one of its last major policy directives, will propose that Medicare and Medicaid cover obesity medications, a costly and, most seem to think, popular move that the Trump administration would need to weigh in on to become official.

The proposal would extend access of the drugs to millions of Americans who aren’t covered now.

The new obesity drugs, including Wegovy from Novo Nordisk and Zepbound from Eli Lilly, have been shown to improve health in numerous ways, but legislation passed 20 years ago prevents Medicare from covering drugs for “weight loss.”

But the new proposals would specify that the drugs would be covered to treat the disease of obesity and prevent its related conditions.

--The American Farm Bureau said the cost of a classic Thanksgiving feast for 10 people – from the turkey to the pumpkin pie – dropped 5% from last year.

This year’s cost is $58.08, down from $61.17 last year, and down 9% from $64.05 in 2022, according to the bureau’s 39th annual Thanksgiving dinner survey.

Now before you go nuts, saying this can’t be, understand the price of eggs, which is in the news recently due to bird flu, is not one of the 11 items on the Farm Bureau’s menu.  Seven cost less than last year: turkey, sweet potatoes, frozen peas, a vegetable tray of carrots and celery, pumpkin pie mix, pie crusts, and whole milk.

Only four menu items – dinner rolls, fresh cranberries, whipping cream, and cubed stuffing – cost more.

Even if you add extras such as ham, russet potatoes, and frozen green beans, it still cost less than last year.

A 16-pound turkey costs $25.67 this year, about $1.68 a pound, or 44% of the price of Thanksgiving.

Farmers raised 205 million turkeys this year, 6% fewer than lats year and the lowest total since 1985, because of the fallout from bird flu.

Turkey prices have dropped 6.1% because demand for turkey has dropped to 13.9 pounds a person, according to USDA estimates.

But as I pointed out last week, net farm income is expected to drop by $6.5 billion in 2024, so as the American Farm Bureau points out, while consumers are getting a little relief after years of elevated prices, farmers are getting killed by higher production costs, while seeing more price volatility in their crop prices. [Janet Cho / Barron’s]

--The price of coffee is rising, due to major supply disruptions in key producers from Brazil to Vietnam, with the more budget-friendly robusta type that’s used in instant drinks recently hitting the highest since the 1970s.

Concerns have mounted that supplies from Brazil will slow after a long drought that hurt coffee trees, which may reduce next season’s output, though analysts said after rains in October, the health of the trees was better.

The U.S. Department of Agriculture’s Foreign Agricultural Service sees Brazil coffee inventories reaching only 1.2 million bags when the current season ends in June, a 26% decrease versus the previous year.

The prices for Arabica, the high-end variety favored for specialty brews, have risen over 60% this year.  Of course, the solution for that is don’t go to Starbucks.

--The Australian Senate passed a social media ban for young children on Thursday that will soon become a world-first law.

The law will make platforms including TikTok, Facebook, Snapchat, Reddit, X and Instagram liable for fines of up to 50 million Australian dollars ($33 million) for systemic failures to prevent children younger than 16 from holding accounts.

The Senate passed the bill 34 to 19.  A day earlier, the House of Representatives overwhelmingly approved the legislation 102 to 13.

The platforms will have one year to work out how they could implement the ban before penalties are enforced.

--It’s Thanksgiving, and that means Warren Buffett renewed his traditional pledge of giving by announcing plans Monday to hand more than $1.1 billion of Berkshire Hathaway stock to four of his family’s foundations, and he offered new details about who will be handing out the rest of his fortune after his death.

Buffett has said previously that his three kids will distribute his remaining $147.4 billion fortune in the 10 years after his death, but now he has also designated successors for them because it’s possible that Buffett’s children could die before giving it all away.  He didn’t identify the successors, but said his kids all know them and agree they would be good choices.

“Father Time always wins. But he can be fickle – indeed unfair and even cruel – sometimes ending life at birth or soon thereafter while, at other times, waiting a century or so before paying a visit,” the 94-year-old Buffett said in a letter to shareholders.  “To date, I’ve been very lucky, but, before long, he will get around to me. There is, however, a downside to my good fortune in avoiding his notice.  The expected life span of my children has materially diminished since the 2006 pledge. They are now 71, 69 and 66.”

Buffett has given millions to his children, but he has long said he believes “hugely wealthy parents should leave their children enough so they can do anything but not enough that they can do nothing.”

Buffett himself never indulged in much – living in the same Omaha home for decades.

“As a family, we have had everything we needed or simply liked, but we have not sought enjoyment from the fact that others craved what we had,” he said.

Buffett’s giving to date has favored the Gates Foundation with $55 billion in stock because his friend, Bill Gates, already had his foundation set up and could handle huge gifts when Buffett started giving away his fortune.  But Buffett has said his kids now have enough experience in philanthropy to handle the task and he plans to cut off his Gates Foundation donations after his death.

--Hollywood’s two holiday movie blockbusters, “Wicked” and “Gladiator II,” brought in nearly $170 million in domestic box office sales for their opening weekends, according to estimates from Comscore.

“Wicked,” distributed by Comcast-owned Universal, was the top draw, with domestic sales of $114 million, while Paramount’s “Gladiator II” sold $55.5 million.

Studios were hoping for a repeat of the summer 2023 phenomenon known as Barbenheimer, when moviegoers flocked to see both Warner Bros. Discovery’s “Barbie” and Universal’s “Oppenheimer.”  The domestic grosses for those two were $163 million for “Barbie” and $82 million for “Oppenheimer.”

So far this year, counting box office sales through Sunday, domestic releases have sold $7.3 billion, down 10.7% from the same time in 2023, according to Comscore.

“Wicked” was the weekend’s top film globally as well, with estimated sales of $164.2 million, while “Gladiator 2” set a record for the biggest domestic November opening for an R-rated film.

“Gladiator’s” worldwide box office totals $221 million, which bodes well for its longevity perhaps a few weeks past the Thanksgiving holiday.  It opened globally the prior weekend.  This past weekend it had international sales of $50.5 million.

Walt Disney released its animated “Moana 2” on Wednesday.

--There was a lot of talk locally when the average cost of a hotel room in New York City in September, the most recent month for such data, climbed to $417, as recorded by CoStar, a real estate analytics company, the highest monthly rate ever recorded in Gotham since it started tracking the data in 1987.

--Speaking of the Big Apple, the administration of Mayor Eric Adams is working with the Real Estate Board of New York on a plan to bring down the cost of demolishing obsolete office towers.

I have to admit that until reading a piece in Crain’s New York Business by Aaron Elstein, I hadn’t give the topic much thought, but as Andrew Kimball, CEO of the city Economic Development Corp. said at a recent Crain’s forum, “It is extraordinarily expensive to bring down a building, but we need more of that.”

Obsolete buildings that aren’t attracting tenants and aren’t ‘landmarked’ should be replaced by new office or apartment towers for which there is ample demand.

Consider this.  JPMorgan spent an estimated $160 million to tear down its former headquarters at 270 Park Ave. three years ago so that a new 70-story, $3 billion tower could rise in its place.

That cost is prohibitive for developers without JPM’s resources, so you need a combination of property-tax discounts, loan subsidies, or even cash grants to clear out buildings that are no longer viable.

Approximately one-quarter of Manhattan’s 600 million square feet of office space remains empty and in Midtown South the vacancy rate last quarter was a record 26%, according to the Alliance for Downtown New York.

Foreign Affairs, Part II

China: The U.S. deployed one of its newest nuclear-powered, fast-attack submarines to Guam – the first vessel of its class to be based at the strategic military outpost – in an effort to project even more power in the face of growing rivalry with China.

The Virginia-class USS Minnesota, based in Hawaii since 2022, arrived at its new home port on Tuesday in what the Navy described as its “strategic laydown plan for naval forces in the Indo-Pacific region.”

It joins Submarine Squadron 15’s fleet of Los Angeles-class fast-attack submarines, all of which were commissioned in the early 1990s.

But all is not well with the U.S. submarine program.

The White House has asked Congress for $7.3 billion to goose submarine construction.  That’s $5.69 billion to pay for cost overruns on three Virginia-class submarines and workforce development at General Dynamic Electric Boat and HII’s Newport News Shipbuilding; and $1.59 billion to “keep Columbia-class nuclear ballistic missile submarine construction on track during the current stop-gap federal funding bill, which expires in about a month,” USNI News reported.

A senior Navy official on Monday: “Our Virginia-class fast attack submarine program is not where it needs to be right now, the program and the shipyards are not producing submarines at the rate that our national security strategy and the national defense strategy require.”  [Defense One]

This is not good on so many levels.  “Workforce development” is a big issue, much like at Boeing.

Separately, three American citizens imprisoned for years by China were released and are returning to the United States, the White House said Wednesday, announcing a diplomatic agreement with Beijing in the final months of the administration.

The three had been designated by the U.S. as wrongfully detained by China.  One of them was facing a death sentence on drug charges while the other two were imprisoned on espionage charges.

Politico first reported that the men’s release was part of a prisoner swap, though the White House did not immediately confirm that any Chinese citizens had been returned home.

We then learned the U.S. released Xu Yanjun, a Chinese intelligence officer serving a 20-year sentence after he was arrested in Brussels in 2018 and extradited to the United States in a dramatic FBI operation.

While President Biden can view this as a diplomatic win as he tries to cement his legacy in the final weeks, Richard Haass, the former president of the Council on Foreign Relations, said Xi Jinping is most likely trying to set the stage for relations with the incoming Trump administration.

“It’s a way to signal a potential for mutually beneficial transactions if you will, which potentially would appeal to somebody like Donald Trump,” Haass said.

One more.  Miao Hua, one of the top generals at China’s powerful Central Military Commission, has been placed under investigation for suspected “serious violations of discipline,” the defense ministry said. 

Miao is director of the political work department of the CMC, which oversees China’s People’s Liberation Army.  He was suspended from duty, the ministry said on Thursday.

The announcement came a day after the Financial Times reported that Defense Minister Dong Jun was under investigation for alleged corruption, though China’s foreign ministry called the report “groundless,” while the defense ministry described it as a “sheer fabrication.”

North Korea: Kim Jong Un appeared to rebuff the prospect of reviving his nuclear diplomacy with President-elect Trump, according to his first public remarks about disarmament talks since the election.

North Korea’s state media reported Friday that Kim called the U.S. a superpower that operated by force rather than a will to coexist and belittled the value that previous talks had for his cash-strapped regime.

“We have already explored every possible avenue in negotiating with the U.S.,” Kim was quoted as saying during a speech at a defense expo in the capital Pyongyang on Thursday.  What has become clear, he added, is the U.S.’s “unchanging aggressive and hostile policy” toward North Korea.

Since Trump left office in 2021, Pyongyang has strengthened its leverage.  The regime has expanded its nuclear arsenal, warded off economic collapse from Covid-19 and deepened military and economic ties with Moscow, including deploying troops for Russia’s war against Ukraine.

But with Russia now providing Kim with things that the U.S. can’t, Kim has fewer reasons to seek sanctions relief from the U.S.  And instead of disarming, he rewrote his country’s nuclear doctrine to allow pre-emptive strikes and vowed to pursue a limitless expansion of North Korea’s weapons.

Related to the above, North Korea is expanding a key weapons manufacturing complex that assembles a type of short-range missile used by Russia in Ukraine, according to the James Martin Center for Nonproliferation Studies (CNS), located at the Middlebury Institute of International Studies at Monterey.

Sam Lair of CNS said the plant was the only one known to produce the Hwasong-11 class of solid-fuel ballistic missiles.

Ukrainian officials say these munitions – known as the KN-23 in the West – have been used by Russian forces in their assault on Ukraine.  [Reuters]

Iran: Tehran said last weekend that it would begin operating new machines to enrich more uranium, which could bring it closer to having a weapon.  The move came in response to a censure by the International Atomic Energy Agency for failing to cooperate fully with atomic inspectors.

Iran will activate “a substantial number of advanced centrifuges of various models,” which are able to produce highly enriched nuclear fuel, read a joint statement from Iran’s Foreign Ministry and its Atomic Energy Organization.

It is one thing to have a lot of highly enriched uranium fuel.  It would be another if Iran made arrays of explosive detonators, after turning the material into a metallic sphere.

Iran already has enough material in its stockpile to rapidly make fuel for four or five nuclear weapons.  But, again, the issue really is weaponization.

Syria: Insurgents breached Syria’s second-largest city Aleppo after blowing up two car bombs on Friday and were clashing with government forces on the city’s western edge, according to the Syrian Observatory for Human Rights, a war monitor.

It was the first time the city has been attacked by opposition forces since 2016, when they were ousted from Aleppo’s eastern neighborhoods in a grueling military campaign in which Syrian government forces were backed by Russia, Iran and its allied groups.

I have to admit.  I’m not sure who the ‘insurgents’ actually are.  More next week as warranted.

Romania: A far-right, pro-Russia candidate is set for a shock victory in the first round of Romania’s presidential election, with preliminary results leaving the prime minister, his main pro-Europe rival, out of the race.

Ultranationalist Calin Georgescu had a lead of nearly 350,000 votes over center-right candidate Elena Lasconi, with Prime Minster Marcel Ciolacu, the pre-election favorite, in third, with more than 99% of votes counted.

The strong showing of Georgescu, who has no party of his own, and campaigned largely on TikTok, was obviously a huge surprise.

The run-off between him and Lasconi is scheduled for Dec. 8.  Now, understand, Georgescu had 23%, Lasconi 19.2%, so who knows what the run-off will reveal.  Ciolacu had 19.1%.

On Monday, Lasconi warned Romania is now “in a historical confrontation between preserving Romania’s young democracy...and those who want to return Romania to the Russian sphere of influence.”

Georgescu has praised Vladimir Putin “as a man who loves his country,” and has called Ukraine “an invented state.”

I’m impressed there doesn’t appear to have been any widespread protest over such a close result.  Having been there, it’s an interesting, kind of dark place.  I was involved in the worst traffic jam of my life (coming back from a day trip to Transylvania) and for the first time, got into a heated argument with my driver over U.S. politics vs. his country’s.  But we shook hands when he brought me back to my hotel, just 15 minutes before the hotel bar closed.  [This last item was very important to yours truly at that stressed out moment.]

Georgia:  Police and protesters brutally clashed in Georgia after the country’s ruling party suspended negotiations to join the European Union until 2028.

Police used water cannons, pepper spray and tear gas late Thursday to disperse protesters who took to the streets following the announcement by Prime Minster Irakli Kobakhidze of the ruling Georgian Dream party.

Recall, as I wrote at the time, Georgian Dream claimed victory in last month’s parliamentary election that the opposition dismissed as fraudulent and that has been condemned by European officials.  The election on Oct. 26 was widely seen as a referendum on the country’s aspirations to join the EU and the ruling party had indicated to voters that it would continue to seek membership of the bloc.

President Salome Zourabichvili, who has a largely ceremonial role, said the government declared “war” on its own people.

The Georgian president said the ruling party rigged the election with the help of Russia.

Random Musings

--Presidential approval ratings....

Gallup: New numbers...37% approve of President Biden’s job performance, 58% disapprove; 32% of independents approve (Nov. 6-20).  These are godawful.

Rasmussen: 44% approve, 55% disapprove (Nov. 27).

--With a few straggling votes yet to be counted....

President Trump 76,917,069...49.94%
Kamala Harris 74,441,442...48.33%

Trump won all seven battleground states, but for the record, the final margin in each....

Arizona 52-47
Georgia 51-49
Michigan 49.7 – 48.3
Nevada 51-47
North Carolina 51-48
Pennsylvania 50.4 – 48.7
Wisconsin 49.7 – 48.8

The pollsters weren’t that bad, I would argue...within the margin of error in 4 to 5 of them.

The House is now 220-214, Republicans, with California Dist. 13 yet to be decided, with the Democratic candidate up 190 votes.

And remember, Republican representatives Michael Waltz and Elise Stefanik are heading into the administration, while Matt Gaetz resigned.  So, for months, until special elections are held, it could be in effect 217/18 to 214/15.

--Among President-elect Trump’s recent appointments since last WIR, Russell Vought, a key figure in the Project 2025 blueprint, was selected to lead the Office of Management and Budget.  And Rep. Lori Chavez-DeRemer of Oregon, was tapped to be his labor secretary, a move that surprised some folks because she is pro-union.

Trump also announced one of his former policy advisers, Brooke Rollins, as his pick for secretary of the Department of Agriculture.  It had previously been reported the job was going to former Georgia Sen. Kelly Loeffler.

Janette Newsheiwat, a medical contributor on Fox News, was selected for surgeon general; former congressman Dave Weldon to lead the Centers for Disease Control and Prevention; Johns Hopkins surgeon and public health expert Marty Makary as Food and Drug Administration commissioner; retired football player and former Texas state representative Scott Turner for secretary of housing and urban development; and to head up the National Institutes of Health, Jay Bhattacharya.

Bhattacharya made his name during Covid, as he supported “herd immunity,” or mass-infection in order to achieve an immune population, which he released in a co-authored document.

The loathsome Sebastian Gorka was tapped to serve as deputy assistant to the president and senior director for counterterrorism.  Even Trump loyalists and other Republicans say the guy is a wacko (my term) and underqualified.

“Almost universally, the entire team considers Gorka a clown,” said a person close to the national security transition team. “They are dreading working with him.” [Alex Horton, John Hudson / Washington Post]

Gorka responded to the Post: “I don’t comment to the fake failing news.”

John Bolton, Trump’s former national security adviser, told CNN, “I wouldn’t have him in any U.S. government.”

Filling out his economic team, Trump then named Kevin Hassett to direct the National Economic Council and Jamieson Greer as the U.S. Trade Representative.

Everyone likes Hassett, a calming voice from the first administration.  But not sure how much control Greer is going to have since Trump gave Howard Lutnick at Commerce extra clout on the trade side.

--Several of Donald Trump’s cabinet nominees and picks for his White House team have been targeted by bomb threats.

The FBI said it was aware of “numerous bomb threats” as well as “swatting incidents,” in which hoax calls are made to attract a police response to the target’s home.

Threats were made against at least nine people selected by Trump, including New York Rep. Eise Stefanik, who Trump has named to be the US ambassador to the United Nations.  Also former congressman Lee Zeldin of New York, Trump’s pick for EPA administrator.

A spokeswoman for Trump’s transition team said the incoming president appreciated the law enforcement response.

--Special counsel Jack Smith asked a federal judge on Monday to dismiss the case accusing Donald Trump of plotting to overturn the 2020 election, citing longstanding Justice Department policy shielding presidents from prosecution while in office.

The move announced in court papers marks the end of the Justice Department’s landmark effort to hold Trump accountable for what prosecutors called a criminal conspiracy to cling to power in the run-up to the Jan. 6, 2021, attack on the Capitol by his supporters.

Justice Department prosecutors said the department’s position is that “the Constitution requires that this case be dismissed before the defendant is inaugurated.”

“That prohibition is categorical and does not turn on the gravity of the crimes charged, the strength of the Government’s proof, or the merits of the prosecution, which the Government stands fully behind,” the prosecutors wrote in Monday’s court filing.

Trump had planned to fire the entire team that worked with special counsel Smith, including career attorneys typically protected from political retribution.

But Trump is planning to assemble investigative teams within the Justice Department to hunt for evidence in battleground states that fraud tainted the 2020 election, according to the Washington Post.

--From Daniel Gilbert / Washington Post:

“Vivek Ramaswamy, an outspoken ex-biotech executive turned fierce critic of the industry’s main regulator, is now in a position to reshape the agency he derides as the ‘Failed Drug Administration’ in ways that could benefit him personally.

“Newly tapped by President-elect Donald Trump to co-lead an initiative to slash the federal bureaucracy, Ramaswamy has heaped criticism on the Food and Drug Administration for ‘unnecessary barriers to innovation.’  At the same time, the company he founded, Roivant Sciences, is pursuing studies for three drugs that, if positive, could land before the FDA during Trump’s second term.  His stock in Roivant is worth about $670 million.

“Ramaswamy argues that the FDA should err on the side of approving promising therapies faster and then monitoring their effects after doctors start prescribing them... He highlighted the FDA’s standard requirement of two trials for approval and suggested a single trial – which would generally save biotech firms time and money – would be adequate.”

Well, you can imagine the potential for Roivant’s, or other biotech companies’ share price if Ramaswamy had his way.  Just sayin’.

--Negotiators from nearly 200 countries, meeting in Azerbaijan, agreed Sunday in a nonbinding commitment that wealthy nations would aim to provide at least $300 billion annually by 2035 to help poorer nations suffering the most from climate change.

But the delegates from developing countries slammed the agreement minutes after it was adopted, capping an acrimonious conference known this year as COP29.

The deal requires no specific pledges from any countries and falls well short of the $1.3 trillion poorer nations say the will need every year a decade from now.

The new vow comes more than a decade in which the rich nations struggled to meet the original $100 billion pledge.

Indian delegate Chandni Raina called the new finance target “too little, too distant,” and said her country could not support it.

“This document is nothing more than an optical illusion,” she said to cheers and applause.  I saw her comments on the BBC...rather forceful, like you want a leader to be.

--Mammoth Mountain in California has experienced its snowiest November since 2010, with a storm dumping 50 inches on the Eastern Sierra resort earlier this week, bringing its total to 62 inches.  That’s one inch more than November 2022, which kicked off a record-setting winter season at the resort.

But speaking of snow, American Mikaela Shiffrin is gunning for her 100th career World Cup Alpine ski victory this weekend at Killington, Vermont...Saturday and Sunday.

No other skier had more than 86 (Ingemar Stenmark) before Shiffrin came along (Lindsey Vonn with 82).

Exciting stuff, to end on something positive.

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

Pray for Ukraine.

God bless America.

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Gold $2684
Oil $68.57

Bitcoin: $97,140 [1:00 PM ET, Friday...hit $99,700 last Friday, then down to 91,000 Tuesday, before rallying back.]

Regular Gas: $3.06; Diesel: $3.55 [$3.24 - $4.23 yr. ago]

Returns for the week 11/25-11/29

Dow Jones  +1.4%  [44910]
S&P 500  +1.1%  [6032]
S&P MidCap  +0.8% 
Russell 2000  +1.4%
Nasdaq  +1.1%  [19218]

Returns for the period 1/1/24-11/29/24

Dow Jones  +19.2% 
S&P 500  +26.5%
S&P MidCap  +21.0%
Rusell 2000  +20.1%
Nasdaq  +28.0%

Bulls 60.0
Bears 18.3...not updated due to the holidays.

Hang in there.

Brian Trumbore

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