Week in Review

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Week in Review

01/11/2025

For the week 1/6-1/10

[Posted 4:30 PM ET, Friday]

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Edition 1,342

When I post this column every Friday, in essence I am immediately starting on the next Week in Review.  For me to get it done I then have to make a dent in it Monday and Tuesday, mostly “random musings” and “Street Bytes” material that is unlikely to need amending by Friday.

And so Tuesday morning, I had written the following that was going to be among the last two items of random musings this week, the lighter fare.

“California’s major reservoirs are at 122% of the year-to-date median, boosted from two prior wet winters. 

“But Southern California is back in drought, according to the U.S. Drought Monitor.  After the wet rainy seasons, La Nina is living up to expectations and resulting in warmer, drier winter months. [Wetter up north and the Pacific Northwest.]  Los Angeles has seen just 0.13 inches of rain since last May.

“The snowpack is 108% of average as of a week ago, but this can drastically change, for good or bad, until the peak April 1.”

In the wintertime, I look at the weather in Truckee, California, every day to get a sense of the snowpack potential in the Sierras, plus Truckee has some terrific webcams when there is a storm, but I had not seen the National Weather Service issuing Santa Ana wind warnings for days before Tuesday’s disaster hit later in Los Angeles.

But L.A. Mayor Karen Bass had.  The warnings were being ratcheted up daily for 6-7 days before.  She would have known the looming potential disaster.  It was well-telegraphed.  She knew L.A. had seen less than 2/10ths of an inch of rain since May.

But she took off for an inauguration ceremony in Ghana...7,500 miles away.

That was basically the background.  Bass had also cut the budget for the fire department.

I’ve been doing this a long time.  You know me.  I’m the ‘wait 24 hours’ guy.  I don’t jump to conclusions when the big events hit.  I want facts before I issue any sweeping opinions.  I don’t care about social media and instant punditry...it bores the hell out of me, let alone so much of it is flat-out bogus.

But what we have witnessed this week is beyond sickening and tragic.  I know I’m not the only one who was waking up at 3:00 a.m. thinking about the poor people of the Los Angeles area.  My niece, who with her husband as of now is in a ‘warning zone,’ is ready to evacuate (they are east of Pasadena, in the path of the Eaton/Altadena firestorm).  They had already taken in a friend Wednesday who had to evacuate his own neighborhood.

I’m not there, however, and so I just want to present some of the thoughts of the Los Angeles Times’ Ryan Fonseca:

“It’s been a devastating, draining week for Los Angeles County.

“Ten people confirmed dead.  More than 9,000 homes and other structures destroyed or damaged.  [Ed. now 10,000+] Over 35,000 acres burned.

“The Palisades and Eaton fires are likely the worst disaster in California history in terms of economic loss – and among the worst nationwide.

“Then came another blaze, the Kenneth fire, which broke out Thursday afternoon on the western edge of the San Fernando Valley north of the 101 Freeway.  By evening it had scorched nearly 1,000 acres and prompted evacuation orders and warnings in Hidden Hills, Calabasas and Woodland Hills. [Ed. Police arrested a suspected arsonist, a homeless man, for this particular fire.]

“The layers of tragedy reach at the personal, communal and cultural levels.  Thousands of people lost their homes and priceless items inside them as flames clawed through neighborhoods, sparked by wind-driven embers.  Hundreds more returned to the scorched remains of businesses they worked hard to create.

“Tens of thousands of others had their sense of safety rattled as they were forced to take what they could carry and flee, unsure where to go or what they would return to.

“Even those not directly affected by the fires mourned as historic buildings, beloved restaurants, houses of worship and familiar corners were reduced to ash.  [Ed. I’d add all the schools that were lost...the backbone of so many communities. I feel for the kids.]

“As these fires and smaller blazes continue to burn, we’re all trying to understand what failures contributed to this virtually unchecked destruction.

“Did the city really cut funding to its Fire Department?  Was it the notable absence of Mayor Karen Bass, who was on a trip to Africa as the Palisades began to burn?  Or the infrastructure that could not meet the demand for water, leaving fire hydrants running dry?  Did the strong winds damage power lines, creating a fateful spark?

“There will be plenty of postmortems on how local government leaders and agencies (mis)managed the crisis.

“But I keep being reminded.  This was a catastrophe waiting to happen.

“Climate whiplash, made worse by our actions, created a tinderbox.”

Yes, it’s about the dramatic swings between heavy rain and searing drought that are becoming more frequent and lead to more violent fires.

The exceptionally wet winters of 2023 and 2024 “supercharged the growth of brush and grasses in hillsides and canyons. Then came a summer of record-breaking heat, followed by a notably dry fall.  That’s how you make a tinderbox.

“We’ve built communities out into those tinderboxes....

“(At the same time), Cal Fire, the California Department of Forestry and Fire Protection, estimates more than 90% of wildfires are caused by humans, whether through carelessness, deliberate ignitions or infrastructure failures.

“Add to that the hurricane-force gusts that howled through the region earlier this week and we get the perfect, horrific recipe for inferno....” [Fonseca]

There are so many huge issues yet to be resolved.  Rebuilding will take years and there are clearly some areas where it wouldn’t be smart to do so.

Over 100,000 are now without a home, and that’s in an area where there was already a severe shortage of housing options.

As for the water issue, investigations will determine why so many hydrants went dry at critical times, but to me it was largely about demand.  Officials say the storage tanks that hold water for high-elevation areas like the Highlands, and the pumping systems that feed them, could not keep pace with the demand as the fire raced from one neighborhood to another, and that’s because those who designed the system did not account for the speed at which multiple fires could envelop L.A.

Municipal water systems are designed for firefighters to tap into multiple hydrants at once, allowing them to maintain a steady flow for water crews who may be trying to protect a handful of homes, but not hundreds, and entire neighborhoods.

And getting water into hillside communities like Pacific Palisades is a challenge, but, again, the pump-and-storage system was designed for a fire consuming just several homes, said a city water official.

Thursday, President Biden said that the federal government would pay for 100 percent of the region’s firefighting needs for the next 180 days, pledging the full weight of his – and his successor’s – administration to help contain the fires.

How Donald Trump handles the massive issues/expenses involved in recovery and rebuilding remains to be seen.

Speaking of expenses...losses...an initial estimate from JPMorgan analyst Jimmy Bhullar pegs the cost at $50 billion, which includes insured losses which he estimated at more than $20 billion and “even more if the fires are not controlled.”

But this is just an initial estimate.  By comparison, the 2018 Camp Fire in Northern California’s Butte County, the nation’s most destructive wildfire through last year, inflicted insured losses of around $12.5 billion, adjusted for inflation, according to broker Aon.

As to the budget cut issue, according to NBC Los Angeles, L.A. Fire Chief Kristin Crowley warned Mayor Bass just weeks ago that the nearly $18 million slashed from the fire department’s budget would impact its response to emergencies like this week’s fires.

“The reduction...has severely limited the department’s capacity to prepare for, train for, and respond to large-scale emergencies, including wildfires,” Chief Crowley wrote in a memo on Dec. 4, 2024.

Crowley was referring to training for the helicopter pilots, largely...as in critical training.

As for Mayor Bass, her performance since she returned from her ill-timed trip has been pathetic.  It was a classic ‘deer in the headlights’ response.

Editorial / Wall Street Journal

“The politicians are blaming each other for the losses in the horrific Los Angeles wildfires, but the truth is that mother nature can be merciless. The stories about water shortages are conflicting and need more time to sort out. But it’s not too soon to note that California’s politicians have fueled a five-alarm insurance-market crisis that will hurt homeowners and taxpayers across the state once the fires have died out....

“(The) insurance losses will be in the tens of billions of dollars or more. The damage could topple the state’s undercapitalized insurer of last resort, FAIR.  Private carriers are almost certain to increase premiums, cancel policies or withdraw from California.

“Insurers had already scrapped hundreds of thousands of policies and limited coverage in wildfire-prone areas.  Democrats blame climate change, which has become an all-purpose excuse for any disaster-relief failure.  But the real insurance problem is that state regulators have barred insurers from charging premiums that fully reflect risks and costs.

“California is the only state that heretofore hasn’t allowed insurers to incorporate the cost of reinsurance in premiums.  Until this year, it had also prohibited insurers from adjusting premiums by using the standard industry practice of catastrophe modeling to predict a property’s future risk.  Insurers could only assess premiums based on historical losses.

“As a result, insurers are paying out $1.09 in expenses and claims for every $1 they collect in premiums.  This is financially unsustainable, which is why many have pared coverage in areas at high fire risk with expensive homes.  State Farm dropped nearly 70% of policy holders in one Pacific Palisades neighborhood where the average home price is $3.5 million.

“FAIR now covers about half a million homeowners who can’t obtain private coverage.  Its exposure has ballooned to $458 billion as of last September from $153 billion four years earlier, with $5.9 billion in exposure in the Palisades.  Yet it has only about $700 million cash on hand to pay claims.

“That’s because state regulators have required FAIR to cover higher-priced homes while rejecting its proposals for rate increases to account for rising risk and liabilities, just as it has for private insurers.  As home prices and construction costs increase, so do liabilities.  Building an ‘affordable’ housing unit in California can cost $1 million.”

FAIR will fail and then we’ll see what happens.  And as the Journal concludes: “Unlike the fires, California’s insurance catastrophe really is the fault of the Democrats who run Sacramento.”

Lastly, of course Donald Trump took advantage of a disaster in a Democratic state to launch a tirade against “Governor Gavin Newscum,” which benefits no one involved in the tragedy at this moment.

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Addressing reporters at his Mar-a-Lago club in Florida, President-elect Trump would not rule out using military force to seize control of the Panama Canal and Greenland, citing national security interests.

David Sanger / New York Times: “Can you assure the world that as you try to get control of these areas, you are not going to use military or economic coercion?”

Trump: “No.”

Sanger: “Can you tell us a little bit about what your plan is?  Are you going to negotiate a new treaty?  Are you going to ask the Canadians to hold a vote?  What is the strategy?”

Trump: “You’re talking about Panama and Greenland.  No, I can’t assure you on either of those two, but I can say this. We need them for economic security. The Panama Canal was built for our military.”

Regarding Canada, Trump again talked about it joining the U.S. as the 51st state – rhetoric that at first sounded like trolling of outgoing Prime Minister Justin Trudeau, but that has become increasingly serious.  Trump told reporters he would not use military force to annex the country of more than 40 million people, but rather he threatened “economic force” as he renewed talk of steep tariffs on both Canada and Mexico in response to their handling of the northern and southern borders.

In escalated threats against Hamas, Trump additionally warned, “All hell will break out in the Middle East” if the Israeli hostages still being held in Gaza are not returned before he takes office.

Reaction from Ottawa: “There isn’t a snowball’s chance in hell that Canada would become part of the United States,” outgoing Prime Minister Trudeau wrote on social media.  Foreign Minister Melanie Joly wrote in her own social media post, “President-elect Trump’s comments show a complete lack of understanding of what makes Canada a strong country.  Our economy is strong.  We will never back down in the face of threats.”

Panama: “Let it be clear: The canal belongs to the Panamanians and it will continue to be that way,” Foreign Minister Javier Martinez-Acha said at his own press conference Tuesday.  “The sovereignty of our canal is nonnegotiable and is part of our history of struggle and an irreversible conquest,” he added.

Denmark: “Greenland is not for sale and will not be in the future either,” Danish Prime Minister Mette Frederiksen said Tuesday.  “We need to stay calm and stick to our principles,” she said in an interview with Danish television station TV 2.  “I don’t think it’s a good way forward to fight each other with financial means when we are close allies and partners,” she added Tuesday evening, according to Reuters.

Yes, Trump has left open using military force against a NATO ally, and NATO rules require an attack on any member to be treated as an attack on them all.

As historian Heather Cox Richardson recently noted when Trump first brought up his Greenland-Panama Canal-Canada invasion talk, the controversy is a useful distraction from campaign promises.

Consider, for example, “Trump ran on the promise that he would lower prices, especially of groceries.  Yet in mid-December he suggested in an interview with Time magazine that he doesn’t really expect to lower prices.  That promise [of lowering grocery prices] seems to have been part of a performance to attract voters, abandoned now with a new performance that may or may not be real.”

On the other hand, there are legitimate strategic security concerns related to Greenland in particular.  Just tell Denmark we are expanding our base in the northwest of the island and building a new one in the East.  And if climate change makes it easier over time to mine for the rare earth minerals China has its eyes on, the U.S. gets first dibs, paying Denmark-Greenland a fair price for the privilege.

[Personally, I’m now hankering for some delicious Danish Havarti cheese.]

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Meta announced it would stop using third-party fact-checkers on Facebook, Threads and Instagram.  It will instead use crowdsourced community content notes to posts that may be false or misleading, similar to the system used on X.

The reversal is a stark sign of how Meta is repositioning itself for the Trump presidency, and few other big companies have worked as overtly to curry favor.  Meta’s CEO, Mark Zuckerberg, said Monday that Dana White, the head of Ultimate Fighting Championship and a longtime friend of Trump, would be added to the board.

Zuckerberg said the shift on content would begin in the U.S. in the coming months.

“It’s time to get back to our roots around free expression,” he said, adding that the current system had “reached a point where it’s just too many mistakes and too much censorship.”  He conceded that there would be more “bad stuff” on the platform as a result of the decision and called it a “trade-off” that would also result in fewer “innocent people’s posts” being taken down.

Meta avoids political and regulatory pressure from the incoming administration over perceived censorship, while also saving money.  Meta spends as much as $5 billion annually on safety and security measures.

But allowing a free-for-all of politicized content could alienate their users and advertisers, who have already fled the X platform.

Maybe artificial intelligence will provide an answer down the road, but as Adam Clark of Barron’s correctly notes (yours truly being intimately involved in the topic), “for now AI is more of a problem than a solution. A flood of AI-generated content and interaction with chatbots on Meta’s platforms likely demands more oversight rather than less.  Meta recently shut down its own AI accounts on its social-media sites amid a user backlash.”

Clark added: “Scaling back content moderation might seem like a win for free speech – and financially advantageous – but the reputational and legal risks that forced Meta to implement the policies remain.  Zuckerberg faces the tough task of juggling a Trump-era political landscape in which Musk and social media loom large and delivering for his business – the two may prove incompatible.”

At Trump’s press conference on Tuesday, the president-elect said that Meta had “come a long way.”  He also conceded that the change was probably due to threats that he had made against Meta and Zuckerberg.  His conservative allies were quick to hail the decision.  Many of them felt that they had been unfairly targeted by the program.  Others condemned the decision.

This is a joke.  A bad one.  And yet another reason why I’m going to continue doing what I do. Spread the truth.

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Russia-Ukraine

--Ukraine launched a big new offensive in the Russian border region of Kursk over the weekend, after Russia claimed to have retaken 40% of what Ukraine first seized in its counteroffensive.

Combat footage, located by military analysts, indicated that Ukraine was trying to break through Russian defenses in at least three directions.  It was the first significant attempt by Kyiv’s forces to advance in the region since their original incursion in August.

--Russia’s defense ministry said it captured Kurakhove, a strategic town in the east of Ukraine.  Taking Kurakhove and the surrounding towns could allow Russia to broaden its assault on the city of Pokrovsk, a focal point of the war in recent months, analysts said.  Russia is trying to encircle the city, hoping to avoid brutal and prolonged urban combat.

--A Russian air strike killed at least 13 people and injured over 100 in Zaporizhzhia in southeastern Ukraine on Wednesday, as the Russian city of Engels declared a local state of emergency after a drone strike set an oil facility on fire near a large military airbase.

“Russians struck Zaporizhzhia with aerial bombs. It was a deliberate strike on the city. As of now dozens of people are reported wounded... Tragically we know of 13 people killed,” said President Volodymyr Zelensky.

“There is nothing more cruel than launching aerial bombs on a city, knowing that ordinary civilians will suffer.  Russia must be put under pressure for its terror.  The protection of lives in Ukraine must be supported. Only through strength can such a war be ended with a lasting peace,” Zelensky added.

The bomb hit a busy part of Zaporizhzhia as people were going home from work, and officials said a high-rise building, an industrial facility and passing trams, minibuses and cars were hit by shrapnel and set ablaze.

Russia said its cities of Saratov and Engels – which sit on opposite banks of the Volga river some 750km (465 miles) from Ukraine – came under attack from Ukrainian drones in the early hours of Wednesday.  Local governor Roman Busargin said an unnamed industrial site had been set on fire, and later announced that a local state of emergency had been declared in the area as firefighters struggled to extinguish the blaze and two were killed in the process.

The Ukrainian military said of the strikes on the oil facility, that it “supplied fuel to the Engels-2 military airfield, where the enemy’s strategic aviation is based... The destruction of the oil facility creates serious logistical problems for the strategic aviation of the Russian occupiers and significantly reduces their ability to strike peaceful Ukrainian cities and civilian sites.”

Ukraine also said its forces had hit an enemy command post in the occupied Donetsk region with a “precision strike,” days after saying a similar operation reportedly destroyed a command post for Russian marines in the Kursk region.

--Ukraine’s air force announced Thursday that Russia has dropped more than 51,000 guided bombs on Ukraine since the start of the invasion nearly three years ago.

About 40,000 fell in just the past year, the air force said on Telegram.  “Most of them fell on Ukrainian soldiers and residents of front-line regions.  However, the enemy has repeatedly used this deadly weapon against civilians in large cities,” the service added.

--President-elect Trump claimed on Tuesday – incorrectly – that President Biden had broken a long-standing Western pledge to Russia that Ukraine would never join NATO.  “Well, then Russia has somebody right on their doorstep, and I could understand their feelings about that,” he added...in case you didn’t know whose side Trump will take in any negotiations for a ceasefire/truce.

The dueling offensives in Kursk and Kurakhove are a sign of how both the Kremlin and Kyiv are seeking to demonstrate strength ahead of Trump taking office and his vow to bring the war to a quick end without saying how.

On Thursday, Trump said a meeting with President Putin is being set up, telling a reporter in Mar-a-Lago that Putin “wants to meet,” adding, “we’re gonna – we’re setting it up.” 

--President Zelensky and Defense Secretary Lloyd Austin used their final meeting Thursday to press the incoming Trump administration not to give up on Kyiv’s fight, with Austin warning that to cease military support now “will only invite more aggression, chaos and war.”

“We’ve come such a long way that it would honestly be crazy to drop the ball now and not keep building on the defense coalitions we’ve created,” Zelensky said. “No matter what’s going on in the world, everyone wants to feel sure that their country will not just be erased off the map.”

The Biden administration approved a new $500 million package of weapons.

Austin acknowledged he has no idea what Trump will do.  He was conducting his last gathering of the Ukraine Defense Contact Group, a consortium of about 50 partner nations that Austin brought together months after Russia invaded Ukraine in Feb. 2022 to coordinate weapons support.

“The coalition to support Ukraine must not flinch. It must not falter. And it must not fail,” Austin said.  “Ukraine’s survival is on the line. But so is all of our security.”

Unless there is another aid package approved, the Biden administration will leave about $3.85 billion in congressionally authorized funding for any future arms shipments to Ukraine. It will be up to Trump to decide whether or not to spend it.

Robert Kagan of the Brookings Institution warned Tuesday, writing for The Atlantic: “Ukraine will likely lose the war within the next 12 to 18 months...if there is not soon a large new infusion of aid from the United States... Ukraine will not lose in a nice, negotiated way, with vital territories sacrificed by an independent Ukraine kept alive, sovereign, and protected by Western security guarantees.  It faces instead a complete defeat, a loss of sovereignty, and full Russian control.”

“Trump must now choose between accepting a humiliating strategic defeat on the global stage and immediately redoubling American support for Ukraine while there’s still time,” Kagan advises.  “The choice he makes in the next few weeks will determine not only the fate of Ukraine but also the success of his presidency.”

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Wall Street and the Economy

The minutes of the Federal Reserve’s Dec. 17-18 Open Market Committee meeting, released Wednesday, revealed that Fed officials, while cutting interest rates, thought it was a close call and that there is no guarantee policymakers will lower rates again anytime soon.

While officials were upbeat about the U.S. economy, noting stronger-than-expected economic activity and consumer spending, they mentioned higher recent inflation readings, potential changes in trade and immigration policy, and the risk that the disinflation process toward their 2% target may have or could stall.

But some Fed officials do not expect a big impact from Donald Trump’s policies.

“If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy,” Christopher Waller, Fed governor and permanent voting member, said in a speech in Paris on Wednesday.

But then we had a strong jobs report for December today, a whopping 256,000 increase in non-farm payrolls vs. consensus of 157,000, the unemployment rate ticking down to 4.1% from 4.2%, while average hourly earnings were a less than expected 0.3%, 3.9% year-over-year.

Employers added 2.2 million jobs for all of 2024, or an average 186,000 a month.  That’s down from 3 million, or an average 251,000 a month in 2023, but still a surprisingly strong showing.

Not exactly what the bond market wanted to see, yields surging, as expectations for further rate cuts plummeted, and stocks took it on the chin as well.

Earlier in the week, bonds had slumped on the ISM non-manufacturing/service sector PMI for December, a better-than-expected 54.1 (50 the dividing line between growth and contraction), with the prices paid component spiking higher and it is the service sector where inflation is largely centered at this point.

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

Freddie Mac’s 30-year fixed-rate mortgage ticked up further to 6.93%, highest since July, and headed higher still.

We have key economic data next week on inflation and retail sales.

Meanwhile, the President-elect on Sunday urged his fellow Republicans in Congress to combine his priorities into one massive bill that would cut taxes, bolster border security and increase domestic energy production.

Trump said Republicans could cover the cost – which could amount to trillions of dollars – by raising tariffs on imported goods.

“Republicans must unite, and quickly deliver these Historic Victories for the American People.  Get smart, tough, and sent the Bill to my desk to sign as soon as possible,” he wrote on Truth Social.

Republicans, with control of both chambers of Congress, though by narrow majorities, have been weighing a complex legislative strategy that could allow them to bypass Democratic opposition to boost border spending and extend Trump’s 2017 tax cuts, which are due to expire this year.

But some Republicans, in New York, New Jersey and California, for example, want to change some of the 2017 tax cuts that adversely affected residents in their districts.

Republicans plan to invoke a set of complicated budget rules (“reconciliation”) to pass these bills with simple majorities, rather than the supermajority needed to advance most bills in the Senate.  That would mean they would not have appeal to Democrats, but also would limit what they could include in the package.

By Monday, Trump backtracked, saying he could embrace either one or two bills, acknowledging that members of his party in Congress are split over strategy even before tackling big policy and spending specifics.

During an appearance on the “Hugh Hewitt Show,” Trump championed a single bill as his preferred vehicle for his campaign promises but later said he was open to two bills this year.  “I would prefer one, but I will do whatever needs to be done to get it passed,” he added.

On the tariff front, the Washington Post reported that Trump’s aides were exploring tariff plans that would be applied to every country but only cover critical imports, according to three people familiar with the matter, which would represent a shift from his plans during the 2024 presidential campaign when he called for “universal” tariffs of as high as 10 or 20 percent on everything imported into the U.S.

The Post reported, however: “But rather than apply tariffs to all imports, the current discussions center on imposing them only on certain sectors deemed critical to national or economic security – a shift that would jettison a key aspect of Trump’s campaign pledge, at least for now, said the people, who cautioned that no decisions have been finalized and that planning remains in flux.  The people spoke on the condition of anonymity to describe private conversations.”

Exactly which imports or industries to be targeted wasn’t clear, but those being looked at include the defense industrial supply chain (through tariffs on steel, iron, aluminum and copper); critical medical supplies; and energy production (including rare earth minerals), according to the Post.

But after the story was published, Trump criticized it on Truth Social:

“The story in the Washington Post, quoting so-called anonymous sources, which don’t exist, incorrectly states that my tariff policy will be pared back.  That is wrong,” Trump wrote.  “The Washington Post knows it’s wrong.  It’s just another example of Fake News.”

Last week Trump posted on Truth Social: “The Tariffs, and Tariffs alone, created this vast wealth for our Country...Tariffs will pay off our debt and, MAKE AMERICA WEALTHY AGAIN!”

Wednesday, CNN reported that Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries, according to sources familiar with the matter.

The move would allow Trump to build a new tariff program by using the International Economic Emergency Powers Act, which authorizes a president to manage imports during a national emergency, the report said.

“Nothing is off the table,” the source told CNN.

Trump then arrived in Washington on Wednesday ostensibly to give congressional Republicans direction.

“Whether it’s one bill or two bills, it’s going to get done one way or the other. I think there’s a lot of talk about two, and there’s a lot of talk about one, but it doesn’t matter.  The end result is the same,” Trump said.

Europe and Asia...and Canada

We had December service sector PMIs for the eurozone on Monday, 51.6 overall for the EA20. [S&P Global / Hamburg Commercial Bank]

Germany 51.2
France 49.3
Italy 50.7
Spain 57.3
Ireland 57.1

UK 51.1

Dr. Cyrus de la Rubia, Chief Economist at HCB:

“At the ECB press conference, President Lagarde reiterated that services inflation is still too high.  December’s PMI survey for the services sector confirm this, showing costs rising even more sharply than the previous month, likely due to higher wages. Some of these higher costs have been passed on to customers, leading to a bigger increase in selling prices.  For monetary policy, this means the central bank should remain cautious and make only small interest rate cuts in the first quarter of 2025.”

Separately, we had a flash estimate of December inflation for the euro area, courtesy of Eurostat, 2.4%, up from November’s 2.2%.  Ex-food and energy it ticked up to 2.8% from 2.7% prior.  Dr. de la Rubia’s comments, from a day prior to the inflation release, need to be heeded by the ECB.

Headline flash figures....

Germany 2.8% (up from 1.8% in September); France 1.8%; Italy 1.4%; Spain 2.8% (up from 1.7% in September), Netherlands 3.9%, Ireland 1.0%.

Also from Eurostat, the November eurozone unemployment rate was 6.3%, down from 6.5% a year ago.

Germany 3.4%, France 7.7%, Italy 5.7% (down from 7.5% a year ago), Spain 11.2%, Netherlands 3.7%, Ireland 4.1%.

Separately, November producer prices in the EA20 increased a whopping 1.6% compared with October.  Year-over-year, however, they fell 1.2%.

And November retail trade rose 0.1% in November over October, up 1.2% from a year ago. [Eurostat]

Austria: For the first time in Austria’s post-war history, the Alpine republic could be run by a leader of the hard-right who is xenophobic, pro-Kremlin and Eurosceptic.  On Monday Alexander van der Bellen, Austria’s president, asked Herbert Kicki, the leader of Austria’s Freedom Party (FPO), to form a government.  The FPO had won more votes than any other party at parliamentary elections in September.

But for months, Chancellor Karl Nehammer, leader of the center-right People’s Party (OVP), tried to form a German-style, traffic-light coalition...basically representing all sides of the political spectrum.  Last Friday, Nehammer then resigned, saying an agreement on a coalition government had not been possible, and van der Bellen had to turn to Kicki, who will now start coalition talks with the OVP.

But all other parties have so far rejected a coalition with Kicki, who said he was ready to enter talks with Nehammer’s People’s Party.

Social Democrat leader Andreas Babler described Kicki as “a danger.”  “You can’t have a democratic state with Kicki,” he added.

In its “Austria First” 2024 election program, the FPO promised to transform Austria into a “fortress” against immigration and related dangers.

It also vowed to defend freedom and Europe’s Christian roots, and promoted family as “a partnership between a man and a woman with common children.”

Events in Austria are a warning to neighboring Germany, which has a snap election on Feb. 23rd, with the far-right AfD party second in the polling.

France: Jean-Marie Le Pen, the founding father of France’s modern far-right political movement, died Tuesday at the age of 96.

His death was confirmed on X by Jordan Bardella, the president of the National Front, the party Mr. Le Pen founded.

As the New York Times put it, Le Pen “built a half-century career on rants of barely disguised racism, antisemitism and neo-Nazi propaganda....

“An arm-waving reactionary with the swagger of a circus pitchman making outrageous claims, Mr. Le Pen ran unsuccessfully for the French presidency five times, making it to a runoff in 2002, riding waves of discontent and xenophobia and raising specters of a new fascism as he excoriated Jews, Arabs, Muslims and other immigrants – anyone he deemed to be not ‘pure’ French.”

His daughter, Marine Le Pen, succeeded him in 2011 and has now run three times herself, her best showing in 2022, with 41.5%, defeated by Emmanuel Macron.

But that year saw the National Front, renamed National Rally, send a record number of representatives to the lower house of parliament – 89 in all – testimony to the success Marine has had in normalizing and moderating the party’s message to appeal to a broader swath of citizens.

In 2024, National Rally and its allies surged to 140 lawmakers in the lower house following Macron’s incredibly stupid call for a snap election.

Back in both 2011 and 2014, I marched with Marine, and Jean-Marie, at their annual May Day parade in Paris...mere feet from both.

Why? I just wanted to see what they were about, as a reporter.  I had heard all the stories about “jack-booted thugs” in their midst, and I didn’t see any.  Looking back, I’m amazed how not one person approached me, because I clearly stood out.

Marine is now targeting 2027, with the charismatic Jordan Bardella waiting in the wings.

Turning to Asia...in China, the private Caixin non-manufacturing PMI for December was 52.2.

The December inflation figures continued to have a deflationary bent...consumer prices up just 0.1% annualized vs. 0.2% prior.  Producer prices fell a 27th straight month, -2.3% year-over-year.

China has a slew of big data next week, including fourth-quarter GDP!

Japan’s December services PMI reading was 50.9.

Household spending for the month of November was down 0.4% year-over-year.

Canada: Prime Minister Justin Trudeau resigned Monday after almost a decade in power, bowing to members of his party who have been calling on him to step aside ahead of an election later this year.

“It has become clear to me that if I’m having to fight internal battles, I cannot be the best option in that election,” Trudeau said in an announcement from the country’s capital, Ottawa.

Trudeau will stay on as prime minister until the party picks a new leader, a process that could take months, though currently March 24 is being noted. He also moved to suspend the current session of the legislature, to avoid facing a no-confidence vote in Parliament.

The Canadian will exit as one of the most unpopular political figures in the country, leaving his party in a weakened position and facing an uncertain economic future, with Donald Trump taking power in about ten days, Trump threatening to impose 25% tariffs on Canadian imports.

According to an Ipsos poll released last month, 73 percent of Canadians – including 43 percent of Liberal voters – believed Trudeau should step down as party leader.

Street Bytes

--Good news, i.e. today’s strong employment report, was bad news for stocks and bonds and the week overall was rather lousy, beginning with the pictures out of Los Angeles.

The Dow Jones fell 1.8% to 41938.  The S&P 500 dropped 1.9% and Nasdaq 2.3%.

Earnings season kicks into gear next week.

--U.S. Treasury Yields

6-mo. 4.30%  2-yr. 4.39%  10-yr. 4.78%  30-yr. 4.96%

Treasury yields on the longer end of the curve continued to rise this week, as investors remain on the alert for further signs of stubborn inflation or economic strength, and that was through Thursday.

Then we had Friday’s explosive jobs report and zoom!  Yields rose anew, as there was further evidence the Fed not only will be pausing at its Jan. 28-29 confab, but the likelihood of a further rate cut is not in the cards anytime soon.

The yield on the 10-year finished the week at 4.78%, up 18 basis points from last week.  Not good for those looking to buy a home, for one.

Bond yields across the pond have also been rising steeply, with the UK’s 10-year gilt, as its government bonds are called, hit their highest level since 2008, closing the week at 4.83%, after being above 4.90% earlier in the week.  Increasing levels of government borrowing and a lackluster economy are the issues here.

And befitting the global bond selloff, Japan’s 10-year yield spiked from 1.07% to 1.19%, the highest in over a decade.

--Michael Barr announced he will step down from his role as the Federal Reserve’s vice chair for supervision by Feb. 28, or sooner if President-elect Trump appoints a successor, the Fed said on Monday.

Barr will continue to serve on the central bank’s Board of Governors.  But in an interview, Barr said the decision to leave his role as vice chair of supervision was intended to sidestep a protracted legal battle with Trump that he believed could damage the central bank.

Some individuals in the incoming Trump administration wanted to fire Barr before his term as vice chair expired, but this could have involved a lengthy legal fight over whether an incoming president has the authority to remove someone from a Senate-confirmed position at an independent agency.

Fed Chair Jerome Powell has made a point of saying that the Fed is independent of the White House and that its decisions are not influenced by politics.  Powell has insisted that Trump lacks the legal authority to fire him from his role as Fed chair, which is also confirmed by the Senate.

Barr’s departure effectively freezes any bank regulatory actions until Trump names someone to the vice chairman role.

--President Biden banned new offshore oil and gas development across 625 million acres of U.S. coastal territory.  The ban rules out the sale of drilling rights in stretches of the Atlantic and Pacific oceans and the eastern Gulf of Mexico.

Biden is leaving the possibility open for new oil and natural gas leasing in the central and western areas of the Gulf of Mexico, which account for around 14% of the nation’s production of these fuels.

Despite what President-elect Trump says, it’s not necessarily that easy to overturn these executive orders.

Meanwhile, crude oil surged to its highest levels since October, driven by a drop in U.S. crude stockpiles.  Cold weather in the U.S. reduced inventory levels at the key Cushing, Oklahoma hub to their lowest since 2014.  The global oil market is tightening due to reduced supply from key exporters like Russia and Iran, as well as a demand for heating fuels.

And then there is the incoming Trump administration and fears surrounding U.S. policy that could disrupt energy flows.  West Texas Intermediate finished the week at $76.56.

--Constellation Energy agreed to buy Calpine, a matchup that combines two of the country’s largest electricity generators at a time when their product is in high demand from tech companies.

The roughly $26.6 billion cash-and-stock deal for the privately held Calpine includes the assumption of debt, Constellation said today.

The value of power generators has soared in the past year due in large part to artificial intelligence, demand for which requires massive amounts of electricity.

Constellation is the largest producer of nuclear power in the U.S., and Calpine is one of the largest generators of electricity from natural gas and geothermal sources.

Many of Calpine’s power plants are in Texas and California, giving Constellation a larger foothold in two of the most electricity-hungry states, in addition to expanding along the East Coast.

--Last Friday, President Biden decided to block the takeover of U.S. Steel by Japan’s Nippon Steel Corp., as I wrote then in WIR, “an extraordinary use of executive power, and a departure from America’s long-established culture of open investment.”

After I posted, in a joint statement, Nippon and U.S. Steel condemned the government’s ‘unlawful’ decision, adding “The President’s statement and Order do not present any credible evidence of a national security issue, making clear that this was a political decision.  Following President Biden’s decision, we are left with no choice but to take all appropriate action to protect our legal rights.”

Nippon and U.S. Steel then filed a federal lawsuit challenging the Biden administration’s decision to block the merger, reemphasizing that it was a political decision and violated the companies’ due process.

In a separate lawsuit filed in the U.S. District Court for the Western District of Pennsylvania, the companies accused steel-making rival Cleveland-Cliffs Inc. and its CEO, Lourenco Goncalves* of “engaging in a coordinated series of anticompetitive and racketeering activities” to block the deal.

*This is a bad guy...just my impression from observing him.

In 2023 before U.S. Steel accepted the buyout from Nippon, Cleveland-Cliffs offered to buy U.S. Steel for $7 billion.  U.S. Steel turned down the offer and later accepted a nearly $15 billion all-cash offer from Nippon Steel, which is the deal that Biden nixed Friday.

Jason Furman, chairman of President Obama’s Council of Economic Advisers, blasted President Biden’s move to block the deal.

“President Biden claiming Japan’s investment in an American steel company is a threat to national security is a pathetic and craven cave to special interests that will make America less prosperous and safe.  I’m sorry to see him betraying our allies while abusing the law.”

Editorial / Wall Street Journal

“President Biden’s order on Friday blocking Nippon Steel’s acquisition of U.S. Steel is an act of economic masochism that will harm U.S. manufacturing and security. It is also a corruption of the Committee on Foreign Investment in the United States (CFIUS) for raw political favoritism that will harm the U.S. reputation as a destination for capital.

“Nippon Steel’s friendly $15 billion takeover bid sought to reinvigorate the foundering U.S. Steel, but it fell victim to election politics and economic nationalism.  After Donald Trump came out against the deal, Mr. Biden pledged to kill it to curry favor with the United States Steelworkers.

“The economics of the deal make overwhelming sense for both U.S. Steel and its workers. The Japanese company promised $2.7 billion in fresh capital to modernize U.S. Steel’s aging plants and honor collective-bargaining agreements.  It offered workers $5,000 bonuses, made job guarantees, and agreed to let CFIUS block reductions in production capacity at U.S. Steel plants, among other political sweeteners.

“None satisfied United Steelworkers boss David McCall, who favors a tie-up with Cleveland-Cliffs, which was outbid by Nippon Steel in 2023. Cleveland-Cliffs CEO Lourenco Goncalves lobbied the White House to block the Nippon deal because he wants to create a steel-making cartel shielded from foreign competition by tariffs and Buy America rules.

“A Cleveland-Cliffs-U.S. Steel combo would control 100% of U.S. blast furnace production, 100% of domestic steel used in electric-vehicle motors, and 65% to 90% of other domestic steel used in vehicles.  But Cleveland-Cliffs – currently valued at $4.7 billion with $3.8 billion in debt – will struggle to find the money even to buy U.S. Steel, much less to invest enough to revitalize its factories....

“Investors worry that U.S. Steel might be sold off piecemeal in a bankruptcy.  U.S. Steel executives have warned that plants could be closed if the Nippon deal collapses.  How would this benefit workers? ....

“Perhaps more damaging here is the ugly public politicization of what is supposed to be the apolitical CFIUS review of investments for national security concerns.  Gerald Ford established CFIUS by executive order to deter Congress from enacting new restrictions on foreign investment.  CFIUS’ powers were initially limited to evaluating foreign investment and issuing reports, but Congress in 1988 let the President block foreign takeovers that threaten national security....

‘Yet now Mr. Biden is essentially redefining national security to include economic nationalism, which will introduce many new gates for political interference.  Unions and corporate competitors now know they can use CFIUS as another political lever to block investments they don’t like.  Foreign capital will become more cautious in investing in the U.S.

“Mr. Biden boasts about building U.S. alliances, but in this case he stuck a finger in the eye of an ally critical to containing China’s economic and military ambitions in the Pacific.  The President has blocked only a handful of foreign transactions, and most involved Chinese companies.  The State Department on Thursday green-lit a potential sale of air-to-air- missiles to Japan.  How is a Japanese investment a security threat?

“Nippon Steel on Friday threatened legal action over what it called a ‘clear violation of due process and the law governing CFIUS.’  The CFIUS committee ‘did not give due consideration to a single mitigation proposal,’ the Japanese firm said.  It added ‘the process was manipulated to advance President Biden’s political agenda’ and his order does ‘not present any credible evidence of a national security issue.’

“All of this is true, and it’s a shameful display by America’s political class.  Mr. Biden lacked the courage to stand up to Mr. McCall, and this demonstration of weakness is one more reason his Presidency can’t end soon enough.”

President-elect Trump vowed early in the presidential campaign that he would “instantaneously” block the deal, and he reiterated that sentiment in a post on his Truth Social platform Monday night.

“I am totally against the once great and powerful U.S. Steel being bought by a foreign company” and will use tax incentives and tariffs to make U.S. Steel “Strong and Great Again, and it will happen FAST!” he wrote.

“As President,” he continued, “I will block this deal from happening.  Buyer Beware!!!”

As I’ve said for the better part of a year on this matter, both Trump and Biden are idiots.

And we’ve also learned through reporting by the Wall Street Journal that President Biden went against his top national-security aides in making his decision.

“During closed-door discussions, national security adviser Jake Sullivan and Secretary of State Antony Blinken were among the foreign policy-minded aides pushing for options that could keep the deal alive, not wanting to damage a crucial relationship with an East Asia ally, according to officials.  Steve Ricchetti, counselor to the president, and other domestically focused staff said it was best to side with leaders of the United Steelworkers’ union, who had been vocal opponents of the deal since it was announced in December 2023, the officials said.”

--Nvidia Corp. CEO Jensen Huang announced a raft of new chips, software and services, aiming to stay at the forefront of artificial intelligence computing.

Huang took the stage at a packed arena in Las Vegas to kick off the CES trade show on Monday and present the new lineup, offering a vision for how AI will spread throughout the economy.  So he took the wraps off products such as AI to better train robots and cars, souped-up gaming chips and its first desktop computer. The company wants its products to be at the heart of a future tech world with a billion humanoid robots, 10 million automated factories, and 1.5 billion self-driving cars and trucks.

Huang outlined tie-ups with Toyota Motor Corp. and MediaTek Inc. that sent the shares higher, but then they fell back on Tuesday.

Shares in Asian chipmaking suppliers had surged before Huang’s presentation, and Microsoft had in the prior week announced plans to spend $80 billion on its AI data center buildout, much of which will be spent with Nvidia.

More than half of Microsoft’s projected spending through June 2025 will be in the U.S., President Brad Smith wrote in a blog post last Friday.  Recent AI progress is thanks to “large-scale infrastructure investments that serve as the essential foundation of AI innovation and use,” Smith wrote.

Cloud infrastructure providers like Microsoft and Amazon.com Inc. have been racing to expand computing capacity by constructing new data centers.  In the previous fiscal year ending in June 2024, Microsoft spent more than $50 billion on capital expenditures, the vast majority related to server farm construction fueled by demand for artificial intelligence services.

Much of the spending on data centers goes toward high-powered chips from companies including Nvidia Corp. and infrastructure providers such as Dell Technologies Inc.  Additionally, the massive AI-enabled server farms require lots of power.

On a different matter, Nvidia criticized new chip export restrictions that are expected to be announced soon, saying the White House was trying to undercut the incoming Trump administration by imposing last-minute rules.

The looming charges would cap the sale of U.S. AI chips on both a country and company basis – a move that would tightly limit exports to most of the world; part of a yearslong effort to keep the latest technology away from Russia and China.

“The extreme ‘country cap’ policy will affect mainstream computers in countries around the world, doing nothing to promote national security but rather pushing the world to alternative technologies,” Ned Finkle, Nvidia’s vice president of government affairs, said in a statement.

“It makes no sense for the Biden White House to control everyday data-center computers and technology that is already in gaming PCs worldwide, disguised as an anti-China move,” Finkle said.

--Taiwan Semiconductor Manufacturing Co.’s quarterly sales topped estimates, reinforcing investor hopes that the torrid pace of AI hardware spending will extend into 2025.

The go-to chipmaker for Nvidia and Apple Inc. reported a 39% rise in October-December revenue to NT $868.5 billion ($26.3 billion), capping 34% revenue growth for 2024, which compared with the company’s official target of a 30% annual rise.

--A record air travel year propelled Delta Air Lines to its best-ever annual revenue total, and CEO Ed Bastian sees the momentum carrying into 2025, with the most profitable year in the company’s 100-year history.

“Our brand is entering the new year with a great amount of momentum,” Bastian told reporters.  “We’re seeing growth in the corporate space, double digit growth in corporate bookings.  We’re seeing the international area...showing very healthy growth.”

The carrier posted full-year 2024 operating revenue of $61.6 billion.

For the fourth quarter, adjusted net income was $1.203 billion vs. $1.126 billion consensus; adjusted earnings per share came in at $1.85 vs. the Street’s $1.76; and revenue was $14.43 billion vs. $14.17bn expected.

Delta also anticipates full year 2025 earnings of $7.35 a share compared with analysts’ expectation of $7.22, Delta having reported an adjusted profit of $6.16 a share in 2024.

--Airbus said it had delivered 766 commercial aircraft in 2024, 31 more than in 2023, but fewer than it had hoped.  The firm’s narrow-body A320 accounted for 3/4s of deliveries.  Airbus now has a backlog of 8,658 aircraft orders, which at current production levels will take 12 years to clear, although the company hopes to speed up its assembly line.

--The first major snowstorm of the season this week caused havoc at many airports, with 1,800 flight cancellations across the U.S. on Sunday, and 2,300 Monday. 

And then we had 2,100 cancellations Thursday due to a second storm, 1,800 of which were at Dallas Love and DFW; and over 2,900 today, most of these at DFW, Charlotte and Atlanta.

Northern Europe, including Ireland and the UK, suffered from heavy snow and freezing rain this week.

Freezing weather across northwest Europe put further pressure on gas inventories, but southern and eastern Europe are unseasonably warm.

--Two bodies were discovered in the landing gear compartment of a JetBlue plane on Monday after a flight from New York’s JFK to Fort Lauderdale, Fla., the airline said in a statement.

The bodies were discovered during a routine post-flight maintenance assessment of the aircraft, the airline said.  It was unclear how long the people had been in the landing gear compartment.

Personally, I would have taken the auto train.

--TSA checkpoint numbers vs. 2024

1/9...114 percent of 2024 levels
1/8...86
1/7...80
1/6...101
1/5...113
1/4...111
1/3...106
1/2...102

--A potential big story for next week was going to involve 45,000 U.S. longshoremen who have been threatening to go on strike again, which would have shut down ports on the East and Gulf coasts, damaging the American economy just as President-elect Trump returns to the White House.

But on Wednesday, port terminal operators and the union reached a tentative deal that must still be voted on by union members but offers new protections against automated technology replacing jobs in addition to the previously agreed upon hefty wage gains of 62% over six years.

The tentative deal includes a compromise allowing the ports to implement new technology that modernizes the shipyards provided that specific jobs will be added alongside that technology, according to reports.

--San Francisco’s police department canceled all time off for its officers during a major healthcare industry conference next week, the department told Barron’s, just over a month after a gunman killed UnitedHealth Group’s CEO Brian Thompson in Manhattan.

The conference, hosted by J.P. Morgan, is the biggest yearly gathering of healthcare investors and executives, and is expected to draw more than 8,000 attendees.

--Anthropic is in advanced talks to raise $2 billion in a deal that would value it at $60 billion, making it the latest AI startup to seize upon investor euphoria for the technology.

The funding round is being led by the venture firm Lightspeed Venture Partners, and would make Anthropic the fifth-most valuable U.S. startup after SpaceX, OpenAI, Stripe and Databricks, according to data provider CB Insights.  It was valued last year at $18 billion in a round led by Menlo Ventures.

OpenAI raised $6.6 billion in an October round that nearly doubled its value to $157 billion.

Two other startups, Elon Musk’s XAI and Perplexity, subsequently raised money at substantially increased valuations.

Amazon has committed $8 billion to Anthropic, with the latter developing and operating its technology in data centers operated by Amazon and Google, which has also invested billions of dollars in the startup.

--Apple is facing calls to withdraw its controversial AI feature that has generated inaccurate news alerts on its latest iPhones.

The product is meant to summarize breaking news notifications but has in some instances invented entirely false claims.

The BBC complained to Apple about its journalism being misrepresented in December but Apple did not reply until this Monday, when it said it was working to clarify that summaries were AI-generated.

The National Union of Journalists (NUJ), one of the world’s largest unions for journalists, said Apple “must act swiftly” and remove Apple Intelligence to avoid misinforming the public – echoing prior calls by journalism body Reporters Without Borders.

The BBC complained last month after an AI-generated summary of its headline falsely told some readers that Luigi Mangione, the man accused of killing UnitedHealthcare CEO Brian Thompson, had shot himself.

Apple summarized another BBC app notification that tennis star Rafael Nadal had come out as gay, and that Luke Little had won the PDC World Darts Championship hours before it began.

“These AI summarizations by Apple do not reflect – and in some cases completely contradict – the original BBC content,” the BBC said on Monday.

Apple stock has also been sucking wind recently due to recent analyst downgrades and concerns demand for its iPhones and Apple Intelligence is weaker than the company is touting.

--According to a report from Bloomberg Intelligence, “Global banks will cut as many as 200,000 jobs in the next three to five years as artificial intelligence encroaches on tasks currently carried out by human workers.

“Chief information and technology officers surveyed for BI indicated that on average they expect a net 3% of their workforce to be cut.

“Back office, middle office and operations are likely to be most at risk,” according to Tomasz Noetzel, the BI senior analyst who wrote the report.

“Any jobs involving routine, repetitive tasks are at risk,” he said.  “But AI will not eliminate them fully, rather it will lead to workforce transformation.”

Nearly a quarter of the 93 respondents predict a steeper decline of between 5% and 10% of total headcount.

--Walgreens Boots Alliance beat analysts’ lowered expectations for first-quarter adjusted profit and maintained its annual forecast on Friday, as the healthcare firm benefits from CEO Tim Wentworth’s efforts to turn around its business.

The company’s shares, which fell more than 60% in 2024, rose over 20% in early trading.

Walgreens, which operates the second-biggest pharmacy chain in the U.S. and Boots stores in the UK, has launched multiple rounds of store closures to improve its profit and cash position.  The company is closing more than 1,200 stores over the next three years and removing multiple mid-level executives.

“While our turnaround will take time, our early progress reinforces our belief in a sustainable, retail pharmacy-led operating model,” Wentworth said in a statement.

Walgreens reported adjusted earnings of 51 cents per share for the quarter, vs. expectations of 37 cents.  Revenue of $39.46 billion also beat the Street’s $37.36bn.

--Shares in Constellation Brands plunged over 15% today after the company reported sales and earnings that missed expectations while cutting its guidance.

Constellation’s two business segments – beer, wine and spirits – have been on different paths.  Beer sales are strong, thanks to brands like Modelo Especial, No. 1 in the U.S., Corona Extra and Pacifico.

The wine and spirit business, however, is struggling, with sales falling 14% in the fiscal third quarter.

And now you have the tariff concerns for Mexican goods.  So, personally, I’d be stockin’ up on the beer the next few weeks, people, despite what the Surgeon General says. 

--A Bluefin tuna sold for $1.3 million at a predawn auction in Tokyo on Sunday morning, making it one of the most expensive tuna to be sold in the history of sushi.

The 608-pound fish, equivalent in weight to a typical male grizzly bear, was caught Saturday morning off the coast of Oma in northern Japan, according to Japan’s Kyodo News agency.  The fish was then sold to a Michelin-starred Japanese sushi restaurant chain.

Onodera Group said it intended to make the fish available on sushi menus at 13 of its restaurants.

Think about the cost of a sashimi slice given the tuna fetched over $2,100 per pound.

In 2019, a 613-pound Oma tuna fish at the same Tokyo market fetched $3.1 million, making it the most expensive fish to be sold since records began in 1999.

Pacific bluefin tuna migrate back and forth from the shores of Japan to California in a remarkable journey.

I didn’t see what the fisherman’s commission is. [Leo Sands / Washington Post]

--McDonald’s is looking for a fresh start in 2025 following a lackluster 2024 in terms of sales amidst its E. coli outbreak.

So its introducing a new national value platform, McValue.

After its $5 meal deal launched last June, the company saw a slight boost in foot traffic, but then the E. coli outbreak hit in October.

The $5 meal deal is back, along with a buy one, add one for $1 option, together with local deals and in-app exclusives.

The McValue platform was to have started this week.

--Oreo cookies are introducing some new options, including Irish Crème Thins. Oh baby....

--

Foreign Affairs, Part II

Syria: Iranian forces have largely withdrawn from Syria following the Assad regime’s collapse last month, according to U.S., European and Arab officials, in a significant blow to Tehran’s strategy for projecting power in the region.

For years, Tehran used Syria as a hub in its broader strategy of partnering with regimes and allied militias to spread influence and wage proxy war against the U.S. and Israel.  Iranian-backed armed groups in Syria have launched attacks on U.S. forces and aided in attacks on Israel.  Members of Iran’s elite Quds Force have returned to Iran and the militia groups have disbanded, according to U.S. officials.

In the north, more than 100 combatants were killed last weekend in fighting between Turkish-backed groups and Syrian Kurdish forces, a war monitor, the Syrian Observatory for Human Rights, said on Sunday.

The clashes in several villages around the city of Manbij left 101 dead, including 85 members of the pro-Turkish groups and 16 from the Kurdish-dominated Syrian Democratic Forces (SDF), which is backed by the U.S.

The SDF controls vast areas of Syria’s northeast where the Kurds created an autonomous administration following the withdrawal of government forces during the civil war that began in 2011.

Ankara considers the SDF an extension of the Kurdistan Workers Party (PKK), which has fought a decades-long insurgency in southeastern Turkey and is banned as a terrorist organization by the government.

Turkish President Erdogan said Monday, “We can not accept under any pretext that Syria be divided and if we notice the slightest risk we will take the necessary measures,” he said, adding, “we have the means” and “we could intervene in one night,” he warned.

Ahmed al-Sharaa, Syria’s new leader and head of HTS, has previously said the SDF would be integrated into the country’s future army.

Israel: The ceasefire between Israel and Hezbollah is being strained as the two sides accuse each other of violations and the U.S. races to make sure the deal holds.

Israel still has troops on the ground in Lebanon and has continued to regularly strike Hezbollah infrastructure and weapons depots.  In a complaint to the UN Security Council, Lebanon accused Israel of some 800 land and air attacks since the ceasefire came into effect on Nov. 27.

Israel has repeatedly accused Hezbollah of maintaining fighters and weapons including rockets in the south that threaten its security, also in violation of the two-month truce.

The deadline for Israeli troops to leave is Jan. 26.  Under the terms of the truce, the U.S.-backed Lebanese military is to move in as Israel leaves and work with UN peacekeepers to keep the area clear of the Hezbollah militia.

But Israel is concerned that the undermanned, outgunned Lebanese military isn’t up to the task of preventing Hezbollah from returning and rebuilding near the border areas.

Israeli Defense Minister Israel Katz said over the weekend that if Lebanon’s army isn’t up to the task, “there won’t be a deal.”

In Gaza, Israeli airstrikes continue, killing at least 17 in the south late Tuesday, nearly all of them women and children, the Health Ministry and hospital officials said, specifically noting eight children and five women brought to nearby Nasser Hospital afterwards.

The Israeli military (IDF) said it was targeting militants without providing evidence.

At the same time, Israel’s continued military operations in Syria are drawing increasing international condemnation, with some UN member states noting that Israel is violating a decades-long cease-fire by sending its troops within and beyond a buffer zone between the countries.

The buffer zone was established by the Security Council in 1974 after the 1973 war.

Thursday, Lebanon’s parliament voted to elect the country’s army commander, Joseph Aoun, as head of state, filling a more than two-year-long presidential vacuum.

Joseph Aoun is no relation to former president Michel Aoun, and Joseph was widely seen as the preferred candidate of the United States and Saudi Arabia, whose assistance Lebanon will greatly need as it seeks to rebuild.

Hezbollah’s candidate announced he had withdrawn from the race and endorsed Aoun, clearing the way for the army chief.

China: Taiwan is investigating whether a ship linked to China is responsible for damaging one of the undersea cables that connects Taiwan to the internet, the latest reminder of how vulnerable Taiwan’s critical infrastructure is to damage from China.

The incident comes as anxiety in Europe spreads over apparent acts of sabotage, including ones aimed at such undersea communication cables.  Two fiber-optic cables under the Baltic Sea were severed in November, prompting officials in Sweden, Finland and Lithuania to halt a Chinese-flagged commercial ship in the area for weeks over its possible involvement.

In Taiwan, communications were quickly rerouted after the damage was detected, and there was no major outage.  The damaged cable is one of more than a dozen that help keep Taiwan online.

South Korea: The anti-corruption agency asked police to arrest President Yoon Suk Yeol after its own attempt to do so last Friday was thwarted by presidential guards.  Over the weekend thousands took to the streets, both protesting against, and in support, of the impeached president.

A South Korean court dismissed an appeal by lawyers of Yoon Suk Yeol against the arrest warrant.

Thursday, Yoon’s lawyer said the president will accept the decision of the Constitutional Court that is trying parliament’s impeachment case against him, even if it decides to remove the suspended leader from office.

“So if the decision is ‘removal,’ it cannot but be accepted,” Yoon’s lawyer said.

Rulings by the court cannot be appealed.

North Korea: Pyongyang fired what appeared to be an intermediate-range ballistic missile towards the sea to its east, South Korea’s military said, in what was Pyongyang’s first missile launch in two months.

The missile flew 1,100km (680 miles) before falling into the sea, the military said, adding that it “strongly condemns” this “clear act of provocation.”

The launch came as Secretary of State Antony Blinken visited Seoul for talks with some of SK’s leaders, amidst the political chaos.

Venezuela: Opposition leader Maria Corina Machado was detained Thursday by President Nicolas Maduro’s regime, the opposition said, after emerging from months in hiding.

Machado was detained after a surprise appearance at a protest in Caracas, where Venezuelans rallied to oppose Maduro’s plans to inaugurate himself Friday, Machado’s party said on X.

“Regime forced fired on the motorcycles that were transporting her,” Machado’s party said in a statement.  Machado’s team said it was working to confirm her current situation.

Moments earlier, she had addressed a crowd of supporters that had heeded her call for demonstrations.

Maduro is clinging to power despite evidence that he lost an election in July against opposition candidate Edmundo Gonzalez.

Random Musings

--Presidential approval ratings....

Gallup: 39% approve of President Biden’s job performance, 56% disapprove; 37% of independents approve (Dec. 2-18).

Rasmussen: 44% approve, 54% disapprove (Jan. 10).

--President Biden gave a lengthy, exclusive exit interview to USA TODAY’s Susan Page.

PAGE: Do you believe you could have won in November?

BIDEN: It’s presumptuous to say that, but I think yes, based on the polling that...

PAGE: Do you think you would’ve had the vigor to serve another four years in office?

BIDEN: I don’t know.  That’s why I thought when I first announced, talking to Barack about it, I said I thought I was the person. I had no intention of running after Beau died – for real, not a joke. And then when Trump was running again for reelection, I really thought I had the best chance of beating him. But I also wasn’t looking to be president when I was 85 years old, 86 years old. And so I did talk about passing the baton. But I don’t know.  Who the hell knows?  So far, so good. But who knows what I’m going to be when I’m 86 years old?

This is insane.  I read a transcript of the whole interview.  It’s all gibberish...freakin’ gibberish.

Bret Stephens / New York Times

“(Biden’s) presidency (will) be remembered for four big illusions – and four big deceptions. They will not serve his legacy well.

“The illusions: first, that the 2021 surge in migration was seasonal (‘happens every single solitary year,’ as Biden said that March); second, that the Taliban would not swiftly seize Afghanistan (‘the likelihood there’s going to be the Taliban overrunning everything and owning the whole country is highly unlikely,’ as he said that July); third, that inflation was transitory (‘Our experts believe, and the data shows, that most of the price increases we’ve seen are expected to be temporary,’ also that July).

“The fourth, and the biggest: that he was the best Democratic candidate to defeat Donald Trump: ‘I beat him once, and I will beat him again,’ he often insisted, even after the debate debacle.

“That last illusion was pure hubris. But there was an arrogance to the first three, since he was loudly alerted (including by, well, me) on each point that he was making a fundamental mistake. The White House spent months in 2021 refusing to use the term ‘crisis’ for the border – it was, instead, a ‘challenge.’  Pentagon leaders warned the president that the Afghan government would soon collapse if the United States withdrew. Biden shrugged.  Larry Summers was outspoken about the inflationary risks of Biden’s $1.9 trillion stimulus package. Biden ignored that, too.

“Those misjudgments doomed the Biden presidency, which never had a positive approval rating after the Afghan withdrawal. Maybe senior Democrats like Nancy Pelosi could have helped their party’s chances if they had had the talk with Joe and Jill Biden about his re-election prospects in the spring of 2022 instead of the summer of 2024.  It was left to Dean Phillips, the former Minnesota representative, to play the part of the boy who says the emperor has no clothes.  Someone ought to nominate him for a Profile in Courage Award.

“Behind the misjudgments were the deceptions.

“Biden ran in 2020 on the implicit but clear pledge that he intended to serve a single term. (‘If Biden is elected, he’s going to be 82 years old in four years,’ one campaign adviser told Politico in 2019, ‘and he won’t be running for re-election.’)  He promised to be a bipartisan and moderate figure in the White House: ‘Unity’ was the theme of his Inaugural Address.  He, along with his entire administration, insisted he was mentally and physically fit to serve a second term. And he promised not to pardon his son Hunter if he were convicted of crimes....

“Worst of all were the last two deceptions.  Last month, the Wall Street Journal published a comprehensive and devastating report on the president’s failing health.  The paper reported that a former aide recalled a national security official saying, ‘He has good days and bad days, and today was a bad day so we’re going to address this tomorrow’ – in the spring of 2021.  Perhaps the president didn’t notice his own decline, so the deception might not have been his.  But his entire senior staff must have noticed, and, as The Journal reported, they took advantage of it to enhance their own power.  It’s a national scandal that deserves a congressional inquiry.

“And Hunter?  A father’s love is admirable.  A president’s lie is not.  In one of his last major political acts in office, Joe Biden forgot who he was. But it seems as if that already happened years ago.  History won’t be kind.”

Yup, I’ve been saying it for years, history won’t be kind.  It takes 50, 75 years, but Joe Biden will be bottom five, especially as the books get written...the insider accounts.  Jill Biden also goes down in history as a disgraceful figure.

--A divided Supreme Court on Thursday rejected President-elect Trump’s request to block Friday’s sentencing in his New York hush-money criminal case, guaranteeing that Trump will carry the label “convicted felon” when he returns to the White House.

Trump wanted to leapfrog over the normal appeals process, arguing that the “burden, disruption, stigma, and distraction” of the sentencing is too intrusive on his preparations for returning to the White House on Jan. 20.

But that’s despite the fact that his sentencing had been delayed until after the election at Trump’s request.  And New York Judge Juan Merchan has already indicated the president-elect won’t get prison time, a fine or probation while his appeals continue.

Chief Justice John Roberts and Justice Amy Coney Barrett joined the court’s three liberals in the 5-4 decision.

A one-paragraph order said the “burden that sentencing will impose on the President-Elect’s responsibilities is relatively insubstantial,” given the lack of jail time and that Trump can appear for the hearing via video feed.

The justices added that evidence presented at his trial can be addressed “in the ordinary course on appeal.”

So, Friday, Judge Merchan sentenced Trump to no punishment, saying the extraordinary protections of the presidency insulated Trump from more substantial penalties.

“Donald Trump, the ordinary citizen, Donald Trump, the criminal defendant, would not be entitled to such considerable protections,” Merchan told Trump.

But, the judge added, those protections “do not reduce the seriousness of the crime or justify its commission in any way.”

Trump appeared with his attorney virtually from Mar-a-Lago.

After imposing the sentence, the judge told Trump, “Sir, I wish you godspeed as you assume your second term in office.”

Separately, a federal appeals court on Thursday denied a bid to block the public release of special counsel Jack Smith’s report on President-elect Donald Trump’s efforts to overturn his 2020 election loss.

The report will not be immediately released and there’s no guarantee it will be as more legal wrangling is expected.

--The House passed a bill on Tuesday that would target undocumented immigrants charged with nonviolent crimes for deportation, an opening salvo from a Republican majority that has vowed to deliver on President-elect Trump’s promised crackdown at the border.

The measure, which passed in a bipartisan vote, 264 to 159, with 48 Democrats as well as all Republicans, appears to be on a path to enactment, having garnered bipartisan backing in the Senate, which plans to take it up on Friday.  It is named after Laken Riley, the 22-year-old nursing student who was killed last year in Georgia by a migrant who had crossed into the United States illegally and was arrested and charged with shoplifting but was not detained.

--Elon Musk has been, in the words of the Wall Street Journal, “throwing grenades into Europe’s political mainstream over issues ranging from immigration to free speech, creating a dilemma for governments as they try to respond to the tech billionaire and key adviser to the incoming Trump administration.”

Musk has been issuing one incendiary post after another on X to his 211 million followers, setting the news agenda in several European countries, and “Europe’s unpopular leaders worry that Musk could use X to mobilize disenchanted voters at a time when weak economic growth has eroded trust in mainstream politics and stoked political instability.”

French President Emmanuel Macron: “Ten years ago if someone had told us the owner of one of the world’s biggest social-media companies would support a new international reactionary movement and intervene directly in elections, including in Germany, who would have imagined that?”

In Germany, some strategists and politicians worry Musk’s personal views could end up influencing a general election this February, as I’ve been noting for weeks with Musk’s support and endorsement of the far-right AfD party.

Well, Musk then held an extraordinary interview on X with AfD leader Alice Weidel on Thursday.

“People really need to get behind AfD, otherwise things are going to get very, very much  worse in Germany,” Musk said. “I think Alice Weidel is a very reasonable person.  Nothing outrageous is being proposed.”

--Last week’s Las Vegas Cybertruck bomb suspect, Matthew Livelsberger, a 37-year-old from Colorado Springs who was a master sergeant in the Army special forces, was a supporter of Donald Trump and Elon Musk, as well as an active-duty Green Beret with PTSD who left notes in his phone stating he believed the U.S. was “headed toward collapse,” authorities said last Friday after accessing one of two phones found at the scene.  He’d also been experiencing marital problems just days before the incident occurred, officials told the New York Post.

But from the soldier’s troubled perspective, “This was not a terrorist attack. It was a wake-up call,” one of his notes read, according to Assistant Sheriff Dori Koren of the Vegas police.  “Americans only pay attention to spectacles and violence,” Livelsberger wrote.  “What better way to get my point across than a stunt with fireworks and explosives?”

What was his “point” or message? “Masculinity is good and men must be leaders,” he wrote in one of his notes.  The U.S. must “focus on strength and winning” and “weed out those in our government and military who do not idealize” masculinity and strength, according to the soldier – who also called on military personnel, veterans, and militias to “move on DC starting now.”

Livelsberger encouraged insurrection in Washington, urging those with a like mind to “Occupy every major road along fed[eral] buildings and the campus of fed[eral] buildings by the hundreds of thousands.  Lock the highways around down with semis right after everybody gets in.  Hold until the purge is complete.”

“Try peaceful means first, but be prepared to fight to get the Dem[ocrat]s out of the fed[eral] government and military by any means necessary,” he advised.  “They all must go and a hard reset must occur for our country to avoid collapse...Rally around Trump, Musk, Kennedy, and ride this wave to the highest hegemony for all Americans!” said the deceased soldier.  [Defense One]

From the FBI: “Although this incident is more public and more sensational than usual, it ultimately appears to be a tragic case of suicide involving a heavily decorated combat veteran who is struggling with PTSD and other issues,” Spencer Evans, the special agent in charge of the Las Vegas field office, said Friday.

--President Biden, in a Washington Post op-ed, urged Americans not to rewrite, or forget, Jan. 6, 2021.

“I think it should not be rewritten, I don’t think it should be forgotten,” he told reporters at the White House on Sunday afternoon, which he then expanded upon in the opinion piece.

“But I don’t think we should – if you notice, I’ve reached out to make sure the smooth transition, we’ve got to get back to basic, normal transfer of power. I don’t think we should pretend it didn’t happen.”

Speaking about Trump specifically, Biden added: “I think what he did was a genuine threat to democracy, and I’m hopeful that we’re beyond it.”

In the op-ed, Biden wrote: “For much of our history, this proceeding was treated as pro forma, a routine act. But after what we all witnessed on Jan. 6, 2021, we know we can never again take it for granted.”

Biden added that efforts need to be made to not forget what transpired.

“An unrelenting effort has been underway to rewrite – even erase – the history of that day,” he wrote.  “To tell us we didn’t see what we all saw with our own eyes. To dismiss concerns about it as some kind of partisan obsession.  To explain it away as a protest that just got out of hand.  This is not what happened.”

He called on the country to remember Jan. 6, 2021, every year, in ways that seem to invoke the way that the country marks other tragic days, such as 9/11.

Trump in recent days has continued to criticize then-Vice President Mike Pence over his role in certifying the 2020 election results, declaring Biden the winner.  Trump has also pledged to pardon people convicted in the Jan. 6, 2021, insurrection within minutes or hours of taking office.

The president-elect has called Jan. 6 a “day of love.”

Monday, Vice President Kamala Harris then took the gavel for what had been a ceremonial afterthought, prior to 1/6/2021, in certifying the election results ahead of the Jan. 20 inauguration.

Editorial / Wall Street Journal

“President Trump can’t change what happened four years ago on Jan. 6, when a mob of his supporters stormed the U.S. Capitol in an impossible effort to undo his 2020 election loss.  Soon, though, Mr. Trump will get the power to extricate the riot’s participants from the legal consequences of their actions.  How far will he go?  ‘A vast majority should not be in jail,’ he said recently.

“Scanning the latest case activity, what jumps out isn’t sympathetic characters.  On Dec. 20 a prison sentence of 48 months was given to 31-year-old Joshua Lee Atwood, who pleaded guilty to assaulting law enforcement.  He emptied a can of pepper spray at police, beat them with a pole, and pelted them with objects such as a ‘metal scaffolding pipe.’  He yelled that the cops were ‘pieces of s---’ and ‘betraying our country.’  The prosecution’s sentencing memo says his criminal history includes a pending felony case for an alleged 2023 stabbing.

“On Dec. 17 a 60-month sentence was given to Michael Bradley, 50, who apparently went to the Capitol on Jan. 6 with his own metal baton in a hip holster. He swung it at police more than once, though video at his trial couldn’t conclusively prove whether he made contact.  The government also says he lied to the FBI and at trial.  He claimed it was really a flashlight holster on his hip, but the one he brought to court didn’t match the footage.  His list of priors includes a 2002 conviction for meth trafficking....

“This was the brutal reality of the Capitol riot that many want to forget....

“On Dec. 6 a prison sentence of 12 months was given to Philip Sean Grillo, 50, for a jury conviction of four misdemeanors. He isn’t accused of specific violence, but he was at the Capitol early with a bullhorn, yelling, ‘Charge!’  He climbed into the building through a broken window and was part of a group that pushed past police to open doors for others. He smoked marijuana inside.  He was no lost tourist.  ‘I’m here to stop the steal,’ he said.  Later: ‘We f----- did it, baby, you understand?  We stormed the Capitol!’

“Sentencing him was Judge Royce Lamberth, a Reagan appointee.  ‘Having read dozens of indictments related to January 6,’ he wrote, ‘I can say confidently: nobody has been prosecuted for protected First Amendment activity.  Nobody is being held hostage.  Nobody has been made a prisoner of conscience.  Every rioter is in the situation he or she is in because he or she broke the law, and for no other reason.’

“As Mr. Grillo was preparing to be led off by U.S. Marshals, CNN reports he shouted a final word: ‘Trump’s gonna pardon me anyways.’”

--A Louisiana patient who had been hospitalized with bird flu has died of the disease, the Louisiana Department of Public Health reported Monday.

The patient was over 65 and reported to have underlying medical conditions.

The person contracted bird flu, H5N1, after contact with a combination of a backyard flock and wild birds, the health department said in a news release.  The department declined to release any more information about the patient to protect their privacy.

No one else appears to have been infected with bird flu, either from birds or from the sick patient, in Louisiana, the department said.

--According to Copernicus Climate Change Service, the European Union monitoring agency, 2024 was indeed the first year in which global temperatures averaged more than 1.5 degrees  Celsius, or 2.7 degrees Fahrenheit, above those the planet experienced at the start of the industrial age.

“We are facing a very new climate and new challenges, challenges that our society is not prepared for,” said Director Carlo Buontempo.

--The service for Jimmy Carter was very moving and perhaps best summed up by Gerald Ford’s eulogy, read by son Steven Ford:

“He was given the gift of years, and the American people and the people of the world will be forever blessed by his decades of good works.  Jimmy Carter’s legacy of peace and compassion will remain unique as it is timeless.”

Rev. Andrew Young, 92, was also amazing. What a life he too has had.

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Pray for the victims and their families in Los Angeles, and the First Responders.

God bless America.

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Gold $2716
Oil $76.56

Bitcoin: $94,853 [4:00 PM ET, Friday]

Regular Gas: $3.06; Diesel: $3.54 [$3.07 - $3.94 yr. ago]

Returns for the week 1/6-1/10

Dow Jones  -1.8%  [41938]
S&P 500  -1.9%  [5827]
S&P MidCap  -1.7%
Russell 2000  -3.4%
Nasdaq  -2.3%  [19161]

Returns for the period 1/1/25-1/10/25

Dow Jones  -1.4%
S&P 500  -0.9%
S&P MidCap  -0.7%
Russell 2000  -1.8%
Nasdaq  -0.8%

Bulls 52.4
Bears 19.7

Hang in there.  The sun will come up tomorrow.  Or so they say....

Brian Trumbore

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