Week in Review

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Week in Review

06/15/2024

For the week 6/10-6/14

[Posted 4:30 PM ET, Friday]

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Edition 1,313

The Group of 7 leaders of the West gathered at an Italian resort in Fasano, overlooking the Adriatic Sea, hosted by Italy’s Prime Minister Giorgia Meloni, who ends up being the only one of the seven secure in her position after a string of election setbacks and looming losses for her compatriots, with Britain’s Rishi Sunak, France’s Emmanual Macron, and Germany’s Olaf Scholz standing out in the short term, as I get into great detail on down below in my European Parliament elections wrap-up.

Sunak and Macron have to deal with snap elections in just the next few weeks, and Scholz’s party was humiliated in the parliament results.

President Biden faces potential defeat in November, and physically continues to deteriorate by the week.  Japan’s Prime Minister Fumio Kishida faces rising unrest within his Liberal Democratic Party and could lose his job this fall.  And Justin Trudeau of Canada has a disenchanted public after more than eight years in office.

But President Biden did sign a 10-year security pact with Ukraine and President Volodymyr Zelensky, which guarantees a supply of weapons, intelligence support, advice and technology needed to win the war and deter a new one, though it’s doubtful the flourishing words will amount to the urgent action Ukraine needs.

The U.S. is also taking the lead, in cooperation with the European Union, in providing Ukraine with a $50 billion loan to rebuild its devastated ports and power plants and to buy weapons.  The money is to be repaid from interest generated from $300 billion in assets that Vladimir Putin, inexplicably, left in Western financial institutions before his February 2022 invasion.

Ukraine also signed a security pact with Japan on Thursday and, at an international conference in Berlin this week, secured more than $15 billion in promised aid from Western partners to help rebuild the country.

But the security agreement between the U.S. and Ukraine is not a treaty and could be terminated under a President Trump, ditto a successor to Emmanuel Macron and any joint agreements France has with Kyiv, for example.

And the damage done in just the past few months to Ukraine’s power grid has been devastating and not easily fixed, let alone if you commit to rebuilding a plant, Russia can just blow it up again.

Putin then said on Friday that the West’s current model of global security had collapsed, and it needed to find a way to work with Russia.  In a speech at Russia’s Foreign Ministry, Putin said the world had reached a point of no return due to what he said was the collapse of the “Western model” of global security, and it was time to create a new and more stable system in its place.  Gee, thanks, Vlad, for the advice.

Putin then spelled out Russia’s preconditions for starting peace talks with Ukraine.  He said Russia would be ready for such talks “tomorrow” if Ukrainian troops withdraw from the Zaporizhzhia, Kherson, Donetsk and Luhansk regions, the four provinces claimed by Moscow, and if Ukraine gave up its plans to join NATO.  If Ukraine agreed to these conditions, Putin said Russia would cease fire and start negotiations.

Ukraine dismissed the conditions as “absurd.”  Kyiv’s foreign ministry said: “It is absurd for Putin, who planned, prepared and executed, together with his accomplices, the largest armed aggression in Europe since the Second World War, to present himself as a peacemaker.”

Peace talks, organized by Ukraine, are going to be held in Switzerland next week.  Russia was not invited.

Editorial / Wall Street Journal

“There is little doubt that the weakness on display in Fasano this week [Ed. i.e., the political plight of six of the seven leaders] hardly makes the leaders in Moscow, Beijing and Tehran worry  about the collective resolve of the leading democracies. This lack of leadership is especially dangerous when the enemies of the West are filled with grim resolve and are increasingly working together.

“This isn’t a counsel of despair, or resignation.  The Western democracies have hit low points in the past, and eventually new leaders emerged to meet the moment. The free world needs those leaders now. The politician to look for is someone who tells voters the truth about the dangers ahead – and the policies needed to revive economies and deter war.”

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Israel and Hamas....

--Saturday morning, I was watching the news when the headline hit that Israel had rescued four hostages in Gaza and in the immediate aftermath it was unclear exactly how this transpired.  Soon after we learned the operation was part of a raid that Palestinian officials initially said had killed 200 people, and then the death toll rose to 274 hours later.  Israel said the death toll was more like 100.  While women and children were among the victims, it was not known how many were militants embedded among the civilians. 

Israel’s forces came under intense fire during the assault and responded by firing “from the air and from the street,” Israeli military spokesperson Rear Admiral Daniel Hagari said.  An Israeli special forces commander was killed during the operation, a police statement said.

The four rescued hostages, ages 26, 22, 27 and 41, were in generally good health, all things considered, but suffering from malnutrition.  They were kidnaped from the Nova music festival during the deadly Oct. 7 attack by Hamas-led militants on Israeli towns and villages near Gaza.

Yoav Gallant, Israel’s defense minister, hailed what he called a “complex operation” by Israeli soldiers, special forces and intelligence, who he said had “operated with extraordinary courage under heavy fire.”

According to Israel, after the rescue, there are 116 hostages remaining in Gaza, including at least 40 of whom Israeli authorities have declared dead in absentia.

A spokesperson for Hamas’ al-Qassam Brigades said some hostages were killed during the rescue operation, specifically three, including a U.S. citizen, per a video posted on its Telegram channel on Sunday.

The hostage rescue and accompanying air assault took place in central Gaza’s al-Nueirat, a densely built-up and often embattled area.

Hamas said today, Friday, on Telegram that two more Israeli hostages were killed in an Israeli airstrike on Rafah a few days ago.  It’s impossible to know if Hamas was claiming two new victims or was this part of its earlier announcement.

--Also Saturday, an Israeli air strike on the outskirts of Aitaroun in southern Lebanon killed two people, Lebanese state news agency reported.  Israel said it was targeting a Hezbollah militant in the area.

--Israeli war cabinet minister Benny Gantz announced on Sunday that he was quitting the emergency unit government formed shortly after the Oct. 7 attack.  His departure still leaves Netanyahu’s nationalist-religious coalition in control of parliament with a 64-seat majority in the 120 seat Knesset.

Gantz, a former armed forces chief and defense minister, heads the centrist National Unity party which holds eight seats. Netanyahu’s conservative Likud party, the largest faction, has 32 parliament seats.  Settler party Religious Zionism, headed by Finance Minister Bezalel Smotrich, holds seven seats. Ultra-nationalist Jewish Power, headed by National Security Minister Itamar  Ben-Gvir, and Noam hold six and one seats, respectively.  The ultra-Orthodox Jewish parties Shas and United Torah Judaism hold 11 and 7 seats, respectively.

“Netanyahu is preventing us from advancing toward true victory.  That is why we are leaving the emergency government today, with a heavy heart but with full confidence,” Gantz said at a televised news conference.  Gantz had originally been expected to announce his resignation on Saturday but pushed back the statement following the dramatic rescue of the hostages.

--The Israeli military said Tuesday that four Israeli soldiers had been killed and several more wounded, at least two seriously, after militants blew up a building where the troops were operating in Rafah.

The Qassam Brigades, Hamas’ military wing, said in a statement that it had booby-trapped the building where the soldiers were operating.

The apparent ambush targeted an Israeli reconnaissance unit that was scouting what the soldiers thought was a tunnel shaft inside a three-story building, according to Israeli media.

--The UN Security Council on Monday backed a proposal outlined by President Biden for a ceasefire between Israel and Hamas and urged the Palestinian militants to accept the deal.

Russia abstained from the vote, while the remaining 14 Security Council members voted in favor of the resolution supporting a three-phase ceasefire plan laid out by Biden on May 31 that he described as an Israeli initiative.

--Hamas then delivered its response to the proposal to Egypt and Qatar, and according to reports, the group wanted changes before committing to a deal.

In a joint press statement, Hamas and Islamic Jihad, both designated terror groups by the U.S. and European Union, said: “The response prioritizes the interests of our Palestinian people, and the necessity of completely stopping the ongoing aggression against the Gaza Strip.”

While the U.S. says it was evaluating the response, Al-Jazeera reported that Hamas was demanding Israel’s full withdrawal – an idea that is a non-starter for Prime Minister Netanyahu.

--Secretary of State Antony Blinken met with Israeli officials on Tuesday to push for the cease-fire deal, as well as addressing day-after plans for Gaza, including governance and reconstruction. 

At the same time, Israel pressed on with its offensive in central and southern Gaza.

In the eight months of war, despite all talk of ceasefires, there has been only one, week-long truce, in November, when over 100 hostages were freed in exchange for about 240 Palestinians held in Israeli jails.

Hamas then said it wants written guarantees from the United States for a permanent ceasefire and withdrawal of Israeli forces from Gaza before it signed off on the truce proposal, Egyptian security sources told Reuters.

Secretary Blinken said Wednesday that Hamas had proposed numerous changes to the proposal, some of them unworkable.

Blinken then condemned Hamas for refusing the now UN-backed proposal, saying the terror group could have halted the war in Gaza with a single word.

Speaking from Qatar on Wednesday, Blinken pointed out that the current proposal is nearly identical to the one Hamas itself proposed last month, accusing the terrorists of prolonging the war just to insert more demands that undermine the ongoing peace talks.

“It was a deal that Israel accepted and the world was behind. Hamas could have answered with a single word: ‘Yes,’” Blinken told reporters.  “It’s time for the haggling to stop and a ceasefire to start.  It’s as simple as that,” he added.

--Israeli forces killed six Palestinians in the occupied West Bank on Tuesday, the Palestinian Health Ministry said, in what the IDF said was a raid against militants.

--The Wall Street Journal had an extensive report on Hamas military leader Yahya Sinwar, having reviewed dozens of messages that Sinwar has transmitted to cease-fire negotiators, Hamas compatriots outside Gaza and others.  The bottom line is he shows “a cold disregard for human life” and made clear he believes Israel has more to lose from the war than Hamas.

In one message to Hamas leaders in Doha, Sinwar cited civilian losses in national-liberation conflicts in places such as Algeria, where hundreds of thousands of people died fighting for independence from France, saying, “these are necessary sacrifices.”

Despite Israel’s “ferocious effort to kill him,” as the Journal writes, Sinwar has survived and micromanaged Hamas’ war effort.

“We make the headlines only with blood,” Sinwar once told an Italian journalist in 2018. “No blood, no news.”

--Hezbollah fired big barrages of rockets at Israel on Wednesday, at least 100, and vowed to ramp up its attacks in retaliation for an Israeli strike which killed a senior Hezbollah field commander, as the conflict across the Lebanese-Israeli border escalated sharply.

The Israeli strike in the south Lebanon village of Jouaiyya late on Tuesday killed three Hezbollah fighters alongside the senior field commander known as Abu Taleb, Israel and security sources in Lebanon said.  Thousands of Hezbollah supporters filled streets in the Hezbollah-controlled southern suburbs of Beirut for a funeral procession, ahead of the burial later in south Lebanon.

Israeli jets hit a number of launch sites in southern Lebanon on Wednesday after projectiles were fired towards northern Israel.

The U.S. expressed its concern about hostilities on this border escalating.  Hezbollah then fired (it claimed) another simultaneous volley of another 100 rockets on Thursday aimed at several Israeli military installations, including drones targeting Israel’s northern military headquarters.

Israel said it was a barrage of more than 40 rockets across the border, but the attack continued well into the evening. I did not see an updated figure.  At least four people were injured in the latest salvo, according to the IDF and its emergency service.  Not all of the rockets and drones were shot down.  Wildfires were ignited on both sides by the attacks and counterattacks.

The border crisis between Israel and Lebanon could explode at any moment.  It’s all up to Tehran and their directions to Hezbollah.

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The Week in Ukraine....

--Ukraine’s military claimed to have struck a stealth jet far inside Russia. The Su-57 – one of just 16 in the Kremlin’s inventory – was parked at the Akhtubinsk air base more than 350 miles from the frontlines Saturday. If confirmed, it would be the first time that Russia’s most advanced aircraft has come under fire, the Associated Press first reported Sunday from Kyiv.

Experts reviewing before-and-after satellite imagery said the strike appeared to more likely be from a small drone or drones, not a larger cruise missile or U.S.-provided ATACMS, according to the London-based Royal United Services Institute.  But the institute didn’t see extensive damage and expected the aircraft to be “repaired and returned to service.”  [Defense One]

--Ukrainian air defense and mobile drone hunter groups shot down nine out of 13 Russian drones over four regions of the country, the air force said on Saturday, including the Kharkiv region, with some damage reported in Dnipropetrovsk region.

Russian air defense units destroyed three Ukrainian drones on Saturday in Russia’s town of Mozdok in the Republic

--A separate Ukrainian missile attack allegedly hit Russian air defense systems in occupied Crimea, Kyiv’s military said Monday on social media.  That includes “One S-400 division and two S-300 divisions,” according to the Defense Ministry.

“After the strikes, the immediate shutdown of the S-400/S-300 complex’s radars was recorded,” Ukraine said, and added, “further detonation of ammunition was observed in all three areas struck.”

Ukraine’s military added, “None of our missiles were intercepted by the enemy’s ‘highly effective’ air defenses.”

--Ukraine’s army struck missile launch positions in Russia, helping to reduce the number of attacks on the embattled city of Kharkiv, its mayor told Reuters on Tuesday.

While missile and drone strikes continue, Ihor Terekhov said the change had helped bring relative “calm.”

But the mayor stressed the need for Western air defenses to help protect the city, with 11,500 people having arrived from regions that were being actively bombed.

--Ukraine said on Wednesday that its air defenses – drawing on stocks of anti-aircraft missiles recently replenished by its allies, including the United States – had shot down 29 of 30 missiles and exploding drones that Russia had fired in an overnight barrage.

And in Kyiv, authorities said they had shot down an entire volley of missiles and drones aimed at the capital.

The Biden administration is giving Ukraine one additional Patriot system, and other countries are considering transferring Patriot launchers to Ukraine, including Germany and the Netherlands.

--But at least nine people were killed and 29 injured in a Russian missile strike on Ukraine’s southern city of Kryvyi Rih, local officials said.  Five children were among the dead after a residential building was hit on Wednesday. This is President Zelensky’s hometown.

“Every day and every hour, Russian terror proves that Ukraine – together with its partners – must strengthen [the country’s] air defense,” he said.

--NATO Secretary General Jens Stoltenberg agreed to guarantee that Hungary won’t have to take part in the military alliance’s deepening support for Ukraine, Prime Minister Viktor Orban said.

Hungary, in exchange, won’t block any related NATO decisions, Orban said at a briefing in Budapest on Wednesday.  Orban said it was an acknowledgement that most members of the alliance don’t share his views on how to end Russia’s war against Ukraine.  He added that Hungary remained a “loyal” NATO member.

“I accept this decision,” Stoltenberg said at the briefing.

--According to a joint investigation by the BBC and Russian independent media outlet Mediazona, an estimated 17,000 Russian prisoners died after being sent to the contested Ukrainian city of Bakhmut by the mercenary Wagner Group between January 2022 to August 2023.  At least 48,000 Russian prisoners were sent to Ukraine under the program devised by now-deceased Wagner financier Yevgeny Prigozhin.

“We are confident that these documents are genuine,” the reporters insisted, and say, “We have checked them against our list of the dead, the register of inheritance cases, the chats of relatives of the Wagner family” and leaked police databases.

--Russian warships conducted drills in the Atlantic, the defense ministry said Tuesday, as they were heading to visit Cuba, part of Moscow’s efforts to project power amid tension with the West over Ukraine.

A frigate, the Admiral Gorshkov, and the Kazan nuclear-powered submarine conducted an exercise that was intended to simulate a missile strike on a group of enemy ships, the ministry said.

The Admiral Gorshkov is armed with new Zircon hypersonic missiles, which Vladimir Putin has touted as a potent weapon capable of penetrating any existing anti-missile defenses by flying nine times faster than the speed of sound at a range of more than 1,000 kilometers (620 miles).

The Cuban Foreign Ministry said the Russian warships will be in Havana between Wednesday and June 17, noting none of the ships are carrying nuclear weapons and assuring their presence “does not represent a threat to the region.”

Washington has been tracking the ships.

--Wall Street Journal journalist Evan Gershkovich, who has been jailed for over a year in Russia on espionage charges, will stand trial in the Ural Mountains city of Yekaterinburg, authorities said Thursday.

An indictment has been finalized and his case was filed to the Sverdlovsk Regional Court in the city about 1,400km (870 miles) east of Moscow, according to Russia’s Prosecutor General’s office.

Gershkovich is accused of “gathering secret information” on orders from the CIA about Uralvagonzavod, a facility in the Sverdlovsk region that produces and repairs military equipment, the Prosecutor’s General office said in a statement, revealing for the first time the details of the accusations against him.

The officials provided zero evidence to back up the accusations, because the bastards don’t have to!  No word on when the trial would begin.

There is still a chance Gershkovich could be exchanged for a Russian asset currently held in Germany.

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Wall Street and the Economy

The market was awaiting the Federal Reserve’s Open Market Committee meeting at 2:00 p.m. ET on Wednesday, and then Chair Jerome Powell’s comments in his press conference after, along with the Fed’s Summary of Economic Projections, the dot plot.

But first, Wednesday morning’s consumer price report for May was terrific, vs. expectations, with all four numbers down a tick from the Street’s consensus forecast.

Prices were unchanged over April, when an increase of 0.1% was expected, while for the 12 months it was 3.3% vs. 3.4% forecast.  Ex-food and energy, the figures were 0.2% and 3.4%, when 0.3% and 3.5% was expected.  The 3.4% on core for the past 12 months was the lowest since April 2021.

But none of this is 2%, the Fed’s target.

In response, the yield on the 10-year Treasury, 4.39% a minute before the release, immediately fell to 4.29%, while the 2-year yield went from 4.82% at 8:29 a.m. to 4.71% at 8:31 a.m. 

And at 2:00 p.m., the Fed held the line on the target range for the federal funds rate at 5.25%-5.50%.

“Recent indicators suggest that economic activity has continued to expand at a solid pace.  Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective.”

But not enough to warrant cutting rates.

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

And....

“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook.  The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

Regarding the accompanying Summary of Economic Projections, SEP, the Fed now believes they’ll cut interest rates just once this year, two fewer than they thought in March as inflation approaches their 2% goal more slowly than they had expected. 

By the end of 2025, policymakers anticipate a policy rate of 4.1%, implying an additional four quarter-point cuts next year.  In March, the last time the Fed released quarterly projections, most committee members anticipated three 25 basis point rate cuts in each of 2024 and 2025.

Four Fed members feel the body should not cut rates at all this year.   Three months ago, just two thought so.  And policymakers are now penciling in a fourth-quarter inflation rate of 2.6%, based on the year-over-year change in the personal consumption expenditures price index (PCE), which is actually higher than their March projection of 2.4%.  PCE inflation registered 2.7% in each of the last two months. Core PCE, stripping out food and energy, will be at 2.8% in Q4 2024.

As for Chair Powell, he literally said nothing of consequence in the press conference.  For this week, the market is more confident of a September rate cut, and I can see the Fed telegraphing that at their July 30-31 meeting, if the June 28 PCE data, and the July 11 CPI figures are favorable beforehand.

Meanwhile, the producer price data on Thursday brought more of the same...better than expected readings...the PPI in May falling -0.2% over April, and up 2.2% year-over-year when 2.5% was the consensus, while core was unchanged, and up 2.3% Y/Y vs. expectations of 2.4%.

The Atlanta Fed’s GDPNow barometer for second quarter growth is at 3.1%.

Freddie Mac’s 30-year fixed-rate mortgage stands at 6.95%, down from last week’s 6.99%.

Next week...Tuesday’s retail sales report could move the market some.

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PIMCO, like many others, is warning that regional bank failures could escalate because of a “very high” concentration of troubled commercial real estate loans on their books.

“The real wave of distress is just starting” for lenders to everything from malls to offices, John Murray, PIMCO’s head of global private commercial real estate team, said in an interview with Bloomberg.

Uncertainty over when the Fed may cut interest rates has exacerbated challenges faced by the CRE sector, where high borrowing costs have hammered valuations and triggered defaults, leaving lenders stuck with assets that are tough to sell.  Larger banks have been addressing the issue aggressively by disposing of some of their higher quality assets first to avoid deeper losses, according to Murray.

Separately, Donald Trump has been wooing Wall Street donors by offering to extend expiring portions of Trump’s 2017 tax cuts, even if the cost is estimated at $4.6 trillion, though supporters maintain the projections are wrong, asserting that tax cuts pay for themselves through economic gains.

Independent analyses show that wasn’t true of Trump’s 2017 tax cuts and won’t be the case if they’re renewed in 2025.  [The Wall Street Journal editorial board likes to point out the government had record revenues, but spending exploded.]

Regardless of which side of the debate you are on, the deficit just continues to grow.   Government debt held by the public soared from 76% of GDP in 2017 to 97% of GDP in December.  As interest rates have risen over this time, the federal government’s annual net interest payments surged from $263 billion to a projected $890 billion this year – more than the Defense Department budget.

Europe and Asia

The European Union moved Wednesday to hike tariffs on Chinese electric vehicles, escalating a trade dispute over Beijing’s subsidies for the exports that Brussels worries are hurting domestic automakers.

The European Commission, the EU’s executive arm, said it would impose provisional tariffs that would result in Chinese automakers facing additional duties of as much as 38%, up from the current level of 10%.

Should discussions with Chinese authorities not lead to an effective solution, the new rates would take effect on a provisional basis by July 4, the commission said in a press release.

Imports of Chinese-made EVs to the EU have skyrocketed in recent years.  They include vehicles from Western brands that have auto plants in China, including Tesla and BMW.

But EU officials complain that Chinese automakers like BYD and SAIC are increasing market share and undercutting European car brands on price thanks to Beijing’s massive subsidies.

The extra tariffs would vary by company.  BYD would face an additional 17.4% charge; Geely, which owns Sweden’s Volvo, would be hit with a further 20%; and SAIC would be 38.1% extra.

Many European automakers are not happy with the move to penalize China because they sell lots of their own cars there, like luxury makers BMW and Mercedes Benz, and now fear retaliation.  Ditto Airbus, which has been in talks with China over a major potential airplane order, as many as 600-750 aircraft.

A Chinese Foreign Ministry spokesperson, speaking at a daily briefing, blasted the EU’s investigation as “typical protectionism” and said Beijing would “take all measures necessary to protect our legitimate rights and interests.”

Last month, the Biden administration slapped major new tariffs on Chinese EVs, advanced batteries, solar cells, steel, aluminum, and medical equipment, citing Chinese government subsidies.

Britain: The UK economy failed to grow in April after particularly wet weather put off shoppers and slowed down construction.  This is as expected and comes after the fastest growth in two years from January to March, ending the recession from the final half of last year.

The economy is a key battleground in the run-up to the general election on July 4, with the main parties debating whether the latest numbers point to a continued recovery or stagnation.

The Conservatives argue they show the economy has “turned a corner,” while Labour say they “expose the damage done.”

But a Bloomberg composite poll on the election has Labour at 43.2%, Sunak’s Conservatives at just 21.6%, and Nigel Farage’s populist Reform UK party at a startling 13.7%.  I noted the other week how Farage’s entry into the race was a killer for Sunak and it is proving to be so (the two essentially going after the same votes).

[A YouGov poll had Labour at 37%, Reform 19% and the Conservatives 18%.]

--As for the European elections held over the weekend, the headlines following early results Sunday talked about advances among a varied far-right ensemble of lawmakers in Europe’s parliament, but later results show the center faction (that is, centrists along with center-left and center-right groupings) won 400 seats of 720, which while this is 17 fewer than won in 2019 elections, it’s still well above the 361 needed for a majority.

Right-wing nationalist parties secured 131 seats, a better showing than in 2019, up 13.  Right-wing parties now govern alone or as part of coalitions in seven of the European Union’s 27 countries.  The Greens dropped to 53 seats from 71.

The European Parliament’s main powers are to approve or amend EU rules, laws and trade deals, and the legislature also gets to approve the EU’s new leadership team.  For example, the European People’s Party (Conservatives/Christian Democrats) will hold 186 seats, 10 more than in the last election, though the other two centrist parties took losses, eroding the center on the European level.  [The number of total seats also rose from 705 to 720.]

The center-left Social Democrats lost some ground (4 seats) but with 135 retain their place in a coalition with the EPP, part of a pro-European alliance that also includes the pro-business Renew group, down 23 to 79.

That said, Ursula von der Leyen, the president of the European Commission and a member of the European conservatives (EPP), celebrated her party’s victory and issued a call to other centrists to work with her to guarantee “a strong and effective Europe,” i.e., I’d be surprised if von der Leyen doesn’t remain president.  I like her, and she’s been good for Ukraine.

But this twice a decade vote offers a potent indicator of Europe’s political mood, though the European Parliament vote is often seen as a “protest vote,” and does not necessarily reflect how the people will vote in national parliamentary elections, which is what Emmanuel Macron, for one, is banking on.

According to the Institute for Global Affairs, immigration is the top issue, with a majority of those in France believing immigration has most affected their country’s national security in the past 20 years and that the impact has been negative.  Germans feel the same way, the IGA said last week ahead of the polls.

In a survey of Germans, 84% said they think life has become more dangerous for them lately, ditto the French, who in surveys said they think their lives have become more dangerous.

So, this was the backdrop for the voting that then took place.

And then the aforementioned Emmanuel Macron shocked his countrymen when he dissolved the national assembly and called snap elections after exit polls showed significant gains for far-right parties.

Macron’s centrist party finished with about half the support of Marine Le Pen’s far-right National Rally (RN), which is set to become the leading French party, National Rally at 31.4%, Macron‘s Renaissance party with 14.6%.

“The rise of nationalists and demagogues is a danger for our nation and for Europe,” Macron said.  “After this day I cannot go on as though nothing has happened.”

“I’ve decided to give you back the choice of our parliamentary future through the vote. I am therefore dissolving the National Assembly.”

Voting rounds will be held on June 30 and July 7, the latter coming less than three weeks before the July 26-Aug. 11 Olympics begin in Paris.

Macron’s own presidential term ends in 2027, and he will have to step aside then because of term limits, which is the time Le Pen hopes to capitalize on her movement.  But in the interim, it is possible after the upcoming votes that Macron will have to work alongside a French prime minister from the Eurosceptic far right, which could be Le Pen’s 28-year-old selfie-loving protégé, Jordan Bardella.  Bardella has done a great job in bringing out a record vote, particularly among the young, as both he and Le Pen have attempted to make the party appear more mainstream, putting even more distance between the party and its founder, Marine’s father, Jean-Marie Le Pen, known for his antisemitic views.

Until the first round, there will be a bunch of attempts to build coalitions, with France’s conservative Republicans party chairman Eric Ciotti calling for a country-wide alliance between his party’s candidates and Le Pen’s National Rally, saying there is really no difference in each other’s message.

Macron on Wednesday urged rival parties to join his electoral alliance against Le Pen’s National Rally.  The Republicans then ditched Eric Ciotti.

[Macron retains control of defense and foreign policy, in this scenario, ceding control of the domestic agenda, including economic policy, security, immigration and finances, which in turn would impact other policies, such as aid to Ukraine.  He ruled out quitting if his ruling alliance loses.]

According to an initial poll by Elabe, the RN (National Rally) is expected to win 31% in the first round, June 30, while a left-wing alliance would get 28%.  Macron’s ticket is seen clinching just 18%.  Many in his party are not happy with his snap election call.

In Germany, the Alternative for Germany party took second place behind the opposition, mainstream conservatives (Christian Democratic Union) with 16% of the vote, up from 11% in 2019, and ahead of Chancellor Olaf Scholz’s Social Democrats at just 14%, a disaster for him. 

Germany has 96 of the 720 seats in the new European Parliament, and the AfD gets 15 of them.

Unlike Macron, Scholz says he will not call for an election.

In Austria, the far-right Freedom Party (FPO) gained the most seats at 25.7%, the party’s first victory in a nationwide election.  Chancellor Karl Nehammer’s conservative Austria People’s Party took 24.7%, the center-left Social Democrats 23.2% and the Greens 10.7%.

Writing in the center-left leaning Der Standard newspaper, editor-in-chief Gerold Riedmann said the FPO had become a melting pot of people who have “concerns about migration; who don’t think Putin is all that bad; who felt humiliated by vaccination and coronavirus; who think climate protection is unnecessary; and who simply want to teach everyone a lesson.”

[I would caution my Austrian friends, and I do truly love this country, even with its dark past, that the ‘climate’ is going to take away your winter tourism business if you don’t get snow!  Over 20 years ago I innocently walked into a Nazi bar in the suburbs of Vienna after taking a train to the end of the line...just to see what was there...and it spooked the s--- out of me.]

Millennials and first-time Gen-Z voters are among those who prior to the voting were expected to pull rightwards.  Figures gathered recently for the Financial Times suggested that around a third of young French voters and Dutch under-25s, and 22% of young German voters, favor their country’s far right; a significant increase since the last European Parliament election in 2019.

Center-right parties in Spain and Greece were the top vote getters.

The centrist party of Poland’s Prime Minister Donald Tusk won the most votes, his Civic Coalition at 37.1%, while Law and Justice, the party led by Jaroslaw Kaczynski that held power from 2015 until last year, got 36.2%. A far-right party, Confederation, had its best result ever, coming third with 12.1%.

And in Italy, Prime Minister Giorgia Meloni’s party, Brothers of Italy, which has neo-Fascist roots (though she has moderated her stance) won more than 28% of the vote for the EU assembly, while the center-left opposition Democratic Party (PD) was second with 23.7%.  [The far-right League was fifth at a dismal 8.3%.]

Hungarian Prime Minister Viktor Orban’s nationalist party, Fidesz, took 43%, but this was down nearly 10 percent from the 2019 EU vote, and is losing two seats.

The three Nordic EU members – Sweden, Denmark and Finland, defied the trend of far-right parties surging due to concerns over migration, and saw their Green and left-leaning parties emerge as winners.

But the nationalist right itself is nuanced – different nationalist right politicians in different countries hold differing positions.  Some have toned down former far-right rhetoric to try to widen their appeal to voters.

So, while right-wing leaders in the European Parliament have called for an alliance across the movement, such an alliance is unlikely.

There is one unifying concern among the nationalist parties, and that is that the European Union is forcing a green transition, when it comes to the environment, down everyone’s throats (like the vision to slash 90% of emissions by 2040), with protests by farmers in response (think cows and methane, for one), across the continent, being the most visible. The farmers say the EU and national environmental laws and bureaucracy were putting them out of business.

Nationalist-right parties in France, Poland and the Netherlands all jumped on this bandwagon, with their representatives claiming to be “ordinary people” against the EU and national “out-of-touch elites.”

But most Europeans, witness the ‘center’ largely holding, don’t want to leave the EU, so the right-wing parties are promising a different EU – more power for nation states, less “Brussels interference” in everyday life. 

Turning to Asia...China reported May inflation of 0.3% year-over-year, unchanged from a month ago.  Producer prices fell 1.4% Y/Y.

China’s vehicle sales in May increased by 1.5% from a year earlier to 2.42 million, slowing from a 9.3% rise in the previous month, according to data from the China Association of Automobile Manufacturers (CAAM).  Sales of new energy vehicles (including hybrids) surged by 33.3%.  A separate report from the China Passenger Car Association revealed that new energy vehicle sales accounted for 46.7% of total car sales in May, a new record monthly high.

Japan reported its final reading on first-quarter GDP was down 1.8% annualized vs. 0.4% in Q4.

May’s producer price reading was up 2.4% year-over-year.  April industrial production fell 1.8% Y/Y.

The Bank of Japan at its June meeting held the line on interest rates.  But it did say it would begin trimming its massive bond purchases and its $5 trillion balance sheet, moves seen as reducing monetary stimulus some.

Street Bytes

--The major indices finished mixed on the week, with the Dow Jones losing 0.5%.  But the S&P 500 hit new closing highs the first four days of the week, Nasdaq all five to finish at a record 17688.  The S&P gained 1.6% and Nasdaq 3.2%.

At the end of May, the top three stocks in the S&P 500 – Microsoft, Nvidia, and Apple – made up 20% of the index for the first time.   A bit scary to some.

--U.S. Treasury Yields

6-mo. 5.33%  2-yr. 4.69%  10-yr. 4.21%  30-yr. 4.34%

After the volatile week, the yield on the 10-year was down 22 basis points from last Friday, lowest weekly close since March 29, while the 2-year fell 19 bps.

--Crude oil rebounded this week back to the $78 level ($78.55) on West Texas Intermediate, though inventories grew more than expected this week.

Longer term, the International Energy Agency in a report this week said global oil markets are headed toward a major glut this decade, citing surging supplies and slowing demand growth for crude thanks to lower-emissions energy sources.

In its closely watched medium-term oil market report, the IEA said so-called spare capacity – the amount of pumping capacity left unused because of adequate supply – could surge in coming years to levels only seen during the Covid-19 pandemic.

Oil-demand growth is set to peak by 2029 and start to contract the next year, reaching 105.4 million barrels a day in 2030 as the rollout of clean-energy technologies accelerates, according to the Paris-based organization.  Meanwhile, oil-production capacity is set to increase to nearly 113.8 million barrels a day, driven by producers in the U.S. and the Americas.

“Such a massive oil production buffer could usher in a lower oil price environment, posing tough challenges for producers in the U.S. shale patch and the OPEC+ bloc.”

Despite the slowdown, global oil demand in 2030 is still forecast to rise by 3.2 million barrels a day from 2023, the agency said.

--U.S. natural gas futures surpassed $3/MMBtu for the first time since the middle of November (before finishing the week at $2.90) as updated weather forecasts pointed to hotter temperatures this summer that may lead to increased electricity demand.  This demand surge is compounded by producers cutting drilling budgets and reduced output earlier this year when prices hit record lows.  And the nat gas surplus from the warmer-than-usual winter has decreased significantly.

--Apple Inc. unveiled its long-awaited new artificial intelligence features, including a partnership with ChatGPT maker OpenAI, betting that a personalized and understated approach to the technology will win over customers...and sell more iPhones.

A new AI platform called Apple Intelligence was the highlight of the company’s Worldwide Developers Conference presentation on Monday, which also included updates to the iPhone maker’s operating systems.  The technology will help summarize text, create original images and retrieve the most relevant data when users need it.  The push also includes a revamped version of Siri, the company’s once-pioneering digital assistant.

Apple Intelligence will be available only on iPhone 15 Pro and Pro Max smart phones, which by some estimates is just 5% of the current iPhone installed base.  That’s a reflection of the silicon requirements for the on-board AI features.  The key question is whether the new capabilities will spur current customers to buy expensive new phones out of fear of missing out.

Apple is adding all manner of AI features across its application set, which since I don’t personally own an iPhone, and have never bought an Apple product (I’m a Samsung guy), are frankly meaningless to me, such as the text tools and transcribing calls.

The market, at least initially, was unimpressed. The stock closed last Friday at $196.89 and finished at $193.12 on Monday.  But then the market reassessed Tuesday and the shares surged to new intraday record highs, before closing at $207.15.

Wednesday, the stock hit $220 before closing at $213.07.  At $215 that day, its market cap surpassed Microsoft at $3.29 trillion to take over the top spot on the world’s most valuable companies list.  At week’s end it was $212.50.  [MSFT at week’s end had a market cap of $3.289 trillion, vs. AAPL’s $3.258T, and NVDA’s $3.244T.]

The company’s hope was that the new AI features would help calm concerns that the iPhone maker had slipped behind its biggest rivals in the tech industry’s embrace of artificial intelligence.

Apple is making a high-stakes bid to catch up with rivals after falling behind tech peers like Alphabet’s Google and Microsoft, counting on a streamlined interface – and loyal customer base – to regain ground.

“This is a moment we’ve been working toward for a long time,” Senior Vice President Craig Federighi, who oversees software engineering, said at the event. He described Apple Intelligence as “AI for the rest of us,” alluding to an old slogan about the Mac computer.

The partnership with OpenAI will let customers access ChatGPT via Siri at no extra cost. Apple plans to roll out the capabilities as part of a suite of new AI features later this year, but some features – including the ability for Siri to precisely control features within apps, as well as support for languages beyond English, won’t arrive until next year.

OpenAI CEO Sam Altman was at Monday’s event and wrote on X that he was “very happy” to be teaming up with Apple.  While the ChatGPT integration will be free, paid subscribers to OpenAI will get additional features over time.  Apple is also planning to support other services later, such as Google’s Gemini.

But ensuring that customer data is secure was a major theme of the presentation.  A system called private Cloud Compute will help keep users’ information safe when it’s being sent to data centers, Federighi said, though normal computer processing would be done on an iPhone rather than in data centers.  It’s the complex requests requiring more computing power, that would be created through the new Cloud Compute.

Billionaire Elon Musk said he would ban Apple Inc. devices from his companies if OpenAI’s artificial intelligence software is integrated at the operating system level, calling the tie-up a security risk.

The remarks followed Apple’s presentation that customers would have access to OpenAI’s ChatGPT chatbot through Siri. 

Musk co-founded OpenAI but had a falling-out with the San Francisco-based startup. He has voiced concerns about the safety implications of speedy development of generative AI technology, but he’s also working on his own competitor to ChatGPT....xAI, with a chatbot named Grok.

“If Apple integrates Open AI at the OS level, then Apple devices will be banned at my companies,” Musk wrote on X. “That is an unacceptable security violation.”

“Visitors will have to check their Apple devices at the door, where they will be stored in a Faraday cage,” he added, referring to a device that blocks electromagnetic fields.

During Apple’s presentation, the company said that “ChatGPT integration” will be coming to its operating system for the iPhone, iPad and Mac computers later this year.  But it also said that user data wouldn’t be tracked and there would be other precautions.

“Privacy protections are built in when accessing ChatGPT within Siri,” Apple said in a statement announcing the feature.  “Requests are not stored by OpenAI, and users’ IP addresses are obscured.”

Musk then continued to take digs at Apple on Monday, saying that the company couldn’t make its own AI and had “no clue what’s actually going on once they hand your data over to OpenAI.”

--Elliott Investment Management called for leadership and board changes at Southwest Airlines after reporting a stake worth about $1.9 billion in the carrier, saying the company needs fresh perspectives to compete in the modern airline industry.  The activist firm disclosed an 11% stake in the company, making it one of the largest investors.

Elliott criticized the company’s leadership for “disappointing” financial performance at a time when the airline industry is experiencing strong demand for travel.  It asked for a new leadership from outside of the company, saying CEO Bob Jordan has delivered unacceptable financial and operational performance quarter after quarter.

Elliott attributed the underperformance to “poor execution” and Southwest leadership’s “stubborn unwillingness” to evolve the company’s strategy

A Southwest spokesperson said that while the company looked forward to better understanding Elliott’s views, its board has confidence in Jordan’s ability to drive long-term value for all shareholders. 

“We want to understand what their ideas are, they may have great ideas,” Jordan told reporters in Washington after an event.  “At the end of the day, we are going to treat Elliott like any other investor. We’ll sit down and listen to them...Southwest is a great company.  We have a great plan and will execute.”  Jordan, a 36-year veteran of Southwest, added, “I have no plans to resign.”

Southwest, which has been suffering from Boeing’s ongoing safety crisis, has warned of a hit to earnings as it expects to receive just 20 Boeing aircraft this year, less than a quarter of the number it had anticipated.

--Boeing shares struggled after the aircraft maker reported jet delivery and order data for May that was hardly impressive.

Boeing said that in May it delivered 24 jets, including 19 of its 737 MAXs.  That’s a drop from the 50 planes delivered in May 2023 and unchanged from the 24 delivered in April.

Production has slowed down in the aftermath of the emergency door plug blowout of a 737 MAX 9 jet operated by Alaska Air.  The incident has led to more oversight.

Boeing also reported orders for four new planes in May – and for the second month in a row – none of these orders were for the 737 MAX.  In May of last year, Boeing received 69 plane orders.

Separately, Boeing announced Thursday it will conduct additional inspections of some of its 787 wide-body jets after disclosing that fasteners on the fuselages of the planes may have been incorrectly installed, yet another quality issue for the aerospace giant.

At least this item affects jets that have yet to be delivered, the company said in a statement.  787 Dreamliners currently in service are safe to operate, we are told...for now.

Michael Whitaker, head of the Federal Aviation Administration, was slated to visit the South Carolina factory where the 787 is built today, Friday, part of the agency’s stepped-up oversight of Boeing.

--TSA checkpoint numbers vs. 2023

6/13...104 percent of 2023 levels
6/12...105
6/11...106
6/10...107
6/9...107
6/8...108
6/7...106
6/6...107

--Barron’s had an interview with Ford Motor CEO Jim Farley on the adoption rate of battery-electric vehicles, or BEVs, with growth waning, leaving the wider industry wondering if it’s spending billions of dollars wisely.

“We’re entering new customers, the mainstream customers are not willing to pay a premium for EVs,” Farley said.  “They don’t know how to handicap the charging.”

Though all-electric car sales jumped 46% in 2023, sales grew just 3% in the first quarter of 2024.

It’s getting harder to find buyers willing to go all-electric – and pricing doesn’t help. The average new car in the U.S. cost about $48,500 in May, while the average new BEV cost roughly $55,000, according to data provider Cox Automotive.

As for charging, the U.S. has about 176,000 public charging ports. China has 15 times that amount.

Farley also noted another troubling aspect for car buyers.  They don’t have a good feel for EV resales value, adding “insurance has gone up and they don’t know how to handicap that.”

Regarding resale value, consider Tesla. The average price of their EVs is about $50,000, down 20% from more than $62,000 a year ago, cutting prices repeatedly since late 2022 to help offset falling demand.  The cuts obviously impact the value existing Tesla owners can get for their cars.

--Speaking of Tesla, shareholders reaffirmed their support for a plan to award Elon Musk, shares over ten years’ worth $46-56 billion (depending on Tesla’s share price).  In January a judge in Delaware struck down the pay package, calling it “unfathomable,” after a shareholder sued to have it rescinded.  It is equivalent to 8% of Tesla’s market value.

“Hot damn, I love you guys,” Musk told a crowd of enthusiastic shareholders who had gathered in Texas for the firm’s annual meeting.

However, the vote is not binding and legal experts have said it is not clear if the court that blocked the deal will accept the re-vote and allow the company to restore the pay package.

--Oracle shares surged 13% on Wednesday, even as May-quarter revenue and earnings came in slightly below expectations.  But surging growth in cloud infrastructure deals showed investors that the enterprise software giant is getting its share of artificial-intelligence demand.

Guidance for the coming year’s growth was bold, with Oracle forecasting double-digit revenue growth that accelerates through the year

The company signed the largest sales contracts in its history this year, said CEO Safra Catz in Tuesday’s post-close earnings release. Driving those deals is “enormous demand for training AI large language models in the Oracle Cloud.”

The enterprise software vendor reported $14.3 billion in revenue for the quarter, up 4% from the year-earlier period.  Adjusted earnings were $1.63 a share, compared with last year’s $1.67 and consensus for $14.6 billion in revenue and EPS of $1.65.

But investors are more focused on growth opportunities and cloud infrastructure revenue jumped 42% in the quarter, to $2 billion.  Catz said the company signed over 30 AI sales contracts in the quarter, worth $12.5 billion, including one with ChatGPT developer OpenAI.

For the fiscal year ended May, total revenue was $53 billion, up 6%.  Earnings rose 8% to $5.56 a share.

--A Food and Drug Administration advisory panel voted unanimously late Monday to recommend approval of Eli Lilly’s Alzheimer’s drug donanemab.

The 11 committee members agreed that available data showed donanemab’s effectiveness in treating early-stage Alzheimer’s patients and that the drug’s benefits outweighed the risks (which are considerable).

The FDA is not obligated to follow the recommendations of its advisory panels but often does.

--I have been a loyal CVS customer for decades, and often buy CVS products to save a few bucks, like on contact lens solution, some cold medicines and vitamins.

But Bloomberg published a devastating report by Anna Edney and Peter Robison, doing a deep-dive on public information on the FDA website concerning product recalls and the facilities where the items were manufactured, and over the past decade those of CVS have been recalled about two times more than those from Walgreens Boots Alliance and three times more than those from Walmart.

For example: “One factory making CVS-branded pain and fever medications for children used contaminated water. Another made drugs for kids that were too potent. And a third made nasal sprays for babies on the same machines it used to produce pesticides.  The drugs were among those sold by CVS Health Corp. under its store-brand label before being recalled.”

And: “Over the last decade, CVS hired at least 15 manufacturers that were cited for manufacturing problems...(leading) to 133 recalls of CVS store-brand drugs – an average of more than one a month (over the last decade...according to a Bloomberg News review of FDA data).

“In one instance involving CVS store brands, FDA inspectors visited a contract manufacturer called Unipharma LLC in Tamarac, Florida, in 2019, and determined it had been ignoring test results that showed water used in its drug making was contaminated with a bacteria that can be  deadly to children with weakened immune systems.  The company, now defunct, recalled all of its non-prescription products, including cherry-flavored children’s pain and fever medicine, mixed berry children’s allergy relief... – all made so CVS could sell them under its own name. The drugs were distributed nationwide.”

I’m not going to stop buying certain CVS branded products, but I will surely read the label more carefully and try to glean where the item is being manufactured, and you have to be particular  about anything you put in your eyes!  I’ve written over the past two years about eye drops (not necessarily rewetting drops for contact lenses) that were manufactured in India and some people developed nasty, even deadly, infections.

--FedEx is planning to cut between 1,700 and 2,000 back-office jobs in Europe, in its latest push to cut costs as the parcel delivery giant combats a slump in freight demand.

The downsizing, which will be spread over 18 months, will help save between $125 million and $175 million a year from fiscal 2027.

--Employment in L.A. County’s motion pictures and sound recording industries – the main category for film and television production – has barely budged from about 100,000 through April, which is about 20% less than pre-pandemic levels.  Coming out of the strikes in the fall, many expected a rebound in local film and TV jobs.

According to the U.S. Bureau of Labor Statistics, employment in the sector hasn’t been this low in more than 30 years.

Employees in the motion pictures and sound recording industries earned on average $2,600 a week last year, making up in total about 5% of L.A. County’s wages in the private sector, although less than 3% of employment.  [Los Angeles Times]

--Barron’s had an extensive report on annuities, which are soaring in popularity, by Jacob Adelman.

For instance, regarding one of Sentinel Security Life Insurance’s annuity plans, Sentinel and its corporate siblings under the Advantage Capital umbrella sold some $1.7 billion in annuity contracts, but the policies might not be as secure as the firm’s marketing brochures, and sales pitches, suggest.

“The firm’s insurers invested heavily in businesses that fall under the parent company’s control, raising potential conflicts of interest, a Barron’s investigation has found.  A-CAP, as Advantage Capital is commonly known, has also disclosed more than $400 million worth of loans to companies that Barron’s couldn’t find documented outside of A-CAP’s own filings.”

Think about that.

In another example: “Haymarket, which serves as an in-house reinsurer to Sentinel and Atlantic Coast, reported to its regulators that it finished last year holding a $271 million bond from a business called PAC Wagon. 

“The loan was one of the largest holdings disclosed by any U.S. insurance firm in 2023.

“In its latest state financial filing, Haymarket listed the loan among its unaffiliated investments, disclaiming a connection to PAC Wagon.

“But PAC Wagon has at least one link to the A-PAC insurers: The company was established by a Haymarket officer, its corporate secretary Jill Gettman, according to formation documents filed in Delaware.

“Gettman formed PAC Wagon on Feb. 5 of this year, according to the Delaware filing.  Haymarket’s loan to the entity is dated more than a month earlier, on Dec. 31, according to its financial statement filed in Utah.

“Gettman didn’t respond to messages from Barron’s, and A-CAP didn’t respond to a question about how the investment preceded the formation of the business.”

--Congratulations to those working to fully reopen the Port of Baltimore shipping channel, especially the U.S. Army Corps of Engineers, 11 weeks after the Francis Scott Key Bridge collapsed when it was a struck by a cargo ship.

This was not easy...restoring the 700-foot wide and 50-feet deep channel to its original dimensions.  Crews have had to remove 50,000 tons of wreckage, the Corps said.

Some 2,000 salvage responders, including hundreds of specialists from around the world, worked to remove the heap of steel and concrete with the help of a fleet of tugboats and more than a dozen floating cranes.

As for transportation problems stemming from the loss of the bridge, well those will continue to cause logistical disruptions.

Foreign Affairs, Part II

China: According to the Associated Press, an alleged former Chinese naval officer managed to sail a speedboat up a “strategic river mouth” that leads to Taiwan’ capital city of Taipei, and now authorities are investigating how it could have happened.

“The small boat was detected off the coast but apparently was not interdicted until it began interfering with ferry traffic across the Tamsui River,” the AP writes.

Defense One notes a related scenario was discussed with Dmitri Alperovitch in his book titled, “World on the Brink: How America Can Beat China in the Race for the Twenty-First Century,” and in a conversation with Defense One’s Patrick Tucker, the first several pages of the book describe how a Chinese military invasion of Taiwan might unfold.

President Xi Jinping, with his public desire to “unify” Taiwan with the mainland, has for the last several years been “building capabilities for amphibious assault ships that can do air assaults against key facilities like the ports and do an assault down the river that sneaks through the island into the heart of Taipei.  But they don’t have it yet,” Alperovitich said.

The Chinese are, however, refining their ability to “unload at the opening (or) the mouth of the river, the Tamsui River, that leads you into Taipei, and within 10 minutes, these boats full of Chinese Marines can be in the heart of the government district of Taipei, and attempt to do a decapitation strike of the government,” Alperovitch said.

Taiwan has seven ports, but the largest is the one at the Tamsui’s mouth, which was significantly expanded in 2012.

Retired Australian Army Maj. Gen. Mick Ryan is another who has said China may attempt to kill or capture Taiwan’s leaders.  “What the Russians tried to do and failed (in Ukraine) and what the Chinese will definitely try and do is decapitation of national leadership,” Ryan said.

“They will want to ensure that there is not a Zelensky-type figure that arises in Taipei or somewhere in Taiwan that unified (or) rallies the nation and is able to gain diplomatic and other forms of support from overseas,” the general said.  “And I think the Taiwanese are looking at these kinds of issues very, very closely through the lens of Ukraine.”

Defense One notes that Ukraine blew up the runway on its main airport near Kyiv, effectively torpedoing Russia’s chances of offloading massive numbers of troops right near the capital city back in February 2022.

Which begs the question: Should an invasion begin will Taiwan choose to blow up the Port of Taipei?  Alperovitch says such a decision has to be done very rapidly... “you have minutes to decide, (and) that decision has to be transmitted to your forces, and they have to be positioned to do it.”

“And guess what the Chinese are going to do?” he continued.  “They’re going to try to destroy command and control nodes, to try to jam communication. So it’s not even clear if the decision gets made that will be transmitted at the right point to the right people.”

I’ve long said the Chinese should take out the key airfields in a massive surprise missile attack from Fujian and warships, pause, and sue for peace.

Meanwhile, why was the former Chinese general turned fisherman poking around Taipei?

--Four instructors affiliated with a small liberal-arts institution in Iowa, Cornell College (no affiliation with Cornell University) were stabbed on Monday in northeastern China, where they were teaching as part of a partnership program with a local university, in an incident that drew concern in the U.S. amid soured bilateral ties.  The four were hospitalized.  Video showed a bloody mess.

Police in the city of Jilin said they arrested a suspect, a local man, who used a knife to stab the four.  Authorities called it an isolated incident, but it took hours before police even commented, including when U.S. reporters asked them about the incident.  The site of the attack was virtually scrubbed clean. 

--Lastly, three U.S. lawmakers have called for more scrutiny of NewsBreak, a popular news aggregation app here in the States, after a Reuters report that it has Chinese origins and has used artificial intelligence tools to produce erroneous stories.

The Reuters story drew upon previously unreported court documents related to copyright infringement, cease-and-desist emails, and a 2022 company memo registering concerns about “AI-generated stories” to identify at least 40 instances in which NewsBreak’s use of AI tools affected the communities it strives to serve.

“The only thing more terrifying than a company that deals in unchecked, artificially generated news, is one with deep ties to an adversarial foreign government,” said Senator Mark Warner (D-Va.) who chairs the Intelligence Committee.

NewsBreak told Reuters it was “a U.S. company and always has been.”

But NewsBreak launched in the U.S. in 2015 as a subsidiary of Yidian, a Chinese news aggregation app.  Yidian in 2017 received praise from ruling Communist Party officials in China for its efficiency in disseminating government propaganda.

North Korea: Vladmir Putin will visit North Korea and Vietnam in the coming days, Russia’s Vedomosti newspaper reported on Monday, and South Korea’s Yonhap news agency reported on Thursday, with an official telling Reuters the Vietnam visit was planned for June 19-20 but this wasn’t confirmed. 

Aside from the topic of weapons between Kim Jong Un and Putin, Vedomosti said the two may discuss whether Russia will bring in migrant workers from North Korea, as Russia is facing an acute labor shortage because of the war with Ukraine.  Hundreds of thousands have either been mobilized or fled abroad to avoid being drafted.

Meanwhile, South Korean soldiers fired warning shots after North Korean troops briefly violated the tense border earlier this week, South Korea’s military said Tuesday.

The North Korean soldiers were carrying construction tools – with some of them armed – and immediately returned to their territory after South Korea’s military fired warning shots and issued warning broadcasts, the Joint Chiefs of Staff said.

Earlier, the North resumed sending balloons carrying trash over the border, 380 over Saturday and Sunday, a week after it vowed to continue if anti-North Korea leaflets are flown from the South.

South Korea then responded with propaganda broadcasts by loudspeaker for the first time in six years, something Pyongyang has called an act of war in the past.

Iran:  The Guardian Council last Sunday approved the country’s hardline parliament speaker and five others to run in the country’s June 28 presidential election following the helicopter crash that killed President Ebrahim Raisi and seven others.

The council again barred former President Mahmoud Ahmadinejad, a firebrand populist known for the crackdown that followed his disputed 2009 re-election, from running.

The Guardian Council also continued its streak of not accepting a woman or anyone calling for radical change to the country’s governance.

Meanwhile, the Iran-backed Houthi terrorists have stepped up their attacks again on ships along Yemen’s coast.  That includes a drone boat that hit M/V Tutor, a Greek-owned and operated vessel in the Red Sea on Wednesday.

The drone boat attack “caused severe flooding and damage to the engine room,” U.S. defense officials at Central Command said Wednesday. The same boat, M/V Tutor was also hit with “an unknown airborne projectile,” British maritime authorities said Wednesday.

A separate attack caused fire aboard a ship Thursday south of Aden.  Two “unknown projectiles” were involved, according to the British military.

A different explosion occurred near a vessel west of Yemen’s port city of Hodeidah on Thursday as well, though there was no apparent damage.  Earlier in the week, on Tuesday, the Houthis fired two anti-ship ballistic missiles toward ships in the Red Sea, with no injuries or damage reported by the U.S. or commercial ships.

Random Musings

--Presidential approval ratings....

Gallup:  39% approve of President Biden’s job performance, 56% disapprove; 34% of independents approve (May 1-23).

Rasmussen: 45% approve, 54% disapprove (June 14).

--A CBS News/YouGov survey released Sunday showed Donald Trump narrowly ahead of Joe Biden, 50 to 49 percent.

However, when the results were broken down into the seven swing states of Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin – the results were reversed and Biden came out on top 50-49.  The poll was conducted from June 5-7, just days after Trump was found guilty in a New York City court on 34 counts of falsifying business records related to trying to conceal a hush money payment to Stormy Daniels.

--In a new Reuters/Ipsos national poll, Trump leads Biden, 41% to 39%, with Robert F. Kennedy Jr. receiving 10%.

--In a Marist Poll of Pennsylvania registered voters, Trump (47%) leads Biden (45%), with RFK Jr. at 3%.

In the Keystone State’s big Senate race, Democratic incumbent Bob Casey leads his Republican opponent David McCormick by six points, 52% to 46%.

--The Economist had the following observation on the upcoming election.

“Anyone looking at national polls would think that America’s presidential election is a coin-toss. It is not.  The Economist’s prediction model, published on Wednesday, gives Donald Trump a two-in-three chance of winning, compared with one in three for Joe Biden.  Mr. Trump’s advantage is real, if small.

“Our model takes into account polls, past election results and economic data. It knows nothing of Mr. Trump’s record in office or in the courts.”

Right now, when you look at a median of electoral vote ranges for each, the Economist has Trump winning 292-242.

--Donald Trump visited Capitol Hill for the first time since Jan. 6, 2021, meeting with enthusiastic Republican lawmakers, who have largely forgiven him for his role in the insurrection.  He promised to “work out” differences within the party.

--A federal jury convicted Hunter Biden on all three federal felony gun charges he faced, concluding that he violated laws meant to prevent drug addicts from owning firearms.

The conviction marks the first time a president’s immediate family member has been found guilty of a crime during their father’s term in office, though his crimes predate Joe Biden’s tenure as president.

The first two counts were for lying about his drug use on a federal background check form, and the third count was for possessing a gun while addicted to, or using, illegal drugs.

Hunter Biden could face up to 10 years in prison and a fine of up to $750,000 at sentencing, though he will receive far less than the maximum as a first-time offender.

Hunter also faces federal tax evasion charges in California, with that trial slated to begin in September.  Both cases have been overseen by special counsel David Weiss, who was previously the Trump-appointed U.S. attorney in Delaware.

President Biden and the White House have repeatedly ruled out a pardon for his son, but the latter didn’t rule out a commutation of any sentence.

David Weiss said after, “No one in this country is above the law. Everyone must be accountable for their actions.

Defense attorney Abbe Lowell says they are “naturally disappointed” by the guilty verdict.  Lowell said in a statement that they respect the jury process and will vigorously pursue all legal challenges that are available as they have throughout the case.

Hunter Biden wrote in a statement following the verdict: “I am more grateful today for the love and support I experienced this last week from Melissa, my family, my friends, and my community than I am disappointed by the outcome.  Recovery is possible by the grace of God, and I am blessed to experience that gift one day at a time.”

Rep. James Comer, the Republican chairman of the House Oversight Committee, who has been investigating the president’s family for the last two years, said that while the verdict marked “a step toward accountability,” there won’t be justice “until the Department of Justice investigates everyone involved in the Bidens’ corrupt influence peddling schemes.”

President Biden said in a statement that he and the first lady will always be there for their son “with our love and support.”

The president says he’ll “accept the outcome of this case and....continue to respect the judicial process as Hunter considers an appeal.”

This case, like Donald Trump’s hush-money case in Manhattan, should never have been brought.

--The House voted Wednesday to hold Attorney General Merrick Garland in contempt of Congress for refusing to turn over audio of President Joe Biden’s interview in his classified documents case, Republicans’ latest and strongest rebuke of the Justice Department as partisan conflict over the rule of law animates the 2024 presidential campaign.

The 216-207 vote fell along party lines.  The Justice Department – which Garland oversees – then announced Friday it would not prosecute him.

--Speaker Mike Johnson recently appointed two election deniers to the House’s Intelligence Committee; Scott Perry of Pennsylvania and Ronny Jackson of Texas, who both sought to overturn election results in 2021.  As the Guardian put it: “The appointments of Perry and Jackson to a committee that helps to shape U.S. foreign policy and oversees intelligence agencies such as the FBI and the CIA has caused consternation on Capitol Hill.  It also signals (Donald) Trump’s hostility to organizations that he has vowed to purge if he is re-elected.”

Johnson also appears to have made the move without consulting the body’s chair, Mike Turner, who “has sought to restore the committee’s bipartisan character following years of bitter party infighting between Republicans and Democrats.”

--Eight people from Tajikistan with suspected ties to ISIS have been arrested in the United States in recent days, the arrests taking place in New York, Philadelphia and Los Angeles.  The individuals, who entered the U.S. through the southern border, are being held on immigration violations, according to the Associated Press, which first filed the report.  The nature of the suspected connection to Islamic State was not immediately clear, but the individuals were tracked by the FBI’s Joint Terrorism Task Force.  U.S. Immigration and Customs Enforcement made the arrests.

--The Supreme Court on Thursday upheld access to a widely available abortion pill, rejecting a bid from a group of anti-abortion organizations and doctors to unravel the Food and Drug Administration’s approval of the pill.  In a unanimous decision, written by Justice Brett Kavanaugh, the court held that the plaintiffs lacked standing to challenge the FDA’s actions.

Those who object to what a law allows others to do can always “seek greater regulatory or legislative restrictions on certain activities,” Justice Kavanaugh wrote.  But the decision did not rule out the possibility that other plaintiffs – notably states – may be able to pursue challenges to the availability of mifepristone, a medication used in a majority of abortions in the country.

--Violent crime fell in the first quarter of 2024 by more than 15%, continuing its postpandemic decline nationwide, according to data released by the FBI.

Homicides and reported rapes both declined about 26% in the first three months of 2024 compared with a year earlier, data from the FBI’s quarterly uniform crime report showed.  Robberies were down about 18% and aggravated assault fell by about 13%, the FBI said.

The report is based on data voluntarily submitted by 13,719 of over 19,000 law-enforcement agencies across the U.S., the FBI said.

--Large parts of China are being hit with extreme heat while a severe drought in the east is threatening crops, as much of Asia braces for another summer of extreme weather, such as we’ve already seen in India.

Temperatures in northern Hebei province climbed to 107.6 F on Wednesday, the state weather forecaster said.

Average temperatures across China from March to May were at their highest since records began in 1961, according to official data.

--South Florida saw massive, “life-threatening” record rains this week, 10 to 20 inches across virtually the entire area, with a swath of critical I-95 by Fort Lauderdale shut down Wednesday.

The deluge caused hundreds of flights bound to and from South Florida airports to be grounded and/or canceled, with 300 canceled between Miami International and Fort Lauderdale International on Wednesday alone.

Meanwhile, forecasters are warily eyeing the western Gulf of Mexico and possible development of a system next week.  Regardless of whether the system turns into a tropical storm, or worse, parts of South Texas, and the Gulf Coast region, already saturated, will see a lot more rain from Sunday to Tuesday.

--Crain’s New York Business had an interesting piece on the issue of local high school graduates and their choice of colleges, and while many in New York, New Jersey and New England continue to end up at small, liberal arts schools in the Northeast, many more than usual are opting to head south – students liking the idea of “school spirit, big-time sports and Greek life,” in the opinion of those interviewed.

One Long Island native, Ava F., said, “Everyone seems to be having that same idea to go south,” she said.  “Because everyone you meet that’s out of state is from the North,” Ava now at the University of Georgia.

Yes, the kids are “seeking warmer weather, cheaper tuition and a more relaxed atmosphere at a time when many campuses have become political battlegrounds.”

Applications to colleges in the South are up 50% since 2019, which compares to a less than 30% rise in New England and the Mid-Atlantic, Common Application data shows. Both Clemson and LSU, for instance, saw a record number of students apply last year, with more than twice as many students enrolling from New York and New Jersey than 10 years ago.

Well, this was exactly my own feelings almost 50 years ago (yikes).  I wanted a small, southern, conservative school with a big-time sports program and Wake Forest fit the bill. 

Clearly, the new trend will only intensify, with all the campus B.S. up here.  [If you live in the Northeast and have some kids now approaching their junior and senior years in high school, and you want an Ivy League-type academic reputation, but a small, southern school, tell them to look at Davidson, outside Charlotte, NC.  Just my own recommendation (aside from Wake).  And you get a big-time sports atmosphere in basketball, for one.  Heck, it’s where Steph Curry went!  He did OK for himself.]

--Forget the context of Donald Trump’s comment that Milwaukee was a “horrible city.”  What I can tell you are three things Milwaukee has, which help to make it a perfect weekend getaway.

The Milwaukee Art Museum (terrific, and different), Usinger’s Sausage factory/store, and across the street from Usinger’s, the best German restaurant in the United States, Mader’s.  Ask for the booth that Gerald Ford sat in...as your editor once did.

If you love spaetzle and wiener schnitzel, or goulash, this is your place. 

--Finally, we note the passing of retired Maj. Gen. William Anders, the former Apollo 8 astronaut who took the iconic “Earthrise” photo showing the planet as a shadowed blue marble from space in 1968. Anders was killed last Friday when the plane he was piloting alone plummeted into the waters off the San Juan Islands in Washington state.  He was 90.

Anders said the photo was his most significant contribution to the space program, given the ecological philosophical impact it had, along with making sure the Apollo 8 command module and service module worked.

Anders said in a 1997 NASA oral history interview that he didn’t think the Apollo 8 mission was risk-free but there were important national, patriotic and exploration reasons for going ahead.

He estimated there was about a one in three chance that the crew wouldn’t make it back and the same chance the mission would be a success and the same chance that the mission wouldn’t start to begin with.

He recounted how earth looked fragile and seemingly physically insignificant yet was home.

“We’d been going backwards and upside down, didn’t really see the Earth or the Sun, and when we rolled around and came around we saw the first Earthrise,” he said.  “That certainly was, by far, the most impressive thing.  To see this very delicate, colorful orb which to me looked like a Christmas tree ornament coming up over this very stark, ugly lunar landscape really contrasted.”

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

God bless America...and Slava Ukraini; Heroiam Slava! [Glory to Ukraine; Glory to the Heroes!]

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Gold $2349
Oil $78.55

Bitcoin: $65,500 [4:00 PM ET, Friday]

Regular Gas: $3.46; Diesel: $3.78* [$3.59 - $3.90 yr. ago]

*The price of diesel is down from its high of $5.81 set back on June 19, 2022, which was a key driver of our spike in inflation at that time...think prices of groceries and items at your drug store...delivered by diesel trucks.  So, it’s big that it has come down this far and it’s why I follow it week to week.  [Regular gas peaked at $5.01, June 14, 2022, exactly two years ago today.]

Returns for the week 6/10-6/14

Dow Jones  -0.5%  [38589]
S&P 500  +1.6%  [5431]
S&P MidCap  -0.9%
Russell 2000  -1.1%
Nasdaq  +3.2%  [17688]

Returns for the period 1/1/24-6/14/24

Dow Jones  +2.4%
S&P 500  +13.9%
S&P MidCap  +4.1%
Russell 2000  -1.1%
Nasdaq  +17.8%

Bulls 60.3
Bears 17.6

Hang in there.

Happy Father’s Day! Enjoy the U.S. Open at Pinehurst.

Brian Trumbore

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