Week in Review

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Week in Review

01/07/2023

For the week 1/2-1/6

[Posted 6:00 PM, ET, Friday]

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Edition 1,238

--What a first week to the new year we just had.  Monday night, football fans were shocked to see Buffalo Bills safety Damar Hamlin collapse on the field after a normal football tackle, require emergency CPR, many of his fellow players in tears.

And then after hearing of major progress on Thursday from his doctors in Cincinnati, today we learned that overnight Hamlin’s breathing tube was removed and he was able to get on a call with his teammates, setting off a raucous celebration.

“The room went nuts.  It was awesome,” said Bills General Manager Brandon Beane.  “The hair on the back of my neck stood up.”

Hamlin told his teammates, “Love you, boys,” coach Sean McDermott said – a moment that seemed unfathomable just days ago.

Doctors, and the Bills, have said that Hamlin is progressing remarkably well, including in his neurologic function which remains intact.

Prayers work.  The nation was praying for a young man from McKees Rocks, Pennsylvania, who attended the University of Pittsburgh and was fulfilling his dream of playing professional football.

We all went to bed Monday night not knowing what we’d see on the news the next morning.

Don’t stop praying for Damar, and for the amazing first responders, both on the field and at the University of Cincinnati Medical Center.  As the doctors stressed, in speaking of their colleagues, those on the field at that critical moment, it’s all about “training.”  We love them all.

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So you had the scene at Paycor Stadium in Cincinnati on Monday, and then on Tuesday, we rolled into the Vote for Speaker of the House, Rep. Kevin McCarthy in a situation where he could only afford to lose four fellow Republicans to reach the necessary 218, and after eleven votes, through Thursday, there were 20 consistent holdouts, the “Chaos Caucus,” many of whom are members of the “Freedom Caucus,” who bitch and whine about a broken appropriations process, which is true, but of the 20, you had about seven who are nothing but clowns and assholes, who really don’t want to be in leadership, but enjoy being on Fox News, carrying out endless fundraising campaigns, and really want nothing more than to burn down the House.

Some of the 20 are OK, but McCarthy and his allies had to find a way to “break the fever” and the only way to do so was offer a slew of concessions, from the process of being Speaker and the running of the House, to who controls the gavel on powerful committees.

But as I go to post, McCarthy was able to peel off 14 of the 20 in the first vote today, the 12th, leaving six rebels, and he needs to find two more.

The House adjourned until 10:00 p.m. ET, after vote 13.  Until McCarthy eventually gets the nod, which he says will be tonight, we won’t really know the extent of the concessions and other promises made, such as on the issue of the debt ceiling, which could be a titanic battle down the road.  What was given away?  And what will be the aftermath?

Well, I think we already know the answer to the last question.  It’s going to be a shitshow.

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An annual survey of worldwide threats published each January by the Council on Foreign Relations ends up being similar to what I wrote in my last column.

The CFR noted: “A cross strait crisis around Taiwan, escalation of the war in Ukraine, and instability in Russia.”

Not new, but still on the list: “Nuclear weapons development by Iran and North Korea.”

In the CFR’s “top tier risks” category:

“A highly disruptive cyberattack targeting U.S. critical infrastructure by a state or nonstate entity.”

“An acute security crisis in Northeast Asia triggered by North Korea’s development and testing of nuclear weapons and long-range ballistic missiles.”

Well, that’s what I argue…but that Kim Jong Un will cross the line and Pyongyang could look very different after.

One of the CFR’s other top tier risks… “Increased violence, political unrest, and worsening economic conditions in Central America and Mexico, aggravated by acute weather events, fuel a surge in migration to the United States.”

But there was a pleasant surprise in the survey: “The 9/11 era, when foreign terrorist-related threats dominated…appears to be over.”

For the first time in the survey’s 15-year history, “the possibility of a foreign terrorist organization inflicting a mass casualty attack on the United States or a treaty ally was not proposed as a plausible contingency for the coming year,” CFR’s Paul Stares writes.  But now we have a shift toward “great power rivalries,” including the challenges posed by China and Russia.

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This week in Ukraine….

--Russia fired more than 20 cruise missiles at targets in Ukraine on New Year’s Eve, Saturday, killing at least one in the capital.  “This time, Russia’s mass missile attack is deliberately targeting residential areas, not even our energy infrastructure,” Foreign Minister Dmytro Kuleba wrote on Twitter. “War criminal Putin ‘celebrates’ New Year by killing people,” calling for Russia to be deprived of its permanent seat on the UN Security Council. 

Army chief Valeriy Zaluzhnyi said air defenses shot down 12 incoming missiles, that had been launched from Russian strategic bombers over the Caspian Sea hundreds of miles away and from land-based launchers, he said on Telegram.

Ukraine’s human rights ombudsman Dmytro Lubinets described the attack as “Terror on New Year’s Eve.”  “The terrorist country is congratulating the Ukrainian people with missiles.  But we are indestructible and unconquerable.  There is no fear, but the fury is rising.  We will definitely win,” Lubinets said. 

--In his New Year’s address Saturday evening, Ukrainian President Volodymyr Zelensky thanked the country’s air defense forces and soldiers fighting on the front lines, and said that Saturday’s attack was not “the end of the year” but “the summary of the fate of Russia itself.”

“This war that you are waging, Russia, it is not with NATO, as your propagandists lie.  It is not for historical reasons,” Zelensky said.  “Your leader wants to show that he has the military behind him and that he is in front.  But he is just hiding.  He hides behind the military, behind missiles, behind the walls of his residences and palaces.”

“He hides behind you and burns your country and your future.  No one will ever forgive you for this terror,” he continued.  “Ukraine will never forgive.”

Vladimir Putin, in a New Year’s Eve speech to a group dressed in military uniform, instead of the event’s normal backdrop of the Kremlin walls, said: “The main thing is the fate of Russia.  Defense of the fatherland is our sacred duty to our ancestors and descendants.  Moral, historic righteousness is on our side.”

Putin: “The West lied about peace but was preparing for aggression” and is “cynically using Ukraine and its people to weaken and divide Russia. We have never and will never allow anyone to do this to us.”

--Zelensky said in his nightly address on Sunday: “The feeling we all have of unity, of authenticity, of life itself, contrasts sharply with the fear that prevails in Russia.  They are afraid.  You can feel it. And they are right to be afraid.  Because they will lose. Drones, missiles, everything else will not help them. Because we stand united. They are united only by fear.”

Ukrainian forces shot down 45 Iranian-made Shahed drones on the first night of the year, Zelensky said.

--Monday evening, President Zelensky said Kyiv was bracing for a “prolonged attack” using Iranian-made drones.  “Its bet may be on exhaustion – on exhaustion of our people, our air defense, our energy sector,” he said in his nightly address.  “Only two days have passed since the beginning of the year, and the number of Iranian drones shot down over Ukraine is already more than eighty.  This number may increase in the near future,” he warned.

Ukraine said it shot down all 39 drones Russia had launched in a third night of air strikes on civilian targets in Kyiv and other cities.  Russia says its aerial strikes aim to reduce Ukraine’s ability to fight; Kyiv says they have no military purpose and are intended to hurt civilians, a war crime.

The Institute for the Study of War wrote Monday: “Russian forces only have enough cruise missiles to conduct two to three more large-scale missile attacks against Ukraine,” citing Ukrainian intelligence.

--After several weeks of intense assaults and counterattacks in Donetsk, the British military says “It is unlikely Russia will achieve a significant breakthrough” at the long-sought city of Bakhmut in the weeks ahead.  Now, “Russian offensive operations in the area are now likely being conducted at only platoon or section level.”  Additionally, the Brits say, “Ukraine has committed significant reinforcements” to the area, “and the frequency of Russian assaults have likely reduced from the peak in mid-December.”  As a result, “Both sides have suffered high casualties,” UK officials said Tuesday.

--And then the big news came of a Ukrainian attack on a temporary barracks in a vocational college in Makiivka, twin city of the Russian-occupied regional capital of Donetsk in eastern Ukraine.

Ukraine said 400 soldiers were killed – and another 300 wounded.  Russia initially said 63 Russian soldiers had been killed in the attack on their headquarters, triggering furious criticism of the military leadership from lawmakers and pro-war bloggers.  Footage posted online showed a building purported to be a vocational college reduced to rubble.

Russia’s Defense Ministry acknowledged the attack only in the final paragraph of a 528-word daily roundup, more than 36 hours later.  Even then, it did not address some of the allegations made by pro-war bloggers, who said casualties were far higher, and that the military had not only failed to hide its soldiers from the enemy but also stored ammunition close by.

Some Russian legislators were calling for vengeance against Ukraine and the Western NATO alliance, while demanding criminal liability for the officials who had “allowed the concentration of military personnel in an unprotected building,” as one lawmaker, Sergei Mironov, put it.  “Obviously neither intelligence nor counterintelligence nor air defense worked properly,” he said in a post on Telegram.

A pro-war blogger known as Rybar said Ukraine exaggerated the death toll, and that about 600 people had been in the building.  But Igor Girkin, a former commander of pro-Russian troops in east Ukraine who has become a high-profile critic of Russia’s military, said on Telegram that there were “many hundreds” of dead and wounded.

Reuters reported the building did house some of the 300,000 or more soldiers mobilized since September.  The fact that so many of the dead were not volunteer career soldiers was likely to fuel the anger of relatives and some of the ordinary Russians whom Putin asked in his New Year address for support and sacrifices in the months ahead.

Wednesday, Russia said the New Year’s Day missile attack happened because troops were using their mobile phones.  Use of banned phones allowed the enemy to locate its target, officials said.

Russia said that at 00:01 local time on New Year’s Day, six rockets were fired from a U.S.-made HIMARS rocket system at a vocational college, two of which were shot down.

The deputy commander of the regiment, Lt. Col. Bachurin, was among those killed, the ministry of defense said in a statement on Wednesday.  Russia raised the death toll to 89, the largest number of deaths Russia has acknowledged in the war.

A commission is investigating the circumstances of the incident, the statement said.

But it is “already obvious” that the main cause of the attack was the presence and “mass use” of mobile phones by troops in range of Ukrainian weapons, despite this being banned, it added.

“This factor allowed the enemy to locate and determine the coordinates of the location of military personnel for a missile strike.”

Officials found guilty in the investigation will be brought to justice, the statement added, and steps were being taken to prevent similar events in the future.

--Wednesday, President Putin sent a frigate to the Atlantic Ocean armed with new generation hypersonic cruise missiles, a signal to the West that Russia will not back down over the war in Ukraine.  Putin said the ship was armed with Zircon hypersonic weapons.  “This time the ship is equipped with the latest hypersonic missile system – Zircon,” Putin said.  “I am sure that such powerful weapons will reliably protect Russia from potential external threats.”  The weapons, he said, had “no analogues in any country in the world.”

A U.S. Congressional Research Service report on hypersonic weapons says that Russian and Chinese hypersonic missiles are designed to be used with nuclear warheads.   The target of a hypersonic weapons is much more difficult to calculate than for intercontinental ballistic missiles because of their maneuverability.

Beyond Russia, the U.S., and China, other nations developing hypersonic weapons include Australia, France, Germany, South Korea, North Korea and Japan, according to the report.

--President Putin told Turkish leader Erdogan he was open to dialogue with Ukraine if Kyiv accepts territories occupied by Moscow as Russian, the Kremlin said.

“Putin again confirmed Russia’s openness to serious dialogue on the condition of Kyiv authorities fulfilling the well-known and repeatedly voiced requirements of taking into account the new territorial realities,” the Kremlin said in a statement.

Well this is laughable.  “Territorial realities”?

“The Russian side emphasized the destructive role of Western states, pumping the Kyiv regime with weapons and military equipment, providing it with operational information and targets,” the statement added.

--The Kremlin on Thursday said Vlad the Impaler ordered a ceasefire over the Orthodox Christian Christmas, starting at midday on Friday.

A senior Ukrainian official then dismissed the 36-hour ceasefire proposal as hypocrisy, and said a “temporary truce” would be possible only when Russia leaves territory it is occupying in Ukraine.  “The Russian Federation must leave the occupied territories – only then will it have a ‘temporary truce.’  Keep hypocrisy to yourself,” presidential adviser Mykhailo Podolyak wrote on Twitter.  “A banal trick.  There is not the slightest desire to end the war in this.  Moreover, let me remind you that only Russia attacks civilian objects with missiles/drones, including places of religious rites, and does this precisely on Christmas holiday,” Podolyak added.

--Thursday, President Zelensky rejected out of hand the Russian order for a truce over Orthodox Christmas, saying it was a trick to halt the progress of Ukraine’s forces in the eastern Donbas region and bring in more of their own.

Speaking pointedly in Russian and addressing both the Kremlin and Russians as a whole, Zelensky said Moscow had repeatedly ignored Kyiv’s own peace plan.  The war would end, he said, when Russian troops left Ukraine or were thrown out.

“They now want to use Christmas as a cover, albeit briefly, to stop the advances of our boys in Donbas and bring equipment, ammunitions and mobilized troops closer to our positions,” Zelensky said in his nightly video address.  “What will that give them?  Only yet another increase in their total losses.”

Zelensky said that ending the war meant “ending your country’s aggression… This continues every day that your soldiers are on our soil… And the war will end either when your soldiers leave or we throw them out.”

He urged Russians to challenge President Putin’s premise of portraying the war as necessary to safeguard Moscow’s interest against the West and root out nationalists.  “The whole world knows how the Kremlin uses interruptions in the war to continue the war with new strength,” Zelensky said.

“But in order to end the war more quickly, we need something completely different.  We need Russian citizens to find the courage in themselves, albeit for 36 hours, albeit during Christmas, to free themselves of the shameful fear of one man in the Kremlin.”

--Ukraine said more than 800 Russian soldiers died in the past day amid intense fighting in the eastern Donbas, where Russia continued assaults on the towns of Bakhmut, Kostiantynivka and Kurakhove.

One thing seems clear, Putin associate Yevgeny Prigozhin’s Wagner Group, the shadowy mercenary army, is being shredded.  Recruiting from convicts and mobilized soldiers, Prigozhin has taken command of the Bakhmut front, and is using it to demonstrate his own bloody vision of the future.  But experts say Moscow is far from happy, not least the military leaders and political leaders Prigozhin criticized openly.  There are clearly tensions between Prigozhin and Putin.

The U.S. is of the view that Prigozhin is interested in taking control of salt and gypsum from mines near Bakhmut, according to the White House.  There are indications that monetary motives are driving Russia’s and Prigozhin’s “obsession” with the town, an official said.

--Friday, the U.S., France and Germany pledged armored fighting vehicles, with the U.S. commitment involving Bradley Fighting Vehicles for the first time.  President Zelensky said in his video address tonight that the formal announcement showed his visit to Washington last month had produced concrete results.  The weapons are part of a new $3 billion U.S. weapons aid package.

“For the first time we will receive Bradley armored vehicles – this is exactly what is needed…and all this (including more air defense systems, western tanks, ammunition) means more protection for Ukrainians and all Europeans against any kind of Russian terror.”

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--Prominent Russian opposition leader Alexei Navalny wrote in an Instagram post on Saturday: “The calamity that has befallen our country has brought all normal, honest people closer together, and it’s not surprising that a connection appears between them.  I can feel it.”

Ilya Yashin, an anti-Kremlin activist and politician who was sentenced to 8 ½ years in prison in December for “spreading false information,” wrote last weekend that he had been transferred to a jail in Izhevsk, a city 600 miles east of Moscow.

“I’m OK, friends,” Yashin wrote.  “I want to remind you that the criminal war against Ukraine must be stopped, that Putin must go, and that Russia must be free and happy.”

--Russian Deputy Foreign Minister Andrei Rudenko said in comments published in Tass on Tuesday that Japan’s “anti-Russian course” makes peace treaty talks impossible.

Russia and Japan have not formally ended World War II hostilities because of their standoff over islands, seized by the Soviet Union at the end of the war, just off Japan’s northernmost island of Hokkaido.  The islands are known in Russia as the Kurils and in Japan as the Northern Territories.

“It is absolutely obvious that it is impossible to discuss the signing of such a document (a peace treaty) with a state that takes openly unfriendly positions and allows itself direct threats against our country,” Rudenko told Tass.  “We are not seeing signs of Tokyo moving away from the anti-Russian course and any attempt to rectify the situation.”

Russia withdrew from its talks with Japan in March, following Japanese sanctions over Russia’s invasion of Ukraine.

Separately, Rudenko said Russia supports Beijing’s “One China” policy on the issue of Taiwan.  “We proceed from the fact that there is only one China, the PRC government is the only legitimate government representing all of China, and Taiwan is an integral part of it.”

Opinion

David Satter / Wall Street Journal

“Today’s Russian spokesmen insist that Ukraine is an ‘artificial nation.’  Yet the only artificial nation was the Soviet Union, which re-created the Russian Empire on the basis of socialism.

“Russians, Georgians, Ukrainians, Yakuts and Uzbeks were citizens of one country, but the only thing they shared was the false reality of communist ideology.  When that ideology collapsed in 1991, the result was the emergence of 15 historical nations, including Russia and Ukraine….

“In the 1920s, the communists needed Ukrainian-speaking cadres to strengthen their position in Ukraine, which had been the scene of peasant uprisings in 1919.  Ukrainian language instruction, Ukrainian newspapers and lectures to miners in Ukrainian all increased.

“Nothing, however, could protect Ukraine from the horror that was visited on the Soviet Union as a whole and reached its apex with the creation of the Gulag, dekulakization (the destruction of the most industrious peasants) and the famine of 1932-33.  The last was caused when the Soviet government confiscated grain to feed the cities and for export, imprisoned peasants in their villages and left millions to die from starvation. Ukraine, the agricultural breadbasket of the nation and a potential center of national resistance, suffered disproportionately.  Of the seven million victims of the famine, more than half were in Ukraine.

“For more than 50 years, it was forbidden to mention the famine, but with the accession of Mikhail Gorbachev in 1985 and the policy of glasnost, what had long been whispered began to be discussed openly….

“On Dec. 1, 1991, as the Soviet Union disintegrated, 90% of Ukrainian voters voted for independence.  In the heavily ethnic Russian Donetsk oblast, almost 77% supported independence. In pro-Russian Crimea, the vote for independence was 54%.  A week later, Boris Yeltsin, Leonid Kravchuk and Stanislav Shushkevich – respectively the leaders of Russia, Ukraine and Belarus – met at a lodge in Belarus’ Belovezh Forest and signed a statement certifying that the Soviet Union ceased to exist. Gorbachev resigned on Dec. 25, and the upper chamber of the Soviet Parliament, the Supreme Soviet, ratified the union’s dissolution the following day.

“The birth of an independent Ukraine realized the national aspirations thwarted after the Bolshevik revolution.  But there would be no peace for Ukraine, because the moral damage inflicted by the Soviet regime outlived it….

“In 2014 the seizure of Crimea and invasion of eastern Ukraine distracted Russians from the meaning of the democratic maidan revolt of Kyiv.  As a result of the annexation of Crimea, Mr. Putin’s popularity reached a high of 82%, and Russia was swept with chauvinistic euphoria.  The present attack on Ukraine resulted from the perception of U.S. weakness after the withdrawal from Afghanistan and Mr. Putin’s desire to restore the ‘Crimea effect’ that buoyed his regime for five years before beginning to wane….

“When the imaginary world of Soviet ideology collapsed, all that was left in Russia was rule by criminals and the drive to dominate Russia’s neighbors to guarantee their hold on power.  It is against this background that we need to weigh support for Ukraine.

“Russia’s inability to rid itself of the Soviet legacy is the underlying cause of the war.  If Ukraine cedes territory, the Soviet imperialist mentality will survive intact.  Russia’s defeat in the Crimean War (1853-56) led to the emancipation of the serfs, and defeat in the Russo-Japanese war (1904-05) led to Russia’s first constitution.  We need to support a decisive Ukrainian victory to punish aggression – and to free Russia from the burden of its past.”

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Wall Street and the Economy

We had the release of the Federal Reserve’s minutes from its Dec. 13-14 policy meeting and all officials agreed the central bank should slow the pace of its interest rate increases, allowing them to continue increasing the cost of credit to control inflation but in a gradual way meant to limit the risks to economic growth.

The minutes of the meeting, released Wednesday, showed policymakers still focused on controlling the pace of price increases that threatened to run hotter than anticipated, and worried about any “misperception” in financial markets that their commitment to fighting inflation was flagging.

But officials also acknowledged they had made “significant progress” over the past year in raising rates enough to bring inflation down.  As a result, the Fed now needed to balance its fight against rising prices with the risks of slowing the economy too much and “potentially placing the largest burdens on the most vulnerable groups” through higher-than-necessary unemployment.

But the minutes put a premium on explaining that the decision to move to smaller rate increases should not be construed by investors or the public at large as a weakening of the Fed’s commitment to bring inflation back to its 2% target.

To wit: “No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023,” the minutes said.

St. Louis Fed leader James Bullard said Thursday that we could see some welcome relief on the inflation front.  Bullard was one of the most aggressive voices in 2022, and the ongoing increases in the policy rate, with a few more moves left, has returned inflation expectations to a level consistent with the Fed’s 25 inflation target, Bullard said at a forum.

“During 2023, actual inflation will likely follow inflation expectations to a lower level as the real economy normalizes,” he said.  But Bullard did not connect that outlook to specific guidance on rate changes.

Bullard said in his presentation that monetary policy is not yet in a space where it’s holding the economy back but soon will be.  That coupled with low inflation expectations “may combine to make 2023 a disinflationary year.”

Lastly, Bullard said it appears gross domestic product is moderating to around its longer-run potential of 2%, while the job market remains strong.

On the data front, we had a very market-friendly jobs report for December today, the classic not too hot, not too cold kind, the economy adding 223,000 jobs, with November revised downward to 256,000 from 263,000 previously reported.  The number was pretty much in line with expectations.  The unemployment rate dropped to 3.5%, equaling the best level post-Covid.

Critically, and what the market really liked, is average hourly wages rose 0.3%, down from a revised 0.4% for November, and 4.6% year-over-year, falling from a downwardly revised 4.8%. 

We also had the important ISM figures for December…48.4 for manufacturing, and a rather shockingly poor services figure of 49.6 vs. expectations of 55.0, and 56.5 prior (50 the dividing line between growth and contraction).

So, contraction in both, albeit slight.

Normally I wouldn’t talk about the trade deficit, which is seldom a market-moving number but is part of the GDP calculation, and the deficit contracted in November by the most in nearly 14 years as slowing domestic demand amid higher borrowing costs depressed imports.  The trade deficit decreased 21.0% to $61.5 billion, the lowest since September 2020, the Commerce Department said on Thursday.

Also, November construction spending rose 0.2%, while factory orders for the month fell a greater than expected 1.8%.

The Atlanta Fed’s GDPNow barometer for the fourth quarter is at 3.8%.

Prices at the gas pump have been ticking back up the last two weeks, 3.29 for regular, nationally, and 4.67 diesel. [AAA]

And the critical 30-year fixed-rate mortgage rate, courtesy of Freddie Mac, was 6.48% vs. 3.22% a year ago, though with the steep decline in the 10-year Treasury this week, the rate should fall some next time.

We also had another indicator on the holiday shopping season, with Adobe Analytics saying online spending for the period Nov. 1-Dec. 31 rose 3.5% year-over-year, though this is not really impressive as it’s not inflation-adjusted.

Big Picture…IMF Managing Director Kristalina Georgieva, in an interview on CBS’ “Face the Nation,” said for much of the global economy, 2023 is going to be a tough year as the main engines of global growth – the United States, Europe and China – all experience weakening activity.  The new year is going to be “tougher than the year we leave behind,” she said.

“Why? Because the three big economies…are all slowing down simultaneously.”

“For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth,” Georgieva said.  Moreover, a “bushfire” of expected Covid infections there in the months ahead are likely to further hit its economy this year and drag on both regional and global growth.

“I was in China last week,” Georgieva said, “in a bubble in a city where there is zero Covid. But that is not going to last once people start traveling.”

“For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative,” she said.

Georgieva’s comments suggest the IMF will be cutting its outlooks again later this month when it typically unveils updated forecasts during the World Economic Forum in Davos, Switzerland.

Of the U.S., she said it “is most resilient,” and it “may avoid recession.  We see the labor market remaining quite strong.”  But that fact on its own presents a risk because it may hamper the progress the Fed needs to make in bringing U.S. inflation back to its targeted level.  “This is…a mixed blessing because if the labor market is very strong, the Fed may have to keep interest rates tighter for longer to bring inflation down,” Georgieva said.

But here’s what every investor needs to be focused on the next few weeks ahead of the Fed’s next Open Market Committee meeting (Jan. 31-Feb. 1).

Jan. 12…December consumer prices
Jan. 18…December producer prices
Jan. 27…December PCE data

Europe and Asia

We had the December PMI readings in the eurozone, courtesy of S&P Global, with the EA19 composite at 49.3…manufacturing 47.8, services 49.8, all at contraction levels but the highest in a few months.

Germany: mfg. 47.1; services 49.2 (vs. 46.1)
France: 49.2; 49.5
Italy: 48.5; 49.9
Spain: 46.4; 51.6
Ireland: 48.7; 52.7
Netherlands: mfg. 48.6
Greece: mfg. 47.2

UK: mfg. 45.2; services 49.9

Joe Hayes / S&P Global

“The eurozone economy continued to deteriorate in December, but the strength of the downturn moderated for a second successive month, tentatively pointing to a contraction in the economy that may be milder than was initially anticipated.  Weaker declines were also seen broadly across the euro area nations, and most notably in Germany, whose economy has been the primary drag on the eurozone as a whole in the second half of this year.

“Cooling price pressures have helped temper the decline in economic activity levels.  A particularly marked slowdown in manufacturing inflation bodes well for other sectors of the economy, although this has partly been due to relatively benign developments across European energy markets at the end of 2022.  Services inflation remains stickier for now, reflecting a sharp rise in labor costs, which continued to be pushed up by continued hiring efforts.

“Nevertheless, there is little evidence across the survey results to suggest the eurozone economy may return to meaningful and stable growth any time soon.  Demand conditions remained fragile as clients have retrenched, while business confidence remains bogged down by recession concerns, energy cost uncertainty and persistently high inflation and a tightening of financial conditions.”

On the critical inflation front, a flash estimate on eurozone inflation for December came in at 9.2%, down from 10.1% in November, and 10.6% in October, helped by falling energy prices.

But while the headline rate is easing, the core rate, ex-food and energy, rose to 6.9% from 6.6% in November and 6.4% in October.

The data showed that energy prices in the eurozone rose at an annual rate of 25.7% in December, down from a high of 41.5% in October.  [Eurostat]

Germany 9.6% (down from 11.6% in October), France 6.7%, Italy 12.3%, Spain 5.6%, Netherlands 11.0% (down from 16.8% in October), Ireland 8.2%.

Separately, November producer prices in the EA19 were down -0.9% compared with October, though up 27.1% from Nov. 2021.  [Eurostat]

November retail trade was up 0.8% over October in the euro area, though down by 2.8% year-over-year.  [Eurostat]

Britain: Prime Minister Rishi Sunak gave his first policy speech of the year, a five-point plan that pledged to cut national debt, halve inflation, grow the economy, tackle Channel crossings and improve health care provisions at a speech in London on Wednesday.

Sunak hinted the government may take a softer line against striking workers as the public struggles with rail closures (and more on the way) and rising wait times for medical treatment.

But the reality is things just grow gloomier, with food price inflation hitting a record high last month, 14.4%, and global investors finding little reason to invest in the UK.

Turning to Asia…China’s National Bureau of Statistics reported out the December PMIs, with manufacturing at 47.0 vs. 48.9 in November; non-manufacturing 41.6 vs. 46.7.

Caixin’s private survey (small- and mid-sized companies) had manufacturing at 49.0 vs. 49.4 prior; services 48.0 vs. 46.7.

But the companies Caixin surveyed at least were bullish on recovery prospects for the next 12 months with the lifting of Covid restrictions.

What’s needed is a recovery in consumption and the tourism sectors.

And Chinese authorities are planning to usher in further support measures to ease liquidity stress at some of the nation’s too-big-to-fail developers as the property downturn persists.

Japan’s December manufacturing PMI was 48.9 vs. 49.0, with services at 51.1 from a prior 50.3.

Taiwan’s December manufacturing PMI was 44.6, up from a dismal 41.6 in November.

South Korea’s manufacturing PMI for last month was 48.2 vs. 49.0 prior.

Street Bytes

--Stocks rallied this first week of 2023, with the S&P 500 and Nasdaq snapping 4-week losing streaks.  It was really all about Friday, and a 2%+ rally in the major indices on the heels of a jobs report that showed average hourly earnings were less than expected, and then a weak ISM service sector reading, in contraction mode…both of which added to soft landing hopes and a Fed that won’t need to be as aggressive.

Which, as you know, I just laugh at.  The Fed will stay higher for longer!  Period.

I admit that with my forecast that I spelled out last week, I could be very wrong for lengthy periods of time this year.  I am homed in on geopolitical risks the likes of which we haven’t seen in most of our lifetimes.

For now, the Dow Jones and S&P rose 1.5% this week, Nasdaq 1%.

Next week, the critical consumer price index figures and the beginning of an equally critical earnings season.

The Stoxx Europe 600 (their equivalent to our S&P 500) soared 4.6% this week.  Goodness gracious, or as my grandfather used to say, gee willikers!

*Check out my “Wall Street History” column for my annual Year in Numbers…including a look back at past equity returns, gold, oil, and the bond market.

--U.S. Treasury Yields

6-mo. 4.81%  2-yr. 4.26%  10-yr. 3.56%  30-yr. 3.69%

Treasuries on the long end staged a huge rally, ditto in Europe, on the feeling inflation is coming down and central banks won’t have to be as aggressive as feared, which I don’t necessarily agree with, but you take it one week at a time.

The U.S. 10-year yield fell 31 basis points, after all, from 3.87% last Friday, while across the pond, the German bund saw its yield fall to 2.20% from 2.56%, while the yield on the French 10-year bond went from 3.10% to 2.71%.  Oui Oui!  [My French is very strong.]

I posted my yearend column all of two hours after the market close, last Friday, yet had most of the key figures for the year.

But for the record, the Bloomberg U.S. Treasury Index returned -12.5% in 2022, its second-straight full-year loss and the biggest in its four-decade history.

The closely followed inversion of the two- to 10-year curve hit as much as 85 basis points on Dec. 7, before ending the year at 56.

--Natural gas prices declined this week, including European nat gas prices, amid unusually mild winter temperatures in Europe, and then the U.S., which are forecast to last until late next week in terms of the former.

National records have fallen in eight countries in Europe, with Warsaw seeing 66 Fahrenheit on Sunday, while Bilbao Spain (northern coast) hit 77 F., more than 20 degrees above normal and equivalent to the average in July.

The demand for heating will remain muted as a result, with German gas stocks rising counter-seasonally in the last few days of December to 90% of capacity.  Across the European Union, gas stocks/inventories are about 83%, reducing the risk of shortages at the end of winter.

Nat Gas closed at $3.75 today, down from last Friday’s $4.47.  West Texas Intermediate crude oil, $73.75, was down nearly $7 the first week of 2023.

--Full-year U.S. auto sales came in at 13.9 million in 2022, down 8% from 2021 and 20% from the peak in 2016 (17.55 million…17.11 million in 2019), according to various sources.  Inventory shortages, caused by surging material costs and persistent chip shortages, spilled into 2022, hobbling production at many automakers.  Tight supplies kept car and truck prices elevated, even as auto inventory improved in the second half of the year.

Toyota’s production issues caused the company to cede its spot as the top-selling U.S. automaker in 2022 to GM, which gave up that position at the end of 2021 for the first time since 1931.

For the full year, GM delivered 2,274,088 vehicles in the U.S., including 39,179 EVs.  Total sales grew about 3%, while EV sales jumped 58%.  Toyota delivered 2,108,458 vehicles in 2022, down 9.6%.  It delivered 504,016 electrified vehicles in the U.S. down from 583,697 in 2021.  Toyota is still largely focused on hybrid and plug-in hybrid electric vehicles.

GM delivered 2.9 million vehicles in the U.S. in 2019, so this year’s pace of 2.3m is well below.

Ford Motor reported on Thursday that the company sold 1,864,464 vehicles in 2022, down about 2.2%.  In contrast sales in 2021 fell by 7%.

Ford said it sold 15,617 units of its popular F-150 Lightning electric truck in 2022 after they went on sale earlier in the year.  Sales of Ford’s SUVs, including models such as the Explorer and Bronco, rose nearly 5% in 2022. Truck sales fell 5.5% in the year.

As for 2023, you have the possibility of a recession, which won’t be good for sales. The supply problems of the past few years are easing, but now it’s a demand issue.

--U.S. electric-vehicle sales surged by two-thirds in 2022 while the broader auto market contracted.  Auto makers sold 807,180 fully electric vehicles in the U.S. last year, or 5.8% of all vehicles sold, up from 3.2% a year earlier, according to market-research firm Motor Intelligence. 

Tesla still dominates, accounting for 65% of total sales last year, Motor Intelligence’s estimates show, which is down from 72% in 2021, as legacy companies roll out more models.

Ford Motor jumped into the No. 2 position in EV sales, accounting for 7.6% of the U.S. market.

--On Monday, Tesla reported that it fell short of its growth projections last year, in part because of Covid-related shutdowns at its Shanghai factory and changes in the way it manufactures and distributes vehicles.

The company said it delivered about 405,000 units in the fourth quarter, a quarterly record, which brought its 2022 total to 1.3 million vehicles delivered, up a whopping 40% from 2021.

But the number was below the company’s target and Wall Street’s consensus estimate for 420,000 fourth-quarter deliveries, and that’s despite Tesla recently offering discounts to customers.

The first day the stock could be traded, Tuesday, the shares fell 12%, and had tumbled more than 40% since early December.  Scores of analysts then lowered their price targets.

--But Tesla had some good news overseas.  In Norway, almost four out of five new cars sold last year were battery-powered, with Tesla the top-selling brand for the second year in a row, registration data showed on Monday.

Seeking to become the first nation to end the sale of petrol and diesel cars by 2025, oil-producing Norway has until now exempted battery-powered fully electric vehicles from taxes imposed on rivals using internal combustion engines.  The share of new electric vehicles rose to 79.3% in 2022 from 65% in 2021, the Norwegian Road Federation said.  Tesla had a 12.2% share of the overall market, with Volkswagen at 11.6%.

--But then the Tesla saga continued, as Thursday we learned Tesla sales in China, a crucial element of the company’s fortunes, slumped at the end of 2022, as domestic manufacturers like BYD gained ground with lower-priced vehicles.

Tesla sold around 56,000 cars in China last month, a decline of 21 percent from a year earlier, and 44 percent from the previous month.  For the full year, Tesla’s Chinese sales rose nearly 50 percent, according to data published by the China Passenger Car Association.

China accounts for roughly 40 percent of Tesla’s sales, but 24% of global revenue per the first three quarter of 2022.

After the delivery news, Tesla slashed prices on its Model 3 and Model Y cars sold in China.  The two most popular electric car models – made at its Shanghai gigafactory – will be reduced by between 6% and 13%, the company said on social media in China Friday.  Including the latest discounts, Model Y prices now start at the equivalent of around $37,000, or more than 30% cheaper than the price of a standard Model 3 selling on Tesla’s U.S. website.

Tesla shares, after falling to $102 Friday morning on the China news, rallied back to $113 at the close with the general market rally.

--Southwest Airlines on Tuesday began doling out 25,000 frequent-flier points to travelers affected by its holiday s---show.

The bonus miles, which the airline notes are in addition to ticket refunds and reimbursement for expenses, were accompanied by a letter from CEO Bob Jordan.

“I know that no amount of apologies can undo your experience,” Jordan’s letter says.

The airline hasn’t disclosed the number of passengers affected by nearly 17,000 flight cancellations and on Tuesday didn’t disclose the number of points it issued.

There were long lines on the website and the link to add the points.  But, they will be issued to travelers between Dec. 24 and Jan. 2, and are worth more than $300.

Southwest began operating a more or less regular schedule last Friday, and as you’d imagine every flight was essentially booked solid with the tens of thousands of passengers still waiting to reach their final destination.

As for the bags, who the heck knows.  The airline could not provide figures on how many had been returned to owners or how many were still outstanding, but social media was teeming with complaints.  The national news correspondents who shined a light on the issue are largely off on other beats. 

Lastly, today, Southwest revised its fourth quarter forecast to a net loss from “strong profit” after the breakdown.  The loss will largely be due to an estimated pre-tax negative impact of $725 million to $825 million, the company said in a regulatory filing.  The company will report formal results end of January.

--Ryanair flew a total of 11.5 million passengers last month, an increase of almost 3 percent on its previous December record (2019) as Christmas traffic volumes rebounded sharply compared with the first two years of the pandemic.

The airline, which expects to fly 166.5 million passengers in its current fiscal year to the end of March, operated over 65,000 flights in December, it said on Wednesday.

--Delta Air Lines will collaborate with T-Mobile to offer domestic travelers free onboard internet access starting Feb. 1, regardless of their wireless provider as air travel is expected to “soar” this year, T-Mobile said in a statement Thursday.

Expansion to international and regional routes is expected by the end of 2024.

T-Mobile customers already get free in-flight Wi-Fi, but the service will be expanded to all Delta SkyMiles members.  Travelers will log in to the free Wi-Fi using their Delta SkyMiles frequent flyer account information.

--TSA checkpoint numbers vs. 2019

1/5…99 percent of 2019 levels
1/4…89
1/3…111
1/2…110
1/1…92
12/31…89
12/30…102
12/29…91

Numbers were obviously all over the place the last two weeks due to weather issues and the Southwest debacle.  It will be interesting to see how things shake out by end of the month.

--Salesforce is laying off about 10% of its workforce, more than 7,350 employees, in the latest round of job cuts in the tech industry as corporations cut back on software and other spending.

The San Francisco-based cloud computing software company will also be closing some offices, according to a regulatory filing Wednesday.

“The environment remains challenging and our customers are taking a more measured approach to their purchasing decisions,” said CEO Marc Benioff in a letter to employees.  “With this in mind, we’ve made the very difficult decision to reduce our workforce by about 10 percent, mostly over the coming weeks.”

Benioff said employees being released will receive nearly five months of pay, health insurance, career resources, and other benefits.  The company anticipates taking charges related to its plan of $1.4 billion to $2.1 billion.

Tech companies hired aggressively during the pandemic to keep up with soaring demand, but Salesforce had been growing rapidly since at least 2018.  Its workforce more than doubled between then and 2021.

--Amazon.com announced it was laying off more than 18,000 employees in the latest sign that the tech slump is deepening.

The cuts, which began last year, were previously expected to affect about 10,000 people, although the company had not confirmed a figure at the time.  But in an open memo to staff Wednesday, Amazon CEO Andy Jassy confirmed that 18,000 jobs are now expected to be lost, with “several teams impacted.”

Jassy said the majority of cuts will be in the company’s Amazon Stores and people, experience and technology team (PXT) organizations.

Jassy said: “As part of our annual planning process for 2023, leaders across the company have been working with their teams and looking at their workforce levels, investments they want to make in the future, and prioritizing what matters most to customers and the long-term health of our businesses.”

“This year’s review has been more difficult given the uncertain economy and that we’ve hired rapidly over the last several years.”

But the job cuts are actually miniscule.  Amazon had more than 1.5 million employees as of the end of September.

--European Union regulators on Wednesday hit Facebook parent Meta with hundreds of millions in fines for privacy violations and banned the company from forcing users in the 27-nation bloc to agree to personalized ads based on their online activity.

Ireland’s Data Protection Commission imposed two fines totaling 390 million euros ($414 million) in its decision in two cases that could shake up Meta’s business model of targeting users with ads based on what they do online.  The company says it will appeal.

A decision in a third case involving Meta’s WhatsApp messaging service is expected later this month.

Meta also faces regulatory headaches from antitrust officials in Brussels flexing their muscles against tech giants.

--Canada’s economy gained a net 104,000 jobs in December, far exceeding analysts’ forecasts, while the jobless rate unexpectedly declined to 5%.

--As Paul Davidson of USA TODAY writes: “A slump in recreational vehicle sales has long been considered an early warning sign of a broader economic downturn because an RV is such a discretionary, big-ticket purchase.”

And in November, RV shipments from manufacturers to dealers tumbled 50.4% from the same period a year earlier to 24,445, according to the RV Industry Association.  In 2022, wholesale RV shipments totaled 472,691, 15.6% below the year-ago figure.

--Sam Bankman-Fried pleaded not guilty on Tuesday to criminal charges that he cheated investors in his now-bankrupt FTX cryptocurrency exchange and caused billions of dollars in losses, in what prosecutors have called an “epic” fraud.

SBF entered his plea in Manhattan federal court where he faces eight criminal counts, including wire fraud and money laundering conspiracy.  The 30-year-old ex-mogul is accused of looting FTX customers’ deposits to support his Alameda Research hedge fund, buy real estate and donate millions of dollars to political causes.

“Customer funds were also used and laundered through political donations, charitable donations and a variety of venture investment,” Danielle Sassoon, a federal prosecutor, said at the hearing.  Sassoon suggested that the government has a deep well of evidence against Bankman-Fried, saying prosecutors will turn over hundreds of thousands of documents in coming weeks to the defense.  U.S. District Judge Lewis Kaplan on Tuesday set an Oct. 2 date for trial, which Sassoon said could last four weeks.

The government has already secured guilty pleas from two former top associates of Bankman-Fried’s – former Alameda chief executive Caroline Ellison and former FTX chief technology officer Gary Wang – who are cooperating with prosecutors.

If convicted, SBF could face up to 115 years in prison.  He was released on a $250 million bond on Dec. 22, and is subject to electronic monitoring and required to live with his parents, both professors at Stanford Law School.

--We had depressing news on the retail front for those of who once liked Bed Bath & Beyond.  The company said it may have to file for bankruptcy, which the Wall Street Journal says could come within weeks.

I always told you this was my favorite retail establishment and what would be considered the headquarters store for the Union, N.J.-based chain is about ten minutes from me.

But the company lost its way when they went from the premiere gadget store, with name brands,  to all private label a number of years ago and it sucks, with declining sales to prove it. 

Tens of thousands will lose their jobs.

Foreign Affairs, Part II

China: In his annual New Year’s Eve speech on Saturday, Chinese President Xi Jinping said China has entered a new phase in its fight against Covid and that tough challenges remain.

“Following a science-based and targeted approach, we have adapted our Covid response in light of the evolving situation, to protect the life and health of the people to the greatest extent possible…

“With extraordinary efforts, we have prevailed over unprecedented difficulties and challenges, and it has not been an easy journey for anyone,” Xi said, in what seemed to be a rare acknowledgement of the hardships the Chinese people endured during the punishing lockdowns, as well as in the rapid spread of Covid.

The country is moving into a new phase of Covid control, Xi said, calling on the public to have patience.  “Let’s make an extra effort to pull through, as perseverance and solidarity mean victory,” he said, adding the “light of hope is right in front of us.”

China “stands on the right side of history,” Xi said in the address.  Without referring to the protests, Xi said “it is only natural for the country’s 1.4 billion people to have different concerns and different views” on some issues.  “What matters is that we build consensus through communication and consultation,” he said.

The World Health Organization on Wednesday said that data from China shows no new coronavirus variant has been found there, but it also under-represents how many people have died in the country’s rapidly spreading outbreak.  Global unease has grown about the accuracy of China’s reporting of an outbreak that has filled hospitals and overwhelmed some funeral homes since Beijing abruptly reversed its “zero-Covid” policy.

The UN agency released data supplied by the Chinese Center for Disease Control and Prevention, after WHO officials met with Chinese scientists.

Mike Ryan, the WHO’s emergencies director, told a media briefing that current numbers being published from China under-represented numbers of hospital admissions, ICU admissions and “particularly in terms of death.”

WHO Director General Tedros Adhanom Ghebreyesus said the “WHO is concerned about the risk to life in China and has reiterated the importance of vaccination, including booster doses to protect against hospitalization, severe disease and death,” he said.

China’s People’s Daily, the Communist Party’s official newspaper, sought to rally worried citizens for what it calls a “final victory” over Covid-19, rebutting criticism of its policy of strict isolation that triggered rare protests last year.

Health officials abroad have been struggling to work out the scale of the outbreak and how to stop it spreading, with more countries introducing measures such as pre-departure Covid tests for arrivals from China*, which Beijing has fiercely criticized.  China will stop requiring inbound travelers to quarantine from Jan. 8 but they must be tested before arrival.

*The European Union on Wednesday “strongly encouraged” its member states to impose pre-departure Covid-19 testing of passengers from China.

Many Chinese funeral homes and hospitals continue to say they are overwhelmed, and international health experts predict at least 1 million Covid-related deaths in China this year.

At a daily briefing Thursday, Chinese Foreign Ministry spokesperson Mao Ning said: “At present, China’s Covid-19 situation is under control.  Also, we hope that the WHO secretariat will take a science-based, objective and impartial position to play a positive role in addressing the pandemic globally.”

The terse language between China and the WHO contrasts sharply with what critics in the U.S. Congress and elsewhere called an overly friendly relationship between the two as the UN organization sought to probe the origins of the pandemic.

Meanwhile, local authorities in some areas are appealing to the public to avoid traveling during this month’s Lunar New Year holiday, as the last formal restrictions on movement are lifted.

“We recommend that everyone not return to their hometowns unless necessary during the peak of the outbreak,” the government of Shaoyang county in Hunan province in central China said in a notice dated Thursday.  “Avoid visiting relatives and traveling between regions.  Minimize travel.”  [South China Morning Post]

[Separately, the Omicron subvariant, XBB.1.5, is causing concern among scientists after its rapid spread in the United States in December.  The WHO says it’s the most transmissible Omicron subvariant that has been detected so far.  It spreads rapidly because of the mutations it contains, allowing it to adhere to cells and replicate easily.  The WHO does not have any data on severity yet, or a clinical picture on its impact.  But it said it saw no indication that its severity had changed but that increased transmissibility is always a concern.]

On the Taiwan front, a U.S. warship sailed through the sensitive Taiwan Strait on Thursday, part of what the U.S. military calls routine activity but which has riled China.

In a statement, Liu Pengyu, spokesman for China’s embassy in Washington, said China firmly opposed the move and urged the United States to “immediately stop provoking troubles, escalating tensions and undermining peace and stability across the Taiwan Strait.”

Editorial / The Economist

“The Communist Party is deft at rewriting history to suit its needs.  Yet Mr. Xi will struggle to shake the damage done to his reputation in 2022.  The clumsy enforcement of zero-Covid, followed by its hefty abandonment, will go down as an error for the ages.  Many investment houses adjusted their risk assessments for China and will allocate less to the country over the next three years unless they are compensated for it.  About $18bn of foreign exchange flowed out of China in November, up from $11bn in October.  These outflows are expected to reverse when China’s economy stabilizes in 2023, but a swift return to the type of inflows witnessed prior to the pandemic is unlikely.

“Deep damage has been done to parts of China’s supply chain… Take the process of launching new products, which requires an almost continuous flow of researchers and scientists between headquarters, usually in the West, and plants in China.  The Covid years made this dance impossible.  Engineers stopped visiting and fewer new products were launched in the country.  Multinational firms have been forced, often reluctantly, to launch elsewhere.

“After three years of zero-Covid, executives have become comfortable with this move away from China.  Inbound investment in new ‘greenfield’ factories has slowed sharply, according to some measures.  At the same time, the number of firms deciding to relocate operations outside of China has jumped, says Alex Bryant of East West Associates, a supply-chain consultant.  Most of the relocations Mr. Bryant’s firm has assisted with over the past year have been outbound.  He thinks the reopening of China is unlikely to lead to an immediate turnaround in the direction of traffic.”

[Dell Technologies Inc. announced this week it would source none of its chips from China by 2024.]

North Korea: Seoul and Washington are discussing possible joint exercises using U.S. nuclear assets, South Korean President Yoon Suk-yeol said, while North Korean leader Kim Jong Un branded the South its “undoubted enemy” in flaring cross-border tensions.

Yoon’s comments, in a newspaper interview published on Monday, followed his call for “war preparation” with an “overwhelming” capability, after a year of a record number of North Korean missile tests and the intrusion of North Korean drones into the South last week.

“The nuclear weapons belong to the United States, but planning, information sharing, exercises and training should be jointly conducted by South Korea and the United States,” Yoon said in the interview with the Chosun Ilbo newspaper.  Washington was “quite positive” about the idea of the exercises, according to the interview, though the White House and State Department did not respond to a request for a comment on Yoon’s remarks, but clearly South Korea and the U.S. are working together.

Meanwhile, Kim ordered an “exponential” expansion of his country’s nuclear arsenal and the development of a more powerful intercontinental ballistic missile, state media reported Sunday, after he entered 2023 with another weapons launch (three short-range ballistic missiles) following the record number of testing activities last year.

--Israel: A visit by Israel’s national-security minister to one of the world’s most contentious religious sites highlighted the radical tendencies of Benjamin Netanyahu’s new government.  On Tuesday, Itamar Ben-Gvir, leader of the ultra-nationalist party in Netanyahu’s coalition, visited Jerusalem’s Temple Mount, near the al-Aqsa mosque, despite warnings of violent protests.  A decades-old status quo allows only Muslim worship there. 

But it’s complicated.  The arrangement allows non-Muslims to visit but not pray. Ben-Gvir once advocated ending the ban on Jewish prayer at the sensitive site but has been non-committal on the issue since aligning with Netanyahu.  But other members of Ben-Gvir’s Jewish Power party still advocate such a move.

Ben-Gvir will oversee Israeli police who are formally tasked with enforcing the ban on Jewish prayer at the compound.

The feared protests didn’t as yet materialize, but the action was condemned by Arab regimes and led the UAE to postpone a proposed visit by Netanyahu that had been scheduled for next week.

Ben-Gvir’s portfolio gives him control of police and a new paramilitary “national guard,” while other far-right ministers plan to expand the construction of settlements in the occupied West Bank.  That risks further escalating tensions between Israelis and Palestinians.

But Netanyahu, who is on trial for corruption, is beholden to his firebrand partners and won’t find it easy to rein them in.

The new government is also seeking reforms to the judiciary to limit its influence on government policy and give politicians a bigger role in picking top judges, alarming opponents who fear it will hurt democracy and minority rights.

The partners in Netanyahu’s nationalist-religious government have long accused the court of overreach and the bench of elitism.  Israelis opposed to the reforms fear for the country’s democratic health, defending the court as a protector of minority rights.

Afghanistan: ISIS on Monday claimed responsibility for an attack on Taliban forces in Kabul, saying on Telegram it killed 20 people and wounded 30.  A spokesman for the Taliban said an explosion outside the military airport in the capital Kabul had caused multiple casualties.

The Taliban claimed it killed eight so-called ISIS militants and arrested nine others in raids targeting key figures responsible for a recent attack on a Chinese hotel in Kabul.

Brazil: Luiz Inacio Lula da Silva (“Lula”) was sworn in as Brazil’s president on Sunday, delivering a searing indictment of far-right former leader Jair Bolsonaro and vowing a drastic change of course to rescue a nation plagued with hunger, poverty and racism.

In a speech to Congress after officially taking the reins, the leftist said democracy was the true winner of the October presidential vote, when he ousted Bolsonaro in the most fraught election in a generation.

Bolsonaro left Brazil and ended up in Orlando, Florida, for now, after refusing to concede defeat, rattling the cages of Brazil’s young democracy with baseless claims of electoral weaknesses that birthed a violent movement of election deniers.  Bolsonaro faces mounting legal risk for his anti-democratic rhetoric and his handling of the pandemic now that he no longer has presidential immunity.  By going to Florida, for now he is insulated from any immediate legal jeopardy. Some of us are waiting for his trip to Mar-a-Lago to be with his mentor.

Lula has called Bolsonaro’s handling of Covid, which killed 680,000 in Brazil, “genocide.”

Separately, Lula said he wants to turn Brazil, one of the world’s top food producers, into a green superpower.  In his first decisions as president, he restored the authority of the government’s environmental protection agency to combat illegal deforestation, which had been weakened by Bolsonaro, and revoked a measure that encouraged illegal mining on protected indigenous lands.

Random Musings

--Presidential approval ratings….

Gallup: 40% approve of Biden’s job performance, 55% disapprove; 37% of independents approve (Nov. 9-Dec. 2).

Rasmussen: 47% approve, 52% disapprove (Jan. 6).

--Editorial / Wall Street Journal

“We were taught to believe that all jobs have dignity, but on second thought there is serving as Speaker of a Republican-controlled House of Representatives.  After two days of intra-GOP stalemate over electing Kevin McCarthy, our main question is why the California Congressman still wants the job?

“For that matter, why would anyone want it?  It’s true the Speaker is third in line to be President, you get your name in the history books and your portrait hung in the Capitol, and you can sit and applaud uncomfortably behind President Biden during his next two State of the Union addresses.  Other than that, there’s not much to recommend the job.

“That was true for John Boehner, who became Speaker in 2011 but was ousted in 2015 by a rump GOP faction after he failed to show enough enthusiasm for futile political gestures.  Paul Ryan took over and was able to push through the 2017 tax reform, among other things, but he left after 2018 rather than have to deal with the growing Crank Caucus.

“Mr. McCarthy lost three more floor votes on Wednesday, as 20 Republicans refused to budge despite being outvoted 10 to 1 by their colleagues.  The rebels without a plausible alternative candidate first nominated Arizona Rep. Andy Biggs, who had received only 31 votes in November in the contest with Mr. McCarthy to become GOP leader.  He’d lose a race against a Capitol parking-lot attendant.

“The rebels then nominated Ohio Rep. Jim Jordan, who doesn’t want the job and endorsed Mr. McCarthy.  Then they nominated Florida Rep. Byron Donalds, a second-termer who voted for Mr. McCarthy on the initial vote.  He has no chance to win, but he does now have a higher name ID.

“At this point all of this isn’t so much about Mr. McCarthy as about whether he or anyone else could lead a coherent majority for the next two years.  Mr. McCarthy has already conceded that a mere five Members [Ed. now one] will be able to move to vacate the Chair and put his Speakership in jeopardy.  Any small faction could hold him hostage at any time.

“If Mr. McCarthy bows out, there are other Republicans who might be able to get 218 votes for Speaker, but why would they want the job?  Does Steve Scalise, the No. 2 House Republican, want to spend two years listening to ultimatums from Colorado Rep. Lauren Boebert?  Wisconsin Rep. Michael Gallagher gave a spirited nominating speech for Mr. McCarthy on Wednesday and is widely respected, but he can accomplish much more leading the Select Committee on China that Republicans are setting up.

“The problem any GOP leader faces today is that too many Republicans don’t really want to hold and keep political power. They’re much more comfortable in opposition in the minority, which is easier because no hard decisions or compromises are necessary.  You can rage against ‘the swamp’ without having to do anything to change it.  This is the fundamental and sorry truth behind the Speaker spectacle and the performative GOP politics of recent years.

“It’s sorrier still because the country desperately needs an effective check on the excesses of the progressive left that dominates today’s Democratic Party.  That’s what voters said when they gave Republicans the House majority, which they seem intent on squandering.”

Karl Rove, former Bush White House aide and Fox News contributor, broke down why he believes the voting for House speaker is unlikely to stop anytime soon, calling the GOP’s failure to elect Rep. Kevin McCarthy an “utter, unmitigated disaster.”

Rove railed against all the concessions being granted, or sought, by Freedom Caucus members.

“(They) are constantly moving the goalposts.  They clearly wanted to set up a new entity.  You know, there are specific rules on how you go about putting the House of Representatives on record to engage in outside litigation. They wanted to be able to have a separate committee that they would control that would have that authority unto itself,” Rove explained, adding:

“So these are extraordinary demands by the Freedom Caucus and for personal power… And what was interesting was after McCarthy had conceded on their two big issues, they came up with a whole bunch of other demands.”

Rove said this during the first vote on Tuesday…more and more concessions since have been made to the Gang of 20.

Trump World

--Former President Trump called on House Republicans to unite behind Kevin McCarthy for the Speakership, announcing early Wednesday that he is standing by McCarthy despite opposition from some hardline members of the party.

Trump said in a Truth Social post that “some really good conversations” were held Tuesday night, and all House Republicans should vote for McCarthy, “close the deal” and “take the victory.”

“REPUBLICANS, DO NOT TURN A GREAT TRIUMPH INTO A GIANT & EMBARRASSING DEFEAT.  IT’S TIME TO CELEBRATE, YOU DESERVE IT.  Kevin McCarthy will do a good job, and maybe even a GREAT JOB – JUST WATCH!” he said.

--Once we got to the third vote on Tuesday, and the 20 Republican House members who voted against Kevin McCarthy, you had a situation where all but two of the 20 were election deniers.

Of the 18 deniers, 14 are returning members who voted against certification of the electoral college count on Jan. 6, 2021.  And there are four election-denying newcomers who either expressed support for that vote, embraced partisan post-election audits or promoted false claims of 2020 election fraud.

But as the Washington Post’s Amy Gardner pointed out, a significant majority of McCarthy’s 202 votes – 157 – came from election deniers, including McCarthy himself, who embraced false claims the election was stolen from Trump. 

The two Republicans voting against McCarthy who are not deniers are Chip Roy of Texas, and newcomer Josh Brecheen of Oklahoma.

--The New York Daily News had a tally of the legal threats facing Donald Trump this year…civil cases looking for hundreds of millions in damages and intensifying criminal inquiries.

Aside from the criminal referrals from the House Select committee investigating the Jan. 6 Capitol attack, you have the Justice Department and special prosecutor Jack Smith overseeing the inquiry into Trump’s influence on the Capitol riot.

A Justice Department probe into missing classified documents.

And there’s the Georgia probe into 2020 presidential election interference, the clearest case of them all to me.

And the ongoing Manhattan DA probe, with some believing Trump could yet face criminal charges in it, well beyond the sweeping lawsuit claiming Trump and his senior executives habitually misrepresented the value of company assets to score better loan deals and tax breaks.

And the lawsuit pending in Manhattan federal court from columnist E. Jean Carroll, who alleges Trump sexually assaulted her, among other things.

--As for the release of his taxes…Trump took advantage of the tax code, and many of the provisions he signed into law in late 2017.  There isn’t necessarily a smoking gun, but there are legitimate questions, including on some of his charitable donations.

--Today being the two-year anniversary of the January 6 insurrection at the Capitol, former Joint Chiefs Chairman Marine Gen. Joseph Dunford warned against the further politicization of the military, which many argue is potentially fatal to the future of the United States.

“The nonpartisan ethic of the armed forces is at greater risk today than it has been in our lifetimes, and maintaining it is essential for the survival of American democracy,” Dunford wrote in the latest issue of Foreign Affairs.  “Over the last 30 years, politicians from both parties have increasingly sought to exploit the public’s trust in the military by attempting to wrap themselves in the flag and encouraging former officers to speak publicly on partisan issues…Although this trend does not yet suggest that the military would act in a manner inconsistent with its constitutional duties, it is clearly heading in the wrong direction.”

---

--Benedict XVI, the former pope who spent years in the Vatican upholding conservative Catholic teaching but who upended centuries of tradition by resigning as pontiff, died last Saturday, age 95.

The German-born Benedict lived out his final years in the Vatican…two popes in one place. 

After announcing that he would step down in February 2013, Benedict withdrew to a life of study and prayer “hidden from the world.”  He had shocked the world in becoming the first pope to voluntarily abdicate in nearly 600 years, following a decline in his health amid the strain of continued scandals within the Vatican and criticism from without.

He spent his eight-year papacy trying to turn back the rising tide of secularism in Europe, defending the church’s response to widespread allegations of clerical sexual abuse and, toward the end, dealing with the embarrassing leak of his private documents by his personal butler.

Benedict hewed unswervingly to strict Catholic orthodoxy, a theological absolutism he honed and enforced during his years as guardian of church doctrine under Pope John Paul II, earning him the nickname “God’s Rottweiler.”

Benedict preferred to be behind the scenes rather than out in front of adoring masses, which stood in stark contrast to his predecessor, John Paul, and his successor, Francis.

Benedict once compared his election as pope to having the guillotine fall on him.

“I told the Lord with deep conviction, ‘Don’t do this to me.  You have younger and better [candidates] who could take up this great task with a totally different energy and with different strength,” he told a group of German pilgrims soon after his inauguration as leader of the Church.

“Evidently, this time he didn’t listen to me,” Benedict added.

He was already 78, and by the time he announced his intention to resign, he was a frail 85.

Some months later, Benedict revealed that he had decided to resign because “God tole me to” during a months-long mystical experience, which had deepened his desire for a closer relationship with the divine.  Seeing the galvanizing effect of his successor, Francis, on the church only strengthened his conviction that he had done the right thing, Benedict said.

Pope Francis gave a short Homily honoring former Pope Benedict, recalling how Jesus’ last words – “Father, into your hands I commend my spirit” – summed up the “ceaseless self-entrustment” to God that had defined Benedict’s life.

Francis didn’t mention Benedict by name until the last line, in which he referred to Jesus as the bridegroom of the church.  “Benedict, faithful friend of the Bridegroom may your joy be complete as you hear his voice, now and forever.”

But in the short speech, Francis included lines that referred to the soft-spoken German theologian’s life-long work of meditating on the life of Jesus, and who faced many challenges as pope before his retirement in 2013.

“Like the Master, a shepherd bears the burden of interceding and the strain of anointing his people, especially in situations where goodness must struggle to prevail and the dignity of our brothers and sisters is threatened,” Francis said.  “In the course of this intercession, the Lord quietly bestows the spirit of meekness that is ready to accept, hope and risk, notwithstanding any misunderstandings that might result.”

Francis added that “holding fast to the Lord’s last words and to the witness of his entire life, we too, as an ecclesial community, want to follow in his steps and to commend our brother into the hands of the Father.

“May those merciful hands find his lamp alight with the oil of the Gospel that he spread and testified to for his entire life,” he said.  [Jason Horowitz / New York Times]

--The parade of severe storms California has seen the past few weeks could lead to one of the strongest seasons since the El Nino-fueled winter of 1997-98*, and there is little relief in sight.

*That winter ended with 17 deaths and more than half a billion dollars in damage in California.

Northern California and the Central Valley have been hit by a number of history-making storms, pouring floodwaters into homes, cars, restaurants, freeways, underpasses…with at least six deaths as of early Friday (over the course of the week).

More storms are expected into mid-January.  By the time the pattern of storms ends, San Francisco will probably have recorded the most rain over a three-to-four week period in the modern record. 

5.46 inches of rain fell on downtown San Francisco on New Year’s Eve – the second-wettest day in the historical record, which dates back to 1849.

Downtown Sacramento recorded one of its wettest Decembers on record – 9.5 inches.  That’s about half the rainfall the city gets on average in an entire year, 18.2 inches.  Stockton and Modesto set all-time records for December rainfall.

While impressive, the cumulative precipitation recorded so far in the northern Sierra – a key indicator of the health of California’s reservoirs – is nowhere near enough to suggest the end of the drought is in sight.

But it helps!  California’s largest reservoirs remain very low after the state’s driest three years on record. Shasta Lake is at 34% of capacity, while Lake Oroville is 38% full.  But these figures could rapidly rise, especially come the spring because the Sierra Nevada snowpack measures 174% of average for this time of year, though there are still three months left in the snow season, and the snow that has fallen to date remains just 64% of the April 1 average.

Andrew Schwartz, the lead scientist at UC Berkeley’s Central Sierra Snow Laboratory*, said, “It’s definitely a very exciting start to the year and a very promising start to the year.   But we just need the storm train to keep coming through.”

*Last Saturday, the Lab observed snowfall rates as high as 7.5 inches per hour!

Last year, December was solid on the snowfall front, and then the spigot shut off, with virtually nothing January through March.  So we’ll see what happens later this winter.

IF the rest of the wet season is indeed wet, however, the reservoirs could fill in the summer, and wouldn’t that be a great story!

As of this week, the U.S. Drought Monitor had 71.1 percent of California in “severe” or worse drought, down from 80 percent the week before, and headed lower still.

The zone of top-tier “exceptional” drought, which last week covered more than 7 percent of the state, has since disappeared.

--I haven’t cared about the problems in the Royal Family, but with the release of Prince Harry’s book, “Spare,” and Harry’s claim his brother William physically attacked him, according to those who have seen a copy, this is a rather serious charge.

As noted by the Guardian, which has a copy, and confirmed by others (the book not scheduled to be released until Jan. 10): Harry and Williams were having an argument over Meghan.

“He grabbed me by the collar, ripping my necklace, and he knocked me to the floor,” Harry said.

Prince Harry, according to the Guardian, writes that his brother was critical of his marriage to Meghan – and that Prince William described her as “difficult,” “rude” and “abrasive.”

The Duke of Sussex reportedly writes that his brother was “parrot[ing] the press narrative” as the confrontation escalated.

I’d say any chances of a reconciliation are off.

And as often happens in these book releases, stores in Spain were already selling “Spare” on Thursday, five days ahead of the launch.  Bookstores were under strict orders from the Spanish publisher not to release the book.

--William “Rick” Singer, the man known as the architect of the notorious college admissions scandal was sentenced Wednesday to 3 ½ years in prison.

Singer funneled money to university coaches from wealthy parents to secure the admission of their children to elite colleges.  More than 50 people have been convicted for their role in the scandal, including actors Lori Loughlin and Felicity Huffman, who were clients of Singer.

--Finally, we note the passing of Barbara Walters, 93, a real pioneer as TV news’ first woman superstar.

Walters made headlines in 1976 as the first female network news anchor, with an unprecedented $1 million annual salary.

Boy, back in the day, the “Barbara Walters Special” was must-watch TV…no one had bigger “gets” than she did.

A tremendous role model.  RIP.

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

Pray for Ukraine.

God bless America.

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Gold $1871
Oil $73.75

Regular Gas: $3.29; Diesel: $4.67 [$3.30 / $3.57 yr. ago]

Returns for the week 1/2-1/6

Dow Jones  +1.5%
S&P 500  +1.5%
S&P MidCap  +2.5%
Russell 2000  +1.8%
Nasdaq  +1.0%

Bulls 36.6
Bears 33.8…12/20: 37.5 / 33.3…nothing Xmas week

Hang in there.

Brian Trumbore

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