Week in Review

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Week in Review

06/19/2021

For the week 6/14-6/18

[Posted 9:00 PM ET, Friday]

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Edition 1,157

It’s been over two months since our Dr. Bortrum (aka Dad) had his medical incident, which was actually the second in three days.  He was quickly released from the hospital after the first one and seemed to be back to normal.  But two days later that all changed.  A once vibrant 93-year-old, with a still sharp mind, was severely diminished.

It’s also now been two weeks since he first went into hospice.  My heart is broken.  It wasn’t supposed to end this way.  And I feel like I should have done more at a critical moment.  I also feel like the hospital didn’t respond rapidly enough to what should have been readily apparent to them.

When I visit him every day, I don’t want him to see how upset I am.  Sometimes it’s enough for me to try to keep it all together before I get back into the car. 

The nurses at the hospice are wonderful, ditto at the hospital and the two rehab facilities he was in for about five weeks.  They are the best of the human race.  God bless them all.

And so in two days it’s Father’s Day.  The timing isn’t the best, but at this point, nothing would be.

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Biden’s Excellent Adventure

It was a solid first performance on the international stage as president for Joe Biden.  The G-7, NATO, and European Union summits, followed by his tete-a-tete with Vladimir Putin.

Biden was praised for his sharply different tone from his predecessor, frank and collaborative discussions of global issues without sowing discord. 

“It used to be complete chaos,” an insider told Reuters.  “Before, we were on edge the entire time, just trying to keep the G-7 intact – and you don’t have to worry about that now.”

“You can have a frank discussion without having to start it off by saying: ‘No, Russia is not going to come back into the G-7.’”

French President Emmanuel Macron said the United States was back as a cooperative leader of the free world under Biden.  British Prime Minister Boris Johnson hailed Biden on Thursday as “a big breath of fresh air.”

A 25-page joint statement released by leaders of the G-7 on Sunday covered issues ranging from pandemic recovery to the global economy, taxes, trade and girls’ education, while asking China “to respect human rights and fundamental freedoms, especially in relation to Xinjiang and those rights, freedoms and high degree of autonomy for Hong Kong.”  The same section of the statement said the G-7 would continue to consult on how to challenge China’s behavior in the global economy.

The G-7 also said a full investigation was needed into the origins of the coronavirus.

Italian Prime Minister Mario Draghi said the statement expressed the leaders’ shared view that relations with China should be based on three principles: the necessity of cooperation on global issues such as climate change, the reality of economic competition, and the need to speak openly about differences in values between democratic countries and China.

President Biden said at a press conference following the end of the G-7: “The only way we’re going to meet the global threats is by working together with our partners and our allies… America is back at the table.”

Regarding Russia, the G-7 demanded it take action to halt cyber attacks that demand ransoms from businesses in the West.  And it called on Moscow to stop its “destabilizing behavior and malign activities.”

But as Walter Russell Mead opines below, a lot of this is simply empty rhetoric.  The autocrats are winning.

As for the U.S. and the European Union, the two pledged to cooperate more on technology regulation, industrial development and bilateral trade following Biden’s visit. 

Central to the increased coordination is the creation of a new high-level Trade and Technology Council, the aim of which is to boost innovation and investment within and between the two allied economies, strengthen supply chains and avert unnecessary obstacles to trade, among other tasks.

When it comes to the summit with Vladimir Putin, which I get into in great detail below, I would not have met with the Russian leader, especially so soon.  But the proof will be in the pudding.  As Biden put it, we’ll see how Putin behaves over the next 3 to 6 months.  If the cyberattacks continue, or if he creates some mischief in Eastern Europe, there’s your answer, and the U.S. will have to respond harshly.

For now, the bottom line is Biden didn’t fall flat on his face over in Europe and the positives outweigh the negatives.

But I thought it was rather rich that Republican Leader Kevin McCarthy criticized Biden’s summit with Putin, saying in a statement on Thursday that Biden “gave Vladimir Putin a pass.”

“The American people suffered massive disruptions because of Russia-linked cyberattacks,” McCarthy said in a statement.  “Two Americans, both Marine veterans, are being held as prisoners in Russia.  We know Vladimir Putin silences and imprisons his critics.”

He added: “Knowing these facts, President Biden should have used today’s summit to stand up for our national interests and send a message to the world that the United States will hold Russia accountable for its long list of transgressions.  Unfortunately, President Biden gave Vladimir Putin a pass.”

The comments came after years of silence from McCarthy on former President Trump’s relationship with Putin, which many critics described as him cozying up to the Russian president, especially amid intelligence Russia interfered in the 2016 election.

Like at Helsinki in 2018, when Trump, standing alongside Putin, declined to endorse the U.S. government’s assessment that Russia interfered, saying he doesn’t “see any reason why” Russia would be responsible.

Instead, Trump touted Putin’s denial and pivoted to complaining about the Democratic National Committee’s server and missing emails from Hillary Clinton’s personal account.

Tom Nichols / USA TODAY

“It is always a risk to judge the early outcome of a summit between the United States and Russia.  But the meetings in Geneva between President Joe Biden and Russian President Vladimir Putin are close enough to qualify as a success – for both sides.

“Both Biden and Putin had their say in front of the press.  Neither side attempted either to placate or to humiliate the other, which is normal when adults and professionals are conducting diplomacy. Each president returned home able to declare that he had not budged on any substantive issues – because both sides, apparently, chose not to try to unravel any such issues in this first meeting on neutral ground.

“And yet, the utter normality of the proceedings represented a significant advance for American interests and the U.S. position in the world.  After four years in which Donald Trump was openly hostile to America’s NATO allies and slavishly (and personally) fearful of Vladimir Putin, it was a relief to see Biden return to the role every American president is obligated to fulfill: the leader of a democratic alliance of free nations.”

But here’s today’s reality….

Walter Russell Mead / Wall Street Journal…prior to the Biden-Putin summit…

“As President Biden travels across Europe from one summit to the next, the memory of Donald Trump’s disruption is starting to fade, and the soothing pageantry of diplomacy is resuming its stately course.  The familiar rituals are back.  In Cornwall, England, meetings were held, communiques were composed, and all was harmony and light, with the exception of intra-European squabbles over the rules governing sausage shipments from the mainland of Great Britain to Northern Ireland.  More of the same is expected in Brussels. America is back, the West is back, multilateralism is back, and all is well….

“Observers were particularly struck by the G-7’s strong language about Russia and China. It condemned Russia’s ‘destabilization behavior’ and called on Moscow to crack down on cybercriminals. The language about China was even tougher.  Besides expressing concern about ‘the situation in the East and South China seas’ and opposing any ‘unilateral attempts to change the status quo and increase tensions,’ the G-7 called on China ‘to respect human rights and fundamental freedoms, especially in relation to Xinjiang and those rights, freedoms and high degree of autonomy for Hong Kong enshrined in the Sino-British Joint Declaration and the Basic Law.’

“It all sounded very impressive and was certainly a greater display of unity than former President Donald Trump ever managed to produce.  Yet China and Russia appear unimpressed, as does Iran.  Russia turned from consolidating its hold over Belarus to tightening the crackdown on internal dissent.  China proceeded with the systematic destruction of Hong Kong’s liberties while moving forward with its ominous naval buildup.  Iranian ships bearing mysterious cargos plowed steadily across the Atlantic toward its allies in the Western Hemisphere.

“The harsh reality is that the U.S. and its allies are losing ground to their adversaries, and the balance of power is moving sharply against us. Worse, many Western leaders seem to have forgotten what it means to win.

“Inserting the word ‘China’ into a statement that has no resonance or consequence in the real world is not an achievement.  Administering lectures to the Kremlin that change no one’s behavior is not a victory. Boosting Iran’s economy while it continues a systemic program of subversion across the Middle East is not progress.

“Winning means getting Russia to withdraw from Syria, the Donbas and Crimea.  A diplomatic victory is when China agrees to dismantle military bases on artificial islands in the South China Sea. Success involves getting Iran to stop arming and funding armed militias and terrorist groups in Lebanon, Syria, Yemen and Iraq.

“Losing, on the other hand, is something the West has become quite good at.  Losing is watching construction continue on the Nord Stream 2 pipeline as Russia declares the country’s largest opposition party an illegal conspiracy.  Losing is moaning about Chinese behavior in the South China Sea as the military balance tilts toward Beijing.  Losing is crafting intricate webs of ineffectual sanctions as Russia’s reach and control inexorably expand.  Losing is wringing one’s hands and issuing eloquent critiques as China intensifies its crackdowns in Tibet, Hong Kong and Xinjiang.

“Mr. Biden is right to point out that the world’s democratic societies face an unprecedented challenge from well-armed, hostile autocracies.  He is right to insist that strengthening America’s alliances is a key to renewing its strength. But that is only the start. 

“Since Russia invaded Georgia in 2008, democracies have failed to respond effectively to a long series of attacks by revisionists against the international status quo.  From seizing Crimea to building illegal military bases on artificial islands, from invading Ukraine to crushing democracy in Hong Kong in a flagrant violation of international commitments, the revisionist autocracies have made one gain after another without eliciting anything like a serious allied response.

“Under these grim circumstances, President Biden’s job is not to craft communiques.  His job is to reverse a steady deterioration in the global political balance that threatens American security on a scale not seen since the Cold War….

“(Autocracy) is on the march at the fastest rate since the 1930s, and unless Mr. Biden starts scoring some concrete wins, our adversaries’ progress will accelerate, no matter how many pointed communiques’ democracies write.”

On the Biden Agenda….

--A growing bipartisan group of lawmakers and the White House have been negotiating over how to finance a roughly $1 trillion infrastructure proposal, awaiting feedback from President Biden as Democrats began discussions on a separate economic package that could cost up to $6 trillion.

After talks collapsed between Biden and a group of Senate Republicans, an alternative set of Republicans and Democrats have held talks on an infrastructure plan that would spend $973 billion over five years.  The group has expanded to include 11 Republicans and 10 Democrats.

The plan would dedicate $110 billion in new spending on bridges and roads, $65 billion to expanding access to broadband, and $48.5 billion to public transit, among other priorities.  Extended over an eight-year timeline, the plan would spend a total of $1.2 trillion.

Politico first obtained a copy of the draft, including a proposal to index the gas tax to inflation, increasing IRS enforcement to collect unpaid taxes, collecting an annual fee from electric vehicles, and repurposing existing federal funds as ways to finance the package.

But the White House is opposed to raising the gas tax and placing fees on electric vehicles.

At the same time, House Speaker Nancy Pelosi is against repurposing money designated for Covid aid or raising the gas tax.

--Democrats and progressive activists have been working for months on a sweeping voting rights bill and they are now embracing a new, far narrower plan suddenly put forward by Sen. Joe Manchin (D-W.Va.).

While this does not improve the chances of getting the legislation through the Senate, it unites the party around what it has billed as its highest priority and showing that, were it not for Republican opposition and the filibuster, the elections overhaul would become law.

Manchin has previously refused to support what is known as S.1, which makes acceptance of his compromise alternative important.  The proposal would make Election Day a holiday, require 15 days of early voting and ban partisan gerrymandering, among other steps.  The Manchin alternative significantly has the support of Stacey Abrams, the voting rights champion in Georgia.

Democrats can’t do anything without Manchin’s support.  A test vote will apparently be held next week.

--The Supreme Court dismissed a challenge to Obamacare, preserving insurance coverage for millions of Americans.

The justices, by a 7-2 vote, left the entire law intact Thursday in ruling that Texas, other Republican-led states and two individuals had no right to bring their lawsuit in federal court.

The law’s major provisions include protections for people with pre-existing health conditions, a range of no-cost preventive services and the expansion of the Medicaid program that insures lower-income people, including those who work in jobs that don’t pay much or provide health insurance.

Also left in place is the law’s now-toothless requirement that people have health insurance or pay a penalty.  Congress rendered that provision irrelevant in 2017 when it reduced the penalty to zero.

The elimination of the penalty had become the hook that Texas and other Republican-led states, as well as the Trump administration, used to attack the entire law.

And with three Trump appointees to the Supreme Court, opponents of Obamacare hoped a majority of the justices would finally kill off the law they have been fighting for more than a decade.

But this was the third major attack on the law at the Supreme Court, and while Trump nominee Justice Neil Gorsuch was in dissent, the other two, Justices Amy Coney Barrett and Brett Kavanaugh, sided with the majority.

Back in November during arguments, Chief Justice John Roberts said it seemed the law’s foes were asking the court to do work best left to the political branches of government.

--The same Supreme Court ruled unanimously Thursday that Philadelphia was wrong to end a Catholic group’s contract to provide foster-care services because the organization refused to work with same-sex couples.

It was the latest victory for religious organizations at the increasingly conservative court, and the second time it has ruled against governments trying to enforce an anti-discrimination law protecting LGBTQ rights against those claiming religious liberty.

Chief Justice Roberts in his opinion reasoned that because Philadelphia theoretically allows some exceptions to its policy, the city had violated the Constitution’s guarantee of free exercise of religion by not extending one to Catholic Social Services, which screens potential foster-care parents.

“CSS seeks only an accommodation that will allow it to continue serving the children of Philadelphia in a manner consistent with its religious beliefs; it does not seek to impose those beliefs on anyone else,” Roberts wrote in part.

The Pandemic

Reuters said deaths worldwide to the coronavirus passed the 4 million mark on Thursday, though my worldometers.info tally has it below that figure.  Many countries are struggling to procure enough vaccines to inoculate their populations, and while new cases and deaths are down in countries like the United States and Britain, several nations have vaccine shortages as the Delta variant becomes the dominant strain around the world.

It took over a year for the Covid-19 death toll to hit 2 million, while the next 2 million were recorded in just 166 days, a Reuters analysis shows.

Countries in Latin America are facing their worst outbreak since March, with 43 of every 100 infections in the world being reported in the region.  The top nine countries reporting the most deaths per capita over the last week were all in Latin America.  Hospitals in Bolivia, Chile and Uruguay are largely seeing patients between the ages of 25 and 40 as the trend toward younger patients continued.

And look at the charts for Indonesia and South Africa…both spiking all over again.

Last week the World Health Organization estimated that Covid-19 fatalities worldwide are much higher than is being reported.  As an example of this, the Indian state of Bihar raised its death toll sharply higher after the discovery of thousands of unreported cases, lending weight to concerns that India’s overall death tally is significantly more than the official figure.

The Group of Seven nations pledged to provide 1 billion vaccinations to help poorer countries, but there’s no time to waste.

Covid-19 death tolls, as of tonight….

World…3,866,643
USA…616,920
Brazil…498,621
India…385,167
Mexico…230,792
Peru…189,933
Russia…128,445
UK…127,956
Italy…127,225
France…110,702
Colombia…98,746
Germany…90,877
Argentina…88,247
Iran…82,746
Spain…80,652
Poland…74,782
South Africa…58,441
Indonesia…54,043
Ukraine…51,952
Turkey…49,071
Romania…32,212
Chile…31,259
Czechia…30,275
Hungary…29,950
Canada…26,023
Belgium…25,117
Philippines…23,385
Pakistan…21,913
Ecuador…21,234

Source: worldometers.info

U.S. daily death tolls…Sun. 100; Mon. 252; Tues. 353; Wed. 447; Thurs. 368; Fri. 393.

Covid Bytes

--Despite the good news on the Covid front from Britain, Prime Minister Boris Johnson delayed his plans to lift lockdown restrictions by a month on Monday, warning that the more infectious Delta variant (first discovered in India) meant if he did nothing, hospital admissions could hit the peak of the first wave of the pandemic.  Look at the UK’s numbers…they are heading back up.

Under the final stage of a plan outlined by Johnson in February, he had hoped to lift most social restrictions on June 21, meaning pubs, restaurants, nightclubs and other hospitality venues could fully reopen.  Now that has been pushed back to July 19.

--The Kremlin on Friday blamed a surge in Covid cases on “nihilism” and reluctance to have vaccinations after a record 9,056 new infections in Moscow, mostly with the Delta variant, fanning fears of a third wave.  Moscow Mayor Sergei Sobyanin extended restrictions he had imposed this month, including an 11 p.m. closing time for cafes and restaurants, and the closure of fan zones set up for the European soccer championship.

The news agency TASS quoted Sobyanin as saying 89.3% of Muscovites diagnosed with Covid-19 have the Delta variant.  Only about 12% of Russians have received at least one dose of the vaccine thus far.  Moscow authorities this week ordered all workers with public-facing roles to get vaccinated.

--Chilean health authorities announced a blanket lockdown across the capital Santiago on Thursday following some of the worst Covid-19 case numbers since the pandemic began.  What’s so worrisome here is Chile has done a great job in getting the people vaccinated; 75% of its 15 million target population have already received at least one dose, and nearly 58% are completely inoculated.

But of the 23 million does used so far – 17.2 million were of Sinovac’s.  Draw your own conclusions.

--The United States is devoting $3.2 billion to advance development of antiviral pills for Covid-19 and other dangerous viruses that could turn into pandemics.

Dr. Anthony Fauci announced the investment at a White House briefing Thursday as part of a new “antiviral program for pandemics” to develop drugs to address symptoms caused by potentially dangerous viruses like the coronavirus.

The pills for Covid-19, which would be used to minimize symptoms after infection, are in development and could begin arriving by year’s end, pending the completion of clinical trials.

The U.S. has approved one antiviral drug, remdesivir, against Covid-19 and allowed emergency use of three antibody combinations that help the immune system fight the virus.  But all the drugs have to be infused at hospitals or medical clinics, and demand has been low due to these logistical hurdles.

Health experts, including Fauci, have increasingly called for simpler pill-based drugs that patients could take themselves. 

--The governors of New York and California, the states hit earliest and hardest by the pandemic, triumphantly announced on Tuesday that they had lifted virtually all coronavirus restrictions on businesses and social gatherings as both states hit milestones in vaccinating their residents.

70 percent of New Yorkers have received at least one dose of the vaccine, while in California, it’s 72 percent.

--Vaccine maker Novavax said Monday its shot was highly effective against Covid-19 and also protected against variants in a large, late-stage study in the U.S. and Mexico.

The vaccine was about 90% effective overall and preliminary data showed it was safe, the company said.

The Novavax vaccine, which is easy to store and transport, is expected to play an important role in boosting vaccine supplies in the developing world.

“Many of our first doses will go to…low- and middle-income countries, and that was the goal to begin with,” Novavax CEO Stanley Erck told the Associated Press.  Less than 1 percent of people in the developing world have had one shot, according to estimates.

Wall Street and the Economy

After a hotter than expected May reading on producer prices – +0.8%, +0.7% ex-food and energy; 6.6% year-over-year on headline, 4.8% on core – the Federal Reserve held interest rates near zero on Wednesday, though it signaled two rate hikes by the end of 2023 amid the soaring inflation, sooner than they forecast in March.  Fed officials also discussed an eventual reduction, or tapering, of the central bank’s bond-buying program, Chair Jerome Powell said in his press conference Wednesday, though the timing of such a move remains uncertain.

Fed officials want the economy to get closer to their goals of “maximum employment” and sustained 2% inflation before reducing the bond purchases.  Powell added the forecasts show that many Fed officials believe they will reach their goals “somewhat sooner than anticipated,” and “that would be a welcome development.”

“Progress on vaccinations has reduced the spread of Covid-19 in the United States,” the Fed said in a statement.  “Amid the progress and strong policy support, indicators of economic activity and employment have strengthened.”  But the Fed also cited some 2.6 million people retired between February 2020 and April of this year, according to estimates from the Dallas Fed.

The Fed raised its expectation for inflation this year to 3.4%, from its 2.4% prediction in March. The board expects prices for certain goods and services to continue to rise over the next few months, especially in industries with backlogged supply chains. However, the Fed also expects that the labor market will keep building strength.  And while it’s not ready to stem inflation by raising rates yet, Chair Powell sent a clear message they are keeping an eye on prices.

“Shifts in demand can be large and rapid,” Powell said at his news conference.  “Inflation could turn out to be higher and more persistent than we expect.”  At which point, “We wouldn’t hesitate to use our tools to address that,” the Chair added.  “Price stability is half of our mandate.”

At the same time, Powell expects certain categories – like planes, hotels and lumber – would see their prices decline over time, and as noted below, lumber certainly has…it’s crashed.

“We expect those prices will get back up to where they were, but there’s no reason to think they’re going to keep going up a lot,” Powell said.  “Because if they are, people will build new hotels; there’s no reason for supply and demand to be out of whack in the hotel business over any period of time.”

But the Fed also expects 7% growth this year, up from a previous forecast of 6.5%.

Treasury Secretary Janet Yellen, responding to Republican criticism that Powell and Co. are behind the curve on inflation, testified before a Senate committee Wednesday.

“As the economy is opening back up again, prices are now moving back toward normal levels in leisure, hospitality, airfare and the like.  In most cases, prices remain below pre-pandemic levels – but they’re rising, and that’s some of what’s going on here,” said Yellen, the former Fed chair.  “We’re going to monitor this very, very carefully.”

Editorial / Wall Street Journal

“Let’s try one of those multiple choice questions we all hated on SAT tests.  Question: Which one of the following doesn’t fit with the others?

“A) 7% GDP growth in 2021.

“B) A 5% increase in the consumer price index from a year earlier, and 3.8% in core prices excluding food and energy.

“C) A 4.5% unemployment rate by the end of this year, heading toward 3.8% next year.

“D) A federal funds interest rate of near-zero for another two years.

“If you answered D), you aren’t a member of the Federal Open Market Committee (FOMC), which on Wednesday reaffirmed its pedal-to-the-metal monetary policy despite a booming economy and rising inflation that even the Fed anticipates will be 3% this year.

“Answers A) and C) are the median estimates of 18 Fed governors and regional bank presidents in June, while B) was the actual inflation figure for May.  In any previous era, those numbers would be flashing yellow signals that some modest monetary tightening is in order.

“But not under Chairman Jerome Powell, as once again there were no dissenters from the policy that began at the height of the pandemic in spring 2020.  The one hint of change is that seven of the Fed forecasters predicted a rate increase in 2022.  But that is only up to 0.25% (two members) or 0.5% (five).  The median estimate is still no rate hikes through 2022 and only up to 0.6% in 2023.

“Mr. Powell conceded that the recent jump in inflation had been higher than expected.  He had little choice given the obvious price increases across most of the economy.  But he dismissed this at his press conference as the result of ‘transitory supply effects’ that will vanish when the ‘bottlenecks’ do.  Give him credit for stubborn consistency.

“The chairman was also exuberant about unemployment.  ‘We’re going to be in a very strong labor market pretty quickly,’ he said, which is also hard to deny given the record 9.3 million job openings and employers across the country who can’t find workers.

“All of this optimism is enough to make us wonder if Mr. Powell now thinks the economy can keep growing without any more of President Biden’s spending.  Too bad no one asked.”

According to a new report from the National Association of Realtors, construction of new housing in the past 20 years fell 5.5 million units short of long-term historical levels, which is calling for a “once-in-a-generation” policy response.  Housing starts in May, as reported this week, came in at a less-than-expected 1.572 million units, annualized.

Separately, May retail sales were weaker than forecast, -1.3%, -0.7% ex-autos, while May industrial production was up a strong 0.8%.

The weak retail sales report is largely owed to a shift to services, such as restaurants and bars, and travel, rather than the buying of PCs, electronic equipment, cars and furniture during the height of the pandemic and the official retail sales readout largely excludes services.

The weekly jobless claims figure rose by 37,000 to 412,000, but the 4-week moving average, which smooths out week-to-week volatility, reached a new pandemic low of 395,000.

The Atlanta Fed’s GDPNow barometer for second quarter growth is at a whopping 10.3%.

As for the stock market, it didn’t take kindly to the Fed’s more hawkish stance on rates, and talk of a rate hike sooner than projected, with the major indexes taking it on the chin, particularly the Dow Jones and S&P 500, their worst weeks since October and February, respectively.  [Details below.]

Finally, the U.S. and the European Union agreed to suspend their trade dispute over government subsidies to Boeing Co. and Airbus SE, significantly easing trade tensions amid a broader effort to improve trans-Atlantic relations.

The agreement would lift for five years tariffs that have been authorized by the World Trade Organization and have been temporarily suspended in March.

“We have resolved these disputes because we are putting away our litigation briefcases,” U.S. Trade Rep. Katherine Tai said Tuesday.  The U.S. and EU are now focused on “what is going to be best for competition between us in the context of a world where our industries and workers will be facing competition like we’ve never seen before,” she said.

The 17-year trade fight is the longest and most costly in the history of the WTO.  U.S. importers have paid more than $1.1 billion in tariffs since the duties in the dispute took effect in 2019, according to U.S. Customs data.

Setting aside the trans-Atlantic dispute allows the allies to jointly focus on China.  “Instead of fighting with one of our closest allies, we are finally coming together against a common threat,” Ms. Tai said.

China is heavily subsidizing its efforts to develop large passenger jetliners, which do not pose an immediate threat to Boeing and Airbus, but surely threaten their large sales over time in the world’s most populous country and others in Beijing’s economic orbit.

Europe and Asia

The euro area annual inflation rate was 2.0% in May 2021, up from 1.6% in April, as reported by Eurostat.  A year earlier the rate was 0.1%.

And April industrial production rose 0.8% in the region, up 39.3% vs. April 2020, but this was at the height of the lockdown.

Brexit: Time is running out to reach a solution in the spat over Northern Ireland, U.K. Brexit minister David Frost told lawmakers in London. He repeated Prime Minister Boris Johnson’s threat from over the weekend at the G-7 and then European Union summits to suspend parts of the Brexit divorce agreement if the EU doesn’t change its approach to checks on goods entering from the province.  Frost said he wanted to strike a deal with the EU that would deliver the “light touch” arrangement for border checks that the U.K. expected would apply.

But a French official said it’s “crazy” for the U.K. to realize only now what Brexit means.  The EU said it will retaliate if Britain leaves the Northern Ireland protocol.  Brussels could delay granting so-called equivalences to make it harder for U.K. financial services to keep operating in the bloc.

Ireland’s deputy prime minister Leo Varadkar then carelessly spoke of a united Ireland as being a “legitimate political aspiration,” which is the wrong thing to bring up at such a tense time in the North.  The trade border down the Irish Sea that Brexit created has angered unionists.  Irish imports from Great Britain fell again in April, continuing a trend since Brexit.

British foreign secretary Dominic Raab accused EU leaders of trying to undermine the status of Northern Ireland as part of the United Kingdom.

The EU told London once again that it must implement the Brexit deal in full and introduce checks on certain goods moving from Britain to its province.

The pro-British “unionist” community in Northern Ireland say they are now split off from the rest of the United Kingdom and the Brexit deal breaches the 1998 peace accord.  But the open border between the province and Ireland was a key principle of the Good Friday agreement.

Northern Ireland did end a stand-off that threatened to derail the government, overall, with the Democratic Unionist Party and Sinn Fein agreeing to restore the region’s power-sharing executive.  The feud was fueled by tensions over Brexit, which impacted longstanding issues of identity between the two sides.

Turning to Asia…China’s National Bureau of Statistics released some important data for May.  Industrial production was up 8.8% year-over-year, retail sales 12.4% Y/Y, and fixed asset investment was up 15.4% over the first five months of 2021 vs. 2020; all less than expected and less than the prior month.

But industrial production was 13.6% higher than the level recorded in May 2019, long before the Chinese economy was hit by the pandemic, according to the NBS.

However, while China’s factories have continued to top expectations, its consumers have been consistent in disappointing policy makers, who have been hoping for a pivot toward domestic spending as the main driver of the economy.

In Japan…May exports soared 48.6% year-over-year, the fastest pace since 1980.  Exports to China rose 23.6%, and 87.9% to the U.S., driven by cars and auto parts.  Of course this comparison is vs. last year’s lockdown.

Imports in Japan rose 27.9% Y/Y.

A reading on Japan’s core consumer prices rose 0.1% in May from a year earlier, government data showed.  In Japan, the core CPI includes oil products but excludes fresh food prices.  Stripping away fresh food and energy, consumer prices fell 0.2% from a year ago.

Street Bytes

--The Dow Jones suffered its worst decline since October, down 3.5% to 33290, including a 533-point plunge on Friday, which was exacerbated by St. Louis Federal Reserve President James Bullard’s comments on CNBC, where he spoke of the Fed initiating an interest rate hike at the end of next year, rather than the current consensus 2023, to keep rising prices within the central bank’s target.  On the other hand, later in the day, Minneapolis Fed President Neel Kashkari said he didn’t see any interest rate hikes until 2024.

The week started off Monday with the S&P 500 and Nasdaq hitting new all-time highs, but they finished down 1.9% and 0.3%, respectively, by week’s end.

Despite the slide, the S&P is still up 11% on the year, and the Dow and Nasdaq are up nearly 9%.

Next week we have some important housing data on new- and existing-home sales for May.

--U.S. Treasury Yields

6-mo. 0.05%  2-yr. 0.25%  10-yr. 1.44%  30-yr. 2.01%

The yield on the 10-year shot up to 1.56% Wednesday following the Fed announcement of possible tightening sooner than expected, but then dropped back to finish the week at 1.44%, basically unchanged on the week.  But because of the rate hike prospects, the yield on the 2-year gained 10 basis points as the yield curve flattened some.

--Oil prices continued to rise this week to the highest levels since 2018, closing today at $71.50 on West Texas Intermediate, roughly double since end of October, buoyed by expectations demand will recover rapidly in the second half of the year.  Comments on Tuesday from some of the world’s top energy traders added to the bullish mood.  Estimates are now for oil moving as high as $100 a barrel (according to some) because of falling reserves before the world reaches peak oil demand.

OPEC+ producers have been gradually relaxing record output curbs in recent months, while U.S. crude inventories fell a fourth week in a row, according to the Energy Information Administration.

--Meanwhile, Royal Dutch Shell is reviewing its holdings in the largest oil field in the United States for a possible sale as the company looks to focus on its most profitable oil-and-gas assets and grow its low-carbon investments, according to Reuters.

The sale could be for part or all of Shell’s around 260,000 acres in the Permian Basin, located mostly in Texas.  The holdings could be worth as much as $10 billion, sources told Reuters.

Shell, BP Plc and TotalEnergies (sic…a recent name change from “Total”) have pledged to lower emissions through increased investment in renewables while divesting some oil and gas holdings.

Last month, the International Energy Agency said in a report that investments in new fossil fuel projects should stop immediately if consumers wanted to meet UN-backed targets aimed at limiting global warming.

--As alluded to above, lumber futures have been collapsing from a record peak in May of $1,711 per thousand board feet to $904 Tuesday, down 47%.

Economists and investors have wondered if sky-high prices for wood products would doom the booming housing market.  Builders raised home prices and many stopped selling houses before the studs were installed, lest they midjudge costs and sell too cheaply.  Lumber became central to the inflation debate: whether the high prices were temporary shocks or a sign of a period of runaway inflation.

But even after lumber’s crash, prices are still about three times normal for this time of year, having just glanced at a five-year chart.  One factor in the decline, according to the experts, is that shadow inventory is flooding the markets, say from big buyers, such as home builders, that are selling from their own stockpile.

--Last weekend, all Aer Lingus regional flights operated by Stobart Air were cancelled after Stobart announced it has ceased operations.  480 employees lost their jobs and its devastating to regional airports in places like Cork and Belfast.

--Related to the above, Ryanair and the owner of Manchester, London Stansted and East Midlands airports have launched a legal challenge against the British government over the travel traffic light system.

They are calling for more transparency about how the government decides which countries qualify for the green list of safe places to visit amid the pandemic.

EasyJet, Tui and IAG, the owner of British Airways, have backed the case.

Ministers say the system “cautiously manages the risk of new variants.”

The traffic light system rates countries, green, amber or red based on their Covid risk.

The thing is, countries can suddenly go from green to amber, or amber to red, and you’ve already booked a flight, or you’re close to being stuck somewhere, which is what recently happened in the case of Portugal.

Travelers to countries rated green will not need to isolate on their return, but they will need to take a Covid test before and after their trip.

Arrivals from amber countries will need to quarantine, while for red countries, where only UK or Irish nationals, or UK residents, are allowed to return, you must pay for a 10-day stay in a government quarantine hotel.

--TSA checkpoint travel numbers vs. 2019

6/17…75 percent of 2019 level
6/16…70
6/15…68
6/14…67
6/13…79…pandemic high of 2,097,433 travelers
6/12…78
6/11…74
6/10…74

--Office towers and nearby businesses in central business districts are missing out on the strong economic recovery, largely because the rise in vaccinations and easing of mask restrictions haven’t propelled most employees back to work.

About three out of 10 white-collar employees were working at the office on average in 10 major U.S. cities, including New York, Los Angeles, San Francisco and Washington, D.C., according to Kastle Systems.  The nationwide security company monitors access-card swipes in more than 2,500 office buildings in cities across the country.

As of last week, an average of 31% of office workers had returned to the workspaces they occupied before the pandemic.

While some companies are pushing employees to return, others are waiting until the fall – when vaccinations will be even more widespread and schools will be in session – to more widely reopen offices.

Personally, I have my commuter parking lot metric.  The two I pass daily, with service to New York, both 150+ spots that were filled daily prior to Covid-19, now have all of 8-10 spots filled.  Granted, most of the folks in my area commuting into New York have higher-paying jobs that can no doubt be done remotely, while there are definitely a sizable number driving at least part way, where they would park in a place like Hoboken and take a subway train from there, thus reducing their exposure at least partially.  But you get the point.  It will be very interesting in the fall, assuming we are still in a good place regarding infections, if the lots will return to 50%+ capacity, at least.

--China’s soybean imports increased significantly in the first five months of the year, in line with a recovery in the domestic hog population, but domestic demand for the crop looks to be more modest in the coming months amid rising commodity prices.

China bought a total of 38.23 million tons of soybeans from January to May.  The world’s largest soybean importer spent $19.35 billion on the crop, up 44.2 percent from the same period last year, according to Chinese customs data last week.

Its biggest suppliers were the U.S. and Brazil, and soybean imports from those countries during the five-month stretch were up 12.8 percent, year on year.

“China has been an exceptionally large buyer of U.S. supplies [since October 1],” said Darren Cooper, a senior economist at Britain-based research firm International Grains Council, referring to the start of the U.S. government’s fiscal year.  “Currently, demand is almost entirely focused on South American supplies, and while purchases from Brazil have been significant, these are expected to show a more modest year-on-year increase through to September.”

The recovery of China’s hog herd, which was devastated by African swine fever, has been the key driver of its surging appetite for soybeans, which are used in animal feed for the massive livestock sector, as well as in cooking oil.

China’s total spending on food imports, including grains and meat, for the five months of 2021 rose 33.8 percent from a year ago, with soybeans accounting for more than 22 percent of its overall expenditure.

Finally, this afternoon it was reported that China’s state-owned importers bought at least eight cargo shipments of U.S. soybeans, the largest purchase in 4 ½ months.  The purchase came as the price for soybeans has been falling after hitting its high in mid-May.  China had been focusing on cheaper alternatives in Brazil as prices were soaring.

--The top two executives at troubled Lordstown Motors resigned as problems at the Ohio electric truck startup mount.

CEO Steve Burns and CFO Julio Rodriguez stepped down, sending the shares tumbling more than 20%, closing the week at $10.50, off its high for the year of $31.80.

The executive departures came less than a week after Lordstown cautioned that it may not be in business a year from now as it struggles to secure funding to begin full production.

Lordstown then said on Thursday it did not have any binding purchase orders or commitments from customers.  Tuesday, President Rich Schmidt had said at an Automotive Press Association event in Detroit the company had firm and binding orders for the first two years of production of its electric pickup truck.

So the company then said in an SEC filing, “Although these vehicle purchase agreements provide us with a significant indicator of demand for the Endurance, these agreements do not represent binding purchase orders or other firm purchase commitments.”

Looks like Lordstown has a wee bit of a credibility problem.

--Royal Caribbean Group is postponing a voyage in July after eight crew members tested positive for Covid-19.

The cruise line detected the cases as part of routine testing for crew members of the Odyssey of the Seas ship.  The company is moving the Odyssey’s sailing out of Fort Lauderdale, Fla., to July 31 from July 3 “out of an abundance of caution,” said CEO Michael Bayley.

The crew members’ cases come after two passengers sharing a room on the Celebrity Millenniun, another Royal Caribbean ship, tested positive last week, though the cruise sailed on.

All 1,400 crew members on the Odyssey were vaccinated on June 4 and will be considered fully vaccinated on June 18, Bayley said.  The cases were detected after the vaccination was given and before they were fully effective.

Two of the eight testing positive had mild symptoms, the other six were asymptomatic.

This all just points out the challenges with restarting the cruise industry.  The pandemic is still far from over.

--Last week I noted the Food and Drug Administration’s decision to approve Biogen’s Alzheimer’s treatment, the first new drug for the disease in almost 20 years.  But three FDA advisory panel members then quit in protest, with one saying it was “probably the worst drug approval decision in recent U.S. history.”

Editorial / Bloomberg

“Patients and their families may see hope in the news that the (FDA) has approved a drug to slow the pace of Alzheimer’s disease… (But) the FDA’s own expert panel strongly objected to the drug’s (Aducanumab) approval.

“All of which makes the FDA’s announcement both perplexing and wrong.  It threatens to mislead millions of Alzheimer’s patients. At the same time, because Biogen plans to price the drug at $56,000 a year for the average patient, it also stands to cost Medicare and other insurers a bundle.  This underlines the need for two kinds of reform. First, the FDA needs to rethink its processes for approving drugs.  Second, the rules controlling how Medicare chooses and pays for medicines need a thorough overhaul.

“The FDA has failed to fully explain why it overruled the almost unanimous advice of its advisory panel on aducanumab. The agency didn’t deny that the clinical-trial evidence was poor.  It simply ignored that problem and used different reasoning to grant the drug ‘accelerated approval.’  To the general public, this term suggests urgent approval of an especially valuable treatment.  In fact, it’s a more limited endorsement than ordinary approval, indicating that the drug has not proven a ‘real effect on how a patient survives, feels or functions,’ in the FDA’s words, but nevertheless acts on an underlying disease process in a way that might predict such a benefit.

“The FDA noted that patients who received aducanumab in the drug’s two truncated trials experienced a significant reduction of amyloid plaque, while those in the control arms did not. If the amyloid hypothesis is correct, the loss of plaque might cause a lessening of Alzheimer’s disease.  A problem with this reasoning is that other experimental drugs that have targeted amyloid plaques have failed in their clinical trials, and now many experts question whether plaque is a good predictor of Alzheimer’s disease progression.  Yet the FDA settled on accelerated approval without seeking comment from outside experts or fully explaining its thinking on the plaque question.

“The agency has asked the manufacturer, Biogen, to conduct another trial within eight years – and says that if no real benefit is seen, it may withdraw approval.  But that won’t be easy.  Now that the FDA seems to have said aducanumab works, it will be difficult to recruit subjects for a trial in which half the patients are given placebos.  For this reason alone, the essential first step is for the FDA to help patients understand its announcements. Accelerated approval doesn’t mean the drug is any good.”

--Kroger Co. posted Q1 adjusted earnings of $1.19 per share, down from a year earlier, but well ahead of consensus.

Sales were $41.3 billion for the recent quarter, down from $41.55 billion a year ago, which also beat the Street.  And they are above pre-pandemic levels.

Looking ahead, the grocer issued an earnings outlook that exceeded its previous forecast issued in April.

“Kroger is even better positioned to connect with our customers than we were prior to the pandemic,” CEO Rodney McMullen said.  “We were disciplined in driving costs out of the business and we achieved record growth in Kroger’s alternative profit business, demonstrating the power and attractiveness of our long-term model.”

Kroger operated 2,750 grocery retail stores and 170 fine jewelry stores under names like Fred Meyer Jewelers and Littman Jewelers.  It also has 35 food manufacturing facilities and runs 2,256 pharmacies in its food and drug stores.

Digital sales grew 16% annually and saw triple-digit growth since the beginning of 2019 amid continued technological investments.  Identical sales, ex-fuel and adjustments, dropped 4.1% from last year’s level, but came in above expectations.

--Regarding the upcoming Tokyo Olympics, depending on the report you see, only 2% to 5% of the Japanese public is fully vaccinated, and in recent polls, more than 80% of Japanese residents said they would prefer to have the Summer Games canceled or once again postponed.

But for NBCUniversal, televising the Games is a huge moneymaking event.

The company built much of last year’s business plan around its coverage of the 2020 Olympics, so NBCUniversal took a hit when those Games were postponed to July 2021.  Five years ago, NBC Universal generated $1.6 billion in revenue from the Rio Games, including $1.2 billion in ad revenue, according to S&P Global Market Intelligence’s Kagan unit.

NBCUniversal CEO Jeff Shell expressed confidence that the Tokyo Games would go on – despite the coronavirus situation.

The Olympics begin July 23.  International spectators won’t be allowed to attend, only sports fans from Japan.

--Last week I noted a seat on the Blue Origin flight that was being auctioned off, the same ride that will take Jeff Bezos and his brother into space, and we got a final figure…$28 million.  The identity of the winner for the July 20 flight won’t be revealed for a few weeks. 

--The market value of Coca-Cola fell $5 billion after soccer superstar Cristiano Ronaldo held up a bottle of water rather than a bottle of Coke as he moved the bottles of Coke on the table aside, before lifting the water and saying, “Agua!”

The Portugal captain, and healthy diet advocate, seemed visibly troubled when he saw the two bottles of Coca-Cola during a press conference on Monday ahead of his national team’s opener against Hungary in the Euro 2020 event.

“Players are offered water, alongside Coca-Cola and Coca-Cola Zero Sugar, on arrival at our press conferences,” a representative for Euro 2020 said.

Coca-Cola, an official sponsor of the tournament, responded in a statement that “everyone is entitled to their drink preferences” with different “tastes and needs.”

--The Girl Scouts have a major problem this year: 15 million boxes of unsold cookies.  Yup, Covid-19 hit the spring selling season, with many troops nixing the traditional cookie booths for safety reasons.

The effects will be felt by local councils and troops, who depend on the cookie sales to fund programming, travel, camps and other activities.  The Girl Scouts normally sell around 200 million boxes of cookies per year, or around $800 million worth.

Foreign Affairs

Israel: In a “scorched earth” final address to parliament, outgoing Israeli Prime Minister Benjamin Netanyahu blasted President Biden’s policy approach to Iran, comparing the U.S. return to the Iran nuclear deal to President Franklin Roosevelt declining to bomb the train tracks to Auschwitz when he had the opportunity.

In his last Knesset address, a defiant Netanyahu declared that he would no longer keep his foreign policy disagreements with the Biden administration “behind closed doors.”

“The new U.S. administration requested that I save our disagreements on the Iran nuclear deal for behind closed doors, and not share them publicly,” Netanyahu said Sunday.  “I told them I won’t act that way.”

“In 1944, at the height of the Holocaust, (FDR) refused to bomb the railway leading to the extermination camps, and refused to bomb the gas chambers, which could have saved millions of our people. We hoped for others to save us, and they didn’t come.  In the face of the threat of extermination, we were helpless,” he went on.

“Our voice was not heard among the nations. We had neither a state or an army. But today we do have a voice.  We do have a state, and we do have defensive power.”

The prime minister was ousted Sunday, when parliament voted to install a new government after Netanyahu in March failed to form one after elections.  Naftali Bennett, who is reportedly opposed to the Iran deal, will serve two years as prime minister, and will be replaced in 2023 by centrist Yair Lapid, according to an agreement between the two coalition partners.

Lawmakers installed a government led by someone other than Netanyahu for the first time in 12 years by the narrowest of margins – 60 to 59 – with an unlikely coalition of parties from the right, center and left of Israel’s spectrum.  Bennett is an Orthodox leader of Israel’s religious-nationalist movement and a former Netanyahu ally.

Bennett said in recent interviews that his government will not seek to change policy on hot-button issues such as Israeli settlements in the West Bank, state benefits granted to ultra-Orthodox families or peace with Palestinians.  He and Lapid, as they take turns in the role of prime minister, will effectively have veto power over each other’s major initiatives, which will in theory limit the government to consensus actions.  Israel has been without an official budget for years and the two have pledged to come up with one within 140 days.

But how long with this seemingly unwieldy eight party coalition really last?

Netanyahu, who now leads the opposition, said the coalition wasn’t ready to confront Iran and stop it from obtaining nuclear weapons.  The incoming security team, led by returning Defense Minister Benny Gantz and Lapid, who will serve two years as foreign minister – are watching Washington uneasily as it pushes for a renewed Iran deal.

Steve Hendrix / Washington Post:

“To his supporters, Netanyahu, known by all as ‘Bibi,’ leaves behind a booming economy, newfound international respect and a decade without bus bombings by Palestinian militants. To critics, he leaves a country more divided, less equitable and largely indifferent to peace with the Palestinians….

“(The) widening schism between Israeli factions – left and right, religious and secular, Arabs and Jews – is one of the most obvious marks that Netanyahu leaves on the country.

“ ‘His entire political strategy is based on keeping people’s anger alive,’ said Anshel Pfeiffer, a Jerusalem-based columnist.

“Pfeiffer, author of the biography ‘Bibi,’ said Netanyahu’s 15 years in total as prime minister places him among Israel’s most transformational leaders, though many of those changes could yet be reversed.  ‘He’s one of the most consequential prime ministers Israel has ever had just because of his longevity and his impact on the level of discord,’ Pfeiffer said.  ‘But he doesn’t leave behind a pivotal moment that will be one lasting thing we remember.’”

Meanwhile, in the first major flare-up since 11 days of fighting between Israel and Hamas ended in a ceasefire on May 21, Israel has carried out air strikes against Hamas targets in Gaza twice this week, in retaliation for incendiary balloons launched from the territory.

Several balloons were sent from Gaza into Israel on Tuesday causing multiple fires.

Iran: Iranians went to the polls today to choose a president in a contest likely to be won by a judge fiercely loyal to the religious establishment, although turnout is expected to be small due to discontent with economic hardship and hardline rule.

With uncertainty surrounding Iran’s efforts to revive its 2015 nuclear deal, and growing poverty at home after years of U.S. sanctions, voter turnout is seen by Iranian analysts as a referendum on the leadership’s handling of an array of crises.

Hardliner Ebrahim Raisi, 60, a close ally of Supreme Leader Ayatollah Ali Khamenei, is a favorite to succeed the incumbent Hassan Rouhani, forbidden under the constitution from serving a third four-year term.  A win for the Shiite cleric would confirm the political demise of pragmatists politicians like Rouhani, weakened by Washington’s decision to quit the nuclear deal and reimpose sanctions in a move that stifled rapprochement with the West.

But Raisi would not disrupt current efforts to revive the nuclear accord and break free of oil and financial sanctions.  He needs to immediately tackle the economy to prevent widespread protests as we’ve seen in the past.

Official opinion polls suggested turnout could be as low as 41%.  Ayatollah Khamenei was appealing for a high turnout to send a message to the West.

Raisi was appointed by Khamenei to the high-profile job of judiciary chief in 2019.  A few months later, the United States sanctioned him for human rights violations, including the executions of political prisoners in the 1980s and the suppression of unrest in 2009, events in which he played a part, according to human rights groups.

Turkey: President Biden met with Turkey’s President Recep Tayyip Erdogan for the first time on the sidelines of the NATO conference as the two attempt to repair a frayed relationship by seeking common cause over their security interests across the world, from Libya to Syria and Afghanistan.

“There is no problem with the U.S. that we cannot solve,” Erdogan said following the meeting in Brussels on Monday.

Biden told reporters that the meeting was productive and said he believed they could make “real progress.”

But the two sides did not reach an agreement on Turkey’s purchase of Russia’s S-400 missile system from Russia, part of a 2017 arms package.  The U.S. penalized Turkey in December over the matter, which the U.S. considers a security threat to its forces in the region.

Afghanistan: Time is rapidly running out for the translators who worked with U.S. troops.  It’s up to the administration to get them out of Afghanistan before they are killed by the Taliban (some already have).

Maine Sen. Angus King (Ind.) told reporters, “I want the White House’s hair on fire.  I want them to do everything within their power to solve this problem…I’m not being critical of the administration, but I think it’s time to step up their game.”

Many have talked of bringing all of them to Guam while their visas are processed.  King proposed a few solutions of his own, including temporarily moving Afghans to NATO nations while the processing takes place and deploying troops to the State Department to speed up approvals.

U.S. Central Command officials said Tuesday that the withdrawal from Afghanistan is more than half done.  In March, President Joe Biden announced all troops would be out of the country by Sept. 11, but now America and NATO allies are expected to be fully out of Afghanistan as soon as July.

And while the military is moving planeloads of equipment out of the country, many Afghan translators who risked their lives to work alongside troops are being left behind.  Some 18,000 are in the processing pipeline.

But now Afghanistan is in the midst of a surge in Covid cases and the U.S. Embassy has shut operations, after 114 became sick and one died.

China: Seven Chinese air force warplanes flew into Taiwan’s air defense identification zone on Thursday – just two days after the PLA sent a record 28 planes to the island’s ADIZ.

Observers said the latest fly-by – which involved two newer-model J-16 fighter jets, as well as older fighters – was aimed at testing interoperability of its two generations of planes.  It was also intended to test their ability to counter electronic interference, they said.

In a statement, Taiwan’s defense ministry said the planes had prompted the island’s air force “to scramble jets, issue radio warnings and deploy air defense missile systems to monitor the activities of the planes.”

It was the sixth time PLA planes had entered Taiwan’s ADIZ this month, according to the ministry.

Tuesday’s sortie of 28 aircraft was the first of its kind on the eastern side of the island, according to analysts.  That side is the furthest from mainland China and hosts two major airbases that could play a key role in any invasion and are sheltered by the mountain ranges in the center of the island.

While most of the activity by the PLA is intended to warn Taiwan against pushing for formal independence, observers said they also had specific missions, including training and reconnaissance.

In Hong Kong, Friday, police charged the publisher and the editor-in-chief of the Apple Daily tabloid with conspiring to collude with external elements (foreign powers) under the national security law, in the first such case to be brought over articles printed by a newspaper.

On Thursday, officers raided the homes of top editor Ryan Law Wai-kwong and publisher Cheung Kim-hung – also the CEO of the paper’s parent company, Next Digital – as well as three other senior executives, arresting all five. 

Apple Daily founder Jimmy Lai is currently serving a 20-month prison sentence for his role in unauthorized assemblies in 2019, during a period when Hong Kong saw massive anti-government protests calling for universal suffrage and democratic freedoms.

Meanwhile, as for the United States’ efforts to build a broader coalition to counter Beijing, China mocked them, calling Washington “very ill indeed.”

Chinese Foreign Minister Zhao Lijian hit back at U.S. attempts to rally support during the summits of the Group of Seven and NATO in recent days.

“The U.S. is ill and very ill indeed,” Zhao said.  “The G-7 had better take its pulse and come up with a prescription.”

The communique released after the NATO meeting mentioned China 10 times, compared to just once after the last summit in 2019.  Russia was named more than 60 times this year.  The document also said that the bloc “maintains a constructive dialogue with China where possible.”

But it described for the first time the rise of China as posing challenges to Atlantic security.

China’s mission to the European Union said in response: “This is a slander against China’s peaceful development, misjudgment on the international development and [NATO’s] own role in the world, as well as a continuation of a cold war mentality and bloc politics.”

“We do not pose ‘systemic challenges’ to any country.  But we would not sit idle if anyone is to pose ‘systemic challenges’ to us,” the statement said.

A spokesman for China’s embassy in London said on Sunday: “The days when global decisions were dictated by a small group of countries are long gone. We always believe that countries, big or small, strong or weak, poor or rich, are equals, and that world affairs should be handled through consultation by all countries.”

President Biden had pushed for the G-7 to confront China on topics such as forced labor and human rights abuses, and on its Belt and Road initiative infrastructure plan.  He said he also raised the issue of China refusing outside access to its laboratories to determine the origin of the Covid-19 outbreak.

Several leaders, including German Chancellor Angela Merkel, pushed back over concern about turning the G-7 into an anti-China group.  Germany sells a lot of cars to China, after all.

But the G-7 did underscore the importance of peace and stability across the Taiwan Strait, the first time the G-7 communique has stressed this, for which Taiwan was grateful.

North Korea: Leader Kim Jong Un said he’s ready for “both dialogue and confrontation,” offering an opening for talks as President Joe Biden’s new nuclear envoy heads to the region to build support for a strategy toward Pyongyang.

Kim made his comments at a plenary meeting of the Central Committee of his ruling Workers’ Party of Korea on Thursday and are the first high-level suggestion of talks since Biden came into office.  Pyongyang has so far rebuffed Biden’s requests for dialogue and lambasted his comments that were critical of North Korea’s arms buildup.

Kim tempered his remarks with a call for the country to “get fully prepared for confrontation in order to protect the dignity of our state and its interests,” according to a report from the official Korean Central News Agency.  The message follows a pledge from Kim made at the start of the year to develop more advanced nuclear technology.

Biden’s special representative for North Korea, Sung Kim, is due to hold talks with his counterparts from Seoul and Tokyo on Monday during his visit to the region.

Biden hosted Japanese Prime Minister Yoshihide Suga at the White House in April and South Korean President Moon Jae-in in May, the first foreign leaders to be invited to his official residence.  Moon has been pressing the U.S. to resume stalled nuclear negotiations with Pyongyang.

Separately, Kim Jong Un warned of potential food shortages in the Hermit Kingdom as photos showing his own weight loss were scrutinized by analysts around the world.  The consensus seems to be it is an attempt to lose weight rather than poor health.

Kim urged officials to find ways to boost agricultural production, noting that “the people’s food situation is now getting tense.”

The agricultural sector was devastated over last summer by a series of typhoons and floods, as well as the closing of the border with China due to the pandemic.  A devastating famine in the 1990s, under similar circumstances, is estimated to have killed hundreds of thousands.

Russia: At one point during the summit in Geneva, Joe Biden said he told Vladimir Putin: “This is not a kumbaya moment.  But it’s clearly not in anybody’s interest, your country’s or mine, for us to be in a situation where we’re in another Cold War.”

Biden said he was forceful with Putin about cybersecurity and human rights.  The president said he presented Putin with a list of critical infrastructure that he said should be off limits to cyberattacks.  The White House said it included the 16 industries that the U.S. government has for years designated as critical – such as energy and food and agriculture – that U.S. officials have said are vulnerable to potentially disruptive attacks like ransomware.

And Biden said on the issue of Alexei Navalny that if he died in Russian custody, “I made it clear to (Putin) that the consequences of that will be devastating for Russia.”

Putin played down Biden’s concerns.  Although he said he agreed to start consultations with Biden on cybersecurity, he denied that Moscow was involved in any cyber-sabotage.

The U.S. and Russia did agree to open the lines of communication regarding the two nations’ nuclear stockpiles to reduce the risk of an accident, Biden told reporters.

The bilateral strategic stability dialogue is “diplomatic speak for getting our military experts and our diplomats together to work on a mechanism that can lead to the control of new and dangerous and sophisticated weapons that are coming on the scene now that reduce the times of response, that raise the prospects of accidental war,” Biden said at his press conference.

Editorial / Wall Street Journal

“The test of any summit between a U.S. president and an adversarial head of state is what the adversary concludes about the American. The three hours of talks Wednesday between President Biden and Russia’s Vladimir Putin seem to have involved a frank and polite discussion of strategic differences between the two nations.  Now we’ll find out if Moscow sees more opportunities to push and probe, or whether the U.S. delegation showed commitment and resolve that deters further Russian revisionism….

“(Mr. Putin) doesn’t act out of personal like or dislike for American leaders. He acts based on a rational calculation of what he can get away with to stay in power, strengthen Russia’s strategic position, and weaken Western democracies.  Fortunately Mr. Biden generally sounded more hard-headed, saying later in his presser that ‘this is not about trust. This is about self-interest, and verification of self-interest.’….

“(Biden) said Mr. Putin knows the U.S. has ‘significant cyber capability’ that may be used to retaliate.  The President must now be prepared to enforce this red line, even as Russia tries to exploit ambiguities and deny responsibility.

“The U.S. also needs to tread carefully on control of kinetic weapons.  Mr. Biden announced the start of a new dialogue on ‘dangerous and sophisticated weapons that are coming on the scene now that reduce the times of response, that raise the prospects of accidental war.’  Russia is a nation that has repeatedly flouted previous arms-control agreements like the Intermediate-Range Nuclear Forces Treaty. Channels of communication and de-escalation are important, but Mr. Putin would be happy to sign a deal restraining U.S. capabilities with no intention of honoring it himself.

“President Biden struck a notable and welcome contrast with Mr. Trump on human rights in approaching the Russian dictator, condemning the imprisonment of dissident Alexei Navalny, and explaining that support for self-government is woven into America’s foreign-policy tradition.  But neither did he sound like a crusading idealist, saying he told Mr. Putin that a new Cold War with Russia is ‘not in anybody’s interest, your country’s or mine.’

“Russia is not the existential rival the Soviet Union was in the Cold War.  But its ambitions in Eastern Europe, the Middle East and cyberspace continue to collide with the U.S.  Those threats must be answered firmly.  The fruit of the summit will be whether Mr. Biden successfully delivered that message to the man across the table.”

Editorial / Washington Post

“President Biden’s first summit meeting with Vladimir Putin was preceded by reports of persistent cyberattacks by Russian state and private actors against sensitive U.S. targets and a major Russian military mobilization along the borders of Ukraine, among other provocations.  Mr. Biden consequently vowed to reestablish ‘red lines’ with the Kremlin ruler, who himself told an interviewer that relations were at their lowest point in years. So it was somewhat surprising that both leaders emerged from their talks in Geneva on Wednesday, describing a positive exchange and the potential for a more stable and cooperative relationship.

“ ‘The talks were quite constructive,’ said Mr. Putin, who went on to praise Mr. Biden as ‘very balanced’ and ‘very experienced.’  ‘The tone of the entire meeting was very good, positive,’ agreed the U.S. president.  ‘I think there is a genuine prospect for us to significantly improve relations between our countries.’….

“In short, the rhetoric sounded a lot like that which followed the initial encounters between the past three U.S. presidents and Mr. Putin, who has invariably reneged on his promises and relentlessly escalated his assaults on the U.S. political system and alliances.  The Russian ruler’s implacable hostility toward the United States was evident in his performance at a post-summit news conference, in which he repeatedly offered bogus comparisons between his foreign aggressions, his human rights offenses, and U.S. actions.  His persecution of the peaceful opposition movement led by Alexei Navalny, he claimed, was comparable to the prosecution of the mob that stormed the U.S. Capitol on Jan. 6.

“Mr. Biden called that comparison ‘ridiculous,’ but otherwise appeared willing to offer Mr. Putin the benefit of the doubt.  Mr. Putin surely understood, the president asserted, that the death of Mr. Navalny would be ‘devastating for Russia,’ because of the harm that would be done to the regime’s global standing; the Kremlin knew that the United States possessed significant cyber capabilities and would use them if Russia’s cyberattacks continued.  ‘I think the last thing he wants now is a Cold War,’ Mr. Biden said of Mr. Putin.  Perhaps.  But why, then, is his regime engaged in such mischief-making as seeking to discredit U.S. vaccines?  Who is responsible for the mysterious injuries suffered by U.S. diplomats and intelligence officials in Moscow, Havana and even Washington?

“Mr. Biden properly devoted much of his European tour to reaffirming U.S. ties to its major democratic allies after four years of disruption by President Donald Trump.  Mr. Biden underlined his aspiration to lead them in a contest for global influence with resurgent autocracies, led by China and Russia.  He was right to meet Mr. Putin and seek to reestablish U.S. red lines.  As for the prospect of ‘significantly improved relations,’ Mr. Biden said, ‘we’ll find out.’

“Indeed we will, but there’s no reason to believe the outcome will vary from previous U.S. attempts at cooperation with Mr. Putin.”

Kevin Baron / Defense One

“Vladimir Putin has never looked smaller.

“When the big moment in Geneva finally came, the Russian leader faced the cameras after his shorter-than-expected private meetings with President Joe Biden, and the often-shirtless Russian bear looked and sounded, well, weak.  The legendary master of hours-long press appearances before packed houses of fawning Moscow apparatchiks instead played to a half-empty room of Covid-distanced reporters in Switzerland.  He spoke with the soft tones and empty tropes of a fading autocrat defiant at the walls of reality closing in around him.  His schtick was boring, his message tired, and his talking points worn out.

“Geneva wasn’t the disinformation victory Biden’s opponents feared it would be.  It was a rerun of a million Putin appearances we’ve seen before. The only man Putin made look feeble was himself.  His speech was rambling, off-topic, and filled with confusing and nonsensical misdirections and blatant lies.  He looked thoroughly disconnected from his own myth. The cunning power once attributed to him seemed tiny compared to how actual power is measured.  He was a man standing alone.  In other words, Putin looked positively Trumpian.

“It’s no coincidence that Putin has but one prominent supporter in the West: private citizen Donald Trump, which means very little, now. But Putin has nobody standing behind him, outside his oligarchy.  Other opportunistic dictators of the world may take advantage of Russian protection, but that’s not friendship, nor a guarantee.  That’s just business.

“Biden, on the other hand, arrived in Geneva with the full-throated support of two institutional forces Putin will never enjoy: the economic might and prosperity of the unified G-7, and the nuclear-might and Article V commitment of the 30-nation NATO treaty alliance, reaffirmed on Monday.  NATO leaders this week voiced their support not just for the United States; with relief, they specifically welcomed Biden, the man, as a sign of stability, competence, and strength – all things that Trump clearly was not. And many said so, publicly.

“That’s not to say Biden did anything spectacular or abnormally statesmanlike.  But in sharp contrast to his predecessor in Helsinki, he performed in Geneva as one would expect from any competent president.  He looked and sounded the part and demonstrated that foreign policy is his second language.  He also looked and sounded elderly, but only because he is.  So what?  Trump knew nothing about global security or foreign policy, and it showed throughout his four-year term as adversaries like Putin played him and allies disrespected him on these stages….

“What happens to Putin next depends on two things: whether he continues cyberattacks on Western targets and what more the U.S. allies will do about it.  But there’s no sign of perestroika coming.  No glasnost.  No Gorbachev.  Just further isolation and economic restriction for Russia.

“Indeed, Putin was being forgotten before the American even left the scene.  The real moment of the day was Biden’s clapback in the middle of his press conference, when another reporter asked about a different U.S. adversary, China’s President Xi Jinping, and said, ‘So is there going to become a time where you might call him, old friend to old friend, and ask him to open up China to the World Health Organization investigators…?’

“ ‘Let’s get something straight,’ said Biden, interrupting the reporter’s playful snark.  ‘We know each other well. We’re not old friends.  It’s just pure business.’”

Random Musings

--Presidential approval ratings….

Rasmussen: 51% approve of President Biden’s job performance, 48% disapprove (June 18).

Gallup: Still no update from the May 3-18 readings, which showed 54% approve, 40% disapprove; 54% of independents approve of Biden’s performance.

A new Monmouth University Poll puts Biden’s job approval at 48%, 43% disapproval; down from a 54% approval rating in April, 41% disapproving.  Distressingly for Democrats, the president’s approval rating among independents is just 36%, down from 47% in the prior survey.  But 19% of Republicans approve, up from 11%.  Democrats are at 86%, down from 95%.  Interesting stuff.

Patrick Murray, director of the independent Monmouth University Polling Institute, said, “Biden’s rating is still in net positive territory, but it seems to have taken a dip with the growing uncertainty that his signature spending plans will be enacted.”

Among all Americans, approval of Congress is down to 21% from 35% in April.

--Editorial / Washington Post

“Many Republicans want the nation to ignore and forget President Donald Trump’s poisonous final months in office – the most dangerous moment in modern presidential history, orchestrated by the man to whom the GOP still swears allegiance.  Yet the country must not forget how close it came to a full-blown constitutional crisis, or worse.  Tuesday brought another reminder that, but for the principled resistance of some key officials, the consequences could have been disastrous.

“The House Committee on Oversight and Reform on Tuesday released emails showing that the White House waged a behind-the-scenes effort to enlist the Justice Department in its crusade to advance Mr. Trump’s baseless allegations of fraud in the 2020 election.  On Dec. 14, 10 days before Jeffrey Rosen took over as acting attorney, Mr. Trump’s assistant emailed Mr. Rosen, asserting that Dominion Voting Systems machines in Michigan were intentionally fixed and pointing to a debunked analysis showing what ‘the machines can and did do to move votes.’  The email declared, ‘We believe it has happened everywhere.’

“Later that month, Mr. Trump’s assistant sent Mr. Rosen a brief that the president apparently wanted the Justice Department to submit to the Supreme Court. The draft mirrored the empty arguments that the state of Texas made to the court before the justices dismissed the state’s lawsuit.  Piling on the pressure, then-White House Chief of Staff Mark Meadows also dispatched an email asking Mr. Rosen to examine allegations of voter fraud in Georgia.  A day later, Mr. Meadows apparently forwarded Mr. Rosen a video alleging that Italians used satellites to manipulate voting equipment.  These were just some of the preposterous White House emails claiming fraud in arguably the most secure presidential election ever.

“To his credit, Mr. Rosen rebuffed the White House’s entreaties to deploy the Justice Department’s vast powers on behalf of Mr. Trump’s lie, adding his name to the roster of honorable state and federal officials who showed fidelity to truth and duty at that crucial moment.  Some have paid with their jobs.  Republicans committed to the ‘big lie’ are gunning to replace others, including those with vote-counting responsibilities.  If Mr. Trump or another candidate again presses false fraud claims, many Republican officials may find it more difficult to resist the pressure to back the lie – or, indeed, may eagerly participate in advancing it.

“Given Mr. Trump’s reckless actions after losing the 2020 vote, and the violence they spurred, the newly released emails are unsurprising.  But consider that fact for a moment: It is unsurprising that the president of the United States leaned on the Justice Department to help him try to steal an election.  The country cannot forget that Mr. Trump betrayed his oath, that more Republican officeholders remain loyal to him nonetheless – and that it could be worse next time.”

--The House on Wednesday passed legislation designating June 19 as a new federal holiday, just a day after the Senate voted unanimously to approve a mirror bill commemorating the end of slavery in the U.S.

The rare bipartisan legislation, which passed 415 to 14, was then signed into law Thursday by President Biden, days before the date arrives Saturday.

“What I see here today is racial divide crumbling, being crushed this day under a momentous vote that brings together people who understand the value of freedom,” said Democratic Rep. Sheila Jackson Lee of Texas.  “And that is what Juneteenth is all about.”

It is the first new federal holiday since Martin Luther King Jr. Day was created in 1983.

Also known as Emancipation Day, Black Independence Day or Jubilee Day, Juneteenth marks June 19, 1865, when Maj. Gen. Gordon Granger arrived with federal troops in Galveston, Texas, and issued an order informing the last enslaved people in Texas that they were free.  This came more than two months after the end of the Civil War and 2 ½ years after President Abraham Lincoln had issued the Emancipation Proclamation freeing slaves in the Southern States.

It wasn’t until the ratification of the 13th Amendment to the Constitution in December 1865 that slavery was abolished throughout the entire country.

Among the 14 Republicans who voted no were:

Rep. Mo Brooks, Ala., Rep. Andy Biggs, Ariz., Rep. Paul Gosar, Ariz., and Rep. Andrew Clyde, Ga.

Republican Montana Rep. Matt Rosendale released a statement on his vote against S.B. 475.

“Let’s call an ace and ace. This is an effort by the Left to create a day out of whole cloth to celebrate identity politics as part of its larger efforts to make Critical Race Theory the reigning ideology of our country. Since I believe in treating everyone equally, regardless of race, and that we should be focused on what unites us rather than our differences, I will vote no.”

Rep. Thomas Massie, R-Ky., another voting no, argued that referring to Juneteenth as a national independence day would confuse people.

“I fully support creating a day to celebrate the abolition of slavery, a dark portion of our nation’s history.  However, naming this day ‘national independence day’ will create confusion and push Americans to pick one of those two days as their independence day based on their racial identity,” Massie said on the House floor.  “Why can’t we name this ‘emancipation day’ and come together as Americans and celebrate that day together as Americans?”

Rep. Chip Roy, R-Texas, also was one of the fourteen no votes, based on the name of the bill.

“Juneteenth should be commemorated as the expression of the realization of the end of slavery in the United States – and I commend those who worked for its passage,” Roy said in a statement.

“I could not vote for this bill, however, because the holiday should not be called ‘Juneteenth National Independence Day’ but rather, ‘Juneteenth National Emancipation [or Freedom or otherwise] Day.’  This name needlessly divides our nation on a matter that should instead bring us together by creating a separate Independence Day based on the color of one’s skin,” he said.

Rep. Clyde of Georgia declined to give a reason for his vote.

--Rep. Marjorie Taylor Greene (R-Ga.) on Monday visited the Holocaust Museum and apologized for previously comparing face-mask policies to the Nazi practice of labeling Jews with Star of David badges.

But she refused to walk back other controversial statements she has made, including one in which she compared the Democratic Party to the Nazis.

At a Monday press conference, Greene acknowledged she had made a mistake, telling reporters, “One of the best lessons that my father always taught me was, when you make a mistake, you should own it.”

“This afternoon, I visited the Holocaust Museum,” Greene said.  “The Holocaust is – there’s nothing comparable to it.  It’s – it happened, and, you know, over six million Jewish people were murdered.  More than that, there were not just Jewish people – Black people, Christians, all kinds of groups.  Children.  People that the Nazis didn’t believe were good enough or perfect enough.”

She added: “But there is no comparison to the Holocaust.  And there are words that I have said, remarks that I have made, that I know are offensive, and for that, I want to apologize.”

Last month, Greene, in interviews and in tweets, repeatedly used Holocaust comparisons to criticize face-mask mandates that have been enacted amid the pandemic.

--New York City’s mayoral primary is next week, June 22, and early voting has been underway since June 12.  In a NBC/Telemundo/Politico survey, conducted by Marist College and released Monday, Brooklyn Borough President Eric Adams was on top at 24% of likely voters in the Democratic race.

Adams, a moderate campaigning on a tough-on-crime approach, has led the race for weeks while the city’s uptick in violent crime has dominated local headlines.

Former Sanitation Commissioner Kathryn Garcia came in second with 17%.  She has been endorsed by the editorial boards of the Daily News and the New York Times, while Adams has the New York Post’s endorsement.

Commie Maya Wiley was third at 13%, tied with Andrew Yang, with Comptroller Scott Stringer at 7%.

Former Citigroup executive Ray McGuire received 3%.

I haven’t discussed it previously, but as no one is going to win more than 50% of ballots outright, we have the debut of ranked-choice voting, in which voters will list candidates in order of preference, instead of picking just one.

People who ranked the last-place candidate first get their number-two choices counted toward those candidates’ totals, instead.  The reallocations continue until a winner reaches the necessary threshold.

--When you’re in the midst of a ‘megadrought’ the last thing you need is a record-breaking heat wave, but on Wednesday in Las Vegas the temperature swelled to 116, just one degree shy of its highest temperature ever recorded.  Death Valley, Calif., hit 125 degrees, the highest temperature reached this year in the U.S.  Denver hit the century mark for a second-straight day Wednesday, the earliest in the season it has reached 100 twice in a row.

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

We thank our healthcare workers and first responders.

God bless America.

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Gold $1763...awful week, down $116
Oil $71.50

Returns for the week 6/14-6/18

Dow Jones  -3.5%  [33290]
S&P 500  -1.9%  [4166]
S&P MidCap  -5.1%
Russell 2000  -4.2%
Nasdaq  -0.3%  [14030]

Returns for the period 1/1/21-6/18/21

Dow Jones  +8.8%
S&P 500  +10.9%
S&P MidCap  +13.2%
Russell 2000  +13.3%
Nasdaq  +8.9% 

Bulls 54.1
Bears 16.3

Hang in there.  Get vaccinated!  We don’t want Delta making too many inroads.

And Happy Father’s Day. 

Brian Trumbore

 

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