Week in Review

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Week in Review

07/17/2021

For the week 7/12-7/16

[Posted 9:00 PM ET, Friday]

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Edition 1,161

I’ve been writing for months that we have a looming political crisis in America over rising Covid cases and the failure to vaccinate substantially more people than we have to date.  This country is not locking down again…we all know that.  No one will allow it. 

But we’ll have huge issues, like over schools, all over again, and mask mandates, and some teachers not being comfortable doing in-person learning.  Or college football games and packed stadiums, when a small percentage of those in attendance are vaccinated.  But try stopping that in, say, Alabama or Mississippi.  It’s going to be a blankshow.

Meanwhile, tonight, relations between the United States and China are as poor as they’ve ever been, and there’s another potential flashpoint I write of below…Lebanon.  Stay tuned on this one.

But, more broadly, I keep thinking about an important op-ed from Walter Russell Mead of the Wall Street Journal I wrote of weeks ago.  The ‘West’ has no wins. 

Russia, China and Iran, on the other hand, do.  It’s the bad guys who have been winning.  The good guys are getting rolled.

Biden’s Agenda

--The Senate is moving forward with a two-pronged approach to enacting Biden’s agenda, a $3.5 trillion tax and social spending plan backed only by Democrats and a $579 billion bipartisan infrastructure bill.

Democrats on Wednesday celebrated agreement on the broad outline of a 10-year budget proposal that bridges, at least in theory, the gulf between a $6 trillion proposal from Vermont Independent Bernie Sanders, who chairs the Senate Budget Committee, and moderates including Virginia Democrat Sen. Mark Warner, who insisted on a more modest plan that wouldn’t swell the national debt further.

Proposals include expanded caregiving for the disabled and elderly, universal prekindergarten, subsidized child care, national paid family leave, extended child tax credits and an assortment of environmental initiatives.  Senate Majority Leader Chuck Schumer said Democrats also added a plan to expand Medicare – long a battle cry for progressives – including coverage for dental, vision and hearing.

But Biden and party leaders have to keep all 50 members of their Senate caucus on board and a fractious Democratic House united.

“Now, we know the road ahead is going to be long and there are bumps along the way,” Schumer said on the Senate floor Wednesday.  “This is only the first step in the long road we will have to travel and must travel.”

Sanders was satisfied, for now.

“What happens next is this is an enormously large and complicated piece of legislation and it’s going to take an enormous amount of effort amongst 50 people to reach agreement,” Sanders told reporters.

Sanders and his staff have to come up with a budget resolution in the coming weeks that will give committees a fiscal target for various pieces of the eventual legislation.  Agreeing on a House and Senate budget resolution would tee up a vote on a later bill that could clear the Senate without Republican support…but this process will take months.

And the key for the Democrats is the support of their fellow senator, Joe Manchin, who told reporters he needs information on what tax increases are being proposed to fully pay for the plan.  And being from West Virginia, he has problems with some of the fossil fuels provisions in the outline.

“I told him that I was concerned about some of the language I’ve seen that moves away from fossil,” Manchin said.  “I said, you move our country away from fossil and there won’t be another country that will step to the plate and do the research and development that will fix the emissions that are coming from fossil now.”

But Manchin said he was “fine” with including immigration reform in the package, which pleased progressives, and noted he had long supported the failed 2013 comprehensive immigration legislation.

In the House, however, Democrats can afford only three defections and there’s no way Speaker Nancy Pelosi keeps everyone in line.

As for the $579 billion infrastructure plan, how to pay for it is one of the final sticking points.

But the talks were complicated when Pelosi said she wouldn’t allow the House to vote on it until the larger tax and spending bill is completed by the Senate.

Some Republican senators who support the infrastructure bill feel as if the other piece of the package is a no-go in terms of its passage and aren’t concerned.  But other Republicans say if the $3.5 trillion is brought up alongside the infrastructure legislation, then that’s a deal breaker for the latter.

It’s just that the reality of things is that infrastructure is not going be introduced by itself, as much as it should, and therein lies a looming disaster for Biden, and Kamala Harris.

If the president gets neither, he automatically enters the pantheon of worst presidents in American history, joining the last three.

The Democrats would also get their butts kicked in the midterms, which may end up being the case regardless.

--In a speech on Tuesday at the National Constitution Center in Philadelphia, President Biden said the fight against restrictive voting laws was the “most significant test of our democracy since the Civil War” and called Donald Trump’s efforts to overturn the 2020 election “a big lie.”

Biden tried to reinvigorate the stalled Democratic effort to pass federal voting rights legislation and called on Republicans “in Congress and states and cities and counties to stand up, for God’s sake.”

“Help prevent this concerted effort to undermine our elections and the sacred right to vote,” the president said.  “Have you no shame?”

But the reality is Republican-led bills meant to restrict voting access are making their way through statehouses across the country, while two bills aimed at expanding voting rights nationwide are languishing in Congress.

In his speech, Biden characterized the conspiracy theories about the 2020 election – hatched and spread by Trump – as a “darker and more sinister” underbelly of American politics.  He did not mention Trump by name but warned that “bullies and merchants of fear” had posed an existential threat to democracy.

“No other election has ever been held under such scrutiny, such high standards,” Biden said.  “The big lie is just that: a big lie.”

Republicans have portrayed Biden’s voting-rights efforts as self-serving federalization of elections to benefit Democrats.

The Pandemic

Covid-19 vaccination rates are down and cases are on the rise, up 70% over the last week, and that’s not good.  Just look at the charts on worldometers.info.

Dr. Francis Collins, director of the National Institutes of Health, said Wednesday, “We’re losing time here. The Delta variant is spreading, people are dying, we can’t actually just wait for things to get more rational.

CDC Director Rochelle Walensky said today the U.S. is becoming “a pandemic of the unvaccinated.”

Only 48% of the country is fully vaccinated, according to the Centers for Disease Control and Prevention, and the rate of new vaccinations is on the decline.  [About 65% of Americans over the age of 12 and nearly 90% of those 65 and older have, however, received at least one dose.]

And officials say disinformation is largely to blame for the high number of unvaccinated Americans.

Much of the data now shows that more than 99% of people currently hospitalized with Covid-19 are unvaccinated, Collins said.  Those of us who are vaccinated have enough protection so that we aren’t getting severely ill.

And the vaccines are still showing signs of being very effective against the Delta variant.  Let’s pray that’s still the case for a while longer.

Globally, though, Covid-19 deaths and cases are distinctly on the rise again, particularly the latter, which we all know eventually leads to increased deaths.

Cases rose 10% last week, according to the World Health Organization, with the highest numbers recorded in Brazil, India, Indonesia and Britain.  The Delta variant has now been identified in 111 countries and is expected to become globally dominant in the coming months.

Covid-19 death tolls, as of tonight….

World…4,091,314
USA…624,604
Brazil…540,398
India…413,123
Mexico…235,470
Peru…194,935
Russia…146,868
UK…128,642
Italy…127,851
Colombia…115,333
France…111,451
Argentina…101,158
Germany…91,878
Iran…86,791
Spain…81,096
Poland…75,205
Indonesia…71,397
South Africa…66,385
Ukraine…52,702
Turkey…50,450
Chile…34,309
Romania…34,250
Czechia…30,335
Hungary…30,015
Canada…26,489
Philippines…26,476
Belgium…25,208
Pakistan…22,720
Ecuador…21,899

Source; worldometers.info

U.S. daily death tolls…Sun. 27; Mon. 171; Tues. 322; Wed. 374; Thurs. 344; Fri. 290.

Covid Bytes

--Controversially, Los Angeles County will again require the use of masks indoors, following a sharp rise in infections since most Covid-19 restrictions were lifted in California a month earlier.

The new order will require everyone, regardless of whether they are vaccinated, to wear face coverings in most indoor public places.  It takes effect at 11:59 p.m. on Saturday.  No businesses are being ordered to reduce capacity or close.

Some 1,537 new cases were confirmed on Thursday, according to county health officials, an 83% increase over the previous week.  Hospitalizations have more than tripled over the same period.

--Half of the coronavirus patients admitted to hospital in the United Kingdom during the first wave developed at least one complication, new research has found.

The study included more than 70,000 adults in the United Kingdom admitted to hospital with severe Covid-19 disease.

Of these, half developed one or more health complications during their stay.

Kidney injury was the most common complication (24.3 percent), followed by lung complications (18.4 percent) and heart complications (12.3 percent).

Those with complications were nearly twice as likely to die and seven times more likely to need intensive care when compared to people without complications, the study found.

Researchers say these complications are different from long Covid symptoms in patients who were not admitted to hospital with the disease.

--Canada could reopen its borders to vaccinated travelers from all countries by early September, and possibly welcome immunized Americans as soon as mid-August, the office of Prime Minister Justin Trudeau said Thursday.

Canada shuttered its land border with the United States in March 2020 as the pandemic first accelerated, and has since restricted entry for other foreign visitors to help stem the spread of the virus.

But now, as vaccination rates climb and transmission slows, those controls could be lifted in coming weeks.

Trudeau also indicated that Canada could start allowing fully vaccinated U.S. citizens and permanent residents into the country as of mid-August for non-essential travel.

About 80 percent of eligible Canadians have received their first dose of coronavirus vaccine with more than half now fully vaccinated.

--In a turnabout, World Health Organization director general Tedros Adhanom Ghebreyesus called it premature to rule out the theory that the coronavirus escaped from a Chinese lab.  He also urged Beijing to provide the WHO with more raw data so that researchers can study the pandemic’s origins.

--The Johnson & Johnson Covid vaccine has been linked to a rare side effect, the immune system disorder called Guillain-Barre syndrome.  Of 12.8 million J&J doses administered in the United States, there have been about 100 cases of this, according to preliminary reports from the Centers for Disease Control and Prevention.  The Food and Drug Administration is adding a warning about Guillain-Barre to the vaccine.

Of the 100, 95 were serious and required hospitalization.  Most of the cases were reported about two weeks after vaccination and mostly in men, many aged 50 and older, according to the CDC.

Available data does not suggest a similar increased risk of Guillain-Barre with the Pfizer-BioNTech and Moderna vaccines.

Wall Street and the Economy

Federal Reserve Chair Jerome Powell appeared before House and Senate lawmakers and told them while inflation had increased “notably” and was poised to remain higher in coming months before moderating – he attributed the rapid price gains to factors tied to the economy’s reopening from the pandemic, and indicated in response to questioning that Fed officials expected inflation to begin calming in six months or so.  Powell also gave no indication that the recent jump in prices will spur central bankers to rush to change policy.

“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell said in his opening remarks.

It’s an admittedly tough sell, as this week we had June consumer price data that was up 0.9% over May and 5.4% year-over-year, the highest pace since June 2008.  Ex-food and energy, the figures were 0.9% and 4.5% Y/Y (highest since Nov. 1991).

The next day it was the producer price index for June, up 1.0%, ditto ex-food and energy, and for the last 12 months, 7.3%, 5.6% on core.

Powell acknowledged that “the incoming inflation data have been higher than expected and hoped for,” but he said the gains were coming from a “small group” of goods and services directly tied to reopening.

The chairman attributed the continuing pop in prices to a series of factors; temporary data quirks, supply constraints that ought to “particularly reverse” and a surge in demand for services that were hit hard by the pandemic.

For example, a surge in travelers has boosted airline and hotel prices.  Airfares in June were 24.6% higher than a year ago.  Hotel prices were up 16.9% on the year.

But…prices for both remain below where they were two years ago, in June 2019, which suggests they still have room to rise in the months ahead before they reach their pre-pandemic levels.

Powell said longer-run inflation expectations remained under control – which matters because inflation outlooks help shape the future path for prices.  And he made it clear that if the situation got out of hand, the Fed would be prepared to react.

“We are monitoring the situation very carefully, and we are committed to price stability,” Powell said.  He added that “if we were to see that inflation were remaining high and remaining materially higher above our target for a period of time – and that it was threatening to uproot inflation expectations and create a risk of a longer period of inflation – then we would absolutely change our policy as appropriate.”

Powell said that the labor market was improving but that “there is still a long way to go.”  He also said the Fed’s goal of achieving “substantial further progress” toward its economic goals before taking the first steps toward a more normal policy setting “is still a ways off.”

The Fed next gathers in less than two weeks and it might be a bit contentious between the hawks and doves.

Editorial / Wall Street Journal

“One risk for the Fed is that more months of these price increases will become what consumers and businesses come to expect.  To use the Fed jargon, prices would no longer be ‘well-anchored.’  That may be happening.  The NFIB’s small business survey for June, released Tuesday, found the share of owners raising average selling prices rose seven points to 47%, the highest reading since January 1981.

“Owners are under pressure to raise prices because their costs are rising, especially for labor.  Some 46% of small-business owners reported job openings that couldn’t be filled in the month. This is one result of the market distortion caused by excessive federal jobless benefits that exceed what people can make by working.

“The political implications of this inflation spike could be potent.  The price increases mean that real average hourly earnings fell 0.5% in June.  They are down 1.7% in the last year. This is despite healthy wage increases and hiring bonuses from employers desperate to find and keep scarce workers.  If real wages continue to fall, workers will demand higher pay untied to productive increases, which will further increase inflationary pressure.  It will also take the shine off the post-pandemic boom that President Biden wants to take credit for.

“The price increases put Mr. Powell in a monetary and political bind of his own making.   Some at the Fed may feel obliged to tighten money sooner than Mr. Powell would like.  But if he does, that would raise the cost of financing the trillions of dollars in new spending that Democrats in Congress have passed, or soon will.

“Watch for Democrats to keep the pressure on Mr. Powell this week by coaxing him to endorse more spending. They know Mr. Powell’s term expires next year, and they want to leverage his desire for reappointment into a fiscal endorsement.

“All of which makes us wonder why Republicans would want to put their fingerprints on any of this Democratic spending.  Democrats and the Fed own this inflation spike.  If Republicans help pass a $1 trillion infrastructure bill, Democrats will make them co-owners.”

A few other data points.  June retail sales came in much better than expected today, 0.6%, 1.3% ex-autos.  Industrial production for the month was up 0.4%.

The weekly jobless claims figure was the lowest since the pandemic, 360,000.

The Atlanta Fed’s GDPNow barometer for the second quarter is down to 7.5%.

Separately, the Treasury Department reported the U.S. budget deficit narrowed to $2.2 trillion during the first nine months of the fiscal year from the same period a year earlier, as the recovery from the pandemic-induced slump boosted tax receipts.

Federal revenue during the period rose 35% when compared with the previous year, to $3.1 trillion, due to higher receipts from individual and corporate income taxes, while outlays rose 6% to $5.3 trillion; the latter including pandemic-related costs such as tax credits, expanded unemployment compensation, emergency small-business loans and stimulus checks to households.

For the month of June, the deficit was $174 billion.

The Congressional Budget Office projects that the federal budget deficit for this fiscal year (ending Sept. 30) will reach about $3 trillion, which while nearly $130bn less than the 2020 deficit, would be triple the 2019 shortfall.

Lastly, the United States secured a diplomatic victory in Europe this week when the European Union agreed to postpone their proposal for a digital levy that threatened to derail a global effort to crack down on tax havens.

Over the weekend, finance ministers from the Group of 20 countries formally backed a broad new framework on taxes, which officials hope to make final by October, that would usher in a global minimum tax of at least 15 percent and allow countries to tax large, profitable companies based on where their goods and services are sold.  The digital tax issue threatened to muck that up.  U.S. officials were against it because it disproportionately hit American firms.

Separately, Treasury Secretary Janet Yellen and her staff have no plans to resurrect the regular U.S.-China economic dialogue that governed ties between the two nations during the Bush and Obama administrations, continuing for now the suspension put in place under President Trump.

Max Baucus, a former Democratic senator and U.S. ambassador to China under President Obama, said on Bloomberg Radio: “It’s a mistake, frankly.  We’re making a mistake by not trying to find some way to properly, carefully deal with China.  The more we shift toward a decoupling, the more we stand to risk falling into deeper problems.”

Europe and Asia

Eurostat released some data for the euro region, with June inflation at 1.9% annualized, down from 2.0% in May.  A year earlier, the rate was 0.3%.

Industrial production in the euro area fell 1.0% in May over April.  Year-over-year, it was up 20.5%.

Eurozone government bond yields fell on Thursday, mainly tracking U.S. Treasuries, as investors continued to assess dovish commentary from Fed Chair Powell.  The yield on the German 10-year fell to -0.36% by week’s end from a prior -0.29%.

European Central Bank President Christine Lagarde told investors to prepare for new guidance on monetary stimulus at the upcoming July 22 Governing Council session – previously expected to be relatively uneventful – that will now have “some interesting variations and changes.”

“It’s going to be an important meeting,” she said on Sunday in Venice, after a meeting of Group of 20 finance ministers and central bankers, saying “forward guidance will certainly be revisited.”

Lagarde said she expects the ECB’s $2.2 trillion bond-buying plan to run “at least” until March 2022.  That could then be followed by a “transition into a new format,” she said, without elaborating.

Brexit: The EU and UK continue to bicker over the cost of exiting the bloc.  The EU calculates that London owes 47.5 billion euros ($56 billion). The figures account for ongoing commitments to programs the UK is still using.  Asked whether Britain would refuse to foot the bill, Prime Minister Boris Johnson’s spokesman told reporters, “We don’t recognize that figure.”

Turning to Asia…China reported second-quarter GDP rose at an annualized 7.9% rate, 1.3% quarter-over-quarter, a little below expectations.

Exports surged 32.2% in June over a year earlier, though a government spokesman warned growth might weaken due to uncertain global conditions.  Imports increased 36.7% Y/Y.

Exports to the United States rose 17.8% over a year ago.  June exports to the European Union rose 27%.

Retail sales in June rose 12.1%, down from 13.9% for the full quarter and well below the 33.9% surge in the January-March period.

Industrial production rose 8.3% in the month, year-over-year.

Fixed asset investment rose 12.6% in the first half but was up only 0.4% in June over the prior month, the last three stats courtesy of the National Bureau of Statistics.

Auto production fell 13.7% last month from a year earlier and sales fell 11.1% to 1.6 million, according to the China Association of Automobile Manufacturers.  It blamed “insufficient supply of chips.”

China’s urban unemployment rate, its headline measure of joblessness, stood steady at 5.0% in June, the same as in May.

The Chinese government is in the midst of a marathon effort to steer China to slower, more sustainable growth based on domestic consumption instead of exports and investment.

In Japan, just one tidbit.  May industrial production was down 6.5% month-over-month, but up 21.1% vs. a year ago.  And ready or not…here come the Tokyo Olympics.

Street Bytes

--All three major indices hit new record highs on Monday and then largely slid back the rest of the week as an uptick in U.S. Covid-19 cases and a disconnect between the Federal Reserve and actual inflation data didn’t lead to a lot of investor confidence. 

This week saw earnings from the big banks to lead off the second-quarter reporting and there was nothing that exciting from the sector. 

Earnings expectations overall are sky high, but valuations are stretched as it is.

And in an indication of the unease over rising Covid cases, the cruise line stocks all fell hard today.

--U.S. Treasury Yields

6-mo. 0.05%  2-yr. 0.23%  10-yr. 1.30%  30-yr. 1.92%

The yield on the 10-year is at its lowest weekly close since February.

--President Biden campaigned last year on pledges to end new drilling on federal lands to rein in climate-changing emissions.  His pick to oversee those lands, Interior Secretary Deb Haaland, adamantly opposed drilling on federal lands while in Congress and co-sponsored the liberal Green New Deal.

But the Interior Department approved about 2,500 permits to drill on public and tribal lands in the first six months of the year, according to an Associated Press analysis of government data, a pace that would put it on par with 2008.  That includes more than 2,100 drilling approvals since Biden took office January 20.

New Mexico and Wyoming had the largest number of approvals.  Montana, Colorado and Utah had hundreds each.

So, despite the cancellation of the Keystone XL oil pipeline from Canada, and blocking petroleum sales in the Arctic National Wildlife Refuge (ANWR), you have the reality.

Plus, the recent rise in gas prices to $3 a gallon or more means that any attempt to limit production could push prices higher, which would impact the economic recovery, right ahead of the critical midterm elections.

During a meeting of the House Natural Resources Committee last month, Haaland said there was no “plan right now for a permanent ban.”

“Gas and oil production will continue well into the future and we believe that is the reality of our economy and the world we’re living in,” Haaland told Colorado Republican Rep. Doug Lamborn.

Meanwhile, Americans are paying an average of $3.15 per gallon for gas – the most in seven years – as the economy reopens and people hit the road in droves.  The price is nearly $1 higher than where it was this time last year, according to AAA.

But oil had a rough week and the price of West Texas Intermediate is down to $71.42, off $3 on the week, as expectations of growing supplies bump up against rising Covid cases that could lead to new restrictions and reduced demand.

--China proposed new rules that would require nearly all companies seeking to list in foreign countries to undergo a cybersecurity review, a move that would significantly tighten oversight over its internet giants.

Companies holding data on more than 1 million users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments,” the Cyberspace Administration of China said in a statement on Saturday.  The cybersecurity review will also look into the potential national security risks from overseas IPOs, it said.

Even before the crackdown against overseas listing, some companies that had planned to list in New York pulled their IPOs.  ByteDance Ltd., the Chinese owner of popular short-video app TikTok, put on hold indefinitely its intentions to list offshore earlier this year after government officials told the company to focus on addressing data-security risks.  And then last week, Beijing-based LinkDoc technology Ltd. became the first known company to shelve an IPO in the wake of the newly proposed changes.

--So in keeping with the above, seven Chinese central government departments, including the Cyberspace Administration of China (CAC) and the Ministry of State Security, began an on-site cybersecurity inspection of ride-hailing giant Didi Chuxing on Friday, two weeks after the country’s internet regulator launched a cybersecurity review into the company and stopped it from registering new users.

A cybersecurity review generally takes up to 45 working days to complete, but that period can be extended and does not include the time that a target company spends preparing documents for the investigation.  At the same time, cybersecurity regulations stipulate that any member of the cyberspace security review office, a department within the CAC, has the right to initiate an investigation if it sees a potential national security concern in a network product or service.

Didi came to market June 30 at $14 per share and the stock has been languishing, closing the week at about $12 amid the Chinese government crackdown on its practices.

--JPMorgan Chase reported second-quarter earnings and revenue ahead of analysts’ expectations on Tuesday as it released more credit reserves while consumer banking got a boost from the economic reopening, and the investment banking giant adjusted its full-year outlook including a lower view for net interest income.

Revenue slowed to $30.5 billion from $33.1 billion a year before, although that beat consensus.  Earnings jumped to $3.78 a share from $1.38, also beating analysts’ expectations.

Earnings got a boost from JPM releasing $3 billion in credit reserves that were added during the pandemic.  Stripping that out and earnings missed the Street’s view for normalized earnings.

“JPMorgan Chase delivered solid performance across our businesses as we generated over $30 billion in revenue while continuing to make significant investments in technology, people and market expansion,” CEO Jamie Dimon said.  “Consumer and wholesale balance sheets remain exceptionally strong as the economic outlook continues to improve.”

Consumer and business banking revenue rose 15% to $6 billion in the three months through June, as higher deposits and debt transactions were only partly offset by a 20% drop in home lending revenue.

--Goldman Sachs had the second-best quarterly profit in the firm’s history in the quarter ended in June, helped by a strong performance in its investment banking division that more than made up for a decline in trading revenues.

Goldman earned $5.49 billion in Q2, or $15.02 a share, compared with a profit of $373 million, or 53 cents per share, in the same period a year ago.  Last year’s results were impacted by legal expenses related to the Malaysia 1MDB scandal. 

Goldman has had several strong quarters during the pandemic, as the bank’s traders and investment bankers have found numerous opportunities to profit from volatility and rising stock prices the last several months.  The profits in the second quarter were the second highest ever in the firm’s public history, trailing only the $6.71 billion Goldman made in the first quarter this year.

The firm’s investment banking division reported a 36% rise in revenues from a year earlier, helped by higher financial advisory revenues and more stock underwriting revenues.  Goldman has been one of the beneficiaries of the increase in the IPO market the past year, particularly the use of what are known as SPACs, or special purpose acquisition companies.

Revenue at Goldman for the quarter rose to $15.39 billion from $13.3 billion in the same period a year earlier.

--Bank of America Corp. said the economic rebound helped to more than double its profit, but low rates weighed on its revenue.

The nation’s second-largest bank by assets posted earnings Wednesday of $9.22 billion in the second quarter, up from $3.53 billion a year earlier.  Earnings of $1.03 a share beat the Street.

BofA released $2.2 billion of reserves it had set aside during the depths of the pandemic to protect against a wave of soured loans, and, like its peers, has been reducing its loan-loss stockpiles amid the strong recovery.

“Consumer spending has significantly surpassed pre-pandemic levels, deposit growth is strong and loan levels have begun to grow,” CEO Brian Moynihan said.

But revenue was down 4% to $21.47 billion, which missed expectations, and the shares fell on the news.

Low interest rates and so-so loan demand has been a hindrance.

--Citigroup Inc. reported second-quarter earnings of $6.19 billion, or $2.85 per share, surpassing the Street on both.  Net income last year was $1.06 billion.

Like the others, Citi’s profits were buoyed by its decision to take down $2.4 billion of loss reserves it had built during the pandemic for expected losses that have not materialized.  A year ago, it had added $5.9 billion to its loss reserves.

“The pace of the global recovery is exceeding earlier expectations and with it, consumer and corporate confidence is rising,” CEO Jane Fraser said in a statement.

But Citigroup has been unable to offset as much of the drag from the credit card business where customers cut back on spending and paid off their loans during the pandemic.  Revenue plunged 12%, while loans were down 3%.

Revenue, overall, was $19.74 billion in the period.  But expenses jumped 7% during the quarter, led by spending to improve its risk and control systems to comply with demands from regulators.  The expenses are part of what Fraser has called the “transformation” of Citigroup and include technology improvements that she expects will ultimately bring down costs.

--Morgan Stanley reported better-than-expected second-quarter results on Thursday with revenue bolstered by a surge in advising on deals and share offerings and a jump in asset management that helped offset a slide in the fixed income segment.

Revenue was up 8% from a year before to $14.76 billion, while earnings fell slightly.

Institutional securities revenue fell to $7.09 billion from $8.2 billion, weighed down by a drop in fixed income underwriting revenue from lower bond issuance.  But advisory revenue rose to $664 million from $462 million  last year as Morgan Stanley saw more mergers and acquisitions.  More initial public offerings helped equity underwriting revenue climb to $1.07 billion from $882 million previously.

Wealth management revenue rose 30% to $6.1 billion.

--Wells Fargo & Co. swung to a profit of $6 billion in second quarter, after reporting a loss in the same period a year earlier.

The San Francisco-based bank reported earnings of $1.38 per share compared with a loss of $1.01 a year ago.  The results surpassed Wall Street expectations.

The biggest U.S. mortgage lender posted revenue of $20.27 billion in the quarter (net of interest expense), far better than forecasts.

Net interest income fell 11%, mostly due to falling interest rates and lower loan balances.  But the bank released $1.6 billion from its loan-loss reserves.

Wells is trying to exit the strict federal guidelines that set its asset cap just under $2 billion, hindering its ability to grow.

Meanwhile, Wells customers with personal lines of credit with the bank were told this week that all existing such lines will soon cease to exist.

The credit lines, which let people borrow between $3,000 and $100,000, were meant to help avoid overdraft fees and consolidate higher-interest credit card debt.

The bank said in the letter that scrapping the credit lines would enable it to instead prioritize credit cards and personal loans.

The closures, according to the letter, could cause issues for customers, including they “may have an impact on your credit score.”

--BlackRock Inc.’s second-quarter profit rose 14% on new money coming into the giant asset manager, a sign that investors are becoming more confident about an economic recovery.

The company posted a quarterly profit of $1.378 billion, up from $1.214 billion a year earlier.  Revenue grew 32% to $4.82 billion.

Assets under management rose 30% to $9.5 trillion, from $7.3 trillion a year earlier, as the world’s largest money manager just gets bigger and bigger.

But while BlackRock’s returns were lifted by a slate of assets rising to record highs, its fortunes remain tied to markets and shifts in investor sentiment.

CEO Larry Fink also has a distinct attitude about inflation.  “I don’t think it’s temporary” and that it’s here to stay.  He added that most of the businesses he is talking to are behind on their hiring plans for 2021. This is going to lead to rising wages.

--Bank of New York Mellon exceeded Wall Street expectations for the second quarter, even as its sales slipped from a year ago on the back of continued weakness in net interest revenue amid a low interest rate environment.

Revenue slipped 1% year on year to $3.96 billion, but beat the Street’s forecast of $3.86 billion.  Net interest revenue decreased 17% to $645 million, but fee revenue rose 4% to $3.22 billion.

--Delta Air Lines reported a net loss of $1.07 per share in the second quarter, compared with a loss of $4.43 a year ago and a gain of $2.35 in 2019 prior to the pandemic.

Operating revenue totaled $7.13 billion during the quarter, up from $1.47 billion a year ago, but down from $12.54 billion in 2019.

Looking ahead, the airline expects Q3 revenue to decline 30% to 35%.

But Delta said it expects to remain profitable for the rest of the fiscal year, as travel demand picks up and international markets reopen on the back of speedy vaccinations.

Corporate volumes showed continued improvement through the second quarter due to higher demand in business-heavy markets like New York and Boston, Delta said, adding that it returned to profitability in the month of June.

“The days of cash burn are behind us,” CEO Ed Bastian said.  “Domestic leisure travel has fully recovered to 2019 levels, and there are encouraging signs of improvement in business and international travel.”

Delta said it plans to hire 1,000 pilots by next summer, and 1,000 mechanics and technicians by the end of this year.  Delta has said it is also calling back 1,600 flight-attendant candidates who had been in training or had conditional job offers before the pandemic hit.

--American Airlines plans to hire 800 flight attendants to meet travel demand, while it has told the remaining 3,300 on voluntary leave to come back by November or December.

--Boeing said on Tuesday that it will cut its 787 Dreamliner production rate as it works through a new structural defect in its troubled twin-aisle airliner program in another obstacle to recovery from the pandemic’s impact.

The company now forecasts delivering fewer than half of the lingering 100 or so 787s in its inventory this year – instead of the “vast majority” it had expected – as it continues forensic inspections and costly repairs to address quality flaws in the aircraft.

Boeing expects the newly discovered defect to take at three weeks to address, which means its customers may not get new Dreamliners for much of the busy summer travel season.

The Federal Aviation Administration said the newly discovered quality issue posed no immediate safety threat.  While the agency will determine whether to require modifications to 787s already in service, the FAA said: “Boeing has committed to fix these airplanes before resuming deliveries.”

The delivery pause is just the latest setback for the aerospace giant, and the issue with the 787 is choking off a key source of cash as it tries to overcome twin crises that resulted from two fatal crashes of its 737 MAX aircraft in late 2018 and early 2019 and pandemic.

Well, I wrote the above Thursday morning.  Later Thursday, the FAA instructed airlines to inspect a pair of cabin air pressure switches on all Boeing 737 planes, citing safety concerns.

If the switches fail, oxygen levels could fall dangerously low inside a plane without warning. That could incapacitate flight crews, making them lose control of the plane.

“Addressing these failures requires immediate action,” the agency said in a directive.

Airlines have not reported any failures that led to a dangerous drop in oxygen levels during flight.  But in September, an unnamed airplane operator said the switches on three planes – all different 737 models – had failed a test. Boeing decided late last year that those failures were not a security issue, but the company and the FAA later concluded that they represented a threat after further investigation and analysis.

The FAA’s directive applies to all 737 models, including the troubled 737 MAX.

--TSA checkpoint travel numbers vs. 2019 levels…

7/15…79 percent of 2019
7/14…75
7/13…75
7/12…80
7/11…82…new pandemic high of 2,198,635 travelers
7/10…86
7/9…79
7/8…78

--According to the Wall Street Journal, Intel Corp. is exploring a deal to buy GlobalFoundries Inc., “in a move that would turbocharge the semiconductor giant’s plans to make more chips for other tech companies and rate as its largest acquisition ever.”

GlobalFoundries, which is owned by Mubadala Investment Co., an investment arm of the Abu Dhabi government, but based in the U.S., could still proceed with a planned IPO.

Intel’s new CEO, Pat Gelsinger, has said the company would launch a major push to become a chip manufacturer for others, a la Taiwan Semiconductor Manufacturing Co. 

GlobalFoundries is one of the largest specialist chip-production companies and was created when Intel rival Advanced Micro Devices Inc. in 2008 decided to spin off its chip-production operations.

--Speaking of Taiwan Semi, the world’s largest contract chip maker said it expects the chip shortage that has hampered car makers to start easing in the next few months after it ramped up its production of auto chips.

The company is on track to increase output of such chips by about 60% this year compared with last, CEO C.C. Wei said in an earnings call on Thursday.  However, he said the broader semiconductor shortage could persist until 2022.

Second-quarter revenue from auto chips increased by 12%, but accounted for just 4% of overall sales.  Meanwhile, revenue from smartphone chips fell by 3%, accounting for 42% of overall sales.  Wei said he expects chip demand from the auto sector to increase as more cars become electric and automated.

--PepsiCo Inc. raised its full-year earnings forecast on Tuesday, betting on surging demand for its sodas as pandemic-weary people flock to theaters, restaurants and stadiums after being stuck at home for more than a year.

With public venues opening up across the United States, North America Beverage sales rose 24% in the second quarter.  Beverage sales overseas also improved.

PepsiCo’s Frito-Lay North America snacks unit also reported a 7% increase in net revenue, despite expectations that business would slow as people ventured outside their homes again and spent less on snacks.

The company said it expects fiscal 2021 core earnings per share to increase 11%, with full-year organic revenue rising 6%.

--Shares in Walt Disney rose after the company reported ESPN+ monthly subscriptions will rise by $1 to $6.99 and yearly by $10 to $69.99.  I’m a huge fan of it.

Separately, Disney and Marvel’s superhero adventure movie “Black Widow” captured $80 million in its first weekend, crushing the benchmark for the biggest opening weekend since the pandemic, though ticket sales remain well below pre-pandemic levels as theaters step up efforts to lure back movie patrons. 

“Black Widow” took in more than $215 million globally, with more than $60 million of that coming from Disney+ alone.  The film also pulled in $78 million in 46 international markets.

--Finally, we congratulate Sir Richard Branson on the successful launch of his Virgin Galactic spaceship.  It was in 2004 that Branson proclaimed he would fly into space on his company’s aircraft in three years, yet it took 17…but he did it.

Branson, along with five other Virgin Galactic employees – two pilots and three others who were testing parts of the in-cabin experience, including research opportunities – launched to suborbital space Sunday on the company’s first flight with a full crew aboard.

The crewed flight aimed to increase potential customers’ confidence and interest in the flight experience, which costs hundreds of thousands of dollars for a seat.

The craft reached a speed of Mach 3, or 2,300 mph, and a maximum altitude of 53.5 miles above the Earth.  The U.S. military and NASA consider space to start at 50 miles above the Earth, though the world body governing aeronautic and astronautic records, as well as other organizations, define space as 62 miles above Earth’s surface, a designation known as the Karman line.

The flight put Branson in space ahead of fellow billionaire and rival Jeff Bezos, who is due to launch to suborbital space July 20 in a capsule developed by his Blue Origin space company.

Speaking of Bezos’ flight, an 18-year-old physics student whose father heads an investment management firm is set to take the place of a person who put up $28 million in an auction to take part in the inaugural space tourism flight for Bezos’ company.

Blue Origin said Thursday Oliver Daemen will join the four-member, all-civilian crew for Tuesday’s scheduled flight after the auction winner, whose name had not been made public, dropped out due to unspecified “scheduling conflicts,” which is rather odd.

So Daemen will become the youngest ever in space, while another passenger, 82-year-old trailblazing female aviator Wally Funk is the oldest ever to go up.

Foreign Affairs

Afghanistan: The withdrawal from Afghanistan has been bipartisan.  After all, Donald Trump set it in motion, while Barack Obama wanted to.  Biden is just completing the work of his two predecessors, you could say.

That doesn’t mean quite a few of us are in disagreement, and one in that camp is George W. Bush, who has generally avoided weighing in on his successors.  But while speaking to a German media outlet this week, Bush had some unvarnished thoughts on the pullout, a war he launched after 9/11.

Bush flatly agreed that it was “a mistake” and warned of looming tragedies and atrocities.

“I’m afraid Afghan women and girls are going to suffer unspeakable harm,” Bush said.  He also mentioned interpreters who worked with Americans and allied forces who could now be in dire straits.  “They’re just going to be left behind to be slaughtered by these very brutal people, and it breaks my heart.”

Meanwhile, the Biden administration is set to begin evacuations of Afghans who aided the U.S. military effort.  The Operation Allies Refuge flights out of Afghanistan will be available first for special immigrant visa applicants already in the process of applying for U.S. residency.

The president has faced pressure from lawmakers on both sides of the aisle to come up with a plan to help evacuate Afghan military helpers ahead of next month’s U.S. withdrawal, Biden announcing last week that the U.S. operation will end on Aug. 31.

The evacuation planning could potentially affect tens of thousands of Afghans.  Several thousand Afghans who worked for the U.S. – plus their family members – are already in the application pipeline for special immigrant visas.

The administration has also been working on identifying a third country or U.S. territory that could host Afghans while their visa applications are processed.

Lastly, outgoing U.S. commander in Afghanistan, Gen. Scott Miller, in relinquishing his position this week to Marine Gen. Frank McKenzie, the head of U.S. Central Command, warned that relentless violence across Afghanistan is making a political settlement increasingly difficult.  The outgoing commander said he has told Taliban officials “it’s important that the military sides set the conditions for a peaceful and political settlement in Afghanistan. …But we know that with that violence, it would be very difficult to achieve a political settlement.”

The Taliban have been taking over key strategic districts, particularly along the borders with Iran, Uzbekistan and Tajikistan.

Afghan officials say the U.S. and NATO withdrawal has left a vacuum that resulted in Afghanistan’s national security forces stranded on the battlefield without resupplies, sometimes running out of food and ammunition.

Lebanon: Saad al-Hariri abandoned his effort to form a new government on Thursday, saying it was clear he would not be able to reach an agreement with President Michel Aoun, plunging the country deeper into crisis.

Lebanon is suffering an economic depression the World Bank has described as one of the most severe in modern history.  Its currency has lost more than 90% of its value in less than two years, leading to spiraling poverty and crippling shortages.

“It is clear we will not be able to agree with his Excellency the president,” Hariri told reporters after meeting with Aoun for barely 20 minutes.  “That is why I excuse myself from government formation.”

With no obvious alternative for the post, which must be filled by a Sunni Muslim in Lebanon’s sectarian system, there is little hope of a government that can start fixing the economic situation.

This is not good for the region.  Hariri is the only one who can provide some semblance of stability and get critical international aid.

And today, Lebanon’s army chief warned the situation is rapidly worsening as the financial crisis stokes political and social tensions.

The Lebanese army has always been seen as one of the few institutions that can rally national pride and create unity.  But it split along sectarian lines back in 1975, which fueled the awful 15-year civil war in the country that killed an estimated 120,000.

And now you have to picture the soldiers are dealing with the same problems all the other citizens are…their wages driven down by the plummeting currency, worried about the same basics of life…they are quitting. 

Oh, and there’s Hezbollah….and its tens of thousands of rockets.

Iraq: At least 66 died in a coronavirus isolation ward at a hospital in the Iraqi city of Nasiriya, 100 injured, sparking protests and clashes between demonstrators and police at the scene.  Much of Iraq’s health care system is in poor condition after years of conflict and angry relatives of the victims have been protesting outside the facility.

The fire was apparently caused by an oxygen tank explosion.

In April, a similar explosion at a Baghdad hospital killed 82.

China: A report by the Rand Corporation identified China as the “clear pacing threat” to the U.S. in terms of investment in military capabilities but found that much of its progress was the result of intellectual property theft, foreign acquisitions and joint ventures.

China continues to be stymied by lagging domestic innovation and corruption in its defense industry, the U.S. government-financed study noted. 

The report’s assessment comes on the heels of a Pentagon review of its China policy, and as the Biden administration accelerates efforts to prevent American technology from contributing to China’s military advancements.

Contending that China had failed to spur military innovation of its own, the Rand report cited three key deficiencies confronting the People’s Liberation Army (PLA): high-end semiconductors, stealthy submarines and aircraft engines.

A reliance on IP theft has left Chinese weapons systems “several years” behind their U.S. counterparts, researchers concluded, noting striking similarities between China’s J-20 and J-31 jet fighters and Lockheed Martin’s F-22 and F-35 aircraft, respectively.

In response to questions about the Rand report, a representative for the Chinese embassy in Washington said that the U.S. had “never produced any solid evidence for its repeated allegations about China’s ‘theft of intellectual property,’” and said the country was “stepping up efforts in science and technology innovation and intellectual property protection.”

Separately, China’s Foreign Ministry responded to a White House warning for American companies of the increasing risks of operating in Hong Kong.

The Foreign Ministry’s office in Hong Kong issued a statement saying the city’s business environment for foreign investors had become safer, more stable and more predictable following the implementation of the security legislation.

The U.S.’s “sinister intention of playing the ‘Hong Kong card’ to curb China’s development is clear,” the statement said.

Beijing imposed the sweeping national security law – which bars subversion, terrorism, secession and foreign collusion – on Hong Kong last year following unprecedented democracy protests in the city.  The law, which officials have used to jail democracy activists and much of the formal political opposition, has frayed ties between the finance hub and many Western nations.

Elsewhere, the U.S. has issued a tough new warning to companies about doing business in China’s Xinjiang province.

American firms that still have supply chain and investment ties in the region were told they “could run a high risk of violating U.S. law.”

Washington cited evidence of genocide and other human rights abuses.

China denies such allegations.

The Xinjiang Supply Chain Business Advisory was published jointly by the State Department, Treasury, Commerce, Homeland Security, Labor and the Office of the U.S. Trade Representative.

In a press statement, Secretary of State Antony Blinken said the document noted that the Chinese “government is perpetrating genocide and crimes against humanity in Xinjiang.”

You can see from all the above why relations between Beijing and Washington are at a new low.  And tonight they are even worse after the U.S. imposed sanctions on seven Chinese officials over the crackdown on democracy in Hong Kong.  China is furious.  The Biden administration did the right thing.

Japan: For the first time, Japan referred to the importance of stability around Taiwan in its annual defense report, ratcheting up its concerns over the island that has been a flashpoint in tensions between China and the U.S.

The wording in the “Defense of Japan” white paper released Tuesday noted:

“The stability of the situation around Taiwan is important, not only for the security of our country, but for the stability of the international community. Our country must pay close attention to this, with an even greater sense of vigilance.”

Like with the U.S. and the West, Taiwan is a key producer of the semiconductors needed to advance Japan’s economy, and the Luzon Strait to the south of Taiwan is an important shipping lane for the energy tankers resource-poor Japan relies on to power its factories and homes.

China denounced Japan for “grossly interfering in its internal affairs” and called on Tokyo to respect China’s sovereignty.

“China is strongly dissatisfied.  Taiwan is purely China’s internal affairs,” said a Chinese Foreign Ministry spokesman.  “China does not allow any country to intervene in the Taiwan issue in any way.”

Russia: A senior Russian security official warned Britain on Wednesday not to sail its warships near Russian-annexed Crimea again unless it wanted its sailors to get hurt.  The warning, issued by Mikhail Popov, deputy secretary of Russia’s Security Council, follows an incident last month when British warship HMS Defender exercised what London said were internationally recognized freedom of navigation rules in Ukrainian territorial waters near Crimea.

Russia annexed Crimea from Ukraine in 2014 and says the waters around it belong to Moscow now despite most countries continuing to recognize the peninsula as Ukrainian.

South Africa: The government, belatedly, deployed 25,000 South African troops by week’s end to help quell weeklong riots sparked by the imprisonment of former President Jacob Zuma.  At least 200 people have been killed in the senseless violence.  Some of the pictures are sickening, rioters burning down and looting the only shopping center in a town, for example.  And this comes amid South Africa’s latest Covid surge, with the looting having a dire impact on hospitals.

The poverty and inequality fueling the unrest was exacerbated by severe social and economic restrictions aimed at curbing Covid-19.

Cuba: In response to widespread protests against the Cuban regime, the government stepped up its crackdown by cutting off most communications with the outside world, deploying security forces across the country and arresting more than 100 people, many of whose whereabouts remain unknown, activists said.

Well-known dissidents and civil-rights activists are among those detained by Cuban authorities in the aftermath of last Sunday’s unprecedented protests.

Random Musings

--Presidential approval ratings….

Gallup: Still waiting on a new survey.  56% approve of President Biden’s job performance, 42% disapprove, 55% of independents approve (June 1-18).

Rasmussen: 49% approve, 49% disapprove (July 16), unchanged from last week.

--The Washington Post’s Carol Leonnig and Philip Rucker have written a book, “I Alone Can Fix It: Donald J. Trump’s Catastrophic Final Year.”  In the waning weeks of Trump’s term, the country’s top military leaders repeatedly worried about what the president might do to maintain power after losing reelection, comparing his rhetoric to Adolf Hitler’s during the rise of Nazi Germany and asking confidants whether a coup was forthcoming.

As Trump ceaselessly pushed false claims about the election, Gen. Mark A. Milley, chairman of the Joint Chiefs of Staff, grew more and more nervous, telling aides he feared that the president and his acolytes might attempt to use the military to stay in office.

Milley described “a stomach-churning” feeling as he listened to Trump’s complaints of election fraud, drawing a comparison to the 1933 attack on Germany’s parliament building that Hitler used as a pretext to establish a Nazi dictatorship.

“This is a Reichstag moment,” Milley told aides, according to the book.  “The gospel of the Fuhrer.”

A spokesman for Milley declined to comment.

The episodes in the book are based on interviews with more than 140 people, including senior Trump administration officials, friends and advisers, Leonnig and Rucker write in an author’s note, the book to be released July 20.

If someone wanted to seize control, Milley thought, they would need to gain sway over the FBI, the CIA and the Defense Department, where Trump had already installed staunch allies.  “They may try, but they’re not going to f---ing succeed,” he told some of his closest deputies, the book says.

--Meanwhile, Trump overwhelmingly won the 2024 presidential straw poll at the Conservative Political Action Conference.  Trump had an approval rating of 98% and was the choice of 70% of CPAC attendees in the straw poll among potential Republican candidates taken during the three-day gathering in Dallas.  Florida Gov. Ron DeSantis was a distant second at 21%.

In a separate question without Trump in the field, DeSantis was the choice of 68%, with former Secretary of State Mike Pompeo at 5%.

The former president held out the prospect he could run again for the White House.  In an interview with Fox News’ Maria Bartiromo, Trump told her he knows his answer about another White House bid but can’t reveal it because of campaign finance rules for declared candidates.

--Overdose deaths soared to a record 93,000 last year in the midst of the pandemic, the U.S. government reported Wednesday.

That estimate far eclipses the high of about 72,000 drug overdose deaths reached the previous year and amounts to a 29% increase. 

Lockdowns and other pandemic restrictions isolated those with drug addictions and made treatment harder to get, experts said.

“What’s really driving the surge in overdoses is an increasingly poisoned drug supply,” said Shannon Monnat, as associate professor of sociology at Syracuse University who researches geographic patterns in overdoses.  “Nearly all of this increase is fentanyl contamination in some way.  Heroin is contaminated.  Cocaine is contaminated.  Methamphetamine is contaminated.”

In terms of historical context, according to the CDC, there were fewer than 7,200 total U.S. overdose deaths reported in 1970, when a heroin epidemic was raging in U.S. cities.  There were about 9,000 in 1988, around the height of the crack epidemic.

--The Wall Street Journal had a report on the physical state of condominium buildings in south Florida, in light of the Surfside tragedy.

“Engineers say it can take just 30 years for condominium buildings to reach a point when owners can no longer delay making critical repairs.

“In the Miami region, two out of every three condo buildings are more than 30 years old, according to data compiled by real-estate data firm Zillow for the Wall Street Journal.  In at least seven other Florida cities, some three-quarters of condo buildings have hit that age.

“Many of the aging towers line the beachfront, where salt corrosion and other forces are speeding their decline.  That is leaving thousands of buildings saddled with multimillion-dollar repair costs – and little notion of how to pay for them.

--According to a NASA Sea Level Change Science Team study from the University of Hawaii, which was published in the Nature Climate Change journal, thanks to a “wobble” in the moon’s orbit and rising sea levels, every coast in the United States will face rapidly increasing high tides that will start “a decade of dramatic increases in flood numbers” in the 2030s.

“High tides get higher, and low tides get lower.  Global sea-level rise pushes high tides in only one direction – higher.  So half of the 18.6-year lunar cycle counteracts the effect of sea-level rise on high tides, and the other half increases the effect,” NASA explains.

There aren’t any such issues today because sea levels in the U.S. haven’t risen much, but they will over the next decade.

“The higher seas, amplified by the lunar cycle, will cause a leap in flood numbers on almost all U.S. mainland coastlines, Hawaii, and Guam.  Only far northern coastlines, including Alaska’s, will be spared for another decade or longer because these land areas are rising due to long-term geological processes,” NASA said on Wednesday.

How severe will the floods be?  In 2019, the National Oceanic and Atmospheric Administration reported more than 600 floods that year.

By the mid-2030s, scientists expect three to four times that amount.  [Jordan Mendoza / USA TODAY]

Rising sea levels may have played a role in the Surfside disaster.

--Catastrophic flooding in Germany this week killed at least 105 people, with “hundreds” missing, the nation’s worst mass loss of life in years.  German Chancellor Angela Merkel expressed her dismay.  “I am shocked by the catastrophe that so many people in the flood areas have to endure.”

Armin Laschet, the conservative candidate to succeed Merkel as chancellor at a general election in September and the premier of the hard-hit state of North Rhine Westphalia, blamed the extreme weather on global warming.

“We will be faced with such events over and over, and that means we need to speed up climate protection measures, on European, federal and global levels.”

Some areas suffered the “heaviest rainfall ever measured over 24 hours,” causing flooding in the likes of Cologne and Hagen.  Neighboring Belgium, Netherlands and Luxembourg have also seen severe conditions, Belgium with 20 deaths.

--The La Nina climate pattern is forecast to return this fall and last through the winter of 2021-22, according to the Climate Prediction Center, which is part of the National Oceanic and Atmospheric Administration.

La Nina – a natural cycle marked by cooler-than-average seawater in the central Pacific Ocean – is one of the main drivers of weather in the U.S. and around the world, especially during the late, winter and early spring.

La Nina can impact the Atlantic hurricane season by helping make atmospheric conditions more conducive for tropical storms and hurricanes to form in the Atlantic Ocean, and less conducive in the eastern Pacific Ocean.

Unfortunately, La Nina can also act to put a damper on rain across much of the Southwest, which needs it badly.

A typical La Nina winter in the U.S. brings cold and snow to the Northwest and unusually dry conditions to most of the southern tier of the U.S., according to the prediction center.  The Southeast and mid-Atlantic also tend to see warmer-than-average temperatures during a La Nina winter.

--Meanwhile, we continued to set new temperature records across the Western states, with Death Valley reaching 130 degrees.  Las Vegas hit an all-time high of 117 degrees on Saturday.  Palm Springs, California, saw a record 120, and Sacramento, at 113, recorded its second-highest temperature on record.

St. George, Utah, also hit 117, tying an all-time high.

Phoenix had a low of 93 degrees last Friday night, making it the warmest low for July 9 and one of the warmest lows for any date.

This weekend is going to see more record heat, particularly in Canada.

An initial heat wave that hit the Northwest a few weeks ago brought the hottest June on record since 2015 for many states in the region, as well as for the contiguous United States, according to NOAA.

---

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 $1812
Oil $71.42

Returns for the week 7/12-7/16

Dow Jones  -0.5%  [34687]
S&P 500  -1.0%  [4327]
S&P MidCap  -3.3%
Russell 2000  -5.1%
Nasdaq  -1.9%  [14427]

Returns for the period 1/1/21-7/16/21

Dow Jones  +13.3%
S&P 500  +15.2%
S&P MidCap  +13.5%
Russell 2000  +9.5%
Nasdaq  +11.9%

Bulls 61.2
Bears  15.3…historically, bull readings over 60 were a distinct warning sign, but that hasn’t necessarily been the case for a long time.

Have a good week.

Brian Trumbore

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