Week in Review

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Week in Review

07/24/2021

For the week 7/19-7/23

[Posted 9:30 PM ET, Friday]

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Edition 1,162

Ready or not, the Olympics are here.  Only 20% of Japan’s residents are vaccinated, and daily Covid-19 cases are at their highest level since May.  In a recent Asahi newspaper poll, 68% of respondents expressed doubt about the ability of Olympic organizers to control the coronavirus, with 55% of Japanese saying they were opposed to the Games going ahead.  Three-quarters of the 1,444 people in the telephone survey said they agreed with a decision to ban spectators from events.

Seiko Hashimoto, president of the Tokyo Olympics organizing committee, said this week, “We promised the world to host the Games” and “we have to complete our mission.”

I discuss the costs involved in holding these Games below, but aside from billions of dollars in broadcast revenue being at stake, political fortunes and national pride are also on the line.

So we wish Japan, and the athletes, good fortune.

Here in the United States, just look at some of the graphs at worldometers.info.  They tell a clear story.  We, as a nation, had done a great job in crushing the virus, down to 11,000 cases a day in June.

And then vaccinations slowed to the point where in some southern states, less than 40% are vaccinated (nearly two-thirds of counties in the U.S. as a whole have less than 40% vaccination coverage), compared with over 80% in my town of Summit, N.J.

Today, cases are at their highest level since April, with a few days this week in excess of 50,000.  Hospitalizations in many areas are picking up.  The far more transmissible Delta variant is taking over, and we’re hearing of more instances of infections among those already vaccinated.  Importantly, however, 99%+ of those becoming seriously ill did not have a shot.

But now the Biden administration has to worry about its messaging.  Mask mandates are not popular, but I’m ready to don one in the grocery store again, and usage in my area is ticking back up.

I get into the new urgency to reach out to the anti-vaxxers and get them to take the shot below, but it will be an ironic tragedy if the hospitality industry suffers anew, just as it complains they can’t find workers.  Suddenly, folks may be hesitant to eat indoors again.  Or to hop on an airplane.

The airlines, for example, totally miscalculated how quickly their sector would recover this spring, but will they now be surprised when activity stagnates in the coming months?

Biden’s Agenda

--Senate Republicans blocked an effort to begin debate on a bipartisan infrastructure deal still under negotiation Wednesday, but lawmakers said they expected to close in on a final agreement by early next week.

Senate Democratic leaders had hoped to start the process Wednesday of moving both the infrastructure bill and a separate $3.5 trillion package of child care, education, antipoverty and climate provisions expected to pass with only Democratic votes.

But President Biden is confident the Senate will vote next week to move forward with consideration of the bill, but the failed vote Wednesday pushed the timeline for both deeper into the summer, though lawmakers involved in the infrastructure negotiations said they expected to have enough of an agreement in place by Monday.

“We’re voting ‘no’ today because we’re not ready, but we’re saying we do want to take up this bill as soon as we are – we think that’s Monday,” Sen. Rob Portman (R., Ohio), the lead negotiator in the infrastructure talks, said Wednesday.

The votes are currently there, and this is a bipartisan bill, at least as it’s outlined today.

And as I noted last time, this is Biden’s presidency…the infrastructure legislation.  Every American knows it is badly needed.  He’s got to tell the progressives in the House to cut the crap and let this go through or Democrats will get slaughtered in the midterms.

Karl Rove / Wall Street Journal

“After six months in office, President Biden can claim some successes.  He signed a $1.9 trillion Covid relief bill passed on a straight-party vote, began reassuring allies that America values them, and restored normality and decency to the presidency.  But he faces an expanding list of challenges, and there are reasons to feel anxious about his ability to handle them.

“A major problem for the president is the massive mismatch between the Democrats’ narrow margins in Congress – a handful of seats in the House and a 50-50 Senate – and his outsize policy expectations, many of which require large margins in the Senate to win approval.  Mr. Biden pretends he has a mandate for transformational changes he didn’t really campaign on….

“The president’s biggest political challenge doesn’t come from Republicans: It’s increasingly his own divided party.  Mr. Biden is to the left of most Americans on many fiscal and cultural matters, and the words and actions of Democratic leaders on crime and education – especially radicalization of K-12 curricula – put the party’s candidates at risk in moderate districts.  But the left is still unhappy with the president for not being more aggressive on their priorities. This will become a bigger problem as the midterms approach.  Democrats can’t afford a radical agenda or a dispirited base, but Mr. Biden might manage to give them both….

“The president also faces daunting international tests. The Taliban is gobbling up Afghanistan, a predictable outcome given Mr. Biden’s surrender there. Cuba is awash with crowds protesting communism; Vladimir Putin is making veiled threats against Ukraine; Iran will soon have a new hardline president; Russian and Chinese hackers are attacking critical U.S. infrastructure; and Xi Jinping spends his days thinking about how he can diminish America’s global position.

“Mr. Biden’s words and actions on all these challenges raise questions about his competence. His Afghanistan decision shows he learned nothing from the aftermath of the 2011 withdrawal from Iraq – which forced the redeployment of troops there in 2014. Mr. Biden is so tone-deaf he originally set Sept. 11 as the date for the U.S. retreat from Afghanistan.  And when the president says his massive spending ‘won’t increase inflation, it’ll take the pressure off of inflation,’ he seems out of touch with reality.

“Mr. Biden’s supporters may note that Gallup and other pollsters have consistently shown him with majority job approval. But that could change as his agenda gets tied in knots.  Mr. Biden must demonstrate he’s more capable of getting things done than he now appears.  Otherwise, Creedence Clearwater Revival will play in the back of many voters’ minds: ‘I see the bad moon a-rising / I see trouble on the way.”

--House Speaker Nancy Pelosi rejected two of House Minority Leader Kevin McCarthy’s choices for the select committee that will be investigating the Jan. 6 Capitol attack, Republican Reps. Jim Jordan and Jim Banks.  McCarthy then pulled the rest of his picks.

Banks recently met with Donald Trump twice, and upon being named to the select committee on Monday, said it should also investigate “hundreds of violent political riots” last summer and added: “Nancy Pelosi created this committee solely to malign conservatives and to justify the Left’s authoritarian agenda.”  On Wednesday, when she rejected his appointment, he invoked his service in Afghanistan and added: “We said all along that this was a purely partisan exercise by the Democrats and Nancy Pelosi’s rejection of me and Jim Jordan shows once again she is the most partisan figure in America today.”

Jordan has been such a zealous defender of Trump and his 2020 “victory” that five days after the insurrection at the Capitol, Trump gave him the Presidential Medal of Freedom.

It was rather obvious why McCarthy selected Banks and Jordan, and, while unprecedented, Pelosi’s move made sense.  But we’ll never know if Jordan and Banks, and their constant interruptions and misdirections had they stayed on the committee, would have hurt Republicans in 2022, rather than helped them.

But now we’ll see if the facts of the day win out…as Americans get to see plenty of personal testimonies and violent video.

U.S. District Judge Randolph Moss said Monday in handing down the first sentence for a Jan. 6 felony, the flag Paul Hodgkins carried onto the Senate floor after invading the Capitol was not an American flag.  It was a Trump 2020 flag – an unmistakable symbol of Hodgkins “declaring his loyalty to a single individual over the nation,” Moss said.  “In that act, he captured the threat to democracy that we all witnessed that day.”

--According to a new Yahoo News/YouGov poll, the Democratic Party’s plan to safeguard ballot access is proving more popular with the public than the type of restrictions being pushed by Texas Republicans.

For instance, more than twice as many Americans approve (49%) than oppose (21%) a Democratic plan to “require at least 15 consecutive days of early voting in federal elections.”  In contrast, just 31% of Americans favor ongoing Republican efforts in the states to shorten the early or absentee voting period.  Forty-six percent oppose such efforts.

Separately, just 28% of Americans – the vast majority of them Republicans – say “the election was rigged and stolen from Trump,” and more Americans believe that “people who should be allowed to vote not being allowed to vote” is a bigger problem (45%) than “people voting who shouldn’t be allowed to vote” (39%).

But it’s all highly polarized, with just 16% of Republicans saying “Joe Biden won the election fair and square” and just 11% saying that curbs to legal voting are a bigger problem than widespread voting fraud (which is a myth).

--President Biden softened his criticism of Facebook, days after he said the platform is “killing people” because of vaccine misinformation the social media giant allows to circulate on its platform.

“Facebook isn’t killing people,” Biden said in response to a reporter’s question.  “These 12 people who are out there giving misinformation – anyone listening to it is getting hurt by it.”

Speaking of which….

Paul Mulshine / Star-Ledger

“This was as clear an example of life imitating art as I’ve ever seen.

“I’m talking about Newsmax host Rob Schmitt.  As he was discussing Covid vaccines with a top epidemiologist last week, Schmitt raised the question of whether vaccines go ‘against nature.’

“Of course they do. Nothing is more natural than death and disease. The vaccines prevent that.

“That didn’t stop Schmitt from offering his observation that ‘maybe there’s just an ebb-and-flow to life where something’s supposed to wipe out a certain amount of people, and that’s just kind of the way evolution goes.  Vaccines kind of stand in the way of that.’

“I doubt if this talking head has ever been to a Buffett concert.  If he had, he would realize he was channeling the lyrics to the song ‘Permanent Reminder of a Temporary Feeling.’

“ ‘Evolution can be mean,’ Jimmy sings.  ‘There’s no dumbass vaccine.’

“Buffett got that right.  There’s no vaccine to prevent stupidity.  If there were, we might have been spared the current anti-vaccination movement….

“These boobs are on both sides of the political spectrum.  On the right, there were the idiots at the recent Conservative Political Action Conference who cheered the announcement that some states have vaccination rates lower than expected.

“They did so even though the keynote speaker at the convention, Donald Trump, spent considerable time patting himself on the back for his role in hurrying the vaccine into production.

“Meanwhile, on the left there’s a Kennedy, as there always seems to be. Robert Kennedy Jr. heads the Children’s Health Defense, a fund-raising effort masquerading as an anti-vaxx movement.

“On its site, the group promised a May rally on the Rutgers campus opposing what it terms ‘mandatory’ vaccinations for students.

“Mandatory? University attendance is voluntary, not mandatory.  A college has the right to require you don’t spread disease on the campus.

“Kennedy’s behavior has been so bad that it outrages even the other Kennedys.  In 2019 three of them authored an open letter in which they said their relative ‘has helped to spread dangerous misinformation over social media and is complicit in sowing distrust of the science behind vaccines.’”

According to the Center for Countering Digital Hate, approximately 65% of misinformation about the vaccine that’s spread on social media can be traced back to 12 people.  The nonprofit organization refers to those 12 people as the “disinformation dozen.”

Included in that grouping is Robert F. Kennedy Jr.

But at least some Republican officials are fighting back, such as the Republican governor of Utah, Spencer Cox, who decried “propaganda” spread against coronavirus vaccines, warning that those discouraging immunization are “killing people.”

“We have these – these talking heads who have gotten the vaccine and are telling other people not to get the vaccine,” Gov. Cox said in response to a reporter’s question about anti-vaccine rhetoric coming in large part from the political right.  “That kind of stuff is just, it’s ridiculous.  It’s dangerous, it’s damaging, and it’s killing people.  I mean, it’s literally killing people.  I mean, it’s literally killing their supporters. And that makes no sense to me.”

Yesterday, Alabama Republican Gov. Kay Ivey called out “the unvaccinated folks” for the rise in Covid cases in her state, which was rather remarkable.

“Folks are supposed to have common sense. But it’s time to start blaming the unvaccinated folks, not the regular folks.  It’s the unvaccinated folks that are letting us down,” Ivey told reporters in Birmingham.

Even Fox News host Sean Hannity weighed in this week.  “I can’t say it enough.  Enough people have died.  We don’t need any more death,” Hannity said, having previously called the virus a hoax.  “And it absolutely makes sense for many Americans to get vaccinated.”  Hannity added he “believes in science” and the “science of vaccines.”

The Pandemic

The virus continues to rage in Russia, South Africa, Indonesia, Malaysia, Myanmar, Thailand and, now, Cuba, among other places.

Covid-19 death tolls, as of tonight….

World…4,159,295
USA…626,629
Brazil…548,420
India…420,038
Mexico…237,626
Peru…195,547
Russia…152,296
UK…129,044
Italy…127,937
Colombia…118,188
France…111,591
Argentina…103,359
Germany…92,024
Iran…88,273
Spain…81,221
Indonesia…80,598
Poland…75,235
South Africa…69,075
Ukraine…52,811
Turkey…50,821
Chile…34,875
Romania…34,266
Ecuador…30,797
Czechia…30,347
Hungary…30,020
Philippines…26,891
Canada…26,539
Belgium…25,217
Pakistan…22,939

Source: worldometers.info

U.S. daily death tolls…Sun. 31; Mon. 140; Tues. 271; Wed. 416; Thurs. 388; Fri. 413.

Covid Bytes

--Indonesia has converted nearly its entire oxygen production to medical use just to meet the demand from Covid-19 patients struggling to breathe.  Overflowing hospitals in Malaysia had to resort to treating patients on the floor.  And in Myanmar’s largest city, graveyard workers have been laboring day and night to keep up with the grim demand for new cremations and burials.

Images of bodies burning in open-air pyres during the peak of the pandemic in India horrified the world in May, but in the last two weeks the three Southeast Asian nations have now all surpassed India’s peak per capita death rate as a new coronavirus wave, fueled by the virulent Delta variant, tightens its grip on the region.

--Vaccinations are beginning to rise in some states where Covid cases are soaring, White House officials said Thursday in a sign that the summer surge is getting the attention of vaccine-hesitant Americans as hospitals in the South are being overrun with patients.

Coronavirus coordinator Jeff Zients told reporters that several states with the highest proportions of new infections have seen residents get vaccinated at higher rates than the nation as a whole.  Officials cited Arkansas, Florida, Louisiana, Missouri and Nevada as examples.

“The fourth surge is real, and the numbers are quite frightening at the moment,” Louisiana Gov. John Bel Edwards said on a New Orleans radio show.  Edwards, a Democrat, added: “There’s no doubt that we are going in the wrong direction, and we’re going there in a hurry.”

Louisiana reported 2,843 new Covid-19 cases Thursday, a day after reporting 5,388 – the third-highest level since the pandemic began.  Hospitalizations are up steeply in the last month, from 242 on June 19 to 913 in the latest report.  Fifteen new deaths were reported Thursday.

Just 36% of Louisiana’s population is fully vaccinated, state health department data show. 

--In England, almost all Covid-era restrictions were lifted Monday in a grand experiment, even as cases in the UK spike due to the Delta variant.  With high vaccination rates in the country, Britain will see whether Covid can be relegated to the status of a manageable, seasonal menace such as influenza and whether lockdowns and social distancing can be consigned to the past.

Prime Minister Boris Johnson has said he wants Britons to judge for themselves whether to wear a face covering, dance at a nightclub or skip a big gathering.

--Los Angeles County reported its largest single-day total of new coronavirus cases in months as the region races to wrap its arms around what officials now say is a new surge of the virus.

Public health officials reported 2,551 new infections Wednesday – the highest figure since early March, when the county was shaking off the last vestiges of the fall-and-winter wave.

Wednesday’s report continues a troubling pattern of increased transmission that emerged after the state’s June 15 reopening and coincided with increased circulation of the hypercontagious Delta variant.

--New York City will begin requiring Covid-19 vaccinations or weekly testing of all workers in its public hospitals and clinics in an attempt to slow an increase in cases.

The Delta variant now makes up 69% of cases in the City.  New York’s vaccination administration rate has plunged to less than 15,000 a day, from more than 100,000 a day in mid-April.

About 60% of the city’s more than 42,000 public hospital employees have been vaccinated, while citywide, 65% of all adults have received their shots.

--A federal judge has ruled that Indiana University may require its students to submit proof of Covid-19 vaccination before returning to campus this fall, dealing a setback to a brewing legal effort against vaccination requirements in higher education.

--Pfizer’s Covid-19 vaccine provided a strong shield against hospitalization and more severe disease in cases caused by the contagious Delta variant in Israel in recent weeks, even though it was just 39% effective in preventing infections, according to the country’s health ministry.

The vaccine, developed with BioNTech SE, provided 88% protection against hospitalization and 91.4% against severe illness for an unspecified number of people studied between June 20 and July 17, according to a report Thursday.

These results contrast with an earlier study in the New England Journal of Medicine which found that two doses of the Pfizer-BioNTech vaccine offer 88% protection against symptomatic disease caused by the Delta variant, compared to 94% against the Alpha variant that was first discovered in Britain. 

--Johnson & Johnson’s single-shot Covid-19 vaccine is less effective against coronavirus variants than the original virus, according to a study posted online Tuesday.

The study, published by bioRxiv but not yet peer reviewed, indicated the vaccine’s effectiveness in neutralizing the Delta and Lambda variants was “significantly decreased.”

Johnson & Johnson says its own studies suggest its vaccine protects against Delta.

But the bioRxiv study suggests the 13 million people who received the J&J vaccine may need a second dose – or a dose from either the Pfizer or Moderna shots, the authors said.

“The message that we wanted to give was not that people shouldn’t get the J&J vaccine, but we hope that in the future, it will be boosted with either another dose of J&J or a boost with Pfizer or Moderna,” Nathaniel Landau, the leader of the study and a virologist at NYU’s Grossman School of Medicine, told the New York Times.

--Anger is growing in Australia as 13 million people – about half the population – endure fresh lockdowns to quash Covid outbreaks.

But fewer than 14% of Australians are vaccinated – the worst rating among OECD nations.

--China said it cannot accept the World Health Organization’s plan for the second phase of a study into the origins of Covid-19, a senior Chinese health official said Thursday.

Zeng Yixin, the vice minister of the National health Commission, said he was “rather taken aback” by the call for a further probe into the pandemic’s origins and specifically, the theory that the virus might have leaked from a Chinese lab.

He dismissed the lab leak theory as a rumor that runs counter to common sense and science.

“It is impossible for us to accept such an origin-tracing plan,” he said at a news conference called to address the Covid-19 origins issue.

The search for the origins of the virus has become a diplomatic issue that has worsened China’s relations with the U.S. and many of its allies.  The U.S. and others say that China has not been transparent about what happened in the early days of the pandemic.

--National excess deaths, seen as a more precise way of measuring total fatalities from the coronavirus, rose to 203,000 during the pandemic, the South African Medical Research Council said.  This is about triple the official Covid death toll of 69,000.

But in India, a study from scientists and researchers has pegged excess deaths at between 3.4 million and 4.7 million from January 2020 to June 2021.  This compares with the official Covid-19 figure of 420,000 deaths.

Yes, quite a gap between the two. The true Covid toll is no doubt in the millions. Staggering.

Wall Street and the Economy

Economists still expect second-quarter growth to come in between 8% and 9%, annualized, which would mark the second-fastest pace since 1983, exceeded only by last summer’s rapid rebound, when businesses started to reopen after lockdowns and governments began easing restrictions.  The Atlanta Fed’s GDPNow barometer for Q2 is at 7.6%.

A survey of economists by the Wall Street Journal has growth cooling to a 7% pace in the third quarter and drifting down to a 3.3% rate by the second quarter of 2022.  I’ll say future growth is less than this, and I’m in the ‘currently hot inflation’ is transitory camp. 

That said, there are issues in the supply chain, like in the following housing statistics.  Lumber prices are coming down from record highs, but builders are paying more for steel, concrete and lighting, and are grappling with shortages of appliances like refrigerators.

June housing starts were above expectations at a 1.643 million annualized pace.

Sales of previously occupied U.S. homes rose in June, snapping a four-month losing streak, while strong demand for higher-end properties and ultra-low mortgage rates helped push prices to a record high.

Existing-home sales rose 1.4% last month from May to a seasonally adjusted annual rate of 5.86 million units, as reported by the National Assn. of Realtors, slightly below forecasts.  Sales were up 22.9% from June of last year, when some states were still locked down.

Inventory sits at a 2.6-month supply, down from 3.9 months in June 2020.

The median existing-home price for all housing types in June was $363,300, up 23.4% from June 2020. This marks 112 straight months of year-over-year gains.

NAR chief economist Lawrence Yun said: “At a broad level, home prices are in no danger of a decline due to tight inventory conditions, but I do expect prices to appreciate at a slower pace by the end of the year.”

One more…weekly jobless claims suddenly spiked to 419,000 from a prior 368,000 (and expected 350,000), but this is likely due to seasonality issues, as well as auto industry closures, which normally come early in July, but exist today due to chip shortages.  The July employment report, in two weeks, will give us a better picture of the jobs market.

Europe and Asia

The European Central Bank revised its guidance on when interest rates might rise to convince investors it won’t withdraw support too hastily and derail the economic recovery.

The move is aimed at strengthening the ECB’s long-running efforts to push up inflation, but it also means policy makers won’t necessarily react immediately if price growth overshoots their target for a period.

The key change to the guidance means that even if inflation hits the ECB’s target of 2% at the end of its three-year horizon, officials won’t necessarily respond with tighter policy.  The ECB only foresees 1.4% inflation in 2023, so the euro bond market responded to all this knowing any rate hike is years away.  The yield on the German 10-year fell further to -0.42%.

ECB President Christine Lagarde, as part of her press briefing, had the following broad comment about the central bank’s actions during the pandemic.

“If central banks had not done what they have done, if governments had not used the fiscal arm that they had to use during the pandemic, what would have been the situation?  What would have been the destruction of our economy?  How many more people would have been unemployed? How would all that have stood the course of this economic crisis?”

Meanwhile, we had flash PMI readings for July, via IHS Markit.

The eurozone composite reading comes in at 60.6 (50 the dividing line between growth and contraction), a 252-month high.

Manufacturing was 62.6, robust but a 4-month low; the services reading was 60.4, a 181-month high.

We also had individual flash readings for Germany, France and non-euro UK.

Germany: Manufacturing 65.6; services 62.2, record high since June 1997.

France: Manufacturing 58.1; services 57.0.

UK: Manufacturing 60.4; services 57.8.

Chris Williamson / IHS Markit

“The eurozone is enjoying a summer growth spurt as the loosening of virus-fighting restrictions in July has propelled growth to the fastest for 21 years.  The services sector in particular is enjoying the freedom of loosened Covid-19 containment measures and improved vaccination rates, especially in relation to hospitality, travel and tourism.

“Supply chain delays remain a major concern for manufacturing, however, constraining production and pushing firms’ costs higher.  These higher costs have led to a near record increase in average selling prices for goods and services, which is likely to feed through to higher consumer prices in coming months.

“The survey also highlights how the Delta variant poses a major risk to the outlook.  Not only have rising case numbers led to a slide in business optimism to the lowest since February, further Covid waves around the world could lead to further global supply chain delays and hence ever higher prices.”

Separately, figures on EA19 government debt to GDP were released, courtesy of Eurostat, and it was up to 100.5% in the first quarter of 2021 vs. 86.1% in Q1 2020.  Obviously, the coronavirus impacted things negatively, but it’s the first time the ratio exceeded 100% for the euro area.

Germany 71.2% (Q1 2021 vs. 60/9% Q1 2020)
France 118.0% vs. 100.8%
Italy 160.0% vs. 137.8%
Spain 125.2% vs. 99.1%
Ireland 60.5% vs. 58.8%
Netherlands 54.9% vs. 49.3%
Greece 209.3% vs. 180.7%

Brexit:  The UK is on a fresh collision course with the European Union as Prime Minister Boris Johnson’s government warned it will suspend parts of the Brexit deal if the bloc doesn’t budge on British demands to renegotiate the controversial Northern Ireland protocol.

As you know, the protocol draws a trade border down the Irish Sea to avoid a hard border on the island of Ireland.  Many British companies say the way the checks are being enforced is delaying goods getting to Belfast, which will ultimately lead to higher prices and less choice for consumers.  But the EU insists the protocol must be implemented as originally designed, to prevent Northern Ireland being used as a backdoor for smuggling into the bloc.

Turning to Asia…nothing from China.

Japan reported exports in June jumped 48.6% from a year earlier, although that figure was exaggerated by the Covid-led plunge last year.  Exports were led nonetheless by U.S. demand for cars and China-bound shipments of chip-making equipment.  Imports rose 32.7% from a year ago.

U.S.-bound exports grew 85.5% in June, and were up 27.7% to China.

Street Bytes

--After a rocky start Monday, when the markets swooned over Delta variant fears, stocks rose strongly the rest of the week largely because of strong corporate earnings and, in the end, the three major market averages were at new all-time highs.

The Dow Jones added 1.1% to 35061, the S&P 500 rose 2% and Nasdaq 2.8%.

The earnings parade continues this coming week with the major tech heavyweights, including Facebook, Google, Amazon and Facebook.

And we have an important Fed meeting.

--U.S. Treasury Yields

6-mo. 0.05%  2-yr. 0.20%  10-yr. 1.28%  30-yr. 1.92%

Basically unchanged on the week, though the 10-year hit 1.18% on Monday during the equity market’s brief troubles.

Treasury Secretary Janet Yellen urged lawmakers today to increase or suspend the nation’s debt limit as soon as possible and warned that if Congress does not act by Aug. 2, the Treasury Department will need to take “extraordinary measures” to prevent a U.S. default.  We’ll see what happens on this next week.

--Crude plunged on Monday amid pandemic concerns and plans by OPEC and its allies to add supply.  But then crude rallied, helped by the Energy Information Administration and its report that oil inventories at its key storage hub in Cushing, Oklahoma, fell to the lowest level since January 2020.

Investors are weighing signs of continued robust demand for oil products, including gasoline, against the waves of disruption triggered by the Delta variant.  In addition, China has been supplying crude from its strategic reserves to local refiners in a bid to cool prices.

Sunday, OPEC+ ministers agreed to boost oil supply from August to lower prices as the global economy recovers.  The group, which includes OPEC countries and allies like Russia, crucially agreed to new production allocations from May 2022 after Saudi Arabia and others agreed to a request from the United Arab Emirates that had threatened the plan.

“We are happy with the deal,” UAE’s energy minister told a news conference.

OPEC+ last year cut production by a record 10 million barrels per day amid a pandemic-induced slump in demand and collapsing prices.  It has gradually reinstated some supply to leave it with a reduction of about 5.8 million bpd.  From August until December 2021 the group will increase supply by a further 2 million bpd or 0.4 million bpd a month, OPEC said.

The UAE will see its baseline production, from which cuts are being calculated, increase to 3.5 million bpd from May 2022 from today’s 3.168 million. Saudi Arabia and Russia will see their baselines rise to 11.5 million bpd each from the current 11 million.  Iraq and Kuwait will see their baselines rise by 150,000 bpd each.

Anyway, oil closed the week at $72.17, up 75 cents on the week.

--United Airlines reduced its quarterly loss to $434 million and posted surprisingly strong revenue as U.S. vacation travel picked up.

In reporting its second-quarter results Tuesday, the Chicago-based airline said it expects to earn a pretax profit in the remaining two quarters of the year.  That would break a string of six-straight money-losing quarters since the pandemic began to crush air travel.

More than 2 million people a day have boarded planes in the U.S. this month, nearly double the number that were flying back in March.

But the recovery is fragile.  Travel, as you see from the TSA numbers below, is still down 20% from pre-pandemic July 2019 levels.  High-fare corporate and international flyers, who contribute an oversized portion of United’s revenue, are mostly absent.  United filled 83% of seats on domestic flights but only 53% on international ones.

United’s second-quarter loss would have been far worse without more than $1 billion in federal pandemic aid, while the airline was also hit by higher expenses for jet fuel.

Still, the loss was much smaller than the $1.63 billion United lost a year earlier and the $1.36bn loss it suffered in the first quarter of this year.

Revenue rose from a year ago to $5.47 billion.

--American Airlines eked out a second-quarter profit of $19 million, including nearly $1.5 billion in federal relief.  Without the taxpayer funding and other special items, American would have lost $1.1 billion.  Still, that is American’s smallest adjusted loss in any quarter since 2019.

Fort Worth, Texas-based American’s revenue jumped more than four-fold from a year ago to $7.48 billion, but was down 37% from the same quarter in 2019.

In the summer season American said it expects to fly more than 90% of its domestic seat capacity compared with 2019 levels, and 80% internationally.  Also in the summer, the carrier is operating more than 150 new routes, including better connections in cities in Florida and Texas.

In keep with the above, American is also increasing the number of pilots it plans to hire this year and next as travel demand recovers and it positions the company for future growth.

“Though we were limited in pilot growth this past year, we are now moving full speed ahead with plans to continue recruiting, hiring and training the best and most diverse pilots in the business,” American’s vice president of flight operations, Chip Long, said in a memo to employees.

American now expects to hire 350 pilots this year, up from 300, and more than 1,000 additional pilots next year, up from about 600 previously planned, Long said.

Last week, American said it had asked about 3,300 flight attendants on voluntary leave to return by the holiday travel season and would begin recruiting and hiring about 800 new flight attendants by March 2022.

--Southwest Airlines turned a profit in June without assistance from the U.S., which the company is calling a milestone in its recovery from the pandemic.

Net income reached $348 million, reversing last year’s loss in the same stretch.

Revenue, at $4.01 billion, was better than projected, but remained 32% lower than the same quarter in 2019.

“Second quarter 2021 marked an important milestone in the pandemic recovery as leisure travel demand surged,” said Chairman and CEO Gary Kelly.  “We generated net income in June 2021, representing our first monthly profit without taking into account the benefit of temporary salaries and wages cost relief provided by PSP proceeds, since the negative effects of the pandemic began in March 2020.”

--TSA Checkpoint travel numbers vs. 2019 levels….

7/22…78
7/21…76
7/20…75
7/19…81
7/18…82
7/17…83
7/16…79…new pandemic high of 2,199,815 travelers
7/15…79

--Chinese internet stocks were hammered after the story hit that Chinese regulators are considering serious penalties for Didi Global after its controversial initial public offering last month.  Regulators see the ride-hailing giant’s decision to go public despite pushback from Beijing as a challenge to the government’s authority.  Beijing is likely to impose harsher sanctions than it did on Alibaba Group, which was forced to pay a record $2.8 billion fine.  Some are talking that China may force a delisting of Didi shares.  The stock now sits at $8.19, down from its $14 IPO of just a few weeks ago.

But China also went after the for-profit education sector, and after-school tutoring in particular.  According to a document seen by the Wall Street Journal, the Chinese government appears to be in the process of detailing tougher guidelines and that the companies will have to operate on a nonprofit basis.

TAL Education Group shares, listed in New York, plunged 70%.  Other Chinese education companies took a similar hit.

--IBM Corp. showed progress in delivering on CEO Arvind Krishna’s commitment to revive growth, posting a second straight quarter of higher revenue.

The top-line increase of 3.4%, IBM’s biggest gain in three years, comes as the company is undergoing extensive changes, including the planned spinoff of some of its legacy IT activities that remain a multibillion-dollar business.

Revenue in the second quarter rose to $18.75 billion driven by its cloud, software and services businesses. The company reported adjusted earnings of $2.33 a share.  A consensus of analysts expected sales of $18.29 billion and adjusted earnings of $2.31 a share, according to FactSet.

“With the economy reopening in many parts of the world, many markets and industries are getting back on track. We see this in North America and in select industries,” Krishna said on a call Monday.

IBM shares rose solidly in response.

As part of Krishna’s effort to restore growth, having taken over the helm in April 2020, IBM is planning to spin off a major part of its information-technology services operations in order to deepen IBM’s involvement in the booming field of cloud computing and artificial intelligence.  The separation of Kyndryl, to be based in New York City, is due to be completed by year-end.

IBM logged $7 billion in total cloud revenue in the latest quarter, a 13% increase from a year earlier.  It has been betting heavily on a concept called hybrid-cloud, where customers mix the use of cloud-computing servers and tools with more traditional office-based ones.

--General Motors is recalling its all-electric Chevy Bolt for a second time because of a potential battery defect that can cause a fire, underscoring the technical challenges car companies face as they race to develop more plug-in vehicles.

GM said its investigation into recent battery fires involving the cars found that manufacturing defects in a certain battery cell were the root cause.  It is asking owners of 2017-2019 model year Bolts to keep their electric-vehicle charges at a certain level and to park the cars outside after charging them.

A software fix from a previous recall, initiated in November, did not fully address the issue as expected.

--A group of state attorneys general unveiled a landmark, $26 billion settlement resolving claims that the three largest U.S. drug distributors and drugmaker Johnson & Johnson helped fuel a deadly nationwide opioid epidemic.

Under the settlement proposal, distributors McKesson, Cardinal Health and AmerisourceBergen are expected to pay a combined $21 billion, while Johnson & Johnson would pay $5 billion.

A day earlier, the three distributors agreed to pay up to $1.18 billion to settle claims by New York state and two of its biggest counties, Nassau and Suffolk, over the opioid issue.

The deal was the second-largest cash settlement ever, trailing only the $200 billion tobacco agreement reached in the late 1990s.

Settlement money from the distributors will be paid out over the next 18 years.  J&J will pay over nine years, with up to $3.7 billion paid during the first three years.

The distributors were accused of lax controls that allowed massive amounts of addictive painkillers to be diverted into illegal channels, devastating communities, while J&J was accused of downplaying the addiction risk in its opioid marketing.

The companies have denied the allegations.

--Meanwhile, Johnson & Johnson reported higher sales and profit amid greater demand for medical devices, drugs and consumer-health products, a sign people are returning for healthcare services they deferred earlier in the pandemic.

Sales of J&J’s medical devices climbed 63% year over year, the company said Wednesday.  Higher sales of the company’s skin-care and beauty products helped lift J&J’s consumer-health revenue by 13% compared with a year earlier.

Overall, revenue came in at $23.31 billion – a 27% increase year over year – and adjusted earnings of $2.48 a share, both ahead of the Street’s forecasts.

J&J expressed confidence the return to healthcare use would continue, regardless of emerging variants, while hospitals are better at handling any surges in Covid-19 cases, allowing the continuation of elective surgeries.  However, as Covid cases mount, some hospitals are beginning to delay elective procedures, so we’ll see.

J&J said sales of its Covid-19 vaccine should hit $2.5 billion in revenue for the year, most of it in the fourth quarter, though it is selling the vaccine on a not-for-profit basis.

Last week the company said it would recall most of its Neutrogena and Aveeno spray sunscreens from U.S. stores, after detecting a potentially cancer-causing chemical called benzene in some samples.  The levels found were not high enough to cause health problems, but J&J said it was recalling the products out of an abundance of caution.

--Netflix’s subscriber growth slowed dramatically in the second quarter as the surge in streaming subscriptions from the pandemic petered out, competition increased and the company considered novel ways to grow its business.  It was the worst slowdown in growth in eight years.

The streaming giant added a mere 1.5 million paying members globally in the second quarter, which is down 85% from the same period last year, when it reported 10.1 million subscriber additions.

The company also added 61% fewer subscriptions than it did in the first quarter, when it missed projections with 3.98 million new accounts.  In the U.S. and Canada, Netflix lost about 430,000 paid memberships in the second quarter.

The 5.5 million subscribers that Netflix gained through the first six months of this year marks its weakest first-half performance since 2013 – a time when the company was still rolling out more original programming instead of licensing old TV series and movies.  Last year it picked up 26 million subscribers during the first half.

Although down, the subscriber numbers were actually better than expected.

Pandemic restrictions drove millions of people to sign up for Netflix subscriptions to binge-watch their way through the public health crisis, resulting in record numbers for the company.

But with in-person entertainment options open once again, analysts expect people will spend less time with Netflix than earlier in the pandemic.  Restrictions also delayed the production of movies and TV shows that typically fuel Netflix’s growth.

So to address declining subscriber growth, Netflix said it plans to begin adding video games to its existing subscription plans at no extra cost.  It didn’t release details except to note that it will initially focus on mobile games.

Despite Netflix’s growth slowdown, it remains by far the world’s biggest streaming service in an increasingly competitive field that includes Walt Disney Co., HBO, Amazon and Apple.

And the company did earn $1.35 billion in the quarter, with revenue rising by 19% from last year to $47.3 billion.

--Speaking of HBO, and its streaming service HBO Max, they now reach 47 million domestic customers after telecom giant AT&T disclosed the number Thursday, saying its HBO premium cable channel and HBO Max unit had gained 2.8 million domestic subscribers during the second quarter – showing steady growth in the crowded streaming market.

The HBO brands now have 67.5 million customers worldwide.

--Apple pushed back its return-to-office plans by at least a month in response to the recent surge in Covid cases.

The company told employees on Monday that they are now expected to return to the office as early as Oct. 1 instead of early September. The company said that the date could shift further depending on the spread of the virus, and that it would give employees at least a month’s notice before they are expected to return, according to an internal email to employees.

Apple declined to comment further.  The company had 147,000 full-time employees as of September.

--BMW said on Tuesday nearly all its German plants were affected by an ongoing shortage of semiconductors that are currently preventing the luxury carmaker from completing around 10,000 cars.

The Munich-based company earlier this month said that the bottleneck, which has affected carmakers around the world, has already led to 30,000 vehicles in lost production so far this year.

--Days after a report that Intel was in talks for a $30 billion bid to buy contract chip manufacturer GlobalFoundries, the company said Monday it planned a significant expansion to its manufacturing facilities in Malta, New York (near Saratoga Springs).

At an event in New York, GlobalFoundries executives said they planned to double output at the site with a new fabrication facility and a billion-dollar investment in existing facilities.  The investment will boost U.S. domestic chip manufacturing amid a crippling global shortage of semiconductors.

Intel CEO Pal Gelsinger sees the global chip shortage potentially stretching into 2023.  He said in an interview it could take one or two years to get back to a reasonable supply-and-demand balance.  “We have a long way to go yet,” he said. “It just takes a long time to build [manufacturing] capacity.”

But Gelsinger said supply shortages should start showing signs of easing later this year, echoing comments from Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker.

--Twitter Inc. reported higher revenue growth than Wall Street had expected, as the social media platform rolled out ad targeting improvements and said changes by Apple to keep iPhone user data private had hit ad revenue less than anticipated.  Shares of Twitter rose 3% in response.

Advertising revenue totaled $1.05 billion, up 87% from the year-ago quarter, and beat Wall Street estimates of $909.9 million.

Twitter has worked to improve the effectiveness of its ads, which have traditionally lagged larger rivals like Facebook, which holds vast troves of data on users.  Those improvements, along with higher demand from advertisers seeking to reach consumers, as countries reopen from pandemic restrictions, helped propel ad revenue, Twitter said.  “As we enter the second half of 2021, we are shipping more, learning faster, and hiring remarkable talent,” Twitter CEO Jack Dorsey said in a statement on Thursday.

Twitter reported 206 million monetizable daily active users, its term for users who are served advertising, for the second quarter ended June 30, matching analyst targets.

--Shares in Snap soared 24% today after the social media company topped Wall Street’s earnings and revenue forecasts after the close Thursday.

Revenue increased 116% year-over-year to $982 million, while daily active users grew 23% to 293 million from a year earlier.  The company also guided higher for the current quarter.

--Coca-Cola on Wednesday raised its full-year outlook on the back of an improving operating environment as public venues continued to reopen following strict Covid-19 lockdowns, while reporting quarterly results that beat expectations.

The world’s largest soda maker said it expects adjusted earnings per share growth of 13% to 15% in 2021, while full-year organic revenue* will climb between 12% and 14%.

*Ex-revenue picked up through acquisitions over the past year.

Revenue grew 37% on an organic basis to $10.1 billion, versus market expectations for $9.3bn.

Global unit case volume jumped 18% year on year to hit 2019 levels, led by developing and emerging markets where the economic recovery continued, the company said.  Volume growth in countries such as China, Brazil and Nigeria outpaced that from two years ago, while markets like India faced pressure.

Organic revenue from North America climbed 28% to $3.38bn as restrictions were lifted amid increased U.S. vaccination rates.  Europe, Middle East and Africa logged a 61% jump in revenue.

“Our results in the second quarter show how our business is rebounding faster than the overall economic recovery,” CEO James Quincey said in a statement.  “We are better equipped than ever to win in this growing, vibrant industry and to accelerate value creation for our stakeholders.”

--Chipotle Mexican Grill Inc. beat estimates for quarterly comparable sales and restaurant margins on Tuesday, with menu price hikes offsetting higher wages as the economy reopened to a labor crunch.

The burrito and bowl chain, which had already seen sales recover during the Covid-19 pandemic, grew even stronger as restrictions lifted, weather warmed, and Americans began trickling back to offices and dining with friends and families.

Chipotle said it expects third-quarter comparable restaurant sales growth in the low to mid double-digits range, compared with estimates of 9.7%.  Comp sales for the second quarter ended June 30 rose 31.2% to $1.89 billion, while net income was $188 million, compared with $8.2 million a year earlier.

In May, the company said it would raise employee pay, resulting in a $15 average wage at its restaurants by the end of June.  But the operating margin came in at 24.5% - an increase from 12.2% in Q2 of 2020 and the highest since 2015.  Menu price increases and reduced promotions offset the costs of the higher wages and new items including quesadillas, as well as higher beef and freight costs.

The company said it is looking to hire another 15,000 employees.

--Israel warned consumer goods giant Unilever on Tuesday of “severe consequences” from a decision by subsidiary Ben & Jerry’s to stop selling ice cream in Israeli-occupied territories, and urged U.S. states to invoke anti-boycott laws.

The Ben & Jerry’s announcement on Monday followed pro-Palestinian pressure on the Vermont-based company over its business in Israel and Jewish settlements in the West Bank, handled through a licensee partner since 1987.

Ben & Jerry’s said it would not renew the license when it expires at the end of next year. It said it would stay in Israel under a different arrangement, without sales in the West Bank, among areas where Palestinians seek statehood.

Most world powers deem Israel’s settlements illegal.  It disputes this, citing historical and security links to the land, and has moved to penalize anti-settlement measures under Israeli law while securing similar legal protection in some U.S. states.

Israeli Prime Minister Naftali Bennett’s office said he spoke with Unilever CEO Alan Jope about the “glaring anti-Israel measure” from the ice cream maker.

Thursday, Unilever said it remains fully committed to doing business in Israel, distancing itself from the Ben & Jerry’s subsidiary, but CEO Jope gave no indication that the company would force Ben & Jerry’s to roll back its controversial decision.

In a conference call with investors, Jope said that Ben & Jerry’s, which has a long history of social activism, had made the decision on its own.

Unilever’s commitment to Israel includes a new $41 million razor factory, corporate offices and facilities that employ some 2,000 people, hundreds of millions of dollars of investment and support for social programs, Jope said.

--And then we have the Olympics.  Toyota Motor Corp. said this week it wouldn’t run any ads in Japan tied to the Games, a loud message adding to the host nation’s grim mood.

Toyota is Japan’s most valuable company and a global Olympics sponsor, the top rank shared by only 13 others world-wide.  For U.S. audiences, it spent millions of dollars on a Super Bowl commercial featuring the Olympic rings. But in Japan, any link to the Games was too sensitive for the auto maker to advertise.

Toyota CEO Akio Toyoda, the company founder’s grandson, is even skipping the opening ceremony, despite about 200 athletes taking part who are affiliated with the auto giant.

Anticipation and expectations for an economic windfall from the Tokyo Olympics have evaporated.  Stadiums and arenas costing over $7 billion to build and renovate will be essentially empty after spectators were banned.  [The total cost of the Games is reportedly over $20 billion, three times the original forecast of around $7.4 billion when Tokyo put together its bid.]

Japan wanted the Games to show the country is still a global force despite its declining population and a maturing economy eclipsed by China.  The Games were also intended to show how the country had rebounded from the devastation of the tsunami in 2011.  Instead, the Olympics have ended up compounding the malaise over the pandemic.

Foreign Affairs

Afghanistan: The Taliban is pressing toward key cities as the withdrawal of U.S. forces is 95 percent complete, according to Gen. Mark Milley, chairman of the Joint Chiefs of Staff, in comments to Pentagon reporters Wednesday.

“This is going to be a test now of the will and leadership of the Afghan people – the Afghan security forces and the government of Afghanistan.”

Defense Secretary Lloyd Austin, appearing alongside Milley, said U.S. forces remaining after Aug. 31 will aim to prevent international terrorism.

“Our major focus going forward is to make sure that violence, terrorism, cannot be exported from Afghanistan to our homeland, and so we’ll maintain the capability to be able to not only observe that but also address that if it does emerge,” Austin said, adding that the Taliban pledged in 2020 to not provide sanctuary for al-Qaeda in the future, not that he should believe that in the least.

But you can’t possibly “observe” the Taliban’s actions as you have in the past without real boots on the ground and what forces are left are supposed to be dedicated to securing the Embassy in Kabul, and the international airport.

For their part, the Taliban say they don’t want to monopolize power, but they insist there won’t be peace in Afghanistan until there is a new negotiated government in Kabul and President Ashraf Ghani is removed.

Taliban spokesman Suhail Shaheen told the Associated Press that they will lay down their weapons when a negotiated government acceptable to all sides in the conflict is installed in Kabul and Ghani’s government is gone.

“I want to make it clear that we do not believe in the monopoly of power because any governments who (sought) to monopolize power in Afghanistan in the past, were not successful governments,” said Shaheen, apparently including the Taliban’s own five-year rule in that assessment.  “So we do not want to repeat that same formula.”

But he was also uncompromising on the continued rule of Ghani, calling him a war monger and accusing him of using his Tuesday speech on the Islamic holy day of Eid-al-Adha to promise an offensive against the Taliban.

Ghani has often said he will remain in office until new elections can determine the next government.

David Ignatius / Washington Post

“President Biden has a few precious weeks to bolster his plan for withdrawal of U.S. troops from Afghanistan so that the country doesn’t degenerate into an even more chaotic and dangerous mess.  The impact of the U.S. departure is proving more swift and shattering than even the pessimists predicted.

“Biden must have hoped that he would be winning applause this summer for finally bringing home the troops from the United States’ longest and perhaps most frustrating war.  Instead, he’s facing mounting anxiety – both within his administration and abroad – about the rapid demise of the Kabul government and the danger of an armed takeover by the Taliban.

“A bloody collapse in Kabul would be a self-inflicted wound for Biden, and the first serious mistake of his presidency.  He decided, against military advice, to withdraw the small U.S. commitment of 2,500 troops who remained when he took office.  Having chosen this course, he should have planned far better for the transition and framed a clearer strategy for avoiding a Taliban takeover.

“The White House is recognizing the painful reality that Biden will own the Afghan endgame, whatever it is.  Three other presidents made the decisions that led to this war.  But it was Biden who rejected the advice of many of his senior military and national security advisers and decided to pull the plug quickly and decisively.

“ ‘This is a disaster in slow motion,’ argues Saad Mohseni, the head of Moby Group, the largest media organization in Afghanistan. He asks why the Biden administration failed to encourage a continued presence by U.S. contractors who could help the Afghan army continue its operations, and why it didn’t plan better long-term security for key locations, such as Kabul’s international airport.

“Biden’s options for stabilizing Afghanistan now are severely limited. U.S. combat troops are gone: Once the military was given the order to retreat, it didn’t waste any time. But Biden still has some leverage that could check the panic that’s spreading in Afghanistan following the U.S. military’s departure – and forestall a Taliban armed takeover in Kabul in the next three months, as analysts fear is likely….

“But the United States needs urgent help from Afghanistan’s neighbors in assembling a broader coalition government and preventing a Taliban takeover. This shouldn’t be an ask, as in Secretary of State Antony Blinken’s March letter to Ghani, but a demand – backed by all the carrots and sticks America has in hand.

“If Afghanistan turns out to be a freewheeling disaster, it will obliterate other seeming gains in the battle of influence with Russia or China. The trickiest issue is how to get help from China, which is worried about an Afghan government collapse but has seemed to be gloating over the United States’ troubles.

“Afghanistan will never be Switzerland, but it can be a more modern and prosperous Afghanistan.  Here’s one statistic that should remind us all why it’s worth helping the Kabul government survive: In the more than 200 district centers now under Taliban control, they have closed 40 radio stations, according to Mohseni, the media executive. The five they have allowed to continue operating don’t broadcast any women’s voices or any music.

“The Afghan military is collapsing faster than Biden expected.  The White House is rattled by the flight of more than 1,000 Afghan soldiers into neighboring Tajikistan, and by the weakness of the commando corps, supposedly the government’s best fighters. The commandos are trying to operate in disparate locations in this large, mountainous country – and without support from U.S. contractors, they don’t have a chance.

“America is grateful that our troops are coming home, after 20 years.  Biden needs to move quickly to make certain that they leave behind something more than ruin and broken promises.”

Well, we’ve learned in recent days the United States has launched several airstrikes in support of embattled Afghan forces, including some in Kandahar, the birthplace of the Taliban.

The airstrikes were conducted at the request of Afghan forces under attack by the militants or to destroy equipment stolen by them, including artillery and vehicles, the Washington Post reported Friday afternoon.

Any airstrikes on the Taliban now are originating from aircraft flying from outside the country.  Hardly an ideal situation.

Iraq: ISIS claimed responsibility for a bomb attack on a busy market in Baghdad on Tuesday that killed at least 30.  It was the deadliest bombing in Baghdad in six months.  ISIS claimed one of its members detonated an explosive vest.

Iran: The nation is suffering its worst drought in 50 years, leading to protests in several cities and towns in the oil-rich Khuzestan province.  The water crisis has affected households, devastated agriculture and livestock farming, and led to power blackouts.

Iran’s economy has been crippled by U.S. sanctions and the pandemic.  Workers – some complaining that their wages are not being paid – and pensioners have been protesting for months, with discontent growing over high unemployment and an inflation rate of more than 50%.

China: The Biden administration on Monday blamed China for a hack of Microsoft Exchange email server software that compromised tens of thousands of computers around the world earlier this year.

The administration and allied nations also disclosed a broad range of other cyberthreats from Beijing, including ransomware attacks from government-affiliated hackers that have targeted companies with demands for millions of dollars. China’s Ministry of State Security has been using criminal contract hackers, who have engaged in cyber extortion schemes and theft for  their own profit, according to the White House.

At the same time, the Justice Department on Monday announced charges against four Chinese nationals who prosecutors said were working with the Ministry of State Security in a hacking campaign that targeted dozens of computer systems, including companies, universities and government entities.

The announcements highlighted the ongoing cyberthreat posed by Chinese government hackers even as the administration has been consumed with trying to curb ransomware attacks from Russia-based syndicates that have targeted critical infrastructure, including a massive fuel pipeline.

But the punishments being meted out by the Biden administration are weak, and those four individuals will never be extradited.  The White House counters it is publicly shaming Beijing, but President Xi and Co. don’t care.  The Chinese of course denied the allegations.

Separately, Britain’s decision to send two warships to permanently support U.S. freedom of navigation operations in the Asia-Pacific could help broaden the influence of the Five Eyes intelligence alliance, Chinese military observers said.

Beijing-based naval expert Li Jie said the presence of the two additional British warships in Asian waters would not significantly alter the balance in the Asia-Pacific but might put China under political pressure from international public opinion.

“This is also a risky political move taken by the Five Eyes, which used to focus on sharing intelligence and is now dragging in Japan and expanding collaboration to joint military operations and coordination,” Li said, referring to the U.S.-led grouping, also comprising Britain, Canada, New Zealand and Australia.

Australia has previously backed the 2016 judgment by an international tribunal that Beijing’s sweeping claims over the South China Sea have no legal basis, while Canada this month called on Beijing to comply with international law on the fifth anniversary of the ruling.

Lastly, Taiwan will set up its first office in Europe using the name “Taiwan,” drawing a rebuke from China and praise from the U.S. as the island democracy seeks to strengthen its diplomatic presence around the globe in the face of pressure from Beijing.

The government in Taipei will open its office in Lithuania.  Taiwan’s other diplomatic outposts on the continent are under the name of “Taipei.”

“Lithuania has firmly believed in universal values such as democracy, freedom and human rights, and is a like-minded partner of Taiwan,” said Foreign Minister Joseph Wu.  “Taiwan and Lithuania are both at the strategic front line to safeguard democratic and free regimes.”

Lithuania has supported the island’s attempt to participate in the World Health Organization’s annual policy-setting summit at the World Health Assembly, Wu said, an issue that became a geopolitical controversy between major powers as the island successfully fought the Covid-19 pandemic.

Russia: The U.S. and Germany have reached an agreement allowing the completion of a controversial Russian natural-gas pipeline.

The Biden administration will effectively waive Washington’s longstanding opposition to the pipeline, Nord Stream 2, a change in the U.S. stance, ending years of speculation over the fate of the project, which has come to dominate European energy-sector forecasts.  Germany under the agreement will agree to assist Ukraine in energy-related projects and diplomacy.

U.S. officials under the previous two presidential administrations opposed Nord Stream 2, out of fears it would heighten Moscow’s economic and political sway across Europe.  The pipeline would allow the Kremlin to increase European dependence on its natural gas, then use it to blackmail U.S. allies, critics have said, charges Russia has dismissed.

Biden continues to oppose the pipeline and views it as a Kremlin move to expand its influence over others, officials said Tuesday, but considers a united group of allies to be the most effective way to counter Moscow.

Random Musings

--Presidential approval ratings….

Gallup: Late today we got a new update.  President Biden’s approval rating is down to a low of 50%, 45% disapproving of his job performance.  48% of Independents approve, down from 55% (July 6-21).  That should be worrisome for Democrats.

[Donald Trump, by the way, was at 38% in July of his first year in the Gallup survey.]

Rasmussen:  50% approve of Biden’s performance, 48% disapprove (July 23).

--We have a fascinating situation developing with California Gov. Gavin Newsom and the effort to recall him.  Just a month ago, Newsom was fully reopening the state, just in time for the vote, Sept. 14, and it was expected he would defeat it handily.

But now with Covid-19 once again on the rise, and various counties and municipalities reimposing mask requirements in all indoor public places, many Californians are upset and Newsom faces a delicate decision over whether to impose statewide mask mandates.

Los Angeles County, home to 1 in 4 Californians, is back under an indoor mask requirement, and last week, seven San Francisco Bay Area counties recommended the use of masks to help stem the spread of the highly transmissible Delta variant.

For the recall, voters will be sent a ballot with two questions: Should Newsom be recalled?  And who should replace him?  If more than half of voters say “yes” to the first question, then whoever on the list of potential replacements gets the most votes is the new governor. If you believe one of the recent polls, that would be conservative talk show host Larry Elder.

--Arizona county election officials have identified fewer than 200 cases of potential voter fraud out of more than 3 million ballots cast in last year’s presidential election, further discrediting former President Donald Trump’s claims of a stolen election as his allies continue a disputed ballot review in the state’s most populous county.

An Associated Press investigation found 182 cases where problems were clear enough that officials referred them to investigators for further review.  So far, only four cases have led to charges, including those identified in a separate state investigation.  No one has been convicted.  No person’s vote was counted twice.

While it’s possible more cases could emerge, the numbers illustrate the implausibility of Trump’s claims that fraud and irregularities in Arizona cost him the state’s electorate votes.  In final, certified and audited results, Biden won 10,400 more votes than Trump out of 3.4 million cast.

The AP’s review supports statements made by many state and local elections officials – and even some Republican county officials and GOP Gov. Doug Ducey – that Arizona’s presidential election was secure and its results valid.

--Former Trump associate, and inaugural chairman, billionaire Thomas Barrack, was indicted this week, along with two of his associates; charged with failing to register as foreign agents for work they allegedly did to promote the United Arab Emirates’ foreign policy interests and increase its political sway in the U.S.

Prosecutors say the UAE relied on Barrack, a longtime Trump associate and real estate developer, to build a backchannel to senior U.S. officials.

Barrack’s conduct “strikes at the very heart of our democracy,” prosecutors said, when he “capitalized” on his position as an outside adviser to the Trump campaign, at the direction of UAE senior officials and their intermediaries. 

Now, like Paul Manafort and other Trump associates, Barrack faces accusations of using his ties to Trump to advance the interests of a foreign government.

It’s yet another indication that during Trump’s campaign and the early days of his presidency, nations sought to take advantage of the novice nature of Trump’s political team to gain influence over U.S. foreign policy – both above the table and under it.

Barack is also accused of lying to FBI agents in 2019 during an interview about his dealings with the UAE.

Officials said that the lobbying effort began as Trump was sewing up the GOP primary nomination in the spring of 2016 and that Barrack “took steps to establish himself as the key communications channel for the United Arab Emirates to the Campaign.”

Barrack also chaired Trump’s inaugural committee, which faced federal investigation for its spending and activities, and at one point was considered as a candidate to become ambassador to Mexico.

On a number of occasions, the Justice Department alleged, Barrack pushed the interests of the UAE to the Trump administration without disclosing that he was working on the country’s behalf.

In a letter to the court, federal prosecutors called Barrack “an extremely wealthy and powerful individual with substantial ties to Lebanon, the UAE, and the Kingdom of Saudi Arabia” and contended that he “poses a serious flight risk” because of his “vast financial resources and access to a private aircraft on which he regularly travels internationally.”

They said Barrack has “deep and longstanding ties to countries that do not have extradition treaties with the United States.”

Barrack and Trump reportedly have had a falling out, but their ties run deep.  But will Barrack want to talk about Trump’s past activities to save himself from jail time, at age 74?

Long-time viewers of CNBC know Tom Barrack well.  I always thought he was a sleazy slimeball. 

Today, he was released on a $250 million secured bond, including $5 million in cash, $21 million in securities and his California home.  Barrack will have to wear an ankle bracelet and he surrendered his passport. 

--Joint Chiefs of Staff Chairman Gen. Milley, in his first comments on new accounts of his actions during President Trump’s last days in office, did not deny he had concerns that Trump would not cede power, instead telling reporters that “not one time” did he or the other service chiefs violate the oath they took to defend the Constitution.

“I know there’s a lot of interest out there in all these books that are out there, quoting me,” Milley said, referring to the just-published “I Alone Can Fix It,” which alleges that in the days leading up to the Jan. 6 insurrection, he and the other Joint Chiefs had told each other that they would all resign rather than carry out illegal orders if necessary.

“They may try, but they are not going to f---ing succeed,” Milley is reported to have told fellow officers last January, referring to his fears that Trump would attempt a coup.  “You can’t do that without the military.”

Asked about the account, Milley declined to deny that the discussions took place.  Instead, he said that the chiefs “always adhered to providing the best professional military advice” to Trump.

“We take an oath. An oath to a document. An oath to the Constitution of the United States.  And not one time did we violate that,” Milley said.  “The military did not and will not be involved in domestic politics. We don’t arbitrate elections. That’s the job of the judiciary, the legislature and the American people.  It is not the job of the U.S. military.”

Defense Secretary Austin took the opportunity to defend Milley.

“We fought together. We served a couple of times in the same unit.  So I’m not guessing at his character,” Austin said.  “He doesn’t have a political bone in his body.”

--Speaking of the book “I Alone Can Fix It,” in an extraordinary audio tape of an interview Donald Trump gave authors Carol Leonnig and Philip Rucker of the Washington Post in conjunction with it, Trump, this past March 31 at his Mar-a-Lago Club, described the events of Jan. 6 as largely peaceful and his supporters as friendly, saying the audience he addressed at the rally before the attack on the U.S. Capitol was a “loving crowd,” and that the mob was “ushered in” by police.

“I think it was the largest crowd I’ve ever spoken (to) before.  It went from that point – which is almost at the White House – to beyond the Washington monument.  It was – and wide. And it was a loving crowd, too, by the way.

“There was a lot of love.  I’ve heard that from everybody.  Many, many people have told me that was a loving crowd,” the former president added.

Anytime Trump says “many, many people have told me,” you know he’s lying.

“Personally what I wanted is what they wanted,” he added of the crowd.  “They showed up just to show support because I happen to believe the election was rigged at a level like nothing has ever been rigged before.”

--At least 51 people have died in central China’s massive rainfalls and flooding, with over 200,000 displaced.

One of the country’s most populous regions in Henan province was a disaster area, with entire avenues and subway tunnels submerged in Zhengzhou, a railway hub with a population of 12.6 million, where 12 people died when their subway train was hit with rapidly rising floodwaters on Tuesday night.  Two others were killed when a wall collapsed.

“Between 8 a.m. on July 17 and 6 p.m. on July 22 there were 907mm (35.7 inches) of continuous rainfall in Xinxiang, a historic record, with the maximum in one hour reaching 149.9mm (5.9 inches).”  [South China Morning Post]

--As of Wednesday, 196 were confirmed dead in Europe’s catastrophic flooding; 165 of which were in Germany, 31 in Belgium.

German Chancellor Angela Merkel said last Sunday, “The sum of all events that we are witnessing in Germany and the forces with which they occur all suggest…that it has something to do with climate change… We have to hurry, we have to get faster in the fight against climate change.”

I read an interesting tidbit this week concerning the flooding in Germany.

With every 1.8 degrees Fahrenheit rise in temperature, the air can take in 7% more humidity.  It can hold the water longer, leading to drought, but it also leads to an increase in dense, massive rainfall once it releases it.

Another defining tendency of our new era is that storms hover over one place for far longer than usual, thus dumping increasing amounts of rain on a smaller patch of the world.

--Wildfire smoke traveling east from the West Coast created hazy conditions and prompted an air quality alert in New York City this week as Gotham has not experienced such poor air quality in 14 years. 

The smoke was essentially up and down much of the East coast.

The Bootleg Fire burning in southern Oregon, has burned nearly 400,000 acres since it broke out on July 6.

--Life expectancy in the United States dropped by a year and a half in 2020 – a continuation of a worrisome decline that was observed in the first half of last year as the coronavirus ravaged the country, according to federal data released Wednesday.

The decline, which is the largest seen in a single year since World War II, reflects the pandemic’s sustained toll on Americans, particularly the disproportionate impact of Covid on communities of color.  Black Americans lost 2.9 years of life expectancy.  Latinos saw a drop of three years.  There was a decrease of 1.2 years among White people.

The provisional data from an arm of the Centers for Disease Control and Prevention shows that life expectancy at birth for the total population declined from 78.8 years in 2019 to 77.3 years in 2020.  Almost three-fourths of that decline is attributed to deaths from Covid-19.

--Tom Brady at the White House on Tuesday, as President Biden celebrated the Tampa Bay Buccaneers’ Super Bowl 55 win.

“Not a lot of people think that we could’ve won, in fact I think about 40% of people still don’t think we won,” Brady said.

“I understand that,” Biden replied to a laughing crowd.

“You understand that, Mr. President?”

--Pope Francis made his first public appearance since returning to the Vatican following his colon surgery, telling well-wishers they should take a break and switch off from the stresses of modern life.

“Let us put a halt to the frantic running around dictated by our agendas.  Let us learn how to take a break, to turn off the mobile phone,” Francis said in his weekly address from a window overlooking St. Peter’s Square.

Separately, Pope Francis cracked down last weekend on the spread of the old Latin Mass, reversing one of Pope Benedict XVI’s signature decisions in a major challenge to traditionalist Catholics who immediately decried it as an attack on them and the ancient liturgy.

Francis reimposed restrictions on celebrating the Latin Mass that Benedict relaxed in 2007, and went further to limit its use.  The pontiff said he was taking action because Benedict’s reform had become a source of division in the church and been exploited by Catholics opposed to the Second Vatican Council, the 1960s meetings that modernized the church and its liturgy.

Personally, I loved the Latin Mass as a kid.  But this is fascinating, as Benedict is still very much alive, in retirement.  And Pope Francis is inviting further attacks from the right-wing of the church.

Francis added that bishops are no longer allowed to authorize the formation of any new pro-Latin Mass groups in their dioceses.

--Finally, I thought Jeff Bezos’ flight into space aboard his Blue Origin rocket was terrific.  But then Bezos after didn’t exactly “read the room” correctly.

Editorial / Wall Street Journal

“The richest man on Earth briefly lost that title Tuesday morning, but only because for a few floaty minutes he was no longer on Earth.  Jeff Bezos has spent two decades using his Amazon wealth to underwrite a rocket venture, Blue Origin.  On Tuesday the company launched its first manned flight to space, with Mr. Bezos strapped on board the capsule.

“After riding the New Shepard rocket to Mach 3, experiencing weightlessness, and parachuting back to the Texas desert, Mr. Bezos thanked the engineers and crew, along with ‘every Amazon employee and every Amazon customer, because you guys paid for all this.’

“It’s easy to dismiss this as a joy ride, which in part it was, or as the indulgence of a rich man with attention-deficit disorder.  But as billionaires’ hobbies go, this is more productive than, well, owning the Washington Post.  ‘The architecture and the technology we have chosen,’ Mr. Bezos said, ‘is complete overkill for a suborbital tourism mission.’  That’s because the mission isn’t limited to expensive thrills.

“Tourism is merely the first rung of the space ladder. Blue Origin has two more manned flights on the schedule for this year, and Mr. Bezos said the company is approaching $100 million in private sales.  Virgin Galactic has presold hundreds of tickets for its space plane, which flew its founder, Richard Branson, to weightlessness last week.  Elon Musk’s SpaceX has ferried NASA astronauts to orbit, but it has private flights on the calendar, too.

“It isn’t clear how big this tourism market will be, but the competition is clearly on, as Blue Origin brags that its capsule has bigger windows than the other guy’s.   As these companies strive to outdo each other, costs will fall.  Engineering advances, such as reusable rockets that land vertically, have already slashed the price of getting cargo to space.

“The money paid by wealthy passengers will also help these companies go higher.  Blue Origin has other projects in the works, including a New Glenn rocket that will be big enough to put satellites into orbit.  Mr. Musk, as everyone knows, is aiming for Mars.  The benefits of all this are hard to say precisely, but that’s the nature of exploration and entrepreneurial risk-taking.

“Several companies are working on constellations of small satellites that could beam fast internet to remote areas that lack it.  Novel uses of technology are harder to predict, but surprises happen when smart people are trying to be the first to achieve some milestone.  Nobody working on America’s first satellite missions in the 1950s and ‘60s could have ever imagined that the Global Positioning System, or GPS, would one day keep millions of people and Uber drivers from getting lost.

“Mr. Bezos has reportedly been putting around $1 billion a year into Blue Origin, which is no small sum, but it will pay dividends to have another competitor reaching for the stars.  It might look like one small jaunt for Mr. Bezos, but it’s another big leap for America’s commercial space business.”

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

We pray for the health care workers and first responders.

God bless America.

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Gold $1802
Oil $72.17

Returns for the week 7/19-7/23

Dow Jones  +1.1%  [35061]
S&P 500  +2.0%  [4411]
S&P MidCap  +2.1%
Russell 2000  +2.2%
Nasdaq  +2.8%  [14836]

Returns for the period 1/1/21-7/23/21

Dow Jones  +14.6%
S&P 500  +17.5%
S&P MidCap  +15.9%
Russell 2000  +11.9%
Nasdaq  +15.1%

Bulls 60.8
Bears 15.5

Have a good week.

Brian Trumbore

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